<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
N2K INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 06-1455771
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Code Identification No.)
Number)
</TABLE>
N2K INC.
55 BROAD STREET, 10TH FLOOR
NEW YORK, NEW YORK 10004
(212) 378-5555
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
JONATHAN V. DIAMOND
VICE CHAIRMAN
N2K INC.
55 BROAD STREET, 10TH FLOOR
NEW YORK, NEW YORK 10004
(212) 378-5555
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
FRANK E. MORGAN II, ESQ. JULIE M. ALLEN, ESQ.
DEWEY BALLANTINE O'SULLIVAN GRAEV & KARABELL, LLP
1301 AVENUE OF THE AMERICAS 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10112
(212) 259-8000 (212) 408-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
NUMBER OF SHARES MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share................ 2,990,000 $12 $35,880,000 $12,372.41
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</TABLE>
(1) Includes 390,000 shares which the Underwriters have an option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(3) Calculated pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
N2K INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1
ITEM NUMBER AND HEADING LOCATION IN THE PROSPECTUS
- ---------------------------------------------------- -----------------------------------------
<C> <S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus...... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............... Underwriting
6. Dilution...................................... Dilution
7. Selling Security Holders...................... Not Applicable
8. Plan of Distribution.......................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered.... Description of Capital Stock
10. Interests of Named Experts and Counsel........ Not Applicable
11. Information With Respect to the Registrant:
(a) Description of Business.................. Prospectus Summary; Business
(b) Description of Property.................. Business -- Property
(c) Legal Proceedings........................ Business -- Legal Proceedings
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.................... Outside Front Cover Page; Dividend
Policy; Selected Consolidated Financial
Data; Description of Capital Stock;
Shares Eligible for Future Sale
(e) Financial Statements..................... Consolidated Financial Statements
(f) Selected Financial Data.................. Selected Consolidated Financial Data
(g) Supplementary Financial Information...... Not Applicable
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. Not Applicable
(j) Directors and Executive Officers......... Management
(k) Executive Compensation................... Management
(l) Security Ownership of Certain Beneficial
Owners and Management.................. Principal Stockholders
(m) Certain Relationships and Related
Transactions........................... Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act Not Applicable
Liabilities.................................
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated June 21, 1996
2,600,000 SHARES
[LOGO]
N2K INC.
COMMON STOCK
------------------------------
All of the 2,600,000 shares of Common Stock offered hereby are being sold
by N2K Inc. ("N2K" or the "Company"). Prior to the Offering, there has been no
public market for the Common Stock. The Company intends to apply for quotation
of the Common Stock on the Nasdaq National Market under the trading symbol
"NTKI." It is currently estimated that the initial public offering price will be
between $10.00 and $12.00 per share. See "Underwriting" for certain factors to
be considered in determining the initial public offering price.
------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
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Per Share....................... $ $ $
Total(3)........................ $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be
$ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase an aggregate of up to
390,000 additional shares of the Common Stock at the Price to Public, less
Underwriting Discounts and Commissions, to cover over-allotments, if any.
If all such additional shares are purchased, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively.
------------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York, on or about , 1996.
COWEN & COMPANY
OPPENHEIMER & CO., INC.
UNTERBERG HARRIS
, 1996
<PAGE> 4
------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option
and gives effect to (a) the 1-for-3 reverse stock split of each outstanding
share of Common Stock in N2K Inc., a Pennsylvania corporation, to be effected
prior to the reorganization of N2K Inc. as a Delaware corporation, (b) the
reorganization of N2K Inc. as a Delaware corporation immediately prior to the
date of this Prospectus and (c) the automatic conversion of all outstanding
shares of the Company's Preferred Stock, $.001 par value per share (the
"Preferred Stock"), into an aggregate of 5,867,108 shares of Common Stock upon
the consummation of the Offering (the "Preferred Stock Conversion"). Fiscal year
references are to the respective fiscal year ended December 31.
THE COMPANY
N2K is a music entertainment company focused on providing original content,
interactive programming and recorded music using the Internet as a new global
marketing, promotion and distribution medium. By combining its music industry
and technical expertise, N2K has created an interactive, entertaining and
content-rich online environment, which includes its award-winning merchandising
website, Music Boulevard, music genre websites, Jazz Central Station and
Rocktropolis, and individual artist websites for such artists as David Bowie and
the Rolling Stones. These websites provide a comprehensive entertainment and
information resource enabling users to search and sample music and artist
information interactively through sound, video and graphics. Each of the music
genre and individual artist websites features a hotlink directly with Music
Boulevard to facilitate purchases of CDs, cassettes and related merchandise. The
Company plans to introduce its own recorded music label, N2K Encoded Music, with
its first release scheduled for October 1996. N2K expects that all of its N2K
Encoded Music CDs will be enhanced with multimedia capabilities and will be
marketed and sold through the Company's Internet websites as well as through
traditional retail and other distribution channels. The Company believes that
its strategy of combining Internet content, interactive sales and music produced
on its own label will enhance its ability to create compelling music brand
names, address the broadest possible music audience and build a customer base
focused on targeted music interests. The Company believes that its interactive
sales channel will also provide a new targeted advertising, promotion and
distribution medium for the music industry that will reach a global user base
and that this medium will shift the way music is marketed to consumers.
Music Boulevard (WWW.MUSICBLVD.COM) was launched in August 1995, and Jazz
Central Station (WWW.JAZZCENTRALSTATION.COM) was introduced in January 1996.
Jazz Central Station is the official online website for George Wein's Festival
Productions, producer of the JVC Jazz Festivals, and the Monterey Jazz Festival
for 1996. On June 21, 1996, the Company acquired the rock website, Rocktropolis
(WWW.ROCKTROPOLIS.COM), which was launched in June 1995 and which will be
integrated with the Company's existing websites. Additional music genre websites
are scheduled for release in 1996 and 1997. The Company's website strategy is to
build worldwide online communities around specific music genres where people may
socialize with each other and their favorite artists in a personal environment.
The Company believes that organizing its websites by genres, such as rock, jazz
and classical music, parallels traditional radio play formats and consumer
buying patterns and opens the interactive buying experience to the broadest
possible audience. As part of its strategy to provide locally tailored content,
the Company's first foreign language website will be launched in Japan in June
1996. The Company's revenues from its online music entertainment business have
grown from approximately $85,000 in the fourth quarter of 1995 to approximately
$217,000 in the first quarter of 1996. Substantially all of these revenues were
from the sale of CDs and cassettes produced by other labels.
On February 13, 1996, N2K Inc., a developer of online music entertainment
content was merged with and into Telebase Systems, Inc., a provider of online
information services that changed its name to N2K Inc. To date, substantially
all of the Company's revenues have been from its online information retrieval
services. The Company believes that its ability to aggregate content from a wide
variety of sources, its database management skills and the infrastructure
provided by its information services business will enhance N2K's
3
<PAGE> 6
ability to scale the infrastructure to facilitate the Company's growth and to
create proprietary databases for targeted marketing to music consumers. In
addition, the Company continues to serve its online business information
services distributors while also developing web-based software products and
information services for the business and small office/home office ("SOHO")
markets.
The Company believes that its management team brings together a unique
blend of experience in managing music industry and artist relationships,
merchandising recorded music, developing online services and in database
management. Larry Rosen, Dave Grusin and Jon Diamond managed GRP Records
("GRP"), one of the first worldwide record labels to digitally produce music
titles from concept through finished recording. With more than 75 Grammy
nominations and 20 Grammy awards to its credit, GRP became a leading independent
recorded music label and was purchased by MCA Inc. in 1990. Jim Coane and Bruce
Johnson have more than 15 years of combined experience with Telebase developing
and managing database online information services.
The Company's executive offices are located at 55 Broad Street, New York,
New York 10004, and its telephone number at that address is (212) 378-5555.
THE OFFERING
Common Stock Offered................ 2,600,000 shares
Common Stock to be outstanding after
the Offering(1)..................... 12,421,711 shares
Use of Proceeds..................... The net proceeds from the Offering will
be used by the Company for sales and
marketing, research and development,
working capital and other general
corporate purposes, which may include
acquisitions of or investments in
complementary businesses, products
and technologies.
Proposed Nasdaq National Market
Symbol.............................. NTKI
- ------------------------------
(1) Based on shares outstanding as of June 21, 1996. Excludes (i) 1,880,952
shares of Common Stock issuable upon exercise of outstanding options, (ii)
2,571,403 shares of Common Stock reserved for future grants under the
Company's stock option and purchase plans and (iii) 135,555 shares of
Common Stock reserved for issuance pursuant to the exercise of outstanding
warrants. The weighted average exercise price of all outstanding options
and warrants is $2.74 per share. See "Management -- Stock Plans,"
"Description of Capital Stock" and Note 5 of Notes to Consolidated
Financial Statements.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary financial information should be read in conjunction
with the Consolidated Financial Statements of the Company and the notes thereto,
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Entertainment............. $ -- $ -- $ 96,505 $ -- $ 216,800
Information services...... 10,360,257 11,391,780 10,976,711 3,204,151 2,514,382
----------- ----------- ----------- ---------- -----------
10,360,257 11,391,780 11,073,216 3,204,151 2,731,182
----------- ----------- ----------- ---------- -----------
Cost of revenues:
Entertainment............. -- -- 85,176 -- 213,003
Information services...... 5,747,293 6,558,541 6,489,472 1,863,647 1,591,641
----------- ----------- ----------- ---------- -----------
5,747,293 6,558,541 6,574,648 1,863,647 1,804,644
----------- ----------- ----------- ---------- -----------
Gross profit............ 4,612,964 4,833,239 4,498,568 1,340,504 926,538
----------- ----------- ----------- ---------- -----------
Operating expenses:
Operating and
development............. 1,350,057 1,777,654 2,267,852 536,721 1,247,573
Sales and marketing....... 1,213,829 1,364,198 2,575,618 501,172 430,993
General and
administrative.......... 1,471,150 1,564,658 1,337,731 343,241 507,255
Charge for purchased
research and
development(1).......... -- -- -- -- 4,133,281
----------- ----------- ----------- ---------- -----------
Operating income
(loss)............... 577,928 126,729 (1,682,633) (40,630) (5,392,564)
Interest income.............. 43,761 73,359 106,370 27,683 24,904
Interest expense............. (82,890) (48,398) (18,237) (3,544) (16,552)
----------- ----------- ----------- ---------- -----------
Income (loss) before
income taxes......... 538,799 151,690 (1,594,500) (16,491) (5,384,212)
Income taxes................. 33,913 9,280 300 663 --
----------- ----------- ----------- ---------- -----------
Net income (loss)....... $ 504,886 $ 142,410 $(1,594,800) $ (17,154) $(5,384,212)
========== ========== ========== ========= ==========
Pro forma net loss per common
share(2).................. $ (0.15) $ $ (0.49)
========== ==========
Shares used in computing pro
forma net loss per common
share(2).................. 10,939,989 10,925,422
========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
---------- ------------ ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................... $1,070,133 $ 16,970,133 $42,868,133
Total assets......................................... 5,806,745 21,706,745 47,604,745
Stockholders' equity................................. 2,416,338 18,316,338 44,214,338
</TABLE>
5
<PAGE> 8
- ------------------------------
(1) On February 13, 1996, N2K Inc., a New York corporation ("New York N2K"),
which was founded in 1995 as a developer of online music entertainment
content, was merged with and into Telebase Systems, Inc. ("Telebase"), a
Pennsylvania corporation formed in 1984 as a provider of online information
services (the "Merger"). In connection with the Merger, the Company
incurred a one-time charge for purchased research and development. See
Notes 1 and 2 of Notes to Consolidated Financial Statements.
(2) Reflects the conversion of all outstanding shares of the Company's Preferred
Stock into Common Stock upon consummation of the Offering. See Note 1 of
Notes to Consolidated Financial Statements. If the Merger had occurred on
January 1, 1995, the pro forma results would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1995
----------------- --------------
<S> <C> <C>
Unaudited pro forma revenues.................. $11,216,842 $ 2,799,809
=========== ===========
Unaudited pro forma net loss.................. $(2,839,579) $ (1,634,819)
=========== ===========
Unaudited pro forma net loss per Common
share....................................... $ (0.26) $ (0.15)
=========== ===========
</TABLE>
The above pro forma information for both periods excludes the one-time
charge of $4.1 million associated with the write-off of purchased research
and development.
(3) Reflects (i) the sale of certain shares of Series E Preferred Stock and
shares of Series F Preferred Stock subsequent to March 31, 1996, and (ii)
the automatic conversion of all outstanding shares of the Company's
Preferred Stock into Common Stock upon consummation of the Offering.
(4) Adjusted to give effect to the sale of 2,600,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per
share and after deducting estimated underwriting discounts and commissions
and offering expenses. See "Capitalization."
------------------------------
Music Boulevard(R), Telebase(R), EasyNet(R), Corporate EasyNet(R),
ANALY$T(R), ARTIST Gateway(R) and Knowledge Gateway(R) are registered trademarks
of the Company. Jazz Central StationSM and RocktropolisSM are service marks of
the Company. All other trademarks or service marks appearing in this Prospectus
are the property of their respective holders.
6
<PAGE> 9
RISK FACTORS
Prospective purchasers should consider carefully the following risk
factors, in addition to the other information set forth in this Prospectus,
before purchasing any of the shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Actual events or results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed under this section
entitled "Risk Factors," as well as those discussed in the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and in the other sections of this Prospectus.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE RESULTS
The Company has incurred significant losses and expects to continue to
incur significant losses on a quarterly and annual basis for the foreseeable
future. As of March 31, 1996, the Company had an accumulated deficit of $13.3
million. Since its inception, the Company has incurred costs to develop and
enhance its technology, to create, introduce and enhance its service offerings,
to establish marketing and distribution relationships and to build an
administrative organization. Since the Merger, the Company has continued these
efforts with an emphasis on increased spending for the development, marketing
and sale of its music entertainment services, in particular those offered
through its Music Boulevard, Jazz Central Station and other planned World Wide
Web (the "Web") sites. To date, the Company has derived its revenues primarily
from the provision of online business information and gateway retrieval
services. The Company recently shifted the focus of its business to music
entertainment delivered via the Internet and expects to derive an increasingly
larger portion of its revenues from the music entertainment business, including
from its planned N2K Encoded Music label and sales of advertising on its
music-related websites. Due to the Company's recent shift in business focus, the
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new, unproven and rapidly
evolving markets. To address these risks, the Company must, among other things,
respond to competitive developments, continue to attract, retain and motivate
qualified employees, continue to upgrade its technologies and commercialize its
products and services incorporating such technologies. There can be no assurance
that the Company will be successful in addressing such risks. If the Company is
not successful in developing and expanding its music entertainment business,
including its planned N2K Encoded Music label and sales of advertising on its
music-related websites, the Company's ability to achieve profitability would be
materially adversely affected. In addition, the Company currently intends to
increase substantially its operating expenses to develop new music genre sites,
to enhance existing sites, to fund increased sales and marketing and to expand
its music entertainment operations. To the extent that such expenses precede or
are not subsequently followed by increased revenues, the Company's business,
results of operations and financial condition will be materially adversely
affected. There can be no assurance that the Company will ever be able to
achieve or maintain profitability on a quarterly or annual basis in the future.
See "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON THE INTERNET; UNCERTAIN ACCEPTANCE OF THE INTERNET AS A MEDIUM FOR
COMMERCE AND ADVERTISING
Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium for commerce and advertising
is subject to a high level of uncertainty. The rapid growth of global commerce
and the exchange of information on the Internet and other online networks is new
and evolving, making it difficult to predict whether the Internet will prove to
be a viable commercial marketplace. The Company believes that its future success
will depend on its ability to significantly increase revenues from its music
entertainment operations, which will require the development and widespread
acceptance of the Internet and online services as a medium for commerce and
advertising. In particular, the Company's future financial success will be
dependent on profits from the sale of recorded music under its own label, N2K
7
<PAGE> 10
Encoded Music, and the sale of advertising on its Internet websites. There can
be no assurance that the Internet will be a successful retailing channel. The
Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as reliable network
backbones, or complementary services, such as high speed modems and security
procedures for financial transactions. Consumer concern over Internet security
has been, and could continue to be, a barrier to commercial activities requiring
consumers to send their credit card information over the Internet. The Internet
has experienced, and is expected to continue to experience, significant growth
in the number of users and amount of traffic. There can be no assurance that the
Internet infrastructure will continue to be able to support the demands placed
on it by sustained growth. In addition, the viability of the Internet may prove
uncertain due to delays in the development and adoption of new standards and
protocols (for example, the next generation Internet Protocol) to handle
increased levels of Internet activity or due to increased government regulation.
If use of the Internet does not continue to grow, or if the necessary Internet
infrastructure or complementary services are not developed to effectively
support growth that may occur, the Company's business, results of operations and
financial condition could be materially adversely affected. In addition, in
order for the Company to generate advertising revenues, advertisers and
advertising agencies must direct a portion of their budgets to the Internet and,
specifically, to the Company's Internet websites. The Company has just recently
begun to sell advertising on its websites and has not recognized material
advertising revenues to date. There can be no assurance that the Company will be
successful in generating significant advertising revenues to date and the
failure to do so would have a material adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
advertisers and advertising agencies will accept the Internet as a medium. If
Internet advertising is not widely accepted by advertisers and advertising
agencies, the Company's business, results of operations and financial condition
could be materially adversely affected. See "Business -- Industry
Overview -- The Internet."
UNCERTAIN ACCEPTANCE OF THE COMPANY'S INTERNET CONTENT
The Company's future success will be significantly dependent upon its
ability to create and deliver entertaining and compelling Internet music-related
content in order to attract users to its websites to purchase recorded music and
related merchandise and to attract advertisers to the websites. The Company
launched its first music website, Music Boulevard, in August 1995 and has
limited experience in the online music entertainment business. There can be no
assurance that the Company's content will be attractive to a sufficient number
of users to generate significant merchandising and advertising revenues. There
can also be no assurance that the Company will be able to anticipate, monitor
and successfully respond to rapidly changing consumer tastes and preferences so
as to continually attract a sufficient number of users to its websites. If the
Company is unable to develop Internet content that allows it to attract, retain
and expand a loyal user base, its business, results of operations and financial
condition will be materially adversely affected.
COMPETITION
The market for Internet and online content and service providers is highly
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990's, the number of websites on the Internet competing for consumers'
attention and spending has proliferated. With no substantial barriers to entry,
the Company expects that competition will continue to intensify. In addition to
competing with numerous independent Internet retailers and traditional music
retail chains with websites on the Internet, the Company competes with
traditional retail stores, including chains and megastores, catalog
merchandisers, music clubs and telephone retailers. N2K Encoded Music will
compete with the major, and other independent, record labels. The Company
believes that the primary competitive factors in providing music entertainment
products and services via the Internet are name recognition, variety of
value-added services, ease of use, price, quality of service, availability of
customer support, reliability, technical expertise and experience. The Company's
success in this market will depend heavily upon its ability to provide high
quality, entertaining content, along with cutting-edge technology and
value-added Internet and online services. Other factors that will affect the
Company's success in this market include the Company's continued ability to
attract experienced marketing, sales and management talent, and the expansion of
global support, training and field service capabilities. The Company's failure
to compete successfully in the online music entertainment business would have a
material
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adverse effect on the Company's business, results of operations and financial
condition. In addition, the competition for advertising revenues both on the
Internet websites and in more traditional media is intense. To the extent the
Company is not able to attract significant sources of revenues from paid
advertisements on its websites, the Company's business, results of operations
and financial condition will be materially adversely affected.
The market for online information services is both highly competitive and
highly fragmented. As the Company has no exclusive relationships with any of its
information suppliers, many of the Company's competitors offer, or could offer,
content that is similar or the same as that offered by the Company, which could
adversely affect the Company's distribution agreements and utilization by its
end users. In addition, the growing reach and use of the Internet has further
intensified competition in this industry. Consumers have gained free access to
certain information provided directly on the Internet by certain content
providers. To the extent that content providers, including but not limited to
the Company's current suppliers, provide information to users at a lower cost
than the Company or at minimal or no cost, the Company's business, results of
operations and financial condition could be materially adversely affected.
Many of the Company's current and potential competitors in the music
entertainment and online information services businesses have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition and larger existing customer bases than the Company. In
addition, these competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements and to devote greater
resources to the development, promotion and sale of their products or services
than the Company. There can be no assurance that the Company will be able to
compete successfully.
DEPENDENCE ON KEY CUSTOMERS
The Company presently sells its information services, which accounted for
approximately 99.1% of its revenues in 1995, on a non-exclusive basis to large
companies in the online service industry. In the three months ended March 31,
1996, CompuServe Incorporated ("CompuServe") and NIFTY Corporation ("NIFTY")
accounted for $1.9 million and $301,000, representing 68.9% and 11.0%,
respectively, of revenues. In 1995, CompuServe and NIFTY accounted for $8.5
million and $1.2 million, representing 76.3% and 10.5%, respectively, of
revenues. Similarly, in 1994, CompuServe and NIFTY accounted for $8.5 million
and $1.1 million, representing 74.5% and 9.6%, respectively, of the Company's
revenues. As of March 31, 1996, the Company had accounts receivable from
CompuServe and NIFTY of $1.3 million and $95,000, respectively. As of December
31, 1995, the Company had accounts receivable from CompuServe and NIFTY of $1.2
million and $88,000, respectively. As of December 31, 1994, the Company had
accounts receivable from CompuServe and NIFTY of $1.5 million and $69,000,
respectively. The proliferation of and competition among content providers has
intensified and many content providers are delivering information directly to
consumers on the Internet at minimal or no cost. At the same time, advances in
technology have made it easier for online service providers to develop
information retrieval interfaces. Since the Company does not have any long-term
agreements with, or commitments from, CompuServe or NIFTY, no assurance can be
given that CompuServe and NIFTY will remain customers of the Company. The loss
of either CompuServe or NIFTY as Company customers would have a material adverse
effect on the Company's business, results of operations and financial condition.
Further, the Company relies on the marketing efforts of CompuServe and NIFTY to
the end user. To the extent that CompuServe or NIFTY change their offerings or
strategy, reduce their marketing efforts or experience system failures, the
Company's online information services business may be materially adversely
affected. See "Business -- N2K Information Services."
DEPENDENCE ON KEY SUPPLIERS
In the Company's information services business, Knight-Ridder Information,
Inc. ("Knight-Ridder"), a database content provider, accounted for 53.1%, 60.2%
and 59.3% of the cost of revenues for the three months ended March 31, 1996 and
for the years ended December 31, 1995 and 1994, respectively. The Company
renegotiates its supply agreement with Knight-Ridder on an annual basis. No
assurance can be made that Knight-Ridder will continue its supply relationship
with the Company. The termination of such relationship or
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a material increase in the cost of Knight-Ridder's services would have a
material adverse effect on the Company's business, results of operations and
financial condition.
In its music entertainment business, the Company currently has a contract
with Valley Record Distributors ("Valley"), which is currently the Company's
single-source provider of order fulfillment for direct-to-consumer recorded
music products. The Company has no fulfillment operation or facility of its own
and, accordingly, is dependent upon maintaining its existing relationship with
Valley or establishing a new fulfillment relationship with a comparable
fulfillment operation. There can be no assurance that the Company will maintain
its relationship with Valley beyond the term of its existing agreement, which
was entered into in May 1995 for a three-year period. The termination of such
relationship would, absent establishing a substitute relationship with one or
more of the few other fulfillers in the industry, have a material adverse effect
on the Company's business, results of operations and financial condition. The
Company believes that alternative suppliers of fulfillment services would be
available on terms satisfactory to the Company should its relationship with
Valley terminate. Nevertheless, an unanticipated termination of the Company's
relationship with Valley, particularly during the fourth quarter in which a high
percentage of recorded music sales are made, could materially adversely affect
the Company's results of operations for the quarter in which such termination
occurred even if the Company was able to establish a relationship with an
alternative fulfillment house. In addition, to the extent that Valley does not
have sufficient capacity and is unable to satisfy on a timely basis increasing
requirements of its customers, including the Company, such capacity constraint
would have a material adverse effect on the Company's business, results of
operations and financial condition.
MANAGEMENT OF GROWTH; CHANGING BUSINESS FOCUS; ACQUISITIONS
The Company has recently experienced a period of rapid and significant
growth, including a substantial increase in the number of its employees. Such
growth has placed, and may continue to place, significant demands on the
Company's management, operations and systems. In addition, the Company has
shifted the focus of its business operations to music entertainment. The Company
has only recently consummated the Merger and acquired the rock website,
Rocktropolis. In addition, the Company is launching a graphical user interface
for Music Boulevard on July 1, 1996. To the extent that the Company continues to
grow internally or through additional acquisitions, the Company will be faced
with risks, including risks associated with the assimilation of new operations,
sites and personnel, the diversion of resources from the Company's existing
business and the inability of management to integrate any acquired businesses.
The Company's ability to compete effectively will depend, in part, upon its
ability to overcome these risks and to revise, improve and effectively use its
operational, management, marketing and financial systems, both domestically and
on an international basis, as necessitated by changes in the Company's business.
There can be no assurance that the Company will be able to effectively manage
such growth and changes. Any failure of the Company to effectively manage its
growth and to respond to changes in its business focus would have a material
adverse effect on the Company's business, results of operations and financial
condition.
RISKS INHERENT IN THE RECORDED MUSIC INDUSTRY AND RECORD LABEL LAUNCH
The recorded music industry, like other creative industries, involves a
substantial degree of risk. Each recording is an individual artistic work, and
its commercial success is primarily determined by consumer taste, which is
unpredictable and constantly changing. Accordingly, there can be no assurance as
to the financial success of any particular release, the timing of any such
success or the popularity of any particular artist, or the Company's ability to
attract and sign artists to N2K Encoded Music. Furthermore, the Company believes
that it is standard practice in the recorded music industry for record companies
to pay substantial advances to artists. If the Company were to pay its artists
such advances, it could incur significant expenses which could materially
adversely affect the Company's results of operations. If the Company were not to
pay such advances, it would be competing for artistic talent at a disadvantage
to other record labels that do pay such advances. The Company has not yet
produced or introduced any titles under the N2K Encoded Music label. There can
be no assurance that the Company will be able to generate sufficient revenues
from successful releases to cover the costs of unsuccessful releases. The
Company has no distribution arrangement for N2K Encoded Music. The Company is
presently evaluating potential distribution arrangements. The success of the
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Company's N2K Encoded Music is dependent upon developing and maintaining such
distribution relationships. Management believes that it will be able to develop
and maintain such relationships on terms satisfactory to the Company. The
failure of the Company to develop and/or maintain such distribution
relationships would have a material adverse effect on the Company's business,
results of operations and financial condition. The record industry is dominated
by a small number of large record companies that have significantly greater
experience and financial, marketing and distribution resources than the Company.
There can be no assurance of the Company's ability to complete effectively in
that market. The failure of the Company to establish and grow N2K Encoded Music
would have a material adverse on the Company's growth, financial condition and
results of operations. See "Business -- Entertainment Products and
Services -- Planned Record Label."
EVOLVING MARKETS FOR INFORMATION SERVICES
The Company's information services are offered in markets that are rapidly
evolving and are characterized by an increasing number of market entrants that
have introduced or developed services addressing information search and
retrieval requirements over private and public networks, online services and the
Internet. At the same time, many content providers, particularly general
reference content providers, have begun to provide direct access to information
on the Internet at minimal or no cost. The Company's revenues from general
reference information services have declined. In response to changes in the
information services market, the Company has unbundled its services, reduced its
prices and re-focused its marketing strategy to emphasize premium-priced
databases and new Web-based products and services for the business and SOHO
markets. There can be no assurance that the Company will be able to maintain or
grow its information services business. Failure to maintain or grow its
information services business would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent on the continued
contributions of its senior management team, and technical and marketing
personnel. In particular, the Company's music entertainment business is highly
dependent upon the services and music industry expertise of Larry Rosen, Dave
Grusin and Jon Diamond. The Company does not maintain "key man" life insurance
for any of its employees. The Company does have employment agreements with
Messrs. Rosen, Diamond and Grusin and certain other members of senior
management. However, such employment agreements do not necessarily assure the
services of such employees. The Company's success also depends on its ability to
attract and retain additional qualified employees. Competition for qualified
personnel is intense and there are a limited number of persons with knowledge of
and experience in the Internet service industry. Despite employment agreements
and non-competition arrangements with certain members of management, the
Company's employees may voluntarily terminate their employment with the Company
at any time. There can be no assurance that the Company will be able to retain
its key personnel. The loss of one or more key employees could have a material
adverse effect on the Company. See "Business -- Employees" and "Management."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's services, the timing of the introduction or enhancement of
websites and services by the Company and its competitors, market acceptance of
new services, the mix of products and services sold, seasonality of the
information services markets and recorded music industry, seasonality in
advertising sales, the timing of new releases by the Company's planned record
label, technical difficulties and system downtime and general economic
conditions. The Company has historically experienced decreases in revenues and
net income from its information retrieval services during both the third and
fourth fiscal quarters. In addition, the Company anticipates that revenues from
its music entertainment business will track traditional consumer music-buying
habits. Therefore, music revenues are expected to decline during the summer
months of the second and third fiscal quarters and to increase during
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the late fourth-quarter peak holiday season. As a result, the Company believes
that period-to-period comparisons of its results of operations are not and will
not necessarily be meaningful and should not be relied upon as an indication of
future performance. Due to all of the foregoing factors, it is possible that in
some future quarter or quarters the Company's operating results will be below
the expectations of securities analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH GLOBAL EXPANSION
A key component of the Company's strategy is its planned expansion into
global markets. There can be no assurance that the Company will be able to
successfully market, sell and distribute its services in global markets due to
legal, contractual and practical considerations. The Company does not currently
have any overseas distribution facility or arrangement and there can be no
assurance that the Company will be able to expand its global presence. In
addition, there are certain risks inherent in doing business on a global level,
such as unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, difficulties in protecting intellectual property rights, longer
payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates and potentially adverse tax
consequences, which could adversely impact the success of the Company's global
operations. There can be no assurance that one or more of such factors will not
have a material adverse effect on the Company's future global operations, and
consequently, on the Company's business, results of operations and financial
condition.
RISK OF SYSTEM FAILURE OR INADEQUACY
The Company's operations are dependent on its ability to maintain its
computer and telecommunications equipment in effective working order and to
protect its systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. In addition, the growth of the
Company's customer base, generated through its music entertainment and/or
information services, may strain or exceed the capacity of its computer and
telecommunications systems and lead to degradations in performance or systems
failure. From time to time, the Company has experienced capacity constraints and
failure of its information systems which has resulted in decreased levels of
service delivery or interruptions in service to its customers. While the Company
continually reviews and seeks to upgrade its technical infrastructure and
provides for certain system redundancies and backup power to limit the
likelihood of systems overload or failure, any damage, failure or delay that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, substantially all of the Company's computer and telecommunications
operations, including its processing operations, are located at its facility in
Wayne, Pennsylvania. Although the Company maintains insurance, such insurance
may not be adequate to compensate the Company for all property damage and
business interruption losses that may occur.
UNCERTAIN ACCESS TO CONTENT
The Company believes that it will be necessary to continue to license both
information and entertainment content from content providers. While the Company
intends to continue adding new content to its entertainment and information
services, there can be no assurance the Company will be able to maintain its
current agreements with content providers or enter into agreements with
additional content providers. Failure to do so may have a material adverse
affect on the Company's business, results of operations and financial condition.
SECURITY RISKS
Despite the implementation of network security measures by the Company, its
infrastructure is potentially vulnerable to computer break-ins and similar
disruptive problems caused by its customers or others. Computer viruses,
break-ins or other security problems could lead to misappropriation of
proprietary information and interruptions, delays or cessation in service to the
Company's customers. Moreover, until
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more comprehensive security technologies are developed, the security and privacy
concerns of existing and potential customers may inhibit the growth of the
Internet as a merchandising medium.
RISKS OF TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS
The Company's success will depend upon its ability to develop and provide
new services that meet customers' changing requirements. The music entertainment
industry has been characterized by significant technological changes, such as
the introduction of CDs which have had a significant impact on the industry and
industry participants, and further technological changes are expected to occur.
The Internet service market is characterized by rapidly changing technology,
evolving industry standards, changes in customer needs and frequent new service
and product introductions. The Company's future success will depend, in part, on
its ability to effectively use leading technologies, to continue to develop its
technological expertise, to enhance its current services, to develop new
services that meet changing customer needs and to influence and respond to
emerging industry standards and other technological changes on a timely and
cost-effective basis. See "Business -- N2K Technology."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is subject, both directly and indirectly, to various laws and
governmental regulations relating to its business. The Company believes it is
currently in compliance with such laws and that they do not have a material
impact on its operations. Moreover, there are currently few laws or regulations
directly applicable to access to or commerce on commercial online services or
the Internet. However, due to the increasing popularity and use of commercial
online services and the Internet, it is possible that a number of laws and
regulations may be adopted with respect to commercial online services and the
Internet. Such laws and regulations may cover issues such as user privacy,
pricing and characteristics and quality of products and services. The
Telecommunications Act of 1996, which was recently enacted, imposes criminal
penalties for transmission of or allowing access to certain obscene
communications over the Internet and other computer services and contains
additional provisions intended to protect minors. Such provisions of the Tele-
communications Act have been challenged on constitutional and other grounds and
the outcome of such challenges is uncertain. The enactment of the
Telecommunications Act, and any similar laws or regulations in the future, may
decrease the growth of commercial online services and the Internet, which could
in turn decrease the demand for the Company's services and increase the
Company's cost of doing business or otherwise have an adverse effect on the
Company's business, results of operations and financial condition. Moreover, the
applicability to commercial online services and the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain and could expose the Company to substantial liability for which the
Company might not be indemnified by content providers. See "-- Liability for
Information Retrieved from the Internet." The Company believes that its use of
material on its websites is protected under current provisions of copyright law.
However, legal rights to certain aspects of online and Internet content and
commerce are not clearly settled. There can be no assurance that the Company
will be able to continue to maintain rights to information, including
downloadable music samples and artist, record and other information. The failure
to be able to offer such information would have a material adverse effect on the
Company's business, results of operations and financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET
Due to the fact that materials may be downloaded by the online or Internet
services operated by the Company or the Internet access providers with which it
has relationships and may be subsequently distributed to others, there is a
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of such materials. Such claims have been brought, and
sometimes successfully pressed, against online services in the past. In
addition, the Company could be exposed to liability with respect to the
selection of listings that may be accessible through the Company's branded
products and websites. For example, claims could be made against the Company if
material deemed inappropriate for viewing by children could be accessed through
Music Boulevard. Although the Company carries general liability insurance, the
Company's insurance may not cover
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potential claims of this type or may not be adequate to cover all costs incurred
in defense of potential claims or to indemnify the Company for all liability
that may be imposed. Any costs or imposition of liability that is not covered by
insurance or in excess of insurance coverage could have a material adverse
effect on the Company's business, results of operations and financial condition.
CONTROL BY MANAGEMENT
The Company's executive officers and directors and their respective
affiliates will beneficially own an aggregate of 39.3% of the Company's
outstanding shares of Common Stock after the Offering (38.0% if the
Underwriters' over-allotment option is exercised in full). Such stockholders, if
voting together, may, as a practical matter, have sufficient voting power to
elect the board of directors of the Company (the "Board of Directors"), exercise
significant control over the business, policies and affairs of the Company and,
in general, determine the outcome of any corporate transaction or other matters
submitted to the stockholders for approval, such as any amendment to the
certificate of incorporation of the Company (the "Certificate of
Incorporation"), any merger, consolidation, sale of all or substantially all of
the Company's assets or "going private" transactions and prevent or cause a
change in control of the Company, all of which may adversely affect the market
price of the Common Stock. See "Principal Stockholders."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Delaware General Corporation Law (the "Delaware
GCL") may delay, discourage or prevent a change in control of the Company. Such
provisions may discourage bids for the Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price and the
voting and other rights of the holders of Common Stock. In addition, the Board
of Directors has the authority without action by the Company's shareholders to
fix the rights, privileges and preferences of and to issue shares of the
Company's preferred stock, par value $.001 per share (the "Preferred Stock"),
which may have the effect of delaying, deterring or preventing a change in
control of the Company. See "Description of Capital Stock -- Preferred Stock"
and "-- Anti-Takeover Effects of Delaware Law."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the trading symbol "NTKI." There can be no assurance,
however, that an active public market will develop for the Common Stock. The
initial public offering price will be determined through negotiations between
the Company and the Representatives of the Underwriters, and may not be
indicative of the market price for the Common Stock after the completion of the
Offering. Among the factors to be considered in such negotiations are prevailing
market conditions, the results of operations of the Company in recent periods,
the market capitalizations and stages of development of other companies which
the Company and the Representatives of the Underwriters believe to be comparable
to the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors, if any, deemed relevant.
See "Underwriting."
Moreover, the trading price of the Company's Common Stock could be subject
to fluctuations in response to quarterly variations in results of operations,
announcements of technological innovations or new services or products by the
Company or its competitors, changes in financial estimates by securities
analysts and other events or factors. See "-- Potential Fluctuations in
Quarterly Results; Seasonality." Recent history relating to the market prices of
other newly public companies indicates that the market price of the Company's
Common Stock following the Offering may be highly volatile. At various times,
the stock market has experienced volatility that has particularly affected the
market prices for stock of particular industry groups, such as technology
companies, particularly Internet-related companies, often without regard to a
particular company's operating results.
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SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
After the completion of the Offering, 12,421,711 shares of Common Stock
will be outstanding. Of such shares, the 2,600,000 shares sold pursuant to the
Offering will be tradeable without restriction by persons other than
"affiliates" of the Company. The remaining 9,821,711 shares of Common Stock to
be outstanding after the Offering are "restricted securities" within the meaning
of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act")
and may not be publicly resold, except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption from
registration, including that provided by Rule 144 promulgated under the
Securities Act. 4,941,777 shares of Common Stock will be available for immediate
resale upon the consummation of the Offering without restriction pursuant to the
exemption provided by Rule 144(k), subject in certain cases to expiration of the
180-day lock-up period. The directors and executive officers of the Company and
other stockholders of the Company, who collectively hold shares, or
approximately %, of the outstanding shares of Common Stock, have agreed not
to, directly or indirectly, offer, sell, assign, transfer, encumber, pledge,
contract to sell, grant an option to purchase or otherwise dispose of any Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Cowen & Company. Upon expiration of the 180-day period,
4,899,983 shares of Common Stock will be eligible for immediate resale without
restriction under the Securities Act, subject, in certain cases, to certain
volume, timing and other requirements of Rule 144 promulgated under the
Securities Act. The Company intends to file one or more Registration Statements
on Form S-8 immediately following the Offering, registering under the Securities
Act an aggregate of 4,452,354 shares of Common Stock covered by the Company's
stock option and purchase plans. In addition, certain stockholders of the
Company are entitled to both demand and incidental registration rights with
respect to 5,808,179 shares of Common Stock. The Company has obtained the
consent of stockholders holding shares, or %, of the Common Stock
entitled to demand registration rights any time 180 days after the date of this
Prospectus to delay the effectiveness of any registration statement pursuant to
a demand request until the expiration of the 270-day period after the date of
this Prospectus, to the extent requested by the Representatives. After the
expiration of the 180-day period or the 270-day period, as applicable, such
holders may exercise such rights, which could result in a large number of shares
being sold in the public market and could have an adverse effect on the market
price for the Common Stock. No prediction can be made as to the effect, if any,
that future sales of shares, or the availability of shares for future sale, will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock.
See "Description of Capital Stock -- Registration Rights," "Shares Eligible for
Future Sale" and "Underwriting."
SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will experience immediate
dilution in the pro forma net tangible book value per share of $7.45 at an
assumed initial public offering price of $11.00 per share and after deducting
estimated underwriting discounts and commissions and offering expenses. In
addition, as of June 21, 1996, the Company had granted warrants to purchase
135,555 shares of Common Stock, and options to purchase 1,880,952 shares of
Common Stock. If such warrants and options are exercised in full, purchasers of
the Common Stock offered hereby would experience an immediate and substantial
dilution in the net tangible book value per share of $7.56. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never declared or paid any dividends on the Common Stock
and does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
POSSIBLE NEED FOR ADDITIONAL FUNDS
Based on current levels of operations and planned growth, the Company
anticipates that its existing capital resources, together with the proceeds of
the Offering, will enable it to maintain its operations for at least two years
from the date of this Prospectus. However, the Company may require additional
funds to sustain and expand its sales and marketing and research and development
activities, particularly if a well-
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financed competitor emerges or if there is a shift in the type of Internet or
online information services that are developed and ultimately receive customer
acceptance. Adequate funds for these and other purposes on terms acceptable to
the Company, whether through additional equity financing, debt financing or
other sources, may not be available when needed or may result in significant
dilution to existing stockholders. The inability to obtain sufficient funds from
operations or external sources would have a material adverse effect on the
Company's business, results of operations and financial condition. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
NO SPECIFIC USE OF PROCEEDS
The Company has not designated any specific use for the net proceeds from
the Offering of the 2,600,000 shares of Common Stock. Rather, the Company
intends to use the net proceeds primarily for sales and marketing, research and
development, working capital and other general corporate purposes, which may
include acquisitions and strategic investments. Accordingly, management will
have significant flexibility in applying the net proceeds of the Offering. See
"Use of Proceeds."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, at an assumed initial public offering price of $11.00 per share and
after deducting estimated underwriting discounts and commissions and offering
expenses, are estimated to be approximately $25.9 million (approximately $29.9
million if the Underwriters' over-allotment option is exercised in full). The
net proceeds from the Offering will be utilized for sales and marketing,
research and development, working capital and other general corporate purposes.
See "Risk Factors -- No Specific Use of Proceeds." From time to time, in the
ordinary course of business, the Company evaluates possible acquisitions of or
investments in businesses, products and technologies that are complementary to
those of the Company. A portion of the net proceeds may therefore be used to
fund acquisitions or investments. The Company currently has no arrangements,
agreements or understandings, and is not engaged in active negotiations, with
respect to any such acquisition or investment.
Pending the application of the net proceeds from the Offering, the Company
intends to invest the net proceeds in short-term, investment-grade,
interest-bearing instruments or money market funds. To the extent necessary to
avoid being subject to the registration requirements of the Investment Company
Act of 1940, as amended, the Company would invest the balance in U.S. Treasury
obligations. Returns on such investments may be less than those that might
otherwise result if the Company were able to use such funds immediately in its
operations.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock.
The Company does not anticipate paying any dividends on the Common Stock in the
foreseeable future and intends to retain all available funds for use in the
operation and development of its business. The Board of Directors intends to
review the Company's dividend policy from time to time. Any payment of dividends
in the future will be at the discretion of the Board of Directors and will be
dependent on the earnings and financial requirements of the Company and other
factors, including restrictions imposed by the Delaware GCL on the payment of
dividends, covenants restricting the payment of dividends in future loan
documents and such other factors as the Board of Directors deems relevant.
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DILUTION
The pro forma net tangible book value of the Company at March 31,1996 was
$18.0 million or $1.85 per share. Pro forma net tangible book value per share is
determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of shares of Common Stock
outstanding on a pro forma basis, after giving effect to (i) the sale of certain
shares of Series E Preferred Stock and shares of Series F Preferred Stock
subsequent to March 31, 1996 and (ii) the automatic conversion of all
outstanding shares of the Company's Preferred Stock into Common Stock upon the
consummation of the Offering, but without giving effect to the acquisition of
the rock website, Rocktropolis. Without giving effect to any changes in pro
forma net tangible book value after March 31, 1996, other than to give effect to
the sale of the Common Stock offered hereby at an assumed public offering price
of $11.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses, the Company's adjusted pro forma net tangible
book value as of March 31, 1996 would have been $43.9 million or $3.55 per share
representing an immediate increase in net tangible book value of $1.70 per share
to the existing stockholders and an immediate dilution to new investors of $7.45
per share. The following table illustrates the dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $11.00
Pro forma net tangible book value per share before the Offering..... $1.85
Net increase in pro forma net tangible book value per share
attributable to the Offering..................................... 1.70
-----
Pro forma net tangible book value per share after the Offering........ 3.55
------
Dilution per share to new investors in the Offering(1)................ $ 7.45
======
</TABLE>
- ------------------------------
(1) Based on the assumptions set forth above, the dilution to new investors
would be $7.56 per share if all outstanding warrants and options to
purchase shares of Common Stock were exercised in full at a weighted
average exercise price of $2.74 per share of Common Stock.
The following table summarizes, on a pro forma basis (as described above)
as of March 31, 1996, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing stockholders and by the new investors purchasing
shares of Common Stock in the Offering, at an assumed initial public offering
price of $11.00 per share and before deducting estimated underwriting discounts
and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 9,761,989 79.0% $32,647,414 53.3% $3.34
New investors....................... 2,600,000 21.0 28,600,000 46.7 11.00
---------- ------- ----------- -------
Total..................... 12,361,989 100.0% $61,247,414 100.0%
========= ====== ========== ======
</TABLE>
The above tables excludes (i) 59,722 shares issued on June 21, 1996 in
connection with the purchase of the rock website, Rocktropolis, (ii) 1,880,952
shares of Common Stock issuable upon exercise of outstanding stock options,
(iii) 2,571,403 shares of Common Stock reserved for future grants under the
Company's stock option and purchase plans and (iv) 135,555 shares of Common
Stock reserved for issuance pursuant to the exercise of outstanding warrants.
The weighted average exercise price of all outstanding options and warrants is
$2.74 per share. See "Management -- Stock Plans," "Description of Capital Stock"
and Note 5 of Notes to Consolidated Financial Statements.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
March 31, 1996, (ii) the pro forma capitalization of the Company as of such date
giving effect to (a) the sale of certain shares of Series E Preferred Stock and
shares of Series F Preferred Stock subsequent to March 31, 1996 and (b) the
automatic conversion of all outstanding shares of the Company's Preferred Stock
into Common Stock upon the consummation of the Offering but without giving
effect to the purchase of the rock website, Rocktropolis, and (iii) the pro
forma capitalization of the Company as adjusted to give effect to the sale of
the Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses. This table should be read in conjunction with
the Consolidated Financial Statements of the Company and notes thereto included
elsewhere in this Prospectus. See "Description of Capital Stock."
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value; 20,000,000
shares authorized, 9,154,555 shares issued and
outstanding, actual; none issued and
outstanding, pro forma and as adjusted.......... $ 9,155 $ -- $ --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 3,886,548 shares issued and
outstanding, actual; 9,761,989 shares issued and
outstanding, pro forma; and 12,361,989 shares
issued and outstanding, as adjusted(1).......... 3,887 9,762 12,362
Additional paid-in capital......................... 15,683,925 31,587,205 57,482,605
Accumulated deficit................................ (13,280,629) (13,280,629) (13,280,629)
------------ ------------ ------------
Total stockholders' equity...................... 2,416,338 18,316,338 44,214,338
------------ ------------ ------------
Total capitalization....................... $ 2,416,338 $ 18,316,338 $ 44,214,338
=========== =========== ===========
</TABLE>
- ------------------------------
(1) Excludes (i) 59,722 shares issued on June 21, 1996 in connection with the
purchase of the rock website, Rocktropolis, (ii) 1,880,952 shares of Common
Stock issuable upon exercise of outstanding stock options, (iii) 2,571,403
shares of Common Stock reserved for future grants under the Company's stock
option and purchase plans and (iv) 135,555 shares of Common Stock reserved
for issuance pursuant to the exercise of outstanding warrants. The weighted
average exercise price of all outstanding options and warrants is $2.74 per
share. See "Management -- Stock Plans," "Description of Capital Stock" and
Note 5 of Notes to Consolidated Financial Statements.
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 and for the three
months ended March 31, 1996, have been derived from the Company's financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants. The consolidated financial statements of the Company for each of
the three years in the period ended December 31, 1995 and the three months ended
March 31, 1996 and the related balance sheets at December 31, 1994 and 1995 and
March 31, 1996, which have been audited by Arthur Andersen LLP, have been
included elsewhere in this Prospectus. The selected statement of operations data
for the three months ended March 31, 1995 have been derived from unaudited
financial statements of the Company that, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial condition and results of operations for
this interim period. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of the results that may be expected for
any other interim period or for the entire year. The selected consolidated
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Entertainment............... $ -- $ -- $ -- $ -- $ 96,505 $ -- $ 216,800
Information services........ 8,924,784 8,248,631 10,360,257 11,391,780 10,976,711 3,204,151 2,514,382
---------- ----------- ----------- ----------- ----------- ---------- -----------
8,924,784 8,248,631 10,360,257 11,391,780 11,073,216 3,204,151 2,731,182
---------- ----------- ----------- ----------- ----------- ---------- -----------
Cost of revenues:
Entertainment............... -- -- -- -- 85,176 -- 213,003
Information services........ 4,050,474 4,729,420 5,747,293 6,558,541 6,489,472 1,863,647 1,591,641
---------- ----------- ----------- ----------- ----------- ---------- -----------
4,050,474 4,729,420 5,747,293 6,558,541 6,574,648 1,863,647 1,804,644
---------- ----------- ----------- ----------- ----------- ---------- -----------
Gross profit.............. 4,874,310 3,519,211 4,612,964 4,833,239 4,498,568 1,340,504 926,538
---------- ----------- ----------- ----------- ----------- ---------- -----------
Operating expenses:
Operating and
development(1)............ 1,821,417 1,553,216 1,350,057 1,777,654 2,267,852 536,721 1,247,573
Sales and marketing......... 1,517,195 1,380,892 1,213,829 1,364,198 2,575,618 501,172 430,993
General and
administrative............ 1,529,451 1,777,701 1,471,150 1,564,658 1,337,731 343,241 507,255
Charge for purchased
research and
development(2)............ -- -- -- -- -- -- 4,133,281
---------- ----------- ----------- ----------- ----------- ---------- -----------
Operating income (loss)... 6,247 (1,192,598) 577,928 126,729 (1,682,633) (40,630) (5,392,564)
Interest income............... 101,959 65,658 43,761 73,359 106,370 27,683 24,904
Interest expense.............. (74,893) (105,658) (82,890) (48,398) (18,237) (3,544) (16,552)
---------- ----------- ----------- ----------- ----------- ---------- -----------
Income (loss) before
income taxes............ 33,313 (1,232,598) 538,799 151,690 (1,594,500) (16,491) (5,384,212)
Income taxes.................. -- -- 33,913 9,280 300 663 --
---------- ----------- ----------- ----------- ----------- ---------- -----------
Net income (loss)............. $ 33,313 $(1,232,598) $ 504,886 $ 142,410 $(1,594,800) $ (17,154) $(5,384,212)
========= ========== ========== ========== ========== ========= ==========
Pro forma net loss per common
share(3).................... $ (0.15) $ (0.49)
========== ==========
Shares used in computing pro
forma net loss per common
share(3).................... 10,939,989 10,925,422
========== ==========
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
-------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(4)
---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......... $ 640,704 $ (263,801) $ 171,779 $1,812,216 $ 20,200 $1,070,133 $16,970,133
Total assets...................... 4,245,506 3,592,953 3,909,098 4,776,923 3,658,660 5,806,745 21,706,745
Long-term debt, excluding current
portion......................... 225,000 75,000 -- -- -- -- --
Stockholders' equity.............. 1,262,842 37,244 542,130 2,243,704 648,984 2,416,338 18,316,338
</TABLE>
- ------------------------------
(1) For the year ended December 31, 1995 and the three months ended March 31,
1995 and 1996, the Company incurred costs of $1.3 million, $286,000 and
$496,000 relating to research and development. These amounts are included
in operating and development expenses. For the periods prior to 1995, the
Company did not separately identify research and development costs.
(2) On February 13, 1996, New York N2K, which was founded in 1995 as a developer
of online music entertainment content, was merged with and into Telebase, a
Pennsylvania corporation formed in 1984 as a provider of online information
services. In connection with the Merger, the Company incurred a one-time
charge for purchased research and development. See Notes 1 and 2 of Notes
to Consolidated Financial Statements.
(3) Reflects the conversion of all outstanding shares of the Company's Preferred
Stock into Common Stock upon the consummation of the Offering. See Note 1
of Notes to Consolidated Financial Statements. If the Merger had occurred
on January 1, 1995, the pro forma results would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
Unaudited pro forma revenues.................. $11,216,842 $ 2,799,809
============= ===========
Unaudited pro forma net loss.................. $(2,839,579) $ (1,634,819)
============= ===========
Unaudited pro forma net loss per Common
Share....................................... $ (0.26) $ (0.15)
============= ===========
</TABLE>
The above pro forma information for both periods excludes the one-time
charge of $4.1 million associated with the write-off of purchased research
and development.
(4) Reflects (i) the sale of certain shares of Series E Preferred Stock and
shares of Series F Preferred Stock subsequent to March 31, 1996, and (ii)
the automatic conversion of all outstanding shares of the Company's
Preferred Stock into Common Stock upon consummation of the Offering.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
N2K is a music entertainment company focused on providing original content,
interactive programming and recorded music using the Internet as a new global
marketing, promotion and distribution medium. By combining its music industry
and technical expertise, N2K has created an interactive, entertaining and
content-rich online environment, which includes its award-winning merchandising
website, Music Boulevard, music genre websites, Jazz Central Station and
Rocktropolis, and individual artist websites for such artists as David Bowie and
The Rolling Stones. In February 1996, N2K Inc., which was founded in 1995 as a
developer of online music entertainment content was merged with Telebase, which
was founded in 1984 as a provider of online information services. In 1995,
recognizing increasing opportunities in the consumer entertainment market,
Telebase expanded its online strategy to include music entertainment and began
expending significant resources to enter this market.
The Company launched its first Internet website, Music Boulevard, in August
1995, and introduced its first music genre website, Jazz Central Station, in
January 1996. The Company's revenues from its online music entertainment
business have grown from approximately $85,000 for the three months ended
December 31, 1995 to approximately $217,000 for the three months ended March 31,
1996. To date, the primary source of entertainment revenues has been the sale of
CDs and cassettes produced by others. Margins on such sales are impacted by
payments to a third party for fulfillment of customer orders, telecommunications
and credit card processing charges. Margins have also been impacted on a
historical basis due to customer subscription programs, which have now been
discontinued. In the future, the Company expects to also generate music
entertainment revenues from the sale of N2K Encoded Music CDs, the sale of
advertising on its websites and the sale of music-related merchandise, which the
Company believes will contribute to higher margins. The Company believes that
its future financial performance will be determined in large part by its success
in selling recorded music under its planned label, and by selling advertising
space on its websites.
Historically, substantially all of the Company's revenues have been
generated through the sale of online information services. The Company's
principal information service is EasyNet, a premium-priced general reference
retrieval service licensed to online content distributors, primarily CompuServe
and NIFTY. The online information services business has been undergoing a
transition as more reference content has become directly available to consumers
on the Internet at minimal or no cost, thus competing with established online
services such as CompuServe. In response to this transition, the Company
unbundled its EasyNet services on CompuServe beginning in June 1995 and lowered
its prices, thereby significantly reducing the Company's revenues. The Company
has re-focused its information services on premium-priced databases serving
specific business needs, such as business credit and intellectual property, for
which the Company believes the market is less price sensitive than for general
reference databases. In addition, the Company has recently introduced desktop
software providing customized database services focused on the specialized needs
of the SOHO market. The Company markets these services through Knight-Ridder
(Custom DIALOG and DIALOG Quickstarts) and plans to market these services
through other large publishers in the future. See "Business -- N2K Information
Services." The Company generates information services revenues through
transactional charges to the distributors for their customers' use of the
service and royalty fees for use of the Company's desktop software.
The Company believes that its experience in developing and providing
information services is critical to its ability to develop its online music
entertainment business. To date, however, the Company has only a limited
operating history in its entertainment business upon which an evaluation of N2K
and its prospects can be based. Accordingly, N2K believes that the results of
its operations for the past five years, during which time the Company had almost
no online music entertainment revenues, are not meaningful indications of future
performance. See "Risk Factors -- History of Losses; Uncertainty of Future
Results" and "Risk Factors -- Management of Growth; Changing Business Focus;
Acquisitions."
21
<PAGE> 24
On February 13, 1996, New York N2K, which was founded in 1995 as a
developer of online music entertainment content, was merged with and into
Telebase, a provider of online information services. Pursuant to the Merger, the
stockholders of New York N2K received shares of Common Stock and shares of
Series E Preferred Stock. The Merger was accounted for as a purchase transaction
with a total purchase price, including transaction costs, of approximately $4.4
million. In connection with the Merger, $4.1 million was charged to expense as
of the date of the transaction as a one-time charge to record the write-off of
purchased research and development. The Company also recorded goodwill of
$280,000 that is being amortized over five years on a straight-line basis. The
results of the acquired business and the shares issued in connection with the
transaction have been included in the Company's financial statements since
February 13, 1996.
On June 21, 1996, the Company acquired the rock website, Rocktropolis, from
Rocktropolis Enterprises, LLC, for $633,000 in cash and 59,722 shares of Common
Stock. The acquisition will be accounted for as a purchase. The Company will
charge to expense as of the date of the acquisition a significant portion of the
purchase price as a one-time charge to record the write-off of purchased
research and development. Such charge to expense will be recorded in the quarter
ending June 30, 1996.
QUARTERLY RESULTS
The following table sets forth certain financial information for each of
the Company's last five quarters. This unaudited quarterly information has been
prepared on the same basis as the audited financial statements presented
elsewhere in this Prospectus and, in the opinion of the Company's management,
reflects all adjustments (consisting only of normal, recurring adjustments)
necessary for a fair presentation of the information for the periods covered.
The table should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus. The operating results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1995 1996
---------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Entertainment.................... $ -- $ -- $ 11,602 $ 84,903 $ 216,800
Information services............. 3,204,151 2,795,913 2,587,936 2,388,711 2,514,382
---------- ---------- ------------- ------------ -----------
3,204,151 2,795,913 2,599,538 2,473,614 2,731,182
---------- ---------- ------------- ------------ -----------
Cost of revenues:
Entertainment.................... -- -- 11,187 73,989 213,003
Information services............. 1,863,647 1,638,363 1,542,791 1,444,671 1,591,641
---------- ---------- ------------- ------------ -----------
1,863,647 1,638,363 1,553,978 1,518,660 1,804,644
---------- ---------- ------------- ------------ -----------
Gross profit.................. 1,340,504 1,157,550 1,045,560 954,954 926,538
---------- ---------- ------------- ------------ -----------
Operating expenses:
Operating and development........ 536,721 594,196 580,269 556,666 1,247,573
Sales and marketing.............. 501,172 577,642 658,054 838,750 430,993
General and administrative....... 343,241 344,364 342,397 307,729 507,255
Charge for purchased research and
development................... -- -- -- -- 4,133,281
---------- ---------- ------------- ------------ -----------
Operating income (loss)....... (40,630) (358,652) (535,160) (748,191) (5,392,564)
Interest income/expense (net)...... 24,139 26,768 23,277 13,949 8,352
---------- ---------- ------------- ------------ -----------
Income (loss) before income
taxes....................... (16,491) (331,884) (511,883) (734,242) (5,384,212)
Income taxes....................... 663 225 504 (1,092) --
---------- ---------- ------------- ------------ -----------
Net income (loss).................. $ (17,154) $ (332,109) $ (512,387) $ (733,150) $(5,384,212)
========= ========= ========== ========== ==========
</TABLE>
22
<PAGE> 25
In August 1995, the Company launched its first Internet website, Music
Boulevard, and introduced Jazz Central Station, its first music genre website,
in January 1996. The Company's sales relating to its entertainment services,
which have been primarily from the sale of CDs and cassettes produced by others,
have grown from $85,000 for the three months ended December 31, 1995 to $217,000
for the three months ended March 31, 1996. Revenues for information services
declined each quarter in 1995, reflecting a less favorable environment for
commercial information services and the Company's decision to unbundle its
premium-priced services on CompuServe beginning in June 1995. CompuServe
accounted for approximately 76.3% of the Company's revenues in 1995. See "Risk
Factors -- Dependence on Key Customers."
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's services, the timing of the introduction or enhancement of
websites and services by the Company and its competitors, market acceptance of
new services, the mix of services sold, seasonality of the information retrieval
services markets and recorded music industry, seasonality in recorded music
advertising sales, the timing of new releases by the Company's planned record
label, technical difficulties and system downtime and general economic
conditions. In addition, the Company only recently entered the music
entertainment business, the Company anticipates that revenues from its music
entertainment business will track traditional consumer buying habits. Therefore,
music revenues are expected to decline during the summer months of the second
and third quarters and to increase during the late fourth-quarter peak holiday
season. As a result, the Company believes that period-to-period comparisons of
its results of operations are not and will not necessarily be meaningful and
should not be relied upon as an indication of future performance. See "Risk
Factors -- Potential Fluctuations in Quarterly Results; Seasonality."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
derived from the Company's statements of operations as a percentage of revenues.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Revenues:
Entertainment....................................... --% --% 0.9% --% 7.9%
Information services................................ 100.0 100.0 99.1 100.0 92.1
----- ----- ----- ----- ------
100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ------
Cost of revenues:
Entertainment....................................... -- -- 0.8 -- 7.8
Information services................................ 55.5 57.6 58.6 58.2 58.3
----- ----- ----- ----- ------
55.5 57.6 59.4 58.2 66.1
----- ----- ----- ----- ------
Gross profit..................................... 44.5 42.4 40.6 41.8 33.9
----- ----- ----- ----- ------
Operating expenses:
Operating and development........................... 13.0 15.6 20.5 16.8 45.7
Sales and marketing................................. 11.7 12.0 23.2 15.6 15.7
General and administrative.......................... 14.2 13.7 12.1 10.7 18.6
Charge for purchased research and development....... -- -- -- -- 151.3
----- ----- ----- ----- ------
Operating income (loss).......................... 5.6 1.1 (15.2) (1.3) (197.4)
Interest income....................................... 0.4 0.6 1.0 0.9 0.9
Interest expense...................................... (0.8) (0.4) (0.2) (0.1) (0.6)
----- ----- ----- ----- ------
Income (loss) before income taxes................ 5.2 1.3 (14.4) (0.5) (197.1)
Income taxes.......................................... 0.3 -- -- -- --
----- ----- ----- ----- ------
Net income (loss)..................................... 4.9 1.3 (14.4) (0.5) (197.1)
===== ===== ===== ===== ======
</TABLE>
23
<PAGE> 26
Three Months Ended March 31, 1996 Compared with Three Months Ended March 31,
1995
Revenues. Entertainment revenues for the three months ended March 31, 1996
totaled $217,000. The Company had no entertainment revenues for the three months
ended March 31, 1995. Information services revenues declined 21.5% from $3.2
million for the three months ended March 31, 1995 to $2.5 million for the three
months ended March 31, 1996 due primarily to the Company's unbundling of its
premium-priced services and lowering of prices on CompuServe in June 1995 and
lower volume. CompuServe and NIFTY accounted for approximately 68.9% and 11.0%,
respectively, of revenues for the three months ended March 31, 1996. See "Risk
Factors -- Dependence on Key Customers."
Cost of Revenues. Cost of revenues for entertainment totaled $213,000
(98.2% of entertainment revenues) for the three months ended March 31, 1996.
Cost of revenues for entertainment consists of payments to a third-party
fulfillment operation for the shipment to the Company's customers of music CDs
and cassettes produced by others, telecommunications and credit card processing
charges and costs associated with customer subscription programs, which programs
have been discontinued.
Cost of revenues for information services declined 14.6% from $1.9 million
for the three months ended March 31, 1995 (58.2% of information services
revenues) to $1.6 million for the three months ended March 31, 1996 (63.3% of
information services revenues). Cost of revenues for information services
consists primarily of payments to information providers for content used in the
Company's information services and payments to telecommunications carriers. Cost
of revenues for information services as a percentage of information services
revenues increased reflecting decreased prices related to the Company's decision
to unbundle premium-priced services offered on CompuServe beginning in June
1995.
Operating and Development Expenses. Operating and development expenses
increased 132.4% from $537,000 for the three months ended March 31, 1995 (16.8%
of total revenues) to $1.2 million for the three months ended March 31, 1996
(45.7% of total revenues), due to increased staffing resulting from the Merger
and a reorganization of resources within the Company to increase development of
music websites. Operating and development expenses consist primarily of software
engineering, multimedia production, graphic design and computer operations used
in the development, operation and maintenance of the Company's services.
Sales and Marketing Expenses. Sales and marketing expenses declined 14.0%
from $501,000 for the three months ended March 31, 1995 (15.6% of total
revenues) to $431,000 for the three months ended March 31, 1996 (15.7% of total
revenues) due to the reorganization of resources within the Company to increase
development of music websites and to delays in filling vacant positions in sales
and marketing. The Company expects that levels of sales and marketing
expenditures will significantly increase in future periods.
General and Administrative Expenses. General and administrative expenses
increased 47.8% from $343,000 for the three months ended March 31, 1995 (10.7%
of total revenues) to $507,255 for the three months ended March 31, 1996 (18.6%
of total revenues) due to the addition of personnel as a result of the Merger.
The Company incurred a one-time charge in 1996 of $4.1 million to record
the write-off of purchased research and development resulting from the Merger.
The amount represented the estimated fair values related to incomplete research
and development projects that were acquired as determined by independent
appraisals. The technology acquired will require substantial additional
development by the Company. On June 21, 1996 the Company acquired the rock
website, Rocktropolis. The acquisition will be accounted for as a purchase. The
Company will charge to expense as of the date of the acquisition a significant
portion of the purchase price as a one-time charge to record the write-off of
purchased research and development. Such charge to expense will be recorded in
the quarter ending June 30, 1996.
Interest income and expense consist of interest income on short-term liquid
investments of the Company's excess cash and interest expense incurred by the
financing of equipment through capital leases and the use of the Company's
revolving credit line. There was no significant change in interest income from
1995 to 1996. Interest expense increased due to the addition of capital leases
from the Merger and the use of the Company's revolving credit line in 1996 to
fund working capital.
24
<PAGE> 27
Fiscal 1995 Compared with Fiscal 1994
Revenues. Entertainment revenues for 1995 totaled $97,000, reflecting the
Company's launch of its entertainment services in August 1995. The Company had
no entertainment revenues prior to 1995. Information services revenues declined
3.6% from $11.4 million in 1994 to $11.0 million in 1995, primarily due to a
decline in revenues from one distributor that no longer accounts for a
significant portion of the Company's information services revenues. In 1995, the
Company reduced prices as it unbundled its premium-priced services on CompuServe
in June 1995. CompuServe and NIFTY accounted for 76.3% and 10.5%, respectively,
of information services revenues in 1995.
Cost of Revenues. Cost of revenues for entertainment totaled $85,000 in
1995 (88.3% of entertainment revenues, reflecting primarily payments to a
third-party fulfillment operation for the shipment to the Company's customers of
music CDs and cassettes produced by others and telecommunications and credit
card processing charges. Cost of revenues for information services declined 1.1%
from $6.6 million in 1994 (57.6% of information services revenues) to $6.5
million in 1995 (59.1% of information services revenues). The increase in cost
of information services revenues as a percentage of information services
revenues reflects the Company's strategic decision to reduce margins for
competitive reasons.
Operating and Development Expenses. Operating and development expenses
increased 27.6% from $1.8 million in 1994 (15.6% of total revenues) to $2.3
million in 1995 (20.5% of total revenues). The increase reflects the expansion
of the Company's engineering staff and the development and launch of Music
Boulevard.
Sales and Marketing Expenses. Sales and marketing expenses increased 88.9%
from $1.4 million in 1994 (12.0% of total revenues) to $2.6 million in 1995
(23.2% of total revenues). The Company sells its information services products
through distributors that bear the majority of the marketing expenses to reach
customers. In its entertainment business, the Company incurs the expenses of
marketing directly to its customers, and the increase in sales and marketing
expenses reflects primarily costs associated with the launch of Music Boulevard.
General and Administrative Expenses. General and administrative expenses
declined 14.5% from $1.6 million in 1994 (13.7% of revenues) to $1.3 million in
1995 (12.1% of revenues). The decline reflects the Company's efforts to reduce
general and administrative expenses in order to provide additional funds for its
research and development activities.
Fiscal 1994 Compared with Fiscal 1993
Revenues. Information services revenues increased 10.0% from $10.4 million
in 1993 to $11.4 million in 1994, primarily due to growth of the Company's two
largest distributors, CompuServe and NIFTY, which accounted for 74.5% and 9.6%,
respectively, of revenues in 1994.
Cost of Revenues. Cost of revenues for information services increased
14.1% from $5.7 million in 1993 (55.5% of information services revenues) to $6.6
million in 1994 (57.6% of information services revenues). The increase in cost
of information services revenues was due primarily to price increases from
information providers that the Company did not pass on to its customers.
Operating and Development Expenses. Operating and development expenses
increased 31.7% from $1.4 million in 1993 (13.0% of total revenues) to $1.8
million in 1994 (15.6% of total revenues). The increase reflects the expansion
of the Company's engineering staff.
Sales and Marketing Expenses. Sales and marketing expenses increased 12.4%
from $1.2 million in 1993 (11.7% of total revenues) to $1.4 million in 1994
(12.0% of total revenues), due to increased spending to market services on
CompuServe through print advertising.
General and Administrative Expenses. General and administrative expenses
increased 6.4% from $1.5 million in 1993 (14.2% of revenues) to $1.6 million in
1994 (13.7% of revenues).
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital expenditures primarily
from equity financings, cash generated from operations, lease financings and a
revolving bank credit line described herein. At March 31, 1996, the Company had
a cash balance of $1.5 million. Subsequent to March 31, 1996, the Company had
raised net proceeds of $15.9 million through the private placement of Preferred
Stock to fund the future growth of its business. Cash on hand plus the proceeds
of the Offering are expected to provide the funds needed to finance the
Company's planned operations and capital expenditures for at least the next two
years. The Company expects negative cash flow from operations to continue for
the foreseeable future, as it continues to develop and market its online
entertainment operations. See "Risk Factors -- History of Losses; Uncertainty of
Future Results," "-- Possible Need for Additional Funds" and "Use of Proceeds."
The Company has a commitment for a $1.0 million revolving line of credit
with CoreStates Bank, N.A. (the "CoreStates Facility"), which will expire on
June 30, 1996. The CoreStates Facility bears interest at the prime rate for
borrowings which do not exceed $500,000 and at the prime rate plus 1% for
borrowings which exceed $500,000 and is secured by a security interest in
substantially all of the Company's assets. Maximum borrowings under the
CoreStates Facility are limited to certain percentages of eligible accounts
receivable. The CoreStates Facility is subject to an unused commitment fee in
the amount of 0.5% of the unused portion of the facility on a quarterly basis.
The Company is negotiating an extension of the CoreStates Facility.
From time to time, in the ordinary course of business, the Company
evaluates possible acquisitions of or investments in businesses, products and
technologies that are complementary to those of the Company. A portion of the
Company's cash resources may therefore be used to fund acquisitions or
investments. The Company currently has no arrangements, agreements or
understandings, and is not engaged in active negotiations, with respect to any
such acquisition or investment. See "Risk Factors -- Management of Growth;
Changing Business Focus; Acquisitions."
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. This statement
also applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. The Company is required to adopt
SFAS 123 effective January 1, 1996. The Company has elected to adopt the
disclosure requirement of this pronouncement. The adoption of this pronouncement
is expected to have no impact on the Company's financial position or results of
operations.
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BUSINESS
THE COMPANY
N2K is a music entertainment company focused on providing original content,
interactive programming and recorded music using the Internet as a new global
marketing, promotion and distribution medium. By combining its music industry
and technical expertise, N2K has created an interactive, entertaining and
content-rich online environment, which includes its award-winning merchandising
website, Music Boulevard (WWW.MUSICBLVD.COM), music genre websites, Jazz Central
Station (WWW.JAZZCENTRALSTATION.COM) and Rocktropolis (WWW.ROCKTROPOLIS.COM),
and individual artist websites for such artists as David Bowie
(WWW.DAVIDBOWIE.COM) and the Rolling Stones (WWW.STONESWORLD.COM). See
"-- Entertainment Products and Services -- Websites." These websites provide a
comprehensive entertainment and information resource enabling users to search
and sample music and artist information interactively through sound, video and
graphics. Each of the music genre and individual artist websites features a
hotlink directly with Music Boulevard to facilitate purchases of CDs, cassettes
and related merchandise. The Company plans to introduce its own recorded music
label, N2K Encoded Music, with its first release scheduled for October 1996. N2K
expects that all of its N2K Encoded Music CDs will be enhanced with multimedia
capabilities ("Enhanced CDs" or "E-CDs") and will be marketed and sold through
the Company's Internet websites as well as through traditional retail and other
distribution channels. The Company believes that its strategy of combining
Internet content, interactive sales and music produced on its own label will
enhance its ability to create compelling music brand names, address the broadest
possible music audience and build a customer base founded on targeted music
interests. The Company believes that its interactive sales channel will also
provide a new targeted advertising, promotion and distribution medium for the
music industry that will reach a global user base and that this medium will
shift the way music is marketed to consumers. See "-- The N2K Approach."
Music Boulevard was launched in August 1995, and Jazz Central Station was
introduced in January 1996. Jazz Central Station is the official online website
for George Wein's Festival Productions, producer of the JVC Jazz Festivals, and
the Monterey Jazz Festival for 1996. On June 21, 1996, the Company acquired the
rock website, Rocktropolis, which was launched in June 1995 and which will be
integrated with the Company's existing websites. As part of its strategy to
provide locally tailored content, the Company's first foreign language site will
be launched in Japan in June 1996. Additional music genre sites are scheduled
for release in 1996 and 1997. See "-- Entertainment Products and
Services -- Planned Internet Sites." The Company's website strategy is to build
worldwide online communities around specific music genres where people may
socialize with each other and their favorite artists in a personal environment.
The Company believes that organizing its websites by genres, such as rock, jazz
and classical music, parallels traditional radio play formats and consumer
buying patterns and opens the interactive buying experience to the broadest
possible audience. In addition, the Company believes its genre websites provide
an attractive forum for the consumer to obtain information on specific artists,
and receive updates about related concert tours, music events and other
promotions. The Company believes that traffic flowing from the genre websites
may lead to increased traffic to Music Boulevard and a higher volume of
purchases. The Company's revenues from music entertainment have grown from
approximately $85,000 in the fourth quarter of 1995, to approximately $217,000
in the first quarter of 1996. Substantially all of these revenues were from the
sale of CDs and cassettes produced by other labels.
The Company strengthened its music entertainment focus through the Merger
of New York N2K and Telebase completed in February 1996. However, to date,
substantially all of the Company's revenues have been derived from its online
information services. The Company believes that its ability to aggregate content
from a wide variety of sources, its database management skills and the
infrastructure provided by Telebase will enhance N2K's ability to scale the
infrastructure to facilitate the Company's growth and to create proprietary
databases for targeted marketing to music consumers. See "-- N2K Technology." In
addition, the Company continues to serve its information services customers and
is developing web-based software and information services for the business and
SOHO markets.
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INDUSTRY OVERVIEW
The Recorded Music Industry
The recorded music industry represented approximately a $40 billion global
market in 1995, of which domestic sales accounted for approximately $12 billion.
Industry sources indicate that online sales of recorded music are expected to
exceed $30 million in 1996. The Company believes that online sales of recorded
music will complement the traditional retail channel and will expand overall
music sales due to the online medium's ability to capitalize on the ongoing
shift in demographics of music buyers, to effectively tap a growing
international consumer market and to offer the consumer easier access to a broad
range of titles.
Historically, the development of technology has been one of the major
drivers of growth in the music industry. The introduction of the compact disc in
1983 has been a key factor in the industry's growth during the last decade as
consumers have replaced existing music collections with the CD format. Although
the rate of growth in unit sales of CDs in the U.S. market has lessened in the
1990s, the recorded music industry has continued to experience significant
growth due to expanding distribution, strong growth in the international markets
and shifting demographics. Stores other than record stores, tape and record
clubs and mail order facilities have become an important part of how recorded
music is distributed. For example, tape and record clubs and mail order
collectively comprised approximately 19% of domestic sales in 1994 versus
approximately 11% in 1990. These distribution channels have been particularly
successful in increasing music sales to older consumers who have become a more
important factor in overall music sales in recent years.
The Company believes that the demographic profile of consumers of recorded
music has aged along with the population. According to the Recording Industry
Association of America (the "RIAA"), U.S. purchases of recorded music by the
over-30 age group have increased from approximately 37% of U.S. sales in 1985 to
approximately 47% of sales in 1994 representing total annual sales of
approximately $6 billion. The Company believes that the Internet represents an
attractive retail and promotion medium for customers in this age group because
they are less "hits driven" than younger age groups, typically can afford to buy
more titles at one time (reducing the per unit cost of shipping an electronic
order), often own personal computers and generally have credit cards which are
necessary to engage in electronic commerce.
In addition, international markets for recorded music are growing faster
than the U.S. market. This growth is expected to continue as the music companies
expand their focus beyond English language popular music to local artists and as
television music channels proliferate and promotional tools expand
internationally. Due to the global network it provides, the Company believes the
Internet is well-positioned to tap into international consumer markets where
music sales are growing faster than in the U.S.
In recent years, the music retailing industry has undergone major changes
as the industry has aggressively expanded the number of retail stores, including
megastores, on a national and international level, and as the retail music
environment has become more competitive with the expansion of new music
distribution channels. As a result, the Company believes that it is necessary to
reduce costs at the same time as the number of new releases which need to be
promoted and distributed has increased significantly. According to Soundscan,
Inc., a retail audio sales data collection company ("Soundscan"), the number of
new releases in 1995 was approximately 29,000 titles. Approximately 72% of unit
sales in 1995 came from approximately 2% of all titles available. Consequently,
many music retailers have focused on hit releases, which account for a high
percentage of a store's total sales but represent a small subset of generally
available titles. Retailers limit their overall inventory to match this hits
driven business model, making it increasingly difficult for consumers to get a
broad range of titles from the retail channel. For example, music stores stock
an average of approximately 10,000 SKUs and megastores stock an average of
approximately 35,000 SKUs of a total of approximately 145,000 SKUs generally
available in the U.S. In addition, the Company believes that the focus on hit
releases makes it more difficult for the industry to promote other titles cost
effectively. Today, new music releases are promoted through radio, print
advertising, music video and concert touring. These marketing efforts must cover
a great number of releases and compete for the attention of consumers. As a
result, exposing consumers to new artists and to a broad range of releases
creates a challenge for the record label companies.
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The Company believes that the Internet is emerging as an important
distribution channel for music retailing because of its ability to
cost-effectively promote, market and deliver an extended product line to a music
buying and listening audience that is highly segmented. This market segmentation
is reflected by the number and variety of radio play formats. In addition, there
are currently over 25 Billboard recorded music and airplay charts. The following
is a selection of the new music category charts added by Billboard magazine
since 1985:
BILLBOARD
----------------------------------------------------------------------------
CERTAIN NEW MAGAZINE CHART CATEGORIES ADDED SINCE JANUARY 1, 1985
Album Rock (1985)
Hot Dance Music (1985)
Latin Albums (1985)
Latin Pop (1985)
Latin Regional Mexican (1985)
Latin Tropical/Salsa (1985)
Classical Crossover (1986)
Latin Singles (1986)
Top Jazz Contemporary Albums (1987)
Modern Rock Tracks (1988)
Top New Age Jazz Albums (1988)
Hot Rap Singles (1989)
Hot World Music Albums (1990)
Top Reggae Albums (1994)
The Internet
The power, reach and use of the Internet and online services have grown
rapidly since the commercialization of the Internet in the early 1990s. Much of
the recent growth in Internet use has been driven by the emerging Web, a global
network of Internet servers. Growth in the number of Internet users has been
fueled by a number of factors, including the existing and increasing base of
personal computers ("PCs") in the workplace and at home, improvements in the
performance and speed and reduction in cost of PCs and modems, improvements in
network infrastructure, enhanced ease of access to the Web provided by Internet
service providers, consumer-oriented online services and long distance telephone
companies, emergence of standards for Internet navigation and information
access, declining costs of Internet service due to increased competition among
access providers and increased awareness of the Internet among businesses and
consumers. Growth in Internet consumer usage has also been fueled by the
emergence of the Web, which makes use of graphical user interface technology and
simplifies the retrieval and transmission of information.
International Data Corporation has estimated that the Internet had
approximately 38 million users in 1995, and that this number will grow to
approximately 200 million users by 1999. Industry research, however, indicates
that consumer entertainment-driven use of the Internet is growing, and will
continue to grow at an even more dramatic rate. Further, the growth in access
providers internationally will drive additional traffic over the Internet.
The Company believes that the emergence of the Internet as a mainstream
consumer medium is creating opportunities for entertainment companies to provide
programming for large numbers of consumers. Through the Web, entertainment
companies can deliver timely, personalized content in a manner not possible
through other media. Entertainment programming over the Internet can be
continuously updated, distributed to a vast number of users on a realtime basis,
and accessed by users at any time. The Internet offers an exciting medium for
music and music-related content because of the capacity for the combination of
graphic, audio and video elements. The interactive nature of the Web further
allows the consumer to access music and entertainment information tailored to
the individual user's preferences and system requirements and facilitates the
purchase of recorded music. The Company believes that growth opportunities in
music-related products and services will be driven by the ability to market to
defined user groups and distribute products directly to
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these consumers. The Company believes that the Web will enable targeted
distribution, advertising and promotion, which can change the way products and
services are marketed to consumers. In addition, the ability to gather and
process data resulting from customer purchases and usage will facilitate
targeted promotional efforts in the highly segmented recorded music market.
THE N2K APPROACH
The Company's objective is to build a dominant global music entertainment
company on the Internet. N2K's strategy is to offer engaging content,
interactive programming and recorded music to the consumer, and to provide a new
way for advertisers and merchants to reach targeted audiences, creating a new
channel through which music can be marketed, promoted and sold. Key elements of
the Company's strategy include:
Build the N2K Brand Family. The Company believes that Music Boulevard,
Jazz Central Station, Rocktropolis and its other planned websites will become
identified as brand names under the N2K umbrella, which will symbolize music
entertainment in the online digital age. The Company plans to build and expand
the N2K brand family by promoting its products and services through online
advertising in, and hotlinks with, record company websites, music artist
websites and online search directories such as Infoseek, Lycos, Netscape and
Yahoo! In addition, the Company seeks to create brand name recognition through
advertising and cross promotions in traditional channels such as retail music
stores, magazines and radio, endorsements by high profile music and online
industry participants, and promotion of the N2K brand family with organizations
and events that target the demographic profile of the N2K consumer. The Company
further believes that by continually expanding and developing the breadth, depth
and technological aspects of its websites and recorded music products, it will
be able to enhance its brand name franchise, sustain user growth, attract
advertisers and build its N2K Encoded Music label.
Create Entertaining Buying Experience. The Company creates content-rich
music genre sites, such as rock, jazz, classical, blues, country and urban,
through the combination of audio, graphics, text and video. The Company's genre
and artist websites allow users to target music and information based on
personal interests. The Company believes that this approach provides a
stimulating and entertaining online environment which establishes a community
atmosphere and promotes product sales principally through Music Boulevard. By
developing entertaining and informative content, and by providing a forum for
communication among online consumers, the Company's websites are designed to
motivate users to explore these music information resources, and to encourage
consumers to frequent a favorite website. A key characteristic of the Company's
websites is their dynamic and changing nature, which are designed to generate
immediacy and interest so that users want to return on a regular basis. The
Company believes that increased traffic on its websites will help to attract
additional advertising revenues. See "-- Entertainment Products and
Services -- Websites."
Create Own Record Label. In addition to selling commercially available CDs
and cassettes and related music merchandise online, the Company considers the
launch of N2K Encoded Music to be a key part of its strategy to become a
dominant online music provider. The Company expects that all N2K Encoded Music
CDs will be enhanced with multimedia capabilities. The first releases under the
N2K Encoded Music label, scheduled for October 1996, are planned to be a
compilation of master recordings, based on a global poll of online users'
choices, licensed from other music labels and enhanced with video and graphics,
and a retrospective of Gerry Mulligan's recordings including two new recording
tracks. These and future recordings will be promoted through online promotional
and marketing events initiated by N2K with radio stations, concert promoters and
magazine publishers. In addition, the Company believes that it can leverage its
marketing and music industry expertise to sign artists to the N2K Encoded Music
label and promote and sell N2K Encoded Music Enhanced CDs through its online
interactive sales channel as well as through traditional retail and other
distribution channels. Beginning in the first calendar quarter of 1997, the
Company plans to release its first completely original artist recordings under
the N2K Encoded Music label. See "-- Entertainment Products and
Services -- Planned Record Label."
Capitalize on Artist and Industry Relationships. The Company believes that
the Internet offers a worldwide, direct one-on-one link between recording
artists and their music fans. Using the Internet, an artist can be showcased in
a unique multimedia environment, combining elements from radio, magazine,
newspaper,
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video channels and in-store appearances. The Company's relationships with
recording artists and other key music industry personnel have allowed the
Company to build rich content on its genre-specific websites such as in-depth
areas on particular artists and hotlinks with specific artist websites. Music
Boulevard currently offers direct links with the David Bowie and Stones World
websites, while the Herbie Hancock, Chick Corea and Gerry Mulligan websites are
featured areas within Jazz Central Station. In addition, the Company has
established an advisory board for Jazz Central Station, through which it
maintains relationships with recording artists, music industry executives,
promoters, writers and educators to remain on the cusp of new industry trends
and developments and form new strategic partnerships through which to further
enhance and develop its websites. See "-- Entertainment Products and
Services -- Websites."
Expand Global Reach. The Company believes that music is a global product.
According to the International Federation of the Phonographic Industry,
worldwide music sales have increased by more than 300% over the last ten years.
The Company also believes that the Internet has few barriers to reaching a
worldwide audience and enables content providers to provide an alternative
information and entertainment medium for consumers, especially in countries
where the traditional information channels are highly regulated or controlled.
Use of the Internet is also increasing at a rapid pace, with approximately 200
million users estimated by 1999. Since the inception of its music entertainment
business, 35% of the Company's music product revenues have been to consumers in
over 60 countries outside the U.S. The Company also expects to enhance its
international presence with foreign language websites, the first of which will
be launched in Japan in June 1996.
Leverage Technology. The Company believes that it has sophisticated
systems and tools for delivering high-quality multimedia content and interactive
customer support. In addition, the Company plans to use its technical expertise
in its online information business to create proprietary music-oriented database
products. To maintain its systems, the Company intends to implement new industry
standards as they emerge and to support additional hardware and software
platforms as they are introduced and accepted. The Company further believes that
it has built its operations and infrastructure with the scalability necessary to
allow for and manage significant growth.
MUSIC ENTERTAINMENT ENVIRONMENT
The Company believes that its online services and products provide the
following benefits to online music consumers as well as to industry participants
such as advertisers, record companies and recording artists:
Benefits to Consumers
Breadth and Depth of Content and Products. The Company believes that its
users value the breadth and depth of its entertainment content, as well as its
music and music-related product offerings. By drawing the user into areas of
personal interest, the Company aims to drive sales deep into the catalog and
generate incremental sales by exposing the consumer to music for which his or
her knowledge or access may be limited in a traditional music store environment.
The Company believes that by providing information in an entertaining
programming format, consumers will be more likely to purchase music products.
The Company intends to enhance and expand its current content as well as to
develop and expand coverage to new areas. The Company will continue to seek
relationships with entities such as educational institutions, record labels,
instrument-specific magazines, foundations and international content providers
in order to offer what it considers to be the most comprehensive and highest
quality content to the global online music consumer. N2K currently offers its
consumers access to approximately 145,000 CD and cassette SKUs produced by
others (representing all of the approximately 110,000 titles currently
available) and approximately 50,000 samples of individual recordings, drawn from
approximately 16,000 albums. The Company's sound samples are offered in a MPEG
format. The Company continues to add new sound samples.
Music Genre Approach. The Company's website strategy is to build worldwide
online communities around specific genres of music where people may socialize
with each other and their favorite artists in a personal environment. The
Company believes that just as music is delivered through other channels like
radio stations, cable television channels such as MTV and special interest
magazines using a genre-specific format,
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the online music fan will seek out music and product-related information
according to specific genres or artists rather than by a record company label.
The Company believes that organizing its websites by music genres such as rock,
jazz and classical music parallels traditional media formats as well as consumer
buying patterns. In addition, the Company believes its genre websites provide an
attractive forum for the consumer to obtain information on specific artists, and
receive updates about related concert tours, music events and other promotions.
Ease of Use. The Company believes that ease of use in its websites is
crucial to creating widespread usage and strong brand name recognition.
Therefore, the Company's websites and services feature user friendly and
engaging interfaces for customers to both explore information and order music
and music-related products. To make it more intuitive and visually appealing,
the Company is launching an updated, graphical user interface for Music
Boulevard, scheduled for July 1, 1996. The new interface will provide easier
access to information on Music Boulevard and require a user to register only to
complete an initial purchase. The Company places great emphasis on customer
support in order to maintain high customer satisfaction and establish its
websites as services which deliver product in a timely, efficient manner. The
Company intends to continue to add features that will enhance the ease of use of
its services.
Competitive Pricing. The Company monitors pricing trends among online
music retail sites, other mail-order music retail businesses and traditional
retailers, and adjusts pricing strategies and tactics as necessary to maintain
competitiveness. The Company expects its competitive pricing policy to be
particularly attractive to certain international music consumers, as retail
prices for CDs in many markets outside of the U.S. tend to be higher than CD
prices domestically. The Company offers its products for sale in the U.S. and
outside of the U.S. at the same price. For the international consumer, the
Company believes that its prices are competitive, even after taking into account
shipping, handling, customs duties and local taxes.
Customer Profiling and Personalized Service. The Company plans to utilize
information provided by its users to improve product marketing and
merchandising. The Company expects to use this data to enable its users to have
a personalized interactive experience. For example, one of the most popular
areas of Jazz Central Station is the "listening car" where users can look up
their favorite recording artists and access those artists' favorite recordings.
Foreign Language Websites. In order to reach the global audience served by
the Internet and commercial online services effectively, in selected foreign
markets the Company intends to develop its online communities in the local
language. These websites incorporate localized content and will later feature
local artists. When consumers in these countries wish to purchase CDs or
cassettes, they will be directed to the Music Boulevard website which will also
provide ordering instructions in their native language. The first foreign
language website will be launched in Japan in June 1996. The Company believes
that the launch of N2K Japan represents a critical step in its strategic
international development, since Japan is the second largest market in the world
for recorded music.
Benefits to Industry Participants
A New, Complementary Music Distribution Channel. By designing an effective
multimedia marketing, promotion and delivery system on the Web, the Company
offers traditional record labels a cost-effective and efficient means to market,
sell and distribute music products on a worldwide basis. Through traditional
music retail channels, an album's worldwide marketing, promotion and
distribution requires substantial coordination, organization and expense. Today,
a new release is typically promoted through radio airplay, print advertising,
music videos and concert tours. Due to the growth in recent years of the number
of new releases, the promotion of new artists has become a more complex task.
Marketing efforts must cover a greater number of releases and each release
competes for the attention of consumers. See "-- Industry Overview -- The
Recorded Music Industry." The Company's online service is designed to simplify
this process by providing every user access to music and recording artists on
the first day of a product's release. Distribution over the Web and online
services offers content to some marketplaces in which this content was
previously unavailable on a timely basis. In addition, Internet merchants'
requirements for physical store premises, warehouses and distribution centers
are greatly reduced, and in some cases eliminated, by allowing shipment directly
from the
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distributor to the consumer. The Company believes that utilizing this new online
distribution channel will create a shift in the marketing of recorded music.
Global Reach and Targeted Audiences. The global reach of the Internet and
online services provides advertisers with opportunities to reach a broad
audience by targeted market segments. As the Company adds foreign language sites
and international operations, it may offer local advertisers additional
opportunities to market products and services for highly focused, defined
audiences around the world. In addition, the Company plans to gather, process
and analyze data resulting from customer usage of its websites and purchases to
enhance the ability of music industry participants and other advertisers to
target their promotional efforts.
Direct Links Between Recording Artists and Fans. The Company's music genre
websites and artist-specific websites offer one-on-one communications between
artists and their music fans. These websites allow artists to be showcased in a
multimedia environment with direct access to their fans and, conversely, provide
users with star access, such as via chat lines to music recording artists. The
Company believes that its ability to offer artists a direct link to fans may
attract artists to the N2K Encoded Music label.
ENTERTAINMENT PRODUCTS AND SERVICES
Websites
The Company believes it is creating strong brand names in Music Boulevard,
Rocktropolis and Jazz Central Station and seeks to build brand awareness for
each of its music genre websites by providing services with high entertainment
value, leading-edge technology, ease of use and a high level of customer
support. The Company believes that its strong industry relationships with music
publishers, recording artists, record producers and record labels provide access
to a broad range of content which, when combined with the expertise of its
multimedia content development and editorial staff, results in visually
captivating and content-rich websites. By offering content according to music
genre websites, each of which has its own universal resource locator or "URL,"
the Company believes that it can increase traffic to its websites and expand the
amount of time per user visit on its websites. Consumers can access the
Company's Music Boulevard website directly over the Web, through music genre or
artist websites such as Jazz Central Station, Stonesworld and the David Bowie
website, all of which are hotlinked with Music Boulevard, or through online
search directories such as Infoseek, Lycos, Netscape and Yahoo! The Company
believes that both users and advertisers prefer websites with distinct URLs
designed for specific audiences and that this approach enhances the Company's
ability to promote content within each website, encourages more users to
bookmark the Company's websites and attracts greater numbers of third-party
hypertext links to the Company's websites.
The Company intends to establish an advisory board for each of its music
genre websites, comprised of artists, executives, promoters, writers and
educators active in the music industry and focused on that particular music
genre. The Company believes that the combined expertise of its existing and
planned advisory boards will allow it to support the accuracy and authenticity
of each site's information, demonstrate the quality of its products and services
through the advisory boards' stamp of approval, remain on the cusp of new
industry trends and developments and form new strategic partnerships through
which to further enhance and develop its sites.
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The Company's existing and currently planned websites include:
<TABLE>
<CAPTION>
EXISTING WEBSITES LAUNCH DATE DESCRIPTION
- ------------------------- ------------- ----------------------------------------------------
<S> <C> <C>
musicblvd.com............ August 1995 Flagship website of the Company offering
cross-genre, multimedia music information and
merchandise. Music Boulevard is the recipient of the
1995 IIA Award for Best Consumer Website.
jazzcentralstation.com... January 1996 Genre entertainment website for the global jazz
online community, exploring the contemporary and
traditional worlds of jazz through multimedia
elements. Jazz Central Station is the recipient of
both the 1996 America Online -- Online Music Award
for Best Jazz Cybersite and the 1996 New Media
Invision Award for Best Music-Related Online Site.
rocktropolis.com......... June 1995* Genre entertainment website for the global online
rock and pop community, emphasizing high-end
graphical style.
stonesworld.com.......... November 1995 Rolling Stones website featuring innovative
graphics, multimedia elements and album-oriented
content.
davidbowie.com........... September
1995 David Bowie website featuring state-of-the-art
graphics, themed multimedia elements and constantly
updated content.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PLANNED WEBSITES LAUNCH DATE DESCRIPTION
- ------------------------- ------------- ----------------------------------------------------
<S> <C> <C>
classicalinsites.com..... Late 1996 Planned genre entertainment website for the global
online classical music community, exploring Leonard
Bernstein's life and world of classical music
through multimedia elements.
blues.................... 1997 Planned genre entertainment website featuring the
Company's recently acquired blues master recordings,
representing blues artists throughout the Southern
U.S.
</TABLE>
* Acquired by the Company in June 1996.
Existing Websites. Music Boulevard is a comprehensive, multimedia music
entertainment resource providing music merchandise and information in an art
deco setting. Launched on the Web in August 1995, Music Boulevard features a
music merchandising center with an approximately 110,000 title catalog, advanced
search functions, 30-second sound samples in a MPEG format, cover art, photos
and song lists. The website also features Music Wire and @Country, the Company's
exclusive daily online music newspapers, edited and written by professional
music journalists, which provides music news, album reviews and concert
information, as well as editorials, artist profiles and product information.
Music Boulevard's editorial staff provides original reporting and reviews
related to the music world which, unlike weekly trade magazines, are immediately
available to consumers and are continuously updated throughout the day. Music
Boulevard also offers Billboard chart listings and access to other major music
publications including Blues Revue, Dirty Linen, e.Bop, Fanfare, Gramophone,
Puncture and SPIN.
The Company sells advertising on and recorded music CDs and cassettes and
related music merchandise through Music Boulevard. Prior to purchasing CDs,
cassettes or other merchandise, a consumer can access a variety of information
about an artist or music group, a song or title or a music genre and can sound
sample various music titles. The Company believes that by offering the consumer
a rich, entertaining buying experience, coupled with the ability to easily
locate a specific artist or song through the Company's proprietary search
engine, it differentiates the N2K purchasing experience from that of many of its
competitors. In addition, the Company offers the consumer the option to purchase
from a selection of approximately 145,000 CD and cassette SKUs produced by
others (representing all of the approximately 110,000 titles currently
available) and to sound sample from a selection of approximately 50,000 tracks.
The Company believes that its sites also offer the broadest range of sound
samples currently available online.
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Jazz Central Station is an in-depth jazz, multimedia music entertainment
and information resource for the global jazz community. Jazz Central Station
explores the contemporary and historical worlds of jazz through text, graphic
and multimedia elements, with featured areas including: Featured Artists,
Recommended Listening, Record Company Cargo Area providing information on jazz
record labels and their artist releases, Musician's Express featuring master
classes by acclaimed jazz artists as well as educational information, Jazz
Destinations highlighting jazz events and venues worldwide and Jazz Cafe
interviews with musicians in RealAudio. Other features include forums, live
chats, cover art, videos, photos, liner notes, reviews, biographies, concert
calendars and educational information. Jazz Central Station is also the official
website for JazzTimes, the International Association of Jazz Educators, George
Wein's Festival Productions, producer of the JVC Jazz Festivals, and the
Monterey Jazz Festival of 1996. In addition, Jazz Central Station includes
artist sites for Chick Corea, Herbie Hancock and Gerry Mulligan. The Company
believes that the programming content provided by JazzTimes magazine (in the
form of highlights of each current issue and archives of past issues) combined
with its experienced editorial staff of writers enables it to provide high
quality, timely and engaging editorial content to its users. Further, in 1996
Jazz Central Station inaugurated the first annual JCS Global Jazz Poll, in which
its online users voted for their favorite artists. The winners have been chosen
and selected winning tracks are being compiled for one of the Company's initial
releases under the N2K Encoded Music label in October 1996. In addition, a
concert event featuring Dave Grusin and the Jazz Central Station all-stars is
scheduled in Japan in connection with the launch of the Company's Japanese
website. Jazz Central Station has an acclaimed Board of Advisors including Chick
Corea, Quincy Jones, Ramsey Lewis, Bruce Lundvall, Dan Morgenstern and George
Wein.
Rocktropolis is an online community that presents high-end graphic style to
create an entertaining, interactive environment for the rock and roll consumer.
Featured areas include: Trash and Chat at the Fins Motel, Featured Artists, In
Spite, the website's own online Hollywood tabloid, The Love Parlor, City Jail
and Musicians Exchange. In addition, users can explore featured artists'
histories and current news through videos, interviews, recommended listening,
e-mail and online chats. In addition, Rocktropolis features the websites of
Sting and The Artist Formerly Known as Prince. Further, the website features its
own Ozone magazine, which covers today's rock music scene with interviews,
reviews and observations.
In late 1996, the Company plans to enhance its Rocktropolis and Music
Boulevard websites by including an alternative rock and pop online music
magazine that targets the music and cultural interests of alternative rock
consumers by interviewing and reviewing current and emerging rock bands, artists
and cultural trends. The magazine will provide daily music news, album reviews,
in-depth special features, offbeat pop culture articles, weekly writers' columns
and scheduled chat events. In addition, the Company intends to offer
sophisticated indexing and searching techniques to allow quick and efficient
access to past content. This feature will be accessible through both the Music
Boulevard and Rocktropolis websites. The Company recently hired Rob Lord, a
founder of IUMA, Internet Underground Music Archives, to oversee the development
of the alternative rock and pop online music magazine.
Stones World is a Rolling Stones website with heavy emphasis on the album
Stripped and the Voodoo Lounge CD-ROM. The website features a comprehensive
catalog of the Rolling Stones' music, comprised of five separate sections:
EXTRA, PAST, STRIPPED, CD-ROM and FUTURE. This website incorporates leading-edge
animation, streamed real time audio and sound samples as well as archival
photos, band and concert information, interviews, full lyrics and an interactive
poker game.
David Bowie's Outside takes visitors inside the murder-mystery world
explored in Bowie's short story, "The Diaries of Nathan Adler." The website
features streamed animation, state-of-the-art graphics, sound samples, band
biographies, concert information, interviews, cover art, the full text of "The
Diaries of Nathan Adler" and information on Bowie's latest releases and tours.
In addition, the website contains a special section devoted to David Bowie
himself which features the artist's websites and samples of his own digital art.
Planned Internet Sites. In late 1996, the Company plans to launch a
classical music genre website (WWW.CLASSICALINSITES.COM) which will offer a
comprehensive guide to the world of classical music. The website will enable the
user to explore the history of classical music, listen to performances and
discussions by legendary artists, seek out worldwide classical events and
purchase music and related merchandise online.
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<PAGE> 38
Planned features include: artist exhibits, recommended listening areas, video
and product reviews, online access to the fine arts collection at the Library of
Congress, a music learning center, online chats with artists, producers and
Company staff and listings for worldwide classical radio, tour schedules,
concerts and festivals. The Company recently finalized an agreement with the
Leonard Bernstein estate which will establish WWW.CLASSICALINSITES.COM as the
online website of Leonard Bernstein's life and world of classical music,
featuring a retail area, educational room, tour of his studio, articles on his
artistic legacy and current classical music activities. The Company intends to
position its classical website as the definitive website for the classical
enthusiast, from novice to professional, to locate, explore and learn about
classical music.
In 1997, the Company plans to launch a blues genre website featuring the
Company's recently acquired blues recordings representing blues artists
throughout the Southern United States. Planned additional blues genre website
features include photos, interviews, song lists, artwork and videos.
The Company's planned websites have not yet been fully developed. No
assurance can be given that the Company's planned websites will be launched with
the features currently planned or at the time presently scheduled or at all.
Planned Record Label
Management plans to develop N2K Encoded Music as a full-service music
company that will create, produce, license, acquire, and market high-quality
recorded music which will be distributed through online as well as through
traditional retail and other distribution channels. In building and expanding
the N2K Encoded Music label across all music genres, the Company will license
master recordings from other labels, acquire master recordings and publishing
catalogs and sign artists to the label. The Company expects that all of its
releases will be in the Enhanced CD format, which utilizes advanced recording
techniques while incorporating quicktime video clips, interviews, text and an
integrated, seamless link to the Company's online sites. The Company believes
that the E-CD format will create more visibility for the Company's websites as
it offers and highlights multimedia features for the computer users. The Company
believes that by adding multimedia information to an audio compact disc, the
E-CD format will optimize available CD space and provide an economical marketing
tool for artists to reach their fans. This feature represents a new approach
that the Company expects to bring to its online CD sales; however, the Company
anticipates that in the short-term the majority of N2K Encoded Music's new E-CD
recordings will be sold in traditional record stores. Currently, the Company
believes that no other record label is offering all of its new music recording
products as Enhanced CDs and believes that this strategy will give the Company a
marketing advantage in the industry.
In addition, just as the growth in consumers' purchases of audio CDs was
stimulated by the growth in audio CD players beginning in the early 1980s, the
Company believes that the growth in the sales of CD-ROM equipped personal
computers will stimulate consumer purchases of Enhanced CDs. For example, in
1994, over 50% of home personal computers purchased were CD-ROM equipped.
In the Fall of 1996, N2K Encoded Music's two initial releases will feature
a compilation recording of outstanding jazz musicians selected through Jazz
Central Station's first online global jazz poll and a retrospective artist
release from Gerry Mulligan, which will include two new original tracks. N2K
Encoded Music's first blues release is planned for February 1997, in the form of
an all star duet album, which is planned to coincide with the Company's
anticipated launch of its blues website. In addition, the Company has acquired
numerous master recordings of previously undiscovered blues artists from
throughout the Southern U.S., of which a number will be released on a quarterly
basis beginning in 1997.
As part of the Company's strategy to establish the N2K brand name, all of
N2K Encoded Music's label releases are currently planned to include
comprehensive media campaigns tied to promotional events. For example, the
Company's first blues release is scheduled to coincide with Black History Month
in February 1997 and to be promoted online, in magazines and on radio, with
corresponding music-related merchandise offerings. The Company plans to price
its Enhanced CDs on a comparable basis with other music CDs.
The Company has not yet launched N2K Encoded Music, nor has it released any
recordings. In attempting to establish its planned record label, N2K will face
risks inherent in the recorded music industry.
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<PAGE> 39
See "Risk Factors -- Risks Inherent in Recorded Music Industry and Record Label
Launch." No assurance can be given that the Company will be successful in
establishing and building its planned record label.
Entertainment Products and Services Marketing
Website Promotion. The Company has developed a strategy to promote its
Music Boulevard website to record labels through links with record label
websites and through its relationship with Soundscan. The Company believes that
a no-fee hotlink between Music Boulevard and label websites will be extremely
attractive to record companies who cannot sell directly on their own websites
because of conflicts with partnered retailers. Hotlinks are established through
an icon on the record label website, which advertises that a particular album or
act is available for purchase on Music Boulevard. By clicking on the icon, a
user is able to enter Music Boulevard to browse or purchase. In its relationship
with Soundscan, the Company shares its weekly records of recorded music
transactions taking place on its Music Boulevard website. Soundscan uses this
information, along with data from the vast majority of music retail locations
nationwide to tally U.S. music sales. Such data are the exclusive criteria in
compiling the Billboard magazine charts.
In order to generate site traffic and coordinate advertising among its
various sites, the Company advertises through online search directories such as
Infoseek, Lycos, Netscape and Yahoo!, as well as on selected music websites. The
Company's strategy in advertising online is to attract high volume traffic onto
the websites. The Company also barters advertising space with magazines such as
JazzTimes and Details in exchange for print advertisements.
Advertising Sales and Sponsorships. Although the market for
Internet-related advertising represents only a small portion of today's total
advertising market, industry sources project rapid growth for this sector. While
the Company believes that content providers will be the driving force for the
growth of the Internet and online services, it expects that as a result of this
growth, these channels will attract more advertising and sponsorship revenues.
The Company believes that additional factors of importance to advertisers
include audience size, user base demographics, ability to target market,
interactive capability and the online medium's overall advertising
effectiveness. In order to enhance the attractiveness of its websites to
advertisers, the Company intends to deploy an advertising management software
system to facilitate site traffic management, as well as advertising space
management and implementation. The Company is currently evaluating proposals for
third-party independent auditing and verification of the Company's site traffic.
These enhancements will improve the Company's ability to market its websites
aggressively for targeted advertising (by demographics or genre). The Company
has just begun to sell banner advertising on Music Boulevard. With the re-launch
of the Music Boulevard user interface, the Company's plans include an increased
emphasis on generating advertising sales.
Merchandising. The Company's merchandising strategy is based upon
generating traffic on its websites, because the Company believes that increased
website traffic will generate more music and music-related merchandise sales. To
support this strategy, the Company's merchandising efforts are designed to
entertain, inform and stimulate the user along his or her way to purchasing
music products. N2K provides a variety of merchandise and, in its view,
compelling content, to encourage online users to visit its websites. The Company
believes that its editorial commitment to high-quality music-related content
offered free of charge is an important differentiator from other music-related
and music-merchandising sites. A key aspect of the Company's merchandising
strategy is to link its music genre, artist and title-specific content, such as
record reviews, artist profiles and special promotions, to the music ordering
section of Music Boulevard, to both stimulate and facilitate consumer purchases
of CDs and other music products. The Company seeks to differentiate itself in
the marketplace by providing a diverse product mix of music and related
merchandise and become a convenient one-stop online store for music lovers.
The Company facilitates repeat buying by allowing buyers to choose a
password on their first sale. This password eliminates the need for the buyers
to re-input credit card and shipping information and makes the next purchase a
much simpler process. The Company also plans to implement a frequent buyers club
membership program in connection with the scheduled re-launch of the Music
Boulevard user interface on July 1, 1996, whereby members in the Company's
online club will receive discounts on music product
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purchases. The Company considers the club concept a powerful marketing tool, the
ultimate value of which is the ability to collect user demographics and through
a club discount, attempt to obtain all or a greater portion of a member's online
music purchases.
The Company monitors pricing trends among online music retail sites, other
mail-order music retail businesses and traditional retailers and adjusts pricing
strategies and tactics as necessary to maintain competitiveness. The Company
seeks to encourage the purchase of multiple titles by capping shipping costs and
guaranteeing two-day delivery within the U.S. for purchases of five titles or
more. To date, the Company estimates that the average purchase on Music
Boulevard is approximately three CDs or cassettes per order.
Global Sales. Over 35% of the Company's online sales to date have been
generated in non-U.S. markets. Over the past several years, international music
sales have been growing faster than domestic music sales. The Company believes
that its Internet and online distribution channels, the Web and online services,
are well positioned to participate in this international growth. In addition to
selling current releases, the Company offers a comprehensive product line not
generally available in most international markets. N2K believes that it can
enhance its global user base by providing localized content on all of its online
sites. To achieve this objective, the Company plans to build websites in
different languages, beginning with a Japanese language website which will be
launched in June 1996. Additionally, the Company plans to establish N2K Asia to
service the Southeast Asian market. The Company plans to mirror these operations
in the European market and provide localized content and up-to-date information
on local music scenes.
Fulfillment and Customer Service
The Company places an emphasis on product fulfillment in order to maintain
high customer satisfaction, price competitiveness and establish the Company's
websites as services which deliver product in a timely and efficient manner. The
Company uses Valley, a third-party fulfillment operation, to ship CDs and
cassettes, while handling all of the customer billing functions itself. Credit
card authorization is also handled by a third party, First USA, Inc. See "Risk
Factors -- Dependence on Key Suppliers."
The Company believes that high levels of customer service and support are
critical to the value of its services and to retaining and expanding its user
base. While it is common to find an e-mail feedback mechanism on most Internet
services, the Company believes that its level of customer service support
(staffed 76 hours a week, accessible via phone and e-mail) is uncommon. The
Company provides customers with the opportunity to communicate via e-mail,
facsimile and toll-free and local telephone numbers. Company representatives
handle general questions about the service as well as register customers' credit
card information over the phone. The Company believes that these representatives
are a valuable source of feedback regarding user satisfaction, which the Company
uses to improve its services. Customers of the Company are not charged for
service and support.
N2K INFORMATION SERVICES
In the information services business, the Company has offered online
business information retrieval services since 1984. The Company's principal
service in this area is EasyNet, a premium-priced reference service licensed to
online content distributors, primarily CompuServe (under the brand name IQUEST)
and NIFTY (under the brand name INFOCUE). This service offers business credit
data, research reports, company fact sheets and newsletters, as well as general
reference information such as newspapers and magazines, from more than 1,000
sources. Historically, the Company has generated information services revenues
through transactional charges to its distributors for their customers' use of
the services.
The online information services business has become more competitive and
price sensitive as general reference content, such as newspapers and magazines,
has become increasingly available over the Internet at minimal or no cost to the
user. Recognizing the changing competitive environment, the Company re-focused,
beginning in 1995, its online information services strategy, resources and
business approach in three key areas by (i) continuing to serve its existing
distributors by emphasizing its premium database content; (ii) developing new
Web-based services and software packages to deliver its database content to
business
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<PAGE> 41
market niches such as the SOHO market and (iii) creating proprietary databases
for targeted marketing to music consumers.
In June 1995, the Company unbundled IQUEST services and lowered its prices,
thereby significantly reducing the Company's revenues. The Company's unbundling
strategy was intended to competitively position EasyNet and highlight the
service as a source of premium databases. The Company believes that these
databases, which include information such as credit reports, intellectual
property information, scientific research and government reports, are less price
sensitive than general reference information. In addition, the Company is
transitioning from a textual user interface to a more graphical user interface.
The Company has designed its graphical user interface to offer easy, integrated
access to key business and research resources such as D&B Information, UMI,
Thomson & Thomson, Derwent, IAC and TRW.
The Company has also recognized the growing consumer and small business
usage of online services, and has responded by expanding its current offerings
to include web-based software and information services for the business and SOHO
markets. In conjunction with Knight-Ridder, the Company has developed desktop
software packages to provide access to databases and information sources that
focus on the specialized needs of the business and professional markets. These
products are currently available using N2K's customized versions of Windows
software and are marketed as Knight-Ridder's Custom DIALOG and DIALOG
Quickstarts, Engineering Information's EISE and Thomson & Thomson's T&T
Trademark Center. To date, key applications targeting the specific needs for
engineering, intellectual property, market research, medicine and health and
pharmaceuticals information have been developed for the business and SOHO
markets. The Company supports the marketing efforts of its publishers for these
applications.
The Company plans to use its content aggregation and database management
experience from its online information business in order to gather, process and
distribute proprietary music databases to enhance the Company's ability to
target market to music consumers. In building these databases, the Company will
aggregate information provided voluntarily from its users, regarding the online
music consumers' preferences, habits and desires, which will be organized around
such factors as music genre, geographic distribution and consumer demographic
profile. The Company believes that this information will be important to improve
product marketing and merchandising for the Company, music industry companies
and advertisers.
N2K TECHNOLOGY
Over the past twelve years, the Company has developed sophisticated
information services delivery and user tracking systems by integrating
third-party systems, when available, and by developing proprietary tools. The
Company's integrated systems and tools provide functionality in five primary
areas: (i) multimedia asset management, (ii) website development, (iii) audio
encoding and delivery, (iv) fault tolerance and (v) security. At the same time,
the systems and tools provide scalability to maintain performance as the number
of users of the system and the amount of data processed increases and
extensibility to add new functionality as new needs and technologies emerge.
Multimedia Asset Management. Central to the Company's system is a database
management system necessary to index, retrieve and manipulate the Company's
continuously growing multimedia content in a distributed (multi-site)
environment. The database management system allows for rapid searching, sorting,
viewing and distribution of, among other things, audio samples, video clips,
cover art, photos and original art. The Company has chosen Oracle 7.3 as its
database management system and was an early adopter of Oracle Media Objects,
which it uses for the multimedia asset management application. Based on the
quality and creativity of the Company's interfaces, Oracle Corporation selected
the Company as one of its featured developers for Oracle Open World, its
infomercial and international product roadshow which was introduced in 1996.
Website Development. The catalog of CDs and cassettes, stored in an Oracle
database, forms the core of the music entertainment content collection and
contains links to related content (e.g., audio samples, images, editorial
content and charts.) Each individual page of the Company's Music Boulevard
website is built dynamically from these elements using a proprietary web page
template technology. This template technology results in the separation of the
page look and feel from the individual data elements, which eliminates software
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updates for page layout changes and greatly reduces the programming required to
maintain a growing amount of content. The Company has developed software
specifically to enable its editorial and creative staff to develop content
tightly linked into this environment. As a result, the Company can efficiently
import editorial content from third-party sources such as magazines. For
high-volume, non-secure Web transactions the Company uses the Apache web server,
a modular, high-performance server. A senior member of the Company's technical
staff is a member of the Apache development team.
Audio Encoding and Delivery. The ability to deliver the highest possible
audio quality to the user's desktop is fundamental to the Company's strategy.
The Company chose MPEG compression for its audio samples because of its superior
quality and has invested in developing high-quality downloadable sound samples
at up to a 40:1 compression ratio. In light of current user patterns, the
Company also uses Progressive Networks' RealAudio 2.0 format for delivering
realtime streaming audio samples in certain of its websites. The Company is
actively pursuing new and emerging audio technologies.
Fault Tolerance. The Company has operated a 24-hour a day, seven-day a
week computing facility in the online information industry for many years.
Drawing on this experience, the Company's website architecture uses redundant
servers and RAID (redundant array of independent drives) storage systems so that
downtime due to system outages or maintenance needs is minimized. The Company
runs its Oracle database on the Sun Enterprise 4000 server because of its fault
tolerant characteristics including redundant, hot-swappable components. To
further enhance fault tolerance, the Company expects to run Oracle's parallel
database version as soon as possible. See "Risk Factors -- Risk of System
Failure or Inaccuracy."
Security. The Company believes that a high level of security is necessary
in order to conduct commerce over the Internet. The Company employs a
proprietary firewall to keep its Internet connections secure. The Company uses
the Netscape Commerce Server for secure electronic transactions over the
Internet. It uses proprietary EDI (electronic data interchange) interfaces and
private networks to ensure the security of customer credit card transactions and
other order information shared with the Company's fulfillment partner and third
party billing company. The Company plans to implement standardized electronic
transaction mechanisms (such as Secure Electronic Transaction technology, the
standard being developed by major credit cards) as they become commercially
available.
Scalability and Extensibility. The structure of the Company's hardware and
software is built upon a distributed transaction processing model which allows
software to be distributed among multiple parallel servers. This architecture
allows the Company to scale by either adding new servers or increasing the
capacity of existing servers. The current system is designed to easily scale
from several hundred simultaneous users to at least five thousand users while
maintaining both user performance and cost per transaction. In the rapidly
changing Web environment, the ability to update the application system to stay
current with new technologies is important. The system's template technology and
modular database design allow the addition or replacement of server-based
applications such as multimedia formats and delivery systems, additional EDI-
based fulfillment partners and search and retrieval engines. This architecture
also enables low cost, rapid deployment of additional websites that integrate
with the shopping and genre websites.
Advanced Technologies. The Company continually evaluates emerging
technologies and new developments in Web and CD authoring. Technologies with
which the Company is currently working include Sun's Java language and related
tools for creating intelligent client-side applets, Virtual Reality Modeling
Language (VRML) for developing three dimensional environments, emerging
electronic payment and transaction methods, high bandwidth delivery media,
Macromedia Director software and Apple Media tools to link Enhanced CDs to the
Company's websites, the Real Time Protocol (RTP) for orderly delivery of
multimedia content over the Internet and efforts to re-engineer streaming audio
technologies using existing high-quality compression algorithms.
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COMPETITION
Music Entertainment
The market for Internet and online service and content providers is highly
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990's, the number of websites on the Internet competing for consumers'
attention and spending has proliferated. Currently, there are more than one
hundred music business purchase point sites on the Internet and, with no
substantial barriers to entry, the Company expects that competition will
continue to intensify. In addition to competing with independent Internet
retailers and traditional music retail chains with websites on the Internet, the
Company competes with traditional retail stores, including chains and
megastores, catalog merchandisers, music clubs and telephone retailers.
The Company believes that the primary competitive factors in providing
music entertainment products and services via the Internet are name recognition,
variety of value-added services, ease of use, price, quality of service,
availability of customer support, reliability, technical expertise and
experience. The Company believes that its success in this market will depend
heavily upon its ability to provide high quality, entertaining content in an
easy to navigate format, along with cutting-edge technology and value-added
Internet and online services. Other factors that will affect the Company's
success in this market include the Company's continued ability to attract
experienced marketing, sales and management talent, and the expansion of global
support, training and field service capabilities. The Company believes that its
editorial commitment to high-quality music-related content offered free of
charge is an important differentiator from other music-related and
music-merchandising websites. N2K Encoded Music will compete directly with
established record label companies and with other music producers and
distributors, any of which have significantly greater financial, technical and
marketing resources, longer operating history, greater name recognition and more
established relationships with advertisers than the Company. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors.
N2K Information Services
The Company's information services products face current and potential
competition from numerous online and Internet content providers who serve the
consumer and professional markets. There are few barriers to entry, and current
and new competitors can launch new sites at relatively low cost. This
competition falls primarily into the following three broad categories, (i) low
cost content providers, (ii) vertical content aggregators and (iii) suppliers of
the Company's content. The Company believes that the primary competitive factors
in providing online information to the consumer and business professional user
market include the quality of content, the demographics of the Company's online
consumers and pricing. Given the intense competition among online and Internet
content providers, there can be no assurance that the Company will be able to
compete successfully against current or future competitors with respect to any
of these competitive factors.
Many of the Company's current and potential competitors in the music
entertainment and online information services businesses have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition and larger existing customer bases than the Company. In
addition, these competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements and to devote greater
resources to the development, promotion and sale of their products or services
than the Company. There can be no assurance that the Company will be able to
compete successfully against current and future competitors.
EMPLOYEES
As of May 31, 1996, the Company had 108 full-time employees, including 69
in operations and development, 23 in sales and marketing and 16 in general and
administrative. As of May 31, 1996, the Company also had 22 part-time employees,
primarily focused on customer service and 12 consultants, primarily focused on
the Company's music entertainment business. The Company's future success
depends, in significant part, upon the continued service of its key technical,
editorial, sales, product development and
41
<PAGE> 44
senior management personnel and on its ability to attract and retain highly
qualified employees. There is no assurance that the Company will continue to
attract and retain high-caliber employees, as competition for such personnel is
intense. The Company's employees are not represented by any collective
bargaining organization. The Company has never experienced a work stoppage and
considers relations with its employees to be good.
TRADEMARKS AND PATENTS
The Company owns trademarks for Music Boulevard, Telebase, Telebase with
Logo, EasyNet, Corporate EasyNet, ANALY$T, ARTIST Gateway and Knowledge Gateway.
Trademark applications have been filed for Music Blvd., Jazz Central Station and
Rocktropolis. In connection with its Jazz Central Station trademark application,
the Company has received notice of a challenge to its application by another
entity claiming prior use of the name. Although the Company believes it will
prevail, if successfully challenged, the Company may have to pay royalties for
or change the Jazz Central Station name. The Knowledge Gateway Computer (KGC)
system is based upon technology that is patented under U.S. Patent #4,774,655,
issued to the Company in 1988 and expiring in 2005. This patent relates to the
fundamental gateway aspects of the KGC system.
FACILITIES
The Company's corporate headquarters are located in the New York
Information Technology Center ("NYITC") in New York, New York. The Company
leases its facilities and certain other equipment under operating and capital
lease agreements. The Company entered into a new lease agreement for
approximately 13,300 square feet of office space at NYITC commencing on December
22, 1995. NYITC's facilities offer advanced technology amenities including state
of the art voice, video and data transmission and advanced telecom and data
security. The term of the lease expires on May 31, 2001. The Company has entered
into a lease agreement for an additional approximately 7,700 square feet in the
NYITC.
The Company leases an additional 15,000 square foot facility in Wayne,
Pennsylvania which houses the Company's main computer facility. The term of the
lease expires on August 31, 2001. The Company has signed a lease agreement for
additional space of approximately 6,400 square feet at the Wayne, Pennsylvania
facility. There can be no assurance that a system failure at this location would
not adversely affect the performance of the Company's services.
The Company believes that its existing facilities are adequate for its
current requirements and that additional space can be obtained to meet its
requirements for the foreseeable future.
LITIGATION
The Company and 17 other entities have been named as defendants in a civil
action captioned Interactive Gift Express v. CompuServe, Inc. et al., which is
pending in the U.S. District Court, Southern District of New York, Docket 95 CV
6871 (BSJ). The plaintiff in this action alleges infringement of certain
intellectual property rights, and seeks treble damages and costs in an
unspecified amount, as well as other declaratory and injunctive relief. The
Company believes that the claims against it are without merit and intends to
vigorously defend against them. The Company believes that this lawsuit, even if
adversely determined, will not have a material adverse effect on the Company's
business, financial condition or results of operations.
42
<PAGE> 45
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
Company's executive officers and members of the Board of Directors as of the
date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Lawrence L. Rosen(1)................... 56 Chairman of the Board of Directors and
Chief Executive Officer
Jonathan V. Diamond.................... 37 Vice Chairman and Director
Robert David Grusin.................... 61 Vice Chairman and Director
James E. Coane......................... 55 President, Chief Operating Officer and
Director
Bruce Johnson.......................... 46 Vice President, Secretary, Treasurer
and Chief Financial Officer
Jerold Rosen........................... 27 Senior Vice President and General
Manager-Online Entertainment
Daniel E. Meyer........................ 39 Senior Vice President and General
Manager-Online Information
Robert C. Harris, Jr.(1)(2)............ 49 Director
Susanne Harrison(1)(2)................. 51 Director
</TABLE>
- ---------------
(1) A member of the Compensation Committee.
(2) A member of the Audit Committee.
Prior to the Merger, certain of the individuals listed below served as
executive officers and directors of New York N2K, while others served as
executive officers and directors of Telebase.
Lawrence L. Rosen has served as Chairman of the Board of Directors since
the Merger. Mr. Rosen has served as Chief Executive Officer of the Company since
the Merger. From June 1995 until the Merger, Mr. Rosen was Co-Chairman of New
York N2K. Previously, Mr. Rosen and Mr. Grusin formed Grusin/Rosen Productions
in 1976 to produce artists' recordings for major record labels. Mr. Rosen served
as engineer, producer and Co-President, operating under a global distribution
agreement with Arista Records. In 1982, Mr. Rosen co-founded GRP with Mr.
Grusin, and it became one of the first worldwide record labels to adopt an
all-digital, all-CD philosophy, with Mr. Rosen as its Co-President. In 1990, GRP
was acquired by MCA Inc. and Mr. Rosen served as President and Chief Executive
Officer to operate GRP as a division of the MCA Music Entertainment Group until
1995. Mr. Rosen has served as a member of the Board of Governors of the New York
Chapter of the National Association of Recording Arts and Sciences, is a member
of the Grammy Screening Committee and serves on the Board of the National
Foundation for the Advancement of the Arts. Mr. Rosen attended the Manhattan
School of Music.
Jonathan V. Diamond has served as Vice Chairman and a director of the
Company since the Merger. From June 1995 to the Merger, Mr. Diamond served as
Co-Chairman of New York N2K. From 1991 to 1995, Mr. Diamond founded and was
Chairman of the J. Diamond Group, a holding company which acquired and launched
six media and entertainment companies in the U.S. and the U.K., including
Vermilion Films, which produced the feature film "Let Him Have It." From 1984 to
1990, Mr. Diamond served as a director and Executive Vice President of GRP,
where he was responsible for its business and financial strategy. Prior to his
association with GRP, Mr. Diamond founded Diamond Investments, his own
investment firm, which acquired or launched companies in the media,
entertainment and broadcasting areas. Mr. Diamond has served on the Advisory
Board of Columbia University Graduate School of Business. Mr. Diamond holds a
B.A. in Economics and Music from the Honors College of the University of
Michigan and a M.B.A. from Columbia University's Graduate School of Business.
43
<PAGE> 46
Robert David Grusin has served as Vice Chairman and a director of the
Company since the Merger. From June 1995 to the Merger, Mr. Grusin served as a
director of New York N2K. In 1976, Mr. Grusin and Mr. Rosen formed Grusin/Rosen
Productions to produce artist recordings for major music labels, which lead to a
label deal with Arista in 1978. In 1982, Mr. Grusin and Mr. Rosen founded GRP as
an independent record company with Mr. Grusin as Co-President. In 1990, GRP was
acquired by MCA Inc. and Mr. Grusin served as Executive Vice President of GRP,
which became a division of the MCA Music Entertainment Group, until 1995. Mr.
Grusin, a composer, producer and musician, is the recipient of ten Grammy Awards
and one Academy Award. Mr. Grusin serves on the College of Music Advisory Board
at the University of Colorado, and has received honorary doctorates from both
Berkelee College of Music and the University of Colorado.
James E. Coane has served as President, Chief Operating Officer and a
director of the Company since the Merger. From April 1987 to the Merger, Mr.
Coane served as President and Chief Executive Officer of the Company and as
Chairman of the Board of Directors from 1993 until the Merger. Previously, from
1984 to 1987, Mr. Coane served as President and Chief Executive Officer of
Morris Decision Systems, Inc., a marketer and supplier of microcomputers and
related peripherals. Mr. Coane serves on the Board of Directors of the
Information Industry Association and the Ben Franklin Technology Council and as
the Chief Executive Officer of the Council of Growing Companies. Mr. Coane is a
Phi Beta Kappa graduate of Duke University with an A.B. in Economics and
Business Administration.
Bruce Johnson has served as Secretary, Treasurer, Vice President and Chief
Financial Officer of the Company since 1988. Mr. Johnson has sixteen years of
previous experience in public accounting and financial management with positions
at Arthur Andersen & Co., Marriott Corp. and SEI Corp. Mr. Johnson holds a
degree in Accounting from St. Joseph's University and a M.B.A. in Finance from
Drexel University and is a Certified Public Accountant.
Jerold Rosen has served as Senior Vice President and General Manager-Online
Entertainment since the Merger. From June 1995 to the Merger, Mr. Rosen served
as President of New York N2K. From 1988 to 1992, Mr. Rosen served in various
capacities at GRP, including serving as head of its music licensing department.
Mr. Rosen holds a B.A. in Political Economics from Tulane University and a
M.B.A. in Finance from Rutgers University. Jerold Rosen is the son of Lawrence
L. Rosen.
Daniel E. Meyer has served as Senior Vice President and General
Manager-Online Information since the Merger. From 1988 to December 1995, Mr.
Meyer was President and founder of Advanced Research Technologies, Inc. ("ART"),
an information gateway company. In December 1995, ART was acquired by and merged
into the Company. Mr. Meyer has served as a product design consultant for the
Company since 1984. Mr. Meyer holds a B.S. from the University of Maryland and a
certificate in Small Business Management from The Wharton School of the
University of Pennsylvania.
Robert C. Harris, Jr. has served as a director of the Company since
February 1996. Mr. Harris is a co-founder and currently serves as a Managing
Director of Unterberg Harris. From 1984 to 1989, he was a General Partner,
Managing Director and Director of Alex. Brown & Sons Incorporated. From 1979 to
1984, he was a Partner of Robertson Stephens & Company. Mr. Harris is a Director
of Microlytics, Inc., Mobile Data Solutions Inc. and a number of private
companies. Mr. Harris is a graduate of the University of California at Berkeley,
where he received B.S. and M.B.A. degrees.
Susanne Harrison has served as a director of the Company since 1993. Ms.
Harrison has been General Partner of the high technology capital funds, Poly
Ventures, Limited Partnership and Poly Ventures II, Limited Partnership, since
1989 and 1991, respectively. Prior to joining Poly Ventures, Ms. Harrison was
Vice President for Technology Investment Banking at Steinberg and Lyman Inc.
from 1983 to 1987. From 1977 to 1982, she held various management positions at
Symbol Technologies, Inc., a supplier of bar-code laser scanners and portable
terminals. Ms. Harrison serves as a director of several privately-held high
technology portfolio companies, as well as a director of the Long Island Venture
Group. Ms. Harrison holds a B.A. from Hunter College, a M.A. from the State
University of New York and a M.B.A. from Adelphi University.
44
<PAGE> 47
Lawrence L. Rosen, Jonathan V. Diamond, Robert David Grusin, James E.
Coane, Robert C. Harris, Jr. and Susanne Harrison were elected to the Board of
Directors pursuant to a stockholders agreement (the "Stockholders Agreement")
dated as of February 13, 1996, by and among Lawrence L. Rosen, Jonathan V.
Diamond, Robert David Grusin, James E. Coane, Charles C. Wilson III, Poly
Ventures II, Limited Partnership, AT&T Corporation, Gary Lauder and Unterberg
Harris Interactive Media Limited Partnership, CV, in which each party agreed to
vote its shares of capital stock to elect six directors as specified therein.
Simultaneously with the closing of the Offering, the Stockholders Agreement will
terminate in accordance with its terms.
Each director holds office until the next annual meeting of stockholders or
until a successor has been duly elected and qualifies, or until his or her
earlier death, resignation or removal. The Company's executive officers are
appointed annually by the Board of Directors and serve at the discretion of the
Board of Directors.
LIMITATIONS ON DIRECTORS' LIABILITY
Liability Limitation. The Company's Certificate of Incorporation provide
that a director of the Company shall not be personally liable to it or its
stockholders for monetary damages to the fullest extent permitted by the
Delaware GCL. In accordance with the Delaware GCL, the Certificate of
Incorporation does not eliminate or limit the liability of a director for acts
or omissions that involve intentional misconduct by a director or a knowing
violation of law by a director, for voting or assenting to an unlawful
distribution or for any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. The Delaware GCL does afford persons who serve on the board of
directors of a Delaware corporation protection against awards of monetary
damages for negligence in the performance of their duties as directors. The
Delaware GCL does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care. Any
amendment to these provisions of the Delaware GCL will automatically be
incorporated by reference into the Certificate of Incorporation, without any
vote on the part of its stockholders, unless otherwise required.
Indemnification Agreements. Simultaneously with the completion of the
Offering, the Company and each of its directors will enter into indemnification
agreements. The indemnification agreements will provide that the Company will
indemnify the directors against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with any
threatened or pending legal action, proceeding or investigation (other than
actions brought by or in the right of the Company) to which any of them is, or
is threatened to be, made a party by reason of his or her status as a director,
officer or agent of the Company or his or her serving at the request of the
Company in any other capacity for or on behalf of the Company, provided that (i)
such director acted in good faith and in a manner at least not opposed to the
best interests of the Company, (ii) with respect to any criminal proceedings,
such director had no reasonable cause to believe his or her conduct was
unlawful, (iii) such director is not finally adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the Company,
unless the court views in light of the circumstances that the director is
nevertheless entitled to indemnification and (iv) the indemnification does not
relate to any liability arising under Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the rules or regulations
promulgated thereunder. With respect to any action brought by or in the right of
the Company, directors may also be indemnified, to the extent not prohibited by
applicable laws or as determined by a court of competent jurisdiction, against
expenses actually and reasonably incurred by them in connection with such action
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit and Compensation Committees. The
Audit Committee consists of Mr. Harris and Ms. Harrison. Among other functions,
the Audit Committee makes recommendations to the Board of Directors regarding
the selection of independent auditors, reviews the results and scope of the
audit and other services provided by the Company's independent auditors, reviews
the Company's financial statements, and reviews and evaluates the Company's
internal control functions. The Compensation Committee consists of Messrs.
Harris and Lawrence Rosen and Ms. Harrison. The Compensation Committee
administers the Company's Stock Option Plans and equity compensation plans,
determines executive compensation and makes recommendations to the Board of
Directors concerning salaries and incentive compensation for employees and
consultants of the Company.
45
<PAGE> 48
COMPENSATION OF DIRECTORS
Directors currently do not receive compensation for their service on the
Board of Directors or any committee thereof, although they are reimbursed for
expenses incurred in connection with their attendance at meetings of the Board
of Directors. On January 5, 1995, Mr. Diamond was granted options covering 1,666
shares having an exercise price of $1.95 per share, which was determined by the
Company to be fair market value at the time of grant, in consideration for his
services as a director of the Company. Such options were fully exercisable on
the date of grant. Directors are eligible to receive options under the Company's
1996 Stock Option Plan.
EXECUTIVE COMPENSATION
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company and New York N2K during 1995 to each
of the Company's and New York N2K's chief executive officer and each of the
other executive officers of the Company and New York N2K whose total annual
salary and bonus exceeded $100,000 during such period (collectively, the "Named
Executives"). The current positions of the Named Executives effective February
13, 1996 are also included in the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
---------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SARS COMPENSATION
- ---------------------------------------------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Lawrence L. Rosen(1)................................ -- -- -- --
Chairman of the Board and Chief Executive Officer
(effective February 13, 1996); Co-Chairman (1995,
New York N2K)
Jonathan V. Diamond (2)............................. -- -- -- --
Vice Chairman (effective February 13, 1996); Co-
Chairman (1995, New York N2K)
James E. Coane...................................... $155,800 -- 25,000 $2,272(3)
President and Chief Operating Officer (effective
February 13, 1996); President and Chief Executive
Officer (1995)
Jeffrey Magill(4)................................... $125,000 -- 16,666(5) 2,178(3)
Vice President -- Marketing
Bruce Johnson....................................... $109,725 -- 16,666 1,975(3)
Vice President and Chief Financial Officer
</TABLE>
- ---------------
(1) Mr. Rosen did not receive any compensation from New York N2K during fiscal
year 1995. Effective with the Merger on February 13, 1996, Mr. Rosen entered
into an employment agreement with the Company which provides for an annual
base salary of $200,000 and a guaranteed bonus of $50,000 for fiscal year
1996. See "-- Employment Agreements."
(2) Mr. Diamond did not receive any compensation from New York N2K during fiscal
year 1995. Effective with the Merger on February 13, 1996, Mr. Diamond
entered into an employment agreement with the Company which provides for an
annual base salary of $200,000 and a guaranteed bonus of $50,000 for fiscal
year 1996. See "-- Employment Agreements."
(3) Represents Company matching contributions under its 401(k) Matched Savings
Plan.
(4) Mr. Magill's employment with the Company terminated on November 30, 1995.
(5) Mr. Magill's stock options were forfeited in connection with his termination
of employment from the Company on November 30, 1995.
46
<PAGE> 49
Option Grants in Fiscal 1995. The following table summarizes certain
information with respect to Company stock options granted to the Named
Executives during the fiscal year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------
PERCENT POTENTIAL
OF REALIZABLE VALUE
TOTAL AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED STOCK PRICE
SECURITIES TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ------------------
NAME GRANTED YEAR 1995 PER SHARE DATE 5% 10%
---------- --------- --------- ----------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Lawrence L. Rosen............ -- -- -- -- -- --
Jonathan V. Diamond.......... 1,666 0.6% $1.95 January 5, 2005 $ 2,043 $ 5,178
James E. Coane............... 25,000 8.5% 2.40 August 10, 2005 37,733 95,625
Jeffrey Magill(3)............ 16,666 7.5% 2.40 August 10, 2005 25,156 63,750
Bruce Johnson................ 16,666 7.5% 2.40 August 10, 2005 25,156 63,750
</TABLE>
- ---------------
(1) All stock options reported in this table were granted pursuant to the 1987
Employee Stock Option Plan. The options vest ratably over a four-year period
and have a ten-year term.
(2) This column shows the hypothetical gains or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full ten-year term of the options. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
(3) Mr. Magill's options were forfeited in connection with his termination of
employment by the Company on November 30, 1995.
Option Exercises in Fiscal 1995 and Fiscal Year-End Values. The following
table shows the number of shares covered by both exercisable and non-exercisable
stock options as of fiscal year-end, and the values for unexercised options. No
Named Executive exercised any Company stock options during 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1995 DECEMBER 31, 1995(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Lawrence L. Rosen.................. -- -- -- --
Jonathan V. Diamond................ 1,666 -- $ 750 --
James E. Coane..................... 158,649 40,933 2,429 $5,625
Jeffrey Magill(2).................. 30,833 -- 1,875 --
Bruce Johnson...................... 54,954 30,833 2,288 5,625
</TABLE>
- ---------------
(1) Based on the difference between the fair market value of the Common Stock on
December 31, 1995 ($2.40), and the option exercise price for each
above-stated option. The above valuation may not reflect the actual value of
unexercised options as the value of unexercised options will fluctuate with
market activity.
(2) Mr. Magill's options were forfeited in connection with his termination of
employment by the Company on November 30, 1995.
Option Grants in 1996. On February 13, 1996, options covering 1,100,264
shares having an exercise price at or above $2.40 per share, which was
determined by the Company to be fair market value at the time of grant, were
granted to employees of the Company, including Messrs. L. Rosen, Diamond,
Grusin, Coane and Johnson who were granted options covering 293,699, 293,699,
293,699, 41,666 and 16,666 shares, respectively. Such options vest ratably over
a four-year period and generally have a ten-year term.
47
<PAGE> 50
EMPLOYMENT AGREEMENTS
On February 13, 1996, the Company entered into employment agreements with
Lawrence L. Rosen, Jonathan V. Diamond and Robert David Grusin (the "Rosen
Employment Agreement," the "Diamond Employment Agreement" and the "Grusin
Employment Agreement", respectively) to provide for service in the capacities of
Chairman and Chief Executive Officer, Vice Chairman and Vice Chairman, and base
salaries of $200,000, $200,000 and $100,000, respectively, which salaries may be
increased as determined by the Compensation Committee of the Board of Directors.
Each of the Rosen Employment Agreement and the Diamond Employment Agreement
provides for payment of an annual bonus of not less than $50,000, until such
time as such executive's base salary is at least $250,000. The Grusin Employment
Agreement provides for an annual bonus in an amount to be determined by the
Board of Directors. In connection with the Rosen Employment Agreement, Diamond
Employment Agreement and Grusin Employment Agreement, the Company also agreed to
grant incentive stock options to each of the executives to purchase 166,666
shares of Common Stock and additional non-qualified options to purchase 127,033
shares of Common Stock at an exercise price of $2.40 per share (or such higher
exercise price as may be required under Section 422 of the Internal Revenue
Code), which vest ratably over a four-year period.
Each of the Rosen Employment Agreement, Diamond Employment Agreement and
Grusin Employment Agreement is for a two-year term, but absent notice of
termination by either the Company or the executive, shall be automatically
renewed for consecutive one-year periods. If the Company terminates an
executive's employment other than for "cause" or due to "disability" or there
occurs a "change in control" (each as defined in the Rosen Employment Agreement,
the Diamond Employment Agreement and the Grusin Employment Agreement), each
executive will generally be entitled to (i) eighteen months severance, (ii) an
amount equal to his average annual bonus over the prior three years (or if
employed for less than three years, such average multiplied by 1.5) paid out
over 18 months, and (iii) the immediate vesting of any unexercised stock
options. In accordance with the Rosen Employment Agreement, Diamond Employment
Agreement and Grusin Employment Agreement, each executive has agreed not to
disclose any of the Company's confidential information and not to compete with
the Company for an eighteen-month period following termination of his term of
employment with the Company.
On May 1, 1987, the Company entered into an employment agreement with Mr.
Coane (as amended, the "Coane Employment Agreement") that provides for a base
salary of $115,000 until September 30, 1987, and a base salary of $125,000
thereafter, subject to salary increases or other compensation at the discretion
of the Board of Directors. The Company also agreed to grant an option to Mr.
Coane to purchase 133,333 shares of Common Stock of the Company at an exercise
price of $3.00 per share, exercisable until May 1, 1997. Pursuant to the terms
of the Coane Employment Agreement, the executive agreed to serve as President
and Chief Executive Officer, pursuant to election or appointment to those
positions, and to perform such other duties as shall be assigned to him during
the continuance of such agreement. The Coane Employment Agreement was for an
initial term of three years, but absent notice of termination by either the
Company or the executive, the agreement shall be automatically renewed for
consecutive one-year periods. If the Company terminates the executive's
employment other than for "cause" or due to "disability" or there occurs a
"change in control" (each as defined in the Coane Employment Agreement), the
executive shall be entitled to severance for eighteen months. In accordance with
the Coane Employment Agreement, the executive has agreed not to compete with the
Company during the term of his employment or for any period during which he
receives severance pay or acts, pursuant to the agreement, as a consultant to
the Company.
On February 8, 1988, the Company entered into an employment agreement with
Bruce Johnson (the "Johnson Employment Agreement") that provides for a base
salary of $75,000, participation in a bonus plan and salary increases or other
compensation at the discretion of the Board of Directors. The Company also
agreed to grant an option to Bruce Johnson to purchase 41,666 shares of Common
Stock of the Company at an exercise price of $3.75 per share, exercisable until
February 8, 1998. Pursuant to the terms of the Johnson Employment Agreement, the
executive agreed to serve as Vice President and Chief Financial Officer,
pursuant to election or appointment to those positions, and to perform such
other duties as shall be assigned to him during the continuance of such
agreement. The Johnson Employment Agreement was for an initial term of three
years, but absent notice of termination by either the Company or the executive,
the agreement shall be automatically renewed for consecutive one-year periods.
If the Company terminates the executive's employment other than for "cause" or
due to "disability," or there occurs a "change in control" (each as defined in
the Johnson Employment Agreement), the executive shall be entitled to severance
for twelve
48
<PAGE> 51
months. In accordance with the terms of the Johnson Employment Agreement, the
executive has agreed not to compete with the Company during the term of his
employment or for any period during which he receives severance pay or acts,
pursuant to the agreement, as a consultant to the Company.
STOCK PLANS
The Company has historically utilized stock option plans as an integral
component of its compensation program for directors, officers and key executive
employees of the Company. The Company believes that stock options provide
long-term incentives to such persons and encourage the ownership of the
Company's Common Stock.
1987 Employee Incentive Stock Option Plan. The Company's 1987 Employee
Incentive Stock Option Plan (the "1987 Option Plan") provided for the grant of
stock options to certain officers and key executive employees of the Company.
The options granted under the 1987 Option Plan were intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code. As of
May 31, 1996, a total of 650,833 options for Common Stock were outstanding under
the 1987 Option Plan. Any shares of Common Stock subject to an option that has
not been exercised shall remain outstanding until such option is exercised or
expires in accordance with its terms and the terms of the 1987 Option Plan.
Generally, options granted under the 1987 Option Plan vest ratably over a
four-year period on each anniversary of the date of grant. No further stock
options will be granted under the 1987 Option Plan.
Under the 1987 Option Plan, options are not assignable or transferable
except by will or under the laws of descent and distribution. In the event of an
offer to acquire all or substantially all of the assets or stock of the Company,
all options granted under the 1987 Option Plan shall automatically become
immediately exercisable without regard to the provisions relating to installment
exercises or vesting periods.
1996 Stock Option Plan. The 1996 Option Plan was adopted in February 1996.
In June 1996, the Board of Directors of the Company adopted, subject to
stockholder approval, the Company's Amended and Restated 1996 Stock Option Plan
(the "1996 Option Plan"). The 1987 Option Plan and the 1996 Option Plan are
collectively referred to as the "Stock Option Plans." Under the 1996 Option
Plan, stock options may be granted to directors, executives and other key
employees of the Company and its subsidiaries. All options granted under the
1996 Option Plan are not assignable or transferable except by will or under the
laws of descent and distribution. As of May 31, 1996, a total of 1,128,598
options for Common Stock were outstanding under the 1996 Option Plan.
The 1996 Option Plan is administered by the Compensation Committee of the
Board of Directors or such other committee as may be appointed by the Board.
Subject to the limitations set forth in the 1996 Option Plan, the Compensation
Committee has the sole and complete authority to select participants, grant
options to participants, impose restrictions and conditions upon each option,
modify or amend the terms of each outstanding option, reduce the exercise price
per share of unexercised options, accelerate or defer the exercise price per
share of any outstanding option and make all other determinations and take all
other actions necessary for the administration of the plan. The Compensation
Committee may amend or modify the terms of any option agreement in any manner to
the extent that it would have had the authority initially to grant an option
with such amended terms; provided that no such amendment or modification shall
impair the rights of any participant under any outstanding option without the
consent of such participant.
Options granted under the 1996 Option Plan may be either incentive stock
options which are intended to satisfy the requirements of Section 422 of the
Internal Revenue Code, or options that do not qualify as incentive stock
options. Generally, options granted under the 1996 Option Plan vest ratably over
a four-year period on each anniversary of the date of grant. At the Compensation
Committee's discretion, however, options may be made exercisable at any other
time or upon the occurrence of certain events or the achievement of certain
conditions or performance goals. Options granted under the 1996 Option Plan are
exercisable for a period not to exceed ten years from the date of grant, except
that upon a participant's termination of employment for any reason, all vested
options shall expire 90 days following such termination date and any nonvested
options shall be immediately forfeited. Pursuant to the terms of the 1996 Option
Plan, the exercise price of all incentive stock options and nonqualified stock
options granted under the Plan shall not be less than the fair market value of
the Common Stock at the time of grant. In the event of a "change of control" of
the Company (as defined in the 1996 Option Plan) or the termination of a
participant's
49
<PAGE> 52
employment other than for cause, death, disability or voluntary departure, the
Compensation Committee may provide that stock options previously granted shall
be immediately exercisable.
The Company has authorized and reserved 2,200,000 shares of Common Stock
for issuance under the 1996 Option Plan. The shares may be unissued shares or
treasury shares. If any options that are the subject of an award are not
exercised prior to their expiration or are cancelled, terminated or forfeited
without the issuance of Common Stock thereunder, such shares will no longer be
charged against such maximum share limitation and may again be made subject to
award under the 1996 Option Plan. In the event of certain corporate
reorganizations, recapitalizations or other specified corporate transactions
affecting the Common Stock of the Company, proportionate adjustments may be made
to the number of shares available for grant and to the number of shares and
price of outstanding awards made before the event. The 1996 Option Plan has a
term of ten years, subject to earlier termination or amendment by the Board of
Directors. All awards granted under the 1996 Option Plan prior to its
termination remain outstanding until exercised, paid or terminated in accordance
with their terms. The Board of Directors may amend the 1996 Option Plan at any
time, except that shareholder approval is required for certain amendments to the
extent it is required by law, agreement or the rules of any exchange upon which
the Common Stock is listed.
The grant of a stock option under the 1996 Option Plan will not generally
result in taxable income for the participant, nor in a deductible compensation
expense for the Company, at the time of grant. The participant will have no
taxable income upon exercising an incentive stock option (except that the
alternative minimum tax may apply), and the Company will receive no deduction
when an incentive stock option is exercised. Upon exercising a nonqualified
stock option, the participant will recognize ordinary income in the amount by
which the fair market value of the Common Stock on the date of exercise exceeds
the exercise price, and the Company will generally be entitled to a
corresponding deduction. The treatment of a participant's disposition of shares
of Common Stock acquired upon the exercise of an option is dependent upon the
length of time the shares have been held and on whether such shares were
acquired by exercising an incentive stock option or a nonqualified stock option.
Generally, there will be no tax consequence to the Company in connection with
the disposition of shares acquired under an option except that the Company may
be entitled to a deduction in the case of a disposition of shares acquired upon
exercise of an incentive stock option before the applicable incentive stock
option holding period has been satisfied.
Stock options previously granted under the 1996 Option Plan to executive
officers and directors are described above under "-- Executive Compensation --
Option Grants in 1996." The number of shares of Common Stock that may be subject
to options granted in the future to executive officers and other officers, key
employees and directors of the Company under the 1996 Option Plan is not
determinable at this time.
1996 Employee Stock Purchase Plan. In June 1996, the Board of Directors of
the Company adopted and the stockholders of the Company approved the Company's
1996 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan is
intended to satisfy the requirements of Section 423 of the Internal Revenue
Code. The Purchase Plan is administered by the Compensation Committee. Any
employee of the Company or any subsidiary designated by the Compensation
Committee who customarily works at least 20 hours per week and five months per
year is eligible to participate in the Purchase Plan after having worked for the
Company for six months. Approximately 98 employees currently are eligible to
participate in the Purchase Plan. Non-employee directors of the Company are not
eligible to participate in the Purchase Plan. Each employee eligible to
participate in the Purchase Plan will be granted an option to contribute between
one and ten percent of the employee's compensation towards the purchase of the
Company's Common Stock at a purchase price for each three-month purchase period
(a "Purchase Period") equal to the lower of (x) 85% of the fair market value of
a share of the Company's Common Stock on the first day of the Purchase Period
and (y) 85% of the fair market value of a share of the Company's Common Stock on
the last day of the Purchase Period. The amount to be contributed by a
participant will be deducted from each paycheck, held for the participant during
a Purchase Period and applied towards the purchase of the Company's Common Stock
on the last day of the Purchase Period. A participant may change the percentage
of his or her compensation to be contributed for any given purchase period prior
to the beginning of that period and may elect not to participate with respect to
one or more plan periods, but then must wait until the next calendar year before
participating again. The number of shares available for purchase under the
Purchase Plan is 1,500,000. The Board at any time may amend, suspend or
discontinue the Purchase Plan, in whole or in part.
50
<PAGE> 53
CERTAIN TRANSACTIONS
SERIES D PREFERRED STOCK PURCHASE
In August and September 1994, Lawrence L. Rosen and Jonathan V. Diamond and
entities affiliated with Robert C. Harris, Jr. and Susanne Harrison, directors
of the Company, purchased an aggregate of 725,000 shares of Series D Preferred
Stock which will convert upon consummation of the Offering into 743,590 shares
of Common Stock. The purchase price per share of Common Stock on an as-converted
basis was $1.95. Each of these individuals (and/or their affiliated entities)
purchased shares of Series D Preferred Stock that convert into the number of
shares of Common Stock set forth immediately following his or her name: Lawrence
L. Rosen (25,641); Jonathan V. Diamond (51,282); Robert C. Harris, Jr.
(512,821); and Susanne Harrison (153,846).
CONSIDERATION FOR THE MERGER; SERIES E PREFERRED STOCK
In February 1996, as consideration for all of the outstanding shares of
common stock of New York N2K in the Merger, the shareholders of New York N2K
received an aggregate of 1,797,146 shares of Common Stock and 1,347,860 shares
of Series E Preferred Stock of the Company. The stockholders of New York N2K at
the time of the Merger included Lawrence L. Rosen, Jonathan V. Diamond, Robert
David Grusin and Jerold L. Rosen. Each of these individuals received the number
of shares of Common Stock and Series E Preferred Stock that will, upon
conversion of the Series E Preferred Stock, result in the number of shares of
Common Stock set forth immediately following his or her name: Lawrence L. Rosen
(521,172), (130,293); Jonathan V. Diamond (521,172), (130,293); Robert David
Grusin (521,172), (130,293); and Jerold L. Rosen (143,771), (35,943). See
"Principal Stockholders." Also in February 1996, entities affiliated with Robert
C. Harris, Jr. and Susanne Harrison, directors of the Company, and Messrs.
Diamond, Grusin, L. Rosen and J. Rosen purchased an aggregate of 3,050,000
shares of Series E Preferred Stock at a purchase price of $.80 per share. Each
of these individuals (and/or their affiliated entities) purchased the number of
shares of Series E Preferred Stock that convert into the number of shares of
Common Stock set forth immediately following his or her name: Robert C. Harris,
Jr. (172,917); Susanne Harrison (166,667); Lawrence L. Rosen (218,750); Jonathan
V. Diamond (239,583); Robert David Grusin (208,333); and Jerold Rosen (10,416).
In May 1996, Mr. Harris purchased an additional 125,000 shares of Series E
Preferred Stock, which will convert into 41,666 shares of Common Stock. The
purchase price per share of Common Stock on an as-converted basis was $2.40.
OPTION GRANTS TO INSIDERS
The Company has granted options to purchase shares of Common Stock to
certain of its executive officers and directors. See "Management--Employment
Agreements," "-- Compensation of Directors," and "Executive
Compensation -- Option Grants in 1996."
PREFERRED STOCK CONVERSION
Upon consummation of the Offering, 488,838 shares of the Company's Series A
Preferred Stock, par value $.001 per share (the "Series A Stock"), will convert
into 228,369 shares of Common Stock; 625,000 shares of Series B Preferred Stock,
par value $.001 per share (the "Series B Stock"), will convert into 238,095
shares of Common Stock; 2,142,857 shares of Series C Preferred Stock, par value
$.001 per share (the "Series C Stock"), will convert into 800,000 shares of
Common Stock; 800,000 shares of Series D Preferred Stock, par value $.001 per
share (the "Series D Stock"), will convert into 820,513 shares of Common Stock;
6,007,060 shares of Series E Preferred Stock, par value $.001 per share (the
"Series E Stock"), will convert into 2,002,354 shares of Common Stock; and
5,333,333 shares of Series F Preferred Stock, par value $.001 per share (the
"Series F Stock"), will convert into 1,777,777 shares of Common Stock (the
Series A Stock, the Series B Stock, the Series C Stock, the Series D Stock, the
Series E Stock and the Series F Stock are referred to collectively as the
"Preferred Stock"). The automatic conversion of the Preferred Stock is referred
to herein as the "Preferred Stock Conversion." See "Principal Stockholders."
51
<PAGE> 54
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
executive officers as described under "Management -- Employment Agreements."
INDEMNITY AGREEMENTS
Simultaneously with the completion of the Merger, the stockholders of New
York N2K, including Lawrence L. Rosen, Jonathan V. Diamond, Robert David Grusin
and Jerold R. Rosen (collectively, the "New York N2K Stockholders"), entered
into an indemnification agreement with the Company (the "Indemnification
Agreement"). The Indemnification Agreement provides for indemnification by the
New York N2K Stockholders and by the Company against certain liabilities,
losses, claims, damages or expenses arising from or in connection with (i) the
breach of any warranty, the misstatement of any representation or the failure to
fulfill any covenant or agreement made by New York N2K in the Merger Agreement
dated as of January 31, 1996 (the "Merger Agreement" ) between Old N2K and New
York N2K, or in any document furnished by New York N2K or any representative
thereof in connection with the Merger Agreement or the transactions contemplated
therein; (ii) any and all claims, suits, actions or proceedings for brokerage or
other commissions in connection with the Merger Agreement or the transactions
contemplated thereby; and (iii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses incident to any of the
foregoing. Pursuant to the Indemnification Agreement, all indemnification by the
New York N2K Stockholders shall be effected solely by return to the Company of
all or a portion of an aggregate of 416,666 escrowed shares of Common Stock at a
value of $2.40 per share and all indemnification by the Company shall be
effected by the issuance by the Company to the applicable New York N2K
Stockholders of up to an aggregate of 416,666 shares of Common Stock at a value
of $2.40 per share, in proportion to each New York N2K Stockholder's ownership
interest in the Company at the time of the Merger. The Indemnification Agreement
will terminate upon the consummation of the Offering.
Upon the completion of the Offering, the Company will enter into
Indemnification Agreements with each of its directors and executive officers
whereby the Company will agree, subject to certain limitations, to indemnify and
hold harmless each director and executive officer from liabilities incurred as a
result of such person's status as a director of the Company. See
"Management -- Limitations on Directors' Liability -- Indemnification
Agreements."
FUTURE INTERESTED TRANSACTIONS
The Board of Directors has adopted a policy, which will be effective
simultaneously with the completion of the Offering, to provide that future
transactions between the Company and its officers, directors and other
affiliates must (i) be approved by a majority of the members of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors, (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and (iii) be for bona fide business
purposes only.
52
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The table below sets forth at June 21, 1996, certain information prior to
and after the Offering regarding beneficial ownership of Common Stock held by
(i) each director and each of the Named Executives who own shares of Common
Stock, (ii) all directors and executive officers of the Company as a group and
(iii) each person known by the Company to own beneficially more than 5% of the
Common Stock. Each individual or entity named has sole investment and voting
power with respect to shares of Common Stock beneficially owned by them, except
where otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED(1)
SHARES ---------------------------
BENEFICIALLY BEFORE THE AFTER THE
OWNED OFFERING OFFERING
--------- ----------- ----------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Jonathan V. Diamond(2)................................ 995,173 10.1
Lawrence L. Rosen(3).................................. 885,439 9.0
Robert David Grusin................................... 859,798 8.8
Susanne Harrison(4)................................... 780,757 7.9
Robert C. Harris, Jr.(5).............................. 744,070 7.6
Jerold Rosen.......................................... 190,131 1.9
James E. Coane(6)..................................... 186,383 1.9
Daniel E. Meyer....................................... 137,472 1.4
Bruce Johnson(7)...................................... 67,654 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (9
PERSONS):........................................... 4,846,877 49.3
OTHER PRINCIPAL STOCKHOLDERS:
Poly Ventures II, Limited Partnership(4).............. 779,090 7.9
901 Route 110
Farmingdale, NY 11735
Unterberg Harris Interactive Media
Limited Partnership, CV(5).......................... 664,904 6.8
Swiss Bank Tower
10 East 50th Street, 22nd Floor
New York, NY 10022
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by any other person listed. As of June 21, 1996, the
Company had 9,821,711 shares of Common Stock outstanding.
(2) Represents 993,507 shares of Common Stock and exercisable options to
purchase 1,666 shares of Common Stock.
(3) Represents 635,439 shares of Common Stock and 250,000 shares of Common Stock
held by the Lawrence L. Rosen Family Trust, with respect to which Mr. Rosen
has voting power.
(4) Represents exercisable options for 1,666 shares of Common Stock and 779,090
shares of Common Stock owned by Poly Ventures II, Limited Partnership of
which Ms. Harrison is a general partner. Ms. Harrison disclaims beneficial
ownership of shares owned by Poly Ventures II, Limited Partnership .
(5) Represents 79,166 shares of Common Stock and 664,904 shares of Common Stock
held by Unterberg Harris Interactive Media Limited Partnership, CV. Mr.
Harris is a Managing Director of Unterberg Harris. Mr. Harris disclaims
beneficial ownership of shares owned by Unterberg Harris Interactive Media
Limited Partnership, CV.
(6) Represents 27,733 shares of Common Stock and exercisable options to purchase
158,649 shares of Common Stock.
(7) Represents 12,700 shares of Common Stock and an exercisable option to
purchase 54,954 shares of Common Stock.
53
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of the Certificate of
Incorporation and Bylaws. Such summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Certificate of Incorporation and the Bylaws, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
GENERAL
Effective upon the closing of the Offering, the authorized capital stock of
the Company will be comprised of 100,000,000 shares of Common Stock and
20,000,000 shares of Preferred Stock.
COMMON STOCK
Following the Offering, 12,421,711 shares of Common Stock will be
outstanding. All of the issued and outstanding shares of Common Stock are, and
upon the completion of the Offering the shares of Common Stock offered hereby
will be, fully paid and non-assessable. Each holder of shares of Common Stock is
entitled to one vote per share on all matters to be voted on by stockholders
generally, including the election of directors. There are no cumulative voting
rights. The holders of Common Stock are entitled to dividends and other
distributions as may be declared from time to time by the Board of Directors out
of funds legally available therefor, if any. See "Dividend Policy." Upon the
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock would be entitled to share ratably in the distribution of all of
the Company's assets remaining available for distribution after satisfaction of
all its liabilities and the payment of the liquidation preference of any
outstanding Preferred Stock as described below. The holders of Common Stock have
no preemptive or other subscription rights to purchase shares of stock of the
Company, nor are such holders entitled to the benefits of any redemption or
sinking fund provisions. As of June 21, 1996, there were approximately 220
beneficial owners of Common Stock.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
create and issue one or more series of Preferred Stock and determine the rights
and preferences of each series, to the extent permitted by the Certificate of
Incorporation and applicable law. Among other rights, the Board of Directors may
determine, without the further vote or action by the Company's stockholders, (i)
the number of shares constituting the series and the distinctive designation of
the series; (b) the dividend rate on the shares of the series, whether dividends
will be cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series; (iii)
whether the series shall have voting rights, in addition to the voting rights
provided by law and, if so, the terms of such voting rights; (iv) whether the
series shall have conversion privileges, and, if so, the terms and conditions of
such conversion, including provision for adjustment of the conversion rate in
such events as the Board of Directors shall determine; (v) whether or not the
shares of that series shall be redeemable or exchangeable, and, if so, the terms
and conditions of such redemption or exchange, as the case may be, including the
date or dates upon or after which they shall be redeemable or exchangeable, as
the case may be, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates;
(vi) whether the series shall have a sinking fund, for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund and (vii) the rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company
and the relative rights or priority, if any, of payment of shares of the series.
Except for any difference so provided by the Board of Directors, the shares of
all series of Preferred Stock will rank on a parity with respect to the payment
of dividends and to the distribution of assets upon liquidation. Although the
Company has no present plans to issue any shares of Preferred Stock following
the consummation of the Offering, the issuance of shares of Preferred Stock, or
the issuance of rights to purchase such shares, may have the effect of delaying,
deferring or preventing a change of control of the Company or an unsolicited
acquisition proposal. See "Risk Factors -- Anti-Takeover Provisions."
54
<PAGE> 57
REGISTRATION RIGHTS
The holders of an aggregate of 5,688,735 shares of the Common Stock to be
outstanding upon the consummation of the Offering (collectively, the
"Registration Rights Holders") have been granted by the Company certain demand
and incidental registration rights. In general, the Registration Rights Holders
have the right at any time after 180 days from the effective date of the
Registration Statement of which this Prospectus forms a part until the time that
the Company shall have qualified for the use of Form S-2 or S-3, on one
occasion, to cause the Company to register their holdings of Common Stock under
the Securities Act (such right being referred to as a "demand registration
right"). The Registration Rights Holders are also entitled, if the Company
determines to file a registration statement covering any of its securities under
the Securities Act (with the exception of an offering pursuant to a registration
statement on Form S-8 or S-4 and, in the case of Registration Rights Holders
holding the Series F Stock, an initial public offering by the Company) to
require the Company to use its best efforts to include a requested amount of
their shares of Common Stock in the Company's registered offering (such right
being referred to as an "incidental registration right"), subject to reduction
if the managing underwriter for the offering determines that the inclusion of
such shares would interfere with the successful marketing of the offering.
Furthermore, at such time as the Company shall have qualified for the use of
Form S-2 or S-3, the Registration Rights Holders, and their permitted
transferees, have the right to make one demand registration request annually,
subject to certain marketing restrictions.
The Company is required to bear all registration expenses (other than
underwriting discounts and commissions and fees, and certain fees and
disbursements of counsel of the Registration Rights Holders) and has agreed to
indemnify the Registration Rights Holders against, and provide contribution with
respect to, certain liabilities under the Securities Act in connection with
incidental and demand registrations. The Registration Rights Holders have agreed
not to exercise their demand registration rights for a period of 180 days after
the date of this Prospectus. The Company is seeking the consent of the
Registration Rights Holders to delay the effectiveness of any demand
registration statement until the expiration of the 270-day period after the date
of this Prospectus, to the extent requested by the Representatives.
WARRANT AND OPTION ISSUANCES
As of June 21, 1996, there were warrants outstanding to purchase an
aggregate of 135,555 shares of Common Stock at an average exercise price of
$6.57 per share, expiring at various dates ending on June 10, 2003, and options
to purchase an aggregate of 1,880,952 shares of Common Stock at an average
exercise price of $2.47 per share, expiring at various dates ending on April 1,
2006.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
Section 203 of the Delaware GCL contains certain provisions that may make
more difficult the acquisition of control of the Company by means of a tender
offer, open market purchase, a proxy fight or otherwise. These provisions are
designed to encourage persons seeking to acquire control of the Company to
negotiate with the Board of Directors. However, these provisions could have the
effect of discouraging a prospective acquiror from making a tender offer or
otherwise attempting to obtain control of the Company. To the extent that these
provisions discourage takeover attempts, they could deprive stockholders of
opportunities to realize takeover premiums for their shares or could depress the
market price of the Common Stock.
Set forth below is a description of the relevant provisions of Section 203
of the Delaware GCL. The description is intended as a summary only and is
qualified in its entirety by reference to Section 203 of the Delaware GCL.
Section 203 of the Delaware GCL (the "Delaware Statute") prohibits certain
"business combination" transactions between a publicly held Delaware
corporation, such as the Company after this offering, and any "interested
stockholder" for a period of three years after the date on which the latter
became an interested stockholder, unless (i) prior to that date either the
proposed business combination or the proposed acquisition of stock resulting in
its becoming an interested stockholder is approved by the Board of Directors,
(ii) in the same transaction in which it becomes an interested stockholder, the
interested stockholder acquires at least
55
<PAGE> 58
85% of those shares of the voting stock of the corporation which are not held by
the directors, officers or certain employee stock plans or (iii) the business
combination with the interested stockholder is approved by the Board of
Directors and also approved at a stockholders' meeting by the affirmative vote
of the holders of at least two-thirds of the outstanding shares of the
corporation's voting stock other than shares held by the interested stockholder.
NASDAQ NATIONAL MARKET LISTING
The Company intends to apply for listing of the Common Stock on the Nasdaq
National Market under the trading symbol "NTKI."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is
.
56
<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the Offering, there will be 12,421,711 shares of
Common Stock issued and outstanding (assuming the Underwriters' over-allotment
option is not exercised). Of such shares, the 2,600,000 shares of Common Stock
to be sold in the Offering will be immediately eligible for sale in the public
market, except for any of such shares owned at any time by an "affiliate" of the
Company within the meaning of Rule 144 under the Securities Act. The remaining
9,761,989 issued and outstanding shares are "restricted securities" within the
meaning of Rule 144 and may not be publicly resold, except in compliance with
the registration requirements of the Securities Act or pursuant to an exemption
from registration, including that provided by Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least two years, including persons who may be deemed affiliates of the
Company, is entitled to sell within any three-month period a number of shares of
Common Stock that does not exceed the greater of 1% of the then-outstanding
shares of Common Stock of the Company, or the average weekly trading volume of
Common Stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are subject to certain restrictions relating to manner of
sale, notice and the availability of current public information about the
Company. A person who is not an "affiliate" of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned shares for at least
three years, would be entitled to sell such shares immediately following the
Offering under Rule 144(k) without regard to the volume limitations, manner of
sale provisions or notice or other requirements of Rule 144. In addition, any
employee, director or officer of, or consultant to, the Company who purchased
his shares pursuant to a written compensatory plan or contract may be entitled
to rely on the resale provisions of Rule 701, which permits non-affiliates to
sell their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144, and permits
affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus.
The directors and executive officers of the Company and certain other
stockholders of the Company, who collectively hold of the outstanding
shares of Common Stock, have agreed not to, directly or indirectly, offer, sell,
assign, transfer, encumber, pledge, contract to sell, grant an option to
purchase or otherwise dispose of any Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Cowen &
Company. Certain stockholders of the Company are entitled to both demand and
incidental registration rights with respect to 5,629,013 shares of Common Stock.
The Company is seeking the consent of the Registration Rights Holders, who
possess demand registration rights at any time 180 days after the date of this
Prospectus, to delay the effectiveness of any demand registration statement
until the expiration of the 270-day period after the date of this Prospectus, to
the extent requested by the Representatives. After the expiration of the 180-day
period (or 270-day period, as applicable), such holders may choose to exercise
their demand registration rights, which could result in a large number of shares
being sold in the public market. See "Description of Capital
Stock -- Registration Rights" and "Underwriting."
The Company intends to file immediately following the Offering registration
statements on Form S-8 under the Securities Act to register an aggregate of
2,952,354 shares of Common Stock reserved for issuance pursuant to the exercise
of stock options granted under the Stock Option Plans and 1,500,000 shares of
Common Stock reserved for issuance pursuant to the Purchase Plan. The stock
registered under such registration statements will thereafter be available for
sale in the public market upon vesting of such options, subject to the resale
limitations of Rule 144 applicable to "affiliates" of the Company. See
"Management -- Stock Plans."
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. Trading of the Common Stock on the Nasdaq National Market is
expected to commence following the completion of the Offering. No prediction can
be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock. See "Risk
Factors -- Share Eligible for Future Sale; Registration Rights."
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<PAGE> 60
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cowen & Company,
Oppenheimer & Co., Inc. and Unterberg Harris are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of Shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
------------------------------------------------------------ -------------
<S> <C>
Cowen & Company.............................................
Oppenheimer & Co., Inc......................................
Unterberg Harris............................................
-------------
Total.............................................
==============
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such
dealers may allow a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 390,000
additional shares at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
that the number of shares of Common Stock to be purchased by it shown in the
above table bears to 2,600,000 and the Company will be obligated, pursuant to
the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby. If purchased, the Underwriters will offer
such additional shares on the same terms as those on which the shares are being
offered.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The officers, directors and certain stockholders of the Company, holding in
the aggregate shares of the outstanding Common Stock, have agreed not
to, directly or indirectly, offer, sell, contract to sell, assign,
58
<PAGE> 61
transfer, encumber, pledge, contract to sell, grant an option to purchase or
otherwise dispose of any Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Cowen & Company. The
Company has also agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any rights to acquire Common
Stock (other than the grant of options pursuant to the Company's 1996 Stock
Option Plan and shares issuable upon exercise of outstanding options and
warrants) for a period of 180 days after the date of this Prospectus, without
the prior written consent of Cowen & Company, subject to certain limited
exceptions. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations are prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company and the Representatives of the Underwriters
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors,
if any, deemed relevant.
Affiliates of Unterberg Harris are stockholders of the Company and Robert
C. Harris, Jr., a co-founder and a Managing Director of Unterberg Harris, is a
director and stockholder of the Company. See "Management", "Certain
Transactions" and "Principal Stockholders." Unterberg Harris acted as financial
advisor to Telebase in connection with the Merger, for which it received a
warrant to purchase 50,000 shares of Common Stock at an exercise price of $2.40
per share as compensation.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Common Stock
offered hereby will be passed upon for the Company by Dewey Ballantine, 1301
Avenue of the Americas, New York, New York 10019. O'Sullivan Graev & Karabell,
LLP, 30 Rockefeller Plaza, New York, New York 10112, has acted as counsel for
the Underwriters in connection with the Offering.
EXPERTS
The audited consolidated financial statements of the Company as of December
31, 1994 and 1995 and March 31, 1996, and for each of the years in the
three-year period ended December 31, 1995, and the three months ended March 31,
1996, included in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report. The
audited financial statements of N2K Inc., a New York corporation, as of December
31, 1995 included in this Registration Statement have been audited by Richard A.
Eisner & Company, LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
59
<PAGE> 62
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. For the purposes hereof, the term
"Registration Statement" means the original Registration Statementand any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and such Common Stock,
reference is hereby made to such Registration Statement, which can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Regional Offices of the Commission at Seven World Trade Center, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing updated summary financial information for each of
the first three quarters of each fiscal year.
60
<PAGE> 63
N2K INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF N2K INC. AND SUBSIDIARY
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
FINANCIAL STATEMENTS OF NEW YORK N2K
Independent Auditors' Report......................................................... F-18
Balance Sheet........................................................................ F-19
Statement of Operations.............................................................. F-20
Statement of Stockholders' Equity.................................................... F-21
Statement of Cash Flows.............................................................. F-22
Notes to Financial Statements........................................................ F-23
</TABLE>
F-1
<PAGE> 64
After the one-for-three reverse stock split of each outstanding share of
Common stock and the reorganization of the Company as a Delaware corporation as
discussed in Note 1 to the Consolidated Financial Statements is effected, we
expect to be in a position to render the following audit report.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.
June 21, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To N2K Inc.
We have audited the accompanying consolidated balance sheets of N2K Inc. (a
Delaware corporation) and subsidiary as of December 31, 1994 and 1995 and March
31, 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995 and the three months ended March 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of N2K Inc. and subsidiary as
of December 31, 1994 and 1995 and March 31, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 and the three months ended March 31, 1996, in conformity with
generally accepted accounting principles.
F-2
<PAGE> 65
N2K INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- ------------ PRO FORMA
STOCKHOLDERS'
EQUITY
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 1,469,764 $ 547,624 $ 1,484,697
Restricted cash................................................ 500,000 500,000 500,000
Accounts receivable, net of allowance for doubtful accounts of
$49,073,
$42,944 and $56,426.......................................... 1,984,388 1,498,549 1,655,447
Prepaid expenses............................................... 71,417 101,642 190,075
----------- ----------- ------------
Total current assets......................................... 4,025,569 2,647,815 3,830,219
----------- ----------- ------------
PROPERTY AND EQUIPMENT:
Computer equipment............................................. 1,427,318 1,717,416 1,473,162
Office furniture and equipment................................. 99,636 141,895 163,515
Leasehold improvements......................................... 63,170 69,534 135,376
Property and equipment under capital leases.................... 489,953 649,052 1,018,686
----------- ----------- ------------
2,080,077 2,577,897 2,790,739
Less -- Accumulated depreciation and amortization.............. (1,518,194) (1,756,752) (1,312,883)
----------- ----------- ------------
Net property and equipment................................... 561,883 821,145 1,477,856
----------- ----------- ------------
OTHER ASSETS:
Restricted cash................................................ 167,000 167,000 167,000
Goodwill, net.................................................. -- -- 273,000
Other.......................................................... 22,471 22,700 58,670
----------- ----------- ------------
Total other assets........................................... 189,471 189,700 498,670
----------- ----------- ------------
$ 4,776,923 $ 3,658,660 $ 5,806,745
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit................................................. $ -- $ 400,000 $ --
Current portion of capital lease obligations................... 96,747 63,504 179,053
Accounts payable............................................... 418,935 387,984 779,902
Accrued vendor................................................. 1,047,087 1,061,200 1,143,893
Accrued compensation........................................... 187,116 231,451 185,596
Other accrued liabilities...................................... 389,535 412,884 412,892
Deferred revenues.............................................. 73,933 70,592 58,750
----------- ----------- ------------
Total current liabilities.................................... 2,213,353 2,627,615 2,760,086
----------- ----------- ------------
LONG-TERM LIABILITIES:
Capital lease obligations...................................... 66,387 149,253 362,525
Other.......................................................... 253,479 232,808 267,796
----------- ----------- ------------
Total long-term liabilities.................................. 319,866 382,061 630,321
----------- ----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock $.001 par value, 20,000,000 shares authorized,
4,056,695, 4,056,695 and 9,154,555 issued and outstanding;
none issued and outstanding pro forma........................ 4,057 4,057 9,155 $ --
Common stock, $.001 par value, 100,000,000 shares authorized,
2,089,286, 2,089,319 and 3,886,548 shares issued and
outstanding; 7,672,812 shares issued and outstanding pro
forma........................................................ 2,089 2,089 3,887 7,673
Additional paid-in capital..................................... 8,539,175 8,539,255 15,683,925 15,689,294
Accumulated deficit............................................ (6,301,617) (7,896,417) (13,280,629) (13,280,629 )
----------- ----------- ------------ ------------
Total stockholders' equity................................... 2,243,704 648,984 2,416,338 $ 2,416,338
============
----------- ----------- ------------
$ 4,776,923 $ 3,658,660 $ 5,806,745
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 66
N2K INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------------------------- -------------------------
1993 1994 1995 1996
----------- ----------- ----------- 1995 -----------
----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Entertainment............... $ -- $ -- $ 96,505 $ -- $ 216,800
Information services........ 10,360,257 11,391,780 10,976,711 3,204,151 2,514,382
----------- ----------- ----------- ---------- -----------
10,360,257 11,391,780 11,073,216 3,204,151 2,731,182
----------- ----------- ----------- ---------- -----------
Cost of revenues:
Entertainment............... -- -- 85,176 -- 213,003
Information services........ 5,747,293 6,558,541 6,489,472 1,863,647 1,591,641
----------- ----------- ----------- ---------- -----------
5,747,293 6,558,541 6,574,648 1,863,647 1,804,644
----------- ----------- ----------- ---------- -----------
Gross profit........ 4,612,964 4,833,239 4,498,568 1,340,504 926,538
----------- ----------- ----------- ---------- -----------
Operating expenses:
Operating and development... 1,350,057 1,777,654 2,267,852 536,721 1,247,573
Sales and marketing......... 1,213,829 1,364,198 2,575,618 501,172 430,993
General and
administrative........... 1,471,150 1,564,658 1,337,731 343,241 507,255
Charge for purchased
research and
development.............. -- -- -- -- 4,133,281
----------- ----------- ----------- ---------- -----------
Operating income
(loss)............ 577,928 126,729 (1,682,633) (40,630) (5,392,564)
Interest income............... 43,761 73,359 106,370 27,683 24,904
Interest expense.............. (82,890) (48,398) (18,237) (3,544) (16,552)
----------- ----------- ----------- ---------- -----------
Income (loss) before
income taxes...... 538,799 151,690 (1,594,500) (16,491) (5,384,212)
Income taxes.................. 33,913 9,280 300 663 --
----------- ----------- ----------- ---------- -----------
Net income (loss)............. $ 504,886 $ 142,410 $(1,594,800) $ (17,154) $(5,384,212)
=========== =========== =========== ========== ===========
Pro forma net loss per common
share (unaudited)........... $ (0.15) $ (0.49)
=========== ===========
Shares used in computing pro
forma net loss per common
share (unaudited)........... 10,939,989 10,925,422
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 67
N2K INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
--------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992........ $ 3,257 $2,089 $ 6,980,811 $ (6,948,913) $ 37,244
Net income...................... -- -- -- 504,886 504,886
------ ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1993........ 3,257 2,089 6,980,811 (6,444,027) 542,130
Issuance of Series D Preferred
stock, net................... 800 -- 1,558,284 -- 1,559,084
Common stock options
exercised.................... -- -- 80 -- 80
Net income...................... -- -- -- 142,410 142,410
------ ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1994........ 4,057 2,089 8,539,175 (6,301,617) 2,243,704
Common stock options
exercised.................... -- -- 80 -- 80
Net loss........................ -- -- -- (1,594,800) (1,594,800)
------ ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995........ 4,057 2,089 8,539,255 (7,896,417) 648,984
Issuance of Common stock and
Series E Preferred stock in
connection with purchase of
N2K Inc...................... 1,348 1,798 4,148,258 -- 4,151,404
Issuance of Series E Preferred
stock........................ 3,750 -- 2,996,250 -- 3,000,000
Common stock options
exercised.................... -- -- 162 -- 162
Net loss........................ -- -- -- (5,384,212) (5,384,212)
------ ------ ---------- ----------- -----------
BALANCE, MARCH 31, 1996........... $ 9,155 $3,887 $15,683,925 $(13,280,629) $ 2,416,338
====== ====== ========== =========== ===========
PRO FORMA BALANCE AFTER CONVERSION
OF PREFERRED STOCK INTO COMMON
STOCK (Note 1) (unaudited)...... $ -- $7,673 $15,689,294 $(13,280,629) $ 2,416,338
====== ====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 68
N2K INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............. $ 504,886 $ 142,410 $(1,594,800) $ (17,154) $(5,384,212)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities --
Depreciation and
amortization............. 269,530 290,653 238,558 69,712 118,382
Provision for doubtful accounts... 18,000 18,000 -- -- 4,500
Charge for purchased
research and
development.............. -- -- -- -- 4,133,281
Decrease (increase) in --
Accounts receivable... (137,348) (202,463) 485,839 (495,506) (83,308)
Prepaid expenses...... 35,237 (26,343) (30,225) 6,077 (84,893)
Other assets.......... 14,191 7,367 (229) 187 642
Increase (decrease) in --
Accounts payable...... (120,905) 89,793 (30,951) (245,811) 391,918
Accrued vendor........ 529,664 (460,180) 14,113 241,250 82,693
Accrued
compensation........ 23,498 43,025 44,335 (52,490) (45,855)
Other accrued
liabilities......... (124,840) 30,897 23,349 263,399 (387,891)
Deferred revenues..... (116,383) (28,665) (3,341) (28,000) (11,842)
Other long-term
liabilities......... (26,969) (47) (20,671) (5,089) 17,769
--------- --------- ----------- --------- -----------
Net cash provided by (used
in) operating
activities............... 868,561 (95,553) (874,023) (263,425) (1,248,816)
--------- --------- ----------- --------- -----------
INVESTING ACTIVITIES:
Purchases of property and
equipment.................. (128,495) (255,847) (338,721) (64,786) (167,625)
Acquisition of N2K Inc., net
of cash acquired........... -- -- -- -- (224,077)
--------- --------- ----------- --------- -----------
Net cash used in investing
activities............... (128,495) (255,847) (338,721) (64,786) (391,702)
--------- --------- ----------- --------- -----------
FINANCING ACTIVITIES:
Net borrowings (repayments)
under line of credit....... $(100,000) $ (400,000) $ 400,000 $ -- $ (400,000)
Payments on capital lease
obligations................ (102,807) (117,959) (109,476) (29,164) (22,571)
Payment on subordinated
note....................... (150,000) (75,000) -- -- --
Proceeds from issuance of
Preferred stock, net....... -- 1,559,084 -- -- 3,000,000
Proceeds from exercise of
common stock options....... -- 80 80 80 162
--------- --------- ----------- --------- -----------
Net cash provided by (used
in) financing
activities............... (352,807) 966,205 290,604 (29,084) 2,577,591
--------- --------- ----------- --------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............. 387,259 614,805 (922,140) (357,295) 937,073
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD........... 467,700 854,959 1,469,764 1,469,764 547,624
--------- --------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD..................... $ 854,959 $1,469,764 $ 547,624 $1,112,469 $ 1,484,697
========= ========= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 69
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED
MARCH 31, 1995 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Background
N2K Inc. (formerly Telebase Systems, Inc.) (the Company or N2K) was formed
as a result of the merger in February 1996, of N2K Inc., which was founded in
1995 as a developer of online music entertainment content and Telebase Systems,
Inc. (Telebase), which was founded in 1984 as a provider of online content and
information retrieval services (see Note 2). In 1995, recognizing increasing
opportunities in the consumer entertainment market, Telebase expanded its online
strategy to include music entertainment.
The Company is a music entertainment company focused on providing original
content, interactive programming and recorded music using the Internet as a new
global marketing, promotion and distribution medium. By combining its music
industry and technical expertise, N2K has created an interactive, entertaining
and content-rich online environment, which includes its award-winning
merchandising website, Music Boulevard, music genre websites, Jazz Central
Station and Rocktropolis, and individual artist sites for such artists as David
Bowie and the Rolling Stones. These websites provide a comprehensive
entertainment and information resource enabling users to search and sample music
and artist information interactively through sound, video and graphics. Each of
the music genre and individual artist websites features a hotlink directly with
Music Boulevard to facilitate purchases of CDs, cassettes and related
merchandise. The Company plans to introduce its own recorded music label, N2K
Encoded Music, with its first release scheduled for October 1996. N2K Encoded
Music CDs will be enhanced with multimedia capabilities and will be marketed and
sold through the Company's Internet websites as well as through traditional
retail and other distribution channels.
To date, the Company has derived its revenues primarily from its online
business information and gateway retrieval services. The Company recently
shifted the focus of its business to music entertainment delivered via the
Internet and expects to derive an increasingly larger portion of its revenues
from the music entertainment business, including the planned N2K Encoded Music
label and the sales of advertising on its music-related websites. Due to the
Company's recent shift in business focus, the Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in new, unproven and rapidly evolving markets. To
address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
employees, continue to upgrade its technologies and commercialize its products
and services incorporating such technologies. There can be no assurance that the
Company will be successful in addressing such risks. If the Company is not
successful in developing and expanding its music entertainment business,
including the planned N2K Encoded Music label and the sales of advertising on
its music-related websites, the Company's ability to achieve profitability would
be materially adversely affected.
Unaudited Pro Forma Stockholders' Equity
In conjunction with the proposed initial public offering of the Company's
Common stock (the Offering), all of the outstanding shares of the Series A,
Series B, Series C, Series D and Series E Preferred stock will convert into
Common stock upon the consummation of the Offering. The unaudited pro forma
stockholders' equity at March 31, 1996 reflects the assumed conversion of the
Series A, Series B, Series C, Series D and Series E Preferred stock into
228,369, 238,095, 800,000, 820,513, and 1,699,287 shares, respectively, of
Common Stock.
F-7
<PAGE> 70
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Split and Reorganization
On , 1996, the Company effected a one- for- three reverse stock split of
each outstanding share of Common stock in N2K Inc., a Pennsylvania corporation,
to be effected prior to the reorganization of N2K Inc. as a Delaware corporation
which will occur immediately prior to the date of this Prospectus. All share,
stock option and warrant data have been restated to reflect the reverse stock
split.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The financial statements for the three months ended March 31, 1995 are
unaudited and, in the opinion of management, include all adjustments (consisting
only of normal and recurring adjustments) necessary for a fair presentation of
results for this interim period. The results of operations for the three months
ended March 31, 1995 and 1996 are not necessarily indicative of the results to
be expected for the entire year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which is
primarily four years. Leasehold improvements are amortized over the shorter of
the estimated useful life or the lease term. Improvements and betterments are
capitalized, and maintenance and repair costs are charged to expense as
incurred. Upon retirement or disposition, the applicable property amounts are
relieved from the accounts, and any gain or loss is recorded in the consolidated
statement of operations. When assets become fully depreciated or amortized, the
applicable asset and accumulated depreciation amounts are relieved.
Goodwill
Goodwill represents the excess of the purchase price of the N2K acquisition
(see Note 2) over the value of net assets acquired. Goodwill is amortized on a
straight-line basis over 5 years. Amortization expense was $7,000 for the three
months ended March 31, 1996. The Company evaluates the realizability of goodwill
based on estimates of undiscounted future cash flows over the remaining useful
life of the asset. If the amount of such estimated undiscounted future cash
flows is less than the net book value of the asset, the asset is written down to
the amount of the estimated undiscounted cash flows. As of March 31, 1996, no
such write-down was required.
Pro Forma Net Loss Per Common Share (Unaudited)
Pro forma net loss per Common share was calculated by dividing net loss by
the weighted average number of common shares outstanding for the respective
periods adjusted for the dilutive effect of common stock equivalents, which
consist of stock options using the treasury stock method. Pursuant to the
requirements of the Securities and Exchange Commission, common stock issued by
the Company during the twelve months immediately preceding the initial public
offering, plus the number of common equivalent shares which became issuable
during the same period pursuant to the grant of common stock options and
warrants, have been included in the calculation of the shares used in computing
pro forma net loss per Common share as if they were outstanding for all periods
presented (using the treasury stock method and the initial public offering price
of $11.00 per Common share). Pursuant to the policy of the staff of the
Securities and Exchange Commission, the calculation of shares used in computing
pro forma net loss per Common share
F-8
<PAGE> 71
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
also includes the Series A, Series B, Series C and Series D Preferred stock
which will convert into 228,369, 238,095, 800,000 and 820,513 shares,
respectively, of Common stock upon the consummation of the Offering contemplated
by this Prospectus as if they were converted to Common stock on their original
date of issuance. The Series E and Series F Preferred Stock, which will convert
into 2,002,354 and 1,777,777 shares, respectively, of Common stock upon the
consummation of the Offering, have been included as outstanding for all periods
presented since they were issued during the twelve months immediately preceding
the initial public offering (see Note 4). Additionally, all common share and per
share amounts have been adjusted retroactively to give effect to the
pooling-of-interests transaction that occurred with Advanced Research
Technologies, Inc. (ART) on December 15, 1995 (see Note 2).
Revenue Recognition
Search (information services) revenues are recorded in the period in which
they are earned. Entertainment revenues which consist of music compact discs and
cassettes sold via the Internet, and includes shipping and handling charges, are
recognized as the product is shipped. The Company records the estimated gross
profit which will be lost due to current year's shipments being returned in
future periods as a reduction of sales and cost of sales in the period of
shipment.
Deferred Revenues
Deferred revenues represent amounts collected from or invoiced to customers
in excess of revenues recognized. Such amounts are recognized as revenue when
the related service is performed.
Operating and development
Operating and development expenses consist of software, engineering,
multimedia production, graphic design and computer operations used in the
development, operation and maintenance of the Company's services. For the year
ended December 31, 1995 and for the three months ended March 31, 1995 and 1996,
the Company incurred costs of $1,263,323, $286,549 and $495,894, respectively,
relating to research and development. These amounts are included in operating
and development expenses as shown on the accompanying consolidated statements of
operations. For the periods prior to 1995, the Company did not separately
identify research and development costs.
Charge for Purchased Research and Development
In connection with the acquisition of N2K Inc. (see Note 2) in February
1996, $4,133,281 of the purchase price was allocated to incomplete research and
development projects. Accordingly, these costs were charged to expense as of the
acquisition date. The amount allocated to the incomplete research and
development projects was determined by an independent appraisal. The development
of these projects had not yet reached technological feasibility and the
technology has no alternative future use. The technology acquired in the
acquisition of N2K Inc. will require substantial additional development by the
Company.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers investment instruments with an original maturity of three months or
less to be cash equivalents. Cash equivalents are comprised of investments in
various mutual and money market funds.
Supplemental Disclosures of Cash Flow Information
For the years ended December 31, 1993, 1994, and 1995, and for the three
months ended March 31, 1995 and 1996, the Company paid interest of $90,805,
$50,809, $18,237, $3,544 and $16,552, respectively. For the
F-9
<PAGE> 72
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years ended December 31, 1993, 1994 and 1995, and for the three months ended
March 31, 1995 and 1996, the Company has received interest income of $50,721,
$67,263, $109,244, $28,706 and $23,791, respectively. Income taxes paid in 1993,
1994, 1995 and 1996 were immaterial. In addition, the Company incurred $84,387,
$159,099 and $43,013 in capital lease obligations during 1994, 1995 and for the
three months ended March 31, 1996, respectively. No capital lease obligations
were incurred in 1993 or during the three months ended March 31, 1995. The
following table displays the non cash assets and liabilities that were
consolidated as a result of the N2K acquisition (see Note 2):
<TABLE>
<S> <C>
Noncash assets (liabilities):
Accounts receivable................................................... $ 78,090
Prepaid expenses...................................................... 3,540
Property and equipment................................................ 557,455
Other assets.......................................................... 36,612
Goodwill.............................................................. 280,000
Charge for purchased research and development......................... 4,133,281
Accounts payable and other accrued liabilities........................ (405,118)
Capital lease obligations............................................. (308,379)
-----------
Net noncash assets acquired........................................ 4,375,481
Less -- Preferred stock issued..................................... (1,078,286)
Common stock issued........................................ (3,073,118)
-----------
Cash paid, net of cash acquired....................................... $ 224,077
===========
</TABLE>
Major Customers and Suppliers
The Company sells its services and products primarily to large companies in
the online service industry. CompuServe Incorporated and the EasyLink Services
Division of AT&T accounted for 70% and 11% of revenues for the year ended
December 31, 1993, respectively. CompuServe Incorporated and NIFTY Corp.
accounted for 75% and 10% of revenues for the year ended December 31, 1994 and
76% and 11% of revenues for the year ended December 31, 1995, respectively.
CompuServe Incorporated and NIFTY Corp. accounted for 69% and 11% of revenues
for the three months ended March 31, 1996, respectively. As of December 31,
1994, the Company had accounts receivable from CompuServe Incorporated and NIFTY
Corp. of $1,510,207 and $69,376, respectively. As of December 31, 1995, the
Company had accounts receivable from CompuServe Incorporated and NIFTY Corp. of
$1,169,042 and $87,993, respectively. As of March 31, 1996, the Company had
accounts receivable from CompuServe Incorporated and NIFTY Corp. of $1,345,252
and $95,431, respectively. The Company has one vendor that accounted for 66%,
59%, 60% and 53% of the cost of revenues for the years ended December 31, 1993,
1994, 1995 and for the three months ended March 31, 1996, respectively. As of
December 31, 1994, 1995 and March 31, 1996, this same vendor was due $890,043,
$858,235 and $951,420. These amounts are included in accrued vendor on the
accompanying consolidated balance sheets and represent the direct cost incurred
to information providers for the content used in the Company's information
services segment.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE> 73
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation Plans
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. This statement
also applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. The Company is required to adopt
SFAS 123 effective January 1, 1996. The Company has elected to adopt the
disclosure requirement of this pronouncement. The adoption of the disclosure
requirements is expected to have no impact on the Company's financial position
or results of operations.
2. ACQUISITIONS:
Merger with Advanced Research Technologies, Inc. (ART)
On December 15, 1995, a wholly owned subsidiary of the Company, ART
Acquisition Corp., was merged with and into ART, an online information retrieval
service business, pursuant to which ART became a wholly owned subsidiary of the
Company, in exchange for 150,000 shares of the Company's Common stock in a
transaction accounted for as a pooling-of-interests. Prior to December 31, 1995,
ART Acquisition Corp. was merged into the Company. Accordingly, the financial
statements for 1993, 1994 and 1995 have been restated to include ART. A
reconciliation of revenues and net income (loss) for the Company and ART for the
periods presented is as follows:
<TABLE>
<CAPTION>
N2K ART POOLED
----------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1993:
Revenues.................................... $10,042,832 $317,425 $10,360,257
Net income (loss)........................... 504,962 (76) 504,886
Year ended December 31, 1994:
Revenues.................................... $11,008,262 $383,518 $11,391,780
Net income (loss)........................... 173,458 (31,048) 142,410
Year-ended December 31, 1995:
Revenues.................................... $10,610,799 $462,417 $11,073,216
Net loss.................................... (1,562,995) (31,805) (1,594,800)
</TABLE>
The difference in the stated value of the shares issued as compared to the
stated value of the shares of ART have been reflected as an increase in
additional paid-in capital.
Acquisition of N2K Inc.
On February 13, 1996, N2K Inc. (N2K), a New York corporation, merged with
and into Telebase Systems, Inc. in a transaction accounted for as a purchase.
Telebase Systems, Inc. issued 1,797,146 shares of Common Stock valued at
$3,073,118 and 1,347,860 shares of its newly created Series E Preferred stock
valued at $1,078,286 in exchange for all of the outstanding Common stock of N2K.
The fair value assigned to the Common stock was determined based upon an
independent appraisal. Telebase Systems, Inc. is the surviving corporation;
however, the corporate name of the surviving corporation has been changed to N2K
Inc. The results of the acquired business have been included in the consolidated
financial statements from the date of acquisition. The total purchase price of
$4,413,281, including transaction costs, was allocated to the assets acquired
and liabilities assumed based on their respective fair values. As discussed in
Note 1, the Company recorded $4,133,281 of the purchase price as a charge to the
consolidated statements of operations on the acquisition date as it was related
to the fair value of incomplete research and development projects. The excess of
the purchase price over the fair value of the net assets acquired (goodwill) was
$280,000 and is being amortized over 5 years on a straight-line basis. If the
acquisition of N2K had occurred on January 1, 1995, the
F-11
<PAGE> 74
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unaudited pro forma information, after giving effect to certain pro forma
adjustments, would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
Unaudited pro forma revenues.................... $11,216,842 $ 2,799,809
=========== ===========
Unaudited pro forma net loss.................... $(2,839,579) $ (1,634,819)
=========== ===========
Unaudited pro forma net loss per Common share... $ (0.26) $ (0.15)
=========== ===========
</TABLE>
The above pro forma information excludes the one time charge of $4,133,281
associated with the write-off of purchased research and development costs.
On February 13, 1996, the Company sold 3,750,000 shares of Series E
Preferred stock at $.80 per share and received gross proceeds of $3,000,000 (see
Note 4).
Acquisition of Rocktropolis Website
On June 21, 1996, the Company acquired the rock website, Rocktropolis, from
Rocktropolis Enterprises, LLC for $633,000 in cash and 59,722 shares of Common
stock. The acquisition will be accounted for as a purchase. The Company will
charge to expense as of the date of the acquisition a significant portion of the
purchase price as a one-time charge to record the write-off of purchased
research and development. Such charge to expense will be recorded in the quarter
ending June 30, 1996.
3. CREDIT AGREEMENTS:
The Company has a line of credit with a bank of $1,000,000 as of March 31,
1996. The line of credit expires on June 30, 1996, at which time the outstanding
principal balance, if any, becomes payable unless the line of credit is
extended. The Company is obligated to pay a commitment fee equal to .5% on the
average daily unused portion of the commitment. The line of credit bears
interest at the prime rate for borrowings which do not exceed $500,000 and at
the prime rate plus 1% for borrowings which exceed $500,000 and is secured by a
$500,000 certificate of deposit and a security interest in substantially all
corporate assets. The $500,000 is shown as restricted cash in current assets on
the accompanying consolidated balance sheets. Maximum borrowings are limited to
certain percentages of eligible accounts receivable (as defined), plus the
$500,000 certificate of deposit. As of June 21, 1996, the Company is negotiating
an extension of this line of credit. During 1994, 1995 and the three months
ended March 31, 1996, the maximum amount outstanding was $500,000, $400,000 and
$600,000, respectively. For the years ended December 31, 1993, 1994, and 1995,
and for the three months ended March 31, 1996, the weighted average interest
rate was 7%, 7.5%, 8.7% and 8.5%, respectively. No amount was outstanding during
the three months ended March 31, 1995. In addition, this line of credit requires
the Company to meet certain financial covenants. Interest expense for the years
ended December 31, 1993, 1994 and 1995, and for the three months ended March 31,
1996, was $34,203, $21,236, $7,360 and $4,992, respectively. No interest expense
was incurred for the three months ended March 31, 1995.
F-12
<PAGE> 75
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1989, the Company entered into a $300,000 subordinated note
agreement with the Philadelphia Industrial Development Corporation (PIDC). The
note was unsecured and bore interest at 13%, payable quarterly. The final
principal payment of $75,000 was paid in December 1994. Interest expense was
$19,500 in 1993 and $9,750 in 1994.
4. PREFERRED STOCK:
Preferred stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Preferred stock, $.001 stated value, 20,000,000 shares
authorized and designated as follows --
Series A, 500,000 shares authorized, 488,838 shares
issued and outstanding............................. $ 489 $ 489 $ 489
Series B, 625,000 shares authorized, issued and
outstanding........................................ 625 625 625
Series C, 2,857,143 shares authorized, 2,142,857
shares issued and outstanding...................... 2,143 2,143 2,143
Series D, 1,000,000 shares authorized, 800,000 shares
issued and outstanding............................. 800 800 800
Series E, 5,097,860 shares authorized, 5,097,860
shares issued and outstanding...................... -- -- 5,098
------ ------ ---------
$4,057 $4,057 $ 9,155
====== ====== =======
</TABLE>
In January 1988, the Company issued 488,838 shares of Series A Preferred
stock at $1.25 per share upon the conversion of certain liabilities. The Series
A Preferred shares are convertible into 228,369 shares of Common stock, subject
to adjustment (as defined).
In March 1988, the Company sold 625,000 shares of Series B Preferred stock
for $1,000,000. In August 1988, the Company sold 2,142,857 shares of Series C
Preferred stock for $3,000,000. In 1993, the Series C Preferred stockholder sold
all of its shares to various outside investors, as well as to officers of the
Company. The Series B and Series C Preferred shares are convertible into 238,095
and 800,000 shares of Common stock, respectively, subject to adjustment (as
defined).
In September 1994, the Company sold 800,000 shares of Series D Preferred
stock at $2 per share and received net proceeds of $1,559,084. The Series D
Preferred shares are convertible into 820,513 shares of Common stock, subject to
adjustment (as defined).
On February 13, 1996, the Company sold 1,347,860 shares of Series E
Preferred Stock in connection with the acquisition of N2K. (See Note 2). Also,
on February 13, 1996, the Company sold 3,750,000 shares of Series E Preferred
Stock for $.80 per share and received gross proceeds of $3,000,000. The Series E
Preferred shares are convertible into 1,699,287 shares of Common stock, subject
to adjustment (as defined).
Subsequent to March 31, 1996, the Company sold 909,200 shares of Series E
Preferred stock at $.80 per share and received net proceeds of approximately
$700,000. The Series E Preferred shares are convertible into 303,067 shares of
Common stock, subject to adjustment (as defined). Additionally, subsequent to
March 31, 1996, the Company sold 5,333,333 shares of Series F Preferred stock at
$3 per share and received net proceeds
F-13
<PAGE> 76
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of approximately $15,200,000. The Series F Preferred shares are convertible into
1,777,777 shares of Common stock, subject to adjustment (as defined).
The Company has reserved 5,867,108 shares of Common stock for the
conversion of all series of Preferred stock. Each series of Preferred stock has
voting rights equal to the number of shares that would be received if it was
converted into Common stock.
5. STOCKHOLDERS' EQUITY:
Common Stock Options
Under the Company's 1987 Incentive Stock Option Plan, options to purchase
1,033,333 shares of Common stock may be granted to certain officers, directors
and employees. The options expire ten years from the date of grant and vest over
four years. Expiration dates range from 1997 to 2005. As of March 31, 1996, no
additional grants will be made under this plan.
Additionally, the Company has 101,521 nonqualified stock options
outstanding as of March 31, 1996, with expiration dates ranging from January
1997 to January 2004. These options vest immediately upon grant.
In February 1996, the Company established the 1996 Stock Option Plan, which
authorized options to purchase 2,200,000 shares of Common stock, as amended and
restated on June 20, 1996. Under the 1996 Stock Option Plan, options may be
granted to officers, directors and other key employees. The options expire ten
years from the date of grant and vest over four years, unless specifically
agreed to otherwise. The exercise price is fixed at the grant date and shall
equal at least 100% of the fair market value of the Common stock on the date of
grant.
Information relative to the 1987 Incentive Stock Option Plan, the
nonqualified stock options and the 1996 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE AGGREGATE
OPTIONS (PER SHARE) PROCEEDS
--------- ------------- ----------
<S> <C> <C> <C>
Balance as of December 31, 1992....................... 419,188 $1.875-$3.75 $1,224,884
Granted............................................. 57,666 $2.40 138,400
Exercised........................................... -- -- --
Terminated.......................................... (52,000) $ 2.40-$3.75 (169,800)
--------- ------------ ----------
Balance as of December 31, 1993....................... 424,854 $1.875-$3.75 1,193,484
Granted............................................. 106,333 $ 1.95-$2.40 210,200
Exercised........................................... (33) $2.40 (80)
Terminated.......................................... (1,966) $2.40 (4,720)
--------- ------------ ----------
Balance as of December 31, 1994....................... 529,188 $1.875-$3.75 1,398,884
Granted............................................. 308,500 $ 1.95-$2.40 608,325
Exercised........................................... (33) $2.40 (80)
Terminated.......................................... (7,800) $2.40 (18,720)
--------- ------------ ----------
Balance as of December 31, 1995....................... 829,855 $1.875-$3.75 1,988,409
Granted............................................. 1,100,264 $ 2.40-$2.64 2,765,434
Exercised........................................... (83) $1.95 (162)
Terminated.......................................... (77,417) $ 1.95-$2.40 (176,763)
--------- ------------ ----------
Balance as of March 31, 1996.......................... 1,852,619 $1.875-$3.75 $4,576,918
========= ============ ==========
Options exercisable as of March 31, 1996.............. 395,021
=========
</TABLE>
F-14
<PAGE> 77
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to March 31, 1996, the Company granted options to purchase
28,333 shares of Common stock at an exercise price of $2.40 per share. These
options were issued under the 1996 Stock Option Plan. As of June 20, 1996,
1,071,403 options are available for grant under the 1996 Stock Option Plan.
Common Stock Warrants
In February 1996, the Company issued warrants to purchase 50,000 shares of
Common stock at an exercise price of $2.40 per share. These warrants expire in
February 2001. Subsequent to March 31, 1996, the Company issued warrants to
purchase 85,555 shares of Common stock at an exercise price of $9.00 per share.
These warrants expire in 2003.
Employee Stock Purchase Plan
In June 1996, the Company established the 1996 Employee Stock Purchase Plan
(the Plan). The number of shares available to purchase under the Plan is
1,500,000 shares of Common Stock. As of June 21, 1996, 1,500,000 shares are
available for purchase under the Plan. The employees purchase price is the lower
of (a) 85% of the fair market value of a share of the Company's Common stock on
the first day of a Purchase period (as defined) or (b) 85% of the fair market
value of a share of the Company's Common stock on the last day of the Purchase
period (as defined).
6. INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires an asset-and-liability approach in accounting for income
taxes. Under this method, deferred income taxes are computed based on the
differences between financial reporting and income tax reporting of assets and
liabilities using enacted tax rates.
As of December 31, 1995, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $6,800,000, which begin to
expire in 2001. Significant components of deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Gross deferred tax asset:
Net operating loss carryforwards................................ $ 1,995,000 $ 2,584,000
Depreciation and amortization................................... 15,200 38,000
Accruals not currently deductible............................... 159,000 152,500
-------- --------
2,169,200 2,774,500
Less: Valuation allowance....................................... (2,169,200) (2,774,500)
-------- --------
$ -- $ --
======== ========
</TABLE>
No tax benefits have been recognized in the accompanying consolidated
statements of operations due to the valuation allowance. The valuation allowance
increased $605,300 during 1995 due principally to net operating loss
carryforwards. Based on changes in ownership of the Company, utilization of the
net operating loss carryforwards may be subject to annual limitations.
7. RELATED-PARTY TRANSACTIONS:
The Company incurred $30,000 in consulting fees to a Board member in 1993.
None were incurred in 1994, 1995 or the three months ended March 31, 1996. For
the years ended December 31, 1993, 1994, and 1995, and for the three months
ended March 31, 1995 and 1996, the Company incurred fees of $30,000,
F-15
<PAGE> 78
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$30,000, $30,000, $1,000 and $79,000 to a law firm in which certain of its
partners are Series A Preferred stockholders.
8. COMMITMENTS AND CONTINGENCIES:
The Company has entered into various operating and capital leases for
office space, computer equipment and office equipment. Assets acquired under
capital leases at a cost of $489,953, $649,052 and $1,018,686, less accumulated
amortization of $338,351, $441,049 and $473,735, are included in property and
equipment in the accompanying consolidated balance sheets as of December 31,
1994, 1995 and March 31, 1996, respectively. Certain capital leases are secured
by certificates of deposit totaling $167,000, which are shown as restricted cash
in other assets on the accompanying consolidated balance sheets. Future minimum
lease payments under operating and capital leases as of December 31, 1995, are
as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- --------
<S> <C> <C>
1996......................................................... $ 265,274 $ 79,394
1997......................................................... 263,641 71,855
1998......................................................... 256,008 63,509
1999......................................................... 251,658 30,701
2000......................................................... 251,250 --
2001 and thereafter.......................................... 167,500 --
---------- --------
Total minimum lease payments................................. $1,455,331 245,459
==========
Less -- Amount representing interest......................... (32,702)
--------
Present value of minimum capital lease payments.............. $212,757
========
</TABLE>
In connection with the acquisition of N2K on February 13, 1996 (see Note
2), the Company became obligated under certain additional operating and capital
leases for office space, computer equipment and office equipment. The future
minimum lease payments under these operating leases as of March 31, 1996 are as
follows: $157,227 in 1997, $170,560 in 1998, $220,489 in 1999, $219,555 in 2000
and $199,517 in 2001. The future minimum lease payments under these capital
leases as of March 31, 1996 are as follows: $143,110 in 1997, $139,173 in 1998
and $132,599 in 1999. Rent expense under the operating leases for the years
ended December 31, 1993, 1994, and 1995, and for the three months ended March
31, 1995 and 1996, was $288,284, $260,930, $270,136, $68,107 and $112,852,
respectively.
The Company has an agreement with certain founders that requires royalty
payments of .825% to .9% on defined information services revenues. For the years
ended December 31, 1993, 1994, and 1995, and the three months ended March 31,
1995 and 1996, the Company incurred royalty expense of $95,000, $99,058,
$94,623, $27,523 and $21,425, respectively.
The Company has employment agreements with certain officers.
The Company is party to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position or results of
operations.
9. DEFINED CONTRIBUTION PLAN:
The Company maintains a Matched Savings Plan (the Plan) in accordance with
the provisions of Section 401(k) of the Internal Revenue Code. The Plan covers
substantially all full-time employees of the Company. Participants may
contribute up to 15% of their total compensation to the Plan, with the Company
matching 30% of the participant's contribution, limited to 6% of the
participant's total compensation. For the years
F-16
<PAGE> 79
N2K INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1993, 1994, and 1995 and the three months ended March 31,
1995 and 1996, the Company contributed $23,000, $32,500, $38,900, $10,100 and
$11,700, respectively, to the Plan.
10. SEGMENT INFORMATION:
The Company operates principally within two segments: Entertainment and
Information services. See Note 1 for description of each segment.
The following table highlights certain financial information about each of the
Company's segments for the year ended December 31, 1995.
<TABLE>
<CAPTION>
INFORMATION GENERAL AND
ENTERTAINMENT SERVICES ADMINISTRATIVE CONSOLIDATED
------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues........................... $ 96,505 $10,976,711 -- $11,073,216
----------- ----------- ----------- -----------
Operating income (loss)............ $(1,567,780) $ 1,222,878 -- $ (344,902 )
----------- ----------- ----------- -----------
General and administrative
expenses......................... -- -- $ 1,337,731 $ 1,337,731
Interest income, net............... -- -- $ (88,133) $ (88,133 )
-----------
Loss before income taxes........... -- -- -- $(1,594,500 )
===========
Depreciation and amortization...... $ 18,793 $ 117,488 $ 102,277 $ 238,558
=========== =========== =========== ===========
Capital expenditures............... $ 240,445 $ 49,466 $ 48,810 $ 338,721
=========== =========== =========== ===========
Total identifiable assets at
December 31, 1995................ $ 275,768 $ 1,983,393 $ 1,399,499 $ 3,658,660
=========== =========== =========== ===========
</TABLE>
For the year ended December 31, 1995, information services revenues consisted of
$9,308,453 sales to domestic customers and $1,668,258 sales to international
customers.
F-17
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
N2K, Inc.
New York, New York
We have audited the balance sheet of N2K, Inc. as of December 31, 1995, and
the related statements of operations, stockholders' equity and cash flows for
the period beginning March 7, 1995 (date of inception) through December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 N2K, Inc. as of December 31,
1995 and the results of its operations and its cash flows for the period
beginning March 7, 1995 through December 31, 1995 in conformity with generally
accepted accounting principles.
As described in Note F, on February 13, 1996, the Company effected a
business combination in which it merged with a company formerly known as
Telebase Systems, Inc.
New York, New York
January 31, 1996
With respect to Note F
February 13, 1996
/s/ RICHARD A. EISNER & COMPANY, LLP
F-18
<PAGE> 81
N2K, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 245,423
Accounts receivable......................................................... 57,281
Prepaid expenses............................................................ 2,057
--------
Total current assets................................................... 304,761
Property and equipment, net...................................................... 311,812
Goodwill......................................................................... 4,467
Deposits......................................................................... 101,621
--------
TOTAL.................................................................. $ 722,661
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capital lease obligations............................. $ 57,407
Accounts payable and accrued expenses....................................... 207,144
--------
Total current liabilities.............................................. 264,551
Capital lease obligations........................................................ 136,184
Deferred rent payable............................................................ 20,038
--------
Total liabilities...................................................... 420,773
--------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 2,000,000 authorized, 1,000,000 shares issued
and outstanding............................................................ 10,000
Additional paid-in capital.................................................. 990,000
Accumulated (deficit)....................................................... (698,112)
--------
Total stockholders' equity............................................. 301,888
--------
TOTAL.................................................................. $ 722,661
========
</TABLE>
The accompanying notes to financial statements are an integral part hereof
F-19
<PAGE> 82
N2K, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD BEGINNING MARCH 7, 1995
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
Revenues:
Consulting revenue.......................................................... $ 132,626
Network revenue............................................................. 11,000
--------
Total revenue.......................................................... 143,626
--------
Expenses:
Selling, general and administrative expenses................................ 767,628
Purchased research and development.......................................... 56,262
Depreciation and amortization............................................... 16,575
--------
Total expense.......................................................... 840,465
--------
Operating loss................................................................... (696,839)
Interest expense, net of interest income of $185................................. (1,273)
--------
Net loss......................................................................... $(698,112)
========
</TABLE>
The accompanying notes to financial statements are an integral part hereof
F-20
<PAGE> 83
N2K, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD BEGINNING MARCH 7, 1995
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Sale of common stock.......................... $10,000 $990,000 $1,000,000
Net loss...................................... $ (698,112) (698,112)
------- -------- ---------- --------
Balance -- December 31, 1995.................. $10,000 $990,000 $ (698,112) $ 301,888
======= ======== ========== ========
</TABLE>
The accompanying notes to financial statements are an integral part hereof
F-21
<PAGE> 84
N2K, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD BEGINNING MARCH 7, 1995
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................................... $(698,112)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................... 16,575
Changes in assets and liabilities:
Increase in:
Accounts receivable.......................................... (48,543)
Prepaid expenses............................................. (2,057)
Deposits..................................................... (101,621)
Accounts payable and accrued expenses........................ 207,144
Deferred rent payable........................................ 20,038
---------
Net cash used in operating activities................... (606,576)
---------
Cash flows from investing activities:
Assets acquired in purchase transaction..................................... (43,738)
Purchase of property and equipment.......................................... (101,612)
---------
Net cash used in investing activities................... (145,350)
---------
Cash flows from financing activities:
Principal payments on capital lease obligations............................. (2,651)
Sale of common stock........................................................ 1,000,000
---------
Net cash provided by financing activities............... 997,349
---------
Increase in cash and cash equivalents............................................ 245,423
Cash and cash equivalents, beginning of period................................... --
---------
Cash and cash equivalents, end of period......................................... $ 245,423
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................................... $ 1,458
Noncash investing and financing activity:
The Company entered into capital leases for equipment valued at
$196,242.
</TABLE>
The accompanying notes to financial statements are an integral part hereof
F-22
<PAGE> 85
N2K, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION AND ACQUISITION:
N2K Multimedia Company, Inc. (the "Company") was incorporated on March 7,
1995 for the purpose of developing interactive online web sites and technology,
with 200 shares of authorized common stock of which 100 shares were issued in
exchange for $100,000 paid in cash. On October 10, 1995 the authorized common
stock was increased to 2,000,000 shares of $.01 par value and the outstanding
shares were split 10,000 for 1. All references to shares in these financial
statements give retroactive effect to the stock split. On June 13, 1995 the
Company purchased substantially all the assets of N2K, Inc. a company engaged
primarily in computer systems consulting and its name was changed to N2K, Inc.
The purchase price was $100,000 which was allocated in accordance with fair
values as follows: Fixed Assets $30,000; Accounts Receivable $8,738; Research
and Development Costs $56,262, and Goodwill $5,000. Because computer systems
consulting is not the focus of the Company, the acquiree is not a predecessor
company.
After the acquisition the Company developed an online site called Jazz
Central Station that provides a comprehensive history of Jazz. The site was
launched on the Microsoft Network on August 24, 1995 and is in beta testing on
the World Wide Web.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Use of estimates:
These financial statements were prepared by management using generally
accepted accounting principles which require the use of estimates.
[2] Property and equipment:
Property and equipment are stated at cost. Depreciation is calculated on a
straight-line basis over estimated useful lives of the assets, primarily 5
years. Upon retirement or disposition, the applicable property amounts are
relieved from the accounts, and any gain or loss is recorded in the statement of
operations. When assets become fully depreciated, the applicable asset and
accumulated depreciation amounts are relieved.
[3] Goodwill:
Goodwill, which represents the excess purchase price of N2K, Inc. over the
fair value of the identifiable assets acquired, is being amortized on a
straight-line basis over five years.
[4] Statement of Cash Flows:
Highly liquid investments with an original maturity of three months or less
are considered cash equivalents for purposes of the statement of cash flows.
[5] Capital Leases:
The Company capitalizes assets acquired under capital leases and records
the related capital lease obligations.
[6] Income Taxes:
The Company is an S corporation for Federal and State income tax purposes.
No provision for these taxes is required.
F-23
<PAGE> 86
N2K, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<S> <C>
Computer equipment........................................................ $249,726
Furniture and fixtures.................................................... 16,796
Leasehold improvements.................................................... 61,332
--------
327,854
Less accumulated depreciation............................................. (16,042)
--------
$311,812
========
</TABLE>
Included in property and equipment is property acquired under capital
leases with an aggregate cost of $196,242 and accumulated depreciation of
$9,569.
NOTE D -- EQUIPMENT LEASE FINANCING:
The Company has a line of credit to finance its acquisition of furniture,
office and computer equipment in the amount of $350,000. Under the terms of the
master agreement, acquired assets are financed pursuant to capital leases with a
three year term and interest rate of 8.75%. At December 31, 1995 $175,424 of the
line of credit was available. The Company is also obligated under two other
capital leases with interest rates of approximately 14% and aggregating $18,167
at December 31, 1995.
NOTE E -- COMMITMENTS, CONTINGENCIES AND RISKS:
The Company is obligated under operating and capital leases for office
space, computers and office equipment. Future annual minimum lease payments
under leases in effect at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
-------- --------
<S> <C> <C>
1996................................................... $120,456 $ 72,233
1997................................................... 196,088 75,795
1998................................................... 195,356 68,132
1999................................................... 219,550 5,522
2000................................................... 213,155 -0 -
-------- --------
221,682
Less amount representing interest...................... 28,091
--------
Present value of capital lease obligations............. $193,591
========
</TABLE>
The Company maintains its accounts at one institution insured by the
Federal Deposit Insurance Corporation up to a maximum of $100,000.
The Company is committed to purchase furniture and equipment aggregating
approximately $125,000 which it expects to finance under the equipment lease
financing commitment described in Note D.
Two of the Company's consulting customers individually accounted for 59%
and 27% of the Company's consulting revenues for the period ended December 31,
1995 and 76% and 22% of the accounts receivable at December 31, 1995.
NOTE F -- SUBSEQUENT EVENT:
The Company merged with Telebase Systems, Inc. on February 13, 1996.
Pursuant to the merger the Company's shares were exchanged for common and
preferred shares of Telebase Systems, Inc. which changed its name to N2K Inc.
F-24
<PAGE> 87
------------------------------------------------------------
------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the
Underwriters or any other person. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, any security other than the
shares of Common Stock offered hereby, nor does it constitute an offer to sell,
or a solicitation of an offer to buy, any of the securities offered hereby to
any person in any jurisdiction in which it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sales made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 16
Dividend Policy....................... 16
Dilution.............................. 17
Capitalization........................ 18
Selected Consolidated Financial
Information......................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 43
Certain Transactions.................. 51
Principal Stockholders................ 53
Description of Capital Stock.......... 54
Shares Eligible for Future Sale....... 57
Underwriting.......................... 58
Legal Matters......................... 59
Experts............................... 59
Additional Information................ 60
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,600,000 SHARES
[LOGO]
N2K INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
OPPENHEIMER & CO., INC.
UNTERBERG HARRIS
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Common Stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission......................................... $12,372
Nasdaq National Market Listing Fee......................................... 48,384
NASD Filing Fee............................................................ 4,088
Blue Sky fees and expenses (including attorneys' fees)..................... *
Accounting fees and expenses............................................... *
Legal fees and expenses.................................................... *
Printing and engraving expenses............................................ *
Transfer agent and registrar fees.......................................... *
Miscellaneous.............................................................. *
--------
Total............................................................ $
=======
</TABLE>
- ------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Delaware GCL (Section 145) (i) gives Delaware corporations broad
powers to indemnify their present and former directors and officers and those of
affiliated corporations against expenses incurred in the defense of any lawsuit
to which they are made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions; (ii) gives a
director or officer who successfully defends an action the right to be so
indemnified; and (iii) authorizes the Registrant to buy directors' and officers'
liability insurance. Such indemnification is not exclusive of any other rights
to which those indemnified may be entitled under any by-laws, agreement, vote of
stockholders or otherwise.
(b) The Certificate of Incorporation of the Registrant requires, and the
Bylaws of the Registrant provide for, indemnification of directors, officers,
employees and agents to the full extent permitted by law.
(c) See the Underwriting Agreement (the form of which is included as
Exhibit 1.1 to this Registration Statement) for provisions regarding the
indemnification under certain circumstances of the Registrant, its directors and
certain of its officers by the Underwriters.
(d) In accordance with Section 102(b)(7) of the Delaware GCL, the
Registrant's Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages for breaches of their fiduciary duty as
directors except for (1) breaches of their duty of loyalty to the Registrant or
its stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (3) under Section 174 of
the Delaware GCL (unlawful payment of dividends) or (4) transactions from which
a director derives an improper personal benefit.
II-1
<PAGE> 89
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In September 1994, the Company issued 800,000 shares of Series D Preferred
Stock to a class of purchasers for the aggregate offering price of $1,600,000
resulting in net proceeds of $1,559,084. Such transaction was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
In December 1995, the Company issued 150,000 shares of Common Stock as
consideration in a pooling-of-interests transaction in which Advanced Research
Technologies, Inc. was merged with and into ART Acquisition Corp., a
wholly-owned subsidiary of the Company. Prior to December 31, 1995, ART
Acquisition Corp. was merged into the Company.
In February 1996, the Company issued 1,797,146 shares of Common Stock and
1,347,860 shares of Series E Preferred Stock in exchange for all of the
outstanding common stock of New York N2K. The Company subsequently changed its
name to N2K Inc.
In February 1996, the Company issued a warrant to Unterberg Harris to
purchase 50,000 shares of Common Stock at an exercice price of $2.40 per share
as compensation for acting as financial advisor to the Company in connection
with the Merger.
In February, April and May 1996, the Company issued 4,659,200 shares of
Series E Preferred Stock (in addition to the 1,347,860 shares of Series E
Preferred Stock issued in consideration for the shares of N2K Inc.), to a class
of purchasers for the aggregate offering price of $3,727,360 resulting in net
proceeds of $3,652,360. Such transactions were exempt from registration under
the Securities Act by virtue of Section 4(2) thereof.
In May and June 1996, the Company issued 5,333,333 shares of Series F
Preferred Stock to a class of purchasers for the aggregate offering price of
$16,000,000 resulting in net proceeds of $15,200,000. Such transactions were
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof.
In May and June 1996, the Company issued warrants to Allen & Company
Incorporated to purchase 85,555 shares of Common Stock at an exercise price of
$9.00 per share, as compensation for acting as placement agent to the Company in
connection with the issuance of the Series F Preferred Stock.
In May 1996, the Company issued 8,333 shares of Common Stock in payment to
a vendor for services rendered.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------------- -----------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Form of Certificate of Incorporation of the Registrant, as amended.
3.2 -- Form of Bylaws of the Registrant, as amended.
4.1 -- Specimen of Certificate for Common Stock.*
4.2 -- 1987 Employee Incentive Stock Option Plan of the Company.
4.3 -- Amended and Restated 1996 Stock Option Plan of the Company.*
4.4 -- 1996 Employee Stock Purchase Plan.*
4.5 -- Note Purchase Agreement dated October 30, 1987 between the Company and Gary
M. Lauder.
4.6 -- Form of Series A Preferred Stock Purchase Agreement.
4.7 -- Form of Series C Preferred Stock Purchase Agreement.
4.8 -- Form of Series D Preferred Stock Purchase Agreement.
4.9 -- Form of Series E Preferred Stock Purchase Agreement.
4.10 -- Form of Series F Preferred Stock Purchase Agreement.
4.11 -- Registration Rights Agreement dated as of February 13, 1996 among the Company
and the stockholders of New York N2K.
4.12 -- Warrant Agreement dated as of February 13, 1996 between N2K Inc. and
Unterberg Harris.
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------------- -----------------------------------------------------------------------------
<S> <C>
5.1 -- Opinion of Dewey Ballantine.*
10.1 -- Employment Agreement effective as of February 13, 1996 between the Company
and Lawrence L. Rosen.
10.2 -- Employment Agreement effective as of February 13, 1996 between the Company
and Jonathan V. Diamond.
10.3 -- Employment Agreement effective as of February 13, 1996 between the Company
and Robert David Grusin.
10.4 -- Employment Agreement dated as of May 1, 1987 between the Company and
James E. Coane.
10.5 -- Employment Agreement dated as of February 8, 1988 between the Company and
Bruce Johnson.
10.6 -- Agreement re: Revolving Line of Credit with CoreStates Bank, N.A. (f.k.a.
Meridian Bank).*
10.7 -- Letter Agreement dated June 3, 1996 between the Company and Rocktropolis
Enterprises, LLC.
10.8 -- Lease Agreement dated April 26, 1991 between the Company and Bebob
Associates, as amended.
10.9 -- Lease Agreement dated September 7, 1995 between New York N2K and 55 Broad
Street Company, as amended.
10.10 -- Agreement dated November 4, 1985 between the Company and CompuServe, as
amended.+
10.11 -- Distributorship Agreement dated August 1, 1992 between the Company and Nifty
Corporation.+
10.12 -- Discount Agreement dated January 25, 1995 between the Company and
Knight-Ridder Information, Inc.+
10.13 -- Small Order Fulfillment Agreement between the Company and Valley Record
Distributors.+
10.14 -- Indemnification Agreement dated as of February 13, 1996 among the Company and
the stockholders of New York N2K.
11.1 -- Statement re: Computation of Per Share Earnings.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Richard A. Eisner & Company, LLP.
23.3 -- Consent of Dewey Ballantine (contained in Exhibit 5.1).*
24.1 -- Power(s) of Attorney (included on signature page).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment will be requested.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any
II-3
<PAGE> 91
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York, on June 20, 1996.
N2K INC.
By /s/ LAWRENCE L. ROSEN
Lawrence L. Rosen,
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Know All Men By These Presents that each person whose signature appears
below under the heading "Signature" constitutes and appoints Jonathan V. Diamond
and Bruce Johnson his true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
to this Registration Statement, including post-effective amendments, and to file
the same, with all exhibits thereto, and all documents in connection therewith,
including, without limitation, any registration statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, with the Securities and Exchange Commission, granting unto
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, and hereby ratifies and confirms all that said
attorneys-in-fact and agents, each acting alone, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 20th day of June, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ LAWRENCE L. Chairman of the Board,
ROSEN Chief Executive Officer and Director
Lawrence L. Rosen (Principal Executive Officer)
/S/ Jonathan V. Vice Chairman and Director
Diamond
Jonathan V. Diamond
/s/ ROBERT DAVID GRUSIN Vice Chairman and Director
Robert David Grusin
/s/ JAMES E. President, Chief Operating Officer and
COANE Director
James E. Coane
/s/ BRUCE Vice President, Secretary and Chief
JOHNSON Financial Officer (Principal Accounting
Bruce Johnson Officer and Principal Financial Officer)
/s/ ROBERT C. Director
HARRIS
Robert C. Harris, Jr.
/s/ SUSANNE HARRISON Director
Susanne Harrison
</TABLE>
II-5
<PAGE> 93
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED
- ---------------- --------------------------------------------------------------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*...............................
3.1 -- Form of Certificate of Incorporation of the Registrant, as
amended........................................................ Electronic
3.2 -- Form of Bylaws of the Registrant, as amended................... Electronic
4.1 -- Specimen of Certificate for Common Stock.*.....................
4.2 -- 1987 Employee Incentive Stock Option Plan of the Company....... Electronic
4.3 -- 1996 Stock Option Plan of the Company.*........................
4.4 -- 1996 Employee Stock Purchase Plan.*............................
4.5 -- Note Purchase Agreement dated October 30, 1987 between the
Company and Gary M. Lauder..................................... Electronic
4.6 -- Form of Series A Preferred Stock Purchase Agreement............ Electronic
4.7 -- Form of Series C Preferred Stock Purchase Agreement............ Electronic
4.8 -- Form of Series D Preferred Stock Purchase Agreement............ Electronic
4.9 -- Form of Series E Preferred Stock Purchase Agreement............ Electronic
4.10 -- Form of Series F Preferred Stock Purchase Agreement............ Electronic
4.11 -- Registration Rights Agreement dated as of February 13, 1996
among the Company and the Stockholders of New York N2K......... Electronic
4.12 -- Warrant Agreement dated as of February 13, 1996 between N2K
Inc.
and Unterberg Harris........................................... Electronic
5.1 -- Opinion of Dewey Ballantine.*..................................
10.1 -- Employment Agreement effective as of February 13, 1996 between
the Company and Lawrence L. Rosen.............................. Electronic
10.2 -- Employment Agreement effective as of February 13, 1996 between
the Company and Jonathan V. Diamond............................ Electronic
10.3 -- Employment Agreement effective as of February 13, 1996 between
the Company and Robert David Grusin............................ Electronic
10.4 -- Employment Agreement dated as of May 1, 1987 between the
Company
and James E. Coane............................................. Electronic
10.5 -- Employment Agreement dated as of February 8, 1988 between the
Company and Bruce Johnson...................................... Electronic
10.6 -- Agreement re: Revolving Line of Credit with CoreStates Bank,
N.A. (f.k.a. Meridian Bank).*..................................
10.7 -- Letter Agreement dated June 3, 1996 between the Company and
Rocktropolis Enterprises, LLC.................................. Electronic
10.8 -- Lease Agreement dated April 26, 1991 between the Company and
Bebob Associates, as amended................................... Electronic
10.9 -- Lease Agreement dated September 7, 1995 between New York N2K
and 55 Broad Street Company.................................... Electronic
10.10 -- Agreement dated November 4, 1985 between the Company and
CompuServe, as amended.+....................................... Electronic
10.11 -- Distributorship Agreement dated August 1, 1992 between the
Company and Nifty Corporation.+................................ Electronic
10.12 -- Discount Agreement dated January 25, 1995 between the Company
and Knight-Ridder Information, Inc.+........................... Electronic
10.13 -- Small Order Fulfillment Agreement between the Company and
Valley Record Distributors.+................................... Electronic
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION FILED
- ---------------- --------------------------------------------------------------- -----------
<S> <C> <C>
10.14 -- Indemnification Agreement dated as of February 13, 1996 among
the Company and the stockholders of New York N2K............... Electronic
11.1 -- Statement re: Computation of Per Share Earnings................ Electronic
21.1 -- Subsidiaries of the Registrant................................. Electronic
23.1 -- Consent of Arthur Andersen LLP................................. Electronic
23.2 -- Consent of Richard A. Eisner & Company, LLP.................... Electronic
23.3 -- Consent of Dewey Ballantine (contained in Exhibit 5.1).*.......
24.1 -- Power(s) of Attorney (included on signature page).............. Electronic
27 -- Financial Data Schedule........................................ Electronic
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment will be requested.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
N2K INC.
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware ("DGCL")
N2K Inc., organized and existing under and by virtue of the
DGCL (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Corporation was initially incorporated
and its Certificate of Incorporation was initially filed in the
Office of the Secretary of State of the State of Delaware on June
5, 1996;
SECOND: That the Board of Directors of the Corporation, acting
pursuant to Sections 141(f), 242 and 245 of the DGCL, at a meeting duly called
and held on June 20, 1996, declared it advisable and in the best interests of
the Corporation to amend and restate the Certificate of Incorporation of the
Corporation, and to effect such amendments approved and adopted the following
resolutions:
RESOLVED that the following Amended and Restated Certificate
of Incorporation be and hereby is adopted:
ARTICLE 1. The name of the corporation is N2K Inc. (the "Corporation").
ARTICLE 2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE 3. The nature of the business and the purposes to be conducted and
promoted by the Corporation are to conduct any lawful business, to promote any
lawful purpose and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware (the "DGCL").
ARTICLE 4. The aggregate number of shares of all classes of stock which the
Corporation has authority to issue is 120,000,000 shares,
<PAGE> 2
consisting of (A) 100,000,000 shares of Common Stock, par value $.001 per share
("Common Stock"), and (B) 20,000,000 shares of Preferred Stock, par value $.001
per share ("undesignated Preferred Stock") (all Preferred Stock, whether
designated or undesignated shall be collectively referred to as "Preferred
Stock"), which shall be undesignated subject to designation and having such
rights and preferences as set forth in a resolution adopted by the Board of
Directors of the Corporation in accordance wit the DGCL.
The designations and the powers, preferences and rights, and
the qualifications, limitations and restrictions thereof in respect of the
Common and Preferred Stock are as follows:
A. COMMON STOCK
1. Rights. Each share of Common Stock issued and outstanding shall be
identical in all respects one with the other, and no dividends shall be paid on
any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of such payment. Except for and subject to
those rights expressly granted to the holders of the Preferred Stock, or except
as may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders including, but not
by way of limitation, (i) the right to receive dividends, when and as declared
by the Board of Directors of the Corporation out of assets lawfully available
therefor, and (ii) in the event of any distribution of assets upon liquidation,
dissolution or winding-up of the Corporation or otherwise, the right to receive
ratably and equally all the assets and funds of the Corporation remaining after
the payment to the holders of the Preferred Stock of the specific amounts which
they are entitled to receive upon such liquidation, dissolution or winding-up of
the Corporation or otherwise.
B. UNDESIGNATED PREFERRED STOCK
The Board of Directors is authorized by duly adopted resolution or
resolutions, subject to limitations prescribed by law and the provisions of this
Article 4, to provide for the issuance of the shares of Preferred Stock in one
or more additional series by filing a certificate of designation pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
1. The number of shares constituting that series and the
distinctive designation of that series;
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2. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
3. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
4. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
5. Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and
different redemption dates;
6. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
7. The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series;
8. Any other relative rights, preferences and limitations of that
series.
ARTICLE 5. Elections of directors need not be by written ballot unless required
by the By-laws of the Corporation. Any director may be removed from office
either with or without cause at any time by the affirmative vote of the holders
of a majority of the outstanding stock of the Corporation entitled to vote,
given at a meeting of the stockholders called for that purpose, or by the
consent of the holders of a majority of the outstanding stock of the Corporation
entitled to vote, given in accordance with Section 228 of the DGCL.
ARTICLE 6. In furtherance and not in limitation of the powers conferred upon the
Board of Directors by law, the Board of Directors shall have the power to make,
adopt, alter, amend and repeal from time to time the By-laws of the Corporation
subject to the right of the stockholders entitled to vote with respect thereto
to alter, amend and repeal By-laws made by the Board of Directors.
ARTICLE 7. A director of the Corporation shall not be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director of the
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Corporation, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or to its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derives any improper personal benefit. If, after approval of
this Article by the stockholders of the Corporation, the DGCL is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
THIRD: That the holders of all the outstanding capital
stock of the Corporation, acting pursuant to Sections 228, 242 and
245 of the DGCL, by written consent in lieu of meeting dated , 1996,
consented to the adoption of the foregoing resolutions and amendments; and that
the aforesaid amendments were duly adopted in accordance with the applicable
provisions of the DGCL.
IN WITNESS WHEREOF, N2K Inc., a Delaware corporation, has
caused this Amended and Restated Certificate of Incorporation to be signed as of
this day of , 1996 by Lawrence L. Rosen, its Chairman, and Bruce Johnson, its
Secretary.
N2K INC.
By________________________________
Lawrence L. Rosen
Chairman
ATTEST:
_________________________
Bruce Johnson
Secretary
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Exhibit 3.2
N2K Inc.
(A Delaware Corporation)
Amended and Restated Bylaws
ARTICLE I
Meetings of Stockholders
Section 1.1 Annual Meetings. The annual meeting of the
stockholders for the election of directors and for the transaction of such other
business as properly may come before such meeting shall be held each year on
such date, and at such time and place within or without the State of Delaware,
as may be designated by the Board of Directors.
Section 1.2 Special Meetings. Special meetings of the
stockholders for any proper purpose or purposes may be called at any time by the
Board of Directors, the President or the Secretary, to be held on such date, and
at such time and place within or without the State of Delaware, as the Board of
Directors, the President or the Secretary, whichever has called the meeting,
shall direct. A special meeting of the stockholders shall be called by the
President or the Secretary whenever stockholders owning a majority of the shares
of the Corporation then issued and outstanding and entitled to vote on matters
to be submitted to stockholders of the Corporation shall make application
therefor in writing. Any such written request shall state a proper purpose or
purposes of the meeting and shall be delivered to the President or the
Secretary.
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Section 1.3 Notice of Meeting. Written notice, signed by the
President, the Secretary or any Assistant Secretary, of every meeting of
stockholders stating the date and time when, and the place where, such meeting
is to be held, shall be delivered either personally or by mail to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of such meeting, except as otherwise provided by law.
The purpose or purposes for which such meeting is called may, in the case of an
annual meeting, and shall in the case of a special meeting, also be stated in
such notice. If mailed, such notice shall be directed to a stockholder at such
stockholder's address as it shall appear on the stock books of the Corporation,
unless such stockholder shall have filed with the Secretary a written request
that notices intended for such stockholder be mailed to some other address, in
which case it shall be mailed to the address designated in such request.
Whenever any notice is required to be given under the provisions of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
these Bylaws, a waiver thereof, signed by the stockholder entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a stockholder at the meeting shall be deemed
equivalent to a written waiver of notice of such meeting.
Section 1.4 Quorum. The presence at any meeting of
stockholders, in person or by proxy, of the holders of
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record of a majority of the shares then issued and outstanding and entitled to
vote shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law.
Section 1.5 Adjournments. In the absence of a quorum, a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, or, if no stockholder entitled to vote is present in person or by
proxy, any officer entitled to preside at or act as secretary of a meeting of
stockholders, may adjourn such meeting from time to time until a quorum shall be
present.
Section 1.6 Voting. Directors shall be chosen by a plurality
of the votes cast at the election, and, except as otherwise provided by law or
by the Certificate of Incorporation, all other questions shall be determined by
a majority of the votes cast on such question.
Section 1.7 Proxies. Any stockholder entitled to vote may vote
by proxy, provided that the instrument authorizing such proxy to act shall have
been executed in writing (which shall include telegraphing or cabling) by the
stockholder himself or by such stockholder's duly authorized attorney.
Section 1.8 Judges of Election. The Board of Directors may
appoint judges of election to serve at any election of directors and at
balloting on any other matter that may properly come before a meeting of
stockholders. If no such appointment shall be made, or if any of the judges
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so appointed shall fail to attend, or refuse or be unable to serve, then such
appointment may be made by the presiding officer at the meeting.
ARTICLE II
Board of Directors
Section 2.1 Number. The number of directors which shall
constitute the whole Board of Directors shall be fixed from time to time by
resolution of the Board of Directors or stockholders (any such resolution of
either the Board of Directors or stockholders being subject to any later
resolution of either of them).
Section 2.2 Election and Term of Office. Directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2.3. Each director (whether elected at an annual meeting or to fill a vacancy or
otherwise) shall continue in office until such Director's successor shall have
been elected and qualified or until such Director's earlier death, resignation
or removal in the manner hereinafter provided.
Section 2.3 Vacancies and Additional Directorships. If any
vacancy shall occur among the directors by reason of death, resignation or
removal, or as the result of an increase in the number of directorships, a
majority of the directors then in office, or a sole remaining director, though
less than a quorum, may fill any such vacancy.
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Section 2.4 Regular Meetings. A regular meeting of the Board
of Directors shall be held for organization, for the election of officers and
for the transaction of such other business as may properly come before such
meeting, within thirty days after each annual meeting of stockholders. The Board
of Directors by resolution may provide for the holding of other regular meetings
and may fix the times and places at which such meetings shall be held. Notice of
regular meetings shall not be required to be given, provided that whenever the
time or place of regular meetings shall be fixed or changed, notice of such
action shall be mailed promptly to each director who shall not have been present
at the meeting at which such action was taken, addressed to such director at
such director's residence or usual place of business.
Section 2.5 Special Meetings. Special meetings of the Board of
Directors shall be held upon call by or at the direction of the President or the
Secretary. Except as otherwise required by law, notice of each special meeting
shall be mailed to each director, addressed to such director at such director's
residence or usual place of business, at least two days before the day on which
the meeting is to be held, or shall be sent to such director at such place by
telex, facsimile transmission, telegram, radio or cable, or telephoned or
delivered to him personally, not later than the day before the day on which the
meeting is to be held. Such notice shall state the time and place of such
meeting,
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but need not state the purposes thereof, unless otherwise required by law, the
Certificate of Incorporation or these Bylaws.
Section 2.6 Waiver of Notice. Whenever any notice is required
to be given under the provisions of the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or these Bylaws, a waiver thereof,
signed by the director entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a director at
a meeting shall be deemed equivalent to a written waiver of notice of such
meeting.
Section 2.7 Quorum and Manner of Acting. At each meeting of
the Board of Directors the presence of a majority of the total number of members
of the Board of Directors as constituted from time to time, shall be necessary
and sufficient to constitute a quorum for the transaction of business, except
that when the Board of Directors consists of one or two directors, then the one
or two directors, respectively, shall constitute a quorum. In the absence of a
quorum, a majority of those present at the time and place of any meeting may
adjourn the meeting from time to time until a quorum shall be present and the
meeting may be held as so adjourned without further notice or waiver. A majority
of those present at any meeting at which a quorum is present may decide any
question brought before such meeting, except
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as otherwise provided by law, the Certificate of Incorporation or these Bylaws.
Section 2.8 Resignation of Directors. Any director may resign
at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary. Unless otherwise specified in such
notice, such resignation shall take effect upon receipt thereof by the Board of
Directors or any such officer, and the acceptance of such resignation shall not
be necessary to make it effective.
Section 2.9 Removal of Directors. At any special meeting of
the stockholders, duly called as provided in these Bylaws, any director or
directors may be removed from office, either with or without cause, as provided
by law. At such meeting a successor or successors may be elected by a plurality
of the votes cast, or if any such vacancy is not so filled, it may be filled by
the directors as provided in Section 2.3.
Section 2.10 Compensation of Directors. Directors shall
receive such reasonable compensation for their services as such, whether in the
form of salary or a fixed fee for attendance at meetings, with expenses, if any,
as the Board of Directors may from time to time determine. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
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ARTICLE III
Committees of the Board
Section 3.1 Designation, Power, Alternate Members and Term of
Office. The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in such resolution and permitted by law, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation or a facsimile thereof to be affixed to or reproduced on
all such papers as said committee shall designate. The Board of Directors may
designate one or more directors as alternate members of any committee who, in
the order specified by the Board of Directors, may replace any absent or
disqualified member at any meeting of such committee. If at a meeting of any
committee one or more of the members thereof should be absent or disqualified,
and if either the Board of Directors has not so designated any alternate member
or members, or the number of absent or disqualified members exceeds the number
of alternate members who are present at such meeting, then the member or members
of such committee (including alternates) present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another director to act at such meeting in
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the place of any such absent or disqualified member. The term of office of the
members of each committee shall be as fixed from time to time by the Board of
Directors, subject to these Bylaws; provided, however, that any committee member
who ceases to be a member of the Board of Directors shall ipso facto cease to be
a committee member. Each committee shall appoint a secretary, who may be a
Director or an officer of the Corporation.
Section 3.2 Executive Committee. If an Executive Committee is
designated by the Board of Directors in accordance with the provisions of
Section 3.1 hereof, the Executive Committee shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but the Executive Committee shall
not have power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, amending the
Bylaws of the Corporation, declaring a dividend or authorizing the issuance of
stock. The provisions of Article III of these Bylaws shall apply to the
Executive Committee.
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Section 3.3 Meetings, Notices and Records. Each committee may
provide for the holding of regular meetings, with or without notice, and may fix
the times and places at which such meetings shall be held. Special meetings of
each committee shall be held upon call by or at the direction of its chairman
or, if there be no chairman, by or at the di- rection of any one of its members.
Except as otherwise provided by law, notice of each special meeting of a commit-
tee shall be mailed to each member of such committee, ad- dressed to such member
at such member's residence or usual place of business, at least two days before
the day on which the meeting is to be held, or shall be sent to him at such
place by telex, facsimile transmission, telegram, radio or cable, or telephoned
or delivered to such member personally, not later than the day before the day on
which the meeting is to be held. Such notice shall state the time and place of
such meeting, but need not state the purposes thereof, unless otherwise required
by law, the Certificate of Incorporation of the Corporation or these Bylaws.
Notice of any meeting of a committee need not be given to any
member thereof who shall attend such meeting in person or who shall waive
notice thereof, before or after such meeting, in a signed writing. Each
committee shall keep a record of its proceedings.
Section 3.4 Quorum and Manner of Acting. At each meeting of
any committee the presence of a majority of its members then in office shall be
necessary and sufficient to
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constitute a quorum for the transaction of business, except that when a
committee consists of one member, then the one member shall constitute a quorum.
In the absence of a quorum, a majority of the members present at the time and
place of any meeting may adjourn the meeting from time to time until a quorum
shall be present and the meeting may be held as so adjourned without further
notice or waiver. The act of a majority of the members present at any meeting at
which a quorum is present shall be the act of such committee. Subject to the
foregoing and other provisions of these Bylaws and except as otherwise
determined by the Board of Directors, each committee may make rules for the
conduct of its business.
Section 3.5 Resignations. Any member of a committee may resign
at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary. Unless otherwise specified in such
notice, such resignation shall take effect upon receipt thereof by the Board of
Directors or any such officer, and the acceptance of such resignation shall not
be necessary to make it effective.
Section 3.6 Removal. Any member of any committee may be
removed at any time with or without cause by the Board of Directors.
Section 3.7 Vacancies. If any vacancy shall occur in any
committee by reason of death, resignation, disqualification, removal or
otherwise, the remaining member
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or members of such committee, so long as a quorum is present, may continue to
act until such vacancy is filled by the Board of Directors.
Section 3.8 Compensation. Committee members shall receive such
reasonable compensation for their services as such, whether in the form of
salary or a fixed fee for attendance at meetings, with expenses, if any, as the
Board of Directors may from time to time determine. Nothing herein contained
shall be construed to preclude any committee member from serving the Corporation
in any other capacity and receiving compensation therefor.
ARTICLE IV
Officers
Section 4.1 Officers. The officers of the Corporation shall be
a President, A Vice-President, a Secretary, a Treasurer, and such other officers
as may be appointed in accordance with the provisions of Section 4.3.
Section 4.2 Election, Term of Office and Qualifications. Each
officer (except such officers as may be appointed in accordance with the
provisions of Section 4.3) shall be elected by the Board of Directors. Each such
officer shall hold such office until such officer's successor shall have been
elected and shall qualify, or until such officer's death, or until such officer
shall have resigned in the manner provided in Section 4.4 or shall have been
removed in the manner provided in Section 4.5.
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Section 4.3 Subordinate Officers and Agents. The Board of
Directors from time to time may appoint other officers or agents (including
one or more Assistant Secretaries and one or more Assistant Treasurers), to hold
office for such periods, have such authority and perform such duties as are
provided in these Bylaws or as may be provided in the resolutions appointing
them. The Board of Directors may delegate to any officer or agent the power to
appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authorities and duties.
Section 4.4 Resignations. Any officer may resign at any time
by giving written notice of such resignation to the Board of Directors, the
President or the Secretary. Unless otherwise specified in such written notice,
such resignation shall take effect upon receipt thereof by the Board of
Directors or any such officer, and the acceptance of such resignation shall
not be necessary to make it effective.
Section 4.5 Removal. Any officer specifically designated in
Section 4.1 may be removed with or without cause at any meeting of the Board of
Directors by affirmative vote of a majority of the directors then in office. Any
officer or agent appointed in accordance with the provisions of Section 4.3 may
be removed with or without cause at any meeting of the Board of Directors by
affirmative vote of a majority of the directors present at such meeting, or at
any time by any superior officer or agent upon whom such
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power of removal shall have been conferred by the Board of Directors.
Section 4.6 Vacancies. A vacancy in any office by reason of
death, resignation, removal, disqualification or any other cause shall be filled
for the unexpired portion of the term in the manner prescribed by these Bylaws
for regular election or appointment to such office.
Section 4.7 The President. The President shall have those
powers and perform those duties as are given him by these By-Laws or as from
time to time may be assigned to him by the Board of Directors. He shall be the
chief executive officer and shall have the responsibility for carrying out the
policies of the Board of Directors and, subject to the control of the Board,
shall provide general leadership in matters of policy and planning and have
general and active charge, control and supervision of the business employees,
property and affairs of the Corporation.
Section 4.8 Vice Presidents. Vice Presidents shall have those
powers and shall perform those duties as from time to time may be assigned by
the Board of Directors.
Section 4.9 Treasurer. The Treasurer shall have custody of all
the funds and securities of the corporation and shall perform those other duties
as the President may assign to him.
Section 4.10 Secretary. The Secretary shall give all required
notices of the meetings of the stockholder and of the Board of Directors, attend
and act as a secretary at
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all meetings of the stockholders and the Board of Directors, keep records
thereof and be the custodian of the seal of the corporation. He shall perform
those other duties as the President may assign to him.
Section 4.11 General Duties of Officers. Each officer, other
than the President, in addition to those other powers and duties as are given to
him by these ByLaws, shall perform those duties and have such powers as from
time to time may be assigned to him by the Board of Directors or the President.
Section 4.12 Salaries. The salaries of the officers of the
Corporation shall be fixed from time to time by the Board of Directors, except
that the Board of Directors may delegate to any person the power to fix the
salaries or other compensation of any officers or agents appointed in accordance
with the provisions of Section 4.3. No officer shall be prevented from receiving
such salary by reason of the fact that such officer is also a director of the
Corporation.
ARTICLE V
Execution of Instruments and
Deposit of Corporate Funds
Section 5.1 Execution of Instruments Generally. The President,
the Secretary or the Treasurer, subject to the approval of the Board of
Directors, may enter into any contract or execute and deliver any instrument in
the name
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and on behalf of the Corporation. The Board of Directors may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
and deliver any instrument in the name and on behalf of the Corporation, and
such authorization may be general or confined to specific instances.
Section 5.2 Borrowing. No loans or advance shall be obtained
or contracted for, by or on behalf of the Corporation and no negotiable paper
shall be issued in its name, unless and except as authorized by the Board of
Directors. Such authorization may be general or confined to specific instances.
Any officer or agent of the Corporation thereunto so authorized may obtain loans
and advances for the Corporation, and for such loans and advances may make,
execute and deliver promissory notes, bonds, or other evidences of indebtedness
of the Corporation. Any officer or agent of the Corporation thereunto so
authorized may pledge, hypothecate or transfer as security for the payment of
any and all loans, advances, indebtedness and liabilities of the Corporation,
any and all stocks, bonds, other securities and other personal property at any
time held by the Corporation, and to that end may endorse, assign and deliver
the same and do every act and thing necessary or proper in connection therewith.
Section 5.3 Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to its credit in such
banks or trust companies
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or with such bankers or other depositaries as the Board of Directors may select,
or as may be selected by any officer or officers or agent or agents authorized
so to do by the Board of Directors. Endorsements for deposit to the credit of
the Corporation in any of its duly authorized depositaries shall be made in such
manner as the Board of Directors from time to time may determine.
Section 5.4 Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, and all notes or other evidences of
indebtedness issued in the name of the Corporation, shall be signed by such
officer or officers or agent or agents of the Corporation, and in such manner,
as from time to time shall be determined by the Board of Directors.
Section 5.5 Proxies. Proxies to vote with respect to shares of
stock of other corporations owned by or standing in the name of the Corporation
may be executed and delivered from time to time on behalf of the Corporation by
the President or by any other person or persons thereunto authorized by the
Board of Directors.
Section 5.6 Other Contracts and Instruments. All other
contracts and instruments binding the Corporation shall be executed in the name
and on the behalf of the Corporation by those officers, employees or agents of
the Corporation as may be authorized by the board of Directors. That
authorization may be general or confirmed to specific instances.
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ARTICLE VI
Record Dates
Section 6.1 Record Dates. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall be not more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. Only those stockholders of record on the date so fixed shall be
entitled to any of the foregoing rights, notwithstanding the transfer of any
such stock on the books of the Corporation after any such record date fixed by
the Board of Directors.
ARTICLE VII
Corporate Seal
Section 7.1 Corporate Seal. The corporate seal shall be
circular in form and shall bear the name of the Corporation and words and
figures denoting its organization under the laws of the State of Delaware and
the year thereof and otherwise shall be in such form as shall be approved from
time to time by the Board of Directors.
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ARTICLE VIII
Fiscal Year
Section 8.1 Fiscal Year. The fiscal year of the Corporation
shall be the calendar year.
ARTICLE IX
Amendments
Section 9.1 Amendments. All Bylaws of the Corporation may be
amended or repealed, and new Bylaws may be made, by an affirmative majority of
the votes cast at any annual or special stockholders' meeting by holders of
outstanding shares of stock of the Corporation entitled to vote, or by an
affirmative vote of a majority of the directors present at any organizational,
regular, or special meeting of the Board of Directors.
ARTICLE X
Action Without A Meeting
Section 10.1 Action Without A Meeting. Any action which might
have been taken under these Bylaws by a vote of the stockholders at a meeting
thereof may be taken without a meeting, without prior notice and without a vote,
if a consent in writing setting forth the action so taken, shall be individually
signed and dated by the holders of outstanding shares of stock of the
Corporation having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which
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all shares entitled to vote thereon were present and voted, provided that no
written consent will be effective unless the necessary number of written
consents is delivered to the Corporation within sixty days of the earliest
delivered consent to the Corporation, and provided further that prompt notice
shall be given to those stockholders who have not so consented if less than
unanimous written consent is obtained. Any action which might have been taken
under these Bylaws by vote of the directors at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if all the
members of the Board of Directors or such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the Board of Directors or such committee.
ARTICLE XI
Indemnification
Section 11.1 Indemnification. The Corporation shall indemnify,
in the manner and to the full extent permitted by law, any person (or the estate
of any person) who was or is a party to, or is threatened to be made a party to,
any threatened, pending or completed action, suit or proceeding, whether or not
by or in the right of the Corporation, and whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the
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Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Where required by law,
the indemnification provided for herein shall be made only as authorized in the
specific case upon a determination, in the manner provided by law, that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The Corporation may, to the full extent permitted by law,
purchase and maintain insurance on behalf of any such person against any
liability which may be asserted against such person. To the full extent
permitted by law, the indemnification provided herein shall include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
and, in the manner provided by law, any such expenses may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such expenses to
the full extent permitted by law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or
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agent and shall inure to the benefit of the heirs, executors and administrators
of such person.
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Exhibit 4.2
TELEBASE SYSTEMS, INC.
EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. PURPOSE
This Employee Incentive Stock Option Plan (the "Plan") is
intended to be an incentive and to encourage stock ownership by certain officers
and key executive employees of Telebase Systems, Inc. (the "Corporation") or any
of its subsidiary corporations as that term is defined in Section 425 of the
Internal Revenue Code of 1986 (the "Subsidiaries") so that such employees may
acquire or increase their proprietary interest in the success of the Corporation
and Subsidiaries, and so that they may be encouraged to remain in the employ of
the Corporation or its Subsidiaries. It is further intended that options issued
pursuant to the Plan shall constitute incentive stock options within the meaning
of Section 422A of the Internal Revenue Code of 1986.
2. ADMINISTRATION
The Plan shall be administered by a committee appointed by the
Board of Directors of the Corporation (the "Committee"). The Committee shall
consist of not less than three persons who may be, but need not be, members of
the Corporation's Board of Directors. The Board of Directors may from time to
time remove members from, or add members to, the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board of Directors. The
Committee shall select one of its members as Chairman and shall hold meetings at
such times and places as it may determine. Acts by a majority of the Committee
at a meeting at which a quorum is present, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall be the
<PAGE> 2
valid acts of the Committee. No person while a member of the Committee shall
participate in any decision affecting his right to receive an option under the
Plan. The Committee shall from time to time in its discretion make
recommendations to the Board of Directors with respect to the employees who
shall be granted options and the amount of stock to be optioned to each. The
Board of Directors shall have the final authority to determine these matters.
The interpretation and construction by the Committee of any
provisions of the Plan or of any option granted under it shall be final unless
otherwise determined by the Board of Directors. No member of the Board of
Directors or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any option granted under it.
3. ELIGIBILITY.
The persons who shall be eligible to receive options shall be
the key employees (including officers whether or not they are directors) of the
Corporation or its Subsidiaries. An optionee may hold more than one option but
only on the terms and subject to the restrictions hereinafter set forth.
4. STOCK
The stock subject to the options shall be shares of the
Corporation's authorized but unissued or reacquired common stock (hereinafter
sometimes called "Common Stock"). The aggregate number of shares which may be
issued under options shall not exceed 800 shares of Common Stock. The limitation
established by the preceding sentence shall be subject to adjustment as provided
in Article 5(g) of the Plan.
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<PAGE> 3
In the event that any outstanding option under the Plan for
any reason expires or is terminated, the shares of Common Stock allocable to the
unexercised portion of such option may again be subject to an option under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS
When the Board of Directors shall have granted stock options
to employees, Notices of Grant of Stock Option shall be given to such employees
in such form as the Committee shall from time to time approve, which Notices
shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Notice of Grant of
Stock Option shall state the number of shares to which it pertains.
(b) Option Price. Each Notice of Grant of Stock
Option shall state the option price, which shall not be less than 100% of the
fair market value of the shares of Common Stock of the Corporation on the date
of the granting of the option. During such time as such stock is not listed upon
an established stock exchange or traded in the over-the-counter market, the fair
market value per share shall be determined by the Committee at least annually by
relying upon whatever evidence it deems appropriate which may include, but need
not be limited to, recent sales of the Common Stock, opinions of professional
appraisers and recent sales of comparable shares of other companies. If the
stock is traded in the over-the-counter market, such fair market value shall be
the mean between the dealer "bid" and "ask" prices of the Common Stock in the
New York over-the-counter market on the day the option is granted, as reported
by the National Association of Securities Dealers, Inc. If the stock in listed
upon an established stock exchange or exchanges such fair market value shall be
deemed to be the highest closing
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<PAGE> 4
price of the Common Stock on such stock exchange or exchanges on the day the
option is granted or if no sale of the Corporation's Common Stock shall have
been made on any stock exchange on that day, on the next preceding day on which
there was a sale of such stock. Subject to the foregoing, the Committee in
fixing the option price shall have full authority and discretion.
(c) Medium and Time of Payment. Unless otherwise
specified in the option grant pursuant to Section 8 hereof, the option price
shall be payable in United States dollars upon the exercise of the option and
may be paid in cash or by check.
(d) Term and Exercise of Options. No option shall
be exercisable either in whole or in part prior to six (6) months from the date
it is granted. Each Notice of Grant of Stock Option shall state the date on
which the option shall expire. No option shall be exercisable after ten years
from the date on which it is granted. Options may only be exercised by an
optionee for so long as he is employed by the Corporation except as otherwise
provided in Articles 5(e) and 5(f) of the Plan.
The Notice of Grant of Stock Option may provide that the
option shall be exercisable in installments rather than exercisable immediately
in full. In such case, subject to the right of cumulation provided in the last
sentence of this subdivision, during each twelve-month period commencing six (6)
months from the date of the granting of the option, each option shall be
exercisable as to not more than that percentage of the total number of shares
covered thereby as the Committee shall specify in the Notice of Grant of Stock
Option, until all shares covered by the option shall have been purchased. The
Committee may provide, in the case of an option not immediately exercisable in
full, for the acceleration of the time at which the option may be exercised. In
the event of an
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<PAGE> 5
offer by any person, corporation, entity, or combination thereof, to acquire all
or substantially all (more than fifty percent (50%)) of the assets or stock of
the Corporation, all Options not otherwise exercisable shall automatically
become exercisable in full without regard to any provision for exercise in
installments or the initial six (6) months vesting period.
Not less than 100 shares may be purchased at any one time
unless the number purchased in the total number at the time purchasable under
the option. During the lifetime of the optionee, the option shall be exercisable
only by him and shall not be assignable or transferable by him and no other
person shall acquire any rights therein. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part, in any
subsequent period but not later than ten years from the date the option in
granted.
(e) Termination of Employment Except By Death or
Disability. In the event that the employment of an optionee by the Corporation
or Subsidiaries shall terminate for any reason other than his death or
disability, then the Option may be exercised, subject to the condition than no
Option shall be exercisable after the expiration of ten years from the date it
is granted, to the extent that the Optionee's right to exercise such option had
accrued pursuant to Article 5(d) of the Plan at the date of termination (or any
date within three months thereafter) and had not previously been exercised, at
any time within three (3) months after the date of termination of the Optionee's
employment. Whether authorized leave of absence or absence for military or
governmental service shall constitute termination of employment, for the
purposes of the Plan, shall be determined
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<PAGE> 6
by the Committee, which determination, unless overruled by the Board of
Directors, shall be final and conclusive.
(f) Death or Disability of Optionee and Transfer of
Option. If the optionee shall die or become disabled while in the employ of the
Corporation or a Subsidiary, and shall not have fully exercised an option, the
option may be exercised, subject to the condition that no option shall be
exercisable after the expiration of ten years from the date it is granted, to
the extent that the optionee's right to exercise such option had accrued
pursuant to Article 5(d) of the Plan at the time of his death and had not
previously been exercised, at any time within six (6) months after the
optionee's death or disability, by the optionee, or in the case of death, by the
executors or administrators of the optionee or by any person or persons who
shall have acquired the option directly from the optionee by bequest or
inheritance. No option shall be transferable by the optionee otherwise than by
will or the laws of descent and distribution.
(g) Recapitalization. Subject to any required
action by the stockholders, the number of shares of Common Stock covered by each
outstanding option, and the price per share thereof in each such option, shall
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Corporation.
Subject to any required action by the stockholders, if the
Corporation shall be the surviving corporation in any merger or consolidation,
each outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares of
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<PAGE> 7
Common Stock subject to the option would have been entitled. In the event of a
dissolution or liquidation of the Corporation or a merger or consolidation in
which the Corporation is not the surviving corporation, each optionee shall, in
such event, have the right immediately prior to such dissolution or liquidation,
or merger or consolidation in which the Corporation is not the surviving
corporation, to exercise his option in whole or in part without regard to the
installment provisions of Article 5(d) of the Plan. Further, in the event of an
offer by any person, corporation, entity, or combination thereof, to acquire all
or substantially all (more than fifty percent (50%)) of the assets or stock of
the Corporation, the option shall be immediately exercisable in full.
In the event of a change in the Common Stock of the
Corporation as presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a different
par value or without par value, the shares resulting from any such change shall
be deemed to be the Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each option granted pursuant to this Plan shall not be
adjusted in a manner that causes the option to fail to continue to qualify as an
incentive stock option within the meaning of Section 422A of the 1986 Internal
Revenue Code.
Except as hereinbefore expressly provided in this Article
5(g), the optionee shall have no rights as a shareholder before the exercise of
an option by reason of any subdivision or consolidation of shares of stock of
any class or the payment of any stock
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<PAGE> 8
dividend or any other increase or decrease in the number of shares of stock of
any class or by reason of any dissolution, liquidation, merger or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to the option.
The grant of an option pursuant to the Plan shall not affect
in any way the right or power of the Corporation to make adjustments,
reclassification, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
(h) Rights as a Stockholder. An optionee or a
transferee of an option shall have no rights as a stockholder with respect to
any shares covered by his option until the date of the issuance of a stock
certificate to him for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Article 5(g) hereof.
(i) Modification, Extension and Renewal or Options.
Subject to the terms and conditions and within the limitations of the Plan, the
Board of Directors may modify, extend or renew outstanding options granted under
the Plan, or accept the surrender of outstanding options (to the extent not
theretofore exercised). Notwithstanding the foregoing, however, no modification
of an option shall, without the consent of the optionee, alter or impair any
rights or obligations under any option theretofore granted under the Plan.
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<PAGE> 9
(j) Investment Purpose. Each option under the Plan
shall be granted on the condition that the purchases of stock thereunder shall
be for investment purposes and not with a view to resale or distribution, except
that in the event the stock subject to such option is registered under the
Securities Act of 1933, as amended, or in the event a resale of such stock
without such registration would otherwise be permissible, such condition shall
be inoperative if, in the opinion of counsel for the Corporation, such condition
is not required under the Securities Act of 1933 or any other applicable law,
regulation or rule of any governmental agency.
(k) Optionee's Stockholder Agreement. Each
optionee shall agree, as a condition of his right to exercise an option granted
to him pursuant to the Plan, that all shares received by him pursuant to any and
every exercise of such option will be subject to all of the provisions of the
Corporation's Stockholder Agreement, if any, in effect at the time of any
exercise of such option. Accordingly, each optionee shall at the time of
exercise of any option granted hereunder, execute and agree to be bound by the
Corporation's Stockholder Agreement then in effect.
(l) Covenant Not to Compete. The Notice of Grant
of Stock Option may provide that, as a condition of the employee's acceptance of
the option, the employee shall agree to be bound by a covenant not to compete
with the Corporation containing such terms as the Committee and Board of
Directors shall deem advisable.
(m) Other Provisions. The Notice of Grant of Stock
Option shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the option or the transfer of the shares
received upon an exercise, as the Committee and the Board of Directors shall
deem advisable. Any such Notice shall contain such
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<PAGE> 10
limitations and restrictions upon the exercise of the option as shall be
necessary in order that such option will be an "incentive stock option" as
defined in Section 422A of the Internal Revenue Code of 1986 or to conform to
any change in the law.
6. OPTIONS TO CERTAIN STOCKHOLDERS
Notwithstanding any other provision herein, in any option
granted to an individual who, at the time the option is granted, possesses more
than 10 percent of the total combined voting power of all classes of stock of
the Corporation or of its parent or any subsidiary corporation, the option price
must be at least 110 percent of the fair market value of the stock subject to
the option and such option by its terms must not be exercisable after the
expiration of 5 years from the date such option is granted.
7. ANNUAL LIMITATION PER EMPLOYEE
The aggregate fair market value (determined as of the time the
option is granted under the Plan) of the stock for which any employee may be
granted incentive stock options which are first exercisable in any calendar year
(under all such plans of his employer corporation and its parent and all
subsidiary corporations) shall not exceed $100,000.
8. PERMISSIBLE PROVISIONS
In addition to the other powers granted to the Committee and
the Board of Directors under this Plan, the Committee and the Board of Directors
shall have the discretion to include in any option grant the right of the
optionee (i) to pay for the stock with stock of the corporation granting the
option and/or (ii) to receive property at the time of exercise of the option if,
in the case of property other than cash, Section 83 of the Internal Revenue Code
of 1986 applies to such property, and/or (iii) to receive a loan
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from the Corporation to pay for the stock, with such terms as shall not cause
the option to become disqualified as an "incentive stock option" as defined in
Section 422A of the Internal Revenue Code of 1986 or amendments thereto, and/or
(iv) to receive such assistance from the Corporation in obtaining a loan from a
financial institution as is necessary in the sole discretion of the Committee
and the Board of Directors.
9. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time
within a period of ten years from the date the Plan is adopted, or the date the
Plan is approved by the Stockholders, whichever is earlier.
10. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they
may have as directors or as members of the Committee, the members of the
Committee shall be indemnified by the Corporation against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Corporation) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding except in relation to matters as
to which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within 60 days after institution of any such
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<PAGE> 12
action, suit or proceeding the Committee member shall in writing offer the
Corporation the opportunity, at its own expense, to handle and defend the same.
11. AMENDMENT OF THE PLAN
The Board of Directors of the Corporation may, insofar as
permitted by law, from time to time, with respect to any shares at the time not
subject to options, suspend or discontinue the Plan or revise or amend it in any
respect whatsoever except that, without approval of the stockholder, no such
revision or amendment shall change the number of shares subject to the Plan,
change the designation of the class of employees eligible to receive options,
decrease the price at which options may be granted, or remove the administration
of the Plan from the Committee. Furthermore, the Plan may not, without the
approval of the stockholders, be amended in any manner that will cause options
issued under it to fail to meet the requirements of incentive stock options as
defined in Section 422A of the Internal Revenue Code of 1986.
12. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of
Common Stock pursuant to options will be used for general corporate purposes.
13. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the
optionee to exercise such option.
14. APPROVAL OF STOCKHOLDERS
The Plan shall not take effect until approved by the holders
of a majority of the outstanding shares of Common Stock of the Corporation,
which approval must
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occur within the period beginning twelve months before and ending twelve months
after the date the Plan is adopted by the Board of Directors.
15. CONTINUED EMPLOYMENT
The grant of an option pursuant to the Plan shall not be
construed to imply or to constitute evidence of any agreement, express or
implied, on the part of the Corporation or any subsidiary to continue to employ
an employee or not to alter the responsibilities, duties or authority or any
employee.
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Exhibit 4.5
NOTE PURCHASE AGREEMENT
dated October 30, 1987 between
TELEBASE SYSTEMS, INC., a
Pennsylvania corporation (the
"Company") and GARY M. LAUDER
(the "Lender")
WHEREAS, the Company has requested bridge financing assistance
from the Lender for funding working capital requirements pending consummation of
a subsequent equity financing; and
WHEREAS, the Lender desires to provide such financing in the
form of a loan evidenced by a note convertible into equity securities of the
Company on the terms set forth herein;
NOW, THEREFORE, the Company and the Lender hereby agree as
follows:
SECTION 1. Authorization of the Note. Subject to the terms and
conditions hereof, the Company has authorized the issuance at the Closing (as
hereinafter defined) of a Convertible Promissory Note Due January 30, 1988 in
the aggregate principal amount of $500,000 in substantially the form of Exhibit
A attached hereto (the "Note"), which Note is convertible into shares of Series
A Preferred Stock (as hereinafter defined), having the powers, preferences and
other rights as set forth on Exhibit I to the Note.
SECTION 2. Agreement to Sell and Purchase the Note. At the
Closing, the Company shall sell to the Lender, and the Lender shall purchase
from the Company, upon the terms and conditions hereinafter set forth, the Note.
The aggregate purchase price for the Note shall be $500,000.
SECTION 3. Delivery of the Note. The closing (the "Closing")
hereunder with respect to the purchase and sale of the Note shall take place
simultaneously with the execution and delivery of this Agreement at the offices
of O'Sullivan Graev & Karabell, 30 Rockefeller Plaza, New York, New York 10112.
At the Closing, the Company shall deliver to the Lender the Note, payable to the
order of the Lender. Delivery shall be made against receipt by the Company of a
wire transfer in immediately available funds or a check payable to the order of
the Company (or receipt of funds by the Company in other form satisfactory to
the Company), in the amount of $500,000, representing the full amount of the
purchase price of the Note.
<PAGE> 2
SECTION 4. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Lender as follows:
SECTION 4.01. Organization: Good Standing: Qualification and
Power. The Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania, (ii) has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted and as contemplated to be
conducted, and to carry out the transactions contemplated hereby, and (iii) is
duly qualified as a foreign corporation and in good standing to do business in
all such other jurisdictions, if any, in which the conduct of its business or
its ownership, leasing or operation of property requires such qualification,
except for those jurisdictions in which failure to so qualify would not have a
material adverse effect on the business or assets of the Company. The Company
has provided the Lender with correct and complete copies of its Articles of
Incorporation and By-laws as in effect on the date hereof.
SECTION 4.02. Equity Investments. The Company has never had,
nor does it presently have, any subsidiaries, nor has it owned, nor does it
presently own, any capital stock or other proprietary interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture
or other entity.
SECTION 4.03. Capitalization. The authorized capital stock of
the Company immediately upon consummation at the Closing of the transactions
contemplated hereby shall consist of 20,000,000 shares of Common Stock, no par
value (the "Common Stock") of which:
(a) 4,773,000 shares of Common Stock shall have been validly
issued and be outstanding, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, and
(b) 1,565,000 shares shall have been reserved for issuance
upon exercise of outstanding options and warrants, and 400,000 shares
shall be available for issuance pursuant to options available for grant
under the Company's incentive stock option plan.
(c) The Board of Directors of the Company (the "Board") has
also approved resolutions pursuant to which, subject to and upon
approval by stockholders of the Company of the amendment to the
Articles of Incorporation of the Company in the form attached to the
Note as Exhibit I hereto (the "Amendment"), (i) 5,000,000 shares of
Preferred Stock shall have been
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<PAGE> 3
authorized, of which 500,000 shares shall have been designated "Series
A Preferred Stock" (having such other designations, preferences and
relative, participating, optional or other rights and qualifications,
limitations and restrictions set forth in the Certificate of
Designation attached as Exhibit I to the Note), of which 465,910 shares
shall have been reserved for issuance upon conversion of the Note (the
"Reserved Preferred Shares") and (ii) 465,910 shares of Common Stock
shall have been duly reserved initially for issuance upon conversion of
the Reserved Preferred Shares (the "Reserved Common Shares", and the
Reserved Common Shares and Reserved Preferred Shares being herein
referred to as the "Reserved Shares").
The Company has previously delivered to the Lender a list (the "Stockholders
List") of (a) all holders of Common Stock who hold not less than one hundred
thousand (100,000) shares of such Common Stock, including the number of shares
of each class of Common Stock held by each such holder, and (b) all outstanding
warrants, options, agreements, convertible securities or other commitments
pursuant to which the Company is or may become obligated to issue any shares of
its capital stock or other securities of the Company, and names of all persons
entitled to receive such shares or other securities and the shares of capital
stock or other securities required to be issued thereunder. The number of shares
of capital stock (if any) reserved for issuance in connection with clause (b) of
the immediately preceding sentence is not subject to adjustment by reason of the
issuance of the Note or the Reserved Shares. There are, and immediately upon
consummation at the Closing of the transactions contemplated hereby there will
be, no preemptive or similar rights to purchase or otherwise acquire shares of
capital stock of the Company pursuant to any provision of law, the Articles of
Incorporation or By-laws or any agreement to which the Company is a party, or
otherwise, except as contemplated by this Agreement and the Stockholders'
Agreement (as defined in Section 6.01(g) hereof), except for the right of first
refusal granted to The Western Union Telegraph Company ("Western Union")
pursuant to Section 7(d) of the Supply Agreement dated July 11, 1985 between the
Company and Western Union (the "Supply Agreement") (which right has been
effectively waived hereunder) and except for a right of first refusal granted to
Krieger, Wunderlich, Fialkov & Co. ("KWF") pursuant to paragraph 9 of a letter
agreement dated November 1985 between the Company and KWF (the "KWF Letter
Agreement") (which is not applicable to this transaction); and there is, and
immediately upon consummation at the Closing of the transactions contemplated
hereby there will be, no agreement, restriction or encumbrance (such as a right
of first refusal, right of first offer, proxy, voting
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<PAGE> 4
agreement, etc.) with respect to the sale or voting of any shares of capital
stock of the Company (whether outstanding or issuable upon conversion or
exercise of outstanding securities), except as contemplated by this Agreement
and the Stockholders' Agreement and as set forth on the Stockholders' List, and
except for the right of first refusal granted to Western Union pursuant to
Section 7(d) of the Supply Agreement (which right has been effectively waived)
and except for a right of first refusal granted to KWF pursuant to paragraph 9
of the KWF Letter Agreement (which is not applicable to this transaction). All
shares of Common Stock and any other securities issued by the Company prior to
the Closing have been issued in transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). The Company has not
violated the Securities Act or any applicable state securities or "blue sky"
laws in connection with the issuance of any shares of Common Stock or other
securities prior to the Closing.
SECTION 4.04. Authority. The execution, delivery and
performance by the Company of this Agreement, the Stockholders' Agreement, the
Voting Agreement (as defined in Section 6.01(i) hereof) and the Note have been
duly and validly authorized by all necessary corporate action; this Agreement,
the Stockholders' Agreement and the Note have been duly and validly executed and
delivered by the Company and each of this Agreement, the Stockholders' Agreement
and the Note constitutes the valid and binding obligation of the Company, and
the Voting Agreement constitutes the valid and binding obligations of the
stockholders of the Company signatory thereto enforceable in accordance with its
terms. The issuance, sale and delivery of the Reserved Shares have been duly
authorized by the Board, subject to the approval by the stockholders of the
Company of the Amendment, the Reserved Preferred Shares have been duly reserved
for issuance upon conversion of the Note and the Reserved Common Shares have
been duly reserved for issuance upon conversion of the Reserved Preferred
Shares, and when so issued, sold and delivered, the Reserved Shares shall be
validly issued and outstanding, fully paid and non-assessable with no personal
liability attaching to the ownership thereof, and not subject to preemptive or
any other similar rights of the stockholders of the Company or others, all of
the foregoing being subject to the approval by the stockholders of the Company
of the Amendment. The execution, delivery and performance of this Agreement, the
Stockholders' Agreement and the Note by the Company, and subject to the approval
by the stockholders of the Company of the Amendment, the reservation, issuance,
sale and delivery of the Reserved Shares Upon conversion of the Note or the
Reserved Preferred Shares and compliance by the Company with any provision
hereof or thereof will not (a) violate any provision of law
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<PAGE> 5
or statute or any order of any court or any order, rule or regulation of any
other agency of government or (b) conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute (with due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties, assets or
outstanding capital stock of the Company, under the Articles of Incorporation or
By-laws of the Company, in each case as amended and/or restated through the date
hereof, or any note, indenture, mortgage, lease, agreement or other instrument
to which the Company is a party or by which it or any of its properties or
assets are or may be bound or affected. Each permit, authorization, consent or
approval of or by, or any notification of or filing with, any person
(governmental or private) required for the valid authorization, execution,
delivery and performance by the Company of this Agreement, the Stockholders'
Agreement and the Note, or for the valid authorization, reservation (as the case
may be), issuance, sale and delivery of the Note or the Reserved Shares has been
obtained or made or, subject to the approval by the stockholders of the Company
of the Amendment, will have been obtained or made as of the date required or,
subject to the approval by the stockholders of the Company of the Amendment,
will have been obtained or made as of the date required (as the case may be).
SECTION 4.05. Financial Information. (a) The Company has
previously delivered to the Lender the following financial information:
(i) the balance sheet of the Company as of December 31, 1986,
and the related statement of operations, stockholders' equity and
changes in financial position for the year then ended (in each case
including the notes thereto) audited by Kreischer, Miller & Co., the
independent certified public accountants of the Company; and
(ii) the unaudited balance sheet of the Company as of August
31, 1987 (the "Interim Balance Sheet") and the related unaudited
statements of operations, stockholders' equity and changes in financial
position for the eight-month period then ended, prepared by the Company
(collectively, the "Interim Financial Statements").
(b) The financial statements referred to in the foregoing
clause (a) of this Section 4.05(i) are in accordance with the books and records
of the Company, (ii) fairly present in all material respects the financial
condition of the Company as of the respective dates
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indicated and the results of operations, stockholders' equity and changes in
financial position of the Company for the respective periods indicated and (iii)
in the case of financial statements described in Section 4.05(a)(i), have been
prepared in accordance with generally accepted accounting principles
consistently applied.
SECTION 4.06. Absence of Undisclosed Liabilities. Except as
disclosed in the Interim Financial Statements and Schedule 4.06 attached hereto,
at August 31, 1987, (a) the Company had no liability of any nature (matured or
unmatured, fixed or contingent) which was not provided for or reflected on the
Interim Balance Sheet, and (b) all liability reserves established by the Company
and set forth on the Interim Balance Sheet were adequate for the purposes
indicated therein, and (c) there were no loss contingencies (as such term is
used in statement of Financial Accounting standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) which were not adequately
provided for on the Interim Balance Sheet.
SECTION 4.07. Absence of Changes. Except as set forth on
Schedule 4.07 attached hereto, since August 31, 1987, there has not been (a) any
material adverse change in the financial condition, results of operations,
assets, liabilities or business of the Company, (b) any material liability or
obligation of any nature whatsoever (contingent or otherwise) incurred by the
Company, other than current liabilities or obligations incurred in the ordinary
course of business, (c) any asset or property of the Company made subject to a
material lien of any kind, (d) any waiver of any valuable right of the Company,
or the cancellation of any debt or claim held by the Company, (e) any payment of
dividends on, or other distributions with respect to, or any direct or indirect
redemption or acquisition of, any shares of the capital stock of the Company, or
any agreement or commitment therefor, (f) any issuance of any stock, bonds or
other securities of the Company or options, warrants or rights or agreements or
commitments to purchase or issue such securities or grant such options warrants
or rights other than pursuant to or in connection with the transactions
contemplated by this Agreement, (g) any mortgage, pledge, sale, assignment or
transfer of any tangible or intangible assets of the Company, except in the
ordinary course of business, (h) any loan by the Company to any officer,
director, employee or stockholder of the Company, or any agreement or commitment
therefor, (i) any damage, destruction or loss (whether or not covered by
insurance) which is or may materially adversely affect the assets, property or
business of the Company, (j) any extraordinary increase, direct or indirect, in
the compensation paid or payable to any officer, director,
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employee or agent of the Company or (k) any change in the accounting methods or
practices followed by the Company.
SECTION 4.08. Tax Matters. All Federal, state and local or
foreign tax returns and tax reports required to be filed by the Company have
been filed with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed (except, with respect to
tax returns and tax reports which may have been required to be filed in respect
of state or local sales, lease, occupation, property and excise tax, where the
failure to do so would not have a material adverse effect on the Company's
business) and all of the foregoing are true, correct and complete. Except with
respect to taxes required to have been paid or accrued by the Company in respect
of state or local sales, lease, occupation, property and excise tax, where the
failure to do so would not have a material adverse effect on the Company's
business, and except as set forth on Schedule 4.08 attached hereto, all Federal,
state, local and foreign income, profits, franchise, sales, use, occupation,
property, excise, payroll, withholding and other taxes (including interest and
penalties) required to have been paid or accrued by the Company have been fully
paid or are adequately provided for on the Interim Balance Sheet, except for tax
liabilities arising in the ordinary course of business since August 31, 1987. No
issues have been raised (and are currently pending) by the Internal Revenue
Service or any other taxing authority in connection with any of the returns and
reports referred to above, and no waivers of statutes of limitations have been
given or requested with respect to the Company. All deficiencies asserted or
assessments (including interest and penalties) made as a result of any
examination by the Internal Revenue Service or by appropriate state or
departmental tax authorities of the Federal, state or local or foreign income
tax, sales tax or franchise tax returns of or, with respect to the Company, have
been fully paid or are adequately provided for on the Interim Balance Sheet and
no proposed (but unassessed) additional taxes, interest or penalties have been
asserted. Except with respect to state or local sales, lease, occupation,
property and excise taxes which may have been required to be paid or provided
for, where the failure to do so would not have a material adverse effect on the
Company's business, the provisions for taxes on the Interim Balance Sheet are
sufficient for the payment of all accrued and unpaid Federal, state or local and
foreign taxes as of such date. Neither the Company or, to the "best knowledge of
the Company" (as such term, as used herein and in each case where it appears in
this Section 4, is defined in Section 4.31 hereof), nor its officers has ever
filed a consent pursuant to Section 341(f) of the Internal Revenue Code of 1954,
as amended (the "Code") relating to collapsible
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corporations. The Company is not currently subject to federal taxation as a
Subchapter S corporation.
SECTION 4.09. Intellectual Property. (a) Except as listed on
Schedule 4.09 attached hereto, the Company owns, possesses, has the right to use
or has the right to bring actions for the infringement of, all Intellectual
Property Rights (as hereinafter defined) which it believes to be necessary or
required for the conduct of its business as presently conducted.
(b) Except as listed on Schedule 4.09 attached hereto, no
royalties, honorariums or fees are payable by the Company to other persons by
reason of the ownership or use of the Intellectual Property Rights.
(c) To the best knowledge of the Company, no product
manufactured, marketed or sold, and no product proposed in the Business Plan to
be manufactured, marketed or sold, by the Company, violates or will violate, any
Intellectual Property Rights or assumed name of another; and there is no pending
or, to the best knowledge of the Company, threatened claim or litigation against
the Company contesting the validity or right to use of any of the foregoing, nor
has the Company received any notice that any of the Intellectual Property Rights
or the operation or proposed operation of the Company's business as set forth in
the Business Plan conflicts, or will conflict, with the asserted rights of
others.
As used herein, the term "Intellectual Property Rights" means all intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
copyrights, computer programs, inventions, know-how, licenses, trade secrets,
proprietary processes and formulae.
SECTION 4.10. Litigation, Etc. Except as listed on Schedule
4.10 attached hereto, there are no (i) actions, suits, claims, investigations or
legal or administrative or arbitration proceedings pending or, to the best
knowledge of the Company, threatened against or affecting the Company, whether
at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if adversely determined, would have a material
adverse effect on the Company's business, or (ii) judgments, decrees,
injunctions or orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against the Company which could have a material
adverse effect on the business, prospects, condition (financial or otherwise),
affairs or operations of the Company or which could materially impair the
Company's
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ability to perform its obligations hereunder nor, to the best knowledge of the
Company, does there exist any basis for any of the foregoing.
SECTION 4.11. Compliance; Governmental Authorizations. The
Company has complied in all material respects with all Federal, state, local or
foreign laws, ordinances, regulations and orders applicable to its business. The
Company has all material Federal, state, local and foreign governmental licenses
and permits necessary in the conduct of its business, such licenses and permits
are in full force and effect, no material violations are occurring or have
occurred in respect of any thereof and no proceeding is pending or, to the best
knowledge of the Company, threatened to revoke or limit any thereof. None of the
aforesaid licenses and permits shall be affected in any material respect by this
Agreement, the Stockholders' Agreement, the Voting Agreement or the Note.
SECTION 4.12. Compliance With ERISA; Benefit Plans; Etc. The
Company does not (a) maintain and has never maintained any employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or (b) contribute to and has never contributed to any such employee
benefit plan maintained by any other person or entity.
SECTION 4.13. No Defaults. Except as set forth on Schedule
4.13 attached hereto, the Company is not in default (a) under its Articles of
Incorporation or its By-laws, in each case as amended to the date hereof, or any
material indenture, mortgage, lease agreement, contract, purchase order or other
instrument or agreement to which the Company is a party or by which it or any of
its property is bound or affected or (b) with respect to any order, writ,
injunction or decree of any court or any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign and (c) there exists no condition, event or act which
constitutes, or which after notice, lapse of time or both could constitute, a
default under any of the foregoing.
SECTION 4.14. Employment of Officers, Employees and
Consultants. No third party has asserted, and, to the best knowledge of the
Company, no third party has a valid basis for asserting, any valid claim against
the Company, or any of the Stipulated Persons (as hereinafter defined) with
respect to (a) the continued employment by, or association with, the Company of
any of its officers or employees of, or consultants to the Company (the
"Stipulated Persons") or (b) the use by the Company or any of the Stipulated
Persons of any information which the Company or any of the Stipulated Persons
would be prohibited from using under any
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prior agreements or arrangements or under any laws applicable to unfair
competition, trade secrets or proprietary information.
SECTION 4.15. Encumbrances. Except as disclosed on Schedule
4.15 attached hereto, the Company owns outright all the property and assets,
real, personal or mixed, tangible or intangible, reflected as assets in the
Interim Balance Sheet or acquired by the Company since August 31, 1987 (other
than assets disposed of in the ordinary course of business since August 31,
1987), subject to no mortgages, liens, security interests, pledges, charges or
other encumbrances of any kind, except as reflected in the Interim Financial
Statements. Except as set forth on Schedule 4.15 attached hereto, the Company
owns, or has a valid leasehold interest in, or valid license for, all assets
necessary for the conduct of its business as presently conducted or as proposed
to be conducted.
SECTION 4.16. Agreements. Except as listed on Schedule 4.16
attached hereto, the Company is not a party to any written or oral (a) contract
with any labor union; (b) contract for the future purchase of fixed assets or
for the future purchase of materials, supplies or equipment in excess of normal
operating requirements; (c) contract for the employment of any officer,
individual employee or other person on a full-time basis or any contract with
any person on a consulting basis; (d) bonus, pension, profit-sharing,
retirement, stock purchase, stock option, hospitalization, medical insurance or
similar plan, contract or understanding in effect with respect to employees or
any of them or the employees of others; (e) agreement or indenture relating to
the borrowing of money or to the mortgaging, pledging or otherwise placing of a
lien on any assets of the Company; (f) guaranty of any obligation for borrowed
money or otherwise; (g) lease or agreement under which the Company is lessee of
or holds or operates any property, real or personal, owned by any other party;
(h) lease, license or other agreement under which the Company is lessor of, or
permits any third party to hold or operate, any property, real or personal,
owned or controlled by the Company; (i) agreement or other commitment for
capital expenditures in excess of normal operation requirements; (j) contract,
agreement or commitment under which the Company is obligated to pay any broker's
fees, finder's fees or any such similar fees, to any third party; (k) contract,
agreement or commitment under which the Company has issued, or may become
obligated to issue, any shares of capital stock of the Company, or any warrants,
options, convertible securities or other commitments pursuant to which the
Company is or may become obligated to issue any shares of its capital stock,
other than as contemplated by this Agreement; or (1) any other contract,
agreement, arrangement or understanding
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which is material to the business of the Company or which is material to, and
which a prudent investor would need to review in order to make, an informed
investment decision with respect to the purchase of the Note hereunder. The
Company has furnished to the Lender true and correct copies of all such written
agreements and other documents.
SECTION 4.17. Related Transactions. Except as set forth on
Schedule 4.17 attached hereto, no current or former stockholder, director,
officer or employee of the Company nor any "associate" (as defined in the rules
and regulations promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of any such person, is presently, or since
December 31, 1986 has been, directly or indirectly through his affiliation with
any other person or entity, a party to any transaction (other than as an
employee or a consultant) with the Company providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
cash payments to any such person (a "Related Transaction").
SECTION 4.18. Offering Exemption. The offering and sale of the
Note and the issuance of the Reserved Shares upon conversion of the Note or the
Reserved Preferred Shares, as the case may be, are each exempt from registration
under the Securities Act. With respect to the aforesaid offering and sale, the
Company has complied, or, prior to issuance will have complied, with all
applicable state securities or blue sky laws.
SECTION 4.19. Insurance. Listed on Schedule 4.19 attached
hereto, are all policies of insurance maintained by the Company. Such policies
are in full force and effect and all premiums with respect to such policies are
currently paid. Except as listed on Schedule 4.19 attached hereto, the Company
has never been denied or had revoked or rescinded any policy of insurance.
SECTION 4.20. Burdensome Restrictions. Except as listed on
Schedule 4.16 attached hereto, the Company is not obligated under any contract
or agreement or subject to any charter or other corporate restriction which
presently materially adversely affects, or in the future may reasonably be
expected to materially adversely affect, its financial condition, operations,
results of operations, earnings, business or prospects.
SECTION 4.21. Investment Company Act. The Company is not an
"investment company" as that term is defined in, and is not otherwise subject to
regulation under, the Investment Company Act of 1940.
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SECTION 4.22. Use of Proceeds. Proceeds from the sale of the
Note shall be used by the Company for the purposes set forth on Schedule 4.22
attached hereto.
SECTION 4.23. Disclosure. Neither this Agreement, the
Stockholders' Agreement, the Note, the Business Plan, the financial statements
referred to in Section 4.05 hereof, nor the Operations Reports to the Board of
Directors dated September 2, 1987 and October 7, 1987, respectively contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
There is no fact known to the Company which materially adversely affects or in
the future may materially adversely affect the business, operations, affairs,
prospects, condition, properties or assets of the Company which has not been set
forth in this Agreement or in the other documents, certificates, instruments, or
written statements furnished to the Lender by or on behalf of the Company
pursuant hereto (and listed herein).
SECTION 4.24. Brokers. Neither the Company, nor any of the
Company's officers, directors, employees or stockholders has employed any broker
or finder in connection with the transactions contemplated by this Agreement.
SECTION 4.25. No Governmental Consent or Approval Required. No
consent, approval or authorization of, or declaration to, or filing with, any
governmental or regulatory authority is required for the valid authorization,
execution, delivery and performance by the Company of this Agreement, the Note
or the Stockholders' Agreement or for the valid authorization, issuance, sale
and delivery to the Lender of the Note or for the valid authorization,
reservation, issuance, sale and delivery to the Lender of the Reserved Shares
upon conversion of the Note (or if so required, such consent, authorization or
approval shall have been obtained or filing shall have been effected on or prior
to the Closing). The registration of the Note and the Reserved Shares under the
Securities Act is not required for the valid issuance, sale, delivery and/or
performance (as the case may be) thereof hereunder.
SECTION 4.26. Business Plan. The Company has previously
presented and delivered to the Lender (on or about October 17, 1987) the
Company's Business Plan 1987 through 1989 (the "Business Plan"), and the Company
acknowledges that it has been advised by the Lender that the Business Plan has
been material to it in its decision to enter into this Agreement and the
Stockholders' Agreement and to purchase the Note hereunder. The description of
the business, operations (as presently conducted), properties and assets of the
Company contained in the Business Plan, as
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well as all other factual statements contained therein, are true and correct. To
the best knowledge of the Company, except as set forth on Schedule 4.26 attached
hereto, the financial projections and other estimates contained in the Business
Plan are based on reasonable assumptions of the Company at the time such
projections and estimates were made. The Company has no reason to believe, and
does not believe, that any assumptions of fact or statements of opinion
contained in the Business Plan are unreasonable, untrue or false.
SECTION 4.27. Books and Records. The books and records of the
Company have been maintained in accordance with sound business practices and, as
of the date hereof, present fairly the respective assets, financial condition
and results of operations of the Company.
SECTION 4.28. Non-Competition, Non-Disclosure and Patent and
Invention Assignment Agreements and Covenant Relating Thereto. Except as set
forth on Schedule 4.28 attached hereto, each current key employee of the Company
who has or is proposed to have access to confidential and proprietary
information of the Company is a signatory to, and is bound by, an agreement with
the Company relating to non-competition, non-disclosure, proprietary information
and patent and invention assignment (copies of the form of which are attached to
such Schedule 4.28), each of which shall not be modified or amended in any
respect without the prior consent of a majority of the entire Board of Directors
of the Company.
SECTION 4.29. Corporate Action. Minutes of all meetings of the
Board of Directors (and any committees thereof) and stockholders (and all
resolutions adopted thereat or thereby, including written action in lieu of a
meeting) of the Company have been provided to the Lender and O'Sullivan, Graev &
Karabell, counsel for the Lender. Such minutes, resolutions or other corporate
action have not been altered, amended or rescinded and are in full force and
effect on the date hereof.
SECTION 4.30. Registration Rights. Except as contemplated by
this Agreement and as set forth on Schedule 4.30 attached hereto, no person has
any right to cause the Company to effect the registration under the Securities
Act of any shares of Common Stock or any other securities (including debt
securities) of the Company.
SECTION 4.31. Definition of Best Knowledge. As used herein,
the term "to the best knowledge" of the Company shall mean and include (i)
actual knowledge and (ii) that knowledge which a prudent business person
(including, in the case of the Company, the officers, directors, and key
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employees of the Company) could have obtained in the management of his or her
business affairs after making due inquiry and exercising due diligence which a
prudent businessperson should have made or exercised, as applicable, with
respect thereto. In connection therewith, the knowledge (both actual and
constructive) of any director, officer or key employee of the Company shall be
imputed to be the knowledge of the Company. For purposes of this Section 4.31,
key employees shall mean Craig Tiano and John Leonard.
SECTION 5. Representations and Warranties of the Lender. The
Lender represents and warrants to the Company as follows:
(a) The Lender is acquiring the Note, and in the event of the
issuance of Reserved Shares he will be acquiring the Reserved Shares,
for his own account, for investment and not with a view to the
distribution thereof within the meaning of the Securities Act; it being
understood and agreed that the Lender may transfer the Note (or
Reserved Shares) to a partnership consisting primarily of members of
the Lender's family in which the Lender shall act as the sole general
partner.
(b) The Lender understands that the Note has not been, and the
Reserved Shares will not be, registered under the Securities Act or
under any state securities acts by reason of their issuance by the
Company in a transaction exempt from the registration requirements of
applicable state securities acts and the Securities Act pursuant to
Section 4(2) thereof; and that they must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act
and any applicable state securities acts or is exempt from such
registration.
(c) The Lender further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to
the Lender) issued under the Securities Act depends on the satisfaction
of various conditions and that, if applicable, Rule 144 affords the
basis for sales only in limited amounts and under limited
circumstances.
(d) The Lender further represents, warrants and covenants to
the Company that it will not transfer the Note or any of the Reserved
Shares except in compliance with Section 8 of this Agreement, the
Stockholders' Agreement and applicable securities laws.
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(e) The Lender confirms that he (a) is familiar with the
business of the Company, (b) has had the opportunity to ask questions
of the Company's officers and directors and to acquire such information
about the business and financial condition of the Company has requested
and (c) has had the opportunity to obtain such other information as the
Lender deemed necessary, and the Lender has relied upon, among other
things, his independent investigation in making a decision to enter
into this Agreement; provided, however, that nothing herein shall be
construed to derogate or otherwise limit the representations,
warranties and covenants of the Company contained in this Agreement,
the Note or the Stockholders' Agreement, or the Lender's reliance
thereon.
(f) The Lender has made such independent investigations of the
Company and of the business and financial condition of the Company, as
the Lender in the exercise of the sound business judgment, considers to
be appropriate under the circumstances.
(g) The Lender consents to the imprinting of the
legend set forth in Section 8.03 hereof on the Note and Reserved
Shares.
(h) The Lender represents and warrants that he is an
"accredited investor" as that term is defined in Regulation D
promulgated pursuant to the Securities Act.
SECTION 6. Conditions Precedent to Closing.
SECTION 6.01. Closing. The obligation of the Lender to
purchase and pay for the Note at the Closing is subject to the following
conditions precedent:
(a) Receipt of Note. The Lender shall have received the Note
duly executed by the Company and payable to the Lender in the principal
amount of $500,000.
(b) Corporate Proceedings; Consents, Etc. All corporate and
other proceedings to be taken and all waivers and consents to be
obtained in connection with the transactions contemplated by this
Agreement and the Note shall have been taken or obtained and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Lender and to its counsel, O'Sullivan Graev &
Karabell, each of whom shall have received all such originals or
certified or other copies of such documents either may reasonably
request.
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(c) Opinion of Counsel. At the Closing, the Lender shall have
received the favorable written opinion of Dilworth, Parson, Kalish &
Kauffman, special counsel for the Company, dated the date of the
Closing and addressed to the Lender, in the form of Exhibit B
attached hereto.
(d) Secretary's Certificate. The Lender shall have received a
certificate, dated the date of the Closing, of the Secretary or an
Assistant Secretary of the Company to the effect (i) that attached
thereto is a true and complete copy of the Articles of Incorporation
and the By-laws of the Company, in each case as in effect on the date
thereof, (ii) that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement
and the Note and consummation of the transactions contemplated hereby
and thereby and reserving the Reserved Shares for issuance upon the
conversion of the Note and the Preferred Stock, (iii) that the Company
is in good standing under the laws of the Commonwealth of Pennsylvania
and any other state in which the conduct of its business or its
ownership or leasing of property requires qualification of the Company,
except for those jurisdictions in which failure to so qualify would not
have a material adverse effect on the business or assets of the
Company, and has paid all required franchise taxes in such states, and
(iv) of such other matters as may reasonably be requested by the Lender
or its counsel, O'Sullivan Graev & Karabell.
(e) Reconstitution of Board of Directors; Election of
Directors. The Lender shall have been appointed to the Board of
Directors of the Company.
(f) Blue Sky Matters. All consents, approvals, filings,
qualifications and/or registrations required to be obtained or effected
under any applicable state securities or blue sky laws in connection
with the issuance, sale and delivery to the Lender of the Note or the
reservation, issuance, sale and delivery to the Lender of the Reserved
Shares shall have been obtained or effected (except for the filing of
any notice subsequent to the Closing which may be required under
applicable state securities laws which, if required, shall be filed on
a timely basis as may be so required) and copies of the same delivered
to the Lender.
(g) Stockholders' Agreement. A stockholders' agreement (the
"Stockholders' Agreement"), among the Company and the other signatories
thereto, in the form
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of Exhibit C attached hereto, shall have been executed and delivered by
the Company and such parties. In addition, the Company and such parties
shall have complied with all terms and conditions of the Stockholders'
Agreement, including, among other things, the placement of the legends
required to be placed on certificates representing securities owned by
such parties.
(h) Legal Matters Satisfactory. On the date of the Closing,
all legal matters incident to this Agreement and the Closing shall be
reasonably satisfactory to O'Sullivan Graev & Karabell, counsel for the
Lender.
(i) Voting Agreement Regarding Amendment to Articles of
Incorporation. Stockholders of the Corporation holding a majority of
the issued and outstanding Shares of Common Stock of the Company shall
have entered into an agreement (the "Voting Agreement") with the
Company to vote in favor of an amendment to the Articles of
Incorporation in the form of Exhibit I attached to the Note at a
special meeting of stockholders to be held as soon as practicable
following the Closing.
(j) Warrant. The Company shall have obtained an acknowledgment
of KWF to the effect that the delivery of the warrant for 40 shares of
Common Stock previously delivered to KWF constitutes the warrant
meeting the requirements of paragraph 7 of the letter dated November,
1985 with the Company, and that there are no continuing obligations of
the Company to KW except pursuant to the warrant previously delivered.
SECTION 7. Covenants of the Company.
SECTION 7.01. Board Meetings, Access. (a) At any time that a
nominee of the Lender (whether such nominee is the Lender or otherwise) shall no
longer be a member of the Board of Directors, so long as the Lender is not
engaged in, and does not hold any controlling interest in, a business
competitive with the Company, and so long as the Lender (including any
partnership consisting primarily of the Lender's family members for which the
Lender acts as sole general partner) maintains ownership of the Note and/or the
Reserved Shares, the Lender shall be entitled to receive notice of and to
attend, Board meetings; provided, however, that the right provided hereunder
shall be so provided only for so long as the provision of such right will not,
in the reasonable judgment of the Company, be determined to be detrimental to
the Company's relationship with existing and potential suppliers and customers.
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(b) The Company will (i) give the Lender such prior notice of
each meeting of the Board of Directors and of any other committee or group
exercising responsibilities comparable to those exercised by the Board of
Directors as is given each Director, which notice shall specify the time and
place of such meeting, and, to the extent then known, the matters to be
discussed thereat and inviting the Lender to attend such meeting (provided,
however, that, at any time the Lender is not a director of the Company, (A) the
Lender shall not have the right to vote at such meeting, and (B) the Lender
shall agree to maintain the confidentiality of information conveyed as a result
of such meeting in accordance with such terms as approved by the Board of
Directors), (ii) furnish the Lender with copies of all written notices, minutes,
consents (including draft consents) and other written materials that the Company
provides to its directors, and (iii) afford to the Lender free and full access,
at all reasonable times, to all of the books, records and properties of the
Company and to all officers and employees of the Company, for any reasonable
purpose whatsoever; provided, however, that the access and information provided
hereunder shall be so provided only for so long as the provision of such access
and information will not, in the reasonable judgment of the Company, be
determined to be detrimental to the Company's relationship with existing and
potential suppliers and customers.
SECTION 7.02. Right of First Refusal. (a) Except in the case
of Excluded Securities, the Company shall not issue, sell or exchange, agree to
issue, sell or exchange, or reserve or set aside for issuance sale or exchange,
any (i) shares of Common Stock, Preferred Stock or any other equity security of
the Company, (ii) any debt security of the Company which is convertible or has
other equity features, or (iii) any option, warrant or other right to subscribe
for, purchase or otherwise acquire any equity security or any such debt security
of the Company, unless in each case the Company shall have first offered to sell
to the Lender its Proportionate Percentage (as defined below) of such securities
(the "Offered Securities"), at a price and on such other terms as shall have
been specified by the Company in writing delivered to the Lender (the "Offer"),
which Offer by its terms shall remain open and irrevocable for a period of 10
days from the date it is delivered by the Company to the Lender.
(b) Notice of the Lender's intention to accept, in whole or in
part, the Offer made pursuant to Section 7.02(a) shall be evidenced by a writing
signed by the Lender and delivered to the Company prior to the end of the 10-day
period of such Offer, setting forth such portion of the Offered Securities as
the Lender elects to purchase (the "Notice of Acceptance").
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(c) In the event that a Notice of Acceptance is not given by
the Lender in respect of all its Proportionate Percentage of the Offered
Securities, the Company shall have 90 days from the expiration of the foregoing
10-day period to sell all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Lender (the "Refused
Securities"), but only in all respects upon the terms and conditions no more
favorable than those contained in the Offer. Upon the closing, the Lender shall
purchase from the Company, and the Company shall sell to the Lender, the Offered
Securities in respect of which a Notice of Acceptance was delivered to the
Company by the Lender, at the terms specified in the Offer. The purchase by the
Lender of any Offered Securities is subject in all cases to the terms and
conditions set forth in the purchase agreement (if any) with the third party
initially proposing the Offer unless such agreement relating to such Offered
Securities is not reasonably satisfactory in form and substance to the Lender.
(d) In each case, any Offered Securities not purchased by the
Lender or the other person or persons in accordance with Section 7.02(c) may not
be sold or otherwise disposed of until they are again offered to the Lender
under the procedures specified in Sections 7.02(a), (b) and (c).
(e) The rights of the Lender under this Section 7.03 shall not
apply to the following securities ("Excluded Securities"):
(i) Common Stock, or options to purchase or rights to
subscribe for such Common Stock, or securities by their terms
convertible into or exchangeable for such Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
securities, issued to officers, employees or directors of, or
consultants to, the Company and in each case approved by the Board of
Directors of the Corporation; provided, however, that the maximum
number of shares of Common Stock hereafter issued or issuable to
officers, employees or directors of, or consultants to, the Company to
which this clause (i) shall apply shall not exceed the mum of (A) up to
800,000 shares, including 400,000 shares subject to issuance pursuant
to options granted to employees prior to the date hereof and 400,000
shares reserved prior to the date hereof for issuance pursuant to the
Company's qualified incentive plan (including any Common Stock issued
pursuant to the exercise of any such options) and (B) the greater of
seven and one-half percent (7-1/2%) of all shares of Common Stock then
outstanding or 600,000 shares of Common Stock;
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(ii) Common Stock issued as a stock dividend or upon any
subdivision or combination of shares of Common Stock;
(iii) the Reserved Shares;
(iv) any Common Stock issued pursuant to the exercise of
options, warrants and rights outstanding as of the date hereof and
listed on Schedule 7.02 attached hereto (including any replacements or
options, warrants or rights issued in like amount upon the expiration
of any such options, warrants or rights); or
(v) provided that Western Union shall exercise its right of
first refusal, any securities sold or to be sold pursuant to an
exercise of the right of first refusal granted to Western Union
pursuant to Section 7(d) of the Supply Agreement.
(f) Subject to such restrictions on transfer as are set forth
in the Stockholders Agreement, the rights of the Lender under this Section 7.02
shall be assignable to any transferee of the Lender (or any permitted assignee
of any such rights) who or which acquires the Note or the Reserved Shares in
accordance with the terms of this Agreement.
(g) "Proportionate Percentage" shall mean that percentage
figure which expresses the ratio which (x) the number of shares of Common Stock
then owned by the Lender bears to (y) the aggregate number of shares of Common
Stock then issued and outstanding (or deemed to be issued and outstanding) to
all holders of Common Stock of the Company. For purposes solely of the
computation required under clauses (x) and (y) above, the Note and any other
then issued and outstanding securities convertible into or exercisable or
exchangeable for shares of Common Stock shall be treated as having been
converted into or exercised or exchanged for shares of Common Stock at the rate
at which such securities are convertible into or exercisable or exchangeable for
shares of Common Stock in effect at the time of delivery by the Company of the
Offer as contemplated by Section 7.02(a) hereof.
SECTION 7.03. Termination of Covenant. Notwithstanding
anything herein to the contrary, the provisions of Section 7.02 hereof shall
terminate and shall cease to be effective upon the consummation of a public
offering of Common Stock registered under the Securities Act with an aggregate
gross offering price to the public (prior to deduction of expenses,
underwriter's commissions, etc.) of at least $2,500,000.
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SECTION 8. Transfer of Securities; Registration Rights .
SECTION 8.01. Restriction on Transfer. The Restricted
Securities (as hereinafter defined), and any shares of capital stock received in
respect thereof, whether by reason of a stock split or share reclassification
thereof, a stock dividend thereon or otherwise, shall not be transferable except
upon the conditions specified in this Section 8.
SECTION 8.02. Definitions. As used in this Section 8, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the
Securities Act.
"Person" shall mean and include an individual, a corporation,
a partnership, a trust, an unincorporated organization and a government
or any department, agency or political subdivision thereof.
"Restricted Securities" shall mean the Note, the Reserved
Shares and any shares of capital stock received in respect of any
thereof, evidenced by certificates bearing the restrictive legend set
forth in Section 8.03.
"Restricted Shares" shall mean the shares of Common Stock
constituting Restricted Securities.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Transfer" shall include any disposition of any shares of
Restricted Securities or of any interest therein which would constitute
a sale thereof within the meaning of the Securities Act.
SECTION 8.03. Restrictive Legends. Each certificate for the
Restricted Securities and any shares of capital stock received in respect
thereof, whether by reason of a stock split or share reclassification thereof, a
stock dividend thereon or otherwise, and each certificate for any such
securities issued to subsequent transferees of any such certificate shall
(unless otherwise permitted by the provisions of Section 8.04 or 8.11) be
stamped or otherwise imprinted with legends in substantially the following form:
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<PAGE> 22
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY STATE SECURITIES ACTS. THESE SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
OPINION OF COUNSEL ACCEPTABLE TO TELEBASE SYSTEMS, INC. AND IN
ACCEPTABLE FORM AND SUBSTANCE THAT AN EXEMPTION THEREFROM IS AVAILABLE
UNDER SAID ACTS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO (A) CERTAIN RESTRICTIONS PURSUANT TO A STOCKHOLDERS'
AGREEMENT DATED OCTOBER 30, 1987 AMONG TELEBASE SYSTEMS, INC. AND OTHER
SIGNATORIES THERETO (AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID
OR EFFECTIVE UNLESS SUCH TRANSFER IS IN ACCORD THEREWITH) AND (B) THE
CONDITIONS SPECIFIED IN SECTION 8 OF THE NOTE PURCHASE AGREEMENT DATED
AS OF OCTOBER 30, 1987, BETWEEN TELEBASE SYSTEMS, INC. AND GARY M.
LAUDER (AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED). UPON THE FULFILLMENT OF
CERTAIN OF SUCH CONDITIONS, TELEBASE SYSTEMS, INC. HAS AGREED TO
DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS
LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF
THE HOLDER HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF TELEBASE SYSTEMS, INC.
SECTION 8.04. Notice of Transfer. The holder of any Restricted
Securities, by acceptance thereof, agrees, prior to any transfer of any
Restricted Securities, to give written notice to the Company of such holder's
intention to effect such transfer and to comply in all other respects with the
provisions of this Section 8.04. Each such notice shall describe the manner and
circumstances of the proposed transfer and shall be accompanied by (a) the
written opinion, addressed to the Company, of counsel reasonably acceptable to
the Company for the holder of Restricted Securities, as to whether in the
opinion of such counsel such proposed transfer involves a transaction requiring
registration of such Restricted Securities under the Securities Act and state
securities acts and, if not, a description of the exemptions available, and (b)
in the case of Restricted Shares, if in the opinion of such counsel such
registration is required, a written request addressed to the Company by the
holder of Restricted Securities, describing in detail the proposed method of
disposition and requesting the Company to effect the registration of such
Restricted Shares pursuant to the terms and provisions of Section 8.05 or 8.06
hereof, as the case may be; provided, however, that no such opinion shall be
required in connection with a transfer by any holder to a partnership consisting
primarily of such holder's family members for which such holder acts
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as the sole general partner. If in the opinion of such counsel (if such opinion
is required hereunder) the proposed transfer of Restricted Securities may be
effected without registration under the Securities Act and state securities
acts, the holder of Restricted Securities shall thereupon be entitled to
transfer Restricted Securities in accordance with the terms of the notice
delivered by it to the Company. Each certificate or other instrument evidencing
the securities issued upon the transfer of any Restricted Securities (and each
certificate or other instrument evidencing any untransferred balance of such
securities) shall bear the legends set forth in Section 8.03 unless (a) in the
opinion of such counsel registration of future transfer is not required by the
applicable provisions of the Securities Act and state securities acts or (b) the
Company shall have waived the requirement of such legends; provided, however,
that such legend shall not be required on any certificate or other instrument
evidencing the securities issued upon such transfer in the event such transfer
shall be made in compliance with the requirements of Rule 144 (as amended from
time to time) promulgated under the Securities Act (or successor Rule thereto).
The holder of Restricted Securities shall not transfer such Restricted
Securities until such opinion of counsel has been given to the Company (unless
waived by the Company or unless such opinion is not required in accordance with
the provisions of this Section 8.04) or until registration of the Restricted
Shares involved in the above-mentioned request has become effective under the
Securities Act.
SECTION 8.05. Incidental Registration. If the Company proposes
for any reason to register any of its securities on its own behalf under the
Securities Act (other than pursuant to a registration statement on Forms S-8 or
S-4 or similar or successor forms), it shall each such time promptly give
written notice to all holders of outstanding Restricted Securities of its
intention to do so, and, upon the written request, given within 30 days after
receipt of any such notice, of the holder of any such Restricted Securities to
register any Restricted Shares (which request shall specify the Restricted
Shares intended to be sold or disposed of by such holders), the Company shall
use its best efforts to cause all such Restricted Shares to be included in such
registration under the Securities Act, all to the extent requisite to permit the
sale or other disposition (in accordance with the Company's intended methods
thereof, as aforesaid) by the prospective seller or sellers of the Restricted
Shares so registered. In the event that the proposed registration by the Company
is, in whole or in part, an underwritten public offering of securities of the
Company, if the managing underwriter determines and advises in writing that the
inclusion of all Restricted Shares proposed to be included in the underwritten
public offering
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<PAGE> 24
and other issued and outstanding shares of Common Stock proposed to be included
therein by persons other than the holders of Restricted Securities (the "Other
Shares") would interfere with the successful marketing of such securities, then
the number of Restricted Shares and Other Shares shall be reduced, pro rata
among the holders of Other Shares and the holders of Restricted Shares (based
upon the number of shares of Common Stock requested by the holders thereof to be
registered in such underwritten public offering), and (ii) in each case those
shares of Common Stock which are excluded from the underwritten public offering
shall be withheld from the market by the holders thereof for a period, not to
exceed 90 days, which the managing underwriter reasonably determines as
necessary in order to effect the underwritten public offering.
SECTION 8.06. Registrations on Form S-2 or S-3. At such time
as the Company shall have qualified for the use of Form S-2 or S-3 (or any
similar form or forms promulgated by the Securities and Exchange Commission),
the holders of Restricted Securities shall have the right to request an
unlimited number of registrations on Form S-2 or S-3 (which request or requests
shall be in writing, shall specify the Restricted Shares intended to be sold or
disposed of by the holders thereof, shall state the intended method of
disposition of such Restricted Shares by the holder(s) requesting such
registration and shall relate to Restricted Shares having a proposed aggregate
gross offering price (before deduction of underwriting discounts and expenses of
sale) of at least $500,000), and the Company shall be obligated to effect such
registration or registrations on S-2 or S-3 (as the case may be); provided,
however, that the Company shall in no event be obligated to cause the
effectiveness of more than one such registration statement in any calendar year.
SECTION 8.07. Granting of Registration Rights. (a) The Company
shall not, without the prior written consent of persons holding a majority of
the Restricted Securities then outstanding, grant any rights to any persons to
register any shares of capital stock or other securities of the Company if such
rights would be superior to the rights of the holders of Restricted Securities
granted pursuant to this Agreement, unless the Lender is given the same or
comparable rights.
(b) The Company shall not grant any registration rights to any
persons which would give such person or persons the right to require the Company
to register shares of capital stock or other securities of the Company on Form
S-1 or any other comparable form unless the Lender is given the same or
comparable registration rights.
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SECTION 8.08. Preparation and Filing. If and whenever the
Company is under an obligation pursuant to the provisions of this Section 8 to
use its best efforts to effect the registration of any Restricted Shares, the
Company shall, as expeditiously as practicable:
(a) prepare and file with the Commission a registration
statement with respect to such securities land use its best efforts to
cause such registration statement to become and remain effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least nine months and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all Restricted Shares covered by such registration
statement;
(c) furnish to each selling stockholder such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act,
and such other documents as such seller may reasonably request in order
to facilitate the public sale or other disposition of such Restricted
Shares;
(d) use its best efforts to register or qualify the Restricted
Shares covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each such seller shall
reasonably request (provided, however, that the Company shall not be
required to consent to general service of process for all purposes in
any jurisdiction where it is not then qualified) and do any and all
other acts or things which may be necessary or advisable to enable such
seller to consummate the public sale or other disposition in such
jurisdictions of such securities;
(e) notify each seller of Restricted Shares covered by such
registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered
under the Securities Act within the appropriate period mentioned in
clause (b) of this Section 8.08, of the happening of any event as a
result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing and at the request of such
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<PAGE> 26
seller, prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(f) furnish, at the request of any holder or holders
requesting registration of Restricted Shares pursuant to this Section
8, on the date that such Restricted Shares are delivered to the
underwriters for sale in connection with a registration pursuant to
this Section 8, if such securities are being sold through underwriters,
or, if such securities are not being sold through underwriters, on the
date that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the holder or holders making such request; and (ii) a letter
dated such date, from the independent certified public accountants of
the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the holder or holders making such request.
SECTION 8.09. Expenses. All expenses incurred by the Company
in complying with Section 8.08, including, without limitation, all registration
and filing fees, fees and expenses of complying with securities and blue sky
laws, printing expenses and fees and disbursements of counsel, including the
fees and all disbursements of not more than one counsel for the holders of
Restricted Securities requesting registration hereunder, and reasonable fees and
disbursements of the independent certified public accountants (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company) shall be paid by the Company; provided, however, that (a)
the Company shall not be obligated for more than $10,000 in the aggregate of the
fees and disbursements of counsel for the holders of Restricted Securities
engaged in any one registration under Section 8.05 or 8.06 hereof and (b) all
underwriting discounts and selling commissions and other similar fees and costs
applicable to the Restricted Shares covered by registrations effected pursuant
to Sections 8.05 and 8.06 hereof shall be
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borne by the seller or sellers thereof, in proportion to the number of
Restricted Shares sold by such seller or sellers.
SECTION 8.10. Indemnification. In the event of any
registration of any Restricted Shares under the Securities Act pursuant to this
Section 8 or registration or qualification of any Restricted Shares pursuant to
Section 8.08(d), the Company shall indemnify and hold harmless the seller of
such shares, or any other person acting on behalf of such seller and each other
person, if any, who controls any of the foregoing persons, within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Restricted Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or any document prepared and/or
furnished by the Company incident to the registration or qualification of any
Restricted Shares pursuant to Section 8.08(d), or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made, not misleading, or any
violation by the Company of the Securities Act or state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws; and shall reimburse such seller, underwriter
or other person acting on behalf of such seller and each such controlling person
for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus or said prospectus or said amendment or supplement or any
document incident to the registration or qualification of any Restricted Shares
pursuant to Section 8.08(d) in reliance upon and in conformity with written
information furnished to the Company by such seller or such seller's agent or
representative specifically for use in the preparation thereof.
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Before Restricted Shares held by any prospective seller shall
be included in any registration pursuant to Section 8, such prospective seller
and any underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section 8.10) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
and any person who controls the Company within the meaning of the Securities
Act, with respect to any untrue statement or omission from such registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, if such untrue statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company by such seller or such seller's agent or representative specifically
for use in the preparation of such registration statement, preliminary
prospectus, final prospectus or amendment or supplement; provided, however, that
the maximum amount of liability in respect of such indemnification shall be
limited, in the case of each prospective seller of Restricted Shares, to an
amount equal to the net proceeds actually received by such prospective seller
from the sale of Restricted Shares effected pursuant to such registration.
Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 8.10, such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 8.10, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that
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portion of the fees and expenses of any counsel retained by the indemnified
party which are reasonably related to the matters covered by the indemnity
agreement provided in this Section 8.10.
The failure to notify an indemnifying party promptly of the
commencement of any such action, if materially prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying party
of any liability to the indemnified party under this paragraph, but the omission
so to notify the indemnifying party will not relieve the indemnifying party of
any liability that it may have to any indemnified party otherwise than under
this Section 8.
The indemnifying party shall not make any settlement of any
claims indemnified against hereunder without the written consent of the
indemnified party or parties, which consent shall not be unreasonably withheld.
SECTION 8.11. Removal of Legends, Etc. Notwith- standing the
foregoing provisions of this Section 8, the restrictions imposed by this Section
8 upon the transferability of any Restricted Securities shall cease and
terminate when any such Restricted Securities are sold or otherwise disposed of
in accordance with the intended method of disposition by the seller or sellers
thereof set forth in the registration statement or as otherwise contemplated by
Section 8.04 hereof which does not in the opinion of counsel reasonably
satisfactory to the Company require that the securities transferred bear the
legend set forth in Section 8.03. Whenever the restrictions imposed by this
Section 8 shall terminate, as herein provided, and in accordance with such
opinion of counsel, the holder of any Restricted Securities as to which such
restrictions have terminated shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legends set forth
in Section 8.03 and not containing any other reference to the restrictions
imposed by this Section 8.
SECTION 9. Securities Act Registration Statements. The Company
shall not file any registration statement under the Securities Act covering any
securities unless it shall first have given the Lender written notice thereof.
The Company further covenants that the Lender shall have the right, at any time
when in its sole and exclusive judgment exercised in good faith it is or might
be deemed to be a controlling person of the Company, to participate in the
preparation of such registration statement and to request the insertion therein
of material furnished to the Company in writing which in the Lender's judgment
should be included. In connection with any
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registration statement referred to in Section 8 or this Section 9, the Company
will indemnify, to the extent permitted by law, the Lender against all losses,
claims, damages, liabilities and expenses caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus or any preliminary prospectus or any amendment thereof
or supplement thereto or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue statement or alleged
untrue statement or omission or alleged omission contained in written
information furnished to the Company by the Lender expressly for use in such
registration statement. If, in connection with any such registration statement,
the Lender shall furnish written information to the Company expressly for use in
the registration statement, the Lender will indemnify to the extent permitted by
law, the Company, its directors, each of its officers who sign such registration
statement and each person, if any, who controls the Company within the meaning
of the Securities Act against all losses, claims, damages, liabilities and
expenses caused by any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any preliminary
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or such omission or alleged omission is
contained in information so furnished in writing by the Lender for use therein.
SECTION 10. Events of Default. For so long as the Note shall
be outstanding, in the case of the happening of any of the following events
(hereinafter called "Events of Default"):
(a) any representation or warranty made by the Company under
or in connection with this Agreement or with the execution and delivery
of the Note or any statement or representation made in any report,
certificate, financial statement or other instrument furnished by the
Company pursuant to this Agreement shall prove to have been false or
misleading in any material respect when made or delivered;
(b) default shall be made with respect to any agreement or
other evidence of indebtedness or liability for borrowed money (other
than the Note) of the Company involving indebtedness (other than trade
payables in the ordinary course of business) with a
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principal amount in excess of $100,000, if the effect of such default
is (i) to accelerate the maturity of such indebtedness or liability or
to require the prepayment thereof or (ii) to permit the holder thereof
(or a trustee on behalf of the holder or holders thereof) to cause such
indebtedness to become due prior to the stated maturity thereof, or any
such indebtedness or liability shall not be paid when due Company (it
being understood that defaults under certain agreements as set forth on
Schedule 4.13 shall not by themselves constitute Events of Default
under this clause (b));
(c) default shall be made in any material respect in the due
observance or performance of any covenant, condition or agreement on
the part of the Company (it being understood that defaults under
certain agreements as set forth on Schedule 4.13 shall not by
themselves constituted Events of Default under this clause (c));
(d) the Company shall (i) voluntarily commence any proceeding
or file any petition seeking relief under Title 11 of the United States
Code or any other Federal or state bankruptcy, insolvency or similar
law, (ii) consent to the institution of, or fail to controvert in a
timely and appropriate manner, any such proceeding or the filing of any
such petition, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator or similar official for the
Company or for the substantial part of its properties, (iv) file an
answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) make a general assignment for the
benefit of creditors, or (vi) take any formal action for the purpose of
effecting any of the foregoing;
(e) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Company, or of a
substantial part of its properties, under Title 11 of the United States
Code or any other Federal or state bankruptcy, insolvency or similar
law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for the Company or for a substantial
part of its properties or (iii) the winding up or liquidation of the
Company; and such proceeding or petition shall continue unremedied for
60 days or an order or decree approving or ordering any of the
foregoing shall continue unstayed and in effect for 60 days;
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(f) the Company shall have dissolved or any proceedings shall
have commenced, or any formal action shall have been taken, with a view
to the dissolution of the Company; or
(g) final judgment for the payment of money in excess of an
aggregate of $100,000 and not fully covered by insurance shall be
rendered against the Company for a period of 30 consecutive days during
which execution shall not be effectively stayed;
then, and in every such event and at any time thereafter during the continuance
of such event, the holders of the Note may by written notice to the Company
declare the Note to be forthwith due and payable in accordance with the terms of
the Note, whereupon the Note shall become forthwith due and payable, both as to
principal and interest, without presentment, demand, protest or any other notice
of any kind, all of which are hereby expressly waived.
SECTION 11. Fees. The Company will reimburse the Lender for
fifty percent (50%) of the aggregate legal fees and disbursements of O'Sullivan
Graev & Karabell incurred in connection with the preparation of this Agreement
in excess of $5,000 (it being understood and agreed that the Lender will bear
the first $5,000 of the aggregate of such legal fees and disbursements);
provided, however, that the Company shall reimburse the Lender for all the fees
and disbursements of O'Sullivan Graev & Karabell in the event that, at any time
prior to December 31, 1988, either the Company permits another investor
introduced by the Lender to the Company to invest in the Company upon terms
substantially similar to the terms of this transaction, or (b) Western Union
exercises its right of first refusal, or otherwise successfully institutes a
claim, with respect to the issuance of the Note or Reserved Shares or
consummation of the transactions contemplated hereunder. The Company further
agrees that it will pay, and will save the Lender harmless from, any and all
liability with respect to any stamp or similar taxes which may be determined to
be payable in connection with the execution and delivery of this Agreement or
any modification, amendment or alteration of the terms or provisions of this
Agreement, and that it will similarly pay and hold the Lender harmless from all
issue taxes, if any, in respect of the issuance of the Note and the Reserved
Shares to the Lender.
SECTION 12. Exchanges; Lost, Stolen or Mutilated Certificates.
Upon surrender by the Lender to the Company of certificates for securities
purchased or acquired by the Lender hereunder, the Company at its expense will
issue in exchange therefor, and deliver to the Lender, a new certificate or
certificates representing such securities, in
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such denomination or denominations as may be requested by the Lender. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate representing any securities purchased or
acquired by the Lender hereunder, and in case of any such loss, theft or
destruction, upon delivery of any indemnity agreement satisfactory to the
Company, or in case of any such mutilation, upon surrender and cancellation of
such certificate, the Company at its expense will issue and deliver to the
Lender a new certificate for such securities of like tenor, in lieu of such
lost, stolen or mutilated certificate.
SECTION 13. Survival of Representations Warranties and
Agreements; Etc. All representations and warranties made by the Company and the
Lender hereunder shall survive the Closing for a period of 3 years following the
Closing (except for the representations and warranties set forth in Sections
4.08 and 4.15 hereof which shall survive indefinitely) and all covenants and
agreements made by the Company hereunder shall survive in accordance with their
terms (or, if not specified by such terms indefinitely). All statements
contained in any certificate or other instrument delivered by the Company
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement shall constitute representations and warranties by the Company
under this Agreement.
SECTION 14. Indemnification. Each party shall, with respect to
the representations, warranties and agreements made by such party herein,
indemnify, defend and hold the other harmless against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including legal and accounting fees and expenses), arising from the untruth,
inaccuracy or breach of any such representations, warranties or agreements of
such party; provided, however, that the Company shall not be liable for any
liability, loss or damage with respect to representations and warranties of the
Company (other than as set forth in Section 4.03 or 4.04 hereof) unless and
until the aggregate of the liability loss or damage suffered equals or exceeds
$250,000 at which time the Company shall be liable hereunder for all such
liabilities, losses or damages. Without limiting the generality of the
foregoing, the Lender shall be deemed to have suffered liability, loss or damage
as a result of the untruth, inaccuracy or breach of any such representations,
warranties, covenants or agreements if such liability, loss or damage shall be
suffered by the Company as a result of, or in connection with, such untruth,
inaccuracy or breach or any facts or circumstances constituting such untruth,
inaccuracy or breach.
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SECTION 15. Remedies.
(a) General. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the Company,
the Lender may proceed to protect and enforce its rights either by suit in
equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Agreement, provided that the
foregoing shall not change the time period during which a claim for
indemnification pursuant to Section 13 or 14 hereof shall be made.
(b) Exclusive Remedies Under the Note. It is understood and
agreed that, notwithstanding the foregoing provisions of Section 15(a), for the
90-day period immediately following the Closing and for any period of extension
pursuant to Section 15(c) hereof, the remedies provided under the Note and such
Section 15(c) shall be exclusive with respect to any claim under this Agreement
and shall preclude assertion during such time by the Lender of any other remedy
with respect to any claim arising out of or in respect to a breach by the
Company of its representations, warranties or covenants hereunder.
(c) Additional Default Shares. In the event of a dispute
initiated prior to January 30, 1988 in accordance with Section 3.2 of the Note
regarding the existence of an Event of Default, which dispute has not culminated
in a Final Determination of Event of Default (as defined in the Note) prior to
such date, then the Corporation shall, within ten (10) days following any such
Final Determination, issue to the Lender an additional number of shares of
Preferred Stock which would have been issued to the Lender under Section 4.1(b)
of the Note had the Final Determination occurred prior to January 30, 1988.
SECTION 16. Miscellaneous.
16.01. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by first
class registered or certified mail, postage prepaid, addressed to such party at
the address set forth below or such other address as may hereafter be designated
in writing by the addressee to the addressor listing all parties:
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<PAGE> 35
(i) If to the Company, to:
Telebase Systems, Inc.
763 West Lancaster Avenue
Bryn Mawr, PA 19016
Attention: James E. Coane, President
with a copy to:
Dilworth, Paxson, Kalish & Kauffman
2600 The Fidelity Building
Philadelphia, Pennsylvania 19109-1094
Attn: Stephen J. Harmelin, Esq.
(ii) If to the Lender, to:
Gary Lauder
c/o E.S Jacobs & Company
375 Park Avenue
New York, New York 10152
with a copy to:
O'Sullivan Graev & Karabell
30 Rockefeller Plaza
New York, New York 10112
Attention: Christopher Lane Davis, Esq.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of delivery if personally delivered, on the business day after the date
when sent if sent by air courier, and on the earlier of receipt by the sender of
an official postal acknowledgment therefor or of telephonic confirmation of
receipt by the addressee, if sent by mail, in each case addressed to such party
as provided in this Section 16.01 or in accordance with the latest unrevoked
direction from such party.
SECTION 16.02. No Waivers. No failure or delay of the Lender
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Lender hereunder are cumulative
and not exclusive of any rights or remedies which they would otherwise have. No
notice or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
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<PAGE> 36
SECTION 16.03. Payments on Business Days. Other than as
specifically provided elsewhere herein, whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day other than a
business day, such payment may be made on the next succeeding business day and
such extension of time shall in such case be included in computing interest, if
any, in connection with such payment.
SECTION 16.04. Governing Law. This Agreement shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
SECTION 16.05. Changes, Waivers, Etc. Neither this Agreement
nor any provision hereof may be changed, waived, discharged or terminated
orally, but only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
SECTION 16.06. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Company, the Lender and each of
their respective successors and assigns. The Company may not assign or transfer
any of its rights or obligations hereunder without the written consent of the
Lender.
SECTION 16.07. Severability. In case any one or more of the
provisions contained in this Agreement or the Note should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 16.08. Section Headings. The section headings used
herein are for convenience of reference only, are not part of this Agreement and
are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 16.09. Jurisdiction. The parties hereto agree that any
suit, action or proceeding instituted against one or more of them with respect
to this Agreement (including any Exhibits or Schedules attached hereto) may be
brought in any Federal or state court located in the State of New York or the
Commonwealth of Pennsylvania. The parties hereto, by the execution and delivery
of this Agreement, irrevocably waive any obligation or any right of immunity on
the ground of venue, the convenience of the
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<PAGE> 37
forum or the jurisdiction of such courts, or from the execution of judgments
resulting therefrom, and the parties hereto hereby irrevocably accept and submit
to the jurisdiction of the aforesaid courts in any suit, action or proceeding
and consent to service of process by certified mail at the address set forth in
Section 16.01 hereof.
SECTION 16.10. Counterparts. This Agreement may be signed in
any number of counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their behalf as of the day and year first above
written.
TELEBASE SYSTEMS, INC.
By__________________________________
THE LENDER:
____________________________________
Gary M. Lauder
37
<PAGE> 1
Exhibit 4.6
STOCK PURCHASE AGREEMENT
AGREEMENT made this 31st day of December, 1987, by and between
TELEBASE SYSTEMS, INC., a Pennsylvania business corporation located a 763 West
Lancaster Avenue, Bryn Mawr, Pennsylvania 19010 (the "Company"), and DILWORTH,
PAXSON, KALISH & KAUFFMAN, a Pennsylvania partnership located at 2600 The
Fidelity Building, 123 South Broad Street, Philadelphia, Pennsylvania 19109
("DPKK"), or its assignees or nominees.
BACKGROUND
DPKK has acted as the Company's independent legal counsel
during the calendar year 1987, and has performed legal services for the Company
in calendar year 1987. The outstanding balance owing to DPKK for such legal
services as of December 23, 1987 is $100,558.10. The Company desires to satisfy
$100,000.00 of its obligation to DPKK by entering into this Agreement, providing
for the issuance of 80,000 shares of its Series A Preferred Stock (the "Stock")
to DPKK. DPKK is willing to enter into this Agreement, providing for the
issuance of the Stock to DPKK or its as assignees or nominees, as full payment
of the Company's obligations owing to it as of the date hereof, on the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein, intending to be legally bound, the parties agree as
follows:
1. Sale and Purchase. Subject to the terms and conditions
contained in this Agreement, the Company shall sell to DPKK and DPKK shall
purchase from the Company, at the Closing (hereinafter defined), the Stock. The
purchase price for the Stock is $1.25 per share, for a total purchase price of
$100,000.00 (the "Purchase Price").
2. Delivery of Shares; Payment of Purchase Price. The closing
of the transactions contemplated hereunder (the "Closing") shall take place on
January 27, 1988, at the offices of DPKK, or on such other date and at such
other place as the parties agree. At the Closing, the Company shall deliver to
DPKK a stock certificate or certificates, registered in the name of DPKK or its
assignees or nominees, representing the Stock; and DPKK shall deliver a release
of indebtedness in the full amount it of the Purchase Price.
3. Representations and Warranties of the Company. The Company
represents and warrants to DPKK that the statements contained in Section 4 of a
Note Purchase Agreement dated October 30, 1987 between the Company and Gary M.
Lauder, attached hereto as Exhibit B (the "Note Purchase Agreement"), are true
and correct on the date hereof, and shall be true and correct on the date of
Closing. For the purposes of this Agreement, references in the Note Purchase
Agreement to "this Agreement" shall mean both this Agreement and the Note
Purchase Agreement. Reference to the "Lender" shall mean DPKK. Except as
otherwise provided herein, all other capitalized terms in the Note Purchase
Agreement shall have the meanings ascribed to them therein.
4. Representations and Warranties of DPKK. Except as provided
in this Section 4, DPKK represents and warrants to the Company that the
statements contained in Section 5 of the Note Purchase Agreement are true and
correct with respect to DPKK.
<PAGE> 2
References to the "Note" contained in the Note Purchase Agreement shall mean the
Stock. Notwithstanding the foregoing, it is understood that DPKK may assign,
transfer and/or sell its rights to the Stock hereunder to a partnership which
may include partners and/or associates of DPKK.
5. Conditions Precedent to Closing. The obligation of DPKK to
consummate the transactions contemplated hereunder is subject to the following
conditions precedent:
(a) DPKK or its assignees or nominees shall have received a
certificate or certificates representing the Stock, duly executed by the
Company.
(b) All corporate and other proceedings to be taken and
waivers to be obtained in connection with the transactions contemplated
hereunder shall have been taken or obtained, including a waiver by Gary Lauder
of any preemptive rights or other rights or claims he may have with respect to
the issuance of the Stock, pursuant to the Note Purchase Agreement and related
documents.
(c) DPKK or its assignees or nominees shall have received a
certified copy of resolutions adopted by the Company authorizing the execution,
delivery and performance of this Agreement, substantially in the form attached
hereto as Exhibit A.
(d) The representations and warranties set forth in this
Agreement or delivered in connection herewith shall be true and correct as of
the date of Closing.
(e) No Event of Default contained in Section 10 of the Note
Purchase Agreement shall have occurred and be continuing.
(f) The Company shall have performed all covenants and
agreements to be performed by it, as contemplated hereby.
6. Agreements of Company.
(a) The parties incorporate by this reference the covenants
made by the Company to the Lender contained in the following sections of the
Note Purchase Agreement, as if such covenants had been made directly to DPKK:
Sections 7.02, 7.03, 8 and 9.
(b) The Company shall hold a Board of Directors' meeting on
or before January 22, 1988, and shall thereat adopt a resolution authorizing an
increase in the number of authorized shares of Series A Preferred Stock; and
shall promptly thereafter cause to be filed with the Secretary of State of the
Commonwealth of Pennsylvania, a Statement Affecting Class or Series of Stock
providing for an increase in the number of authorized shares of Series A
Preferred Stock from 500,000 to 580,000.
(c) Prior to Closing, the Company shall secure the waiver
by Gary Lauder of his preemptive rights and any other rights or claims he may
have with respect to the issuance of the Stock, pursuant to the Note Purchase
Agreement and related documents.
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<PAGE> 3
7. Assignment. This Agreement, including rights and
obligations con- tained herein, may be sold, transferred and/or assigned by
DPKK. This Agreement, including rights and obligations contained herein, may not
be sold, transferred or assigned by the Company. This Agreement shall be binding
upon and inure to the benefit of the parties, and their respective successors
and assigns.
8. Waivers. No waiver by any party of any condition or the
breach of any term, covenant, representation or warranty contained in this
Agreement whether by conduct or otherwise, in any one or more instances, shall
be deemed or construed as a further or continuing waiver of such condition or
the breach or a waiver of any other term, covenant, representation or warranty
set forth in this Agreement.
9. Invalid Provision. The invalidity or unenforceability of
any term or provision of this Agreement shall not void or impair the remaining
provisions hereof which shall remain in full force and effect as if such invalid
or unenforceable provision had never been contained herein.
10. Entirety. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representing understandings
of the parties. No supplement, modification, or amendment of this Agreement
shall be valid or effective unless made in writing and signed by the parties
hereto.
11. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original for all purposes,
and all of which taken together shall constitute one and the same instrument.
12. Survival. The representations and warranties of the
Company contained herein or delivered in connection herewith shall survive the
Closing for a period of one year after the Closing.
13. Indemnification. Each party shall, with respect to the
representations, warranties and agreements made by such party herein, indemnify,
defend and hold the other harmless against all liability, loss or damage
together with all reasonable costs and expenses related thereto (including legal
and accounting fees and expenses), arising from the untruth, inaccuracy or
breach of any such representations, warranties or agreements of such party.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement
by their duly authorized representatives.
TELEBASE SYSTEMS, INC.
By:______________________________________
James E. Coane, President
DILWORTH, PAXSON, KALISH
& KAUFFMAN
By:______________________________________
4
<PAGE> 1
Exhibit 4.7
STOCK PURCHASE AGREEMENT
AGREEMENT made as of the 11th day of August, 1988, by and between
TELEBASE SYSTEMS, INC., a Pennsylvania business corporation located at 763 West
Lancaster Avenue, Bryn Mawr, Pennsylvania 19010 (the "Company"), and OTC
INTERNATIONAL LIMITED, an Australian corporation located at 231 Elizabeth
Street, Sydney N.S.W., Australia (the "Purchaser").
BACKGROUND
The Purchaser desires to purchase equity securities of the
Company and the Company desires to issue and sell such securities to the
Purchaser, on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and
premises contained herein, intending to be legacy bound, the parties hereby
agree as follows:
SECTION 1. Authorization of the Stock. Subject to the terms
and conditions hereof, the Company has authorized the issuance at the Closing
(as hereinafter defined) of 2,142,857 shares of Series C Preferred Stock (the
"Stock") having the powers, preferences and other rights as set forth in Exhibit
A attached hereto. In addition, the Company has authorized the issuance of
714,286 shares of Series C Preferred Stock to ITC (as defined in Section 6.04(a)
hereof) for the purposes of carrying out the provisions of Section 6.04 hereof.
SECTION 2. Agreement to Sell and Purchase the Stock. At the
Closing, the Company shall sell to the Purchaser, and the Purchaser shall
purchase from the Company, upon the terms and conditions hereinafter set forth,
the Stock. The purchase price for the Stock shall be $1.40 per share, for an
aggregate purchase price of $3,000,000.00.
SECTION 3. Closing; Delivery of Stock.
SECTION 3.01. Closing. The closing (the "Closing") hereunder
with respect to the purchase and sale of the Stock shall take place on August
15, 1988 (the "Closing Date"), or such other date as the parties shall mutually
agree, and at such time and place as the parties shall mutually agree.
SECTION 3.02. Conditions Precedent to Purchaser's Obligations.
The obligations of the Purchaser to close hereunder on the Closing Date are
subject to the fulfillment at or prior to the Closing of the following
conditions precedent:
<PAGE> 2
(a) Documents to be Delivered to the Purchaser. The Company
shall have delivered to the Purchaser, on or prior to the Closing Date, the
following:
(i) A certificate representing the Stock, duly executed by
the proper officers of the Company;
(ii) A certified (as of the Closing Date) copy of
resolutions of the Company's Board of Directors authorizing the execution,
delivery and performance of this Agreement;
(iii) A certified (as of the Closing Date) copy of the
Company's by- laws;
(iv) A copy, certified as of the most recent date
practicable, by the Secretary of State of Pennsylvania, of the Company's
Articles of Incorporation, together with a certificate (dated as of the Closing
Date) of the Company's corporate Secretary to the effect that such Articles of
Incorporation have not been amended since the date of the aforesaid
certification;
(v) A certificate, as of the most recent date practicable,
of the aforesaid Secretary of State, as to the good standing of the Company;
(vi) A written opinion of Messrs. Dilworth, Paxson, Kalish &
Kauffman, the Company's counsel, dated the Closing Date and addressed to the
Purchaser, in substantially the form set forth in Exhibit B hereto;
(vii) A copy of definitive agreements executed and delivered
by Western Union Corporation and the Company, addressing such matters as are set
forth in a letter of intent dated June 6, 1988 from Western Union Corporation to
the Purchaser;
(viii) The Stockholders' Agreement (as hereinafter defined)
duly executed by the parties thereto; and
(ix) A Memorandum of Understanding by and between the
Company and the Purchaser, substantially in the form attached hereto as Exhibit
C.
(b) Representations and Warranties. The representations and
warranties of the Company shall be true and correct as of the Closing Date.
SECTION 3.03. Conditions Precedent to Company's Obligations.
The obligations of the Company to close hereunder on the Closing Date are
subject to the fulfillment at or prior to the Closing of the following
conditions precedent:
(a) Purchase Price. The Purchaser shall have delivered to the
Company by wire transfer in immediately available funds the amount of
$3,000,000.00.
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<PAGE> 3
(b) Representations and Warranties. The representations and
warranties of the Purchaser shall be true and correct as of the Closing Date.
(c) Closing Certificate. The Purchaser shall have delivered to
the Company a certificate of an authorized officer of the Purchaser in the form
attached hereto as Exhibit D.
(d) Stockholders' Agreement. The Purchaser shall have
delivered to the Company a Joinder Agreement with respect to Company's
Stockholders' Agreement, in the form attached hereto as Exhibit E.
SECTION 4. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser as follows:
SECTION 4.01. Organization; Good Standing, Qualification and
Power. The Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania, (ii) has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted and as proposed to be conducted
under the Company's Business Plan (as described in Section 4.22 hereof), and to
carry out the transactions contemplated hereby, and (iii) is duly qualified as a
foreign corporation and in good standing to do business in all such other
jurisdictions, if any, in which the conduct of its business or its ownership,
leasing or operation of property requires such qualification, except for those
jurisdictions in which failure to so qualify would not have a material adverse
effect on the business or assets of the Company.
SECTION 4.02. Subsidiaries. The Company does not own or
control, directly or indirectly, any other corporation, partnership, association
or business entity.
SECTION 4.03. Capitalization. The authorized capital stock of
the Company immediately upon consummation at the Closing of the transactions
contemplated hereby shall consist of 20,000,000 shares of Common Stock, no par
value (the "Common Stock"), and 5,000,000 shares of Preferred Stock, no par
value (the "Preferred Stock") of which:
(a) 4,802,140 shares of Common Stock shall have been validly
issued and be outstanding, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof, and
(b) 2,078,000 shares of Common Stock shall have been reserved
for issuance upon exercise of outstanding options and warrants, and 137,000
additional shares shall be available for issuance pursuant to options available
for grant under the Company's incentive stock option plan, and
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<PAGE> 4
(c) 500,000 shares of Preferred Stock shall have been
designated "Series A Preferred Stock", of which (i) 488,838 shares shall have
been validly issued, and (ii) 500,000 shares of Common Stock shall have been
duly reserved initially for issuance upon conversion of the Series A Preferred
Stock into Common Stock, and
(d) 625,000 shares of Preferred Stock shall have been
designated "Series B Preferred Stock", of which (i) 625,000 shares shall have
been validly issued, and (ii) 625,000 shares of Common Stock shall have been
duly reserved initially for issuance upon conversion of the Series B Preferred
Stock into Common Stock, and
(e) 2,857,143 shares of Preferred Stock shall have been
designated "Series C Preferred Stock", of which (i) 2,142,857 shall have been
validly issued to the Purchaser, and (ii) 2,857,143 shares of Common Stock shall
have been duly reserved initially for issuance upon conversion of the Series C
Preferred Stock into Common Stock (the "Reserved Shares").
Schedule 4.03 attached hereto contains a list (the "Stockholders List")
of (a) all holders of Common Stock who hold not less than one hundred thousand
(100,000) shares of such Common Stock, including the number of shares of each
class of Common Stock held by each such holder, and (b) all outstanding
warrants, options, agreements, convertible securities or other commitments
pursuant to which the Company is or may become obligated to issue any shares of
its capital stock or other securities of the Company, and names of all persons
entitled to receive such shares or other securities and the shares of capital
stock or other securities required to be issued thereunder. There are, and
immediately upon consummation of the transactions contemplated hereby there will
be, no preemptive or similar rights to purchase or otherwise acquire shares of
capital stock of the Company pursuant to any provision of law, the Articles of
Incorporation or By-Laws or any agreement to which the Company is a party, or
otherwise, except as contemplated by this Agreement and the Company's Amended
and Restated Stockholder's Agreement dated as of July 30, 1988, ("Stockholders'
Agreement") and as set forth on the Stockholders List.
SECTION 4.04. Authorization. The Company has all requisite
power and authority to execute, deliver and perform this Agreement. The
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by the Company and this Agreement constitutes the
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditor's rights generally.
SECTION 4.05. Violations of Instruments. The execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby will not (a) violate any provision of
law or statute or any order of any court or any order, rule or regulation of any
other agency of
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government or (b) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties, assets or outstanding capital
stock of the Company, under the Articles of Incorporation or By-laws of the
Company, in each case as amended and/or restated through the date hereof, or any
note, indenture, mortgage, lease, agreement or other instrument to which the
Company is a party or by which it or any of its properties or assets are or may
be bound or affected. Each permit, authorization, consent or approval of or by,
or any notification of or filing with, any person (governmental or private)
required for the valid authorization, execution, delivery and performance by the
Company of this Agreement, or for the valid authorization, issuance, sale and
delivery of the Stock has been obtained or made or will have been obtained or
made as of the date required.
SECTION 4.06. Financial Information. (a) The Company has
previously delivered to the Purchaser the following financial information:
(i) the balance sheet of the Company as of December 31,
1987, and the related statement of operations, shareholders' equity and changes
in financial position for the year then ended (in each case including the notes
thereto) audited by Kreischer, Miller & Co., the independent certified public
accountants of the Company; and
(ii) the unaudited balance sheet of the Company as of March
31, 1988 (the "Interim Balance Sheet") and the related unaudited statements of
operations, shareholders' equity and changes in financial position for the
three-month period then ended, prepared by the Company (collectively, the
"Interim Financial Statements").
(b) The financial statements referred to in the foregoing
clause (a) of this Section 4.06 (i) are in accordance with the books and records
of the Company, (ii) fairly present the financial condition of the Company as of
the respective dates indicated and the results of operations, shareholders'
equity and changes in financial position of the Company for the respective
periods indicated and (iii) have been prepared in accordance with generally
accepted accounting principles consistently applied, subject, however, in the
case of financial statements described in Section 4.06(a)(ii), to year-end audit
adjustments.
SECTION 4.07. Absence of Undisclosed Liabilities. Except as
disclosed in the Interim Financial Statements, at March 31, 1988, (a) the
Company had no liability of any nature (matured or unmatured, fixed or
contingent) which was not provided for or reflected on the Interim Balance
Sheet, and (b) an liability reserves established by the Company and set forth on
the Interim Balance Sheet were adequate for the purposes indicated therein, and
(c) there were no loss contingencies (as such term is used in Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975) which were not adequately provided for on the
Interim Balance Sheet.
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SECTION 4.08. Absence of Changes. Except as set forth on
Schedule 4.08 attached hereto, since March 31, 1988, there has not been (a) any
material adverse change in the financial condition, results of operations,
assets, liabilities, business or prospects of the Company, (b) any material
liability or obligation of any nature whatsoever (contingent or otherwise)
incurred by the Company, other than current liabilities or obligations incurred
in the ordinary course of business, (c) any asset or property of the Company
made subject to a material lien of any kind, (d) any waiver of any valuable
right of the Company, or the cancellation of any debt or claim held by the
Company, (e) any payment of dividends on, or other distributions with respect
to, or any direct or indirect redemption or acquisition of, any shares of the
capital stock of the Company, or any agreement or commitment therefor, (f) any
issuance of any stock, bonds or other securities of the Company or options,
warrants or rights or agreements or commitments to purchase or issue such
securities or grant such options, warrants or rights other than pursuant to or
in connection with the transactions contemplated by this Agreement, (g) any
mortgage, pledge, sale, assignment or transfer of any tangible or intangible
assets of the Company, except in the ordinary course of business, (h) any loan
by the Company to any officer, director, employee or shareholder of the Company,
or any agreement or commitment therefor, (i) any damage, destruction or loss
(whether or not covered by insurance) which is or may materially adversely
affect the assets, property or business of the Company, (j) any increase, direct
or indirect, in the compensation paid or payable to any officer, director,
employee or agent of the Company, (k) any change in the accounting methods or
practices followed by the Company or (l) any other event or condition of any
character which has materially adversely affected the Company's business or
prospects.
SECTION 4.09. Tax Matters. All Federal, state and local or
foreign tax returns and tax reports required to be filed by the Company have
been timely filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed
(except, with respect to tax returns and tax reports which may have been
required to be filed in respect of state or local sales, lease, occupation,
property and excise tax, where the failure to do so would not have a material
adverse effect, individually or in the aggregate, on the Company's business, and
except as set forth on Schedule 4.09 attached hereto) and all of the foregoing
are true, correct and complete. Except with respect to taxes required to have
been paid or accrued by the Company in respect of state or local sales, lease,
occupation, property and excise tax, where the failure to do so would not have a
material adverse effect, individually or in the aggregate, on the Company's
business, and except as set forth on Schedule 4.09 attached hereto, all Federal
state, local and foreign income, profits, franchise, sales, use, occupation,
property, excise, payroll, withholding and other taxes (including interest and
penalties) required to have been paid or accrued by the Company have been fully
paid or are adequately provided for on the Interim Balance Sheet, except for tax
liabilities arising in the ordinary course of business since March 31, 1988. No
issues have been raised (and are currently pending) by the Internal Revenue
Service or any other taxing authority in connection with any of the returns and
reports referred to above, and no waivers of statutes of limitations have been
given or requested with respect to the
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Company. All deficiencies asserted or assessments (including interest and
penalties) made as a result of any examination by the Internal Revenue Service
or by appropriate state or departmental tax authorities of the Federal, state or
local or foreign income tax, sales tax or franchise tax returns of or, with
respect to the Company, have been fully paid or are adequately provided for on
the Interim Balance Sheet and no proposed (but unassessed) additional taxes,
interest or penalties have been asserted. Except with respect to state or local
sales, lease, occupation, property and excise taxes which may have been required
to be paid or provided for, where the failure to do so would not have a material
adverse effect, individually or in the aggregate, on the Company's business, the
provisions for taxes on the Interim Balance Sheet are sufficient for the payment
of all accrued and unpaid Federal, state or local and foreign taxes as of such
date. The exceptions noted in this Section 4.09 will not, individually or in the
aggregate, have a material adverse impact on the Company's business or financial
condition.
SECTION 4.10. Intellectual Property. (a) Except as listed on
Schedule 4.10 attached hereto, the Company owns, possesses, has the right to use
or has the right to bring actions for the infringement of, all Intellectual
Property Rights (as hereinafter defined) necessary or required for the conduct
of its business as presently conducted.
(b) Except as listed on Schedule 4.10 attached hereto, no
royalties, honorariums or fees are payable by the Company to other persons by
reason of the ownership or use of the Intellectual Property Rights.
(c) To the best knowledge of the Company, no product
manufactured, marketed or sold by the Company violates or will violate, any
Intellectual Property Rights or assumed name of another; and there is no pending
or, to the best knowledge of the Company, threatened claim or litigation against
the Company contesting the validity or right to use of any of the foregoing, nor
has the Company received any notice that any of the Intellectual Property Rights
or the operation of the Company's business conflicts with the asserted rights of
others.
(d) The Company has taken reasonable security measures to
protect the secrecy of all of its Intellectual Property Rights.
As used herein, the term "Intellectual Property Rights" means all intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
copyrights, computer programs, inventions, know-how, licenses, trade secrets,
proprietary processes and formulae.
SECTION 4.11. Litigation, Etc. There are no suits, actions,
claims or proceedings pending against the Company challenging the validity or
the propriety of the transactions contemplated by this Agreement. Purchaser is
not subject to any judgment, order, decree or administrative ruling specifically
directed against the Company which would interfere with the transactions
contemplated by this Agreement. Except as listed
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on Schedule 4.11 attached hereto, there are no (i) actions, suits, claims,
investigations or legal or administrative or arbitration proceedings pending or,
to the best knowledge of the Company, threatened against or affecting the
Company, whether at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if adversely determined,
individually or in the aggregate, would have a material adverse effect on the
Company's business, prospects, condition (financial or otherwise), affairs or
operations or which could materially impair the Company's ability to perform its
obligations hereunder, or (ii) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Company which could have a material adverse effect on the
business, prospects, condition (financial or otherwise), affairs or operations
of the Company or which could materially impair the Company's ability to perform
its obligations hereunder.
SECTION 4.12. Compliance; Governmental Authorizations. The
Company has complied in all material respects with an Federal, state, local or
foreign laws, ordinances, regulations and orders applicable to its business. The
Company has all material Federal, state, local and foreign governmental licenses
and permits necessary in the conduct of its business, such licenses and permits
are in full force and effect, no material violations are occurring or have
occurred in respect of any thereof and no proceeding is pending or, to the best
knowledge of the Company, threatened to revoke or limit any thereof. None of the
aforesaid licenses and permits shall be affected in any material respect by this
Agreement.
SECTION 4.13. Related Transactions; Employment of Employees.
Except as set forth on Schedule 4.13 hereto or as otherwise contemplated by this
Agreement, there are no existing material arrangements or proposed material
transactions between the Company and any officer, director, or holder of more
than 5% of the capital stock of the Company, or any affiliate of any such person
(other than as an employee or a consultant) providing for the furnishing of
services by, or rental or purchase of real or personal property from, or
otherwise requiring cash payments to, any such person. No person or entity has
asserted, or to the best of the Company's knowledge may assert, any valid claim
against the Company or any employee with respect to the continued employment by
the Company of any employee under the terms of any employment contract, covenant
not to compete, patent disclosure agreement or otherwise. No litigation is
pending or threatened against any employee or the Company relating to any
employee's relationship with any former employer or person for whom any such
employee performed consulting or other services. To the Company's best
knowledge, no officer or key employee of the Company presently intends to
terminate his employment with the Company.
SECTION 4.14. Compliance With ERISA; Benefit Plans; Etc. The
Company does not (a) maintain and has never maintained any employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA")
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or (b) contrite ute to and has never contributed to any such employee benefit
plan maintained by any other person or entity.
SECTION 4.15. No Defaults. Except as set forth on Schedule
4.15 attached hereto, (a) the Company is not in default in any material respect,
individually or in the aggregate, (i) under its Articles of Incorporation or its
By-laws, in each case as amended to the date hereof, or any indenture, mortgage,
lease agreement, contract, purchase order or other instrument or agreement to
which the Company is a party or by which it or any of its property is bound or
affected or (ii) with respect to any order, writ, injunction or decree of any
court or any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign and
(b) there exists no condition, event or act which constitutes, or which after
notice, lapse of time or both could constitute, a default under any of the
foregoing. To the Company's best knowledge, any liability arising out of any
defaults listed on Schedule 4.15 will not, individually or in the aggregate,
have a material adverse effect on the Company's business, condition (financial
or otherwise) or prospects. Such defaults have not, as of the date hereof, had
an adverse effect of any material nature on the commercial relationship between
any such vendor and Telebase.
SECTION 4.16. Title to Property. Except as set forth on
Schedule 4.16 attached hereto, the Company has good and marketable title to all
property and assets, real, personal or mixed, tangible or intangible, reflected
as assets in the Interim Balance Sheet or acquired by the Company since March
31, 1988 (other than assets disposed of in the ordinary course of business since
March 31, 1988), subject to no mortgages, liens, security interests, pledges,
charges or other encumbrances of any kind, except as reflected in the Interim
Financial Statements. Except as set forth on Schedule 4.16 attached hereto, the
Company owns, or has a valid leasehold interest in, or valid license for, all
assets necessary for the conduct of its business as presently conducted or as
proposed to be conducted.
SECTION 4.17. Insurance. Listed on Schedule 4.17 attached
hereto are all policies of insurance maintained by the Company. Such policies
are in full force and effect and all premiums with respect to such policies are
currently paid. Except as listed on Schedule 4.17 attached hereto, the Company
has never been denied or had revoked or rescinded any policy of insurance.
SECTION 4.18. Investment Company Act. The Company is not an
"investment company" as that term is defined in, and is not otherwise subject to
regulation under, the Investment Company Act of 1940.
SECTION 4.19. Disclosure. Neither this Agreement, nor any
exhibit, schedule, certificate, statement or other document required to be
delivered by the Company hereunder contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading. There is no fact known to the
Company which materially adversely affects
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or in the future may materially adversely affect the business, operations,
affairs, prospects, condition, properties or assets of the Company which has not
been set forth in this Agreement or in the other documents, certificates,
instruments, or written statements furnished to the Purchaser by or on behalf of
the Company pursuant hereto (and listed herein).
SECTION 4.20. Brokers. Neither the Company, nor any of the
Company's officers, directors, employees or shareholders has employed any broker
or finder in connection with the transactions contemplated by this Agreement.
SECTION 4.21. Books and Records. The books and records of the
Company have been maintained in accordance with sound business practices and, as
of the date hereof, present fairly the respective assets, liabilities, financial
condition and results of operations of the Company.
SECTION 4.22. Business Plan. The Company has previously
presented and delivered to the Purchaser the Company's Business Plan 1987
through 1989, as supplemented and modified by an Executive Summary
(collectively, the "Business Plan"). Except as set forth on Schedule 4.22
attached hereto, and except as set forth in the Company's financial statements
referred to in Section 4.06 (a) hereof, the description of the business,
operations, properties and assets of the Company contained in the Business Plan,
as well as all other factual statements contained therein, are true and correct.
To the best knowledge of the Company, except as set forth on Schedule 4.22
attached hereto, the financial projections and other estimates contained in the
Business Plan are based on reasonable assumptions of the Company at the time
such projections and estimates were made. Except as set forth on Schedule 4.22
attached hereto, the Company has no reason to believe, and does not believe,
that any assumptions of fact or statements of opinion contained in the Business
Plan are unreasonable, untrue or false. However, no assurances can be given that
the actual results of operations or financial projections will conform to such
estimates contained in the Business Plan.
SECTION 4.23. Use of Proceeds. The proceeds of Purchaser's
investment shall be used by the Company for working capital and capital
expenditures for the purpose of sustaining or expanding the Company's market
share of business.
SECTION 4.24. Definition of Best Knowledge. As used herein,
the term "to the best knowledge" of the Company shall mean and include (i)
actual knowledge and (ii) that knowledge from which a person of reasonable
intelligence (including, in the case of the Company, the officers and directors
of the Company) (A) would infer that the fact in question exists, or (B) would
govern his conduct upon the assumption that such fact exists. In connection
therewith, the knowledge (both actual and constructive) of any director or
officer of the Company shall be imputed to be the knowledge of the Company.
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SECTION 5. Representations and Warranties of the Purchaser.
The Purchaser represents and warrants to the Company as follows:
SECTION 5.01. Authorization. Purchaser has all requisite power
and authority to execute, deliver and perform this Agreement. The execution,
delivery and performance by the Purchaser of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action. This Agreement has been duly and validly
executed and delivered by the Purchaser and this Agreement constitutes the valid
and binding obligation of the Purchaser, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditor's rights generally.
SECTION 5.02. Legal Proceedings. There are no suits, actions,
claims, or proceedings pending against Purchaser challenging the validity or
propriety of the transactions contemplated by this Agreement. Purchaser is not
subject to any judgment, order, decree or administrative ruling specifically
directed against such Purchaser which would interfere with the transactions
contemplated by this Agreement.
SECTION 5.03. Disclosure. No representation or warranty in
this Agreement or in any other document required to be delivered by Purchaser to
the Company hereunder or in conjunction herewith contains any untrue statement
of material fact or omits to state a material fact necessary in order to make
the statements contained therein or herein not misleading.
SECTION 5.04. Securities Law Representations and Warranties.
(a) The Purchaser understands that the Stock has not been, and
the Reserved Shares will not be, registered under the Securities Act or under
any state securities acts by reason of their issuance by the Company to a
foreign purchaser; and that they may not be sold or transferred to any United
States citizen, corporation or other entity unless registered under the
Securities Act and any applicable state securities acts or are exempt from such
registration.
(b) All officers and directors of the Purchaser engaged in the
negotiation of this Agreement were outside the United States for substantially
all of the time that negotiations regarding this Agreement were conducted, and
the execution of this Agreement by Purchaser occurred outside the United States.
Payment of the purchase price will be initiated from outside the United States.
The Purchaser will accept delivery of the certificates representing the Stock
outside the United States. The resting place of the securities represented by
the Stock will be outside the United States. The domicile of the Purchaser, and
jurisdiction under which the Purchaser is incorporated, is outside the United
States. The Purchaser is a wholly-owned subsidiary of Overseas
Telecommunications Commission (Australia) (the "Parent"). The principal
executive and financial offices of the Purchaser and the Parent are outside the
United States. Substantially all of the Parent's business, assets, properties,
operations, employees,
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officers and personnel are outside the United States. As of the date hereof, all
of the Purchaser's business, assets, properties, operations, employees, offices
and personnel are outside the United States.
(c) The Purchaser, for itself, and on behalf of ITC (as
defined below), further represents, warrants and covenants to the Company that
it will not transfer the Stock or any of the Reserved Shares except in
compliance with Section 7 of this Agreement, the Company's Stockholders'
Agreement and applicable securities laws.
(d) The Purchaser confirms that it (a) is familiar with the
business of the Company, (b) has had the opportunity to ask questions of the
Company's officers and directors and to acquire such information about the
business and financial condition of the Company as requested and (c) has had the
opportunity to obtain such other information as the Purchaser has deemed
necessary, and the Purchaser has relied upon, among other things, its
independent investigation in making a decision to enter into this Agreement.
(e) The Purchaser has made such independent investigations of
the Company and of the business and financial condition of the Company, as the
Purchaser in the exercise of its sound business judgment, considers to be
appropriate under the circumstances.
(f) The Purchaser understands and acknowledges that the
Company has not made and cannot make any representation or warranty as to the
future operations or financial condition of the Company; that any estimates of
future operating results or financial forecasts of any kind with respect to the
Company which may be contained in any business plans or other document or
information furnished to the Purchaser may not be realized; that such estimates
or forecasts are based on assumptions which may or may not occur; and that no
assurances can be given that the actual results of operations or financial
condition of the Company will conform to such estimates or forecasts and that
therefore no reliance can be placed thereon. Such estimates or forecasts,
however, have been prepared in good faith and, to the best knowledge of the
Company, were based on reasonable assumptions at the time prepared.
(g) The Purchaser consents to the imprinting of the legend set
forth in Section 7.03 hereof on the Stock and Reserved Shares.
SECTION 5.05. Violations of Instruments. The execution,
delivery and performance of this Agreement by the Purchaser and the consummation
of the transactions contemplated hereby will not violate, conflict with or
result in any breach of any of the terms, conditions or provisions of, the
Articles of Incorporation or By-laws or other charter documents of the
Purchaser, in each case as amended and/or restated through the date hereof.
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SECTION 6. Covenants of the Company and Purchaser.
SECTION 6.01. Financial Statements. The Company will furnish
to Purchaser:
(i) As soon as available and in any event within forty-five
(45) days after the close of each monthly accounting period in each
fiscal year (a) an income statement of the Company for such monthly
period; and (b) a balance sheet of the Company as of the end of such
monthly period, subject to year-end audit adjustments; and
(ii) As soon as available and in any event within 120 days
after the close of each fiscal year, (a) a statement of stockholders'
equity and a statement of changes in financial position of the Company
for such fiscal year; (b) an income statement of the Company for such
fiscal year; and (c) a balance sheet of the Company as of the end of
the fiscal year; the consolidated statements and balance sheet to be
audited by an independent certified public accountant selected by the
Company and reasonably acceptable to the Purchaser, and certified by
such accountants to have been prepared in accordance with generally
accepted accounting principles consistently applied by the Company
except for any inconsistencies explained in such certificate.
SECTION 6.02. Access. So long as the Purchaser is not engaged
in, and does not hold any interest in, a business competitive with the Company,
and so long as the Purchaser maintains ownership of the Stock, the Company will
afford to the Purchaser free and full access, at all reasonable times, to all of
the books, records and properties of the Company and to all officers and
employees of the Company, for any reasonable purpose whatsoever, and, upon
reasonable request, will provide Purchaser with operational reports and such
other information as the Purchaser may reasonably request, including monthly
information on no-hit searches and number of searches per user license;
provided, however, that the access and information provided hereunder shall be
so provided only for so long as the provision of such access and information
will not, in the reasonable judgment of the Company, be determined to be
detrimental to the Company's relationship with existing and potential suppliers
and customers, or otherwise materially adversely affect the operations of the
Company.
SECTION 6.03. Preemptive Rights. (a) Except in the case of
Excluded Securities, the Company shall not issue, sell or exchange, agree to
issue, sell or exchange, or reserve or set aside for issuance, sale or exchange,
any (i) shares of Common Stock, Preferred Stock or any other equity security of
the Company, (ii) any debt security of the Company which is convertible into
equity, or (iii) any option, warrant or other right to subscribe for, purchase
or otherwise acquire any equity security or any such debt security of the
Company, unless in each case the Company shall have first offered to sell to the
Purchaser its Proportionate Percentage (as defined below) of such securities
(the "Offered Securities"), at a price and on such other terms as shall
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have been specified by the Company in writing delivered to the Purchaser (the
"Offer"), which Offer by its terms shall remain open and irrevocable for a
period of 15 days from the date it is delivered by the Company to the Purchaser.
Notwithstanding the foregoing, in the event that the Company intends to take any
action described above, it shall provide the Purchaser with written notice not
later than 45 days prior to the taking of such action of such intent (the
"Preliminary Notice"). The Preliminary Notice shall set forth, to the extent
then known, the size of the issuance, and the price and other terms upon which
the Company intends to issue the securities. The Preliminary Notice shall not
constitute an offer to sell any securities to the Purchaser. After the
Preliminary Notice is delivered to the Purchaser, but prior to the delivery of
the Offer to the Purchaser, the Company will use its best efforts to provide the
Purchaser with written notice of any material changes in the size of the
issuance, the price and other material terms upon which the Company intends to
issue the securities.
(b) Notice of the Purchaser's intention to accept, in whole or
in part, the Offer made pursuant to Section 6.03(a) shall be evidenced by a
writing signed by the Purchaser and delivered to the Company prior to the end of
the 15-day period of such Offer, setting forth such portion of the Offered
Securities as the Purchaser elects to purchase (the "Notice of Acceptance").
(c) In the event that a Notice of Acceptance is not given by
the Purchaser in respect of all its Proportionate Percentage of the Offered
Securities, the Company shall have 90 days from the expiration of the foregoing
15-day period to sell all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Purchaser (the "Refused
Securities"), but only in all respects upon terms and conditions no more
favorable than those contained in the Offer. Upon the closing, the Purchaser
shall purchase from the Company, and the Company shall sell to the Purchaser,
the Offered Securities in respect of which a Notice of Acceptance was delivered
to the Company by the Purchaser, at the terms specified in the Offer. The
purchase by the Purchaser of any Offered Securities is subject in all cases to
the terms and conditions set forth in the purchase agreement (if any) with the
third party initially proposing the Offer.
(d) In each case, any Offered Securities not purchased by the
Purchaser or the other person or persons in accordance with Section 6.03(c) may
not be sold or otherwise disposed of until they are again offered to the
Purchaser under the procedures specified in Sections 6.03(a), (b) and (c).
(e) The rights of the Purchaser under this Section 6.03 shall
not apply to the following securities ("Excluded Securities"):
(i) Common Stock, or options to purchase or rights to
subscribe for such Common Stock, or securities by their terms convertible into
or exchangeable for such Common Stock, or options to purchase or rights to
subscribe for such convertible or exchangeable securities, issued to officers,
employees or directors of, or consultants
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to, the Company and in each case approved by the Board of Directors of the
Company; provided, however, that the maximum number of shares of Common Stock
hereafter issued or issuable to officers, employees or directors of, or
consultants to, the Company to which this clause (i) shad apply shall not exceed
the sum of (A) up to 800,000 shares pursuant to the Company's qualified
incentive stock plan (including any Common Stock issued pursuant to the exercise
of any such options) and (B) the greater of five and one-half percent (5 1/2%)
of all shares of Common Stock then outstanding or 700,000 shares of Common Stock
(the shares described in this clause (B) being issued pursuant to any
arrangements other than the incentive stock option plan);
(ii) Common Stock issued as a stock dividend or upon any
subdivision or combination of shares of Common Stock;
(iii) the Reserved Shares;
(iv) any Common Stock issued pursuant to the exercise of
options, warrants and rights outstanding as of the date hereof and listed on
Schedule 4.03 attached hereto (including any replacements or options, warrants
or rights issued in like amount upon the expiration of any such options,
warrants or rights);
(v) up to 714,286 shares of Common Stock, or securities by
their terms convertible into or exchangeable for such Common Stock, issued to
ITC pursuant to the provisions of Section 6.04 hereof, or, in the event that
such shares are not issued to ITC prior to 120 days from the date hereof, up to
714,286 shares of Common Stock or securities by their terms convertible into or
exchangeable for such Common Stock, issued upon terms and conditions no more
favorable, in the aggregate, than the terms and conditions of this Agreement; or
(vi) up to 357,143 shares of Common Stock, or securities by
their terms convertible into or exchangeable for such Common Stock, issued to
Polyventures or any venture capital fund or firm of which Herman Fialkov is an
officer, director or principal, provided that such issuance is upon terms and
conditions no more favorable, in the aggregate, than the terms and conditions of
this Agreement.
(f) "Proportionate Percentage" shall mean that percentage
figure which expresses the ratio which (x) the number of shares of Common Stock
then owned by the Purchaser bears to (y) the aggregate number of shares of
Common Stock then issued and outstanding (or deemed to be issued and
outstanding) to all holders of Common Stock of the Company. For purposes solely
of the computation required under clauses (x) and (y) above, the Stock and any
other then issued and outstanding securities convertible into or exercisable or
exchangeable for shares of Common Stock shall be treated as having been
converted into or exercised or exchanged for shares of Common Stock at the rate
at which such securities are convertible into or exercisable or exchangeable for
shares of Common Stock in effect at the time of delivery by the Company of the
Offer as contemplated by Section 6.03(a) hereof.
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(g) The Company shall not grant licenses, franchises or
similar rights ("Rights") with respect to the services or property of the
Company in connection with the issuance of securities of the Company, without
consideration or for a consideration less than the reasonable value of such
Rights, unless such Rights are appraised and the resulting valuation is used in
discounting the consideration being offered by the proposed purchaser of such
securities or alternatively that the preemptive rights of the Purchaser to
purchase such securities include the right to purchase the Rights as well.
SECTION 6.04. Option Regarding Additional Investment.
(a) The Company agrees with the Purchaser that ItalCable
S.P.A., or any affiliate of ItalCable S.P.A. ("ITC"), shall have the right and
option to purchase, upon the terms and subject to the conditions set forth
herein (including all rights, duties, representations and warranties set forth
herein), 714,286 shares of Series C Preferred Stock (the "ITC Stock") at a price
of $1.40 per share at any time prior to 120 days from the date hereof. The
consummation of such purchase shall be subject to ITC's agreement to be bound by
and comply with all applicable provisions of the Company's Stockholders'
Agreement, and to be deemed a Stockholder thereunder.
(b) In the event that the Purchaser and ITC reasonably
determine (to the reasonable satisfaction of the Company) that it is necessary
that the ITC Stock be purchased by ITC from and through the Purchaser, the
Purchaser shall have the right to purchase the ITC Stock upon the terms and
subject to the conditions set forth in Section 6.04(a) above; provided, however,
the Purchaser must transfer the ITC Stock to ITC within sixty (60) days of its
purchase of the ITC Stock from the Company. In the event that the Purchaser
fails to transfer the ITC Stock to ITC within such 60-day period, the Company
shall have the right, but not the obligation, to rescind the purchase of the ITC
Stock by the Purchaser at any time after the expiration of such 60-day period,
and cancel the ITC Stock.
(c) Except with the prior approval of the Company, the ITC
Stock may be purchased in whole only. If the ITC Stock is issued to the
Purchaser pursuant to the provisions of Section 6.04(b) above, certificate(s)
representing the ITC Stock shall bear a legend (in addition to any other legends
required hereunder or by law) in form and substance satisfactory to the Company
and addressing the matters covered in Section 6.04(b) above. The provisions of
this Section 6.04 are for the Purchaser's benefit only, and no other person,
including, without limitation, ITC, shall gain any rights hereunder.
(d) For purposes of carrying out the provisions of this
Section 6.04, the Company has authorized the issuance of 714,286 shares of
Series C Preferred Stock to ITC, subject to the terms and conditions of this
Agreement.
(e) In addition to the rights granted to the Purchaser
pursuant to paragraphs (a) through (c) above, the Purchaser may transfer up to
714,285 shares of the Stock to, but only to, ITC on or before one hundred twenty
(120) days from the date
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<PAGE> 17
hereof, subject to the terms and conditions of Section 2(d) of the Corporation's
Stockholders' Agreement, which permits such transfer, provided that ITC agrees
in writing, in the manner therein described, to be bound by and comply with all
applicable provisions of the Company's Stockholders' Agreement and to be deemed
a Stockholder thereunder.
SECTION 6.05. Purchase of Additional Securities by Purchaser.
Except with the prior approval of the majority of the disinterested members of
the Board of Directors of the Company, the Purchaser, from and after the date
hereof, shall not acquire, purchase, agree to acquire or purchase, (i) any
shares of Common Stock, Preferred Stock or any other equity security of the
Company, (ii) any debt security of the Company which is convertible into equity,
or (iii) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity security or any such debt security of the Company
(the aforementioned being hereinafter referred to as an "Acquisition of
Securities"), from any person, firm, corporation or other entity; and any
purported Acquisition of Securities in violation of the provisions of this
Section 6.05 shall be null and void, and for purposes of the transfer of
securities on the Company's books, any such Acquisition of Securities shall not
be recognized or recorded; provided, however, that nothing in this Section 6.05
shall be deemed to affect the rights of the Purchaser (i) under the Company's
Stockholders' Agreement, (ii) pursuant to the provisions of Section 6.03 hereof,
or (iii) pursuant to the provisions of Section 6.04(b) hereof.
SECTION 6.06. Termination of Covenant. Notwithstanding
anything herein to the contrary, and except with respect to the provisions of
Section 6.04 above, which shall terminate one hundred twenty (120) days from the
date hereof, the provisions of Section 6 hereof shall terminate and shall cease
to be effective upon the consummation of a public offering of Common Stock
registered under the Securities Act; provided, however, that the provisions of
Sections 6.01 and 6.02 shall remain effective to the extent that the Company's
counsel advises is not in violation of any applicable securities laws.
SECTION 7. Transfer of Securities; Registration Rights.
SECTION 7.01. Restriction on Transfer. The Restricted
Securities (as hereinafter defined), and any shares of capital stock received in
respect thereof, whether by reason of a stock split or share reclassification
thereof, a stock dividend thereon or otherwise, shall not be transferable except
upon the conditions specified in this Section 7.
SECTION 7.02. Definitions. As used in this Section 7, the
following terms shall have the following respective meanings:
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<PAGE> 18
"Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the
Securities Act.
"Person" shall mean and include an individual, a corporation,
a partnership, a trust, an unincorporated organization and a government
or any department, agency or political subdivision thereof.
"Restricted Securities" shall mean the Stock, the Reserved
Shares and any shares of capital stock received in respect of any
thereof, evidenced by certificates bearing the restrictive legend set
forth in Section 7.03.
"Restricted Shares" shall mean the shares of Common Stock
constituting Restricted Securities.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Transfer" shall include any disposition of any shares of
Restricted Securities or of any interest therein which would constitute
a sale thereof within the meaning of the Securities Act.
SECTION 7.03. Restrictive Legends. Each certificate for the
Restricted Securities and any shares of capital stock received in respect
thereof, whether by reason of a stock split or share reclassification thereof, a
stock dividend thereon or otherwise, and each certificate for any such
securities issued to subsequent transferees of any such certificate shall
(unless otherwise permitted by the provisions of this Agreement) be stamped or
otherwise imprinted with legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES ACTS OF ANY STATE THEREOF. THESE SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE UNITED STATES OR TO A UNITED
STATES CITIZEN IN THE ABSENCE OF SUCH REGISTRATION OR AN
OPINION OF COUNSEL ACCEPTABLE TO TELEBASE SYSTEMS, INC. AND IN
ACCEPTABLE FORM AND SUBSTANCE THAT AN EXEMPTION THEREFROM IS
AVAILABLE UNDER SAID ACTS. THE SALE, TRANSFER, ASSIGNMENT,
PLEDGE, OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE AND
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<PAGE> 19
THE RIGHTS OF THE HOLDER OF SUCH SECURITIES IN RESPECT OF THE
ELECTION OF DIRECTORS ARE SUBJECT TO (A) THE TERMS AND
CONDITIONS OF AN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
DATED JULY 30, 1988 AMONG TELEBASE SYSTEMS, INC. AND OTHER
SIGNATORIES THERETO (AND NO TRANSFER OF THESE SECURITIES SHALL
BE VALID OR EFFECTIVE UNLESS SUCH TRANSFER IS IN ACCORD
THEREWITH) AND (B) THE CONDITIONS SPECIFIED IN SECTION 7 OF
THE STOCK PURCHASE AGREEMENT DATED AS OF AUGUST __, 1988,
BETWEEN TELEBASE SYSTEMS, INC. AND OTC INTERNATIONAL LIMITED
(AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED). COPIES
OF SUCH AGREEMENTS MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF TELEBASE SYSTEMS, INC."
Each certificate representing shares of Series A and Series B Preferred Stock is
or shall be imprinted with a substantially similar legend.
SECTION 7.04. Notice of Transfer. The holder of any Restricted
Securities, by acceptance thereof, agrees, prior to any transfer of any
Restricted Securities, to give written notice to the Company of such holder's
intention to effect such transfer and to comply in all other respects with the
provisions of this Section 7.04. Each such notice shall describe the manner and
circumstances of the proposed transfer and, except in the case of a transfer of
Restricted Securities to ITC pursuant to the provisions of Section 6.04(e)
hereof, shall be accompanied by (a) the written opinion, addressed to the
Company, of counsel reasonably acceptable to the Company for the holder of
Restricted Securities, as to whether in the opinion of such counsel such
proposed transfer involves a transaction requiring registration of such
Restricted Securities under the Securities Act and state securities acts and, if
not, a description of the exemptions available, and (b) in the case of
Restricted Shares, if in the opinion of such counsel such registration is
required, a written request addressed to the Company by the holder of Restricted
Securities, describing in detail the proposed method of disposition and
requesting the Company to effect the registration of such Restricted Shares
pursuant to the terms and provisions of Sections 7.05, 7.06 or 7.07 hereof, as
the case may be. If in the opinion of such counsel the proposed transfer of
Restricted Securities may be effected without registration under the Securities
Act and state securities acts, the holder of Restricted Securities shall
thereupon be entitled to transfer Restricted Securities in accordance with the
terms of the notice delivered by it to the Company. Each certificate or other
instrument evidencing the securities issued upon the transfer of any Restricted
Securities (and each certificate or other instrument evidencing
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<PAGE> 20
any untransferred balance of such securities) shad bear the legends set forth in
Section 7.03 unless (a) in the opinion of such counsel registration of future
transfer is not required by the applicable provisions of the Securities Act and
state securities acts or (b) the Company shall have waived the requirement of
such legends. Except as provided above, the holder of Restricted Securities
shall not transfer such Restricted Securities until such opinion of counsel has
been given to the Company (unless waived by the Company) or until registration
of the Restricted Shares involved in the above-mentioned request has become
effective under the Securities Act.
SECTION 7.05. Incidental Registration. If the Company proposes
for any reason to register any of its securities under the Securities Act (other
than pursuant to a registration statement on Forms S-8 or S-4 or similar or
successor forms), it shall each such time promptly give written notice to all
holders of outstanding Restricted Securities of its intention to do so, and,
upon the written request, given within 30 days after receipt of any such notice,
of the holder of any such Restricted Securities to register any Restricted
Shares (which request shad specify the Restricted Shares intended to be sold or
disposed of by such holders), the Company shall use its best efforts to cause
all such Restricted Shares to be included in such registration under the
Securities Act, all to the extent requisite to permit the sale or other
disposition (in accordance with the Company's intended methods thereof, as
aforesaid) by the prospective seller or sellers of the Restricted Shares so
registered. In the event that the proposed registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company,
if the managing underwriter determines and advises in writing that the inclusion
of all Restricted Shares proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than the holders of Restricted Securities (the
"Other Shares") would interfere with the successful marketing of such
securities, then (i) the number of Restricted Shares and Other Shares shall be
reduced, pro rata among the holders of Other Shares and the holders of
Restricted Shares (based upon the number of shares of Common Stock requested by
the holders thereof to be registered in such underwritten public offering), and
(ii) in each case those shares of Common Stock which are excluded from the
underwritten public offering shall be withheld from the market by the holders
thereof for a period, not to exceed 90 days, which the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
SECTION 7.06. Registrations on Form S-2 or S-3. At such time
as the Company shall have qualified for the use of Form S-2 or S-3 (or any
similar form or forms promulgated by the Commission), the holders of Restricted
Securities shall have the right to request an unlimited number of registrations
on Form S-2 or S-3 (which request or requests shall be in writing, shall specify
the Restricted Shares intended to be sold or disposed of by the holders thereof,
shall state the intended method of disposition of such Restricted Shares by the
holder(s) requesting such registration and shall relate to Restricted Shares
having a proposed aggregate gross offering price (before deduction of
underwriting discounts and expenses of sale) of at least $500,000), and the
Company shall be obligated to effect such registration or registrations on Form
S-2 or S-3 (as the
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<PAGE> 21
case may be); provided, however, that the Company shall in no event be obligated
to cause the effectiveness of more than one such registration statement in any
calendar year. The Company shall not register securities for sale for its own
account in any registration requested pursuant to this Section 7.06 unless
requested to do so by the holders of Restricted Securities who hold at least 51%
of the stock as to which registration has been requested. The Company may not
cause any other registration of securities for sale for its own account (other
than a registration effected solely to implement an employee benefit plan or to
acquire another company) to become effective less than 90 days after the
effective date of any registration requested pursuant to Section 7.06.
SECTION 7.07. Demand Registration. At any time after one year
from the effective date of the Company's registration statement covering its
initial public offering, but prior to the time that the Company shall have
qualified for the use of Form S-2 or S-3 (or any similar form of forms
promulgated by the Commission) the holders of shares of Common Stock into which
Preferred Stock shall have been converted shall have the right to request the
Company to file one registration statement on any form which the Company is then
entitled to use. Such request shall be in writing, shall specify the shares of
Common Stock (into which the Preferred Stock shall have been converted) intended
to be sold or disposed of by the holders thereof, shall state the intended
method of disposition by the holder(s) requesting such registration and shall
relate to Common Stock having a proposed aggregate gross offering price (before
deduction of underwriting discounts and expenses of sale) of at least $500,000,
and the Company shall be obligated to effect such registration, subject in any
event to all applicable securities laws and all requirements of the Company's
investment banker.
SECTION 7.08. Designation of Underwriter.
(a) In the case of any registration effected pursuant to
Section 7.06 or 7.07, a majority in interest of the requesting holders of
Restricted Securities or Common Stock (in the case of a registration effected
pursuant to Section 7.07) shall have the right to designate the managing
underwriter (if any) in any such underwritten offering, subject in any event to
the proviso set forth in Section 7.11 hereof.
(b) In the ease of any registration initiated by the Company,
the Company shall have the right to designate the managing underwriter in any
underwritten offering.
SECTION 7.09. Granting of Registration Rights. The Company
shall not grant any rights to any persons to register any shares of capital
stock or other securities of the Company if such rights would be superior to the
rights of the holders of Restricted Securities granted pursuant to this
Agreement, unless the Purchaser is given the same or comparable rights.
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<PAGE> 22
SECTION 7.10. Preparation and Filing. If and whenever the
Company is under an obligation pursuant to the provisions of this Section 7 to
effect the registration of any Restricted Shares, the Company shall, as
expeditiously as practicable:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and current for at least nine months and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
Restricted Shares covered by such registration statement;
(c) furnish to each selling shareholder such number of copies
of a summary prospectus or other prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Restricted Shares;
(d) use its best efforts to register or qualify the Restricted
Shares covered by such registration statement under the securities or blue sky
laws of such jurisdictions as each such seller shall reasonably request
(provided, however, the Company shall not be required to consent to general
service of process for all purposes in any jurisdiction where it is not then
qualified) and do any and all other acts or things which may be necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities; and
(e) notify each seller of Restricted Shares covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Securities
Act within the appropriate period mentioned in clause (b) of this Section 7.10,
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing and at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
(f) furnish, upon request, to each requesting seller a signed
counterpart, addressed to the requesting seller or sellers, of (i) an opinion of
counsel for
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<PAGE> 23
the Company, dated the effective date of the registration statement, and (ii) a
"comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
"comfort" letter) with respect to events subsequent to the date of the financial
statements, as are customarily covered (at the time of such registration) in
opinions of issuer's counsel and in "comfort" letters delivered to the
underwriters in underwritten public offerings of securities.
SECTION 7.11. Expenses. All expenses incurred by the Company
in complying with Section 7.10 shall be paid by the Company, including, without
limitation, all registration and filing fees, printing expenses, blue sky filing
fees, fees and disbursements of counsel for the Company and expenses of any
required audits; provided, however, that (a) the Company shall not be obligated
for payment of the fees and disbursements of counsel for the holders of
Restricted Securities in connection with registration under Section 7.05, 7.06
or 7.07 hereof and (b) all underwriting discounts and selling commissions and
other similar fees and costs applicable to the Restricted Shares covered by
registrations effected pursuant to Sections 7.05, 7.06 and 7.07 hereof shall be
borne by the seller or sellers thereof, in proportion to the number of
Restricted Shares sold by such seller or sellers.
SECTION 7.12. Indemnification. (a) In the event of any
registration of any Restricted Shares under the Securities Act pursuant to this
Section 7 or registration or qualification of any Restricted Shares pursuant to
Section 7.10(d), the Company shall indemnify and hold harmless the seller of
such shares, or any other person acting on behalf of such seller and each other
person, if any, who controls any of the foregoing persons, within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Restricted Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or any document prepared and/or
furnished by the Company incident to the registration or qualification of any
Restricted Shares pursuant to Section 7.10(d), or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made, not misleading, or any
violation by the Company of the Securities Act or state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws; and shall reimburse such seller, underwriter
or other person acting on behalf of such seller and each such controlling person
for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any
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<PAGE> 24
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus or said prospectus or said
amendment or supplement or any document incident to the registration or
qualification of any Restricted Shares pursuant to Section 7.10(d) in reliance
upon and in conformity with written information furnished to the Company by such
seller or such seller's agent or representative specifically for use in the
preparation thereof.
(b) Before Restricted Shares held by any prospective seller
shall be included in any registration pursuant to Section 7, such prospective
seller and any underwriter acting on its behalf shall have agreed to indemnify
and hold harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section 7.12 or, if different, in the manner and to
the extent as is in accordance with standard industry practice at the time of
the proposed sale) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement, and any person who
controls the Company within the meaning of the Securities Act, with respect to
any untrue statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or omission was made in reliance
upon and in conformity with written information furnished to the Company by such
seller or such seller's agent or representative specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus or amendment or supplement.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 7.12, such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 7.12, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any
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<PAGE> 25
counsel retained by the indemnified party which are reasonably related to the
matters covered by the indemnity agreement provided in this Section 7.12.
(d) The failure to notify an indemnifying party promptly of
the commencement of any such action, if materially prejudicial to the ability of
the indemnifying party to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this paragraph, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party otherwise than
under this Section 7.
(e) The indemnifying party shall not make any settlement of
any claims indemnified against hereunder without the written consent of the
indemnified party or parties, which consent shall not be unreasonably withheld.
SECTION 8. Expenses. Each party will be responsible for
expenses incurred by it in connection with the negotiation of this Agreement and
consummation of the transactions contemplated hereby. The Company agrees that it
will pay, and will save the Purchaser harmless from, any and all liability with
respect to any stamp or similar taxes which may be determined to be payable in
connection with the execution and delivery of this Agreement or any
modification, amendment or alteration of the terms or provisions of this
Agreement, and that it will similarly pay and hold the Purchaser harmless from
all issue taxes, if any, in respect of the issuance of the Stock and the
Reserved Shares to the Purchaser.
SECTION 9. Exchanges; Lost, Stolen or Mutilated Certificates.
Upon surrender by the Purchaser to the Company of certificates for securities
purchased or acquired by the Purchaser hereunder, the Company at its expense
will issue in exchange therefor, and deliver to the Purchaser, a new certificate
or certificates representing such securities, in such denomination or
denominations as may be requested by the Purchaser. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
certificate representing any securities purchased or acquired by the Purchaser
hereunder, and in case of any such loss, theft or destruction, upon delivery of
any indemnity agreement satisfactory to the Company, or in case of any such
mutilation, upon surrender and cancellation of such certificate, the Company at
its expense will issue and deliver to the Purchaser a new certificate for such
securities of like tenor, in lieu of such lost, stolen or mutilated certificate.
SECTION 10. Survival of Representations, Warranties and
Agreements; Etc. All representations and warranties made by the Company and the
Purchaser hereunder shall survive the Closing for a period of 3 years following
the Closing (except for the representations and warranties set forth in Sections
4.03, 4.04, 4.09, 4.10, 4.15 and 4.16 hereof which shall survive indefinitely
and except for the representations and warranties set forth in Section 4.19
hereof, which shall survive until the expiration of the applicable statute of
limitations under Pennsylvania or Federal law) and all covenants and agreements
made by the Company hereunder shall survive in accordance with their terms
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<PAGE> 26
(or, if not specified by such terms, indefinitely). All statements contained in
any certificate or other instrument delivered by the Company pursuant to this
Agreement shall constitute representations and warranties by the Company under
this Agreement.
SECTION 11. Indemnification. Each party shall, with respect to
the representations, warranties and agreements made by such party herein,
indemnify, defend and hold the other harmless against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including legal and accounting fees and expenses), arising from the untruth,
inaccuracy or breach of any such representations, warranties or agreements of
such party; provided, however, that the Company shall not be liable for any
liability, loss or damage with respect to representations and warranties of the
Company (other than as set forth in Section 4.04 or 4.05 hereof) unless and
until the aggregate of the liability, loss or damage suffered equals or exceeds
$50,000 at which time the Company shall be liable hereunder for all such
liabilities, losses or damages; and, provided further, the Company shall, in any
event, have no liability to the Purchaser hereunder for consequential, exemplary
or incidental damages.
SECTION 12. Remedies. In case any one or more of the covenants
and/or agreements set forth in this Agreement shall have been breached by the
Company, the Purchaser may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement,
provided that the foregoing shall not change the time period during which a
claim for indemnification pursuant to Section 10 or 11 hereof shall be made.
SECTION 13. Miscellaneous.
SECTION 13.01. Notices. All notices, requests, consents and
other communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or duly sent by first
class registered or certified mail, postage prepaid, addressed to such party at
the address set forth below or such other address as may hereafter be designated
in writing by the addressee to the addressor listing all parties:
(i) If to the Company, to:
Telebase Systems, Inc.
763 West Lancaster Avenue
Bryn Mawr, PA 19016
Attention: James E. Coane, President
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with a copy to:
Dilworth, Paxson, Kalish & Kauffman
2600 The Fidelity Building
Philadelphia, PA 19109-1094
Attention: Stephen J. Harmelin, Esq.
(ii) If to the Purchaser, to:
OTC International Limited
231 Elizabeth Street
Sydney N.S.W.
Australia
Attention: Leonard Peter Shore, Executive Director
with a copy to:
Nixon, Hargrave, Devans and Doyle
One Thomas Circle, N.W.
Suite 800
Washington, D.C. 20005
Attention: Joseph H. Reynolds, Esq.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of delivery if personally delivered, on the business day after the date
when sent if sent by air courier, and on the earlier of receipt by the sender of
an official postal acknowledgement therefor or of telephonic confirmation of
receipt by the addressee, if sent by mail, in each case addressed to such party
as provided in this Section 13.01 or in accordance with the latest unrevoked
direction from such party.
SECTION 13.02. No Waivers. No failure or delay of the
Purchaser in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Purchaser hereunder are
cumulative and not exclusive of any rights or remedies which they would
otherwise have. No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
SECTION 13.03. Governing Law. This Agreement shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania, without reference to principles of choice of laws.
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SECTION 13.04. Changes, Waivers, Etc. Neither this Agreement
nor any provision hereof may be changed, waived, discharged or terminated
orally, but only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
SECTION 13.05. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Company, the Purchaser and each of
their respective successors and assigns. The Company may not assign or transfer
any of its rights or obligations hereunder without the written consent of the
Purchaser. The Purchaser shall have the right to assign its rights and
obligations hereunder only (i) to the Parent, or to a subsidiary or affiliate
which is controlled by the Purchaser or the Parent or (ii) as provided for by
Section 6.04 hereof, to ITC.
SECTION 13.06. Severability. In case any one or more of the
provisions contained in this Agreement or the Stock should be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 13.07. Section Headings. The section headings used
herein are for convenience of reference only, are not part of this Agreement and
are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 13.08. Jurisdiction. The parties hereto agree that any
suit, action or proceeding instituted against one or more of them with respect
to this Agreement (including any Exhibits or Schedules attached hereto) may be
brought in any Federal or state court located in the Eastern District of the
Commonwealth of Pennsylvania. The parties hereto, by the execution and delivery
of this Agreement, irrevocably waive any obligation or any right of immunity on
the ground of venue, the convenience of the forum or the jurisdiction of such
courts, or from the execution of judgments resulting therefrom, and the parties
hereto hereby irrevocably accept and submit to the jurisdiction of the aforesaid
courts in any suit, action or proceeding and consent to service of process by
certified mail at the address set forth in Section 13.01 hereof.
SECTION 13.09. Counterparts. This Agreement may be signed in
any number of counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their behalf as of the day and year first above
written.
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[SEAL] TELEBASE SYSTEMS, INC.
Attest:_____________________________ By:___________________________________
James E. Shea, Secretary James E. Coane, President
OTC INTERNATIONAL LIMITED
By:___________________________________
Leonard Peter Shore, Executive Director
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EXHIBIT 4.8
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of the 30th
day of August, 1994, by and among Telebase Systems, Inc., a
Pennsylvania corporation with its principal place of business at 435
Devon Park Drive, Wayne, PA 19087 (the "Company") and the persons
listed on the Schedule of Purchasers attached hereto ("Purchasers").
In consideration of the mutual representations, warranties,
covenants and conditions set forth in this Agreement, the parties agree as
follows.
1. PURCHASE, SALE AND ISSUANCE OF PREFERRED SHARES.
(a) PURCHASE OF PREFERRED SHARES. Subject to the terms and
conditions of this Agreement, the Purchasers shall purchase at the Closing and
the Company shall sell and issue to each of the Purchasers, severally and not
jointly, at the Closing, an aggregate of 650,000 shares of the Company's Series
D Convertible Preferred Stock (the "Preferred Shares") in the amounts set forth
opposite such Purchaser's name on the Schedule of Purchasers.
(b) PURCHASE PRICE. The purchase price shall be $2.00 per
Preferred Share.
(c) CLOSING. The purchase and sale shall take place at the
Offices of Dilworth, Paxson, Kalish & Kauffman, 3200 Mellon Bank Center, 1735
Market Street, Philadelphia, PA 19103 on August 30, 1994, or at such other time,
date or place as the Company and the subscribers for at least eighty percent
(80%) of the Preferred Shares to be issued hereunder shall mutually agree (which
time, date and place are referred to in this Agreement as the "Closing"). At the
Closing, the Company shall deliver to each of the Purchasers certificates
representing the Preferred Shares that the Purchaser is purchasing against
delivery to the Company by the Purchaser of immediately available funds.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Purchaser that:
(a) CORPORATE RECORDS. The Company has previously made
available to special counsel for the Purchasers the Company's complete corporate
minute and stock books, including all formal corporate actions of the Company's
Board of Directors and shareholders, whether by meeting or written consents in
lieu of a meeting. Such records are true and correct and remain in full force
and effect except as provided therein to the contrary.
(b) ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the nature of its activities
or the ownership of its properties makes such qualification necessary. True and
accurate copies of the Company's Articles of Incorporation as amended and
By-laws, as presently in effect, have been delivered to special counsel for the
Purchasers.
<PAGE> 2
(c) CAPITALIZATION.
(i) AUTHORIZED CAPITAL. Following filing of the
Statement contemplated by Section 7(a) below (the "Statement"), and at the time
of Closing, the authorized capital of the Company will consist of:
(A) 500,000 shares of Series A Preferred Stock of
which 488,838 shares have been issued.
(B) 625,000 shares of Series B Preferred Stock,
all of which have been issued.
(C) 2,857,143 shares of Series C Preferred Stock,
of which 2,142,857 shares have been issued.
(D) 1,000,000 shares of Series D Convertible
Preferred Stock, no par value, none of which have been issued.
(E) 20,000,000 shares of Common Stock, no par
value (the "Common Stock") of which 5,817,857 shares shall be validly issued and
outstanding, fully paid and non-assessable, 1,034,000 shares are reserved for
issuance upon exercise of options under the Company's Incentive Stock Option
Plan, 484,563 shares are reserved for issuance upon exercise of other options
and warrants, 488,838 shares are reserved for issuance upon conversion of the
Company's Series A Preferred Stock (which number will increase to 563,177 shares
by reason of the transaction contemplated hereby), 714,286 shares are reserved
for issuance upon conversion of the Company's Series B Preferred Stock and
2,400,000 shares are reserved for issuance upon conversion of the Company's
Series C Preferred Stock.
The rights, privileges and preferences of the Preferred Shares will be as stated
in the Statement.
(ii) RESERVATION OF SHARES. The Company has
reserved 2,000,000 shares of Common Stock for issuance upon conversion of the
Preferred Shares. There are no other options, warrants, conversion privileges,
preemptive rights or other rights presently outstanding to purchase or receive
any of the capital stock of the Company, except as set forth in Section 2(c)(i),
and for such rights as may be created by this Agreement.
(iii) LIST OF SHAREHOLDERS. Exhibit A is a complete
and correct list of the record owners and beneficial owners of all of the
Company's outstanding capital stock holding more than 100,000 shares (including
the amount owned by each such owner) as of the date of this Agreement.
(iv) COMPLIANCE WITH SECURITIES LAWS. All shares
heretofore issued by the Company have been issued in compliance with all
applicable federal and state securities laws.
(d) SUBSIDIARIES. Except as set forth in Exhibit B, the
Company does not presently own or control, nor has it ever owned or controlled,
directly or indirectly, any other corporation, association, joint venture,
partnership or other business entity or any capital stock or other securities of
any thereof.
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<PAGE> 3
(e) AUTHORIZATION. The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement. All
corporate action on the part of the Company and its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of all obligations of the Company under this Agreement, and for the
authorization, issuance and delivery of the Preferred Shares (and the Common
Stock issuable upon conversion of all Preferred Shares) has been taken prior to
the Closing. This Agreement is a valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
(f) VALIDITY-STOCK. The Preferred Shares, when issued, sold
and delivered in accordance with the terms of this Agreement, shall be duly and
validly issued, fully paid and nonassessable. The Common Stock issuable upon
conversion of the Preferred Shares has been duly and validly reserved and, upon
issuance in accordance with the conversion provisions of the Preferred Shares
shall be duly and validly issued, fully paid and nonassessable.
(g) FINANCIAL STATEMENTS.
(i) STATEMENTS PROVIDED. The Company has furnished
the Purchasers with its audited balance sheet as of December 31, 1993 (the
"Year-end Balance Sheet") and statement of income for the fiscal year then
ended, together with its balance sheet as of July 31, 1994 (the "Interim Balance
Sheet") and income statement for the seven months then ended (collectively, the
"Financial Statements"). The Financial Statements were prepared in accordance
with generally accepted accounting principles consistently applied, except (in
the case of unaudited statements) for the absence of footnote disclosures, and
fairly present the financial position of the Company as of the dates and the
results of its operations for the periods, indicated.
(ii) LIABILITIES. Except as fully provided for and
reflected in the Financial Statements, the Company has no liabilities, secured
or unsecured, absolute or contingent, except those arising in the normal course
of business since the date of the Interim Balance Sheet, none of which are
unusual in type, scope or amount.
(iii) ENCUMBRANCES. The accounts and notes
receivable reflected on the Interim Balance Sheet are free and clear of any
claim, security interest, pledge or lien or encumbrance of any kind or nature
whatsoever, and have been collected or are fully collectable in substantially
the amounts set forth in the Interim Balance Sheet, without setoff, third party
collection efforts or suit (but net of reserves for doubtful accounts, if any,
set forth in the Interim Balance Sheet), and the subsequently created accounts
and notes receivable of the Company from July 31, 1994 to the Closing Date will
be free and clear of any claim, pledge, security interest or lien or encumbrance
of any kind or nature whatsoever, and will be good and fully collectible in the
normal course of business in substantially the amounts thereof without setoff,
third-party collection efforts or suit (but net of reserves for doubtful
accounts, if any, set forth in the Interim Balance Sheet).
(h) CHANGES. Since the date of the Interim Balance
Sheet, there have not been any material changes in the Company's business,
financial condition or assets.
(i) TITLE TO PROPERTY AND ASSETS, LIABILITIES. Except
(a) as reflected in its Financial Statements or in the notes thereto, (b) for
liens for current taxes not yet delinquent, (c)
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for liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers, materialmen and the
like, or (d) for liens in respect of pledges or deposits under workers'
compensation laws or similar legislation, the Company owns its property and
other assets free and clear of all mortgages, liens, loans, claims, charges and
encumbrances of any kind. With respect to the property and other assets it
leases, the Company is in compliance with such leases and holds a valid
leasehold interest free of any liens, claims, charges and encumbrances, subject
to clauses (b)-(d) above. A list of the real property owned or leased by the
Company is set forth on Exhibit C hereto.
(j) GOVERNMENTAL CONSENTS. All consents, approvals, orders
or authorizations of, or registrations, qualifications, designations,
declarations or filings with, any federal or state governmental authority on the
part of the Company required in connection with the consummation of the
transactions contemplated by this Agreement have been obtained, except any
applicable notices of sale required to be filed after Closing with the
Securities and Exchange Commission pursuant to Regulation D promulgated under
the Securities Act of 1933 or any state securities law authority pursuant to
applicable blue sky laws.
(k) COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of any provisions of its Articles of Incorporation or By-laws as
amended and in effect on and as of the Closing or of any provision of any
mortgage, indenture, agreement, instrument or contract to which it is a party,
or of any provision of any federal or state judgment, writ, decree, order,
statute, rule or governmental regulation applicable to the Company. The
execution, delivery and performance of this Agreement will not result in any
such violation, or be in conflict with or constitute a default under any such
provision, or result in the creation or imposition of any lien pursuant to any
such provision.
(l) GOVERNMENTAL PERMITS. The Company has all federal,
state, municipal and foreign licenses and permits required in the conduct of its
business, and such licenses and permits are in full force and effect.
(m) ENVIRONMENTAL MATTERS. The Company does not discharge or
handle, nor is the Company aware of the storage or other presence on any of the
property currently or previously leased by the Company of, any hazardous
substances (as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended).
(n) MISLEADING STATEMENTS. No representation or warranty by
the Company in this Agreement or in any Schedule or Exhibit hereto, or in any
written statement or certificate furnished or to be furnished to Purchasers
pursuant to this Agreement or in connection with the actions contemplated by
this Agreement contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements made not misleading.
There is no fact which the Company has not disclosed to the Purchasers in
writing and of which the Company is aware which materially and adversely affects
or could materially and adversely affect the business prospects, financial
condition, operations, property or affairs of the Company.
(o) PROJECTIONS. The Company's Financial Projections
attached hereto as Exhibit D are derived from reasonable assumptions at the time
such projections were made, and the Company believes that subject to the
qualifications set forth below, the Purchasers are justified in relying thereon.
The Purchasers acknowledge that the assumptions do not present the only, or even
necessarily the most likely, set of events that will occur over the period
covered
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<PAGE> 5
by the projections, and the projections shall not be deemed a representation by
the Company that the assumed facts will, in fact occur. The Company does not
believe that any assumptions of fact on which the projections are based are
unreasonable or false or lack the disclosure of any material fact or assumption
necessary, to make such projections not misleading. As of the date hereof, no
facts have come to the attention of the Company which would require the Company
to revise or amplify the assumptions underlying the projections
(p) LITIGATION. There is no action, proceeding or
investigation pending or, to the Company's knowledge, threatened against the
Company or any of its employees before any court or administrative agency (or
any basis therefor known to the Company) that might result, either individually
or in the aggregate, in any material adverse change in the business, prospects,
condition, affairs, operation, properties or assets of the Company, or in any
material liability on the part of the Company. The foregoing includes, without
limiting its generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of any of the Company's
employees or their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers. A brief description of each action, proceeding or investigation
pending or threatened against the Company or brought against the Company or any
officer or director thereof during the last three years is set forth on Exhibit
E hereto.
(q) INTELLECTUAL PROPERTY. Attached hereto, made part hereof
and marked as Exhibit F is a true and correct schedule which describes all of
the patents (including all reissues, divisions, continuations and extensions
thereof), applications for patents, patent disclosures docketed, inventions,
improvements, trademarks, trademark applications, trade names, copyright
registrations or applications therefor and proprietary computer software or
similar property owned by the Company, and all licenses, franchises, permits,
authorizations, agreements and arrangements that concern any of the foregoing or
that concern like items owned by others and used by the Company. Except as
indicated on such Exhibit,
(i) The patents shown on such Exhibit are owned by
the Company free and clear of all mortgages, liens, charges or encumbrances
whatsoever. No licenses have been granted with respect to such patterns and the
Company has not received notice of any claims by a third party suggesting that
its practice of the inventions covered by such patents, or any other inventions
practiced by the Company would infringe the patent rights of any third party.
(ii) The copyright registrations shown on such
schedule are owned by the Company free and clear of all mortgages, liens,
charges or encumbrances whatsoever. Except for licenses granted to end users in
accordance with the Company's standard terms (copies of which have bun furnished
to Purchasers), no licenses have been granted with respect to any of the
Company's copyrighted material and the Company has not received notice of any
claims by a third party suggesting that any of its activities in the conduct of
its business as presently conducted infringe the copyrights of any third party.
The Company has affixed appropriate copyright notices to all computer programs
developed by it.
(iii) The trademark registrations shown on such
schedule are owned by the Company free and clear of all mortgages, liens,
charges or encumbrances whatsoever. No licenses have been granted with respect
to any of the Company's trademarks and the Company has not received notice of
any claims by a third party suggesting that any of its activities in the
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conduct of its business as presently conducted infringe the trademarks, trade
names or trade dress of any third party.
(iv) All technical information in possession of the
Company relating to the design or manufacture of products sold, and services
performed, by it, including without limitation methods of manufacture, lab
journals, manufacturing, engineering and other drawings, design and engineering
specifications and similar items recording or evidencing such information is
owned by the Company free and clear of all mortgages, liens, charges or
encumbrances whatsoever. Except as set forth in Exhibit F, the Company has no
obligation to pay any royalty to any third party with respect to such
information. The Company has not granted any license or other permission with
respect to the use of such information and has not received notice of any claims
by a third party suggesting that the Company's use of such information would
infringe the rights of any third party. All technical information developed by
or belonging to the Company which has not been patented but would be legally
protectible if held in confidence has been kept confidential.
(v) The Company has not granted or assigned to any
other person or entity any license or right to manufacture, have manufactured,
process or have processed or sell the products or services, or proposed products
or services, of the Company, other than duly authorized Company representatives
and distributors. All subcontractors have assigned to the Company, in writing,
all right, title and interest in and to the work that they performed for the
Company.
(R) TAXES. The Company has accurately prepared and properly
filed all United States income tax returns and all state and municipal tax
returns that are required to be filed by it and has timely paid or made
provision for the payment of all taxes, penalties and interest that have become
due pursuant to such returns. To the best knowledge of the Company, all such
returns are true, correct and complete in all material respects. The United
States income tax returns of the Company have not been audited by the Internal
Revenue Service. No state or municipal tax return of the Company has been
audited by such state or municipal authority. No deficiency assessment or
proposed adjustment of the Company's United States income tax or state or
municipal taxes is pending and the Company has no knowledge of any proposed
liability for any tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Financial Statements. The
Company is not delinquent in the payment of any federal, state or municipal
taxes, and has not requested an extension of time within which to file any tax
return.
(s) EMPLOYMENT AGREEMENTS AND PLANS. The Company does not
have any employment contracts with any of its employees not terminable at will
as that term is defined under the laws of Pennsylvania. The Company is not
delinquent in payments to any of its employees for wages, salaries, commissions,
bonuses or other direct or indirect compensation. True and complete copies of
any employment contract or arrangement or letter pertaining to the terms of
employment of any officer or employee of the Company have been supplied to
special counsel for Purchasers. Except as set forth in Exhibit G, the Company is
not now, nor has it been, a party to or obligated to contribute to any employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") (an "Employee Benefit Plan"), guaranteed annual
income plan, fund or arrangement, or any incentive, bonus, profit-sharing
deferred compensation, stock option or purchase plan or agreement or
arrangement,
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or any employment or consulting agreement or any other agreement, plan or
arrangement similar to or in the nature of the foregoing.
(t) LABOR MATTERS. The Company is not a party to any
collective bargaining agreement, oral or written. Neither the Company nor any of
its agents, representatives or employees has committed any unfair labor practice
as defined in the National labor Relations Act of 1947, as amended, or in any
applicable state labor relations acts, and there is not now pending or
threatened any charge or complaint against the Company by the National Labor
Relations Board or any state labor relations board or commissioner or any
representative thereof.
(u) INDEPENDENT CONTRACTORS AND CONSULTANTS. The Company
does not have any agreements or arrangements with persons titled as independent
contractors or consultants, as a result of which, by virtue of the control
exercised by the Company, the type of work performed by the persons or any other
circumstances, such persons could reasonably be deemed to be employees of the
Company, except for certain individuals who are covered by an employee leasing
arrangement, and for whom taxes are being properly withheld by the lessor.
(v) INSURANCE. The Company has fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed, and to cover all other risks of loss or liability customarily
insured against and in benefit amounts customarily obtained by companies
similarly situated.
(w) REGISTRATION RIGHTS. Except as set forth in Exhibit H,
or as provided for in this Agreement, the Company is not under any obligation to
register under the Securities Act of 1933, as amended (the "1933 Act"), any of
its presently outstanding securities or any securities into which such
securities may be converted.
(x) PHYSICAL CONDITION OF OPERATING ASSETS. All of the owned
and leased real estate of the Company and the structures erected thereon and all
of the owned and leased tangible personal property of the Company are in good
repair and condition and are suitable and sufficient for the conduct of the
present business of the Company.
(y) PRODUCT AND SERVICE WARRANTIES. Exhibit I sets forth
descriptions of all of the product and service warranty claims made against the
Company. The financial statements referred to in Section 2(g) include
appropriate accrual of the cost of satisfying such claims and the cost of
servicing products and making adjustments or providing replacements with respect
to returned products or non-conforming services. The Company is not aware of any
additional pending or threatened product or service warranty claims or any basis
upon which product or service warranty claims could be based. There are no known
design or other defects which could give rise to future product or service
warranty claims.
(z) CUSTOMERS. The Company has a good and ongoing
relationship with each of its customers, and has no reason to believe that there
will be any adverse change in any such relationship. Exhibit J contains a
complete and accurate list of all customers whose purchases from the Company
exceeded 5% of the revenues of the Company for the fiscal year ended December
31, 1993 and for the seven-month period ended July 31, 1994.
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(aa) RELATED PARTY TRANSACTIONS. Except as set forth on
Exhibit K hereto, no current or proposed director, officer, stockholder or
associate (as such term is defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended) of the Company is currently or has
during the three years prior to execution of this Agreement, directly or
indirectly through his or its affiliation with any other person or entity, a
party to any transaction with the Company for the providing of services by or to
the Company, the rental of real or personal property from or to the Company or
otherwise requiring payments to be made by or to the Company.
(bb) NONDISCLOSURE, NONCOMPETE AND INVENTION ASSIGNMENTS.
The Company has caused each officer, key employee and consultant of the Company
to enter into an agreement with the Company relating to the assignment of
inventions and nondisclosure of confidential information, and copies of such
assignments and agreements (or a representative sample thereof) have been
supplied to special counsel for the Purchasers. The Company does not have any
noncompetition agreements with its employees.
(cc) NO RESTRICTIONS, The Company is not a party to or bound
by any exclusive sales or purchase agreements or arrangements, nor is it
otherwise restricted, contractually or otherwise, from conducting its operations
in any jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each of the
Purchasers, severally and not jointly, represents and warrants as follows.
(a) BINDING EFFECT. This Agreement is a valid and
legally binding obligation of such Purchaser enforceable in accordance with its
terms.
(b) PARTNERSHIP MATTERS. In the case of each Purchaser
which is a partnership:
(i) The investment contemplated hereby is an
authorized investment under such Purchaser's partnership agreement.
(ii) The individual executing this agreement on
behalf of such Purchaser is a general partner therein, authorized to bind the
partnership by his signature hereto.
4. FEDERAL AND OTHER SECURITIES LAWS. Each of the Purchasers,
severally and not jointly, represents and warrants as follows.
(a) KNOWLEDGE OF UNREGISTERED STATUS. It understands that
the Preferred Shares are not, and any Common Stock acquired on the conversion
thereof at the time of issuance may not be, registered under the 1933 Act in
reliance on an exemption from registration under the 1933 Act pursuant to
Section 4(2) thereof for the sale contemplated by this Agreement and the
issuance of securities hereunder, and that the Company's reliance on such
exemption is predicated, in part, on Purchasers' representations set forth
herein.
(b) INVESTMENT EXPERIENCE. It is able to fend for itself in
the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of their investment, and has the ability to bear the economic
risks of its investment.
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(c) LIMITS IMPOSED BY LAW UPON TRANSFER. It understands that
the Preferred Shares and any Common Stock issued on conversion thereof may not
be sold, transferred or otherwise disposed of without registration under the
1933 Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Preferred Shares or Common Stock issued on
conversion thereof or an available exemption from registration under the 1933
Act, the Preferred Shares or Common Stock issued on conversion thereof must be
held indefinitely.
(d) ACCREDITED INVESTOR. It is an Accredited Investor, as
defined in Regulation D promulgated under the 1933 Act.
(e) NOT DISTRIBUTING. The Preferred Shares it is purchasing
hereunder are acquired for investment for its own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that it has no present intention of selling, granting any participation in,
or otherwise distributing the same.
5. CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING. The several
obligations of the Purchasers under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of conditions contained in this
Section 5, any of which may be waived by the subscribers for at least eighty
percent (80%) of the Preferred Shares to be issued hereunder:
(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of the Company contained in Section 2 shall be
true on and as of the Closing with the same force and effect as if they had been
made at the Closing (except to the extent that they expressly relate to an
earlier date).
(b) PERFORMANCE. The Company shall have performed and
complied with all agreements, conditions and covenants contained in this
Agreement required to be performed or complied with by it on or before the
Closing.
(c) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with lawful issuance and
sale of the Preferred Shares pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the Closing.
(d) COMPLIANCE CERTIFICATE. There shall have been delivered
to each of Purchasers a certificate, dated as of the Closing, signed by the
Company's President or a Vice President, certifying that the conditions
specified in this Section 5 as to the Closing have been fulfilled.
(e) OPINION OF COUNSEL. Purchasers shall have received from
counsel for the Company an opinion dated as of the Closing, in the form annexed
as Exhibit N.
(f) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance satisfactory to Purchasers and their special counsel and Purchasers
shall have received all such counterpart originals or certified or other copies
of such documents as they may reasonably request.
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(g) FILING OF STATEMENT. The Statement shall have been filed
with the Secretary of State of the Commonwealth of Pennsylvania, and Purchasers
shall have received satisfactory evidence thereof.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Purchaser under Section 1 of this Agreement
are subject to the fulfillment on or before the Closing of each of following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of such Purchasers contained in Sections 3 and 4
shall be true on and as of the Closing with the same force and effect as if they
had been made at the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Preferred Shares pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the Closing.
(c) SHAREHOLDERS' AGREEMENT. The Purchasers other than Poly
Ventures II, L.P. (which is already a party) shall have been executed and
delivered a Joinder Agreement pursuant to which it becomes a party to the
Corporation's Amended and Restated Shareholders' Agreement dated as of June 30,
1988.
(d) PAYMENT FOR PREFERRED SHARES. The Company shall have
received payment for the Preferred Shares to be purchased hereunder.
(e) COMPLIANCE CERTIFICATE. There shall have been delivered
to the Company a certificate, dated as of the Closing, signed by an authorized
representative of each Purchaser, certifying that the conditions specified in
paragraphs (a) and (b) of this Section 6 as to the Closing have been fulfilled.
7. COVENANTS OF THE COMPANY.
(a) DESIGNATION OF PREFERRED SHARES. As soon as practicable
after execution of this Agreement, the Company shall adopt and file and keep in
force with the Secretary of State of the Commonwealth of Pennsylvania a
Statement Affecting Class or Series of Stock attached to this Agreement as
Exhibit L designating the Preferred Shares.
(b) ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. The Company
shall maintain a standard system of accounting in accordance with generally
accepted accounting principles applied on a consistent basis and shall make and
keep books, records and accounts which, in reasonable detail, accurately and
fairly reflect its transactions. Until such time as the Company is required to
file reports under Sections 13 and 14 of the 1934 Act, the Company shall deliver
to Purchasers:
(i) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company, a profit or loss statement for such fiscal year, a balance
sheet of the Company as of the end of such year, and a statement of cash flow
for such year, certified, without qualification as to scope of the
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examination, by independent public accountants of recognized national standing
selected by the Company; and
(ii) QUARTERLY FINANCIAL STATEMENTS. Within
forty-five (45) days after the end of each of first three (3) quarters of the
fiscal year an unaudited statement of income for such fiscal quarter and an
unaudited balance sheet as of the end of such fiscal quarter, setting forth in
comparative form the figures for the corresponding periods of the previous
fiscal year.
(c) BUSINESS PLAN AND PROJECTIONS. As soon as available,
but in any event within forty-five (45) days after commencement of each new
fiscal year, a business plan and projected financial statements for such fiscal
year.
(d) ADDITIONAL INFORMATION. If at the time of reference
a director designated by the holders of the Preferred Shares shall not be in
office, the following provisions shall apply.
(i) Upon the written request of any Purchaser, the
Company shall also furnish to a representative designated by a majority of the
Purchasers, with reasonable promptness, such other information relating to the
financial affairs of the Company as is furnished or made available (or not so
furnished or made available but required by law to be furnished or made
available) to directors of the Company.
(ii) The representative so designated shall have
the same obligations with respect to protection and nondisclosure (other than to
the Purchaser) of any information so furnished as a director of the Company
would have with respect to such information.
(e) NONDISCLOSURE AND INVENTION ASSIGNMENTS. The Company
will continue to cause each officer, key employee and consultant of the Company
to enter into an agreement with the Company relating to the assignment of
inventions and nondisclosure of confidential information, in substantially the
form supplied to special counsel for Purchasers.
(f) USE OF PROCEEDS, The proceeds from the sale of Preferred
Shares shall be used for working capital and marketing, and expenses of closing,
payment of existing liabilities and other routine expenses including salaries
and accounts payable heretofore accrued in the ordinary course of the Company's
business, approximately in the amounts set forth on Exhibit M.
(g) TAXES. The Company will promptly pay and discharge or
cause to be paid and discharged, when due and payable, all lawful assessments,
and governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien that
may have attached as security therefor. The Company will promptly pay or cause
to be paid when due, or in conformance with customary trade terms, all other
indebtedness incident to the operations of the Company.
(h) MAINTENANCE OF PROPERTIES. The Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to
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time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; the Company will at all times comply with the provisions
of all material leases to which it is a party or under which it occupies
property so as to prevent any loss or forfeiture thereof or thereunder.
(i) INSURANCE. The Company will keep its assets that are of
an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, extended coverage and explosion insurance in
amounts customary for companies in similar businesses similarly situated; and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards, risks and liabilities to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated.
(j) GOVERNMENTAL REQUIREMENTS. The Company will duly
observe and conform to all valid requirements of governmental authorities
relating to the conduct of its businesses or to its property or assets.
(k) CORPORATE EXISTENCE, LICENSES, ETC. The Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use patents, processes, licenses,
trademarks, trade names or copyrights owned or by it and deemed by the Company
to be significant to the conduct of its business.
(l) REQUIRED FILINGS. The Company will cooperate in filing
any notices of sale required to be filed with the Securities and Exchange
Commission pursuant to Regulation D promulgated under the Securities Act of 1933
or any state securities law authority pursuant to applicable blue sky laws.
(m) INCENTIVE STOCK OPTIONS. Promptly following the Closing,
the Company shall increase the number of shares available for issuance under its
Incentive Stock Option Plan to 3,000,000, and shall issue an additional 500,000
incentive stock options under that plan at an exercise price of $0.65 per share
to such members of management, and in such proportions, as the Compensation
Committee of the Board of Directors may determine.
(n) DIRECTORS. At the next meeting of shareholders, which
shall be held not later than September 30, 1994, the Company will take such
steps as may be necessary so that a designee of holders of a majority of the
Preferred Shares shall be duly elected to serve as a director on the Board of
Directors of the Company.
(o) TERMINATION OF COVENANTS. The covenants set forth in
this Section 7 shall terminate and be of no further force or effect after the
date of the closing of the Company's first public offering of its securities
amounting to not less than $5,000,000 at a price per share to the public equal
to at least two times the conversion price of the Preferred Shares then in
effect.
8. REGISTRATION RIGHTS.
(a) DEFINITIONS. As used in this Section 8, the following
terms shall have the following, respective meanings:
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(i) "Commission" shall mean the Securities and
Exchange Commission, or any other Federal agency at the time administering the
Securities Act.
(ii) "Person" shall mean and include an individual,
a corporation, a partnership, a trust, an unincorporated organization and a
government or any department, agency or political subdivision thereof.
(iii) "Restricted Securities" shall mean the
Preferred Shares, the Common Stock issuable upon conversion thereof and any
shares of capital stock received in respect of any thereof, evidenced by
certificates bearing the restrictive legend set forth in Section 8(b).
(iv) "Restricted Shares" shall mean the Preferred
Shares constituting Restricted Securities.
(v) "Securities Act" shall mean the Securities Act
of 1933, as amended, or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
(vi) "Transfer" shall include any disposition of
any shares of Restricted Securities or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
(b) RESTRICTIVE LEGENDS. Each certificate for the Restricted
Securities and any shares of capital stock received in respect thereof, whether
by reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of this Agreement) be stamped or otherwise imprinted with
legends in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED OR THE
SECURITIES ACTS OF ANY STATE THEREOF. THESE SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE UNITED STATES OR TO A UNITED
STATES CITIZEN IN THE ABSENCE OF SUCH REGISTRATION OR AN
OPINION OF COUNSEL ACCEPTABLE TO TELEBASE SYSTEMS, INC. AND IN
ACCEPTABLE FORM AND SUBSTANCE THAT AN EXEMPTION THEREFROM IS
AVAILABLE UNDER SAID ACTS. THE OBLIGATIONS OF THE HOLDER OF
SUCH SECURITIES IN RESPECT OF THE ELECTION OF DIRECTORS ARE
SUBJECT TO THE TERMS AND CONDITIONS OF AN AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT DATED JULY 30, 1988 AMONG TELEBASE
SYSTEMS, INC. AND OTHER SIGNATORIES THERETO. COPES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS
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CERTIFICATE TO THE SECRETARY OF TELEBASE SYSTEMS,
INC.
This legend shall be in lieu of the legend otherwise required by the
Stockholders' Agreement referred to above. Each certificate representing shares
of Series A, Series B and Series C Preferred Stock is or shall be imprinted with
a substantially similar legend.
(c) NOTICE OF TRANSFER. The holder of any Restricted
Securities, by acceptance thereof, agrees, prior to any transfer of any
Restricted Securities, to give written notice to the Company of such holder's
intention to effect such transfer and to comply in all other respects with the
provisions of this Section 8(c). Each such notice shall describe the manner and
circumstances of the proposed transfer and shall be accompanied by (a) the
written-opinion, addressed to the Company, of counsel reasonably acceptable to
the Company for the holder of Restricted Securities, as to whether in the
opinion of such counsel such proposed transfer involves a transaction requiring
registration of such Restricted Securities under the Securities Act and state
securities acts and, if not, a description of the exemptions available, and (b)
in the ease of Restricted Shares, if in the opinion of such counsel such
registration is required, a written request addressed to the company by the
holder of Restricted Securities, describing in detail the proposed method of
disposition and requesting the Company to effect the registration of such
Restricted Shares pursuant to the terms and provisions of Sections 8(d), 8(e) or
8(f) hereof, as the case may be. If in the opinion of such counsel the proposed
transfer of Restricted Securities may be effected without registration under the
Securities Act and state securities acts, the holder of Restricted Securities
shall thereupon be entitled to transfer Restricted Securities in accordance with
the terms of the notice delivered by it to the Company. Each certificate or
other instrument evidencing the securities issued upon the transfer of any
Restricted Securities (and each certificate or other instrument evidencing any
untransferred balance of such securities) shall bear the legends set forth in
Section 8(b) unless (a) in the opinion of such counsel registration of future
transfer is not required by the applicable provisions of the Securities Act and
state securities acts or (b) the Company shall have waived the requirement of
such legends. Except as provided above, the holder of Restricted Securities
shall not transfer such Restricted Securities until such opinion of counsel has
been given to the Company (unless waived by the Company) or until registration
of the Restricted Shares involved in the above-mentioned request has become
effective under the Securities Act.
(d) INCIDENTAL REGISTRATION. If the Company proposes for any
reason to register any of its securities under the Securities Act (other than
pursuant to a registration statement on Forms S-8 or S-4 or similar or successor
forms), it shall each such time promptly give written notice to all holders of
outstanding Restricted Securities of its intention to do so, and, upon the
written request, given within 30 days after receipt of any such notice of the
holder of any such Restricted Securities to register any Restricted Shares
(which request shall specify the Restricted Shares intended to be sold or
disposed of by such holders), the Company shall use its best efforts to cause
all such Restricted Shares to be included in such registration under the
Securities Act, all to the extent requisite to permit the sale or other
disposition (in accordance with the Company's intended methods thereof, as
aforesaid) by the prospective seller or sellers of the Restricted Shares so
registered. In the event that the proposed registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company,
if the managing underwriter determines and advises in writing that the inclusion
of all Restricted Shares proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than the holders of
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<PAGE> 15
Restricted Securities (the "Other Shares") would interfere with the successful
marketing of such securities, then (i) the number of Restricted Shares and Other
Shares shall be reduced, pro rata among the holders of Other Shares and the
holders of Restricted Shares (based upon the number of shares of Common Stock
requested by the holders thereof to be registered in such underwritten public
offering), and (ii) in each case those shares of Common Stock which are excluded
from the underwritten public offering shall be withheld from the market by the
holders thereof for a period, not to exceed 90 days, which the managing
underwriter reasonably determines as necessary in order to effect the
underwritten public offering.
(e) REGISTRATIONS ON FORM S-2 OR S-3. At such time as the
Company shall have qualified for the use of Form S-2 or S-3 (or any similar form
or forms promulgated by the Commission), the holders of Restricted Securities
shall have the right to request an unlimited number of registrations on Form S-2
or S-3 (which request or requests shall be in writing, shall specify the
Restricted Shares intended to be sold or disposed of by holders thereof, shall
state the intended method of disposition of such Restricted Shares by the
holder(s) requesting such registration and shall relate to Restricted Shares
having a proposed aggregate gross offering price (before deduction of
underwriting discounts and expenses of sale) of at least $500,000), and the
Company shall be obligated to effect such registration or registrations on Form
S-2 or S-3 (as the case may be); provided, however, that the Company shall in no
event be obligated to cause the effectiveness of more than one such registration
statement in any calendar year. The Company shall not register securities for
sale for its own account in any registration requested pursuant to this Section
8(e) unless requested to do so by the holders of Restricted Securities who hold
at least 51% of the stock as to which registration has been requested. The
Company may not cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement an employee
benefit plan or to acquire another company) to become effective less than 90
days after the effective date of any registration requested pursuant to Section
8(e).
(f) DEMAND REGISTRATION. At any time after 180 days from the
effective date of the Company's registration statement covering its initial
public offering, but prior to the time that the Company shall have qualified for
the use of Form S-2 or S-3 (or any similar form of forms promulgated by the
Commission) the holders of shares of Common Stock into which Preferred Shares
shall have been converted shall have the right to request the Company to file
one registration statement on any form which the Company is then entitled to
use. Such request shall be in writing, shall specify the shares of Common Stock
(into which the Preferred Stock shall have been converted) intended to be sold
or disposed of by the holders thereof, shall state the intended method of
disposition by the holder(s) requesting such registration and shall relate to
Common Stock having a proposed aggregate gross offering price (before deduction
of underwriting discounts and expenses of sale) of at least $500,000, and the
Company shall be obligated to effect such registration, subject in any event to
all applicable securities laws and all requirements of the Company's investment
banker.
(g) DESIGNATION OF UNDERWRITER.
(i) In the case of any registration effected pursuant
to Section 8(e) or 8(f), a majority in interest of the requesting holders of
Restricted Securities or Common Stock (in the case of a registration effected
pursuant to Section 8(f)) shall have the right to designate the managing
underwriter (if any) in any such underwritten offering, subject in any event to
the proviso set forth in Section 8(j) hereof.
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<PAGE> 16
(ii) In the case of any registration initiated by the
Company, the Company shall have the right to designate the managing underwriter
in any underwritten offering.
(h) GRANTING OF REGISTRATION RIGHTS. The Company shall not
grant any rights to any persons to register any shares of capital stock or other
securities of the Company if such rights would be superior to the rights of the
holders of Restricted Securities granted pursuant to this Agreement, unless the
Purchaser is given the same or comparable rights.
(i) PREPARATION AND FILING. If and whenever the Company is
under an obligation pursuant to the provisions of this Section 8 to effect the
registration of any Restricted Shares, the Company shall, as expeditiously as
practicable:
(i) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statements and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and current for at least nine months and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all Restricted Shares covered by such registration statement;
(iii) furnish to each selling shareholder such number
of copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Restricted Shares;
(iv) use its best efforts to register or qualify the
Restricted Shares covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each such seller shall reasonably request
(provided, however, the Company shall not be required to consent to general
service of process for all purposes in any jurisdiction where it is not then
qualified) and do any and all other acts or things which may be necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities; and
(v) notify each seller of Restricted Shares covered
by such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act within the appropriate period mentioned in clause (ii) of this
Section 8(i), of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing and at the request of such seller,
prepare and furnish to such seller a reasonable number of copies of a Supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
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<PAGE> 17
(vi) furnish, upon request, to each requesting seller
a signed counterpart, addressed to the requesting seller or sellers, of (i) an
opinion of counsel for the Company, dated the effective date of the registration
statement, and (ii) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included in
the registration statement, covering substantially the same matters with respect
to the registration statement (and the prospectus included therein) and (in the
case of the "comfort" letter) with respect to events subsequent to the date of
the financial statements, as are customarily covered (at the time of such
registration) in opinions of issuer's counsel and in "comfort" letters delivered
to the underwriters in underwritten public offerings of securities.
(j) EXPENSES. All expenses incurred by the Company in
complying with Section 8(i) shall be paid by the Company, including, without
limitation, all registration and filing fees, printing expenses, blue sky filing
fees, fees and disbursements of counsel for the Company and expenses of any
required audits; provided, however, that (a) the Company shall not be obligated
for payment of the fees and disbursements of counsel for the holders of
Restricted Securities in connection with registration under Section 8(d), 8(e)
or 8(f) hereof and (b) all underwriting discounts and selling commissions and
other similar fees and costs applicable to the Restricted Shares covered by
registrations effected pursuant to Sections 8(d), 8(e) or 8(f) hereof shall be
borne by the seller or sellers thereof, in proportion to the number of
Restricted Shares sold by such seller or sellers.
(k) INDEMNIFICATION.
(i) In the event of any registration of any
Restricted Shares under the Securities Act pursuant to this Section 8 or
registration or qualification of any Restricted Shares pursuant to Section
8(i)(iv), the Company shall indemnify and hold harmless the seller of such
shares, or any other person acting on behalf of such seller and each other
persons, if any, who controls any of the foregoing persons, within the meaning
of the Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Restricted Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or any document prepared and/or
furnished by the Company incident to the registration or qualification of any
Restricted Shares pursuant to Section 8(i)(iv), or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or, with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made, not misleading, or any
violation by the Company of the Securities Act or state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws, and shall reimburse such seller, underwriter
or other person acting on behalf of such seller and each such controlling person
for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus or said prospectus or said amendment or supplement or any
document incident to the registration
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or qualification of any Restricted Shares pursuant to Section 8(i)(iv), in
reliance upon and in conformity with written information furnished to the
Company by such seller or such seller's agent or representative specifically for
use in the preparation thereof.
(ii) Before Restricted Shares held by any
prospective seller shall be included in any registration pursuant to Section 8,
such prospective seller and any underwriter acting on its behalf shall have
agreed to indemnify and hold harmless (in the same manner and to the same extent
as set forth in the preceding paragraph of this Section 8(k) or, if different,
in the manner and to the extent as is in accordance with standard industry
practice at the time of the proposed sale) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement,
and any person who controls the Company within the meaning of the Securities
Act, with respect to any untrue statement or omission from such registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, if such untrue statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company by such seller or such seller's agent or representative specifically
for use in the preparation of such registration statement, preliminary
prospectus, final prospectus or amendment or supplement.
(iii) Promptly after receipt by an indemnified party
of notice of the commencement of any action involving a claim referred to in the
preceding paragraphs of this Section 8(k), such indemnified party will, if a
claim in respect thereof is made against an indemnifying party, give written
notice to the latter of the commencement of such action. In case any such action
is brought against an indemnified party, the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 8(k), the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any counsel retained by the indemnified party which are
reasonably related to the matters covered by the indemnity agreement provided in
this Section 8(k).
(iv) The failure to notify an indemnifying party
promptly of the commencement of any such action, if materially prejudicial to
the ability of the indemnifying party to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party otherwise than under this Section 8.
(v) The indemnifying party shall not make any
settlement of any claims indemnified against hereunder without the written
consent of the indemnified party or parties, which consent shall not be
unreasonably withheld.
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(l) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company or a seller on grounds of public policy
or otherwise, the Company and each seller shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending the same) to
which the Company and each seller or underwriter (and any person who controls
any of the foregoing persons, and any person acting on behalf of any of the
foregoing persons in connection with such registration), including, without
limitation, any officer, director, broker, employee, agent, attorney and
accountant, and in the case of a partnership, each of its partners), as the case
may be, in such proportion as is appropriate to reflect the relative fault of
the Company and such seller or underwriter (and any person who controls any of
the foregoing persons, and any person acting on behalf of any of the foregoing
in connection with such registration, including, without limitation, any
officer, director, broker, employee, agent, attorney or accountant, and in the
case of a partnership, each of its partners), as the case may be, in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as all other relevant equitable considerations;
provided, however, that 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
misrepresentation and provided, further, that in the case of each seller, the
maximum amount of such contribution shall be limited to an amount equal to the
net proceeds actually received by such seller from the sale of Restricted Shares
effected pursuant to such registration. Any party entitled to contribution under
this paragraph shall, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this paragraph,
notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise than under this paragraph.
(m) REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the holders of the Restricted Securities the
benefits of Rule 144 promulgated under the Act and any other rule or regulation
of the SEC that may at any time permit a holder to sell securities of the
Company to the public without registration, the Company agrees to use its best
efforts to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144, at all times subsequent to
ninety (90) days after the effective date of the first registration statement
covering an underwritten public offering filed by the Company;
(ii) file with the SEC in a timely manner all reports
and other documents required of the Company under the 1934 Act, and
(iii) furnish to any holder of Restricted Securities
so long as such holder owns any of the Restricted Securities forthwith upon
request a written statement by the Company that it has complied with the
reporting requirements of Rule 144 (at any time after ninety (90) days after the
effective date of said first registration statement filed by the Company), and
of the Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed by the Company as may
be reasonably requested in availing such holder of
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<PAGE> 20
any rule or regulation of the SEC permitting the selling of any such securities
without registration.
(n) TRANSFER OF REGISTRATION RIGHTS. The registration rights
of Purchasers under Sections 8(d) 8(e) and 8(f) may be transferred to a
transferee who acquires at least 20% of the Registrable Securities originally
issued to Purchasers, or to a partner or affiliated partnership of a Purchaser
without restriction as to minimum transfer amount. The Company shall be given
written notice by the Holder at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Section 8 are being assigned. Such registration right
shall not be otherwise transferable without the consent of the Company.
9. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective heirs, personal representatives,
successors and assigns of the parties, except to the extent assignability is
limited herein.
(b) GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania.
(c) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(D) TITLES AND SUBTITLES. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) NOTICES. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery or upon deposit with the United States Postal Service, by
registered or certified mail, postage prepaid, addressed to the party as shown
in the caption to this Agreement or on the appropriate Schedule attached hereto
or at such other address as any party may designate by ten days' advance written
notice to the other party.
(f) FINDERS' FEES. Each party represents that it neither is,
nor will be, obligated for any finders' fee or commission in connection with
this transaction. Each Purchasers agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Purchasers or any of its partners, employees
or representatives is responsible. The Company agrees to indemnify and hold
harmless Purchasers from any liability for any commission or compensation in the
nature of a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
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<PAGE> 21
(g) EXPENSES. The Company shall pay all out of pocket
expenses of the Purchasers (not to exceed $5,000), plus reasonable fees,
expenses and disbursements of one special counsel for Purchasers (not to exceed
$10,000), incurred in connection with the negotiation, execution, delivery and
performance of this Agreement.
(h) RIGHTS OF PURCHASERS. Except as provided in another
written document executed by such holder, each holder of Preferred Shares (or
Common Stock issued upon conversion thereof) shall have the absolute right to
exercise or refrain from exercising any right or rights that such holder may
have by reason of this Agreement or ownership of any Preferred Shares, including
without limitation the right to consent to the waiver of any obligation of the
Company under this Agreement and to enter into an agreement with the Company for
the purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Preferred Shares with respect to exercising or refraining from
exercising any such right or rights.
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<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
TELEBASE SYSTEMS, INC.
By:
----------------------------------
UNTERBERG HARRIS INTERACTIVE
MEDIA LIMITED PARTNERSHIP C.V.
By:
----------------------------------
POLY VENTURES II, L.P.
By:
----------------------------------
22
<PAGE> 23
Exhibit A List of Record Owners
Exhibit B Subsidiaries
Exhibit C List of Real Property
Exhibit D Financial Projections
Exhibit E Schedule of Litigation
Exhibit F Intellectual Property
Exhibit G Employee Plans, etc.
Exhibit H Registration Rights Previously Granted
Exhibit I Description of Warranty Claims
Exhibit J Principal Customers
23
<PAGE> 1
Exhibit 4.9
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered
into as of the _____ day of May, 1996, by and among N2K Inc., a
Pennsylvania corporation with its principal place of business at 55
Broad Street, New York, New York 10004 (the "Company") and the persons
listed on the Schedule of Purchasers attached hereto ("Purchasers").
In consideration of the mutual representations, warranties, covenants
and conditions set forth in this Agreement, the parties agree as follows.
1. PURCHASE, SALE AND ISSUANCE OF PREFERRED SHARES.
(a) PURCHASE OF PREFERRED SHARES. Subject to the terms and conditions
of this Agreement, each Purchaser shall purchase at the Closing and the Company
shall sell and issue to each Purchaser, severally and not jointly, at the
Closing, the number of shares of the Company's Series E Convertible Preferred
Stock (the "Preferred Shares") as is set forth opposite such Purchaser's name on
the Schedule of Purchasers.
(b) PURCHASE PRICE. The purchase price shall be $.80 per Preferred
Share.
(c) CLOSING. The purchase and sale shall take place at the offices of
Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019 on May
__, 1996, or at such other time, date or place as the Company and the
subscribers for at least eighty percent (80%) of the Preferred Shares to be
issued hereunder shall mutually agree (which time, date and place are referred
to in this Agreement as the "Closing"). At the Closing the Company shall deliver
to each Purchaser a stock certificate or certificates, registered in the name of
such Purchaser, representing the Preferred Shares that such Purchaser is
purchasing against delivery to the Company by such Purchaser of immediately
available funds.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Purchaser that the following are true in all material
respects:
(a) CORPORATE RECORDS. The Company has previously made available to
the Purchasers and their representatives, if
<PAGE> 2
any, the Company's complete corporate minute and stock books, including all
formal corporate actions of the Company's Board of Directors and shareholders,
whether by meeting or written consents in lieu of a meeting. Such records are
true and correct and remain in full force and effect except as provided therein
to the contrary.
(b) ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the nature of its activities
or the ownership of its properties makes such qualification necessary. True and
accurate copies of the Company's Articles of Incorporation as amended and
By-laws, as presently in effect, have been delivered to the Purchasers.
(c) CAPITALIZATION.
(i) AUTHORIZED CAPITAL. Following the filing of the
Statement with Respect to Shares (the "Statement"), designating an additional
131,000 shares of Preferred Stock, par value $.001 per share, as Series E
Preferred Stock, which is attached hereto as Exhibit A, and at the time of
Closing, the authorized capital stock of the Company will consist of:
(A) 500,000 shares of Series A Preferred Stock
of which 488,838 shares have been issued.
(B) 625,000 shares of Series B Preferred Stock,
all of which have been issued.
(C) 2,857,143 shares of Series C Preferred
Stock, of which 2,142,857 shares have been issued.
(D) 1,000,000 shares of Series D Convertible
Preferred Stock of which 800,000 shares have been issued.
(E) 6,013,060 shares of Series E Convertible
Preferred Stock of which 6,007,060 shares have been issued.
(F) 3,004,834 shares of undesignated Preferred
Stock.
(G) 100,000,000 shares of Common Stock, par
value $.001 per share (the "Common Stock") of which 11,659,644 shares shall be
validly issued and outstanding fully paid and nonassessable, 6,685,000 shares
are reserved for issuance upon exercise of options under the Company's Incentive
Stock Option Plan and 1996 Employee Stock Option
2
<PAGE> 3
Plan, 454,563 shares are reserved for issuance upon exercise of other options
and warrants, 685,032 shares are reserved for issuance upon conversion of the
Company's Series A Preferred Stock (which number will increase to 685,800 shares
by reason of the transaction contemplated hereby), 714,286 shares are reserved
for issuance upon conversion of the Company's Series B Preferred Stock,
2,400,000 shares are reserved for issuance upon conversion of the Company's
Series C Preferred Stock, 2,461,539 shares of Common Stock are reserved for
issuance upon conversion of the Company's Series D Convertible Preferred Stock
and 6,007,060 shares of Common Stock are reserved for issuance upon conversion
of the Company's Series E Preferred Stock.
The rights, privileges and preferences of the Preferred Shares will be
as stated in Section 4(G) of the Restated Articles of Incorporation (the
"Restated Articles") of the Company.
(i) RESERVATION OF SHARES. The Company has reserved
shares of Common Stock for issuance upon conversion of the Preferred Shares as
set forth in Section 2(c)(i)(H). There are no options, warrants, conversion
privileges, preemptive rights or other rights presently outstanding to purchase
or receive any of the capital stock of the Company, except as set forth in
Section 2(c)(i) or in the disclosure materials delivered to the Purchasers.
(ii) COMPLIANCE WITH SECURITIES LAWS. All shares
heretofore issued by the Company have been issued in compliance with all
applicable federal and state securities laws.
(d) SUBSIDIARIES. The Company owns 100% of the outstanding
capital stock of TSI Licensing, Inc. and has no other equity ownership interest
in any other entity.
(e) AUTHORIZATION. The Company has the requisite power and authority
to enter into and perform its obligations under this Agreement. All corporate
action on the part of the Company and its officers, directors and shareholders
necessary for the authorization, execution, delivery and performance of all
obligations of the Company under this Agreement, and for the authorization,
issuance and delivery of the Preferred Shares (and the Common Stock issuable
upon conversion of all Preferred Shares) has been taken prior to the Closing.
This Agreement is a valid and legally binding obligation of the Company,
enforceable in accordance with its terms.
(f) VALIDITY - STOCK. The Preferred Shares, when issued, sold and
delivered in accordance with the terms of this Agreement, shall be duly and
validly issued, fully paid
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<PAGE> 4
and nonassessable. The Common Stock issuable upon conversion of the Preferred
Shares has been duly and validly reserved and, upon issuance in accordance with
the conversion provisions of the Preferred Shares shall be duly and validly
issued, fully paid and nonassessable.
(g) FINANCIAL STATEMENTS.
(i) STATEMENTS PROVIDED. The Company's audited
consolidated balance sheet as of December 31, 1995 (the "Year-end Balance
Sheet") and consolidated statements of operations for the fiscal year then ended
(collectively, the "Financial Statements") are attached hereto as Exhibit B. The
Financial Statements were prepared in accordance with generally accepted
accounting principles consistently applied, and fairly present the financial
position of the Company as of the dates and the results of its operations for
the periods, indicated.
(ii) LIABILITIES. Except as fully provided for and
reflected in the Financial Statements, the Company has no liabilities, secured
or unsecured, absolute or contingent, except those arising in the normal course
of business since the date of the Year-end Balance Sheet, none of which are
unusual in type, scope or amount.
(iii) ENCUMBRANCES. The accounts and notes receivable
reflected on the Year-end Balance Sheet are free and clear of any claim,
security interest, pledge or lien or encumbrance of any kind or nature
whatsoever, and have been collected or are fully collectable in substantially
the amounts set forth in the Year-end Balance Sheet, without setoff, third party
collection efforts or suit (but net of reserves for doubtful accounts, if any,
set forth in the Year-end Balance Sheet), and the subsequently created accounts
and notes receivable of the Company from December 31, 1995 to the Closing Date
will be free and clear of any claim, pledge, security interest or lien or
encumbrance of any kind or nature whatsoever, and will be good and fully
collectible in the normal course of business in substantially the amounts
thereof without setoff, third party collection efforts or suit (but net of
reserves for doubtful accounts, if any, set forth in the Year-end Balance
Sheet).
(h) CHANGES. Since the date of the Year-end Balance Sheet,
there have not been any material changes in the Company's business, financial
condition or assets, except for the merger with N2K Inc. as described in the
Company's Proxy Statement dated March 19, 1996, attached hereto as Exhibit C.
(i) TITLE TO PROPERTY AND ASSETS, LIABILITIES. Except (a) as
reflected in its Financial Statements or in the
4
<PAGE> 5
notes thereto, (b) for liens for current taxes not yet delinquent, (c) for liens
imposed by law and incurred in the ordinary course of business for obligations
not yet due to carriers, warehousemen, laborers, materialmen and the like, or
(d) for liens in respect of pledges or deposits under workers' compensation laws
or similar legislation, the Company owns its property and other assets free and
clear of all mortgages, liens, loans, claims, charges and encumbrances of any
kind. With respect to the property and other assets it leases, the Company is in
compliance with such leases and holds a valid leasehold interest free of any
liens, claims, charges and encumbrances, subject to clauses (a)-(d) above.
(j) GOVERNMENTAL CONSENTS. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations, declarations
or filings with, any federal or state governmental authority on the part of the
Company required in connection with the consummation of the transactions
contemplated by this Agreement have been obtained, except any applicable notices
of sale required to be filed after Closing with the Securities and Exchange
Commission pursuant to Regulation D promulgated under the Securities Act of
1933, as amended (the "1933 Act").
(k) COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of any provisions of its Articles of Incorporation or By-laws as
amended and in effect on and as of the Closing or of any provision of any
mortgage, indenture, agreement, instrument or contract to which it is a party,
or of any provision of any federal or state judgment, writ, decree, order,
statute, rule or governmental regulation applicable to the Company. The
execution, delivery and performance of this Agreement will not result in any
such violation, or be in conflict with or constitute a default under any such
provision, or result in the creation or imposition of any lien pursuant to any
such provision.
(l) GOVERNMENTAL PERMITS. The Company has all federal, state,
municipal and foreign licenses and permits required in the conduct of its
business, and such licenses and permits are in full force and effect.
(m) ENVIRONMENTAL MATTERS. The Company does not discharge or handle,
nor is the Company aware of the storage or other presence on any of the property
currently or previously leased by the Company of, any hazardous substances (as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended).
(n) MISLEADING STATEMENTS. No representation or warranty by the
Company in this Agreement or in any Schedule or Exhibit hereto, or in any
written statement or certificate furnished or to be furnished to Purchasers
pursuant to this
5
<PAGE> 6
Agreement or in connection with the actions contemplated by this Agreement
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements made not misleading. There is no fact
which the Company has not disclosed to the Purchasers in writing and of which
the Company is aware which materially and adversely affects or could materially
and adversely affect the business prospects, financial condition, operations,
property or affairs of the Company.
(o) LITIGATION. There is no action, proceeding or investigation
pending or, to the Company's knowledge, threatened against the Company or any of
its employees before any court or administrative agency (or any basis therefor
known to the Company) that might result, either individually or in the
aggregate, in any material adverse change in the business, condition, affairs,
operations, properties or assets of the Company, or in any material liability on
the part of the Company. The foregoing includes, without limiting its
generality, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees or
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers.
(p) INTELLECTUAL PROPERTY. Attached hereto as Schedule 2(p), and
made part hereof, is a true and correct schedule which describes all of the
patents, patent disclosures docketed, inventions, improvements, trademarks,
trademark applications, trade names, copyright registrations or applications
therefor and proprietary computer software or similar property owned by the
Company, and all licenses, franchises, permits, authorizations, agreements and
arrangements that concern any of the foregoing or that concern like items owned
by others and used by the Company. Except as indicated on such Schedule,
(i) All patents owned by the Company are free and clear
of all mortgages, liens, charges or encumbrances whatsoever. No licenses have
been granted with respect to such patents and the Company has not received
notice of any claims by a third party suggesting that its practice of the
inventions covered by such patents, or any other inventions practiced by the
Company would infringe the patent rights of any third party that might result,
individually or in the aggregate, in any material change in the business,
condition, affairs, operations, properties or assets of the Company.
(ii) All copyright registrations owned by the Company are
free and clear of all mortgages, liens, charges or encumbrances whatsoever.
Except for licenses granted to end users in accordance with the Company's
standard terms, no licenses, have been granted with respect to any of the
6
<PAGE> 7
Company's copyrighted material and the Company has not received notice of any
claims by a third party suggesting that any of its activities in the conduct of
its business as presently conducted infringe the copyrights of any third party.
The Company has affixed appropriate copyright notices to all computer programs
developed by it.
(iii) The trademark registrations owned by the Company (or
its Subsidiary) are owned free and clear of all mortgages, liens, charges or
encumbrances whatsoever. No licenses have been granted with respect to any of
the Company's trademarks and the Company has not received notice of any claims
by a third party suggesting that any of its activities in the conduct of its
business as presently conducted infringe the trademarks, trade names or trade
dress of any third party.
(iv) All technical information in possession of the
Company relating to the design or manufacture of products sold, and services
performed, by it, including without limitation methods of manufacture, lab
journals, manufacturing, engineering and other drawings, design and engineering
specifications and similar items recording or evidencing such information is
owned by the Company free and clear of all mortgages, liens, charges or
encumbrances whatsoever. The Company has no obligation to pay any royalty to any
third party with respect to such information. The Company has not granted any
license or other permission with respect to the use of such information and has
not received notice of any claims by a third party suggesting that the Company's
use of such information would infringe the rights of any third party. All
technical information developed by or belonging to the Company which has not
been patented but would be legally protectible if held in confidence has been
kept confidential.
(v) The Company has not granted or assigned to any other
person or entity any license or right to manufacture, have manufactured, process
or have processed or sell the products or services, or proposed products or
services, of the Company, other than duly authorized Company representatives and
distributors. All subcontractors have assigned to the Company, in writing, all
right, title and interest in and to the work that they performed for the
Company.
(q) TAXES. The Company has accurately prepared and properly filed all
United States income tax returns and all state and municipal tax returns that
are required to be filed by it and has timely paid or made provision for the
payment of all taxes, penalties and interest that have become due pursuant to
such returns. To the best knowledge of the Company, all such returns are true,
correct and complete in
7
<PAGE> 8
all material respects. The United States income tax returns of the Company have
not been audited by the Internal Revenue Service. No state or municipal tax
return of the Company has been audited by such state or municipal authority. No
deficiency assessment or proposed adjustment of the Company's United States
income tax or state or municipal taxes is pending and the Company has no
knowledge of any proposed liability for any tax to be imposed upon its
properties or assets for which there is not an adequate reserve reflected in the
Financial Statements. The Company is not delinquent in the payment of any
federal, state or municipal taxes, and has not requested an extension of time
within which to file any tax return.
(r) EMPLOYMENT AGREEMENTS AND PLANS. Except as set forth on Schedule
2(r) attached hereto, the Company does not have any employment contracts with
any of its employees not terminable at will. The Company is not delinquent in
payments to any of its employees for wages, salaries, commissions, bonuses or
other direct or indirect compensation. Except as set forth on Schedule 2(r), the
Company is not now, nor has it been, a party to or obligated to contribute to
any employee benefit plan as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (an "Employee Benefit Plan"),
guaranteed annual income plan, fund or arrangement, or any incentive, bonus,
profit-sharing deferred compensation, stock option or purchase plan or agreement
or arrangement, or any employment or consulting agreement or any other
agreement, plan or arrangement similar to or in the nature of the foregoing.
(s) LABOR MATTERS. The Company is not a party to any collective
bargaining agreement, oral or written. Neither the Company nor any of its
agents, representatives or employees has committed any unfair labor practice as
defined in the National Labor Relations Act of 1947, as amended, or in any
applicable state labor relations act, and there is not now pending or threatened
any charge or complaint against the Company by the National Labor Relations
Board or any state labor relations board or commissioner or any representative
thereof.
(t) INDEPENDENT CONTRACTORS AND CONSULTANTS. The Company does not
have any agreements or arrangements with persons titled as independent
contractors or consultants, as a result of which, by virtue of the control
exercised by the Company, the type of work performed by the persons or any other
circumstances, such persons could reasonably be deemed to be employees of the
Company, except for certain individuals who are covered by an employee leasing
arrangement, and for whom taxes are being properly withheld by the lessor.
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<PAGE> 9
(u) INSURANCE. The Company has fire and casualty insurance policies,
with extended coverage, sufficient in amount (subject to reasonable deductibles)
to allow it to replace any of its properties that might be damaged or destroyed,
and to cover all other risks of loss or liability customarily insured against
and in benefit amounts customarily obtained by companies similarly situated.
(v) REGISTRATION RIGHTS. Except as provided for in this Agreement,
that certain Registration Rights Agreement dated February 13, 1996, and for
registration rights of the outstanding Series A, Series B, Series C, Series D
and Series E Preferred Stock, the Company is not under any obligation to
register under the 1933 Act, any of its presently outstanding securities or any
securities into which such securities may be converted.
(w) PHYSICAL CONDITION OF OPERATING ASSETS. All of the owned and
leased real estate of the Company and the structures erected thereon and all of
the owned and leased tangible personal property of the Company are in good
repair and condition and are suitable and sufficient for the conduct of the
present business of the Company.
(x) PRODUCT AND SERVICE WARRANTIES. The Company is not aware of any
pending or threatened product or service warranty claims or any basis upon which
product or service warranty claims could be based. There are no known design or
other defects which could give rise to future product or service warranty
claims.
(y) CUSTOMERS. The Company has a good and ongoing relationship with
each of its customers, and has no reason to believe that there will be any
adverse change in any such relationship.
(z) RELATED PARTY TRANSACTIONS. No current or proposed director,
officer, stockholder or associate (as such term is defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended) of the
Company is currently or has during the three years prior to execution of this
Agreement, directly or indirectly through his or its affiliation with any other
person or entity, been a party to any transaction with the Company for the
providing of services by or to the Company, the rental of real or personal
property from or to the Company or otherwise requiring payments to be made by or
to the Company.
(aa) NONDISCLOSURE, NONCOMPETE AND INVENTION ASSIGNMENTS. The Company
has caused each officer, key employee and consultant of the Company to enter
into an agreement with the Company relating to the assignment of inventions and
nondisclosure of confidential information.
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<PAGE> 10
(bb) NO RESTRICTIONS. The Company in not a party to or bound by any
exclusive sales or purchase agreements or arrangements, nor is it otherwise
restricted, contractually or otherwise, from conducting its operations in any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Each of the Purchasers,
severally and not jointly, represents and warrants as follows:
(a) BINDING EFFECT. This Agreement has been duly authorized and
executed and is a valid and legally binding obligation of such Purchaser
enforceable in accordance with its terms.
(b) PARTNERSHIP MATTERS. In the case of each Purchaser which is a
partnership:
(i) The investment contemplated hereby is an authorized
investment under such Purchaser's partnership agreement.
(ii) The individual executing this agreement on behalf of
such Purchaser is a general partner therein, authorized to bind the partnership
by his signature hereto.
4. FEDERAL AND OTHER SECURITIES LAWS. Each of the Purchasers, severally
and not jointly, represents and warrants as follows:
(a) KNOWLEDGE OF UNREGISTERED STATUS. He or it understands that the
Preferred Shares are not, and any shares of Common Stock issued on the
conversion thereof ("Conversion Shares") at the time of issuance may not be,
registered under the 1933 Act in reliance on an exemption from registration
under the 1933 Act pursuant to Section 4(2) thereof for the sale contemplated by
this Agreement and the issuance of securities hereunder, and that the Company's
reliance on such exemption is predicated, in part, on the Purchasers'
representations set forth herein.
(b) INVESTMENT EXPERIENCE; RISK. He or it is able to fend for himself
or itself in the transactions contemplated by this Agreement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of the investment, and has the ability to bear the economic
risks of the investment indefinitely and could afford a complete loss of such
investment.
(c) LIMITS IMPOSED BY LAW UPON TRANSFER. He or it understands that
the Preferred Shares and Conversion Shares issued on conversion thereof may not
be sold, transferred or otherwise disposed of without registration under the
1933 Act
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or an exemption therefrom, and that in the absence of an effective registration
statement covering the Preferred Shares or Conversion Shares issued on
conversion thereof or an available exemption from registration under the 1933
Act, the Preferred Shares or Conversion Shares issued on conversion thereof must
be held indefinitely.
(d) ACCREDITED INVESTOR. He or it is an Accredited Investor, as
defined in Rule 501 of Regulation D promulgated under the 1933 Act.
(e) ACQUISITION FOR INVESTMENT. He or it is acquiring Preferred
Shares hereunder for investment for his or its own account, and not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof,
and that it has no present intention of selling, granting any participation in,
or otherwise distributing the same.
(f) PROVISION OF INFORMATION. James Coane and Bruce Johnson, on
behalf of the Company, have afforded him or it and his or its professional
advisors and his or its Purchaser Representative (if any), full and complete
access to all information with respect to the Company, its management and/or the
Company's proposed operations that he or it and such advisors and/or Purchaser
Representative (if any) have deemed necessary and material for an evaluation of
the merits and risks for him of making an investment in the Preferred Shares. He
or it, such advisors and/or Purchaser Representative (if any), have had adequate
opportunity to ask questions of, and receive answers from, persons acting on
behalf of the Company regarding the terms and conditions of the Offering and to
obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information provided to him or his advisors. All such
questions have been answered to the full satisfaction of the Purchasers and
their professional advisors and/or Purchaser Representatives (if any).
(g) INDIVIDUAL MATTERS. In the case of those Purchasers who are
individuals, each of the Purchasers, severally and not jointly, represents and
warrants as follows:
(i) The Preferred Shares being acquired by him pursuant
to this Agreement are being acquired by such party for investment purposes only,
for such party's own account and not with a view to the offer, sale or
distribution thereof.
(ii) He has such knowledge and experience in financial and
business matters and, in particular, concerning investments, as is necessary to
enable him, alone or together
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with his advisors and/or Purchaser Representative (as defined in Rule 501 of
Regulation D under the 1933 Act), if any, to evaluate the merits and risks of
making an investment in the Preferred Shares.
(iii) He and/or his Purchaser Representative, if any, has
received, has read and understands this Agreement, and the documents, Financial
Statements and other material relating to the Company provided herewith. He
and/or his Purchaser Representative, if any, is familiar with and understands
the business and operations of the Company.
(iv) In evaluating the merits and risks of making an
investment in the Preferred Shares hereunder, he has relied on the advice of his
own personal legal, financial, tax and accounting advisors and/or Purchaser
Representative (if any).
(v) The address set forth below in the Schedule of
Purchasers, is his true residence, and he has no present intention of becoming a
resident of any other state or jurisdiction.
(vi) He understands that there are substantial risks
pertaining to the making of an investment in the Preferred Shares hereunder,
including but not limited to risks resulting from the fact that the Company: is
a small company in an emerging technology market; does business in foreign
markets; and is thinly capitalized and has a history of operating losses. The
likelihood of the Company's success must be considered in light of the problems,
expenses, difficulties and delays frequently encountered in connection with the
development of new technology, marketing that technology and the above-mentioned
risk factors and the competitive environment in which the Company operates. It
is likely that the proceeds of the sale of Preferred Shares to the Purchasers
will not be sufficient for the Company's purposes. Furthermore, there can be no
assurance that the Company will become profitable. He is fully able to bear the
economic risk of an investment in the Preferred Shares for an indefinite period
of time and could afford a complete loss of such investment.
(vii) He is advised that there will be no public market for
the Preferred Shares or Common Stock. He has no need for liquidity in the
Preferred Shares and is able to bear the risk of making an investment in the
Preferred Shares for an indefinite period. His present financial condition is
such that he is under no present or contemplated future need to dispose of any
portion of the Preferred Shares to satisfy any existing or contemplated
undertaking, need or indebtedness. His overall commitment to investments which
are not readily marketable is not disproportionate to his net
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<PAGE> 13
worth and the making of an investment in the Preferred Shares will not cause
such overall commitment to become excessive.
5. CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING. The several
obligations of the Purchasers under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the conditions contained in
this Section 5, any of which may be waived by the subscribers for at least
eighty percent (80%) of the Preferred Shares to be issued hereunder:
(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of the Company contained in Section 2 shall be
true on and as of the Closing with the same force and effect as if they had been
made at the Closing (except to the extent that they expressly relate to an
earlier date).
(b) PERFORMANCE. The Company shall have performed and complied with
all agreements, conditions and covenants contained in this Agreement required to
be performed or complied with by it on or before the Closing.
(c) QUALIFICATIONS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
(d) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to Purchasers and their counsel and Purchasers shall have received
all such counterpart originals or certified or other copies of such documents as
they may reasonably request.
(e) FILING OF STATEMENT. The Statement shall have been filed with the
Secretary of State of the Commonwealth of Pennsylvania, and Purchasers shall
have received satisfactory evidence thereof.
(f) OPINION OF COUNSEL. Purchaser shall have received from counsel
to the Company an opinion dated as of the Closing, in the form attached as
Exhibit D.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to each Purchaser under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions,
any of which may be waived by the Company:
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(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of such Purchasers contained in Sections 3 and 4
shall be true on and as of the Closing with the same force and effect as if they
had been made at the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
(c) PAYMENT FOR PREFERRED SHARES. The Company shall have received
payment for the Preferred Shares to be purchased hereunder.
7. COVENANTS OF THE COMPANY.
(a) DESIGNATION OF PREFERRED SHARES. The Company has adopted, filed
and shall keep in force with the Secretary of State of the Commonwealth of
Pennsylvania, Section 4(G) of the Restated Articles relating to the Preferred
Shares.
(b) ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. The Company shall
maintain a standard system of accounting in accordance with generally accepted
accounting principles applied on a consistent basis and shall make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions. Until such time as the Company is required to file
reports under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Company shall deliver to Purchasers:
(i) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company, a profit or loss statement for such fiscal year, a balance
sheet of the Company as of the end of such year, and a statement of cash flows
for such year, certified, without qualification as to scope of the examination,
by independent public accountants of recognized national standing selected by
the Company; and
(ii) QUARTERLY FINANCIAL STATEMENTS. Within forty-five
(45) days after the end of each of the first three (3) quarters of the fiscal
year an unaudited statement of income for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter, setting forth in comparative
form the figures for the corresponding periods of the previous fiscal year.
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(c) BUSINESS PLAN AND PROJECTIONS. As soon as available, but in any
event within forty-five (45) days after commencement of each new fiscal year, a
business plan and projected financial statements for such fiscal year.
(d) ADDITIONAL INFORMATION.
(i) Upon the written request of any Purchaser, the
Company shall also furnish to a representative designated by a majority of the
Purchasers, with reasonable promptness, such other information relating to the
financial affairs of the Company as is furnished or made available (or not so
furnished or made available but required by law to be furnished or made
available) to directors of the Company.
(ii) The representative so designated shall have the same
obligations with respect to protection and nondisclosure (other than to the
Purchaser) of any information so furnished as a director of the Company would
have with respect to such information.
(e) NONDISCLOSURE AND INVENTION ASSIGNMENTS. The Company will
continue to cause each officer, key employee and consultant of the Company to
enter into an agreement with the Company relating to the assignment of
inventions and nondisclosure of confidential information, in substantially the
form previously utilized by the Company.
(f) USE OF PROCEEDS. The proceeds from the sale of Preferred Shares
shall be used for working capital and capital expenditures.
(g) TAXES. The Company will promptly pay and discharge or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto; and provided
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien that
may have attached as security therefor. The Company will promptly pay or cause
to be paid when due, or in conformance with customary trade terms, all other
indebtedness incident to the operations of the Company.
(h) MAINTENANCE OF PROPERTIES. The Company will keep its properties
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements,
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additions and improvements thereto; the Company will at all times comply with
the provisions of all material leases to which it is a party or under which it
occupies property so as to prevent any loss or forfeiture thereof or thereunder.
(i) INSURANCE. The Company will keep its assets that are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and explosion insurance in amounts
customary for companies in similar businesses similarly situated; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards, risks and liabilities to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated.
(j) GOVERNMENTAL REQUIREMENTS. The Company will duly observe and
conform to all valid requirements of governmental authorities relating to the
conduct of its businesses or to its property or assets.
(k) CORPORATE EXISTENCE, LICENSES, ETC. The Company shall maintain in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use patents, processes, licenses, trademarks, trade
names or copyrights owned by it and deemed by the Company to be significant to
the conduct of its business.
(l) REQUIRED FILINGS. The Company will cooperate in filing any
notices of sale required to be filed with the Securities and Exchange Commission
pursuant to Regulation D promulgated under the 1933 Act or any state securities
law authority pursuant to applicable blue sky laws.
(m) TERMINATION OF COVENANTS. The covenants set forth in this Section
7 shall terminate and be of no further force or effect after the date of the
closing of the Company's first public offering of its securities amounting to
not less than $5,000,000 at a price per share to the public equal to at least
two times the conversion price of the Preferred Shares then in effect.
8. REGISTRATION RIGHTS.
(a) DEFINITIONS. As used in this Section 8, the following terms
shall have the following respective meanings:
(i) "Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the Securities
Act.
(ii) "Person" shall mean and include an individual, a
corporation, a partnership, a trust, an
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unincorporated organization and a government or any department, agency or
political subdivision thereof.
(iii) "Restricted Securities" shall mean the Preferred
Shares, the Common Stock issuable upon conversion thereof and any shares of
capital stock received in respect of any thereof, evidenced by certificates
bearing the restrictive legend set forth in Section 8(b).
(iv) "Restricted Shares" shall mean the Common Stock
constituting Restricted Securities.
(v) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar Federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
(vi) "Transfer" shall include any disposition of any
shares of Restricted Securities or of any interest therein which would
constitute a sale thereof within the meaning of the Securities Act.
(b) RESTRICTIVE LEGENDS. Each certificate for the Restricted
Securities and any shares of capital stock received in respect thereof, whether
by reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of this Agreement) be stamped or otherwise imprinted with
legends in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES ACTS OF ANY STATE
HEREOF. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE UNITED
STATES OR TO A UNITED STATES CITIZEN IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO N2K INC. AND IN
ACCEPTABLE FORM AND SUBSTANCE THAT AN EXEMPTION THEREFROM IS AVAILABLE
UNDER SAID ACTS.
(c) NOTICE OF TRANSFER. The holder of any Restricted Securities, by
acceptance thereof, agrees, prior to any transfer of any Restricted Securities,
to give written notice to the Company of such holder's intention to effect such
transfer and to comply in all other respects with the provisions of this Section
8(c). Each such notice shall describe the manner and circumstances of the
proposed transfer and shall be accompanied by (a) the written opinion, addressed
to the Company, of counsel reasonably acceptable to the Company for the holder
of Restricted Securities, as to
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whether in the opinion of such counsel such proposed transfer involves a
transaction requiring registration of such Restricted Securities under the
Securities Act and state securities acts and, if not, a description of the
exemptions available, and (b) in the case of Restricted Shares, if in the
opinion of such counsel such registration is required, a written request
addressed to the Company by the holder of Restricted Securities, describing in
detail the proposed method of disposition and requesting the Company to effect
the registration of such Restricted Shares pursuant to the terms and provisions
of Section 8(d), 8(e) or 8(f) hereof, as the case may be. If in the opinion of
such counsel the proposed transfer of Restricted Securities may be effected
without registration under the Securities Act and state securities acts, the
holder of Restricted Securities shall thereupon be entitled to transfer
Restricted Securities in accordance with the terms of the notice delivered by it
to the Company. Each certificate or other instrument evidencing the securities
issued upon the transfer of any Restricted Securities (and each certificate or
other instrument evidencing any untransferred balance of such securities) shall
bear the legends set forth in Section 8(b) unless (a) in the opinion of such
counsel registration of future transfer is not required by the applicable
provisions of the Securities Act and state securities acts or (b) the Company
shall have waived the requirement of such legends. Except as provided above, the
holder of Restricted Securities shall not transfer such Restricted Securities
until such opinion of counsel has been given to the Company (unless waived by
the Company) or until registration of the Restricted Shares involved in the
above-mentioned request has become effective under the Securities Act.
(d) INCIDENTAL REGISTRATION. If the Company proposes for any reason
to register any of its securities under the Securities Act (other than pursuant
to a registration statement on Forms S-8 or S-4 or similar or successor forms),
it shall each such time promptly give written notice to all holders of
outstanding Restricted Securities of its intention to do so, and, upon the
written request, given within 30 days after receipt of any such notice of the
holder of any such Restricted Securities to register any Restricted Shares
(which request shall specify the Restricted Shares intended to be sold or
disposed of by such holders), the Company shall use its best efforts to cause
all such Restricted Shares to be included in such registration under the
Securities Act, all to the extent requisite to permit the sale or other
disposition (in accordance with the Company's intended methods thereof, as
aforesaid) by the prospective seller or sellers of the Restricted Shares so
registered. In the event that the proposed registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company,
if the managing underwriter determines and advises
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in writing that the inclusion of all Restricted Shares proposed to be included
in the underwritten public offering and other issued and outstanding shares of
Common Stock proposed to be included therein by persons other than the holders
of Restricted Securities (the "Other Shares") would interfere with the
successful marketing of such securities, then (i) the number of Restricted
Shares and Other Shares shall be reduced, pro rata among the holders of Other
Shares and the holders of Restricted Shares (based upon the number of shares of
Common Stock requested by the holders thereof to be registered in such
underwritten public offering), and (ii) in each case those shares of Common
Stock which are excluded from the underwritten public offering shall be withheld
from the market by the holders thereof for a period, not to exceed 90 days,
which the managing underwriter reasonably determines as necessary in order to
effect the underwritten public offering.
(e) REGISTRATIONS ON FORM S-2 OR S-3. At such time as the Company
shall have qualified for the use of Form S-2 or S-3 (or any similar form or
forms promulgated by the Commission), the holders of Restricted Securities shall
have the right to request an unlimited number of registrations on Form S-2 or
S-3 (which request or requests shall be in writing, shall specify the Restricted
Shares intended to be sold or disposed of by the holders thereof, shall state
the intended method of disposition of such Restricted Shares by the holder(s)
requesting such registration and shall relate to Restricted Shares having a
proposed aggregate gross offering price (before deduction of underwriting
discounts and expenses of sale) of at least $500,000), and the Company shall be
obligated to effect such registration or registrations on Form S-2 or S-3 (as
the case may be); provided, however, that the Company shall in no event be
obligated to cause the effectiveness of more than one such registration
statement in any calendar year. The Company shall not register securities for
sale for its own account in any registration requested pursuant to this Section
8(e) unless requested to do so by the holders of Restricted Securities who hold
at least 51% of the stock as to which registration has been requested. The
Company may not cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement an employee
benefit plan or to acquire another company) to become effective less than 90
days after the effective date of any registration requested pursuant to this
Section 8(e).
(f) DEMAND REGISTRATION. At any time after 180 days from the
effective date of the Company's registration statement covering its initial
public offering, but prior to the time that the Company shall have qualified for
the use of Form S-2 or S-3 (or any similar form or forms promulgated by
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the Commission) the holders of shares of Common Stock into which Preferred
Shares shall have been converted shall have the right to request the Company to
file one registration statement on any form which the Company is then entitled
to use. Such request shall be in writing, shall specify the shares of Common
Stock (into which the Preferred Stock shall have been converted) intended to be
sold or disposed of by the holders thereof, shall state the intended method of
disposition by the holder(s) requesting such registration and shall relate to
Common Stock having a proposed aggregate gross offering price (before deduction
of underwriting discounts and expenses of sale) of at least $500,000, and the
Company shall be obligated to effect such registration, subject in any event to
all applicable securities laws and all requirements of the Company's investment
banker.
(g) DESIGNATION OF UNDERWRITER.
(i) In the case of any registration effected pursuant to
Section 8(e) or 8(f), a majority in interest of the requesting holders of
Restricted Securities or Restricted Shares (in the case of a registration
effected pursuant to Section 8(f)) shall have the right to designate the
managing underwriter (if any) in any such underwritten offering, subject in any
event to the proviso set forth in Section 8(j) hereof.
(ii) In the case of any registration initiated by the
Company, the Company shall have the right to designate the managing underwriter
in any underwritten offering.
(h) GRANTING OF REGISTRATION RIGHTS. The Company shall not grant any
rights to any persons to register any shares of capital stock or other
securities of the Company if such rights would be superior to the rights of the
holders of Restricted Securities or Restricted Shares granted pursuant to this
Agreement, unless the Purchaser is given the same or comparable rights.
(i) PREPARATION AND FILING. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 8 to effect the
registration of any Restricted Shares, the Company shall, as expeditiously as
practicable:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and
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current for at least nine months and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Restricted
Shares covered by such registration statement;
(iii) furnish to each selling shareholder such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Restricted Shares;
(iv) use its best efforts to register or qualify the
Restricted Shares covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each such seller shall reasonably request
(provided, however, the Company shall not be required to consent to general
service of process for all purposes in any jurisdiction where it is not then
qualified) and do any and all other acts or things which may be necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities;
(v) notify each seller of Restricted Shares covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act within the appropriate period mentioned in clause (ii) of this
Section 8(i), of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing and at the request of such seller,
prepare and furnish to such seller a reasonable number of copies of a Supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(vi) furnish, upon request, to each requesting seller a
signed counterpart, addressed to the requesting seller or sellers, of (i) an
opinion of counsel for the Company, dated the effective date of the registration
statement, and (ii) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included in
the registration statement, covering substantially the same matters with
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respect to the registration statement (and the prospectus included therein) and
(in the case of the "comfort" letter) with respect to events subsequent to the
date of the financial statements, as are customarily covered (at the time of
such registration) in opinions of issuer's counsel and in "comfort" letters
delivered to the underwriters in underwritten public offerings of securities.
(j) EXPENSES. All expenses incurred by the Company in complying with
Section 8(i) shall be paid by the Company, including, without limitation, all
registration and filing fees, printing expenses, blue sky filing fees, fees and
disbursements of counsel for the Company and expenses of any required audits;
provided, however, that (a) the Company shall not be obligated for payment of
the fees and disbursements of counsel for the holders of Restricted Securities
in connection with registration under Section 8(d), 8(e) or 8(f) hereof and (b)
all underwriting discounts and selling commissions and other similar fees and
costs applicable to the Restricted Shares covered by registrations effected
pursuant to Section 8(d), 8(e) or 8(f) hereof shall be borne by the seller or
sellers thereof, in proportion to the number of Restricted Shares sold by such
seller or sellers.
(k) INDEMNIFICATION.
(i) In the event of any registration of any Restricted
Shares under the Securities Act pursuant to this Section 8 or registration or
qualification of any Restricted Shares pursuant to Section 8(i)(iv), the Company
shall indemnify and hold harmless the seller of such shares, or any other person
acting on behalf of such seller and each other person, if any, who controls any
of the foregoing persons, within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which any of the
foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such Restricted Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any document prepared and/or furnished by the Company incident to
the registration or qualification of any Restricted Shares pursuant to Section
8(i)(iv), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, or any violation
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by the Company of the Securities Act or state securities or blue sky laws
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration or qualification under such state
securities or blue sky laws, and shall reimburse such seller, underwriter or
other person acting on behalf of such seller and each such controlling person
for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus or said prospectus or said amendment or supplement or any
document incident to the registration or qualification of any Restricted Shares
pursuant to Section 8(i)(iv), in reliance upon and in conformity with written
information furnished to the Company by such seller or such seller's agent or
representative specifically for use in the preparation thereof.
(ii) Before Restricted Shares held by any prospective
seller shall be included in any registration pursuant to Section 8, such
prospective seller and any underwriter acting on its behalf shall have agreed to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in the preceding paragraph of this Section 8(k) or, if different, in the
manner and to the extent as is in accordance with standard industry practice at
the time of the proposed sale) the Company, each director of the Company, each
officer of the Company who shall sign such registration statement, and any
person who controls the Company within the meaning of the Securities Act, with
respect to any untrue statement or omission from such registration statement,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, if such untrue statement or omission was made
in reliance upon and in conformity with written information furnished to the
Company by such seller or such seller's agent or representative specifically for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus or amendment or supplement.
(iii) Promptly after receipt by an indemnified party of
notice of the commencement of any action involving a claim referred to in the
preceding paragraphs of this Section 8(k), such indemnified party will, if a
claim in respect thereof is made against an indemnifying party, give written
notice to the latter of the commencement of such action. In case any such action
is brought against an indemnified party, the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly
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with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be responsible
for any legal or other expenses subsequently incurred by the indemnified party
in connection with the defense thereof; provided, however, that if any
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 8(k), the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any counsel retained by the indemnified party which are
reasonably related to the matters covered by the indemnity agreement provided in
this Section 8(k).
(iv) The failure to notify an indemnifying party promptly
of the commencement of any such action, if materially prejudicial to the ability
of the indemnifying party to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this paragraph, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party otherwise than
under this Section 8.
(v) The indemnifying party shall not make any settlement
of any claims indemnified against hereunder without the written consent of the
indemnified party or parties, which consent shall not be unreasonably withheld.
(l) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company or a seller on grounds of public policy
or otherwise, the Company and each seller shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending the same) to
which the Company and each seller or underwriter (and any person who controls
any of the foregoing persons, and any person acting on behalf of any of the
foregoing persons in connection with such registration), including, without
limitation, any officer, director, broker, employee, agent, attorney and
accountant, and in the case of
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a partnership, each of its partners), as the case may be, in such proportion as
is appropriate to reflect the relative fault of the Company and such seller or
underwriter (and any person who controls any of the foregoing persons, and any
person acting on behalf of any of the foregoing in connection with such
registration, including, without limitation, any officer, director, broker,
employee, agent, attorney or accountant, and in the case of a partnership, each
of its partners), as the case may be, in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as well
as all other relevant equitable considerations; provided, however, that 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 misrepresentation; and provided further,
that in the case of each seller, the maximum amount of such contribution shall
be limited to an amount equal to the net proceeds actually received by such
seller from the sale of Restricted Shares effected pursuant to such
registration. Any party entitled to contribution under this paragraph shall,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this paragraph, notify such party
or parties from whom contribution may be sought, but the omission to so notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this paragraph.
(m) REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the holders of the Restricted Securities the benefits of
Rule 144 promulgated under the 1933 Act and any other rule or regulation of the
Commission that may at any time permit a holder to sell securities of the
Company to the public without registration, the Company agrees to use its best
efforts to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times subsequent to ninety
(90) days after the effective date of the first registration statement covering
an underwritten public offering filed by the Company;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the 1934 Act; and
(iii) furnish to any holder of Restricted Securities so
long as such holder owns any of the Restricted Securities forthwith upon request
a written statement by the Company that it has complied with the reporting
requirements
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<PAGE> 26
of Rule 144 (at any time after ninety (90) days after the effective date of said
first registration statement filed by the Company), and of the 1933 Act and the
1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as may be
reasonably requested in availing such holder of any rule or regulation of the
Commission permitting the selling of any such securities without registration.
(n) TRANSFER OF REGISTRATION RIGHTS. The registration rights of
Purchasers under Sections 8(d), 8(e) and 8(f) may be transferred to a transferee
who acquires at least 20% of the Registrable Securities originally issued to
Purchasers, or to a partner or affiliated partnership of a Purchaser without
restriction as to minimum transfer amount. The Company shall be given written
notice by the holder at the time of such transfer stating the name and address
of the transferee and identifying the securities with respect to which the
rights under this Section 8 are being assigned. Such registration right shall
not be otherwise transferable without the consent of the Company.
9. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, personal representatives, successors and
assigns of the parties, except to the extent assignability is limited herein.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York.
(c) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit with the United States Postal Service, by registered or
certified
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<PAGE> 27
mail, postage prepaid, addressed to the party as shown in the caption to this
Agreement or on the appropriate Schedule attached hereto or at such other
address as any party may designate by ten days' advance written notice to the
other party.
(f) FINDERS' FEES. Each Purchaser represents that it neither is, nor
will be, obligated for any finders' fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Purchasers or any of its partners, employees
or representatives is responsible. The Company agrees to indemnify and hold
harmless Purchasers from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
(g) RIGHTS OF PURCHASERS. Except as provided in another written
document executed by such holder, each holder of Preferred Shares (or Common
Stock issued upon conversion thereof) shall have the absolute right to exercise
or refrain from exercising any right or rights that such holder may have by
reason of this Agreement or ownership of any Preferred Shares, including without
limitation the right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an agreement with the Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Preferred Shares with respect to exercising or refraining from
exercising any such right or rights.
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<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
N2K INC.
By:
---------------------------------
Bruce Johnson, Secretary and
Vice President
PURCHASER:
------------------------------------
Name:
Address:
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<PAGE> 1
Exhibit 4.10
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered
into as of the _____ day of May, 1996, by and among N2K Inc., a
Pennsylvania corporation with its principal place of business at 55
Broad Street, New York, New York 10004 (the "Company") and the persons
listed on the Schedule of Purchasers attached hereto ("Purchasers").
In consideration of the mutual representations, warranties, covenants
and conditions set forth in this Agreement, the parties agree as follows.
1. PURCHASE, SALE AND ISSUANCE OF PREFERRED SHARES.
(a) PURCHASE OF PREFERRED SHARES. Subject to the terms and conditions
of this Agreement, each Purchaser shall purchase at the Closing and the Company
shall sell and issue to each Purchaser, severally and not jointly, at the
Closing, the number of shares of the Company's Series F Convertible Preferred
Stock (the "Preferred Shares") as is set forth opposite such Purchaser's name on
the Schedule of Purchasers.
(b) PURCHASE PRICE. The purchase price shall be $3.00 per Preferred
Share.
(c) CLOSING. The purchase and sale shall take place at the offices of
Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019 at such
time, date or place as the Company and Allen & Company Incorporated ("Allen"),
the Placement Agent in connection with the offering of the Preferred Shares to
be issued hereunder, shall mutually agree (which time, date and place are
referred to in this Agreement as the "Closing"), but in no event later than May
31, 1996. At the Closing the Company shall deliver to each Purchaser a stock
certificate or certificates, registered in the name of such Purchaser,
representing the Preferred Shares that such Purchaser is purchasing against
delivery to the Company by such Purchaser of immediately available funds.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Purchaser that the following are true in all material
respects:
(a) CORPORATE RECORDS. The Company has previously made available to
the Purchasers and their representatives, if any, the Company's complete
corporate minute and stock books,
<PAGE> 2
including all formal corporate actions of the Company's Board of Directors and
shareholders, whether by meeting or written consents in lieu of a meeting. Such
records are true and correct and remain in full force and effect except as
provided therein to the contrary.
(b) ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the nature of its activities
or the ownership of its properties makes such qualification necessary. True and
accurate copies of the Company's Articles of Incorporation as amended and
By-laws, as presently in effect, have been delivered to the Purchasers.
(c) CAPITALIZATION.
(i) AUTHORIZED CAPITAL. Following filing of the Statement
with Respect to Shares contemplated by Section 7(a) below (the "Statement")
which is attached hereto as Exhibit A, and immediately preceding the Closing,
the authorized capital stock of the Company will consist of:
(A) 500,000 shares of Series A Preferred Stock of
which 488,838 shares shall have been issued.
(B) 625,000 shares of Series B Preferred Stock, all
of which shall have been issued.
(C) 2,857,143 shares of Series C Preferred Stock, of
which 2,142,857 shares shall have been issued.
(D) 1,000,000 shares of Series D Convertible
Preferred Stock of which 800,000 shares shall have been issued.
(E) 6,013,060 shares of Series E Convertible
Preferred Stock, 6,007,060 of which shall have been issued.
(F) 6,000,000 shares of Series F Convertible
Preferred Stock, none of which have been issued.
(G) 3,004,834 shares of Undesignated Preferred Stock.
(H) 100,000,000 shares of Common Stock, par value
$.001 per share (the "Common Stock") of which 11,659,644 shares shall have been
validly issued and outstanding fully paid and nonassessable, 6,685,000 shares
reserved for issuance
2
<PAGE> 3
upon exercise of options under the Company's Incentive Stock Option Plan and
1996 Employee Stock Option Plan, 454,563 shares reserved for issuance upon
exercise of other options and warrants, 685,032 shares reserved for issuance
upon conversion of the Company's Series A Preferred Stock (which number will
increase to 685,800 shares by reason of the transaction contemplated hereby),
714,286 shares reserved for issuance upon conversion of the Company's Series B
Preferred Stock, 2,400,000 shares reserved for issuance upon conversion of the
Company's Series C Preferred Stock, 2,461,539 shares reserved for issuance upon
conversion of the Company's Series D Convertible Preferred Stock, 6,007,060
shares reserved for issuance upon conversion of the Company's Series E
Convertible Preferred Stock and up to 6,000,000 shares of Common Stock reserved
for issuance upon conversion of the Company's Series F Convertible Preferred
Stock.
The rights, privileges and preferences of the Preferred Shares will be
as stated in the Statement.
(i) RESERVATION OF SHARES. The Company has reserved shares
of Common Stock for issuance upon conversion of the Preferred Shares as set
forth in Section 2(c)(i)(H). There are no other options, warrants, conversion
privileges, preemptive rights or other rights presently outstanding to purchase
or receive any of the capital stock of the Company, except as set forth in
Section 2(c)(i) or in the disclosure materials delivered to the Purchasers.
(ii) COMPLIANCE WITH SECURITIES LAWS. All shares heretofore
issued by the Company have been issued in compliance with all applicable federal
and state securities laws.
(d) SUBSIDIARIES. The Company owns 100% of the outstanding capital
stock of TSI Licensing, Inc. and has no other equity ownership interest in any
other entity.
(e) AUTHORIZATION. The Company has the requisite power and authority
to enter into and perform its obligations under this Agreement. All corporate
action on the part of the Company and its officers, directors and shareholders
necessary for the authorization, execution, delivery and performance of all
obligations of the Company under this Agreement, and for the authorization,
issuance and delivery of the Preferred Shares (and the Common Stock issuable
upon conversion of all Preferred Shares) has been taken prior to the Closing.
This Agreement is a valid and legally binding obligation of the Company,
enforceable in accordance with its terms.
(f) VALIDITY - STOCK. The Preferred Shares, when issued, sold and
delivered in accordance with the terms of this Agreement, shall be duly and
validly issued, fully paid
3
<PAGE> 4
and nonassessable. The Common Stock issuable upon conversion of the Preferred
Shares has been duly and validly reserved and, upon issuance in accordance with
the conversion provisions of the Preferred Shares shall be duly and validly
issued, fully paid and nonassessable.
(g) FINANCIAL STATEMENTS.
(i) STATEMENTS PROVIDED. The Company's audited consolidated
balance sheet as of December 31, 1995 (the "Year-end Balance Sheet") and
consolidated statements of operations for the fiscal year then ended, together
with its consolidated balance sheet as of March 31, 1996 (the "Interim Balance
Sheet") and the unaudited consolidated statement of operations for the three
months then ended (collectively, the "Financial Statements") are attached hereto
as Exhibit B. The Financial Statements were prepared in accordance with
generally accepted accounting principles consistently applied, except (in the
case of unaudited statements) for the absence of footnote disclosures, and
fairly present the financial position of the Company as of the dates and the
results of its operations for the periods, indicated.
(ii) LIABILITIES. Except as fully provided for and reflected
in the Financial Statements, the Company has no liabilities, secured or
unsecured, absolute or contingent, except those arising in the normal course of
business since the date of the Financial Statements, none of which are unusual
in type, scope or amount.
(iii) ENCUMBRANCES. The accounts and notes receivable
reflected on the Interim Balance Sheet are free and clear of any claim, security
interest, pledge or lien or encumbrance of any kind or nature whatsoever, and
have been collected or are fully collectable in substantially the amounts set
forth in the Interim Balance Sheet, without setoff, third party collection
efforts or suit (but net of reserves for doubtful accounts, if any, set forth in
the Interim Balance Sheet), and the subsequently created accounts and notes
receivable of the Company from April 1, 1996 to the Closing Date will be free
and clear of any claim, pledge, security interest or lien or encumbrance of any
kind or nature whatsoever, and will be good and fully collectible in the normal
course of business in substantially the amounts thereof without setoff, third
party collection efforts or suit (but net of reserves for doubtful accounts, if
any, set forth in the Interim Balance Sheet).
(h) CHANGES. Since the date of the Interim Balance Sheet, there have
not been any material changes in the Company's business, financial condition or
assets.
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<PAGE> 5
(i) TITLE TO PROPERTY AND ASSETS, LIABILITIES. Except (a) as
reflected in its Financial Statements or in the notes thereto, (b) for liens for
current taxes not yet delinquent, (c) for liens imposed by law and incurred in
the ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers, materialmen and the like, or (d) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, the
Company owns its property and other assets free and clear of all mortgages,
liens, loans, claims, charges and encumbrances of any kind. With respect to the
property and other assets it leases, the Company is in compliance with such
leases and holds a valid leasehold interest free of any liens, claims, charges
and encumbrances, subject to clauses (b)-(d) above.
(j) GOVERNMENTAL CONSENTS. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations, declarations
or filings with, any federal or state governmental authority on the part of the
Company required in connection with the consummation of the transactions
contemplated by this Agreement have been obtained, except any applicable notices
of sale required to be filed after Closing with the Securities and Exchange
Commission pursuant to Regulation D promulgated under the Securities Act of
1933, as amended (the "1933 Act").
(k) COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of any provisions of its Articles of Incorporation or By-laws as
amended and in effect on and as of the Closing or of any provision of any
mortgage, indenture, agreement, instrument or contract to which it is a party,
or of any provision of any federal or state judgment, writ, decree, order,
statute, rule or governmental regulation applicable to the Company. The
execution, delivery and performance of this Agreement will not result in any
such violation, or be in conflict with or constitute a default under any such
provision, or result in the creation or imposition of any lien pursuant to any
such provision.
(l) GOVERNMENTAL PERMITS. The Company has all federal, state,
municipal and foreign licenses and permits required in the conduct of its
business, and such licenses and permits are in full force and effect.
(m) ENVIRONMENTAL MATTERS. The Company does not discharge or handle,
nor is the Company aware of the storage or other presence on any of the property
currently or previously leased by the Company of, any hazardous substances (as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended).
(n) MISLEADING STATEMENTS. Neither the Confidential Private Offering
Memorandum dated May 7, 1996 (as amended on
5
<PAGE> 6
or before the date hereof), nor any representation or warranty made by the
Company in this Agreement or in any Schedule or Exhibit hereto, any written
statement or certificate furnished or to be furnished to Purchasers pursuant to
this Agreement or in connection with the actions contemplated by this Agreement
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements made not misleading. There is no fact
which the Company has not disclosed to the Purchasers in writing and of which
the Company is aware which materially and adversely affects or could materially
and adversely affect the business prospects, financial condition, operations,
property or affairs of the Company.
(o) LITIGATION. Other than as set forth on Schedule 2(o) hereto,
there is no action, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company or any of its employees before any
court or administrative agency (or any basis therefor known to the Company) that
might result, either individually or in the aggregate, in any material adverse
change in the business, condition, affairs, operations, properties or assets of
the Company, or in any material liability on the part of the Company. The
foregoing includes, without limiting its generality, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees or their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers.
(p) INTELLECTUAL PROPERTY. Attached hereto as Schedule 2(p), and
made part hereof, is a true and correct schedule which describes all of the
patents, patent disclosures docketed, inventions, improvements, trademarks,
trademark applications, trade names, copyright registrations or applications
therefor and proprietary computer software or similar property owned by the
Company, and all licenses, franchises, permits, authorizations, agreements and
arrangements that concern any of the foregoing or that concern like items owned
by others and used by the Company. Except as indicated on such Schedule,
(i) All patents owned by the Company are free and clear of
all mortgages, liens, charges or encumbrances whatsoever. No licenses have been
granted with respect to such patents and the Company has not received notice of
any claims by a third party suggesting that its practice of the inventions
covered by such patents, or any other inventions practiced by the Company would
infringe the patent rights of any third party that might result, individually or
in the aggregate, in any material change in the business, condition, affairs,
operations, properties or assets of the Company.
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<PAGE> 7
(ii) The copyright registrations shown on such schedule are
owned by the Company free and clear of all mortgages, liens, charges or
encumbrances whatsoever. Except for licenses granted to end users in accordance
with the Company's standard terms, no licenses have been granted with respect to
any of the Company's copyrighted material and the Company has not received
notice of any claims by a third party suggesting that any of its activities in
the conduct of its business as presently conducted infringe the copyrights of
any third party. The Company has affixed appropriate copyright notices to all
computer programs developed by it.
(iii) The trademark registrations owned by the Company (or its
Subsidiary) are owned free and clear of all mortgages, liens, charges or
encumbrances whatsoever. No licenses have been granted with respect to any of
the Company's trademarks and the Company has not received notice of any claims
by a third party suggesting that any of its activities in the conduct of its
business as presently conducted infringe the trademarks, trade names or trade
dress of any third party.
(iv) All technical information in possession of the Company
relating to the design or manufacture of products sold, and services performed,
by it, including without limitation methods of manufacture, lab journals,
manufacturing, engineering and other drawings, design and engineering
specifications and similar items recording or evidencing such information is
owned by the Company free and clear of all mortgages, liens, charges or
encumbrances whatsoever. The Company has no obligation to pay any royalty to any
third party with respect to such information. The Company has not granted any
license or other permission with respect to the use of such information and has
not received notice of any claims by a third party suggesting that the Company's
use of such information would infringe the rights of any third party. All
technical information developed by or belonging to the Company which has not
been patented but would be legally protectible if held in confidence has been
kept confidential.
(v) The Company has not granted or assigned to any other
person or entity any license or right to manufacture, have manufactured, process
or have processed or sell the products or services, or proposed products or
services, of the Company, other than duly authorized Company representatives and
distributors. All subcontractors have assigned to the Company, in writing, all
right, title and interest in and to the work that they performed for the
Company.
(q) TAXES. The Company has accurately prepared and properly filed
all United States income tax returns and all
7
<PAGE> 8
state and municipal tax returns that are required to be filed by it and has
timely paid or made provision for the payment of all taxes, penalties and
interest that have become due pursuant to such returns. To the best knowledge of
the Company, all such returns are true, correct and complete in all material
respects. The United States income tax returns of the Company have not been
audited by the Internal Revenue Service. No state or municipal tax return of the
Company has been audited by such state or municipal authority. No deficiency
assessment or proposed adjustment of the Company's United States income tax or
state or municipal taxes is pending and the Company has no knowledge of any
proposed liability for any tax to be imposed upon its properties or assets for
which there is not an adequate reserve reflected in the Financial Statements.
The Company is not delinquent in the payment of any federal, state or municipal
taxes, and has not requested an extension of time within which to file any tax
return.
(r) EMPLOYMENT AGREEMENTS AND PLANS. Except as set forth on Schedule
2(r) attached hereto, the Company does not have any employment contracts with
any of its employees not terminable at will. The Company is not delinquent in
payments to any of its employees for wages, salaries, commissions, bonuses or
other direct or indirect compensation. True and complete copies of any
employment contract or arrangement or letter pertaining to the terms of
employment of any officer or employee of the Company have been supplied to
special counsel for Purchasers. Except as set forth in Schedule 2(r), the
Company is not now, nor has it been, a party to or obligated to contribute to
any employee benefit plan as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (an "Employee Benefit Plan"),
guaranteed annual income plan, fund or arrangement, or any incentive, bonus,
profit-sharing deferred compensation, stock option or purchase plan or agreement
or arrangement, or any employment or consulting agreement or any other
agreement, plan or arrangement similar to or in the nature of the foregoing.
(s) LABOR MATTERS. The Company is not a party to any collective
bargaining agreement, oral or written. Neither the Company nor any of its
agents, representatives or employees has committed any unfair labor practice as
defined in the National Labor Relations Act of 1947, as amended, or in any
applicable state labor relations act, and there is not now pending or threatened
any charge or complaint against the Company by the National Labor Relations
Board or any state labor relations board or commissioner or any representative
thereof.
(t) INDEPENDENT CONTRACTORS AND CONSULTANTS. The Company does not
have any agreements or arrangements with
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<PAGE> 9
persons titled as independent contractors or consultants, as a result of which,
by virtue of the control exercised by the Company, the type of work performed by
the persons or any other circumstances, such persons could reasonably be deemed
to be employees of the Company, except for certain individuals who are covered
by an employee leasing arrangement, and for whom taxes are being properly
withheld by the lessor.
(u) INSURANCE. The Company has fire and casualty insurance policies,
with extended coverage, sufficient in amount (subject to reasonable deductibles)
to allow it to replace any of its properties that might be damaged or destroyed,
and to cover all other risks of loss or liability customarily insured against
and in benefit amounts customarily obtained by companies similarly situated.
(v) REGISTRATION RIGHTS. Except as provided for in this Agreement,
that certain Registration Rights Agreement dated February 13, 1996, and for
registration rights of the outstanding Series A, Series B, Series C, Series D
and Series E, the Company is not under any obligation to register under the 1933
Act, any of its presently outstanding securities or any securities into which
such securities may be converted.
(w) PHYSICAL CONDITION OF OPERATING ASSETS. All of the owned and
leased real estate of the Company and the structures erected thereon and all of
the owned and leased tangible personal property of the Company are in good
repair and condition and are suitable and sufficient for the conduct of the
present business of the Company.
(x) PRODUCT AND SERVICE WARRANTIES. The Company is not aware of any
pending or threatened product or service warranty claims or any basis upon which
product or service warranty claims could be based. There are no known design or
other defects which could give rise to future product or service warranty
claims.
(y) CUSTOMERS. The Company has a good and ongoing relationship with
each of its customers, and has no reason to believe that there will be any
adverse change in any such relationship.
(z) RELATED PARTY TRANSACTIONS. No current or proposed director,
officer, stockholder or associate (as such term is defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended) of the
Company is currently or has during the three years prior to execution of this
Agreement, directly or indirectly through his or its affiliation with any other
person or entity, been a party to any transaction with the Company for the
providing of services by or to the Company, the rental of real or personal
property
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<PAGE> 10
from or to the Company or otherwise requiring payments to be made by or to the
Company.
(aa) NONDISCLOSURE, NONCOMPETE AND INVENTION ASSIGNMENTS. The Company
has caused each officer, key employee and consultant of the Company to enter
into an agreement with the Company relating to the assignment of inventions and
nondisclosure of confidential information, and copies of such assignments and
agreements (or a representative sample thereof) have been supplied to special
counsel for the Purchasers.
(bb) NO RESTRICTIONS. The Company in not a party to or bound by
any exclusive sales or purchase agreements or arrangements, nor is it otherwise
restricted, contractually or otherwise, from conducting its operations in any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Each of the Purchasers,
severally and not jointly, represents and warrants as follows:
(a) BINDING EFFECT. This Agreement has been duly authorized and
executed and is a valid and legally binding obligation of such Purchaser
enforceable in accordance with its terms.
(b) PARTNERSHIP MATTERS. In the case of each Purchaser which is a
partnership:
(i) The investment contemplated hereby is an authorized
investment under such Purchaser's partnership agreement.
(ii) The individual executing this agreement on behalf of
such Purchaser is a general partner therein, authorized to bind the partnership
by his signature hereto.
4. FEDERAL AND OTHER SECURITIES LAWS. Each of the Purchasers, severally
and not jointly, represents and warrants as follows:
(a) KNOWLEDGE OF UNREGISTERED STATUS. He or it understands that the
Preferred Shares are not, and any shares of Common Stock issued on the
conversion thereof ("Conversion Shares") at the time of issuance may not be,
registered under the 1933 Act in reliance on an exemption from registration
under the 1933 Act pursuant to Section 4(2) thereof for the sale contemplated by
this Agreement and the issuance of securities hereunder, and that the Company's
reliance on such exemption is predicated, in part, on the Purchasers'
representations set forth herein.
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(b) INVESTMENT EXPERIENCE; RISK. He or it is able to fend for itself
in the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the investment, and has the ability to bear the economic
risks of the investment indefinitely and could afford a complete loss of such
investment.
(c) LIMITS IMPOSED BY LAW UPON TRANSFER. He or it understands that
the Preferred Shares and Conversion Shares issued on conversion thereof may not
be sold, transferred or otherwise disposed of without registration under the
1933 Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Preferred Shares or Conversion Shares issued
on conversion thereof or an available exemption from registration under the 1933
Act, the Preferred Shares or Conversion Shares issued on conversion thereof must
be held indefinitely.
(d) ACCREDITED INVESTOR. He or it is an Accredited Investor, as
defined in Rule 501 of Regulation D promulgated under the 1933 Act.
(e) ACQUISITION FOR INVESTMENT. He or it is acquiring Preferred
Shares hereunder for investment for his or its own account, and not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof
except in a manner consistent with applicable securities laws, and that it has
no present intention of selling, granting any participation in, or otherwise
distributing the same except at such time or in such manner as is in compliance
with applicable securities laws.
(f) PROVISION OF INFORMATION. James Coane and Bruce Johnson, on
behalf of the Company, have afforded him or it and his or its professional
advisors and his or its Purchaser Representative (if any), full and complete
access to all information with respect to the Company, its management and/or the
Company's proposed operations that he or it and such advisors and/or Purchaser
Representative (if any) have deemed necessary and material for an evaluation of
the merits and risks for him of making an investment in the Preferred Shares. He
or it, such advisors and/or Purchaser Representative (if any), have had adequate
opportunity to ask questions of, and receive answers from, persons acting on
behalf of the Company regarding the terms and conditions of the Offering and to
obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information provided to him or his advisors. All such
questions have been answered to the full satisfaction of the Purchasers and
their professional advisors and/or Purchaser Representatives (if any).
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(g) INDIVIDUAL MATTERS. In the case of those Purchasers who are
individuals, each of the Purchasers, severally and not jointly, represents and
warrants as follows:
(i) The Preferred Shares being acquired by him pursuant to
this Agreement are being acquired by such party for investment purposes only,
for such party's own account and not with a view to the offer, sale or
distribution thereof.
(ii) He has such knowledge and experience in financial and
business matters and, in particular, concerning investments, as is necessary to
enable him, alone or together with his advisors and/or Purchaser Representative
(as defined in Rule 501 of Regulation D under the 1933 Act), if any, to evaluate
the merits and risks of making an investment in the Preferred Shares.
(iii) He and/or his Purchaser Representative, if any, has
received, has read and understands this Agreement, and the documents, Financial
Statements and other material relating to the Company provided herewith. He
and/or his Purchaser Representative, if any, is familiar with and understands
the business and operations of the Company.
(iv) In evaluating the merits and risks of making an
investment in the Preferred Shares hereunder, he has relied on the advice of his
own personal legal, financial, tax and accounting advisors and/or Purchaser
Representative (if any).
(v) The address set forth below in the Schedule of
Purchasers, is his true residence, and he has no present intention of becoming a
resident of any other state or jurisdiction.
(vi) He understands that there are substantial risks
pertaining to the making of an investment in the Preferred Shares hereunder,
including but not limited to risks resulting from the fact that the Company: is
a small company in an emerging technology market; does business in foreign
markets; and is thinly capitalized and has a history of operating losses. The
likelihood of the Company's success must be considered in light of the problems,
expenses, difficulties and delays frequently encountered in connection with the
development of new technology, marketing that technology and the above-mentioned
risk factors and the competitive environment in which the Company operates. No
assurance can be given that the proceeds of the sale of Preferred Shares to the
Purchasers will be sufficient for the Company's purposes. Furthermore, there can
be no assurance that the Company will become profitable. He is fully able to
bear the economic risk of an investment in the Preferred Shares for an
indefinite period of time and could afford a complete loss of such investment.
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(vii) He is advised that there will be no public market for
the Preferred Shares or Common Stock. He has no need for liquidity in the
Preferred Shares and is able to bear the risk of making an investment in the
Preferred Shares for an indefinite period. His present financial condition is
such that he is under no present or contemplated future need to dispose of any
portion of the Preferred Shares to satisfy any existing or contemplated
undertaking, need or indebtedness. His overall commitment to investments which
are not readily marketable is not disproportionate to his net worth and the
making of an investment in the Preferred Shares will not cause such overall
commitment to become excessive.
5. CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING. The several
obligations of the Purchasers under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the conditions contained in
this Section 5, any of which may be waived by the subscribers for at least
seventy-five percent (75%) of the Preferred Shares to be issued hereunder:
(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of the Company contained in Section 2 shall be
true on and as of the Closing with the same force and effect as if they had been
made at the Closing (except to the extent that they expressly relate to an
earlier date).
(b) PERFORMANCE. The Company shall have performed and complied with
all agreements, conditions and covenants contained in this Agreement required to
be performed or complied with by it on or before the Closing.
(c) QUALIFICATIONS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
(d) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to Purchasers and their special counsel and Purchasers shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(e) FILING OF STATEMENT. The Statement shall have been filed with the
Secretary of State of the Commonwealth of Pennsylvania, and Purchasers shall
have received satisfactory evidence thereof.
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(f) OPINION OF COUNSEL. Purchaser shall have received from counsel
to the Company an opinion dated as of the Closing, substantially in the form
attached as Exhibit C.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to each Purchaser under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions,
any of which may be waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of such Purchasers contained in Sections 3 and 4
shall be true on and as of the Closing with the same force and effect as if they
had been made at the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
(c) PAYMENT FOR PREFERRED SHARES. The Company shall have received
payment for the Preferred Shares to be purchased hereunder.
7. COVENANTS OF THE COMPANY.
(a) DESIGNATION OF PREFERRED SHARES. As soon as practicable after
the execution of this Agreement, the Company shall adopt and file and keep in
force with the Secretary of State of the Commonwealth of Pennsylvania the
Statement, attached to this Agreement as Exhibit A, designating the Preferred
Shares.
(b) ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. The Company shall
maintain a standard system of accounting in accordance with generally accepted
accounting principles applied on a consistent basis and shall make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions. Until such time as the Company is required to file
reports under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Company shall deliver to Purchasers:
(i) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company, a profit or loss statement for such fiscal year, a balance
sheet of the Company as of the end of such year, and a statement of cash flows
for such year, certified, without qualification as to scope of the
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examination, by independent public accountants of recognized national standing
selected by the Company; and
(ii) QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45)
days after the end of each of the first three (3) quarters of the fiscal year an
unaudited statement of income for such fiscal quarter and an unaudited balance
sheet as of the end of such fiscal quarter, setting forth in comparative form
the figures for the corresponding periods of the previous fiscal year.
(c) BUSINESS PLAN AND PROJECTIONS. As soon as available, but in
any event within forty-five (45) days after commencement of each new fiscal
year, a business plan and projected financial statements for such fiscal year.
(d) ADDITIONAL INFORMATION.
(i) Upon the written request of any Purchaser, the Company
shall also furnish to a representative designated by a majority of the
Purchasers, with reasonable promptness, such other information relating to the
financial affairs of the Company as is furnished or made available (or not so
furnished or made available but required by law to be furnished or made
available) to directors of the Company.
(ii) The representative so designated shall have the same
obligations with respect to protection and nondisclosure (other than to the
Purchaser) of any information so furnished as a director of the Company would
have with respect to such information.
(e) NONDISCLOSURE AND INVENTION ASSIGNMENTS. The Company will
continue to cause each officer, key employee and consultant of the Company to
enter into an agreement with the Company relating to the assignment of
inventions and nondisclosure of confidential information, in substantially the
form previously utilized by the Company.
(f) USE OF PROCEEDS. The proceeds from the sale of Preferred Shares
shall be used for working capital and capital expenditures.
(g) TAXES. The Company will promptly pay and discharge or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto; and provided
further, that the Company will pay all such taxes,
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assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor. The Company will
promptly pay or cause to be paid when due, or in conformance with customary
trade terms, all other indebtedness incident to the operations of the Company.
(h) MAINTENANCE OF PROPERTIES. The Company will keep its properties
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; the Company will at all times
comply with the provisions of all material leases to which it is a party or
under which it occupies property so as to prevent any loss or forfeiture thereof
or thereunder.
(i) INSURANCE. The Company will keep its assets that are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and explosion insurance in amounts
customary for companies in similar businesses similarly situated; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards, risks and liabilities to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated.
(j) GOVERNMENTAL REQUIREMENTS. The Company will duly observe and
conform to all valid requirements of governmental authorities relating to the
conduct of its businesses or to its property or assets.
(k) CORPORATE EXISTENCE, LICENSES, ETC. The Company shall maintain
in full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use patents, processes, licenses, trademarks, trade
names or copyrights owned by it and deemed by the Company to be significant to
the conduct of its business.
(l) REQUIRED FILINGS. The Company will cooperate in filing any
notices of sale required to be filed with the Securities and Exchange Commission
pursuant to Regulation D promulgated under the 1933 Act or any state securities
law authority pursuant to applicable blue sky laws.
(m) DIRECTOR NOMINEE. At all times prior to the completion of an
initial public offering of its shares, the Company covenants to take all actions
reasonably necessary to appoint a nominee of the Preferred Shares to the
Company's Board of Directors and to nominate such designee for election by
shareholders of the Company.
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(n) TERMINATION OF COVENANTS. The covenants set forth in this Section
7 shall terminate and be of no further force or effect after the date of the
closing of the Company's first public offering of its securities resulting in
proceeds to the Company of not less than $5,000,000.
8. REGISTRATION RIGHTS.
(A) DEFINITIONS. As used in this Section 8, the following terms
shall have the following respective meanings:
(i) "Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the Securities
Act.
(ii) "Person" shall mean and include an individual, a
corporation, a partnership, a trust, an unincorporated organization and a
government or any department, agency or political subdivision thereof.
(iii) "Restricted Securities" shall mean the Preferred Shares,
the Common Stock issuable upon conversion thereof and any shares of capital
stock received in respect of any thereof, evidenced by certificates bearing the
restrictive legend set forth in Section 8(b); provided, however, any securities
shall cease to be considered Restricted Securities for the purposes of this
Section 8 at such time that the holder thereof may sell or dispose of all such
securities held by such holder without limitation, without the need for
registration under the Securities Act.
(iv) "Restricted Shares" shall mean the Preferred
Shares constituting Restricted Securities.
(v) "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(vi) "Transfer" shall include any disposition of any shares
of Restricted Securities or of any interest therein which would constitute a
sale thereof within the meaning of the Securities Act.
(b) RESTRICTIVE LEGENDS. Each certificate for the Restricted
Securities and any shares of capital stock received in respect thereof, whether
by reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of this Agreement) be stamped or otherwise imprinted with
legends in substantially the following form:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES ACTS OF ANY STATE
HEREOF. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE UNITED
STATES OR TO A UNITED STATES CITIZEN IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO N2K INC. AND IN
ACCEPTABLE FORM AND SUBSTANCE THAT AN EXEMPTION THEREFROM IS AVAILABLE
UNDER SAID ACTS.
(c) NOTICE OF TRANSFER. The holder of any Restricted Securities, by
acceptance thereof, agrees, prior to any transfer of any Restricted Securities,
to give written notice to the Company of such holder's intention to effect such
transfer and to comply in all other respects with the provisions of this Section
8(c). Each such notice shall describe the manner and circumstances of the
proposed transfer and shall be accompanied by (a) the written opinion, addressed
to the Company, of counsel reasonably acceptable to the Company for the holder
of Restricted Securities, as to whether in the opinion of such counsel such
proposed transfer involves a transaction requiring registration of such
Restricted Securities under the Securities Act and state securities acts and, if
not, a description of the exemptions available, and (b) in the case of
Restricted Shares, if in the opinion of such counsel such registration is
required, a written request addressed to the Company by the holder of Restricted
Securities, describing in detail the proposed method of disposition and
requesting the Company to effect the registration of such Restricted Shares
pursuant to the terms and provisions of Section 8(d), 8(e) or 8(f) hereof, as
the case may be. If in the opinion of such counsel the proposed transfer of
Restricted Securities may be effected without registration under the Securities
Act and state securities acts, the holder of Restricted Securities shall
thereupon be entitled to transfer Restricted Securities in accordance with the
terms of the notice delivered by it to the Company. Each certificate or other
instrument evidencing the securities issued upon the transfer of any Restricted
Securities (and each certificate or other instrument evidencing any
untransferred balance of such securities) shall bear the legends set forth in
Section 8(b) unless (a) in the opinion of such counsel registration of future
transfer is not required by the applicable provisions of the Securities Act and
state securities acts or (b) the Company shall have waived the requirement of
such legends. Except as provided above, the holder of Restricted Securities
shall not transfer such Restricted Securities until such opinion of counsel has
been given to the Company (unless waived by the Company) or until registration
of the Restricted Shares involved in the above-mentioned request has become
effective under the Securities Act.
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(d) INCIDENTAL REGISTRATION. If the Company proposes for any reason
to register any of its securities under the Securities Act (other than in an
initial public offering or pursuant to a registration statement on Forms S-8 or
S-4 or similar or successor forms), it shall each such time promptly give
written notice to all holders of outstanding Restricted Securities of its
intention to do so, and, upon the written request, given within 30 days after
receipt of any such notice of the holder of any such Restricted Securities to
register any Restricted Shares (which request shall specify the Restricted
Shares intended to be sold or disposed of by such holders), the Company shall
use its best efforts to cause all such Restricted Shares to be included in such
registration under the Securities Act, all to the extent requisite to permit the
sale or other disposition (in accordance with the Company's intended methods
thereof, as aforesaid) by the prospective seller or sellers of the Restricted
Shares so registered. In the event that the proposed registration by the Company
is, in whole or in part, an underwritten public offering of securities of the
Company, if the managing underwriter determines and advises in writing that the
inclusion of all Restricted Shares proposed to be included in the underwritten
public offering and other issued and outstanding shares of Common Stock proposed
to be included therein by persons other than the holders of Restricted
Securities (the "Other Shares") would interfere with the successful marketing of
such securities, then (i) the number of Restricted Shares and Other Shares shall
be reduced, pro rata among the holders of Other Shares and the holders of
Restricted Shares (based upon the number of shares of Common Stock requested by
the holders thereof to be registered in such underwritten public offering), and
(ii) in each case those shares of Common Stock which are excluded from the
underwritten public offering shall be withheld from the market by the holders
thereof for a period, not to exceed 90 days, which the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
(e) REGISTRATIONS ON FORM S-2 OR S-3. At such time as the Company
shall have qualified for the use of Form S-2 or S-3 (or any similar form or
forms promulgated by the Commission), the holders of Restricted Securities shall
have the right to request an unlimited number of registrations on Form S-2 or
S-3 (which request or requests shall be in writing, shall specify the Restricted
Shares intended to be sold or disposed of by the holders thereof, shall state
the intended method of disposition of such Restricted Shares by the holder(s)
requesting such registration and shall relate to Restricted Shares having a
proposed aggregate gross offering price (before deduction of underwriting
discounts and expenses of sale) of at least $500,000), and the Company shall be
obligated to effect such registration or registrations on Form
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S-2 or S-3 (as the case may be); provided, however, that the Company shall in no
event be obligated to cause the effectiveness of more than one such registration
statement in any calendar year. The Company shall not register securities for
sale for its own account in any registration requested pursuant to this Section
8(e) unless requested to do so by the holders of Restricted Securities who hold
at least 51% of the stock as to which registration has been requested. The
Company may not cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement an employee
benefit plan or to acquire another company) to become effective less than 90
days after the effective date of any registration requested pursuant to this
Section 8(e).
(f) DEMAND REGISTRATION. At any time prior to the time that the
Company shall have qualified for the use of Form S-2 or S-3 (or any similar form
or forms promulgated by the Commission) the holders of a majority in interest of
the then outstanding Restricted Securities shall have the one-time right to
request the Company to file a registration statement on any form which the
Company is then entitled to use. Such request shall be in writing, shall specify
the shares of Common Stock (into which the Preferred Stock shall have been
converted) intended to be sold or disposed of by the holders thereof, shall
state the intended method of disposition by the holder(s) requesting such
registration and shall relate to Common Stock having a proposed aggregate gross
offering price (before deduction of underwriting discounts and expenses of sale)
of at least $500,000, and the Company shall be obligated to effect such
registration as promptly as practical, subject in any event to all applicable
securities laws and, if such registration relates to an underwriting, all
requirements of the Company's investment banker; provided, however, that the
Company shall not be required to file such registration statement prior to the
expiration of 180 days from the effective date of the Company's registration
statement covering its initial public offering.
(g) DESIGNATION OF UNDERWRITER.
(i) In the case of any registration effected pursuant to
Section 8(e) or 8(f), a majority in interest of the requesting holders of
Restricted Securities or Common Stock (in the case of a registration effected
pursuant to Section 8(f)) shall have the right to designate the managing
underwriter (if any) in any such underwritten offering, subject in any event to
the proviso set forth in Section 8(j) hereof.
(ii) In the case of any registration initiated by the
Company, the Company shall have the right to designate the managing underwriter
in any underwritten offering.
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(h) GRANTING OF REGISTRATION RIGHTS. The Company shall not grant any
rights to any persons to register any shares of capital stock or other
securities of the Company if such rights would be superior to the rights of the
holders of Restricted Securities granted pursuant to this Agreement, unless the
Purchaser is given the same or comparable rights.
(i) PREPARATION AND FILING. (A) If and whenever the Company is under
an obligation pursuant to the provisions of this Section 8 to effect the
registration of any Restricted Shares, the Company shall, as expeditiously as
practicable:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and current for at least nine months and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
Restricted Shares covered by such registration statement;
(iii) furnish to each selling shareholder such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Restricted Shares;
(iv) use its best efforts to register or qualify the
Restricted Shares covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each such seller shall reasonably request
(provided, however, the Company shall not be required to consent to general
service of process for all purposes in any jurisdiction where it is not then
qualified) and do any and all other acts or things which may be necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities;
(v) notify each seller of Restricted Shares covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Securities
Act within the appropriate period mentioned in clause (ii) of this Section 8(i),
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material
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fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a Supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(vi) furnish, upon request, to each requesting seller a signed
counterpart, addressed to the requesting seller or sellers, of (i) an opinion of
counsel for the Company, dated the effective date of the registration statement,
and (ii) a "comfort" letter signed by the independent public accountants who
have certified the Company's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the "comfort" letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in opinions of issuer's counsel and in "comfort" letters delivered
to the underwriters in underwritten public offerings of securities.
(B) The Company shall maintain the effectiveness of any
registration statement filed pursuant to paragraphs 8(e) or 8(f) until such time
that all Restricted Securities included therein are sold or no longer constitute
Restricted Securities as defined in paragraph 8(a)(iii).
(j) EXPENSES. All expenses incurred by the Company in complying with
Section 8(i) shall be paid by the Company, including, without limitation, all
registration and filing fees, printing expenses, blue sky filing fees, fees and
disbursements of counsel for the Company, as well as the fees and disbursements
of counsel designated for the sellers of Restricted Securities, and expenses of
any required audits; provided, however, that (a) the Company shall not be
obligated for payment of the fees and disbursements of more than one counsel for
the holders of Restricted Securities in connection with registration under
Section 8(d), 8(e) or 8(f) hereof and (b) all underwriting discounts and selling
commissions and other similar fees and costs applicable to the Restricted Shares
covered by registrations effected pursuant to Section 8(d), 8(e) or 8(f) hereof
shall be borne by the seller or sellers thereof, in proportion to the number of
Restricted Shares sold by such seller or sellers.
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(k) INDEMNIFICATION.
(i) In the event of any registration of any Restricted
Shares under the Securities Act pursuant to this Section 8 or registration or
qualification of any Restricted Shares pursuant to Section 8(i)(iv), the Company
shall indemnify and hold harmless the seller of such shares, or any other person
acting on behalf of such seller and each other person, if any, who controls any
of the foregoing persons, within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which any of the
foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such Restricted Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any document prepared and/or furnished by the Company incident to
the registration or qualification of any Restricted Shares pursuant to Section
8(i)(iv), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, or any violation by the Company of the
Securities Act or state securities or blue sky laws applicable to the Company
and relating to action or inaction required of the Company in connection with
such registration or qualification under such state securities or blue sky laws,
and shall reimburse such seller, underwriter or other person acting on behalf of
such seller and each such controlling person for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus or said prospectus or said
amendment or supplement or any document incident to the registration or
qualification of any Restricted Shares pursuant to Section 8(i)(iv), in reliance
upon and in conformity with written information furnished to the Company by such
seller or such seller's agent or representative specifically for use in the
preparation thereof.
(ii) Before Restricted Shares held by any prospective seller
shall be included in any registration pursuant to Section 8, such prospective
seller and any
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underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section 8(k) or, if different, in the manner and to
the extent as is in accordance with standard industry practice at the time of
the proposed sale) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement, and any person who
controls the Company within the meaning of the Securities Act, with respect to
any untrue statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or omission was made in reliance
upon and in conformity with written information furnished to the Company by such
seller or such seller's agent or representative specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus or amendment or supplement; provided, however, that the amount of
each such seller's indemnification obligation shall be limited to the net
proceeds received by such seller from the sale of such seller's Restricted
Shares pursuant to the registration statement.
(iii) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 8(k), such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 8(k), the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any counsel retained by the indemnified party which are
reasonably related to the
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matters covered by the indemnity agreement provided in this Section 8(k).
(iv) The failure to notify an indemnifying party promptly of
the commencement of any such action, if materially prejudicial to the ability of
the indemnifying party to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this paragraph, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party otherwise than
under this Section 8.
(v) The indemnifying party shall not make any settlement of
any claims indemnified against hereunder without the written consent of the
indemnified party or parties, which consent shall not be unreasonably withheld.
(l) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company or a seller on grounds of public policy
or otherwise, the Company and each seller shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending the same) to
which the Company and each seller or underwriter (and any person who controls
any of the foregoing persons, and any person acting on behalf of any of the
foregoing persons in connection with such registration), including, without
limitation, any officer, director, broker, employee, agent, attorney and
accountant, and in the case of a partnership, each of its partners), as the case
may be, in such proportion as is appropriate to reflect the relative fault of
the Company and such seller or underwriter (and any person who controls any of
the foregoing persons, and any person acting on behalf of any of the foregoing
in connection with such registration, including, without limitation, any
officer, director, broker, employee, agent, attorney or accountant, and in the
case of a partnership, each of its partners), as the case may be, in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as all other relevant equitable considerations;
provided, however, that 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
misrepresentation; and provided further, that in the case of each seller, the
maximum amount of such contribution shall be limited to an amount equal to the
net proceeds actually received by such seller from the sale of Restricted Shares
effected pursuant to such registration. Any
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<PAGE> 26
party entitled to contribution under this paragraph shall, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this paragraph, notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
paragraph.
(m) REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the holders of the Restricted Securities the benefits of
Rule 144 promulgated under the 1933 Act and any other rule or regulation of the
Commission that may at any time permit a holder to sell securities of the
Company to the public without registration, the Company agrees to use its best
efforts to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times subsequent to ninety
(90) days after the effective date of the first registration statement covering
an underwritten public offering filed by the Company;
(ii) file with the Commission in a timely manner all reports
and other documents required of the Company under the 1934 Act; and
(iii) furnish to any holder of Restricted Securities so long
as such holder owns any of the Restricted Securities forthwith upon request a
written statement by the Company that it has complied with the reporting
requirements of Rule 144 (at any time after ninety (90) days after the effective
date of said first registration statement filed by the Company), and of the 1933
Act and the 1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as may be
reasonably requested in availing such holder of any rule or regulation of the
Commission permitting the selling of any such securities without registration.
(n) TRANSFER OF REGISTRATION RIGHTS. The registration rights of a
Purchaser under Sections 8(d), 8(e) and 8(f) may be transferred to a transferee
who acquires at least 20% of the Registrable Securities originally issued to
such Purchaser, or to a partner, family member or affiliate of such Purchaser
without restriction as to minimum transfer amount. The Company shall be given
written notice by the holder at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to
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<PAGE> 27
which the rights under this Section 8 are being assigned. Such registration
right shall not be otherwise transferable without the consent of the Company.
(o) LIMITATION ON SALES AND EXERCISE OF REGISTRATION RIGHTS.
Notwithstanding any of the terms and provisions of this Section 8, the
Purchasers and their transferees hereby agree that, to the extent requested by
the representatives of the underwriters in the Company's initial public
offering, (i) they will not sell, transfer, assign, pledge or hypothecate any
shares of the Company's stock (except for transfers to partners, family members
or affiliates) or agree to take any of the above actions following the date of
an effective registration statement for an initial public offering of the
Company's shares (the "Commencement Date") and continuing for a period of up to
180 days thereafter without the consent of the representatives of the
underwriters in the offering and (ii) they would agree to defer the earliest
date on which a registration statement filed pursuant to Section 8(e) or 8(f) of
this Agreement is permitted to become effective until 270 days following the
Commencement Date, unless an earlier date is consented to by the representative
of the underwriters in the offering; provided, however, that such limitations
and restrictions shall be binding on the Purchasers and their transferees only
if (a) similar restrictions are in place or agreed to by all of the Company's
officers, directors and 5% or greater stockholders and by holders representing
at least 80% of the shares of all series of preferred stock other than the
Preferred Stock purchased pursuant to this Agreement and (b) with respect to the
limitation of clause (ii) above, all of the Company's officers and directors and
all holders of the Company's Series E Preferred Stock agree not to sell or
transfer any shares of the Company's stock held on the Commencement Date until
such time that the holders of the Preferred Shares are generally free to sell
their shares pursuant to an effective registration statement or Rule 144 or any
comparable exemption from the registration requirements of the Securities Act.
9. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, personal representatives, successors and
assigns of the parties, except to the extent assignability is limited herein.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York.
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<PAGE> 28
(c) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit with the United States Postal Service, by registered or
certified mail, postage prepaid, addressed to the party as shown in the caption
to this Agreement or on the appropriate Schedule attached hereto or at such
other address as any party may designate by ten days' advance written notice to
the other party.
(f) FINDERS' FEES. Each Purchaser represents that it neither is, nor
will be, obligated for any finders' fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Purchasers or any of its partners, employees
or representatives is responsible. The Company agrees to indemnify and hold
harmless Purchasers from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
(g) RIGHTS OF PURCHASERS. Except as provided in another written
document executed by such holder, each holder of Preferred Shares (or Common
Stock issued upon conversion thereof) shall have the absolute right to exercise
or refrain from exercising any right or rights that such holder may have by
reason of this Agreement or ownership of any Preferred Shares, including without
limitation the right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an agreement with the Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Preferred Shares with respect to exercising or refraining from
exercising any such right or rights.
(h) AMENDMENT. Except as otherwise provided herein, this Agreement
may be modified or amended only by a writing signed by the Company and by the
holders of at least sixty-six
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and two-thirds percent (66-2/3%) of the Preferred Stock outstanding.
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<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
N2K INC.
By:
---------------------------------
Bruce Johnson, Secretary and
Vice President
PURCHASERS:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
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<PAGE> 1
Exhibit 4.11
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 13, 1996, among N2K
INC., a Pennsylvania corporation formerly known as Telebase Systems, Inc. (the
"Company"), and ROBERT DAVID GRUSIN, LAWRENCE L. ROSEN, JONATHAN V. DIAMOND,
JEROLD L. ROSEN, CHRISTOPHER L. BELL and MARY KAY FLETCHER (collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, N2K Inc., a New York corporation ("N2K"), and the Company have
entered into a Merger Agreement, dated as of January __, 1996 (the "Merger
Agreement") to merge with each other (the "Merger");
WHEREAS, the Shareholders collectively own all of the outstanding
capital stock of N2K;
WHEREAS, as consideration in the Merger the Shareholders will receive
Common Stock and Series E Preferred Stock of the Company (the "Merger
Consideration"); and
WHEREAS, as a condition to the consummation of the Merger, the Company
has agreed to provide to the Shareholders certain registration rights pursuant
to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. For purposes of this Agreement, capitalized
terms used herein shall have the meanings set forth in the preambles hereto and
in this Section 1.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock, par value $.001
per share, of the Company or, in the case of a conversion, reclassification or
exchange of such shares of such Common Stock, shares of the stock into or for
which such shares of Common Stock shall be converted, reclassified or exchanged,
and all provisions of this Agreement shall be applied appropriately thereto and
to any stock resulting from any subsequent conversion, reclassification or
exchange therefor.
<PAGE> 2
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute enacted hereafter, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
"Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Commission which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.
"Holder" shall mean any holder of Registrable Securities;
provided, however, that any Person who acquires any of the Registrable
Securities in a distribution pursuant to a registration statement filed by the
Company under the Securities Act or pursuant to a sale to the public under Rule
144 under the Securities Act chain not be considered a Holder.
"Initiating Holders" shall mean Holders representing (on a
fully converted basis) at least thirty percent (30%) of the total number of
shares of Common Stock issued or issuable upon conversion of the Series E
Preferred Stock acquired by the Shareholders as part of the Merger Consideration
(and any other or additional shares, securities or property that may hereafter
be issuable upon the conversion of the Series E Preferred Stock) held by the
Holders.
"Initial Public Offering" means an initial public offering of
Common Stock of the Company or options, preferred stock, warrants or other
securities convertible into or exchangeable for Common Stock, pursuant to an
effective registration statement (other than a registration statement on Form
S-4 or Form S-8 or any successor forms thereto) filed by the Company under the
Securities Act, which offering generates net proceeds to the Company of at least
$5,000,000. An Initial Public Offering shall be deemed consummated upon the
first sale under the related registration statement or in the case of an
offering which is not underwritten, when the related registration statement
first becomes effective.
"Person" shall mean any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind.
"Register", "registered" and "registration" shall
refer to a registration effected by preparing and filing a
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<PAGE> 3
registration statement with the Commission in compliance with the Securities Act
and applicable rules and regulations thereunder, and the declaration or ordering
of the effectiveness of such registration statement by the Commission.
"Registrable Securities" shall mean (i) the shares of Common
Stock issued or issuable upon conversion of the Series E Preferred Stock (and
any other or additional shares, securities or property that may hereafter be
issuable upon conversion of the Series E Preferred Stock) acquired by the
Shareholders as part of the Merger Consideration, and (ii) the shares of Common
Stock acquired by the Shareholders as cart of the Merger Consideration and the
shares of Common Stock issuable upon the exercise of any options received by the
Shareholders pursuant to the Merger Agreement; provided, however, that the
shares of Common Stock shall only be treated as Registrable Securities hereunder
if and so long as they have not been sold in a registered public offering or
have not been sold to the public pursuant to Rule 144 under the Securities Act.
"Registration Expenses" shall mean all expenses incurred by
the Company in compliance herewith, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, and, in connection with a registration pursuant to
Section 3 hereof, the reasonable fees and expenses (subject to documentation
thereof) of one counsel for all holders, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal stature enacted hereafter, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
"Selling Expenses" shall mean all underwriting discounts and
commissions applicable to the sale of Registrable Securities.
"Series E Preferred Stock" shall mean the Series E Preferred
Stock, par value $.001 per share, of the Company.
"Series E Shares" shall mean the shares of Common Stock issued
or issuable upon exercise of the conversion of the Series E Preferred Stock.
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<PAGE> 4
2. Demand Registration.
2.1 Request for Registration. Subject to Section 2.6 hereof,
at any time and from time to time after an Initial Public Offering by the
Company, if the Company shall receive from the Initiating Holders a written
request that the Company effect any registration with respect to Registrable
Securities, the Company will:
(a) promptly give written notice of the proposed
registration to all other Holders; and
(b) as soon as practicable, use its best efforts
to effect such registration (including, without limitation, the
execution of an undertaking to file posteffective amendments,
appropriate qualifications under the blue sky or other state securities
laws reasonably requested by Initiating Holders and appropriate
compliance with applicable regulations issued under the Securities Act)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request given within forty-five (45) days
after receipt of such written notice from the Company; Provided that
the Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 2:
(i) in any particular jurisdiction in which
the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance,
unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act or applicable rules
or regulations thereunder; or
(ii) less than forty-five (45) calendar days
after the effective date of any registration declared or ordered
effective other than a registration on Form S-3 or Form S-8.
Subject to the foregoing clauses (i) and (ii), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request
or requests of the Initiating Holders; provided, that the Company shall be
required to comply with no more than two (2) such requests for registration
pursuant to this Section 2.1.
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<PAGE> 5
2.2 Additional Shares to be Included. The registration
statement filed pursuant to the request of the Initiating Holders may, subject
to the provisions of Section 2.4 below, include (a) ocher securities of the
Company (the "Additional Shares") which are held by (i) officers or directors of
the Company who, by virtue of agreements with the Company, are entitled to
include their securities in any such registration or (ii) other Persons who, by
virtue of written agreements with the Company, are entitled to include their
securities in any such registration (the "Other Stockholders"), and (b)
securities of the Company being sold for the account of the Company.
2.3 Underwriting.
(a) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2 and the Company shall include such information in the written
notice to other Holders referred to in Section 2.1 above. The right of any
Holder to registration pursuant to this Section 2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein and
subject to the limitations provided herein. A Holder may elect to include in
such underwriting all or a part of the Registrable Securities he holds.
(b) The Company shall (together with all Holders,
officers, directors and Other Stockholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders, which underwriter(s) shall be reasonably acceptable to the Company.
2.4 Limitations on Shares to be Included. Notwithstanding any
other provision of this Section 2, if the representative of the underwriters
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, first the Additional
Shares shall be excluded from such registration to the extent so required by
such limitation, then securities being sold for the account of the Company shall
be excluded from such registration and if a limitation on the number of shares
is still required, the number of shares that may be included in the registration
and underwriting shall be allocated among all Holders, including Initiating
Holders, in proportion, as nearly practicable, to the respective amounts of
Registrable Securities and other
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<PAGE> 6
securities which they have requested to be included in such registration
statement. If the Company or any Holder, officer, director or Other Stockholder
who has requested inclusion in such registration as provided above disapproves
of the terms of any such underwriting, such Person may elect to withdraw such
Person's Registrable Securities or Additional Shares therefrom by written notice
to the Company and the underwriter and the Initiating Holders. Any Registrable
Securities or other securities excluded shall also be withdrawn from such
registration. No Registrable Securities or Additional Shares excluded from such
registration by reason of such underwriters' marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with this Section 2.4, the Company or underwriter or underwriters
selected as provided above may round the number of Registrable Securities of any
Holder which may be included in such registration to the nearest 100 shares.
2.5 Additional Demand Registration. If with respect to the
last registration permitted to be exercised by the Holders of Registrable
Securities under this Section 2, the Holders are unable to register all of their
Registrable Securities because of the operation of Section 2.4 hereof, such
Holders shall be entitled to require the Company to effect one additional
registration to afford the Holders an opportunity to register all such
Registrable Securities.
2.6 Demand Limitations. Notwithstanding any other provision
of this Section 2, the Registrable Securities entitled to the registration
rights provided for in Section 2.1 hereof shall be limited to subsection (i) of
the definition of Registrable Securities set forth in Section 1 hereof.
3. Company Registration.
3.1 If the Company shall determine to register under the
Securities Act any of its equity securities or securities convertible into
equity securities either for its own account or the account of a security holder
or holders exercising any demand registration rights, other than a registration
relating solely to employee benefit plans, or a registration relating solely to
a Commission Rule 145 transaction, the Company will:
(a) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
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<PAGE> 7
(b) include in such registration (and, subject to
Section 2.1(b)(i), any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or request, made by any Holder within
thirty (30) days after receipt of the written notice from the Company described
in clause (a) above, except as set forth in Section 3.3 below. Such written
request may specify all or a part of a Holder's Registrable Securities.
3.2 Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1(a). The right of any Holder to registration pursuant to
this Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
any officers, directors or Other Stockholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected by the
Company.
3.3 Limitations on Shares to be Included. Notwithstanding
any other provision of this Section 3, if the representative of the underwriters
advises the Company in writing that marketing factors require a limitation or
elimination on the number of shares to be underwritten, the representative may
(subject to the allocation priority set forth below) limit the number of
Registrable Securities to be included in the registration and underwriting. The
Company shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated as follows: first, to the
Company for securities being sold for its own account; second, among all
Holders; thereafter, the number of shares that may be included in the
registration statement and underwriting shall be allocated among all officers,
directors or Other Stockholders in each case in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities or Additional
Shares which they had requested to be included in such registration at the time
of filing the registration statement. If any Holder of Registrable Securities or
any officer, director or Other Stockholder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable
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<PAGE> 8
Securities or other securities excluded or withdrawn from such underwriting
shall also be withdrawn from such registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
4. Registration on Form S-3. In addition to their rights set forth
in Sections 2 and 3 above, if at any time (i) Initiating Holders request that
the Company file a registration statement on Form S-3 (or any successor form
thereto) for a public offering of all or any portion of the Registrable
Securities (subject to the proviso below) held by such requesting Holder or
Holders, and (ii) the Company is a registrant entitled to use Form S-3 (or any
successor form thereto) to register such securities, then the Company shall use
its best efforts to register (including by means of a shelf registration
pursuant to Rule 415 under the Securities Act if so requested in such request)
under the Securities Act on Form S-3 (or any successor form thereto), for public
sale in accordance with the method of disposition specified in such notice, the
number of shares of Registrable Securities specified in such notice; provided,
however, that notwithstanding any other Provision of this Section 4, the
Registrable Securities entitled to the registration rights provided for in this
Section 4 shall be limited to subsection (i) of the definitions of Registrable
Securities set forth in Section 1 hereof. Such rights to registration on Form
S-3 shall be unlimited, provided, that the Company shall in no event be
obligated to cause the effectiveness of more than one such registration in any
calendar year. Registrations effected pursuant to this Section 4 shall not be
counted as demands for registration or registrations effected pursuant to
Section 2 or 3, respectively.
5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 2, 3 or 4 of this Agreement shall be borne by the Company, except that
Selling Expenses shall be come pro rata by each Holder in accordance with the
number of shares sold.
6. Registration Procedures.
6.1 In the case of each registration effected by the Company
pursuant to this Agreement, the Company will keep each Holder advised in writing
as to the initiation of each registration and as to the completion thereof and
will, at its expense:
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<PAGE> 9
(a) use its best efforts to keep such registration
effective for a period of 180 days or until the Holder or Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that the Company will keep such
registration effective for longer than 180 days if the costs and expenses
associated with such extended registration are borne by the selling Holders; and
provided, further, that in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 180-day period shall, at the cost and expense of the
Company, be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed oasis, and provided, further, that applicable rules and regulations
under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which (y)
includes any prospectus required by Section 10(a)(3) of the Securities Act or
(z) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information otherwise required to be included in such
post-effective amendment covered by (y) and (z) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement;
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such
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<PAGE> 10
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
(e) List all such Registrable Securities registered in
such registration on each securities exchange or automated quotation system on
which the Common Stock of the Company is then listed;
(f) Provide a transfer agent and registrar for all
Registrable Securities and a CUSIP number for all such Registrable Securities,
in each case not later than the effective date of such registration;
(g) Make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney or accountant retained
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers and directors to supply all information reasonably requested by any
such seller, underwriter, attorney or accountant in connection with such
registration statement;
(h) Furnish to each underwriter upon request a signed
counterpart, addressed to each such underwriter, of
(i) an opinion of counsel for the Company,
dated the effective date of the registration statement in form
reasonably acceptable to the Company and such counsel, and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the
Company's financial statements included in the registration statement,
to the extent permitted by the standards of the American Institute of
Certified Public Accountants,
covering such matters as are customarily covered in opinions of issuers counsel
and accountants' "comfort" letters delivered to underwriters in underwritten
public offerings of securities;
(i) Furnish to each selling Holder upon request a copy of
all documents filed with and all
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<PAGE> 11
correspondence from or to the Commission in connection with any such offering;
and
(j) Make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the first month
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
6.2 It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement that the Holders proposing
to register Registrable Securities shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and their
intended method of Distribution of such Registrable Securities as the Company
shall reasonably request and as shall be required in connection with the action
to be taken by the Company.
6.3 In connection with the preparation and filing of each
registration statement under this Agreement, the Company will give the Holders
on whose behalf such Registrable Securities are to be registered and their
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each such Holder such
access to the Company's books and records and such opportunities to discuss the
business of the Company with its officers, its counsel and the independent
public accountants who have certified the Company's financial statements, as
shall be necessary, in the opinion of such Holders or such underwriters or their
respective counsel, in order to conduct a reasonable and diligent investigation
within the Leaning of the Securities Act.
7. Indemnification.
7.1 Indemnification by the Company. The Company will indemnify
each Holder, each of its officers, directors and partners, and each Person
controlling such Holder, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter, against all claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
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<PAGE> 12
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission (i) made in reliance upon and based
upon written information furnished to the Company by such Holder or underwriter
and stated to be specifically for use therein or (ii) contained or made in any
preliminary prospectus and corrected in the final prospectus and any such loss,
liability, claim, damage or expense suffered or incurred by any Holder or any
Underwriter resulted from any action, claim or suit by any person who purchased
securities which are the subject thereof from any Holder or any underwriter and
such Holder or underwriter failed to deliver or provide a copy of the prospectus
to such person with or prior to the confirmation of the sale of such securities
sold to such person in any case where delivery is required by the Securities Act
or the rules and regulations thereunder, unless such failure to deliver or
provide a copy of the final prospectus was a result of noncompliance by the
Company with Section 6.1(c) of this Agreement.
7.2 Indemnification by the Holders. Each Holder will, if
Registrable Securities held by him are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company (other than such Holder) or such underwriter within the
meaning of the Securities Act and the rules and regulations thereunder, each
other such Holder and each of their officers, directors and partners, and each
person controlling such Holder or other stockholder, against all claims, losses,
damages, expenses and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to
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<PAGE> 13
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company, each of
its directors and officers, each underwriter or control person, each other
Holder and each of their officers, directors and partners and each person
controlling such Holder or other stockholder for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein.
7.3 Notices of Claims, Procedures, etc. Each party entitled
to indemnification under this Section 7 (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume he defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at the Indemnified Party's
sole expense, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7 unless such failure is prejudicial to the
ability of Indemnifying Party to defend such claim or action. Notwithstanding
the foregoing, such Indemnified Party shall have the right to employ its own
counsel in any such litigation, proceeding or other action if (i) the employment
of such counsel has been authorized by the Indemnifying Party, in its sole and
absolute discretion, or (ii) the named parties in any such claims (including any
impleaded parties) include any such Indemnified Party and the Indemnified Party
and the Indemnifying Party shall have been advised in writing (in suitable
detail) by counsel to the Indemnified Party either (A) that there may be one or
more legal defenses available to such Indemnified Party which are different from
or additional to those available to the Indemnifying Party, or (B) that there is
a conflict of interest by virtue of the Indemnified Party and the In- demnifying
Parties having common counsel, in any of which events, the legal fees and
expenses of a single counsel for all Indemnified Parties with respect to each
such claim, defense thereof, or counterclaims thereto shall be borne by
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<PAGE> 14
Indemnifying Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall cooperate to the extent reasonably
required and furnish such information regarding itself or the claim in question
as an Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and litigation
resulting therefrom.
8. Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
9. Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities granted by the Company under this Agreement
may be transferred or assigned by a Holder to a transferee or assignee of any
Registrable Securities, provided that the Company is given written notice at or
prior to the time of said transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights assumes in writing the
obligations of a Holder under this Agreement to the Company and other Holders in
effect at the time of transfer under all effective agreements.
10. Reports Under Exchange Act. After an Initial Public Offering by the
Company, with a view to making available to the Holders the benefits of Rule 144
under the Securities Act and any other rule or regulation of the Commission that
may at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep Public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after ninety (90) days (or such shorter period as may then be permitted by the
rules and regulations of the Commission in effect at such time) after the
effective date of the first registration statement
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<PAGE> 15
filed by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 under the Securities Act (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company, or such
shorter period as may be then permitted by the rules and regulations of the
Commission in effect at such time), the Securities Act and the Exchange Act (at
any time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual and
quarterly reports of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration or pursuant to such
form.
11. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which s inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement.
12. Benefits of Agreement; Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, legal representatives and heirs.
This Agreement does not create, and shall not be construed as creating any
rights enforceable by any other Person.
13. Complete Agreement. This Agreement constitutes the complete
understanding among the parties with respect to its subject matter and
supersedes all existing agreements and understandings, whether oral or written,
among them. No alteration or modification of any provisions of this
15
<PAGE> 16
Agreement shall be valid unless made in writing and signed, on the one hand, by
the Holders of a majority of the Registrable Securities then outstanding and, on
the other, by the Company.
14. Notices. All notices, offers, acceptances and other communications
required or permitted to be given or to otherwise be made to any party to this
Agreement shall be deemed to be sufficient if contained in a written instrument
delivered by hand, first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, if to the Company, at 55 Broad Street, New York, New York 10004, and
if to any Holder, at the address of such Holder as set forth in the stock
transfer books of the Corporation.
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;
when answered back, if telexed; when receipt acknowledged, if telecopied; and
the next business day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery. Any party may change the address to
which each such notice or communication shall be sent by giving written notice
to tie other parties of such new address in the manner provided herein for
giving notice.
15. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
without giving effect to the provisions, policies or principles thereof
respecting conflict or choice of laws.
16. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original but all of which taken
together shall constitute one and the same agreement.
17. Severability. Any provision of this Agreement which is determined
to be illegal, prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such illegality, prohibition or
unenforceability without invalidating the remaining provisions hereof which
shall be severable and enforceable according to their terms and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first set forth above.
------------------------------------
Robert David Grusin
------------------------------------
Lawrence L. Rosen
------------------------------------
Jonathan V. Diamond
------------------------------------
Jerold L. Rosen
------------------------------------
Christopher L. Bell
------------------------------------
Mary Kay Fletcher
N2K INC.
------------------------------------
Name:
Title:
17
<PAGE> 1
Exhibit 4.12
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of February 13, 1996 between N2K Inc.,
a Pennsylvania corporation, (the "Company") (formerly, Telebase Systems, Inc.),
and Unterberg Harris (the "Purchaser").
WITNESSETH:
WHEREAS, the Company proposes to issue to the Purchaser 150,000
warrants as hereinafter described (the "Warrants") to purchase up to an
aggregate of 150,000 shares (the "Warrant Shares") of the Company's common
stock, par value $.001 per share (the "Common Stock"), each Warrant entitling
the Holder (as defined herein) thereof to purchase one share of Common Stock on
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. Subject to the terms and
conditions of this Agreement, the Company will issue and deliver the Warrants to
the Purchaser as of the date hereof. The text of the Warrant Certificate and of
the Form of Election to Purchase shares shall be substantially in accordance
with such forms attached hereto. The Warrants shall be executed on behalf of the
Company by the President or Vice President of the Company under its corporate
seal attested by the signature of the Secretary or Assistant Secretary of the
Company.
2. REGISTRATION. The Warrants shall be numbered and shall be registered by
the Company as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant (the "Holder") as the owner in fact thereof for
all purposes and shall not be bound to recognize any equitable or other claim to
or interest in such Warrant on the part of any other person, and shall not be
liable for any registration or transfer of any Warrant which is registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary. The
Warrants shall be registered initially in the name of "Unterberg Harris" in such
denominations as the Purchaser may request to the Company.
3. NON-TRANSFERABILITY OF WARRANTS; The Warrants may not be transferred,
assigned, sold or hypothecated by the Holder other than an involuntary
assignment by operation of law to the Holder's personal representative.
<PAGE> 2
4. TERMS OF WARRANTS; EXERCISE OF WARRANTS. Each Warrant entitles the Holder
thereof to purchase one share of Common Stock at a purchase price of $.80 per
share (the "Exercise Price") at any time on or before 5:00 P.M. Philadelphia
time on February 12, 2001 (the "Expiration Date"). The Exercise Price and the
number of shares issuable upon exercise of Warrants are subject to adjustment
upon the occurrence of certain events pursuant to the provisions of Section 8 of
this Agreement. Subject to the provisions of this Agreement, each Holder of
Warrants shall have the right to purchase from the Company (and the Company
shall issue and sell to such Holder of Warrants upon the due exercise of such
Warrants in the manner prescribed herein) the number of fully paid and
non-assessable shares of Common Stock specified in such Warrants (as adjusted in
accordance with Section 8 of this Agreement), upon surrender to the Company, or
its duly authorized agent, of such Warrants, with the Form of Election to
Purchase attached thereto duly completed and signed, and upon payment to the
Company of the Exercise Price (as adjusted in accordance with the provisions of
Section 8 of this Agreement,) for the number of shares in respect of which such
Warrants are then exercised. Payment of such Exercise Price may be made by money
order, certified check or bank draft payable to the order of the Company. No
adjustment shall be made for any dividends on any shares of Common Stock
issuable upon exercise of a Warrant. Upon each surrender of Warrants, and
payment of the Exercise Price as aforesaid, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Holder of such Warrants and in such name or names as such Holder may designate,
a certificate or certificates for the number of full shares of Common Stock so
purchased upon the exercise of such Warrants, together with cash, as provided in
Section 9 of this Agreement, in respect of any fraction of a share of such
Common Stock otherwise issuable upon such surrender. 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
shares of Common Stock as of the date of the surrender of such Warrants and
payment of the Exercise Price as aforesaid; provided, however, that if, at the
date of surrender of such Warrants and payment of such Exercise Price, the
transfer books for the Common Stock or other class of stock purchasable upon the
exercise of such Warrants shall be closed, the certificates for the 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 (whether before, on or after the
Expiration Date) and until such date the Company shall be under no duty to
deliver any certificate for such shares; and provided further, that the transfer
books shall not be closed at any time for a period longer than twenty (20) days
unless otherwise required by law. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the Holders thereof, either as
an entirety or from time to time for part only
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<PAGE> 3
of the shares specified therein and, in the event that any Warrant is exercised
in respect of less than all of the shares specified therein at any time prior to
the date of expiration of the Warrants, a new Warrant or Warrants of like tenor
shall be issued for the remaining number of shares specified in the Warrant so
surrendered.
5. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company may in its discretion issue
and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen
or destroyed, a new Warrant of like tenor and representing an equivalent right
or interest; but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant and, if requested,
indemnity in form and amount reasonably satisfactory to the Company. Applicants
for such substitute Warrants shall also comply with such other reasonable
policies and pay such other reasonable charges as the Company may prescribe.
6. RESERVATION OF COMMON STOCK, ETC. There have been reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient to
provide for the exercise of the rights of purchase represented by the Warrants.
All Warrants surrendered in the exercise of the rights thereby evidenced shall
be cancelled, and such cancelled Warrants shall constitute sufficient evidence
of the number of shares of stock which have been issued upon the exercise of
such Warrants. After the Expiration Date, no shares of stock shall be subject to
reservation in respect of Warrants not therefore exercised.
7. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price in effect at any time and the number and kind of securities purchasable
upon the exercise of each Warrant shall be subject to adjustments from time to
time upon the happening of certain events as hereinafter provided:
(a) In case the Company shall (i) declare a dividend on its Common
Stock in shares of its capital stock, (ii) split up or otherwise subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares by reclassification of its
Common Stock (including any such reclassification in connection with a
consolidation or merger), the Exercise Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the Holder of any
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares which, if such Warrant had been
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<PAGE> 4
exercised immediately prior to such time, such Holder would have owned upon such
exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Sections 8(a) above, the number of Warrant
Shares purchasable upon exercise of each Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares initially issuable upon
exercise of each Warrant by the Exercise Price in effect on February 13, 1996
and dividing the product so obtained by the Exercise Price, as adjusted.
(c) In the event that at any time, as a result of an adjustment
made pursuant to Section 8(a) above, the Holder of any Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of any
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Sections 8(a) to (i), inclusive, above.
8. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of shares of Common Stock upon the exercise of Warrants. If any
fraction of a share of Common Stock would be issuable upon the exercise of any
Warrant (or specified portions thereof), the Company may, at its option,
purchase such fraction for an amount in cash equal to the same fraction of the
current market price of Common Stock (determined as provided in Section 8(h)
hereof) on the date of exercise.
9. WARRANTS AND WARRANT SHARES NOT REGISTERED. Each Holder of Warrants, by
acceptance thereof, represents and acknowledges that such Warrants and the
Warrant Shares which may be purchased upon exercise thereof have not been and
will not be registered under the Act on the grounds that the issuance of such
Warrants and the offering and sale of such Warrant Shares are exempt from
registration under Section 4(2) of the Act as not involving any public offering.
Each Holder of Warrants represents and warrants that such Holder (a) is
acquiring this Warrant for investment for such Holder's own account, with no
intention of reselling or otherwise distributing the same, subject,
nevertheless, to any requirement of law that the disposition of such Holder's
property shall at all times be within such Holder's control, (b) is an
"accredited investor" as defined in Rule 501 of Regulation D under the Act, (c)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investments made or to be made
in connection with the
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<PAGE> 5
acquisition and exercise of the Warrants, and (d) has been provided all such
information and access to information concerning such Holder's investment
hereunder as such Holder has requested from the Company. Neither the Warrants
nor the related Warrant Shares may be transferred except (i) (a) pursuant to an
effective registration statement under the Act or (b) in the case of transfers
other than those described in clause (i)(a), upon the conditions specified in
Section 11 hereof, which conditions are intended, among other things, to ensure
compliance with the provisions of the Act in respect of the transfer of such
Warrant or of such Warrant Shares, and (ii) upon compliance with applicable
state securities laws.
10. NOTICE OF TRANSFER OF WARRANT SHARES; OPINION OF COUNSEL. Each Holder of
Warrants, by acceptance thereof, agrees that prior to the disposition of any
Warrant Shares, such Holder will give written notice to the Company expressing
such Holder's intention to effect such disposition and describing briefly such
Holder's intention as to the disposition to be made of such Warrant Shares
theretofore issued upon exercise hereof, together with (a) an opinion of
independent counsel as may be designated by such Holder and satisfactory to the
Company (the costs of such opinion to be paid by such Holder) as to the
necessity or non-necessity of registration under the Act, and (b) such counsel's
opinion (or other evidence satisfactory to the Company) that such disposition
will also be in compliance with applicable state securities law, and the
provisions of the following subparagraphs shall apply:
(a) If in the opinion of such counsel, the proposed disposition
does not require registration under the Act of such Warrant Shares issuable or
issued upon the exercise of such Warrants, and such disposition will be in
compliance with applicable state securities laws relating to the registration or
qualification of securities for offer and sale, such Holder shall be entitled to
dispose of such Warrant Shares theretofore issued upon the exercise thereof, all
in accordance with the terms of the notice delivered by such Holder to the
Company.
(b) If in the opinion of such counsel, the proposed disposition
requires such registration of such Warrant Shares issuable or issued upon the
exercise of such Warrants, the Holder of such Warrants shall not be entitled to
transfer such Warrant Shares without such registration and the Company shall not
be obligated to effect any such registration.
11. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
initially issued upon exercise of the Warrants, unless at the time of exercise
such Warrant Shares are registered under the Act, shall bear the following
legend (and any additional
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<PAGE> 6
legend required under applicable law, rule or regulation) on the
face thereof:
"THE SHARES OF STOCK REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. NEITHER THESE SHARES, NOR ANY PORTION THEREOF OR
INTEREST THEREIN, MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THE SAME ARE REGISTERED WITH AND QUALIFIED IN ACCORDANCE
WITH SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless in the opinion of
counsel specified in Section 11 hereof the securities represented thereby need
no longer be subject to the restrictions contained in this Warrant. The
provisions of Sections 11 and 12 hereof shall be binding upon all subsequent
holders of certificates bearing the above legend, and shall also be applicable
to all subsequent holders of the Warrants and Warrant Shares.
12. VOTING, CONSENTS AND NOTICES. Nothing contained in this agreement or in
any of the Warrants shall be construed as conferring upon the Holders thereof
the right to vote or to consent or to receive notice as shareholders in respect
of the meetings of shareholders or the election of directors of the Company or
any other matter, or any rights whatsoever as shareholders of the Company.
13. NOTICES. Any notice or demand to be given or made by the Purchaser or by
the Holder of any Warrant or Warrant Share to the Company pursuant to this
Agreement shall be sufficiently given or made (except as otherwise provided in
this Agreement) if sent by certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
N2K Inc.
55 Broad Street
New York, NY 10004
Attention: President
Any notices or demand to be given or made by the Company to the Holder of any
Warrant pursuant to this Agreement shall be
6
<PAGE> 7
sufficiently given or made (except as otherwise provided in this Agreement) if
sent by first-class mail, postage prepaid, addressed to such Holder at the
address of such Holder as shown on the Warrant register.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
N2K INC.
Attest:
By:
- ---------------------------------- -----------------------------------------
Title: Title:
UNTERBERG HARRIS
Attest:
By:
- ---------------------------------- ----------------------------------------
Title: Title:
7
<PAGE> 8
(FORM OF WARRANT CERTIFICATE)
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SHARES OF STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED PURSUANT TO THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THE WARRANTS MAY NOT BE
TRANSFERRED, ASSIGNED, SOLD OR HYPOTHECATED BY THE HOLDER OTHER THAN AN
INVOLUNTARY ASSIGNMENT BY OPERATION OF LAW TO THE HOLDER'S PERSONAL
REPRESENTATIVE. SUCH SHARES OF STOCK, OR ANY PORTION THEREOF OR INTEREST
THEREIN, MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE SAME
IS REGISTERED AND QUALIFIED IN ACCORDANCE WITH SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW, OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
THIS WARRANT CERTIFICATE IS BEING ISSUED IN ACCORDANCE WITH, AND SUBJECT TO, THE
PROVISIONS OF A WARRANT AGREEMENT DATED AS OF FEBRUARY 13, 1996 BETWEEN N2K,
INC. AND UNTERBERG HARRIS.
No. R-1 150,000 Warrants
VOID AFTER 5:00 P.M. PHILADELPHIA TIME
on February 12, 2001
N2K Inc.
WARRANT CERTIFICATE
THIS CERTIFIES THAT, for value received, Unterberg Harris, or registered
assigns, is the owner of the number of Warrants set forth above, each of which
entitles the owner thereof to purchase at any time on or before February 12,
2001 one fully paid and nonassessable share of the Common Stock, $.001 per value
(the "Common Stock") of N2K Inc., a Pennsylvania corporation (the Company"), at
the purchase price of $.80 per share (the "Exercise Price") upon presentation
and surrender of this Warrant Certificate with the attached Form of Election to
Purchase duly executed. The number of Warrants evidenced by this Warrant
Certificate (and the number of shares of Common Stock which may be purchased
upon exercise thereof) set forth above, and the Exercise Price per share set
forth above, are the number and Exercise Price as of February 13, 1996, based on
the shares of Common Stock of the Company as constituted at such date. As
provided in the Warrant Agreement referred to below, the Exercise Price and the
number or kind of shares which may be purchased upon the exercise of the
Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to adjustment.
8
<PAGE> 9
This Warrant Certificate is subject to, and entitled to the benefits of, all
of the terms, provisions and conditions of an agreement dated as of February 13,
1996 (the "Warrant Agreement") between the Company and Unterberg Harris, which
Warrant Agreement is hereby incorporated herein by reference and made a part
hereof and to which Warrant Agreement reference is hereby made for a full
description of the rights, limitations, obligations, duties and immunities
hereunder of the Company and the holders of the Warrant Certificates. Copies of
the Warrant Agreement are on file at the principal office of the Company.
These Warrants may not be transferred, assigned, sold or hypothecated by the
holder hereof other than an involuntary assignment by operation of law to the
holder's personal representative.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the holder to purchase a like aggregate number of shares of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered entitled such holder to purchase. If this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive, upon surrender hereof, another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
Fractional shares of Common Stock may, but are not required to, be issued
upon the exercise of any Warrant or Warrants evidenced hereby, and in lieu
thereof a cash payment will be made by the Company at its discretion, as
provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, sale of assets, or otherwise) or,
except as provided in the Warrant Agreement, to receive notice of meetings or to
receive dividends or subscription rights or otherwise, until the Warrant or
Warrants evidenced by this Warrant Certificate shall have been exercised and the
Common
9
<PAGE> 10
Stock purchasable upon the exercise thereof shall have become deliverable as
provided in the Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period during
which the transfer books for the Common Stock or other class of stock
purchasable upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates for shares
purchasable upon such exercise until the date of the reopening of such transfer
books.
IN WITNESS WHEREOF, N2K Inc. has caused the signature of its
President and Secretary to be printed hereon and its corporate seal
to be printed hereon.
[SEAL]
N2K Inc.
Attest:
By:
- -------------------------------------- ---------------------------------
(Assistant Secretary) (Vice) President
10
<PAGE> 11
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Warrants represented by the
Warrant Certificate).
TO N2K Inc.:
The undersigned hereby irrevocably elects to exercise
- --------------------------------------- (---------------------)
Warrants represented by this Warrant Certificate to purchase the shares of
Common Stock issuable upon the exercisable of such Warrants and requests that
certificates for such shares be issued in the name of:
(Please print name and address
Please insert social security or other
identifying number: -------------------------
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
(Please print name and address)
Please insert social security or other
identifying number:---------------------
Dated: ,19
Signature:
---------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of this Warrant
Certificate)
11
<PAGE> 12
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires a transfer
Warrants represented by the Warrant Certificates.)
FOR VALUE RECEIVED _____________________ hereby sells, assigns and transfers
unto _____________________ this Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
_____________ __________________________________________, as attorney-in-fact to
transfer the within Warrant Certificates on the books of the within-name
Company, with full power of substitution.
Dated: ,19
By:___________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
12
<PAGE> 1
Exhibit 10.1
N2K INC.
EMPLOYMENT AGREEMENT
OF
LAWRENCE L. ROSEN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. POSITION AND RESPONSIBILITIES...................................... 1
2. TERM............................................................... 1
3. COMPENSATION AND REIMBURSEMENT..................................... 2
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION................. 4
5. CHANGE IN CONTROL.................................................. 5
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY................. 6
7. TERMINATION FOR CAUSE.............................................. 7
8. NOTICE............................................................. 7
9. CONFIDENTIALITY.................................................... 8
10. NON-COMPETITION.................................................... 8
11. SOURCE OF PAYMENTS................................................. 9
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS............. 9
13. NO ATTACHMENT...................................................... 9
14. MODIFICATION AND WAIVER............................................ 9
15. SEVERABILITY....................................................... 10
16. HEADINGS FOR REFERENCE ONLY........................................ 10
17. GOVERNING LAW...................................................... 10
18. PAYMENT OF LEGAL FEES.............................................. 10
19. INDEMNIFICATION.................................................... 10
20. SUCCESSOR TO THE COMPANY........................................... 11
</TABLE>
i
<PAGE> 3
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of February 13, 1996 by and between
N2K Inc. (the "Company"), a corporation organized under the laws of
Pennsylvania, with its principal administrative office at 55 Broad Street, New
York, New York 10004 and Lawrence L. Rosen (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as Chairman and Chief Executive Officer of the Company. The Executive
shall serve as a full time employee of the Company to perform such duties as the
Company may from time to time reasonably direct. The Executive's
responsibilities will include, among other things, (i) developing and assisting
in the development of new products and business for the Company, (ii)
supervising the preparation and development of budgets for the Company for
approval by the Board of Directors, and (iii) developing and directing the
Company's online services, CD-ROM capabilities and media and technology areas.
During said period, Executive also agrees to serve, if elected, as an officer
and director of any subsidiary of the Company. Notwithstanding the above, the
Executive may maintain his interests existing as of the date hereof in the
entities set forth on Schedule 1 hereto (the "Permitted Interests") so long as
the services rendered by the Executive in connection with the Permitted
Interests do not substantially interfere with the Executive's performance of his
duties under this Agreement.
2. TERM.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date hereof, and shall continue for a period
of forty-eight (48) full calendar months thereafter (the "Expiration Date").
Unless written notice shall have been delivered by the party desiring to
terminate this Agreement, which written notice shall have been delivered not
later than 120 days
<PAGE> 4
prior to the Expiration Date (including the Expiration Date with respect to any
renewed term), this Agreement shall be renewed for consecutive one (1) year
periods.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, and reasonable vacation periods, Executive
shall devote substantially all his business time, attention, skill, and efforts
to the faithful performance of his duties hereunder including activities and
services related to the organization, operation and management of the Company;
provided, however, that, with the approval of the Board of Directors of the
Company (the "Board"), as evidenced by a resolution of such Board, from time to
time, Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which,
in such Board's judgment, will not present any conflict of interest with the
Company, or materially affect the performance of Executive's duties pursuant to
this Agreement.
(c) Notwithstanding anything herein contained to the contrary: (i)
Executive's employment with the Company may be terminated by the Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement; and (ii) nothing in this Agreement shall mandate or prohibit
a continuation of Executive's employment following the expiration of the term of
this Agreement upon such terms and conditions as the Board and Executive may
mutually agree.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 1. The Company
shall pay Executive as compensation a salary of not less than $200,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
Company's payroll practice in effect from time to time. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase Executive's Base Salary. An increase shall
become the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Company shall also provide Executive
at no cost to Executive with all such other benefits as are provided uniformly
to permanent full-time employees of the Company.
(b) The Executive shall also receive an annual bonus amount to be
determined by the Board, provided such bonus shall be in an amount of not less
than $50,000.00 (the "Annual Bonus") until such time as Executive's Base Salary
has increased to at least $250,000 per year; thereafter, Executive shall
continue to be entitled to receive an annual bonus in an amount to be determined
by the Board in its
2
<PAGE> 5
sole discretion. The Executive shall only be eligible for an annual bonus as
long as the Executive remains an employee of the Company.
(c) The Executive will be entitled to five (5) weeks paid vacation
annually. The Company will provide the Executive, at Executive's election, with
either (i) an automobile allowance of not less than $800 per month or (ii) the
use of an automobile throughout the term hereof and the Company will pay for all
automobile insurance and all operating costs (i.e., gas, tolls, parking fees,
etc.) associated with the Executive's use of the Executive's automobile in
fulfillment of the Executive's duties under this Agreement. The Executive will
be entitled to participate in or receive benefits under any employee benefit
plans including, but not limited to, retirement plans (i.e., 401(k) plans),
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Company currently or in the future to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan of the Company in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement. In addition the Company shall obtain term life
insurance, naming the Executive's designee as beneficiary, in the face amount,
at all times, equal to the maximum allowable amount under the Company's existing
insurance policy.
(d) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraphs (b) and (c) of
this Section 3, the Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement.
(e) Simultaneously with the execution of this Agreement, the Company
shall grant to the Executive, pursuant to a stock option agreement satisfactory
to the Executive, incentive stock options to purchase 500,000 shares of common
stock and additional non-qualified options to purchase 421,098 shares of common
stock of the Company at an exercise price of $.80 per share (being the present
fair market value of such stock). In the event Executive is a holder of more
than ten percent (10%) of the combined voting power of the Company at the time
of the grant, the exercise price of any incentive stock option shall be $.88 per
share in accordance with the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended; provided, however, that in such event, upon each
exercise of all or a portion of such incentive stock options, Executive shall
receive a bonus at the time of exercise equal to (A) an amount which is equal to
$.08 per share, net the maximum combined federal, state and local tax rates then
applicable to Executive, multiplied by (B) the number of shares with respect to
which the incentive stock option is then exercised. Such options will vest
equally over a four (4) year period commencing on the date hereof, subject to
Sections 4(e) and 5 (e) hereof.
3
<PAGE> 6
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Company of Executive's full-time employment hereunder for any
reason, including, without limitation, the Company's failure to renew this
Agreement, other than a Change in Control (as defined in Section 5(a) hereof),
upon Retirement (as defined in Section 6 hereof), death or Disability (as
defined in Section 6 hereof), or for Cause (as defined in Section 7 hereof);
(ii) Executive's resignation from the Company's employ, upon any (A) failure to
elect or reelect or to appoint or reappoint Executive as Chief Executive
Officer, (B) unless consented to by the Executive, a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
(and any such material change shall be deemed a continuing breach of this
Agreement), (C) a relocation of Executive's principal place of employment by
more than 30 miles from its location at the effective date of this Agreement, or
a material reduction in the benefits and perquisites to the Executive from those
being provided as of the effective date of this Agreement or (D) material breach
of this Agreement by the Company. Upon the occurrence of any event described in
clauses (A), (B), (C) or (D), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
thirty (30) days prior written notice given within a reasonable period of time
not to exceed, except in case of a continuing breach, three (3) calendar months
after the event giving rise to said right to elect.
(b) Subject to Section 10 hereof, upon the occurrence of an Event of
Termination, the Company shall be obligated to pay Executive, or, as severance
pay or liquidated damages, or both, an amount equal to the sum of (i) eighteen
(18) months of the Executive's Base Salary at the time of the occurrence of the
Event of Termination plus (ii) the average of the Annual Bonus amount for the
three (3) prior years (or such lesser time number of years, in the event that
the Executive has been employed by the Company for less than three (3) years)
multiplied by 1.5. Such payment shall be made in equal monthly installments
during the eighteen (18) months following Executive's termination.
(c) Upon the occurrence of an Event of Termination, the Company will
cause to be continued life, medical, dental and disability coverage (to the
extent available) substantially identical to the coverage maintained by the
Company for Executive prior to his termination for eighteen (18) months.
4
<PAGE> 7
(d) Upon the occurrence of an Event of Termination, the Executive will
be entitled to receive vested benefits due him under or contributed by the
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability (if coverage is available under the Company's
current policy) or other employee benefit plan maintained by the Company on the
Executive's behalf to the extent that such benefits are not otherwise paid to
Executive under a separate provision of this Agreement.
(e) Upon the occurrence of an Event of Termination, any unexercised
stock options granted to the Executive pursuant to Section 3(d) of this
Agreement shall immediately vest and be immediately exercisable upon the
Executive's receipt of the Notice of Termination relating to such Event of
Termination for a period of ninety (90) days thereafter.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Company as set forth below. For purposes of
this Agreement, a "Change in Control" of the Company shall mean an event of a
nature that: (i) would be required to be reported in response to Item 1 (a) of
the current report on Form 8-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") if the Company were (or is) required
to file reports pursuant to the Exchange Act; or (ii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least a majority of the directors comprising the
Incumbent Board, shall be, for purposes of this clause (A), considered as though
he were a member of the Incumbent Board; or (B) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Company or similar transaction occurs in which the Company is not the resulting
entity; or (C) a proxy statement shall be distributed soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Company shall be distributed; or (D) a tender offer is made
for 20% or more of the voting securities of the Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement (regardless of whether
such termination results from his
5
<PAGE> 8
dismissal or his resignation at any time during the term of this Agreement
following any demotion, loss of title, office or significant authority or
responsibility, reduction in the annual compensation or benefits or relocation
of his principal place of employment by more than 30 miles from its location
immediately prior to the change in control), unless such termination is because
of his death, or Termination for Cause.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company shall pay Executive, or in
the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, an
amount equal to the sum of (x) eighteen (18) months of the Executive's Base
Salary at the time of the occurrence of the Change in Control plus (y) the
average of the Annual Bonus amount for the prior three (3) years (or such lesser
number of years, in the event that the Executive has been employed by the
Company for less than (3) three years) multiplied by 1.5. At the election of the
Executive, which election is to be made within thirty (30) days of the Date of
Termination following a Change in Control, such payment shall be made in a lump
sum or paid in equal monthly installments during the eighteen (18) months
following Executive's termination. In the event that no election is made,
payment to the Executive will be made on a monthly basis during the remaining
term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company will cause to be continued
life, medical, dental and disability coverage (if coverage is available under
the Company's current policy) substantially identical to the coverage maintained
by the Company for Executive prior to his severance for eighteen (18) months
following termination.
(e) Upon the occurrence of a Change of Control, any unexercised stock
options granted to the Executive pursuant to Section 3(d) of this Agreement
shall immediately vest and be immediately exercisable.
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY.
(a) Termination by the Company of the Executive based on "Retirement"
shall mean termination in accordance with the Company's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Company and
other plans to which Executive is a party.
(b) This Agreement shall automatically terminate upon the death of the
Executive.
(c) If the Executive is Disabled (as defined below) for a continuous
period of six (6) months, the Company may terminate this Agreement upon written
notice to the
6
<PAGE> 9
Executive. If the Company terminates the Executive due to the Disability of the
Executive, the Company shall, for a period of one (1) year from the date of
termination, provide the Executive with the term life insurance and medical
insurance as are in effect at the time of termination. The Executive, for
purposes hereof, shall be deemed to be "Disabled" when, as a result of bodily
injury or disease or mental disorder he is so disabled that he is prevented from
performing the principal duties of his employment and is under the regular care
of a currently licensed physician or surgeon for such bodily injury, disease or
mental disorder.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of (i)
any act, or failure to act, by the Executive involving fraud or willful
malfeasance in the performance of his duties under this Agreement, including,
but not limited to, Executive's willful failure to serve as a full time employee
of the Company pursuant to the terms and provisions of Section 1 of this
Agreement, or (ii) the Executive's unlawful appropriation of a corporate
opportunity or other breach of fiduciary duty or other obligation to the
Company, or (iii) the conviction of the Executive of a felony under federal or
state law. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Company or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of a
majority of the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any unexercised stock options granted
pursuant to Section 3(d) of this Agreement shall become null and void effective
upon Executive's receipt of Notice of Termination for Cause pursuant to Section
8 hereof, and such options shall not be exercisable by or delivered to Executive
at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Company or by the Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
7
<PAGE> 10
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, ten (10) days after a Notice of Termination is given
(provided that he shall not have returned to the performance of his duties on a
full-time basis during such ten (10) day period), and (B) if his employment is
terminated for any other reason, the date specified in the Notice of
Termination.
9. CONFIDENTIALITY
Executive will not, during or after the term of his employment,
disclose any knowledge of the past, present, planned or considered business
activities of the Company thereof to any person, firm, corporation, or other
entity for any reason or purpose whatsoever which is not otherwise publicly
available. In the event of a breach or threatened breach by the Executive of the
provisions of this Section 9, the Company will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Company, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from Executive.
10. NON-COMPETITION.
Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Company for a period
of eighteen (18) months following such termination in those states within the
United States and those countries outside the United States in which the Company
conducts business (the "Restricted Area"); provided, that the Executive may
continue his involvement with the Permitted Interests and the ownership by the
Executive of less than five percent (5%) or less of a publicly-traded class of
securities shall not be deemed a violation of this Section 10. Executive agrees
that during such period and within the Restricted Area, Executive shall not work
for or advise, consult or otherwise serve with, directly or indirectly, any
entity whose business materially competes with the business activities of the
Company. The parties hereto, recognizing that irreparable injury will result to
the Company, its business and property in the event of Executive's breach of
this Section 10 agree that in the event of any such breach by Executive, the
Company will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive.
Executive represents and admits that in the event of the termination of his
employment pursuant to Section 7 hereof, Executive's experience and capabilities
are such that Executive can obtain employment in a business engaged in other
lines and/or of a different nature than the Company, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing
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herein will be construed as prohibiting the Company from pursuing any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive. Notwithstanding the foregoing,
in the case of an Event of Termination, Executive shall not be subject to the
non-compete provisions of this Section 10 if Executive elects not to receive the
payments he is entitled to pursuant to Section 4(b) hereof.
11. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Company. The Company may use insurance
proceeds especially obtained therefore as partial payment in the event of
disability.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Company or any
predecessor of the Company and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver
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or estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York
without regard to conflicts of laws principles, unless otherwise specified
herein.
18. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Company, if Executive is successful pursuant to a legal
judgment, arbitration or settlement.
19. INDEMNIFICATION.
The Company shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Company (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such
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expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
20. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, ______________________ has caused this Agreement to
be executed and its seal to be affixed hereunto by its duly authorized officer
and its directors, and Executive has signed this Agreement, on the 13th day of
February, 1996.
N2K INC.
By:
--------------------------------------
Name:
Title:
--------------------------------------
LAWRENCE L. ROSEN, Executive
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SCHEDULE 1
LAWRENCE L. ROSEN
1. Roaring Fork Music Publishers - music publishing company that purchases
musical compositions and music catalogues, entity owns over 300 titles
and handles licensing arrangements for compilations, movies and
sampling. Publishing deals with new artists.
2. Turtle Creek Music Publishers - see #1 above.
3. Grusin/Rosen Productions - production company to produce musical
artists for record labels.
4. Larry Rosen Productions, Inc - production company owns interest in
Grusin/Rosen Productions.
5. M/V Jazz, Inc. - company owns a charter boat.
6. Endorsements - certain product endorsements by Mr. Rosen consistent
with past practices, including, but not limited to, endorsements for
the "Panasonic Ramsa Division".
7. Indovideo Arts Music Limited - owns 15% of company that operates a
satellite video music channel in Southeast Asia.
8. GRD Group LLC - ownership interest in investment group.
9. National Foundation for the Advancement of the Arts - serves as a
member of the Board of Trustees.
10. National Foundation for Jazz Educators - member
11. Carnegie Hall Jazz Committee - member
12. Music for Youth Foundation - president
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Exhibit 10.2
N2K INC.
EMPLOYMENT AGREEMENT
OF
JONATHAN V. DIAMOND
<PAGE> 2
TABLE OF CONTENTS
Page
1. POSITION AND RESPONSIBILITIES................................... 1
2. TERM............................................................ 1
3. COMPENSATION AND REIMBURSEMENT.................................. 2
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.............. 4
5. CHANGE IN CONTROL............................................... 5
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY.............. 6
7. TERMINATION FOR CAUSE........................................... 7
8. NOTICE.......................................................... 8
9. CONFIDENTIALITY................................................. 8
10. NON-COMPETITION................................................. 8
11. SOURCE OF PAYMENTS.............................................. 9
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.......... 9
13. NO ATTACHMENT................................................... 9
14. MODIFICATION AND WAIVER......................................... 10
15. SEVERABILITY.................................................... 10
16. HEADINGS FOR REFERENCE ONLY..................................... 10
17. GOVERNING LAW................................................... 10
18. PAYMENT OF LEGAL FEES........................................... 10
19. INDEMNIFICATION................................................. 11
20. SUCCESSOR TO THE COMPANY........................................ 11
i
<PAGE> 3
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of February 13, 1996 by and between
N2K Inc. (the "Company"), a corporation organized under the laws of
Pennsylvania, with its principal administrative office at 55 Broad Street, New
York, New York 10004 and Jonathan V. Diamond (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as Vice Chairman of the Company. The Executive will report directly to the
Chief Executive Officer. The Executive shall serve as a full time employee of
the Company to perform such duties as the Company may from time to time
reasonably direct. The Executive's responsibilities will include, among other
things, (i) developing and assisting in the development of new products and
business for the Company, (ii) preparation and development of budgets for the
Company for approval by the Board of Directors, (iii) developing and directing
the Company's online services, CD-ROM capabilities and media and technology
areas, (iv) directing the strategic planning of the Company, (v) developing
industry relationships (both domestic and foreign), and (vi) directing the
financial planning of the Company. During said period, Executive also agrees to
serve, if elected, as an officer and director of any subsidiary of the Company.
Notwithstanding the above, the Executive may maintain his interests existing as
of the date hereof in the entities set forth on Schedule 1 hereto (the
"Permitted Interests") so long as the services rendered by the Executive in
connection with the Permitted Interests do not substantially interfere with the
Executive's performance of his duties under this Agreement.
2. TERM.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date hereof, and shall continue for a period
of forty-eight (48) full calendar months thereafter (the "Expiration Date").
Unless
<PAGE> 4
written notice shall have been delivered by the party desiring to terminate this
Agreement, which written notice shall have been delivered not later than 120
days prior to the Expiration Date (including the Expiration Date with respect to
any renewed term), this Agreement shall be renewed for consecutive one (1) year
periods.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, and reasonable vacation periods, Executive
shall devote substantially all his business time, attention, skill, and efforts
to the faithful performance of his duties hereunder including activities and
services related to the organization, operation and management of the Company;
provided, however, that, with the approval of the Board of Directors of the
Company (the "Board"), as evidenced by a resolution of such Board, from time to
time, Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which,
in such Board's judgment, will not present any conflict of interest with the
Company, or materially affect the performance of Executive's duties pursuant to
this Agreement.
(c) Notwithstanding anything herein contained to the contrary: (i)
Executive's employment with the Company may be terminated by the Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement; and (ii) nothing in this Agreement shall mandate or prohibit
a continuation of Executive's employment following the expiration of the term of
this Agreement upon such terms and conditions as the Board and Executive may
mutually agree.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 1. The Company
shall pay Executive as compensation a salary of not less than $200,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
Company's payroll practice in effect from time to time. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase Executive's Base Salary. An increase shall
become the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Company shall also provide Executive
at no cost to Executive with all such other benefits as are provided uniformly
to permanent full-time employees of the Company.
(b) The Executive shall also receive an annual bonus amount to be
determined by the Board, provided such bonus shall be in an amount of not less
than $50,000.00 (the "Annual Bonus") until such time as Executive's Base Salary
has increased to at least $250,000 per year; thereafter, Executive shall
continue to be entitled to receive an annual bonus in an amount to be determined
by the Board in its
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<PAGE> 5
sole discretion. The Executive shall only be eligible for an annual bonus as
long as the Executive remains an employee of the Company.
(c) The Executive will be entitled to five (5) weeks paid vacation
annually. The Company will provide the Executive at Executive's election with
either (i) an automobile allowance of not less than $800 per month or (ii) the
use of an automobile throughout the term hereof and the Company will pay for all
automobile insurance and all operating costs (i.e., gas, tolls, parking fees,
etc.) associated with the Executive's use of the Executive's automobile in
fulfillment of the Executive's duties under this Agreement. The Executive will
be entitled to participate in or receive benefits under any employee benefit
plans including, but not limited to, retirement plans (i.e., 401(k) plans),
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Company currently or in the future to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan of the Company in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement. In addition the Company shall obtain term life
insurance, naming the Executive's designee as beneficiary, in the face amount,
at all times, equal to the maximum allowable amount under the Company's existing
insurance policy. Notwithstanding the foregoing, the Company shall reimburse
Executive for his cost of COBRA coverage with respect to the health and accident
plan of Executive's former employer through April 1996. The Company shall not be
required to provide duplicate coverage during such period.
(d) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraphs (b) and (c) of
this Section 3, the Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement.
(e) Simultaneously with the execution of this Agreement, the Company
shall grant to the Executive, pursuant to a stock option agreement satisfactory
to the Executive, incentive stock options to purchase 500,000 shares of common
stock and additional non-qualified options to purchase 421,098 shares of common
stock of the Company at an exercise price of $.80 per share (being the present
fair market value of such stock). In the event Executive is a holder of more
than ten percent (10%) of the combined voting power of the Company at the time
of the grant, the exercise price of any incentive stock option shall be $.88 per
share in accordance with the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended; provided, however, that in such event, upon each
exercise of all or a portion of such incentive stock options, Executive shall
receive a bonus at the time of exercise equal to (A) an amount which is equal to
$.08 per share, net of the maximum combined
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<PAGE> 6
federal, state and local tax rates then applicable to Executive, multiplied by
(B) the number of shares with respect to which the incentive stock option is
then exercised. Such options will vest equally over a four (4) year period
commencing on the date hereof, subject to Sections 4(e) and 5 (e) hereof.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Company of Executive's full-time employment hereunder for any
reason, including, without limitation, the Company's failure to renew this
Agreement, other than a Change in Control (as defined in Section 5(a) hereof),
upon Retirement (as defined in Section 6 hereof), death or Disability (as
defined in Section 6 hereof), or for Cause (as defined in Section 7 hereof);
(ii) Executive's resignation from the Company's employ, upon any (A) failure to
elect or reelect or to appoint or reappoint Executive as Vice Chairman, (B)
unless consented to by the Executive, a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, (and any such material change
shall be deemed a continuing breach of this Agreement), (C) a relocation of
Executive's principal place of employment by more than 30 miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this Agreement or (D) material breach of this Agreement by the
Company. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than thirty (30) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, three (3) calendar months after the event giving
rise to said right to elect.
(b) Subject to Section 10 hereof, upon the occurrence of an Event of
Termination, the Company shall be obligated to pay Executive, or, as severance
pay or liquidated damages, or both, an amount equal to the sum of (i) eighteen
(18) months of the Executive's Base Salary at the time of the occurrence of the
Event of Termination plus (ii) the average of the Annual Bonus amount for the
three (3) prior years (or such lesser time number of years, in the event that
the Executive has been employed by the Company for less than three (3) years)
multiplied by 1.5. Such payment shall be made in equal monthly installments
during the eighteen (18) months following Executive's termination.
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(c) Upon the occurrence of an Event of Termination, the Company will
cause to be continued life, medical, dental and disability coverage (to the
extent available) substantially identical to the coverage maintained by the
Company for Executive prior to his termination for eighteen (18) months.
(d) Upon the occurrence of an Event of Termination, the Executive will
be entitled to receive vested benefits due him under or contributed by the
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability (if coverage is available under the Company's
current policy) or other employee benefit plan maintained by the Company on the
Executive's behalf to the extent that such benefits are not otherwise paid to
Executive under a separate provision of this Agreement.
(e) Upon the occurrence of an Event of Termination, any unexercised
stock options granted to the Executive pursuant to Section 3(d) of this
Agreement shall immediately vest and be immediately exercisable upon the
Executive's receipt of the Notice of Termination relating to such Event of
Termination for a period of ninety (90) days thereafter.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Company as set forth below. For purposes of
this Agreement, a "Change in Control" of the Company shall mean an event of a
nature that: (i) would be required to be reported in response to Item 1 (a) of
the current report on Form 8-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") if the Company were (or is) required
to file reports pursuant to the Exchange Act; or (ii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least a majority of the directors comprising the
Incumbent Board, shall be, for purposes of this clause (A), considered as though
he were a member of the Incumbent Board; or (B) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Company or similar transaction occurs in which the Company is not the resulting
entity; or (C) a proxy statement shall be distributed soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Company shall be distributed; or (D) a tender offer is made
for 20% or more of the voting securities of the Company then outstanding.
5
<PAGE> 8
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement (regardless of whether
such termination results from his dismissal or his resignation at any time
during the term of this Agreement following any demotion, loss of title, office
or significant authority or responsibility, reduction in the annual compensation
or benefits or relocation of his principal place of employment by more than 30
miles from its location immediately prior to the change in control), unless such
termination is because of his death, or Termination for Cause.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company shall pay Executive, or in
the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, an
amount equal to the sum of (x) eighteen (18) months of the Executive's Base
Salary at the time of the occurrence of the Change in Control plus (y) the
average of the Annual Bonus amount for the prior three (3) years (or such lesser
number of years, in the event that the Executive has been employed by the
Company for less than (3) three years) multiplied by 1.5. At the election of the
Executive, which election is to be made within thirty (30) days of the Date of
Termination following a Change in Control, such payment may be made in a lump
sum or paid in equal monthly installments during the eighteen (18) months
following the Executive's termination. In the event that no election is made,
payment to the Executive will be made on a monthly basis during the remaining
term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company will cause to be continued
life, medical, dental and disability coverage (if coverage is available under
the Company's current policy) substantially identical to the coverage maintained
by the Company for Executive prior to his severance for eighteen (18) months
following termination.
(e) Upon the occurrence of a Change of Control, any unexercised stock
options granted to the Executive pursuant to Section 3(d) of this Agreement
shall immediately vest and be immediately exercisable.
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY.
(a) Termination by the Company of the Executive based on "Retirement"
shall mean termination in accordance with the Company's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Company and
other plans to which Executive is a party.
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(b) This Agreement shall automatically terminate upon the death of the
Executive.
(c) If the Executive is Disabled (as defined below) for a continuous
period of six (6) months, the Company may terminate this Agreement upon written
notice to the Executive. If the Company terminates the Executive due to the
Disability of the Executive, the Company shall, for a period of one (1) year
from the date of termination, provide the Executive with the term life insurance
and medical insurance as are in effect at the time of termination. The
Executive, for purposes hereof, shall be deemed to be "Disabled" when, as a
result of bodily injury or disease or mental disorder he is so disabled that he
is prevented from performing the principal duties of his employment and is under
the regular care of a currently licensed physician or surgeon for such bodily
injury, disease or mental disorder.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of (i)
any act, or failure to act, by the Executive involving fraud or willful
malfeasance in the performance of his duties under this Agreement, including,
but not limited to, Executive's willful failure to serve as a full time employee
of the Company pursuant to the terms and provisions of Section 1 of this
Agreement, or (ii) the Executive's unlawful appropriation of a corporate
opportunity or other breach of fiduciary duty or other obligation to the
Company, or (iii) the conviction of the Executive of a felony under federal or
state law. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Company or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of a
majority of the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any unexercised stock options granted
pursuant to Section 3(d) of this Agreement shall become null and void effective
upon Executive's receipt of Notice of Termination for Cause pursuant to Section
8 hereof, and such options shall not be exercisable by or delivered to Executive
at any time subsequent to such Termination for Cause.
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8. NOTICE.
(a) Any purported termination by the Company or by the Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, ten (10) days after a Notice of Termination is given
(provided that he shall not have returned to the performance of his duties on a
full-time basis during such ten (10) day period), and (B) if his employment is
terminated for any other reason, the date specified in the Notice of
Termination.
9. CONFIDENTIALITY.
Executive will not, during or after the term of his employment,
disclose any knowledge of the past, present, planned or considered business
activities of the Company thereof to any person, firm, corporation, or other
entity for any reason or purpose whatsoever which is not otherwise publicly
available. In the event of a breach or threatened breach by the Executive of the
provisions of this Section 9, the Company will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Company, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from Executive.
10. NON-COMPETITION.
Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Company for a period
of eighteen (18) months following such termination in those states within the
United States and those countries outside the United States in which the Company
conducts business (the "Restricted Area"); provided, that the Executive may
continue his involvement with the Permitted Interests and the ownership by the
Executive of less than five percent (5%) or less of a publicly-traded class of
securities shall not be deemed a violation of this Section 10. Executive agrees
that during such period and within the Restricted Area, Executive shall not work
for or advise, consult or otherwise serve with, directly or indirectly, any
entity whose business materially competes with the business activities of the
Company. The parties hereto,
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recognizing that irreparable injury will result to the Company, its business and
property in the event of Executive's breach of this Section 10 agree that in the
event of any such breach by Executive, the Company will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive. Executive represents and admits that in the event
of the termination of his employment pursuant to Section 7 hereof, Executive's
experience and capabilities are such that Executive can obtain employment in a
business engaged in other lines and/or of a different nature than the Company,
and that the enforcement of a remedy by way of injunction will not prevent
Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of damages
from Executive. Notwithstanding the foregoing, in the case of an Event of
Termination, Executive shall not be subject to the non-compete provisions of
this Section 10 if Executive elects not to receive the payments he is entitled
to pursuant to Section 4(b) hereof.
11. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Company. The Company may use insurance
proceeds especially obtained therefore as partial payment in the event of
disability.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Company or any
predecessor of the Company and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Company and their respective successors and assigns.
9
<PAGE> 12
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
16. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York
without regard to conflicts of laws principles, unless otherwise specified
herein.
17. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Company, if Executive is successful pursuant to a legal
judgment, arbitration or settlement.
10
<PAGE> 13
18. INDEMNIFICATION.
The Company shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Company (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
19. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place.
11
<PAGE> 14
SIGNATURES
IN WITNESS WHEREOF, ______________________ has caused this Agreement to
be executed and its seal to be affixed hereunto by its duly authorized officer
and its directors, and Executive has signed this Agreement, on the 13th day of
February, 1996.
N2K INC.
By:
--------------------------------------
Name:
Title:
-----------------------------------------
JONATHAN V. DIAMOND, Executive
12
<PAGE> 15
SCHEDULE 1
JONATHAN V. DIAMOND
1. Network Event Theater (NET) - Serves as an advisor for group that
builds high definition theaters in college campuses.
2. Diamond Pictures - feature film production company 100% owned.
3. GRD Group LLC - ownership interest in investment group.
4. J. Diamond Group, L.P. - owns 80% interest in Vermillion Film
Productions, Ltd.
5. Vermillion Film Productions, Ltd. - owned through J. Diamond Group,
L.P.
6. Cousteau Society Membership - member.
13
<PAGE> 1
Exhibit 10.3
N2K INC.
EMPLOYMENT AGREEMENT
OF
ROBERT DAVID GRUSIN
<PAGE> 2
TABLE OF CONTENTS
Page
1. POSITION AND RESPONSIBILITIES..................................... 1
2. TERM.............................................................. 1
3. COMPENSATION AND REIMBURSEMENT.................................... 2
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION................ 3
5. CHANGE IN CONTROL................................................. 5
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY................ 6
7. TERMINATION FOR CAUSE............................................. 6
8. NOTICE............................................................ 7
9. CONFIDENTIALITY................................................... 7
10. NON-COMPETITION................................................... 8
11. SOURCE OF PAYMENTS................................................ 8
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS............ 9
13. NO ATTACHMENT..................................................... 9
14. MODIFICATION AND WAIVER........................................... 9
15. SEVERABILITY...................................................... 9
16. HEADINGS FOR REFERENCE ONLY....................................... 10
17. GOVERNING LAW..................................................... 10
18. PAYMENT OF LEGAL FEES............................................. 10
19. INDEMNIFICATION................................................... 10
20. SUCCESSOR TO THE COMPANY.......................................... 10
i
<PAGE> 3
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of February 13, 1996 by and between
N2K Inc. (the "Company"), a corporation organized under the laws of
Pennsylvania, with its principal administrative office at 55 Broad Street, New
York, New York 10004 and Robert David Grusin (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as Vice Chairman of the Company. Executive shall report to the Chief
Executive Officer of the Company. The Executive shall serve as an employee of
the Company to perform such duties as the Company may from time to time
reasonably direct. The Executive's responsibilities will include, among other
things, promoting the good will of the Company, and establishing business
relationships to assist in the development of the Company's products in
furtherance of the business objectives of the Company as established by the
Board of Directors of the Company (the"Board") and the Chief Executive Officer
from time to time. During said period, Executive also agrees to serve, if
elected, as an officer and director of any subsidiary of the Company.
Notwithstanding the above, the parties recognize that Executive is not being
employed on a full-time basis. Accordingly, this Agreement shall not be
exclusive and Executive may accept or continue employment with, or serve as a
director of, other companies, subject to the provisions of Section 10 hereof.
2. TERM.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date hereof, and shall continue for a period
of forty-eight (48) full calendar months thereafter (the "Expiration Date").
Unless written notice shall have been delivered by the party desiring to
terminate this Agreement, which written notice shall have been delivered not
later than 120 days prior to the Expiration Date (including the Expiration Date
with respect to any
<PAGE> 4
renewed term), this Agreement shall be renewed for consecutive one (1) year
periods.
(b) Executive shall be permitted to perform services at such places and
locations as Executive shall reasonably determine; provided that Executive shall
physically meet with the Chief Executive Officer at the Company's corporate
headquarters at least quarter-annually and shall report to the Chief Executive
Officer at least monthly.
(c) Notwithstanding anything herein contained to the contrary: (i)
Executive's employment with the Company may be terminated by the Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement; and (ii) nothing in this Agreement shall mandate or prohibit
a continuation of Executive's employment following the expiration of the term of
this Agreement upon such terms and conditions as the Board and Executive may
mutually agree.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 1. The Company
shall pay Executive as compensation a salary of not less than $100,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the
Company's payroll practice in effect from time to time. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase Executive's Base Salary. An increase shall
become the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Company shall also provide Executive
at no cost to Executive with all such other benefits as are provided uniformly
to permanent full-time employees of the Company.
(b) Executive may receive an annual bonus ("Annual Bonus") in an amount
to be determined by the Board in its sole discretion. The Executive shall only
be eligible for an Annual Bonus as long as the Executive remains an employee of
the Company.
(c) The Executive will be entitled to participate in or receive
benefits under any employee benefit plans including, but not limited to,
retirement plans (i.e., 401(k) plans), supplemental retirement plans, pension
plans, profit-sharing plans, health-and-accident plan, medical coverage or any
other employee benefit plan or arrangement made available by the Company
currently or in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements.
2
<PAGE> 5
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Company in which Executive is eligible to participate. Nothing
paid to the Executive under any such plan or arrangement will be deemed to be in
lieu of other compensation to which the Executive is entitled under this
Agreement. In addition the Company shall obtain term life insurance, naming the
Executive's designee as beneficiary, in the face amount, at all times, equal to
the maximum allowable amount under the Company's existing insurance policy.
(d) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraphs (b) and (c) of
this Section 3, the Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement.
(e) Simultaneously with the execution of this Agreement, the Company
shall grant to the Executive, pursuant to a stock option agreement satisfactory
to the Executive, incentive stock options to purchase 500,000 shares of common
stock and additional non-qualified options to purchase 421,098 shares of common
stock of the Company at an exercise price of $.80 per share (being the present
fair market value of such stock). In the event Executive is a holder of more
than ten percent (10%) of the combined voting power of the Company at the time
of the grant, the exercise price of any incentive stock option shall be $.88 per
share in accordance with the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended; provided, however, that in such event, upon each
exercise of all or a portion of such incentive stock options, Executive shall
receive a bonus at the time of exercise equal to (A) an amount which is equal to
$.08 per share, net of the maximum combined federal, state and local tax rates
then applicable to Executive, multiplied by (B) the number of shares with
respect to which the incentive stock option is then exercised. Such options will
vest equally over a four (4) year period commencing on the date hereof, subject
to Sections 4(e) and 5 (e) hereof.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Company of Executive's employment hereunder for any reason,
including, without limitation, the Company's failure to renew this Agreement,
other than a Change in Control (as defined in Section 5(a) hereof), upon
Retirement (as defined in Section 6 hereof), death or Disability (as defined in
Section 6 hereof), or for Cause (as defined in Section 7 hereof); (ii)
Executive's resignation from the Company's employ, upon
3
<PAGE> 6
any (A) failure to elect or reelect or to appoint or reappoint Executive as Vice
Chairman, (B) unless consented to by the Executive, a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
(and any such material change shall be deemed a continuing breach of this
Agreement), (C) a relocation of Executive's principal requisite place of
employment as set forth in Section 2(b) hereof, or a material reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this Agreement or (D) material breach of this Agreement by the
Company. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than thirty (30) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, three (3) calendar months after the event giving
rise to said right to elect.
(b) Subject to Section 10 hereof, upon the occurrence of an Event of
Termination, the Company shall be obligated to pay Executive, or, as severance
pay or liquidated damages, or both, an amount equal to the sum of (i) eighteen
(18) months of the Executive's Base Salary at the time of the occurrence of the
Event of Termination plus (ii) the average of the Annual Bonus amount for the
three (3) prior years (or such lesser time number of years, in the event that
the Executive has been employed by the Company for less than three (3) years)
multiplied by 1.5. Such payment shall be made in equal monthly installments
during the eighteen (18) months following Executive's termination.
(c) Upon the occurrence of an Event of Termination, the Company will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Company for Executive
prior to his termination for eighteen (18) months.
(d) Upon the occurrence of an Event of Termination, the Executive will
be entitled to receive vested benefits due him under or contributed by the
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability (to the extent available) or other employee
benefit plan maintained by the Company on the Executive's behalf to the extent
that such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of an Event of Termination, any unexercised
stock options granted to the Executive pursuant to Section 3(d) of this
Agreement shall immediately vest and be immediately exercisable upon the
Executive's receipt of the Notice of Termination relating to such Event of
Termination for a period of ninety (90) days thereafter.
4
<PAGE> 7
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Company as set forth below. For purposes of
this Agreement, a "Change in Control" of the Company shall mean an event of a
nature that: (i) would be required to be reported in response to Item 1 (a) of
the current report on Form 8-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") if the Company were (or is) required
to file reports pursuant to the Exchange Act; or (ii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least a majority of the directors comprising the
Incumbent Board, shall be, for purposes of this clause (A), considered as though
he were a member of the Incumbent Board; or (B) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Company or similar transaction occurs in which the Company is not the resulting
entity; or (C) a proxy statement shall be distributed soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Company shall be distributed; or (D) a tender offer is made
for 20% or more of the voting securities of the Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement (regardless of whether
such termination results from his dismissal or his resignation at any time
during the term of this Agreement following any demotion, loss of title, office
or significant authority or responsibility, reduction in the annual compensation
or benefits or relocation of his requisite place of employment immediately prior
to the change in control), unless such termination is because of his death, or
Termination for Cause.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company shall pay Executive, or in
the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, an
amount equal to the sum of (x) eighteen (18) months of the Executive's Base
Salary at the time of the occurrence of the Change in Control plus (y) the
average of the Annual Bonus amount for the prior three (3) years (or such lesser
number of years, in the event that the Executive has been employed by the
Company for less than (3) three years) multiplied by 1.5. At the election of the
Executive, which election is to be made within thirty (30) days of
5
<PAGE> 8
the Date of Termination following a Change in Control, such payment may be made
in a lump sum or paid in equal monthly installments during the eighteen (18)
months following the Executive's termination. In the event that no election is
made, payment to the Executive will be made on a monthly basis during the
remaining term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company will cause to be continued
life, medical, dental and disability coverage (if coverage is available under
the Company's current policy) substantially identical to the coverage maintained
by the Company for Executive prior to his severance for eighteen (18) months
following termination.
(e) Upon the occurrence of a Change of Control, any unexercised stock
options granted to the Executive pursuant to Section 3(d) of this Agreement
shall immediately vest and be immediately exercisable.
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY.
(a) Termination by the Company of the Executive based on "Retirement"
shall mean termination in accordance with any retirement arrangement established
with Executive's consent with respect to him. Upon termination of Executive upon
Retirement, Executive shall be entitled to all benefits under any retirement
plan of the Company and other plans to which Executive is a party.
(b) This Agreement shall automatically terminate upon the death of the
Executive.
(c) If the Executive is Disabled (as defined below) for a continuous
period of six (6) months, the Company may terminate this Agreement upon written
notice to the Executive. If the Company terminates the Executive due to the
Disability of the Executive, the Company shall, for a period of one (1) year
from the date of termination, provide the Executive with the term life insurance
and medical insurance as are in effect at the time of termination. The
Executive, for purposes hereof, shall be deemed to be "Disabled" when, as a
result of bodily injury or disease or mental disorder he is so disabled that he
is prevented from performing the principal duties of his employment and is under
the regular care of a currently licensed physician or surgeon for such bodily
injury, disease or mental disorder.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of (i)
any act, or failure to act, by the Executive involving fraud or willful
malfeasance in the performance of his duties under this Agreement, or (iii) the
conviction of the Executive of a felony under federal or state law. For purposes
of this Section, no
6
<PAGE> 9
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interest of the Company or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of a majority of the members of the Board at a meeting of
the Board called and held for that purpose (after reasonable notice to Executive
and an opportunity for him, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, Executive was
guilty of conduct justifying Termination for Cause and specifying the
particulars thereof in detail. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause. Any
unexercised stock options granted pursuant to Section 3(d) of this Agreement
shall become null and void effective upon Executive's receipt of Notice of
Termination for Cause pursuant to Section 8 hereof, and such options shall not
be exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Company or by the Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, ten (10) days after a Notice of Termination is given
(provided that he shall not have returned to the performance of his duties on a
full-time basis during such ten (10) day period), and (B) if his employment is
terminated for any other reason, the date specified in the Notice of
Termination.
9. CONFIDENTIALITY
Executive will not, during or after the term of his employment,
disclose any knowledge of the past, present, planned or considered business
activities of the Company thereof to any person, firm, corporation, or other
entity for any reason or purpose whatsoever which is not otherwise publicly
available. In the event of a breach or threatened breach by the Executive of the
provisions of this Section 9, the Company will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Company, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been
7
<PAGE> 10
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
10. NON-COMPETITION.
During the term of this Agreement and upon any termination of
Executive's employment hereunder pursuant to Section 4 hereof, Executive agrees
not to promote or own an interest in any entity that directly competes with the
business of the Company, for a period of eighteen (18) months following such
termination in those states within the United States and those countries outside
the United States in which the Company conducts business (the "Restricted
Area"); provided Executive may continue to engage in: (i) any and all activity
directly relating to his vocation as a composer, recording artist, music
producer and music publisher (including without limitation, any promotional
work, advertising or product endorsements); and (ii) any and all other
activities with respect to which Executive does not exercise management control.
The ownership by the Executive of less than five percent (5%) or less of a
publicly-traded class of securities shall not be deemed a violation of this
Section 10. The parties hereto, recognizing that irreparable injury will result
to the Company, its business and property in the event of Executive's breach of
this Section 10 agree that in the event of any such breach by Executive, the
Company will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive.
Executive represents and admits that in the event of the termination of his
employment pursuant to Section 7 hereof, Executive's experience and capabilities
are such that Executive can obtain employment in a business engaged in other
lines and/or of a different nature than the Company, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from Executive.
Notwithstanding the foregoing, in the case of an Event of Termination, Executive
shall not be subject to the non-compete provisions of this Section 10 if
Executive elects not to receive the payments he is entitled to pursuant to
Section 4(b) hereof.
11. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Company. The Company may use insurance
proceeds especially obtained therefore as partial payment in the event of
disability.
8
<PAGE> 11
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Company or any
predecessor of the Company and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
9
<PAGE> 12
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York
without regard to conflicts of laws principles, unless otherwise specified
herein.
18. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Company, if Executive is successful pursuant to a legal
judgment, arbitration or settlement.
19. INDEMNIFICATION.
The Company shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Company (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
20. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place.
10
<PAGE> 13
SIGNATURES
IN WITNESS WHEREOF, ______________________ has caused this Agreement to
be executed and its seal to be affixed hereunto by its duly authorized officer
and its directors, and Executive has signed this Agreement, on the 13th day of
February, 1996.
N2K INC.
By:
--------------------------------------
Name:
Title:
-----------------------------------------
ROBERT DAVID GRUSIN, Executive
11
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of May,
1987, by and between TELEBASE SYSTEMS, INC., a Pennsylvania business corporation
located at 763 West Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
("Employer"), and JAMES E. COANE, an individual currently residing at 19 West
Concourse, Brightwaters, New York 11718 ("Employee").
BACKGROUND
Employer is desirous of employing the Employee in an
executive, research, administrative and/or technical capacity, upon the terms
and conditions hereinafter set forth in this Agreement, and the Employee is
desirous of being so employed.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration,
the receipt of which the parties hereby acknowledge, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. Employment and Duties. Employer shall employ the Employee
and the Employee accepts such employment for the term set forth in Section 3
hereof, on the terms and conditions set forth in this Agreement. The Employee
shall serve as President and Chief Executive Officer of Employer, if elected or
appointed to such office or position, and shall perform such other duties as
shall be assigned to him from time to time during the continuance of his
Agreement by the Board of Directors of Employer (the "Board"). The Employer
agrees to (i) give his best efforts and skills to the business and interests of
the Employer, (ii) devote substantially all of his time and attention to the
business of the Employer, and (iii) comply, in all material respects, with all
reasonable policies and rules of Employer in effect from time to time.
2. Compensation Package.
a. In consideration of the services to be performed by
Employee hereunder, Employee shall receive:
(i) From the date hereof until September 30, 1987, a
salary at the rate of One Hundred Fifteen Thousand Dollars ($115,000.00) per
year, and, commencing as of October 1, 1987, a salary at the rate of One Hundred
Twenty Five Thousand Dollars ($125,000.00) per year, payable in equal
semi-monthly or bi-weekly installments in accordance with Employer's accounting
procedures and practices in effect from time to time;
<PAGE> 2
(ii) Pay scale or salary increases or other compensation
in accordance with policies established by the Board, and at the sole and
complete discretion of the Board;
(iii) Reimbursement for all authorized reasonable and
necessary expenses incurred by Employee in connection with the performance of
his duties hereunder;
(iv) Term life insurance, naming Employee's designee as
beneficiary, in the face amount, at all times, equal to twice Employee's then
current annual salary rate and additional benefits as approved by the Board,
which may include medical, dental and disability income insurance, sick leave
and holidays;
(v) Paid vacation to be taken at such time or times as
shall not be disapproved by the Board, and in accordance with Employer's
policies and procedures in effect from time to time.
3. Term. This Agreement shall continue in effect until three
(3) years from the date hereof (the "Expiration Date"), unless terminated sooner
by Employer for Cause or Disability, or pursuant to Section 4 hereof.
Termination for Cause shall mean termination by Employer of Employee due to
Employee's dishonesty, fraud, embezzlement, defalcation or violation of
Employee's covenants contained in Section 6 hereof, or in clause (ii) or (iii)
of Section 1 hereof. This Agreement shall terminate automatically upon the death
of the Employee. Employer may terminate this Agreement in the event that
Employee for a period of ninety (90) continuous days, or ninety (90) days in any
year during the term hereof (including any renewal term), becomes physically or
mentally unable to carry out his duties hereunder (herein referred to as
"Disability"). In the event that Employer terminates this Agreement upon the
occurrence of Employee's Disability, Employer shall, for a period of one (1)
year from the date of termination, continue to provide Employee with such term
life insurance and such medical insurance as are in effect at the time of
termination. Unless written notice shall have been delivered by the party
desiring to terminate this Agreement, which written notice shall have been
delivered not later than one hundred twenty (120) days prior to the Expiration
Date (including the Expiration Date with respect to any renewal term), this
Agreement shall be considered renewed for regular periods of one (1) year.
4. Termination.
a. Employer may terminate this Agreement at any time prior
to the Expiration Date (including the Expiration Date with respect to any
renewal term). Upon (i) termination of Employee by Employer prior to the
Expiration Date (other than termination for Cause or due to the Disability of
Employee), or (ii) termination of this Agreement upon the Expiration Date,
unless Employer shall have Cause to terminate Employee (including the Expiration
Date with respect to any renewal term), Employer will provide Employee,
following the date of termination, with (a) eighteen (18) months'
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<PAGE> 3
salary, based on Employee's then current annual base salary level, or (b) in the
event of the sale of substantially all of the stock of the Employer, or any
public offering of Employer's stock resulting in a sale of greater than fifty
percent (50%) of Employer's issued and outstanding stock (hereinafter "Change in
Control"), salary for the greater of eighteen (18) months or the number of
months remaining until the Expiration Date (any such period of time being
hereinafter referred to as the "Benefit Period"), payable in accordance with
Employer's payroll accounting practices and procedures, and (c) continuation of
all Employer paid benefits, including life insurance (such salary and benefits
being hereinafter to as "Benefits") until the expiration of the Benefit Period.
b. Notwithstanding the provisions of paragraph a. above,
upon termination of Employee's Employment with Employer (provided that such
termination does not occur after a Change in Control, in which case Employer
shall be obligated to provide Employee with full Benefits throughout the Benefit
Period), and as a condition to Employer's obligation to provide Employee with
the Benefits, Employee will utilize his best efforts to obtain employment. If,
after three (3) months from the date of Employee's termination, Employee has
been or is thereafter offered a reasonable employment position, in light of,
among other things, Employee's education, experience, and salary history, then
Employer's responsibility thereafter for the provision of Benefits throughout
the course of the Benefit Period shall be to provide Employee with such
Benefits, if any, as are necessary, when added to the salary and benefits terms
of such offer of a reasonable employment position, to provide Employee with the
same salary level and level of Employer paid benefits as Employee received
immediately prior to termination by Employer. Upon termination of Employer's
obligations to provide Employee with Benefits, upon Expiration of the Benefit
Period or otherwise, Employee shall continue to be subject to the provisions of
Section 5 hereof.
c. Upon the termination of Employee, and in consideration
of Employer's agreement to provide Employee with the Benefits, Employee agrees
that during the Benefit Period, Employee shall at all times comply with the
provisions of Section 6 hereof.
5. Consultancy.
a. Upon the termination of Employee's employment with
Employer for Cause, or due to Disability, or upon the Expiration Date, or if
such employment is terminated by Employee, or upon the expiration of the Benefit
Period, Employer shall have the option in its sole discretion to retain Employee
as a part-time consultant ("Consultant") in the field in which Employee has
worked or with which Employee has become familiar as a consequence of or through
his employment by Employer ("Consultancy").
b. In the event that Employer desires to retain Employee as
a Consultant, Employee shall hold himself available for a period of two (2)
years for not more than twenty-five (25) hours per month, for which Employer
shall pay Employee
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<PAGE> 4
twenty-five percent (25%) of his monthly base pay at the time of termination of
Employee's employment with Employer, whether or not Employee is called upon to
render actual services in any such month for which he shall be paid.
c. Employee shall render such advisory and technical
consultation assistance as Employer shall request, provided that such assistance
shall not exceed the number of hours per month agreed upon herein.
d. Upon sixty (60) days' written notice to the end of the
duration of the Consultancy, Employer at its sole option may renew Employee's
retention as a Consultant for additional yearly periods (up to a maximum of two
additional yearly periods) provided that a subsequent renewal (for a second
additional yearly period) shall be made upon at least thirty (30) days' written
notice. Each renewal shall be accompanied by either an increase in Employee's
renumeration by a sum equal to ten percent (10%) of Employee's Consultancy fee,
or a decrease in the number of hours per month for which Employee must hold
himself available by fifteen percent (15%), at Employer's sole option.
e. During the Consultancy period (including renewals),
Employee shall at all times comply with the provisions of Section 6 hereof.
6. Restrictive Covenants.
a. Employee agrees that during the term of his employment
with Employer (whether pursuant to this Agreement or otherwise), and during any
Benefit Period (pursuant to Section 4 hereof), and during any period of
Consultancy (pursuant to Section 5 hereof):
(i) he will not solicit for employment or employ for his
own or for another's benefit any employee, officer, director or consultant of
Employer; and
(ii) he shall not directly or indirectly on his own
behalf or as an officer, director, consultant, partner, owner, stockholder or
employee of any individual, partnership or corporation or other entity, engage
in any activity, in those states within the United States and those countries
outside the United States in which Employer or any of its subsidiaries then
conducts or during his employment had conducted any business, where such
activity is competitive with the activities carried on by Employer and its
subsidiaries during his employment by Employer or is, directly or indirectly,
concerned with soliciting, serving or catering to any of the customers of
Employer or its subsidiaries during his employment by Employer. Employee
acknowledges that the nature of Employer's activities is such that competitive
activities could be conducted effectively regardless of the geographic distance
between Employer's place of business and the place of any competitive business.
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<PAGE> 5
b. In the event that any part of this Section 6 shall be
held unenforceable or invalid, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid portions had not been
a part hereof. In the event that the area or period of restriction established
in accordance with this Section 6 shall be deemed to exceed the maximum area or
period of time which a court of competent jurisdiction deems enforceable, said
area or periods of duration shall, for the purposes of this Section 6, be
reduced to the extent necessary to render them enforceable.
c. The existence of any claim or cause of action of
Employee against Employer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement thereof by Employer of any
covenant set forth in this Section 6.
7. Injunctive Relief.
a. Employee agrees that any violation on his part of any
covenant in Section 6 hereof will cause such damage to Employer as will be
serious and irreparable and the exact amount of which will be difficult to
ascertain, and for that reason, he agrees that Employer shall be entitled, as a
matter of right, to a temporary, preliminary and/or permanent injunction and/or
other injunctive relief, ex parte or otherwise, from any court of competent
jurisdiction, restraining any further violations of Employee. Such injunctive
relief shall be in addition to and in no way in limitation of, any and all other
remedies Employer shall have in law and equity for the enforcement of such
covenants and provisions.
b. Employee agrees further that even though his employment
with Employer may be terminated, he will at any time, either before or after
such termination, cooperate at the expense of the Employer with the Employer and
its counsel in the prosecution and/or defense or any litigation which may arise
in connection with any customer, supplier, or licensor or licensee of Employer,
or in connection with any copyright, trademark, trade secret, or patent rights
of the Employer.
8. Entire Agreement. This Agreement supersedes any and all
prior agreements between the parties and represents the entire understanding of
the parties hereto with respect to the employment of Employee and there are no
other agreements, warranties or representations except as herein provided. The
parties acknowledge that this Agreement shall not affect any prior, subsequent,
or contemporaneous agreements between the parties respecting Employer's
confidential information. This Agreement including this Section 8 may not be
altered or amended except in writing executed by both parties hereto.
9. Assignment; Benefit. This Agreement is personal and may not
be assigned except that it shall inure to the benefit of and be binding upon the
successors of Employer and personal representatives of Employee.
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<PAGE> 6
10. Applicable Law. This Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania. Employer and Employee agree and do
hereby consent to jurisdiction of any court of the Commonwealth of Pennsylvania
which has state-wide jurisdiction with respect to any proceeding arising out of
or relating to this Agreement or its subject matter, and further agree that the
mailing by registered mail of any process to the last known address of either
party shall constitute lawful and valid service of process thereof. In the event
any such suit is filed in any state or federal court in the Commonwealth of
Pennsylvania, Employer and Employee shall not raise and hereby waive the
defenses of lack of personal jurisdiction or venue. In the event that such
process requires an answer or response thereto, the time in which Employer or
Employee must file and serve such answer or response shall be computed from the
day of its or his receipt of such process.
11. Notice. Any notice required or permitted to be given
hereunder shall be sufficient if in writing and if sent by certified or
registered mail to his residence in the case of Employee or to its principal
office in the case of Employer.
12. Separability of Provisions. If any of the provisions of
this Agreement or the application of any of such provisions hereof shall for any
reason be held invalid by a court of competent jurisdiction, such invalidity
shall not affect or impair any other provision hereof, it being the intention of
the parties hereto that such other provisions shall be and remain in full force
and effect.
13. Waiver. The waiver by Employer of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any other or subsequent breach by Employee of such or any provision.
14. Termination of Prior Obligations. Employer and Employee
hereby agree that all prior or contemporaneous employment agreements between
them shall cease and terminate, and shall be null and void. Employer shall have
no further payment or other liability or obligation to Employee pursuant to any
such prior or contemporaneous employment agreement, whether oral or written.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals as of the day and year set forth above.
EMPLOYER:
Attest: TELEBASE SYSTEMS, INC.
___________________________________ By:__________________________________
Title:_______________________________
EMPLOYEE:
Witness:___________________________ ________________________________________
JAMES E. COANE
7
<PAGE> 8
ADDENDUM TO EMPLOYMENT AGREEMENT
THIS ADDENDUM TO EMPLOYMENT AGREEMENT is made effective
as of the 14th day of May, 1987 by and between TELEBASE SYSTEMS, INC., and
JAMES E. COANE.
BACKGROUND
The parties hereto have entered into an Employment Agreement
dated as of May 1, 1987. The parties wish to set forth additional terms and
conditions relating to the Employment Agreement, which terms and conditions
shall be a part of the Employment Agreement as if contained therein. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
them in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth and set forth in the Employment Agreement, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Additional Benefits. Employer will provide Employee with
use of an automobile throughout the term hereof. Employer will pay for all
automobile insurance, and all operating costs associated with Employee's use of
such automobile in fulfillment of Employee's duties under the Employment
Agreement. Employer will reimburse Employee for reasonable housing costs until
such time as Employee permanently relocates to the geographic area of Employer's
location, or one (1) year from the date hereof, whichever occurs first.
2. Stock Option. Employer hereby grants to Employee the option
to purchase four hundred (400) shares (the "Shares") of Employer's stock at a
purchase price of One Thousand Dollars ($1,000.00) per share (the "Purchase
Price"). Employee shall be entitled to exercise his option as follows: November
14, 1987 - 100; January 2, 1988 - 100; January 2, 1989 - 100; January 2, 1990 -
100 shares. Such other terms and conditions relative to Employee's stock option
hereunder shall be substantially similar to those terms and conditions to be set
forth in an Incentive Stock Option Plan (the "Plan"), proposed to be adopted and
implemented by Employer. A copy of the Plan, as currently proposed, is attached
hereto as Exhibit A.
3. Costs of Suit. The prevailing party in a proceeding for
damaged or other relief arising out of an alleged breach of either party of any
of the terms or conditions of the Employment Agreement or this Addendum shall,
in addition to other relief, be entitled to reasonable attorney fees, costs and
expenses of litigation incurred in connection with such proceeding.
EMPLOYEE: TELEBASE SYSTEMS, INC.
_____________________________ By:________________________________
JAMES E. COANE Title:_____________________________
<PAGE> 1
Exhibit 10.5
TELEBASE SYSTEMS, INC.
EMPLOYMENT AGREEMENT
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 8th day of
February, 1988, by and between TELEBASE SYSTEMS, INC., a Pennsylvania business
corporation located at 763 West Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
("Employer"), and BRUCE JOHNSON, an individual residing at 799 Bass Cove,
Malvern, Pennsylvania 19355 ("Employee").
BACKGROUND
Employer is desirous of employing the Employee upon the terms
and conditions hereinafter set forth in this Agreement, and the Employee is
desirous of being so employed.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration,
the receipt of which the parties hereby acknowledge, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. Employment and Duties. Employer shall employ the Employee
and the Employee accepts such employment for the term set forth in Section 4
hereof, on the terms and conditions set forth in this Agreement. The Employee
shall serve as Vice President and Chief Financial Officer of Employer, if
elected or appointed to such office or position, and shall perform such other
duties as shall be assigned to him from time to time during the continuance of
his Agreement by the Employer. The Employee agrees to (i) give his best efforts
and skills to the business and interests of the Employer, (ii) devote
substantially all of his time and attention to the business of the Employer, and
(iii) comply, in all material respects, with all reasonable policies and rules
of Employer in effect from time to time.
2. Compensation Package.
a. In consideration of the services to be performed by
Employee hereunder, Employee shall receive:
(i) A salary at the rate of Seventy-Five Thousand
Dollars ($75,000.00) per year, payable in equal semi-monthly or bi-weekly
installments in accordance with Employer's accounting procedures and practices
in effect from time to time;
(ii) Pay scale or salary increases or other compensation
in accordance with policies established by the Board of Directors of Employer
(the "Board"), and at the sole and complete discretion of the Board;
<PAGE> 3
(iii) Reimbursement for all authorized reasonable and
necessary expenses incurred by Employee in connection with the performance of
his duties hereunder;
(iv) Term life insurance, naming Employee's designee
as beneficiary, in the face amount, at all times, equal to twice Employee's then
current annual salary rate and additional benefits as approved by the Board,
which may include medical, dental and disability income insurance, sick leave
and holidays;
(v) Vacation to be taken at such time or times as shall
not be disapproved by the Board, and in accordance with Employer's policies and
procedures in effect from time to time.
b. Employee shall be entitled to receive a bonus as
follows:
(i) Employer shall pay to Employee a bonus following
the expiration of calendar year 1988 in the event of, and based upon, the
fulfillment of goals and objectives to be mutually agreed upon by Employee and
Employer and set forth in an exhibit to be attached hereto as Exhibit A. The
terms of the bonus, including financial terms, shall be established by the
Employer within ninety (90) days of the date hereof. Employer and Employee shall
use their best efforts to establish the goals and objectives referred to in this
paragraph (i) within ninety (90) days of the date hereof.
(ii) Following the expiration of calendar year 1988,
Employee shall be entitled to participate in an executive cash bonus plan (the
"Bonus Plan") to be established by Employer prior to the end of calendar year
1988. Employee shall be entitled to participate in the decision-making process
relating to the establishment of the Bonus Plan.
3. Stock Option. Employer shall grant to Employee the option
to purchase one hundred twenty-five thousand (125,000) shares (the "Shares") of
Employer's Common Stock at a purchase price equal to One Dollar and Twenty-Five
Cents ($1.25) per share (the "Purchase Price") pursuant to Employer's Incentive
Stock Option Plan. Employee shall be entitled to exercise his option to purchase
one-quarter of such Shares per year (i.e., 31,250 Shares per year), commencing
one year from the date of this Agreement and on subsequent anniversary dates
thereafter.
4. Term. This Agreement shall continue in effect until three
(3) years from the date hereof (the "Expiration Date"), unless terminated sooner
by Employer for Cause or Disability, or pursuant to Section 5 hereof.
Termination for Cause shall mean termination by Employer of Employee due to
Employee's gross negligence, willful misconduct, dishonesty, fraud,
embezzlement, defalcation or violation of Employee's covenants contained herein.
This Agreement shall terminate automatically upon the death of the Employee.
Employer may terminate this Agreement in the event that Employee for a period of
ninety (90) continuous days, or ninety (90) days in any year during the term
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<PAGE> 4
hereof (including any renewal term), becomes physically or mentally unable to
carry out his duties hereunder (herein referred to as "Disability"). In the
event that Employer terminates this Agreement upon the occurrence of Employee's
Disability, Employer shall, for a period of one (1) year from the date of
termination, continue to provide Employee with such term life insurance and such
medical insurance as are in effect at the time of termination. Unless written
notice shall have been delivered by the party desiring to terminate this
Agreement, which written notice shall have been delivered not later then one
hundred twenty (120) days prior to the Expiration Date (including the Expiration
Date with respect to any renewal term), this Agreement shall be considered
renewed for regular periods of one (1) year.
5. Termination.
a. Employer may terminate this Agreement at any time prior
to the Expiration Date (including the Expiration Date with respect to any
renewal term). Upon (i) termination of Employee by Employer prior to the
Expiration Date (other than termination for Cause or due to the Disability of
Employee), or (ii) termination of this Agreement by Employer upon the Expiration
Date (including the Expiration Date with respect to any renewal term), unless
Employer shall have Cause to terminate Employee, Employer will provide Employee,
following the date of termination, with (a) six (6) months' salary, based on
Employee's then current annual base salary level, if termination occurs on or
before one year from the date hereof, or twelve (12) months' salary if
termination occurs after one year from the date hereof, or (b) in the event of
Employee's termination at any time following the acquisition of beneficial
ownership by any person or entity of greater than fifty percent (50%) of the
then issued and outstanding stock of the Employer, or any public offering of
Employer's stock resulting in a sale of greater than fifty percent (50%) of
Employer's issued and outstanding stock (as of immediately following the
consummation of such public offering) (hereinafter "Change in Controls"), salary
for twelve (12) months (any such period of time being hereinafter referred to as
the "Benefit Period"), payable in accordance with Employer's payroll accounting
practices and procedures, and (c) continuation of all Employer paid benefits,
including life insurance (such salary and benefits being hereinafter referred to
as "Benefits") until the expiration of the Benefit Period.
b. Notwithstanding the provisions of paragraph a. above,
upon termination of Employee's Employment with Employer (provided that such
termination does not occur after a Change in Control, in which case Employer
shall be obligated to provide Employee with full Benefits throughout the Benefit
Period), and as a condition to Employer's obligation to provide Employee with
the Benefits, Employee will utilize his best efforts to obtain employment. If,
after three (3) months from the date of Employee's termination, Employee has
been or is thereafter offered a reasonable employment position, in light of,
among other things, Employee's education, experience, and salary history, then
Employer's responsibility thereafter for the provision of Benefits throughout
the course of the Benefit Period shall be to provide Employee with such
Benefits, if any, as are necessary, when added to the salary and benefit terms
of such
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<PAGE> 5
offer of a reasonable employment position, to provide Employee with the same
salary level and level of Employer paid benefits as Employee received
immediately prior to termination by Employer. Upon termination of Employer's
obligations to provide Employee with Benefits, upon Expiration of the Benefit
Period or otherwise, Employee shall continue to be subject to the provisions of
Section 6 hereof.
c. Upon the termination of Employee, and in consideration
of Employer's agreement to provide Employee with the Benefits, Employee agrees
that during the Benefit Period, Employee shall at all times comply with the
provisions of Section 7 hereof.
6. Consultancy.
a. Upon the termination of Employee's employment with
Employer for Cause, or due to Disability, or upon the Expiration Date, or if
such employment is terminated by Employee, or upon the expiration of the Benefit
Period, Employer shall have the option in its sole discretion to retain Employee
as a part-time consultant ("Consultant") in the field in which Employee has
worked or with which Employee has become familiar as a consequence of or through
his employment by Employer ("Consultancy").
b. In the event that Employer desires to retain Employee as
a Consultant, Employee shall hold himself available for a period of two (2)
years for not more than twenty-five (25) hours per month, for which Employer
shall pay Employee twenty-five percent (25%) of his monthly base pay at the time
of termination of Employee's employment with Employer, whether or not Employee
is called upon to render actual services in any such month for which he shall be
paid.
c. Employee shall render such advisory and technical
consultation assistance as Employer shall request, provided that such assistance
shall not exceed the number of hours per month agreed upon herein.
d. Upon sixty (60) days' written notice prior to the end of
the duration of the Consultancy, Employer at its sole option may renew
Employee's retention as a Consultant for additional yearly periods (up to a
maximum of two additional yearly periods) provided that a subsequent renewal
(for a second additional yearly period) shall be made upon at least thirty (30)
days' written notice. Each renewal shall be accompanied by either an increase in
Employee's renumeration by a sum equal to ten percent (10%) of Employee's
Consultancy fee, or a decrease in the number of hours per month for which
Employee must hold himself available by fifteen percent (15%), at Employer's
sole option.
e. During the Consultancy period (including renewals),
Employee shall at all times comply with the provisions of Section 7 hereof.
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<PAGE> 6
7. Restrictive Covenants.
a. Employee agrees that during the term of his employment
with Employer (whether pursuant to this Agreement or otherwise), and during any
Benefit Period (pursuant to Section 5 hereof), and during any period of
Consultancy (pursuant to Section 6 hereof):
(i) he will not solicit for employment or employ for his
own or for another's benefit any employee, officer, director or consultant of
Employer; and
(ii) he shall not directly or indirectly on his own
behalf or as an officer, director, consultant, partner, owner, stockholder or
employee of any individual, partnership or corporation or other entity, engage
in any activity, in those states within the United States and those countries
outside the United States in which Employer or any of its subsidiaries then
conducts or during his employment had conducted any business, where such
activity is similar to and competitive with the activities carried on by
Employer or any of its subsidiaries during his employment by Employer or is,
directly or indirectly, concerned with soliciting, serving or catering to any of
the customers of Employer or its subsidiaries during his employment by Employer
for the provision of products or services of a nature offered by Employer during
the term of Employee's employment by Employer. Employee acknowledges that the
nature of Employer's activities is such that competitive activities could be
conducted effectively regardless of the geographic distance between Employer's
place of business and the place of any competitive business.
b. In the event that any part of this Section 7 shall be
held unenforceable or invalid, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid portions had not been
a part hereof. In the event that the area or period of restriction established
in accordance with this Section 7 shall be deemed to exceed the maximum area or
period of time which a court of competent jurisdiction deems enforceable, said
area or periods of duration shall, for the purposes of this Section 7, be
reduced to the extent necessary to render them enforceable.
c. The existence of any claim or cause of action of
Employee against Employer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement thereof by Employer of any
covenant set forth in this Section 7.
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<PAGE> 7
8. Injunctive Relief.
a. Employee agrees that any violation on his part of any
covenant in Section 7 hereof will cause such damage to Employer as will be
serious and irreparable and the exact amount of which will be difficult to
ascertain, and for that reason, he agrees that Employer shall be entitled, as a
matter of right, to a temporary, preliminary and/or permanent injunction and/or
other injunctive relief, ex parte or otherwise, from any court of competent
jurisdiction, restraining any further violations of Employee. Such injunctive
relief shall be in addition to and in no way in limitation of, any and all other
remedies Employer shall have in law and equity for the enforcement of such
covenants and provisions.
b. Employee agrees further that even though his employment
with Employer may be terminated, he will at any time, either before or after
such termination, cooperate at the expense of the Employer with the Employer and
its counsel in the prosecution and/or defense or any litigation which may arise
in connection with any customer, supplier, or licenser or licensee of Employer,
or in connection with any copyright, trademark, trade secret, or patent rights
of the Employer.
9. Entire Agreement. This Agreement supersedes any and all
prior agreements between the parties and represents the entire understanding of
the parties hereto with respect to the employment of Employee and there are no
other agreements, warranties or representations except as herein provided. The
parties acknowledge that this Agreement shall not affect any prior, subsequent,
or contemporaneous agreements between the parties respecting Employer's
confidential information. This Agreement including this Section 9 may not be
altered or amended except in writing executed by both parties hereto.
10. Assignment; Benefit. This Agreement is personal and may
not be assigned except that it shall inure to the benefit of and be binding upon
the successors of Employer and personal representatives of Employee.
11. Applicable Law. This Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania. Employer and Employee agree and do
hereby consent to jurisdiction of any court of the Commonwealth of Pennsylvania
which has state-wide jurisdiction with respect to any proceeding arising out of
or relating to this Agreement or its subject matter, and further agree that the
mailing by registered mail of any process to the last known address of either
party shall constitute lawful and valid service of process thereof. In the event
any such suit is filed in any state or federal court in the Commonwealth of
Pennsylvania, Employer and Employee shall not raise and hereby waive the
defenses of lack of personal jurisdiction or venue. In the event that such
process requires an answer or response thereto, the time in which Employer or
Employee must file and serve such answer or response shall be computed from the
day of its or his receipt of such process.
6
<PAGE> 8
12. Notice. Any notice required or permitted to be given
hereunder shall be sufficient if in writing and if sent by certified or
registered mail to his residence in the case of Employee or to its principal
office in the case of Employer.
13. Separability of Provisions. If any of the provisions of
this Agreement or the application of any of such provisions hereof shall for any
reason be held invalid by a court of competent jurisdiction, such invalidity
shall not affect or impair any other provision hereof, it being the intention of
the parties hereto that such other provisions shall be and remain in full force
and effect.
14. Waiver. The waiver by Employer of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver of any other or subsequent breach by Employee of such or any provision.
15. Costs of Suit. The prevailing party in a proceeding for
damages or other relief arising out of an alleged breach by either party of any
of the terms or conditions of the Employment Agreement or this Addendum shall,
in addition to other relief, be entitled to reasonable attorney fees, costs and
expenses of litigation incurred in connection with such proceeding.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals as of the day and year set forth above.
EMPLOYER:
TELEBASE SYSTEMS, INC.
By:_____________________________________
James E. Coane, President
EMPLOYEE:
________________________________________
BRUCE JOHNSON
7
<PAGE> 1
EXHIBIT 10.7
PERSONAL AND CONFIDENTIAL
June 3, 1996
Rocktropolis Enterprises, LLC
1145 North McCadden Place
Hollywood, CA 90038
Attn: Rick Stevens and Nick Turner
Gentlemen:
This letter (this "Letter") will confirm the discussions
between Rocktropolis Enterprises, LLC, a California limited liability company
("Seller"), and N2K Inc., a Pennsylvania corporation ("N2K"), with respect to
the proposed acquisition (the "Acquisition") by N2K or an entity formed by N2K
("Purchaser") of all of the assets but none of the liabilities of Seller
(except for the obligations specifically set forth under the heading Assumed
Obligations in Schedule A hereto (the "Assumed Obligations") that relate to the
world-wide web site known as Rocktropolis, all as set forth on Schedule A
hereto (the "Assets"). The Acquisition shall be made upon the following terms
and subject to the following conditions:
1. Price and Structure of the Acquisition. Subject to the terms
and conditions set forth herein, on the Closing Date (as defined below),
Purchaser shall purchase the Assets and pay the purchase price (the "Purchase
Price") consisting of (i) $633,000 in cash and (ii) $537,498 payable in the
form of 179,166 shares of N2K Common Stock (the "Shares"). When issued, the
Shares will be free and clear of any liens and encumbrances, except those as
may be placed thereon by Seller and the Shares shall be adjusted automatically
and proportionately in the event of any stock split, division or
reclassification affecting all common shares. The Shares will be entitled to
the same registration rights afforded the Series F Convertible Preferred Stock
of the Purchaser. The Shares will be subject to the same "lock-up" and
deferral of the exercise of registration rights agreement with the underwriters
of the proposed initial public offering (the "Lock-up") as is agreed to by the
majority in interest of the Series F Convertible Preferred Stock purchasers.
The portion of Shares subject to Lock-up will be equal to the percentage of
shares of Series F Convertible Preferred
<PAGE> 2
Stock that are subject to Lock-up. If the Series F Convertible Preferred Stock
is not issued, the Shares will be entitled to the same registration rights
afforded the Series E Convertible Preferred Stock of the Purchaser and subject
to the same Lock-up as is agreed by a majority in interest of the Series E
Convertible Preferred Stock holders. The Shares will be subject to the right
of the holder to "put" the Shares back to N2K for a consideration equal to
$3.00 per share at any time beginning 366 days after the issuance date if there
is not at that time a public market for shares of N2K Common Stock. The "put"
will be accelerated and exercisable immediately in the event that the Purchaser
becomes insolvent or a bankruptcy petition is filed with respect to the
Purchaser.
2. Closing. The parties agree to use all reasonable efforts and
to work diligently and in good faith to accomplish the closing of the
Acquisition as soon as practicable, and agree that the closing shall occur on
or prior to June 28, 1996, at a time and place to be mutually agreed upon by
the Seller and the Purchaser (the "Closing Date").
3. Conditions to Closing. The consummation of the Acquisition
shall be subject to and conditioned upon, among other things, the following:
(i) the receipt of all material consents and approvals, including those from
regulatory agencies (if any), necessary to consummate the Acquisition in
conformity with applicable law, agreements and orders; (ii) delivery by Seller
of the Assets together with all documents necessary to transfer good title to
the Assets to Purchaser against payment of the Purchase Price to Seller; (iii)
the representations and warranties set forth herein shall be true and correct;
(iv) Seller shall have entered into a noncompetition agreement with Purchaser
effective as of the Closing Date that provides that Seller for a period of one
year from the Closing shall not compete, directly or indirectly, with the
Purchaser in the creation, design, sales or marketing of world-wide web sites
or commercial on-line services engaging in the on-line sales of records, CD's
or other music recordings to consumers substantially in the form attached
hereto as Exhibit I, and (v) Nicktropolis, Inc. shall have entered into a
consulting arrangement with the Purchaser substantially in the form attached
hereto as Exhibit II.
4. Access to Facilities; Due Diligence. From the date hereof
until the Closing Date, the Seller shall, and shall cause management of the
Seller to, afford Purchaser and its attorneys, consultants, accountants and
authorized representatives full access, upon reasonable notice during normal
business hours and at other reasonable times, to all relevant properties,
books, contracts, commitments, records, personnel, lenders and advisors of the
Seller in order to permit the Purchaser to conduct its due diligence
investigation of the Seller. Such investigation shall include, among other
things, the receipt of relevant financial information, the review of any
relevant contractual obligations of the Seller, the conducting of discussions
with the Seller's management, employees and customers with the prior consent of
the Seller (such consent not to be unreasonably withheld or delayed) and such
other investigations, valuations or testing as may be deemed reasonably
necessary by Purchaser. Until the Closing Date, and thereafter if the
Acquisition does not close, Purchaser shall keep
2
<PAGE> 3
confidential, and shall cause its attorneys, consultants, accountants and
authorized representatives to keep confidential, all information relating to
the business and affairs of Seller that is obtained pursuant to this Agreement.
5. Representations and Warranties of Seller. Seller hereby
represents and warrants:
(a) Seller is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
California and has the power to carry on its business as now being
conducted.
(b) The execution of this Agreement will not violate the
operating agreement or any other constitutional documents of Seller or
any law, regulation, order, judgment or decree which may bind Seller
or the Assets, nor will it conflict with, result in a breach of the
terms and conditions of, or result in the imposition of any lien or
other encumbrance on or with respect to any of the Assets as a result
of the provision of, or constitute a default under, any agreement to
which Seller is bound.
(c) Seller has taken all necessary action to authorize,
execute and deliver and fulfill the provisions of this Agreement and
this Agreement constitutes a legal, valid and binding agreement of
Seller enforceable against Seller in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
reorganization, or similar laws affecting the enforcement of
creditors' rights generally and rules and laws concerning equitable
remedies.
(d) There is no litigation, action, investigation or
proceeding pending against Seller as a result of its ownership or
operation of the Assets for any reason whatsoever, nor has Seller
received any notice threatening the same and the use or operation of
the Assets is not subject to any injunction, order, judgment, writ or
decree.
(e) Seller has good title to and has the right to convey
all of the Assets free and clear of all liens, mortgages, security
interests, restrictions, charges and encumbrances of any nature,
except for the Assumed Obligations and Seller has not received written
notice of any claim, suit or proceeding contesting the Seller's
ownership rights or use of the Assets. No third party has any option
or right of first refusal to purchase all or any part of the Assets.
(f) Purchaser shall receive complete and exclusive right,
title and interest in and to all tangible and intangible property
rights existing in the Code, Documentation and Designwork (as such
terms are defined in Schedule A hereto) of the Rocktropolis web site
(the "Rocktropolis Software"). The Rocktropolis Software is free and
clear of all liens, claims, encumbrances, rights or equities of third
parties, except for the Assumed Obligations.
3
<PAGE> 4
Purchaser's use of the Rocktropolis Software in the same manner as
heretofore used by Seller will not infringe any patent, copyright,
trade secret or other intellectual property rights of any third party.
No such claim of any infringement has been threatened or asserted
against Seller or its affiliates.
(g) Seller has maintained the Source Code for the
Rocktropolis Software in confidence to protect its proprietary rights
therein and all employees, consultants and contractors who have
participated in the conception and design of the Rocktropolis Software
have executed (i) appropriate instruments of assignment in favor of
Seller to convey full, effective and exclusive ownership of the
Rocktropolis Software to Seller and (ii) agreements prohibiting
unauthorized copying, use and disclosure of the Rocktropolis Software.
(h) Seller has obtained full and effective right to use,
execute, reproduce, display, perform, modify, enhance, distribute and
prepare derivative works of any included third party software in the
Rocktropolis Software.
(i) Except as noted on Schedule A-1 hereto, all
advertising space on the Rocktropolis web site has been sold to
advertisers for cash payments and not in exchange for products or
services.
(j) There are no security interests in, encumbrances on
or rights, uses, or privileges of others with respect to the Assets,
except for the Assumed Obligations.
(k) The operation and use of the Assets are in material
compliance with all applicable laws and regulations of applicable
Federal, state and municipal governments.
(l) Seller has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finder's fees with respect to
matters covered by this Agreement.
(m) No taxes related to the Assets are in arrears or in
material dispute.
(n) The Assets include all material items used by Seller
in the creation and operation of the Rocktropolis web site.
(o) Except for the Assumed Obligations, no liabilities
will follow the Assets once purchased by N2K, including but not
limited to any obligation arising under the contract with Interworld
Technologies and any dispute related thereto.
4
<PAGE> 5
6. Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants:
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has the power to carry on its business as now being
conducted;
(b) The execution of this Agreement will not violate the
Charter or any other constitutional documents of Purchaser or any law,
regulation, order, judgment or decree which may bind Purchaser, nor
will it conflict with, result in a breach of the terms and conditions
of, or constitute a default under, any agreement to which Purchaser is
bound; and
(c) Purchaser has taken all necessary action to
authorize, execute and deliver and fulfill the provisions of this
Agreement and this Agreement constitutes a legal, valid and binding
agreement of Purchaser enforceable against Purchaser in accordance
with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, or similar laws affecting the enforcement
of creditors' rights generally and rules and laws concerning equitable
remedies.
7. Indemnification. (a) Seller hereby agrees to indemnify,
defend and hold N2K and its directors, officers, employees and agents harmless
from all costs, expenses and damages resulting from or caused by (i) any breach
of Seller's representations, warranties or covenants contained herein or
arising from any materially misleading or erroneous information made, done or
furnished to N2K in writing in connection with the transactions contemplated
hereby and (ii) any liabilities of Seller, except for the Assumed Obligations.
The Purchase Price hereunder shall be deemed to have been excessive to the
extent of the amount of any loss, damage or shortfall arising from a breach of
Seller's representations and warranties or covenants and any subsequently
arising liabilities of the Seller pursuant to any indemnification obligations
contained herein and N2K shall be entitled to offset against the Shares, as
provided in Paragraph 7(b) below.
(b) The Shares shall be held in escrow until January 2,
1997. Purchaser shall irrevocably release the Shares to Seller on January 2,
1997, subject to the following provisions. During such escrow period, the
Purchaser shall notify Seller in writing immediately of any claim for
indemnification arising as provided in this Paragraph 7. The notice shall
specify the amount of the claim. Seller shall respond in writing to each such
claim by accepting or rejecting the claim, within ten (10) days of receipt of
Purchaser's notice. If Seller accepts the claim, Purchaser shall have the
right of set-off with respect to the claim upon the close of the escrow. For
purposes of set-off, the Shares shall be given a per-share value equal to the
higher of $3.00 or the trading price of Purchaser's registered shares
determined by calculating the average of the bid and ask price (if then quoted
on NASDAQ) for the ten trading days prior to the close of escrow. If, upon the
close of escrow, there are claims of set-off which
5
<PAGE> 6
have been timely rejected by Seller, then Purchaser may thereupon submit the
matter of such claims to binding arbitration. Such arbitration shall be
limited to the singular issue of the parties' rights to the specified set-off
Shares in accordance with this agreement. The arbitration shall be conducted
at a location of mutual agreement, under the auspices and pursuant to the rules
of the American Arbitration Association, and the decision shall be binding.
The arbitrator shall be instructed to award attorneys fees in addition to the
award on the merits. Nothing herein shall prohibit the parties from seeking
mediation, informal arbitration or some other form of alternative dispute
resolution by mutual agreement. That portion of the set-off Shares that
relates to a claim that Seller has rejected or is still in dispute shall remain
in an extension of the escrow until the conclusion of the arbitration, with all
rights thereto accruing to the prevailing party upon resolution of the dispute.
Any shares that relate to claims Seller has accepted shall be released to
Purchaser and any shares in excess of those necessary to cover disputed claims
shall be released to Seller on January 2, 1997.
8. Conduct of Business Pending Closing and Post-Closing;
Transition Services. Seller covenants as follows:
(a) From the date hereof until the Closing Date, the
Seller shall continue to operate the Assets in the usual and ordinary course,
shall refrain from any material changes with respect thereto and shall use its
best efforts to preserve the goodwill of its customers, employees, independent
contractors, suppliers, and others with whom the Seller has business relations
that affect the Assets;
(b) Effective as of the Closing Date, Seller shall agree
not to use the Rocktropolis or similar name and shall change its name to a name
that does not include "opolis" and is not similar in sound to Rocktropolis and
Seller shall notify all of its clients of the change in name and that N2K then
owns the Rocktropolis web site and name, such notice to be in a form and with
content approved in advance by Purchaser;
(c) For a period of 120 days following the Closing Date,
Seller shall provide Purchaser transitional operating, engineering, marketing
and other transitional services as requested by Purchaser at cost and Seller
shall make available to Purchaser, at cost (including utilities and other
direct costs), the office space shown on the floor plan set forth on Schedule B
hereto, and the equipment shown on Schedule C hereto, at agreed value;
(d) Seller shall design and construct the JVC Building to
be housed in the Rocktropolis site and any other requirements of Seller in
connection with the agreement between Seller and JVC America, including but not
limited to hosting or providing for the hosting of the JVC website, all at no
cost to Purchaser, except as follows. To the extent Seller requires a third
party host to provide for this service, Purchaser will be required to pay the
actual cost of such third party host for such service subject to a maximum
monthly charge of $750 through March 7, 1997 and $1,000 from March 8, 1977
through March 7, 1998. Purchaser shall pay such invoices
6
<PAGE> 7
within 30 days of receipt. Unless the contract related to JVC America is
assigned to Purchaser such that Purchaser receives payments directly from the
contracting party, Seller shall pay all advertising fees it receives from or on
behalf of JVC America to Purchaser to house the JVC Building site on
Rocktropolis and to house the JVC America website on the Rocktropolis server
for any period after March 7, 1997; and
(e) On or before the Closing Date, the Purchaser must
confirm to the Seller the Purchaser's agreement to use all of the office space
marked on Schedule B and all of the furniture and equipment shown on Schedule C
(except that furniture and equipment in use for those offices that are not
marked as available to Purchaser on Schedule B), all as set forth in Section
8(c) hereof. The Purchaser will obtain, at the Purchaser's cost, liability
insurance covering the Purchaser's use of the premises and equipment during the
transition period.
9. Public Disclosure. Prior to the Closing Date, the parties
hereto shall consult with each other and agree on desirability, timing and
substance of any press release or public announcement or publicity statement or
other disclosures to the public relating to the Acquisition. Except as may be
required by law, prior to the Closing Date, no party shall issue such public
disclosure without the prior agreement of the other parties as to the time of
issuance, extent of distribution and form and substance of such public
disclosure.
10. No Solicitation. For thirty days from the date hereof (the
"Nonsolicitation Period"), the Seller shall, and shall use its best efforts to
cause its representatives, agents and employees to, refrain from (i)
soliciting, discussing or negotiating, directly or indirectly, with any third
party any inquiries, proposals or offers with respect to the sale of the Assets
and (ii) disclosing to any third party that the Assets are for sale. If
subsequent to the date of this Agreement the Seller or its representatives,
agents or employees receive any unsolicited offer or proposal for any such
acquisition, or obtain information that such an offer or proposal is likely to
be made, the Seller will provide the Purchaser with immediate notice of the
terms and identity of the bidder thereof.
11. Brokerage Fees; Expenses. Each of (i) the Purchaser and (ii)
the Seller shall indemnify and hold the other harmless from any claim for
brokerage or finders' fees arising out of the Acquisition contemplated hereby
by any person claiming to have been engaged by the indemnifying party. Each
party hereto agrees to pay its own fees and expenses incurred in connection
with this Letter and the Acquisition, whether or not consummated.
12. Binding Effect. This letter is intended to constitute a binding
contract between us.
13. Miscellaneous. This Letter may be executed in counterparts,
each of which shall be deemed to be an original but all or which
shall constitute one and the same document. This Letter shall be governed by
the laws of the State of New York
7
<PAGE> 8
without regard to conflicts of law principles thereof. The representations and
warranties of the parties hereto shall survive until January 2, 1997.
14. Attorneys Fees. In the event of litigation arising out of
this agreement, the prevailing party shall be entitled, in addition to all
other remedies at law or in equity, to collect reasonable attorneys fees and
court costs.
If the foregoing proposal is acceptable to you, please
indicate your agreement by executing and returning to us one fully executed
copy of this Letter.
We look forward to working with you.
Very truly yours,
N2K INC.
By:
-------------------------
Larry Rosen
Chairman and CEO
Agreed to and accepted this
3rd day of June 1996:
ROCKTROPOLIS ENTERPRISES, LLC
By:
------------------------------
Name:
Title:
- ---------------------------------
Nick Turner
8
<PAGE> 9
Schedule A
Schedule of Assets and Assumed Obligations
Assets
1. All Code and Documentation (as hereinafter defined) for the
Rocktropolis web site, including:
(a) All computer programming code (the "Code") including the
machine readable forms of the Code ("Object Code") and human
readable forms of the Code and related development
documentation, including all comments and any procedural codes
such as job control language ("Source Code").
(b) All materials and other written materials or diagrams that
relate to particular Code either in hard copy or stored or
recorded on magnetic media or machine readable text or graphic
files subject to display or printout ("Documentation"),
including Documentation for any maintenance modifications and
enhancements to the Code.
2. All related development and test utilities, enhancements and
maintenance modifications and all ideas, designs, concepts and
inventions reflected by or embodied in the foregoing (the
"Designwork").
3. The mark "ROCKTROPOLIS," which is a U.S. registered trademark.
4. All of Seller's right, title and interest, if any, in all names,
trademarks, copyrights, patents, patent applications, URL's and logos
which are related to Rocktropolis and all areas of the site, including
but not limited to:
Inspite Magazine
Ozone magazine
Seedy Cds
Downtown News
Pawn Shop
The Eldorado/Battle of the Bands
Buzz Coffee Shop
Roxy movie house
Rocktropolis City Jail
Hula Hut - souvenirs
KNDY FM/Radio Free Rocktropolis
Mustang Sally's gas
Cinetropolis Drive in
Musicians Exchange
<PAGE> 10
Fins Motel
Love Parlour
Church of Rock and Roll
Star Club
The Further Adventures of Soma and Droog
5. Any interest of Seller under oral license agreements with third
parties, including artists and record companies, to the use of their
rights, including intellectual property rights and rights of
publicity, as they are currently being used on the Rocktropolis site
and otherwise in promotional materials for the site.
6. All books and records relating to the Rocktropolis web site, including
but not limited to:
(a) To the extent available, monthly server log reports stating
hits, unique users, impressions and traffic patterns
throughout the site from the time of launch until the
Acquisition and traffic as to other sites hosted on the
servers;
(b) A list showing the content of Version 1.0 of the Rocktropolis
Software and what content from Version 1.0 is currently in
Version 2.0 and what content was created by rVision;
(c) All Code, graphics, interface design and architecture related
to Rocktropolis Software delivered on actual servers with
CD-ROM (or equivalent medium) backup masters;
(d) A printout (bound, organized and clearly indexed by exact
screen and site area derivations) with all processes (Java
Script; Shockwave and other support code) documented
separately and cross-referenced in the index of this printout;
(e) A complete, exhaustive listing and system diagram flowchart
which fully describes the site, including an indication of
content wholly-owned by Seller and also existing links out to
other sites and content partners;
(f) A basic technical specifications diagram which describes the
complete server environment, architecture, and the
telecommunications infrastructure used to support it;
(g) All original artwork, photoshop files and screen elements
(buttons, navigation elements, etc.) in their original high
resolution formats on CD-ROM (or equivalent media);
2
<PAGE> 11
(h) A complete narrative description of the site, its history, and
any "proprietary tools or techniques" used to create the site
to aid the Purchaser in the continuing production process and
a description of changes made between Version 1.0 and Version
2.0; and
(i) A listing of employee names tagged to the creation of all key
screens of the site.
The following exceptions to the provisions of this Paragraph 6 are
acknowledged by the parties:
1. The reports referred to in Item 6(a) above have not been kept
for all periods. To the extent available, they will be
provided.
2. As to Item 6(d), although this material can be compiled it may
not be available by the Closing Date, particularly in the case
of the cross-referencing in the index.
3. To the extent that software is to be delivered on a server, it
is a server owned or leased by the Company; no server is
included in the Assets.
4. Seller agrees to use reasonable efforts with existing
personnel to accomplish the above items prior to the closing.
Purchaser understands that Item 6(c) may not be completed by
the closing. However, if Purchaser should desire, it may at
its cost and with Seller's consent, provide or pay for
additional personnel to expedite the preparation of that
documentation.
ASSUMED OBLIGATIONS
1. The obligation to provide an advertising link from the
Rocktropolis website to the JVC website, as set forth in
Attachment 1 hereto, but none of the other obligations of
Seller thereunder.
2. rVision obligations (as provided in Attachment 2 hereto).
3
<PAGE> 12
SCHEDULE B
[DIAGRAM OF SUNSET BOULEVARD]
<PAGE> 13
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
Date of
Quantity Purchase Description Location
- -------- -------- ----------- --------
<S> <C> <C> <C>
1 2/27/96 Adrian TSU (connection to T1) Phone Closet
1 Pair Advent Speakers (From EFX) Glen Morrissey
1 Altec Lansing Multimedia Speakers Doug Boxer
1 12/12/95 APC UPS 1250 Power Supply (power back-up) Server Room
1 Apple Mac Keyboard Carley
1 12/8/95 Apple Mac Laptop Nick Turner
1 Apple Mac Mouse Carley
1 12/15/95 Apple MacIntosh 7500/100 Power PC Missy Leach
1 12/15/95 Apple MacIntosh 7500/100 Power PC Carley
1 11/1/95 Apple MacIntosh 8500 Power PC Missy Leach
1 12/12/95 Apple MacIntosh 8500/120 Power PC Jason DiFillippo
1 11/1/95 Apple MacIntosh 8500/120 Power PC Behind Carley
1 1/2/96 Apple MacIntosh Keyboard Jason DiFillippo
1 1/2/96 Apple MacIntosh Keyboard Carley
1 Apple MacIntosh Keyboard Behind Carley
1 Apple MacIntosh Mouse Jason DiFillippo
1 Apple MacIntosh Mouse Missy Leach
1 Apple MacIntosh Mouse Behind Carley
1 Apple MacIntosh Power PC/120 Carley
1 AT&T Answering Machines Phone Closet
1 11/2/95 BOCA 10 Base T Concentrator (hub) Server Room
1 1/6/96 BOCA hub 16 plus (hubs) Phone Closet
1 11/15/95 Brother P Touch XL35 Programming Room
1 10/30/96 CD Rom Smart & Friendly Jason DiFillippo
1 2/27/96 Cisco Pro Router (transfers data) Phone Closet
1 Compaq Keyboard David Lyle
1 Compaq mouse David Lyle
1 Compaq Mouse Server Room
1 11/2/95 Compaq Prolinea 5100 - 15 MG Gordon Drake
1 11/2/95 Compaq Prolinea 5100 w/no cd drive David Lyle
1 11/2/95 Compaq Prolinea 5100 with cd drive Server Room
(internal network server) "Soma"
1 12/5/95 Dell Dimension P100T Computer Conference Room
1 Dell Monitor Server Room
1 Dell quiet key keyboard Conference Room
1 Discdrive Behind Carley
1 Fellowes Power shred PS 50 David Wandrey
1 Gateway 2000 keyboard Gordon Drake
1 11/14/95 Gateway 2000 solo portable computer Glenn Morrissey
1 HP Fax 700 Gordon Drake
</TABLE>
Page 1
<PAGE> 14
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
Date of
Quantity Purchase Description Location
- -------- -------- ----------- --------
<S> <C> <C> <C>
1 17-Nov HP Laserjet 4 Printer Programming Room
1 12/12/95 HP Scan jet 3c Carley
1 9/12/95 HP Scan jet 3C Color Scanner Mac Behind Carley
1 12/15/95 HP Scan jet 4C/t Carley
1 Keyboard Doug Boxer
1 Keyboard Behind Carley
1 3/6/96 KitchenAid Superba Blk Dishwasher Kitchen
1 Pair 1/4/96 Labtec CS900 computer speakers system Gordon Drake
1 Pair 1/4/96 Labtec Speakers David Lyle
1 Linksys 8 port hub David Lyle
1 Logitech mouse Conference Room
1 Microsoft Mice Server Room
1 Microspeed Keyboard Missy Leach
1 Microspeed Keyboard Missy Leach
1 12/11/95 Minolta 2050 Photocopier Programming Room
1 9/12/95 Milac Syquest 200 MC C Carley
1 Mouse Doug Boxer
1 2/15/96 NEC Multisynch XV17 Monitor Doug Boxer
1 11/28/95 Pavilion 7090 Computer 16MG Ram Doug Boxer
1 Provista 14 Monitor David Lyle
1 Provista 14 Monitor Server Room
1 12/12/95 Sony Multiscan 20SE Monitor Conference Room
1 12/12/95 Sony Multiscan 20SE Monitor Missy Leach
1 12/12/95 Sony Multiscan 20SE Monitor Carley
1 12/12/95 Sony Trinitron Multiscan 20SE Monitor Jason DiFillippo
1 10/31/95 Sony Trinitron Multiscan 20SE Monitor Carley
1 11/1/95 Sony Trinitron Multiscan 20SE Monitor Glenn Morrissey
1 12/12/95 Syquest 200 MB C (Removable 200) Carley
1 Teac EW750R Double Cassette Deck Carley
1 11/8/95 Toshiba Strata DK 280 Phone System Phone Closet
1 1-Nov Trinitron Sony Multiscan SE Behind Carley
1 2/27/96 Triplight UPS (battery back-up) Phone Closet
1 Video Cassette Recorder AG-5700 Carley
1 11/2/95 Viewsonic 15 Monitor David Lyle
1 11/2/95 Viewsonic 17 Monitor Server Room
1 11/2/95 Viewsonic 17GS Monitor Gordon Drake
1 Wacom Pencil & Pad Carley
1 Zeos Keyboard Server Room
1 11/16/95 Zeos Pantera - only 1 cd drive Server Room
(main server) "Droog"
</TABLE>
Page 2
<PAGE> 15
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION LOCATION
- -------- --------- ----------- --------
<S> <C> <C> <C>
1 16-Nov Zeos Pantera with cd & tape back-up until (transaction server) Server Room
</TABLE>
<PAGE> 16
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
FIXTURES & FITTINGS
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION LOCATION
- -------- --------- ----------- --------
<S> <C> <C> <C>
1 15-Nov-95 2 drawer gray Sentry file cabinet (Fireproof) David Wandrey
1 9-Jan-96 black 2 drawer file cabinet Carley
1 9-Jan-96 black 2 drawer file cabinet (small) Jason
1 25-Jan-96 black 2 drawer horizontal file cabin Glenn Morrissey
1 black 4 drawer file cabinet David Wandrey
1 14-Dec-95 black 4 drawer file cabinet Doug Boxer
1 25-Jan-96 black 5 shelf bookcase David Wandrey
1 1-Nov-96 black 5 shelf bookcase Doug Boxer
1 14-Dec-95 black 5 shelf bookcase Jason
2 14-Dec-95 black fabric chairs w/arm rests Rick Stevens
1 20-Dec-95 black high back office chair David Lyle
1 20-Dec-95 black high back office chair Carley
2 20-Dec-95 black high back office chairs w/arm rests Jason
1 20-Dec-95 black high backed chair w/arm rests Rick Stevens
1 20-Dec-95 black high backed chair w/arm rests Trevor Gilchrist
1 20-Dec-95 black high backed office chair w/arm Doug Boxer
1 black lamp Glenn Morrissey
1 11/11/95 black leather/chrome chair w/arm rest Reception
1 8-Mar-96 black love seat Reception
1 black table lamp Doug Boxer
1 black table lamp Deana J. Smart
1 black, 2 drawer file cabinet (small) Deana J. Smart
1 13-Nov-95 black, 2 drawer horizontal file cabi Deana J. Smart
1 black, 2 drawer horizontal file cabinet Deana J. Smart
5 11-Nov-95 black, fabric low backed chairs Conference Room
1 11-Nov-95 black/chrome low backed office chair Doug Boxer
1 11-Nov-95 black/chrome low backed office chair Doug Boxer
2 11-Nov-95 black/gray marble table bases Conference Room
2 8-Mar-96 blinds - Aluminium - 118 1/2 x 43 3/8 Rick Stevens
1 8-Mar-96 blinds - Aluminium - 122 x 47 1/2 Trevor Gilchrist
2 8-Mar-96 blinds - Aluminium - 122 x 47 1/2 David Wandrey
1 8-Mar-96 blinds - Aluminium - 122 x 47 1/2 Doug Boxer
1 12-Mar-96 blinds - Aluminium - 122 x 47 1/2 Glenn Morrissey
1 12-Mar-96 blinds - Aluminium - 122 x 47 1/2 Nick Turner
1 11-Nov-95 circular glass table top Conference Room
1 copper/black table lamp Reception
</TABLE>
Page 1
<PAGE> 17
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
FIXTURES & FITTINGS
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION LOCATION
- -------- --------- ----------- --------
<S> <C> <C> <C>
1 cork pin board David Wandrey
1 drawer bookcase Trevor Gilchrist
1 27-Dec-96 glass top table (1 surface) Gordon Drake
1 glass top table (1 surface) Behind Carley
1 gray 4 drawer file cabinet Server Room
1 gray Sentry 6380 prof. quality safe Deana J. Smart
1 25-Mar-96 multicolored table lamp Rick Stevens
1 28-Nov-95 Pan KP 310 Blk Electric Sharpener Reception
1 11-Nov-95 small rectangular glass table top w/base Rick Stevens
1 8-Mar-96 small rectangular glass table top w/base Rick Stevens
4 14-Nov-95 tall black stools Programming Room
1 14-Nov-95 circular glass table top w/black base Programming Room
1 25-Mar-96 tall rectangular glass table top w/glass base Rick Stevens
1 11-Nov-95 tribal base table lamp Rick Stevens
1 white table lamp David Wandrey
1 white table lamp (adjustable) Gordon Drake
1 wooden table David Lyle
1 3-Jan-96 wraparound, glass top desk (3 surfaces) with shelf Glenn Morrissey
1 27-Dec-95 wraparound, glass top desk (3 surfaces) with shelf Trevor Gilchrist
1 14-Nov-95 wraparound, glass top desk (3 surfaces) with shelf Carley
1 14-Nov-95 wraparound, glass top desk (3 surfaces) with shelf David Lyle
1 14-Nov-96 wraparound, glass top desk (3 surfaces) with shelf David Wandrey
1 wraparound, glass top desk (3 surfaces) with shelf Doug Boxer
1 wraparound, glass top desk (3 surfaces) with shelf Deana J. Smart
1 11-Nov-95 yellow leather chair Rick Stevens
1 11-Nov-95 yellow leather couch Rick Stevens
1 11-Nov-95 yellow leather stool (low) Rick Stevens
</TABLE>
Page 2
<PAGE> 18
OFFICE EQUIPMENT INVENTORY AS AT 3/25/9?
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION
- --------
<S> <C> <C> <C>
Computer Ram & Hard Drive
Ram Hard Drive
Missy 32 Mg 2 Gig
Pietsie 48 Mg 2 Gig
Jason 16 Mg 1 Gig
Jason 64 Mg 2 Gig
Ward 32 Mg 1 Gig
Carley 32 Mg 2 Gig
Extra 24 Mg 1 Gig
DB 16 Mg 1.6 Gig
Droog 64 Mg 2 x 2 Gig
Soma 32 Mg 1 Gig
Server 64 Mg 2 Gig & 1 Gig
Server 16 Mg 1 Gig
DW 16 Mg 1 Gig
</TABLE>
Page 1
<PAGE> 19
Attachment 1
(Attach latest draft of JVC America contract)
<PAGE> 20
ATTACHMENT 1
THIS CONTRACT IS AN AMENDMENT and acknowledgment between Rocktropolis
Enterprises, LLC, herein after referred to as the "DEVELOPER" and Boulder
Marketing Agency, Inc., herein after referred to as the "AGENCY," governing
services to be provided by the Developer and the Agency in connection with the
development and marketing of a Web-site to be made available to the market by
the Agency to JVC COMPANY OF AMERICA, herein after referred to as the "CLIENT,"
on the subject of JVC-AMERICA.COM.
1. This contract relates to the development and marketing of
JVC-AMERICA.COM, herein after referred to as the "WEB-SITE," an Internet World
Wide Web-site, being co-developed by the Agency and the Developer.
2. The Developer shall provide services as defined in the letter of intent
in connection with this project and thereby incorporated within and made a part
of this contractual agreement. All services will be provided with the best
state of the art technologies known to the Developer.
3. In consideration of the services provided by the Developer, the Agency
agrees to compensate the Developer a total of $95,000 in the following fashion:
(a) A first installment* in the amount of $30,000
* First installment already paid by J. Kevin Weinhoeft, Consultant,
now operating as Boulder Marketing Agency, Inc., J. Kevin
Weinhoeft, President.
(b) A second installment of $30,000 already paid to the Developer
(c) A final installment of $35,000 ten (10) business days after the
Web-site is fully constructed, with the Client's written approval.
4. The Agency agrees to pay the Developer within ten (10) business days
for all services which may be incurred in the performance of this agreement.
5. It is agreed and understood that the agreement for services outlined
below in paragraphs 10. and 11, and compensation outlined in paragraph 3, cover
a period commencing with the date the Web-site is fully constructed to the
Client's approval, ending one year from said date. Exceptions include paragraph
7 and 8 and the JVC Building* and which will reside in Rocktropolis for a period
from June 5, 1996 to March 31, 1998.
*See 7b.
6. It is also understood that the Developer has been employed and is being
compensated accordingly for their services by the Agency. In such, the
Developer will be required to execute all provisions and services outlined in
this agreement. Moreover, in the event the Agency cannot fully execute their
services to the term of this agreement, the Developer will guarantee to the
Client that there will be an interruption in services or Web-site updates.
<PAGE> 21
7. It is agreed and understood the following services will be offered to
the Agency and their Client. In the second year of this agreement, commencing
March 31, 1997, ending March 31, 1998. All services will be provided to the
State of the art technologies known by the Developer. In addition, it is also
understood that the fees outlined in b, c and d, will be applied as the pricing
ceiling should the Agency or Client request to make changes or additions to the
Web-site during the first year of this agreement. The services will be provided
at a reasonable cost to the Agency and Client; maintaining economics with no
compromise to the Web-site. These services will include:
(a) $500.00 a month for server time and maintenance
(b) $1,500.00 a month for the JVC Building
(c) $1,400.00 per new page template
(d) $350.00 per graphic update
(e) $250.00 per page to changeover or add product photos and text.
8. It is understood that this agreement does not imply that the Agency and
Client must use the Developer's programming and creative services in the second
year of the agreement. In such, the Agency and Client will hold a second year
option to employ the Developer for the services outlined in paragraph 7c, 7d
and 7e. However, the Web-site will reside on the Developer's server(s)* and JVC
Building will remain in Rocktropolis.**
*See 7a, **see 7b
9. It is also understood that in the event that the Developer(s) business
is purchased by any organization, the Agency reserves and maintains the right
to take control of all the Client's Web-site content at any given time.
Moreover, the Agency will also have the right to ascertain and acquire all
software, content, and have day-to-day online FTP access as it relates to the
Client's Web-site. The Agency will require the Developer to fully comply with
this point before final compensation.
10. Pursuant to the compensation outlined in paragraph 3, the Developer
agrees to provide the following services to the Agency and his Client from
March 31, 1996, to March 31, 1997.
(a) Development* and monthly updates within the Web-site
(b) A JVC Building in Rocktropolis
(c) One year server time and maintenance
(d) Monthly report on number of "hits" in the Web-site
*Please note the Web-site design has been approved by the Agency and Client,
with the only changes to be made will be textural in nature.
11. Pursuant to the compensation outlined in paragraph 3, the Developer
agrees to include the following entries in the Web-site:
(a) Forty-one page home and product area including phones and copy
(b) Promotional Event pages
<PAGE> 22
(c) Monthly FAQ's and library of FAQ's
(d) Hyperlinks to other JVC affiliated companies
(e) Retail Store ?????? including monthly updates
12. The Agent and Client rights will include the following:
(a) The Agent and Client will own and copyright all of the content
within their Web-site.
(b) Final decision on creative, content, promotion and links within
their Web-site.
(c) If the server(s), mirrored server(s) or software are off-line for a
period of more than 48 hours, the Client will be reimbursed at a
rate of $200.00 per day. Exceptions include earthquakes or any
other "acts of God."
(d) At the Agency's or Client's written request, the Web-site may be
offered to a commercial online service, however, the Client will be
required to pay any and all costs related to the translation of the
Web-site to the commercial service(s).
13. The Agent and Client reserve the rights to sell or barter advertising or
links within their Web-site. All revenues or merchandise acquired from said
relationship will be the sole property of the Agency and Client.
14. This contract may be terminated by the Agency and its Client at any
time upon written notice by the Agency. In the event of termination, the
Developer will be compensated for services provided satisfactory to the date on
the written notice.
15. This contract is binding upon and inures to the benefit of the parties
hereto and their respective administrators and personal representatives, and
shall be governed by the laws of the state of Colorado.
16. This contract is the entire and complete agreement between the parties
and may be extended in duration and or scope by mutual written agreement.
17. This version of the contract voids the previously submitted contract(s),
and is herein submitted with the understanding the Developer will tender this
agreement prior to the sale of the Rocktropolis Web-site. Moreover, it is also
understood that Rocktropolis Enterprises, LLC guarantees and agrees to the
terms of this agreement. It is also understood that all communications related
to the Web-site will be channeled through the Agency to his Client.
Signed this the day of , 1996.
- --------------------------------- ---------------------------------------
Agency Developer
<PAGE> 23
Attachment 2
(Attach rVision contract)
<PAGE> 24
ATTACHMENT 2
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
THIS MUTUAL RELEASE AND SETTLEMENT AGREEMENT (the "Agreement") entered
into as of the 15th day of June 1995, by rVision, Inc., a California
corporation, and each and all of their affiliates and related entities,
employees, officers, shareholders, directors, agents and representatives
(collectively, "Company"), on the one hand, and Nick Turner ("Client"), on the
other hand, is a mutual release whereby Company and Client, pursuant to Section
1541 of the Civil Code of the State of California, extinguish their respective
rights and claims against each other with respect to the matters hereinafter
set forth.
WHEREAS, certain controversies and disputes have arisen between the
Company and Client in connection with that certain agreement between the
Company and Client contained in a Work Order dated January 18, 1995, including
Schedule "A" (Scope of Work) thereto relating to, among other things, the
layout and design by the Company of the "Rocktropolis Internet Site", the
development of a computer screen saver on mutually agreed terms and conditions,
the distribution thereof, the payment of royalties, and other terms and
conditions (collectively the "Agreement"); and
WHEREAS, it is the purpose and desire of Company and Client to release
and discharge each other and to settle all matters between them arising
directly or indirectly out of their relationship, including, but not limited
to, their contractual relationship in connection with the Agreement.
NOW, THEREFORE, in consideration of the obligations, promises and
representations provided for hereunder and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Company and Client hereby agree as follows:
1. Agreements. The Company and the Client hereby confirm and
agree, notwithstanding the terms and conditions of this Mutual Release and
Settlement Agreement to the contrary, as follows:
(a) That Client has paid the sum of $22,500.00 to date on account of
Clients obligation to pay for the work performed by the Company for the Client
under the terms of the Agreement. All artwork created to date is solely owned
by Nick Turner.
(b) That the sum of $7,500.00 remains unpaid by the Client under
the Agreement (the "Unpaid Balance"),
(c) That Client owes to the Company, the additional sum of
$1,000.00 on account of certain, additional work requested by the Client and
performed by the Company, including, but not limited to the "Blimp"
illustration, outside of and in addition to the scope of work required to be
performed by the Company under the Agreement (the "Unpaid Additional Work
Balance"),
(d) That the Company hereby forgives this Unpaid Balance and that
the Client shall have no obligation to pay the same to the Company,
(e) That the Client agrees to pay the Unpaid Additional Work
Balance within sixty (60) days after the date of this Mutual Release and
Settlement Agreement, and that upon payment thereof to the Company, the Client
will own the "Artwork" with in connection with the "Blimp" image created by the
Company,
(f) That the Company and Client shall have no obligation to jointly
create either a screen saver or a CD Rom under mutually agreed upon terms and
conditions as provided for in paragraphs 3(a), 3(b), 3(c) and 3(h) of the
Agreement, and that the Company shall have no further rights with respect to
the creation of either a screen saver or a CD Rom as provided for in the
Agreement.
(g) That the Company shall have the right, at its election, in
accordance with paragraph 3(e), to place and to maintain at all times on the
"Rocktropolis Home Page", the "Company's Home Page" in accordance with the
terms of paragraph 3(e) of the Agreement.
(h) That the Company shall immediately deliver to the Client, all
computer artwork, files and icons to which the Client is entitled under the
Agreement.
(i) That the Company has satisfied in full, all of its obligations
to the Client under the terms and conditions of the Agreement.
(j) That the rights of the Company under paragraphs 3(c), 3(e) 3(f)
and 3(g) shall remain in full force and effect.
<PAGE> 25
(k) That there are no other agreements whatsoever between the
Company and the Client, whether oral or in writing.
2. Releases. Except as provided in this Mutual Release and
Settlement Agreement, the Company hereby releases and discharges Client, and
Client hereby releases and discharges Company, together with the agents,
representatives, employees, officers, partners, insurers, directors,
stockholders, attorneys, predecessors, successors, assigns, heirs, personal
representatives, administrators and executors of each of Company and Client,
both past and present, and all persons, firms, corporations, partnerships,
associations, copartners, coventurers, contractors, engineers, subcontractors,
subsidiaries, parents, affiliates or corporations connected therewith, and each
of them, from any and all claims, debts, liabilities, demands, obligations,
responsibilities, rights, damages, losses, costs, expenses, attorneys' fees,
compensation, actions and causes of action of every nature, character and
description, which either had hold, now holds or may in the future hold,
whether known or unknown, foreseen or unforeseen, patent or latent, inchoate or
contingent, including but not limited to those directly or indirectly arising
out of the Agreement and out of any other relationship of Company and Client,
including, but not limited to and joint venture contemplated by the Company and
the Client.
3. Waiver. Company and Client understand the following statutory
language and elect to expressly waive all rights either may have under Section
[illegible in original] of the Civil Code of the State of California which reads
as follows:
"A general release does not extent to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which is known by him must have
materially attested his settlement with the debtor."
Having read and considered such statutory language and having been
apprised of the legal effect thereof, the parties hereto nevertheless hereby
elect to and to expressly waive the provisions thereof and knowingly and
voluntarily assume all risks for claims heretofore or hereafter arising, known
or unknown, foreseen or unforeseen, patent or latent, which either may have
against the other arising directly or indirectly out of the Agreement and out of
any other relationship of Company and Client, including but not limited to and
joint venture contemplated by the Company and the Client.
4. Full Agreement. Company and Client acknowledge that no
representation or promise not expressly contained in this Mutual Release and
Settlement Agreement has been made to the other and further acknowledge that
they are not entering into this Agreement on the basis of any such promise or
representation, expressed or implied. This release is all-embracing and
all-encompassing and supersedes any and all agreements, expressed or implied,
oral or written, which Company and Client may have heretofore entered into with
respect to the Agreement and with respect to any other relationship of Company
and Client, including, but not limited to and joint venture contemplated by the
Company and the Client. Further, it is the intentions of Company and Client
that this release shall extinguish, release and effect a final and absolute
conclusion of all claims, rights, duties and obligations, actual, inchoate or
contingent, which Company or Client may previously, now or hereafter have
against each other.
5. Representations and Warranties. Company and Client hereby
represent and warrant to the other that it/he has not heretofore assigned,
transferred, sold, granted or purported to assign, transfer, sell or grant to
any entity, person or corporation, any claim, demand, debt, controversy,
liability, obligation, action, matter or cause of action disposed of and
discharged by the general and special releases set forth in paragraphs 2 and 3
above. Client represents and warrants that his spouse has no interest or right,
or disclaims any, in any action, claim or matter which is hereby being released.
6. Authority. Company and Client represent and warrant that they
have power and authority to enter into this Mutual Release and Settlement
Agreement and in the names, titles and capacities stated and on behalf of any
entities or parents they represent or purport to represent with respect to the
Agreement and any other relationship of Company and Client, including, but not
limited to any joint venture contemplated by the Company and the Client.
7. Compromise of Disputed Claims. This Mutual Release and
Settlement Agreement is a compromise of disputed claims and the fact that the
parties hereto have determined to compromise such disputed claims by entering
into this Mutual Release and Settlement Agreement is not to be construed as an
admission of liability on the part of either party hereto.
8. Binding Effect. Company and Client agree that this Mutual
Release and Settlement Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and to any and all of their present and former
agents, representatives, servants, employees, officers, directors, attorneys,
heirs, executors, assigns, predecessors and parties in interest, as the case may
be.
<PAGE> 26
9. Litigation. Company and Client shall forever refrain and
forbear from commencing, instituting or participating, either as a named or
unnamed party in any lawsuit, action or other proceeding against the other,
whether brought by themselves or by others on their behalf, based on or arising
directly or indirectly out of any facts or circumstances which are related to
the Agreement or to any other relationship of Company and Client, including but
not limited to any joint ventures contemplated by the Company and the Client. In
the event of any litigation hereunder, the losing party shall pay the costs and
expenses, including reasonable attorneys' fees of the prevailing party in
connection therewith.
10. Indemnification. Each party agrees that in the event that other
party incurs any liability because of any breach of any of the provisions of
this Mutual Release and Settlement Agreement, it/he shall indemnify and hold
harmless the other party from and against such liability, including necessary
expenses, reasonable attorney's fees and costs.
11. Governing Law. This Mutual Release and Settlement Agreement is
made pursuant to and is to be governed in accordance with the laws of the State
of California.
12. Counterparts. This Mutual Release and Settlement Agreement may
be executed in several counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same Mutual Release
and Settlement Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Mutual
Release and Settlement Agreement as of the day and year first above written.
Vision, Inc.
a California Corporation
By [SIG] By [SIG]
----------------------------- --------------------------------
Michael F. Siegel, President Nick Turner
"Company" "Client"
<PAGE> 27
SCHEDULE "A"
SCOPE OF WORK
TO: Nick Turner
FROM: rVision, Inc.
DATE: January 16, 1995
JOB NAME: "Rocktropolis Internet Site"
RE: Design and layout artwork for the Rocktropolis Internet Site.
rVison, Inc. (the "Company") will perform the design and layout artwork for the
Rocktropolis Internet Site for Nick Turner (the "Client").
1. DESIGN AND LAYOUT
The scope of work for the layout and design of the Rocktropolis
Internet Site is as follows:
(a) rVision will implement the design and layout of the image of
the city which will be depicted on the Rocktropolis Internet
Site (the "Rocktropolis City"), which shall include the
following:
(1) The home page header (the "Rocktropolis Home Page") which
will be capable of being modified from time to time (i.e.,
backgrounds, art forms, etc.) for the Rocktropolis City
landscape, various three (3) dimensional views of the
Rocktropolis City, streets, billboards, etc.
(2) Six (6) variations of a logo from which the Client will
select the logo to be used for the Rocktropolis Internet Site
(the "Rocktropolis Internet Site Logo").
(3) A secondary home page for the "Cinetropolis Drive-In
Theater", (the "Cinetropolis Drive-In Theater Home Page"), and
one (1) additional home page to be located within the
Cinetropolis Drive-In Theater Home Page.
(4) Four (4) advertisements utilizing artwork previously
created for the Rocktropolis City landscape for use in
advertising the Rocktropolis Internet Site.
(5) Home pages for up to four (4) additional separate and
individual home pages (each a "Building Image") for up to four
(4) artists and/or companies as directed by Client.
(b) The home pages to be created by the Company shall each include
a series of icons, each of which will be designed to uniquely
identify each button.
(c) The foregoing artwork to be subject to the reasonable approval
of Client.
<PAGE> 28
Schedule "A"
Page 2
(d) The scope of work provided for in this agreement shall not
include any scanning, video and photography, digitizing, computer
programming or other work or services which are not work and services
which are presently provided in-house by the Company at its offices.
2. FEES
The fee for all of the foregoing work shall be the sum of Thirty
Thousand Dollars ($30,000.00), payable as follows:
(a) Seven Thousand Five Hundred Dollars ($7,500.00) upon execution
of this agreement.
(b) Seven Thousand Five Hundred Dollars ($7,500.00) on March 1,
1995, provided that the Rocktropolis City Image and logos has been
completed.
(c) Seven Thousand Five Hundred Dollars ($7,500.00) on April 1,
1995, provided that the Rocktropolis Internet 3-D design logo has been
completed.
(d) Seven Thousand Five Hundred Dollars ($7,500.00) on May 1, 1995,
provided that all of the artwork provided for under the above scope of
work has been completed.
(e) All third (3rd) party fees and costs incurred by the Company,
and all out-of-pocket costs and expenses incurred by the Company with
respect to the scope of work provided for in this agreement shall be
reimbursed to the Company by the Client within seven (7) days after
receipt by Client of an invoice for payment thereof.
(f) IF CLIENT SHALL NEGLECT OR FAIL TO PAY, WHEN THE SAME IS DUE AND
PAYABLE, ANY PAYMENT DUE UNDER THIS WORK ORDER, OR ANY OTHER AMOUNT
REQUIRED TO BE PAID UNDER THIS WORK ORDER, SUCH UNPAID AMOUNTS SHALL
BEAR INTEREST FROM THE DUE DATE THEREOF TO THE DATE OF PAYMENT AT THE
MAXIMUM LAWFUL RATE (OR IF THERE BE NO PRESCRIBED MAXIMUM RATE, THEN
EIGHTEEN PERCENT [18%] PER ANNUM). IN ADDITION TO SUCH INTEREST, CLIENT
ACKNOWLEDGES THAT THE LATE PAYMENT BY CLIENT OF ANY MONTHLY INSTALLMENT
OF MINIMUM ANNUAL RENTAL WILL CAUSE COMPANY TO INCUR CERTAIN COSTS AND
EXPENSES NOT CONTEMPLATED UNDER THIS WORK ORDER, THE EXACT AMOUNT OF
WHICH COSTS BEING EXTREMELY DIFFICULT AND IMPRACTICAL TO FIX. SUCH COSTS
AND EXPENSES WILL INCLUDE, WITHOUT LIMITATION, ADMINISTRATIVE AND
COLLECTION COSTS, AND PROCESSING AND ACCOUNTING EXPENSES AND OTHER COSTS
AND EXPENSES NECESSARY AND INCIDENTAL THERETO. THEREFORE, IF ANY SUCH
INSTALLMENT IS NOT RECEIVED BY COMPANY FROM CLIENT ON THE DATE UPON
WHICH SUCH INSTALLMENT IS DUE, CLIENT SHALL IMMEDIATELY PAY TO COMPANY A
LATE CHARGE EQUAL TO TEN PERCENT (10%) OF SUCH INSTALLMENT, COMPANY AND
CLIENT AGREE THAT THIS LATE CHARGE REPRESENTS A REASONABLE ESTIMATE OF
SUCH COSTS AND EXPENSES AND IS FAIR COMPENSATION TO COMPANY FOR ITS LOSS
SUFFERED BY SUCH NONPAYMENT BY CLIENT. THE INTEREST AND LATE CHARGE
PROVISIONS
<PAGE> 29
Schedule "A"
Page 3
CONTAINED HEREIN ARE IN ADDITION TO AND DO NOT DIMINISH OR REPRESENT A
SUBSTITUTE FOR ANY OR ALL OF COMPANY'S RIGHTS CONTAINED IN THIS WORK
ORDER.
3. OTHER
(a) Company and Client shall, under terms and conditions to be mutually
agreed upon, jointly develop a computer screen saver to be based upon
the Rocktropolis Internet Site artwork provided for in Section 1 of this
agreement and all proceeds received with respect to the screen saver
shall, after reimbursement to Company of its costs and expenses provided
for in Paragraph 3 (b) below, shall be divided and distributed on a
50/50 basis to the Company and the Client.
(b) Company will be responsible for the development and production of
the screen saver. The Company shall be reimbursed out of the first
proceeds from any source with respect to the screen saver (i) all of
its costs of development and production, and (ii) to the extent that the
Company elects to, and has paid third (3rd) parties for work which is
not presently performed by the Company at its offices, all of its costs,
expenses and monetary obligations with respect thereto.
(c) Company and Client shall be jointly responsible for the electronic,
on-line or other distribution of the screen saver.
(d) Company shall hereafter receive a 7% royalty on the gross proceeds
from any and all sales of merchandise or products which contain or which
utilizing all or any part of the Artwork (hereinafter defined) created
the Company for the Rocktropolis Internet Site, however marketed and
wherever sold.
(e) Company shall have the right, within one (1) year after the
Rocktropolis Internet Site becomes operational on the Internet, to place
and to maintain at all times on the Rocktropolis Home Page, its own home
page (the "Company Home Page") depicting such image as the Company
selects, which image shall be consistent with the other artwork created
by the Company for the Rocktropolis Home Page. The Company shall pay no
fees or costs whatsoever with respect to the Company Home Page, and may
modify the image thereof from time to time, provided that such
modification(s) shall be consistent with Artwork created by the Company
for the Rocktropolis Home Page. The Client shall thereafter receive a
7% royalty on the gross proceeds from any and all revenue from the sales
of merchandise or products or other revenue producing rights which
contain or which utilize all or any part of the artwork created the
Company for the Company Home Page, however marketed and wherever sold.
The artwork created by the Company for or with respect to the Company
Home Page shall be at no expense to the Client.
(f) All artwork created by the Company for the Rocktropolis Internet
Site (except for such of the artwork relating to the Company Home Page,
and which artwork is not a part of the defined term "Artwork", all of
which shall remain the property of the Company), including, but not
limited to all designs, comps, icons, layouts, etc. (collectively the
"Artwork"), shall remain the property of
<PAGE> 30
Schedule "A"
Page 4
the Company until such time as the Client has paid all of the fees and
costs required to be paid by the Client to the Company under the terms
of this Work Order (the "Payment in Full"). Following Payment in Full by
the Client, the Artwork (except for such of the artwork relating to the
Company Home Page, and which artwork is not a part of the defined term
"Artwork", all of which shall remain the property of the Company) shall
become the property of the Client. Following the Payment in Full by the
Client, the Artwork (except for such of the artwork relating to the
Company Home Page, and which artwork is not a part of the defined term
"Artwork", all of which shall remain the property of the Company) may be
used in all media worldwide. The Artwork (except for such of the artwork
relating to the Company Home Page, and which artwork is not a part of
the defined term "Artwork") may not be modified without the consent of
the Client.
(g) The Company's name and/or logo, or such other name or names
and/or logos as rVison, Inc., wishes to identify or promote with
respect to the Artwork, shall be given, at all times, prominent display,
publicity, promotion and credit (the "Credit") on the Rocktropolis
Internet Site or with respect to images appearing on the Rocktropolis
Internet Site, and on all such advertising, promotional and other
material or media as is produced and/or disseminated by, on behalf of,
or with respect to the Rocktropolis Internet Site or such other images
as appear thereon. Such Credit shall be equal to that of the most
prominent other entity or person to whom Credit is given on, by or with
respect to the Rocktropolis Internet Site, and as often as such Credit
is given to such other entity or person.
(h) The Company and the Client will use their best faith efforts to
enter into a 50/50 joint venture to develop a Rocktropolis CD Rom based
upon the Artwork (excepting such of the Artwork that relates to the
Company Home Page). The Company and the Client will commence discussions
regarding such joint venture not later than April 1, 1995. If such
discussions do not lead to the consummation of an agreement between the
Company and the Client for development of such a CD Rom, the Company
shall thereafter have a right of first refusal to develop such a CD Rom
under such terms and conditions as are acceptable to the Client for the
development of such a CD Rom with a third (3rd) party during the two (2)
years following the date upon which the Rocktropolis Internet Site
becomes operational on the Internet.
<PAGE> 31
EXHIBIT I
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT, dated as of June 21, 1996, by and
among N2K Inc. (the "Company"), Rocktropolis, L.L.C., ("Rocktropolis"),
Rocktropolis Design, L.L.C. ("Rocktropolis Design") and Internet Holdings Group
("IHG").
WHEREAS, pursuant to an agreement of even date herewith
Rocktropolis is selling substantially all of its assets that relate to the
Rocktropolis web site (the "Asset Sale"), on the terms and conditions set forth
therein; and
WHEREAS, as a condition of the Asset Sale, Rocktropolis,
Rocktropolis Design and IHG have agreed to maintain certain information as
confidential and not to compete with the Company on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and the
agreements and provisions hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. Competitive Activity. Each of Rocktropolis,
Rocktropolis Design and IHG agrees that for a period of one year from the date
of this Agreement it will not, without the prior written consent of the
Company, engage in any business creating products or providing services in
connection with web sites and/or commercial on-line services relating to music
or
<PAGE> 32
musical artists whether or not they involve on-line sales of records, CD's or
other music recordings to consumers, except that Rocktropolis Design may
continue to provide services (i) to JVC America under the terms of the
agreement set forth as Attachment 1 to the Letter between Rocktropolis
Enterprises L.L.C. and the Company dated June 3, 1996 and (ii) for the website
known as "syncsite.com" involving Rondor, Peer and Famous Music.
2. Confidentiality. Rocktropolis, Rocktropolis Design
and IHG agree that they will not, without the written consent of the Company,
use for their benefit or disclose to any person at any time for a period of one
year from the date of this Agreement, except to an employee of the Company (or
any affiliated companies) any confidential information included in the Asset
Sale relating to the Rocktropolis web site, including, without limitation,
information relating to any customers, suppliers, employees, products,
services, technology, know-how, trade secrets or the like, financial
information or plans. The provisions of this Section 2 shall not apply to any
information that, at the time of use or disclosure, is publicly known or is
recognized as standard practice, except by fault of Rocktropolis, Rocktropolis
Design or IHG.
3. Remedies. Rocktropolis, Rocktropolis Design and IHG
acknowledge that a violation on their part of any of the covenants set forth in
Sections 1 or 2 hereof would cause immeasurable and irreparable damage to the
Company.
2
<PAGE> 33
Rocktropolis, Rocktropolis Design and IHG accordingly agree that, in addition
to any other remedies available to the Company at law or in equity, the Company
shall be entitled to specific performance of the provisions thereof and to
injunctive or mandatory relief.
4. Successors; Assignments. This Agreement shall be
binding upon and shall inure to the benefit of the successors to the Company,
Rocktropolis, Rocktropolis Design and IHG, except Nick Turner, who shall be
bound by Sections 6 and 7 of the Consulting and Non-Competition Agreement of
even date herewith between the Company and Nicktropolis, Inc. and Glenn
Morrissey, who shall not be treated as a successor or assign hereunder.
5. Notice. Any notice or other communication hereunder
to either party shall be in writing and shall be either delivered personally or
mailed by registered mail, return receipt requested, postage prepaid, addressed
as follows:
If to Rocktropolis, Rocktropolis Design or IHG:
c/o Rocktropolis, L.L.C.
7750 Sunset Boulevard
Los Angeles, CA 90046
Attn: Rick Stevens
with a copy to:
Fulbright & Jaworski
865 South Figueroa Street
29th Floor
Los Angeles, CA 90017-2571
Attn: Tim C. Bruinsma
3
<PAGE> 34
If to the Company:
N2K Inc.
55 Broad Street
New York, NY 10004
Attn: Chairman
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Attn: Frank E. Morgan II
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt. Any notice or other communication hereunder
shall be deemed to have been given (A) if delivered by hand as provided above,
on the day delivered, if such day is a business day, or on the first business
day following delivery if such day is not a business day, or (B) if mailed as
provided above, on the tenth (10th) business day following the date on which it
was mailed.
6. Miscellaneous. No provisions of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, and is signed by the parties hereto. No waiver by any
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by the other party hereto shall be deemed a waiver of similar or dissimilar
provisions or conditions at
4
<PAGE> 35
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by any party hereto which are not set forth expressly in
this Agreement. This Agreement supersedes all prior agreements of the parties
hereto with respect to the subject matter hereof. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of New York, without giving effect to the
conflicts or choice of law thereof.
7. Severability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement which shall remain in
full force and effect. In such event, however, the parties shall negotiate a
new provision that will, as nearly as is valid, lawful and enforceable, have
the same economic effect and accomplish the same objectives as the provisions
(or part of a provision) of this Agreement that was declared invalid, illegal
or unenforceable.
8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
9. Headings. The headings contained herein are for
reference purposes only and shall not in any way effect the meaning or
interpretation of this Agreement.
5
<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
N2K INC.
By:
-------------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
ROCKTROPOLIS, L.L.C.
By:
-------------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
ROCKTROPOLIS DESIGN, L.L.C.
By:
-------------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
INTERNET HOLDINGS GROUP
By:
-------------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
6
<PAGE> 37
EXHIBIT II
CONSULTING AND NON-COMPETITION AGREEMENT
CONSULTING AND NON-COMPETITION AGREEMENT, dated as of June 21,
1996, between N2K Inc., a Pennsylvania corporation (the "Company") and
Nicktropolis, Inc., a California corporation ("Nicktropolis").
WHEREAS, the Company recognizes that Nicktropolis possesses an
intimate knowledge of the creation and design of the Rocktropolis web site,
which the Company is acquiring, and
WHEREAS, the Company wishes to be assured that it will have the
benefit of the consulting services of the Consultant and the Consultant's
agreement to maintain the confidentiality of certain information and not to
compete with the Company as set forth herein;
WHEREAS, the Consultant is willing to consult for the Company
and is also willing to maintain information as confidential and to agree not to
compete on the terms and conditions set forth herein;
WHEREAS, certain of Consultant's obligations and duties apply
to Nick Turner personally, who has agreed to become a party to this Agreement
for the limited purposes reflected on the signature page hereto;
NOW, THEREFORE, in consideration of the premises and the
agreements and provisions hereinafter set forth, and for other good and
valuable consideration, the receipt and
<PAGE> 38
sufficiency of which are hereby acknowledged, the parties hereto intending to
be legally bound hereby agree as follows:
1. Consulting Services to be Provided. The Company has
retained the Consultant to assist the Company in connection with its
acquisition of the Rocktropolis web site and to develop and implement other
internet products and services, as directed by the Company's senior management.
Specifically, Consultant under the direction of N2K senior management shall:
(a) Continue to develop and provide enhancements for the
Rocktropolis web site;
(b) Utilize its best efforts to retain all of (i) the
artists now included in or related to the Rocktropolis web site, including
Sting, Soundgarden, Daryl Hannah, IRS Records, Prince, Sky Cries Mary and (ii)
all publications now included in or related to the Rocktropolis web site,
including Detour Magazine and Hypo Magazine;
(c) Serve as A&R lead for artists wishing to be
represented on the Rocktropolis web site;
(d) Help secure record labels which seek to be online
and/or link their label sites to the Rocktropolis web site;
(e) Attract additional publications to the Rocktropolis
web site;
(f) Help create special events for and lead public
relations efforts for Rocktropolis; and
2
<PAGE> 39
(g) Develop ideas and approaches to market Rocktropolis
to record labels, recording artists and the public.
2. Term; Compensation
(a) Unless terminated earlier pursuant to Section 5
hereof, the term of this Agreement shall commence on June 24, 1996 and
terminate on June 20, 1997. Consultant shall receive, as compensation for its
services rendered hereunder consulting fees in an annual amount equal to
$150,000, payable monthly in arrears.
3. Personnel; Place of Performance.
(a) Consultant agrees to provide the services of Mr.
Nick Turner to perform the work contemplated by this Agreement and to provide
the Company with substantially of his working time during the term of this
Agreement. Mr. Turner shall perform these services at such times and places as
may be mutually convenient to the Company and Mr. Turner, but in any event
shall discharge his responsibilities in a timely, diligent, conscientious and
faithful manner, consistent with sound business practice. Mr. Turner shall be
entitled to three (3) weeks vacation during the term of this Agreement when he
will not be required to perform services for the Company and there shall be no
reduction in the amount payable to Consultant therefor.
(b) Mr. Turner shall not be required to perform any
substantial part of his services hereunder outside the greater Los Angeles,
California area.
3
<PAGE> 40
4. Expenses and Taxes.
(a) Expenses. During the consultancy hereunder, the
Consultant shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by it (in accordance with the same policies and procedures
established for reimbursement of expenses for consultants of the Company) in
connection with performing services hereunder. Expenses less than $100 shall
be reimbursed without prior approval. Expenses in excess of $100 will require
prior approval by J.J. Rosen, Senior Vice President, N2K Entertainment or his
designee who shall be a senior officer of the Company and once approved shall
be paid promptly.
(b) Taxes. No income, unemployment, social security or
other taxes and no fees, impositions, duties or other charges of any kind shall
be deducted or withheld from amounts payable hereunder, unless otherwise
required by law. The Consultant hereby agrees to reimburse the Company for the
payment of any U.S. Federal tax of a kind referred to in the preceding sentence
which the Company was required to, but failed to, withhold from amounts payable
hereunder.
5. Termination for Cause.
The Company may terminate the Consultant's services hereunder
for Cause. For the purposes of this Agreement, the Company shall have "Cause"
to terminate the Consultant's services hereunder upon (A) the willful and
continued failure by the Consultant to substantially perform its duties to the
Company after a demand for such substantial performance is
4
<PAGE> 41
delivered to the Consultant by the Company which specifically identifies the
manner in which the Company believes that the Consultant has not substantially
performed its duties, and the Consultant has not commenced to perform such
duties with the Company within ten (10) business days after such written demand
has been given, (B) the willful engaging by the Consultant or its employees or
agents in gross misconduct materially and demonstrably injurious to the Company
or (c) Nick Turner is unavailable for any reason to perform the services to be
provided by Consultant for a period in excess of thirty (30) consecutive days.
For purposes of this paragraph, no act, or failure to act, on the Consultant's
part shall be considered "willful" unless done, or omitted to be done, by the
Consultant not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Consultant shall not be deemed to have been terminated for Cause
unless and until there shall have been an opportunity for representatives of
the Consultant to be heard before the Chairman of the Company, after reasonable
notice to the Consultant which specifies that the Consultant was guilty of
conduct set forth above in clause (A) or (B) of the second sentence of this
Section 5 and specifying the particulars thereof in detail.
5
<PAGE> 42
6. Competitive Activity. The Consultant and Nick Turner
agree that, during the period commencing on the date hereof and ending at the
termination date of this agreement, they will not, without the prior written
consent of the Company, (i) engage in any business or perform any service in
competition with the products and services of the Company and its subsidiaries
as such products and services exist at the date hereof (including, but not
limited to the Rocktropolis web site), or (ii) have any interest, whether as a
proprietor, partner, employee, stockholder, principal, agent, consultant,
director, officer, or in any other capacity or manner whatsoever, in any
enterprise in competition with the products and services of the Company and its
subsidiaries as such products and services exist at the date hereof (including,
but not limited to the Rocktropolis web site). Notwithstanding the foregoing,
neither Consultant nor Nick Turner shall be deemed to be in competition
hereunder (i) due to ownership by the Consultant or Nick Turner, respectively
of less than five percent (5%) of the issued and outstanding capital stock of a
publicly-traded company or of the renamed Rocktropolis Design, LLC, (ii)
managing any artists, provided that it does not interfere with their duties
hereunder and (iii) providing services to the renamed Rocktropolis Enterprises,
LLC or Rocktropolis Design, LLC or others, provided that such services are not
in connection with web sites and/or commercial on-line services that engage in
on- line sales of records, CD's or other music recordings to consumers and
6
<PAGE> 43
provided that they do not interfere with the duties under this Agreement.
7. Confidentiality. Consultant and Nick Turner agree
that they will not, without the written consent of the Board, (A) use for their
benefit or disclose to any person at any time during the consultancy hereunder,
or at any time thereafter for a period of five years, except to an employee of
the Company (or any affiliated companies) during the consultancy hereunder to
the extent required in the performance by the Consultant and Turner of its
duties hereunder, any confidential information obtained or developed by them
during the consultancy hereunder, including, without limitation, information
relating to any customers, suppliers, employees, products, services,
technology, know-how, trade secrets or the like, financial information or
plans, or (B) take with them, upon termination of the consultancy hereunder,
any document or paper relating to any of the foregoing. The provisions of this
Section 7 shall not apply to any information that, at the time of use or
disclosure, is publicly known or is recognized as standard practice, except by
fault of the Consultant or Nick Turner.
8. Remedies. Consultant and Nick Turner acknowledge
that a violation on their part of any of the covenants set forth in Sections 6
or 7 hereof would cause immeasurable and irreparable damage to the Company.
Consultant and Nick Turner accordingly agree that, in addition to any other
remedies available to the Company at law or in
7
<PAGE> 44
equity, the Company shall be entitled to specific performance of the provisions
thereof and to injunctive or mandatory relief.
9. Successors; Assignments. This Agreement shall be
binding upon and shall inure to the benefit of the successors to the Company
and the Consultant and to the extent applicable to Nick Turner to his personal
or legal representatives, executors, administrators, heirs, distributees,
devisees and legatees. This Agreement is personal in nature and neither this
Agreement nor any right hereunder shall be assignable by the Consultant, Nick
Turner or the Company.
10. Notice. Any notice or other communication hereunder
to either party shall be in writing and shall be either delivered personally or
mailed by registered mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Consultant:
Nicktropolis, Inc. or
Mr. Nick Turner
c/o Nicktropolis, Inc.
4302 St. Clair Avenue
Studio City, CA 91604
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067-5276
Attn: Joan L. Lesser
8
<PAGE> 45
If to the Company:
N2K Inc.
55 Broad Street
New York, NY 10004
Attn: Chairman
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Attn: Frank E. Morgan II
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt. Any notice or other communication hereunder
shall be deemed to have been given (A) if delivered by hand as provided above,
on the day delivered, if such day is a business day, or on the first business
day following delivery if such day is not a business day, or (B) if mailed as
provided above, on the tenth (10th) business day following the date on which it
was mailed.
11. Miscellaneous. No provisions of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, and is signed by the parties hereto. No waiver by any
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by the other party hereto shall be deemed a waiver of similar or dissimilar
provisions or conditions at
9
<PAGE> 46
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by any party hereto which are not set forth expressly in
this Agreement. This Agreement supersedes all prior agreements of the parties
hereto with respect to the subject matter hereof. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of New York, without giving effect to the
conflicts or choice of law thereof.
12. Severability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement which shall remain in
full force and effect. In such event, however, the parties shall negotiate a
new provision that will, as nearly as is valid, lawful and enforceable, have
the same economic effect and accomplish the same objectives as the provisions
(or part of a provision) of this Agreement that was declared invalid, illegal
or unenforceable.
13. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
14. Headings. The headings contained herein are for
reference purposes only and shall not in any way effect the meaning or
interpretation of this Agreement.
10
<PAGE> 47
15. Survival of Covenants. The covenants contained in
Sections 4(b), 6, 7 and 8 hereof shall survive the termination of his
Agreement.
16. Nature of Relationship. Nothing herein shall be
construed to constitute the Company, the Consultant or Nick Turner, the agent,
employee, partner or joint venturer of the other.
17. Attorneys Fees. In the event of litigation arising
out of this Agreement, the prevailing party shall be entitled, in addition to
all other remedies at law or in equity, to collect reasonable attorneys fees
and court costs.
11
<PAGE> 48
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
N2K INC.
By:
---------------------------------------------
Name:
Title:
NICKTROPOLIS, INC.
By:
---------------------------------------------
Name:
Title:
NICK TURNER (as to Sections 3 and 6-17)
------------------------------------------------
12
<PAGE> 1
Exhibit 10.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BEBOB ASSOCIATES LANDLORD
TO
TELEBASE SYSTEMS, INC. TENANT
LEASE
SPACE:
15,000 SQUARE FEET IN BUILDING 600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
435 DEVON DRIVE, WAYNE, PENNSYLVANIA 19087
TERM:
FROM SEPTEMBER 1, 1991 TO: AUGUST 31, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
LEASE
THIS IS A LEASE AGREEMENT ("Lease") dated April 26, 1991.
The parties are BEBOB ASSOCIATES, 485 Devon Park Drive, Wayne,
Pennsylvania, 19087 ("Landlord") and TELEBASE SYSTEMS, INC. ("Tenant"), having
an address at 435 Devon Park Drive, Building 600, Wayne, Pennsylvania, 19087.
The terms of this Lease are:
1. (a) TERM. The term of the lease is ten years and 0 months, to
commence on September 1, 1991 ("Commencement Date") and end on August 31, 2001
("Termination Date").
See Rider
2. RENT. Total rental for the term of this lease it Two Million, Two
Hundred Thirty Three Thousand Nine Hundred Six and 25/100 Dollars
($2,233,906.25). The monthly rent ("Rent") will be paid according to the
following schedule:
<TABLE>
<CAPTION>
PERIOD OF RENT PER MONTH
- --------- --------------
<S> <C>
September 1, 1991 through March 31, 1992 -0-
April 1, 1992 through June 30, 1992 $10,156.25
July 1, 1992 through August 31, 1992 $20,312.50
September 1, 1992 through September 30, 1992 -0-
October 1, 1992 through August 31, 1993 $20,312.50
September 1, 1993 through September 30, 1993 -0-
October 1, 1993 through August 31, 1994 $20,312.50
September 1, 1994 through September 30, 1994 -0-
October 1, 1994 through August 31, 1997 $20,312.50
September 1, 1997 through August 31, 2001 $20,937.50
</TABLE>
Said rental will be prorated for any partial calendar month of occupancy,
payable in advance without prior notice or demand and without any set-off or
deduction on the first day of each calendar month at Landlord's principal
office, or at such other place as Landlord may direct.
3. (DELETED)
4. COMPLETION OF IMPROVEMENTS.
See Rider, Paragraph 4.
2
<PAGE> 3
5. COVENANTS OF LANDLORD. Landlord will:
(a) Supply to the Leased Space and Common Area, for normal
office use, janitor and cleaning services, exterminating and pest control,
common area electricity and hot and cold water, sufficient for drinking,
lavatory, toilet and ordinary cleaning purposes, to be available 24 hours a day,
7 days a week all in amounts and at the times consistent with similar services
provided in first class office buildings in the Suburban Philadelphia area. The
Leased Space shall be each individually metered and directly billed for
electricity by the subject utility company. If Tenant's use of water in
Landlord's judgment, reasonably exercised, exceeds a normal office use level,
Landlord may install a meter to measure the water consumed on the Leased Space
and bill Tenant for any cost thereof above normal office use levels;
(b) Supply and maintain window blinds selected by Landlord for
all outside windows including the SOS Room; and
(c) Supply and maintain parking facilities for approximately
100 cars adjacent to the Building for the use of all tenants.
See Rider
6. ADDITIONAL RENT. Beginning on January 1, 1992, Tenant shall be
obligated to pay as additional rent ("Additional Rent") at the times herein
stated in this Lease (if no times are stated, then on the first day of the month
after the Landlord notifies Tenant of the amount of such additional rent):
(a) Increases in the monthly rental that results from
application of the rent adjustment provisions set forth in Exhibit "C", subject
to the following: In determining Operating Expenses, as defined in Exhibit "C",
for any calendar year or portion thereof during which less than ninety-five
percent (95%) of the area of the Building shall have been occupied by tenants
for more than thirty (30) days during such year, Operating Expenses shall be
deemed for such year to be an amount equal to the like expenses which would
normally be expected to be incurred had such occupancy of the Building been
ninety-five percent (95%) throughout such year, as reasonably determined under
generally accepted accounting principles consistently applied.
(b) All amounts that may become due from Tenant as a result of
Tenant's use, as reasonably determined by Landlord, of more than a reasonable
amount of the items
3
<PAGE> 4
referred to in Section 5(a) which actually exceeds a normal
office use level; and
(c) All amounts that may become due from Tenant pursuant to
any provisions of this Lease, whether as a result of Tenant's failure to perform
by any covenant on its part contained in this Lease or otherwise.
7. COVENANTS OF TENANT. Tenant will:
(a) Pay to Landlord all amounts due as Rent and Additional
Rent;
(b) Keep the Leased Space in good order and repair, reasonable
wear and tear excepted;
(c) Surrender the Leased Space at the end of the term of this
Lease in the same condition in which Tenant has agreed to keep it during the
term hereof reasonable wear and tear excepted;
(d) Be responsible for the cost of maintenance of all plumbing
and other fixtures, equipment and systems specially constructed in the Leased
Space, whether installed by Landlord or by Tenant, except for structural
components, the roof, Building lavatories, heating, ventilation and air
conditioning equipment, fixtures, electrical, mechanical and plumbing systems
installed by Landlord in the leased space, the Building or Common Area in
meeting Landlord's obligations as specified in Article 5(a) herein, which will
be maintained by Landlord;
(e) Be responsible (except to the extent provided in Section
11) for repairs and replacements to the Leased Space and the Building made
necessary by reason of damage thereto caused by Tenant or its agents, servants,
invitees or employees;
(f) Comply with all laws and enactments and regulations of any
governmental authority relating or applicable to Tenant's occupancy of the
Leased Space, and hold Landlord harmless from all consequences for failure to do
so;
(g) Promptly notify Landlord of any damage to or defects in
the Leased Space, and of any injuries to persons or property that occur therein;
(h) Pay for any alterations, improvements or additions to the
Leased Space, other than those referred to in Section 4, made by or for Tenant,
and not allow any lien
4
<PAGE> 5
to attach to the Building or Tenant's estate in the Leased
Space;
(i) Comply with the rules and regulations hereinafter
contained and with all reasonable changes in and additions to them notice of
which is given by Landlord to Tenant (such rules and regulations are and all
such changes and additions will be part of this Lease);
(j) Comply with all reasonable requirements and
recommendations of Landlord's and Tenant's respective insurance carriers
relating to layout, use and maintenance of the Leased Space; and
(k) Certify, without charge, at any time and from time to time
hereafter, within ten (10) days after request by Landlord or any Mortgagee, by a
written instrument duly executed and acknowledged: (a) ratifying this Lease; (b)
confirming the commencement and expiration dates of the term of this Lease; (c)
certifying that Tenant is in occupancy of the Leased Space, and that the Lease
is in full force and effect and has not been modified, assigned, supplemented or
amended except by such writings as shall be stated; (d) certifying that all
conditions and agreements under this Lease to be satisfied or performed by
Landlord have been satisfied and performed except as shall be stated; (e)
certifying that Landlord is not in default under the Lease and there are no
defenses or offsets against enforcement of this Lease by Landlord, or stating
the defaults and/or defenses claimed by Tenant; (f) reciting the amount of
advance rent, if any, paid by Tenant and the date to which such rent has been
paid; (g) reciting the amount of security deposited with Landlord, if any; and
(h) any other reasonable information which Landlord or the Mortgagee shall
require.
8. NEGATIVE COVENANTS OF TENANT. Tenant will not:
(a) Damage the Leased Space or any other part of the Building,
or use any part of the Building not designated for use by Tenant except as such
right is given in a writing other than this Lease;
(b) Bring into or permit to be kept in the Leased Space any
dangerous, explosive or hazardous (meaning any substance which is toxic,
ignitable, reactive or corrosive or that is regulated by any local government
the Commonwealth of Pennsylvania or the United States Government. Hazardous
substance includes any material defined as hazardous waste, "extremely hazardous
waste" or a "hazardous substance" pursuant to any state, federal or local
governmental law or regulation and includes, but is
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not limited to, asbestos, polychlorobiphenyls ("PCBs") and
petroleum products;
(c) Have property of substantial size or quantity delivered to
or removed from the Leased Space without first making arrangements satisfactory
to Landlord. Notwithstanding the foregoing, Tenant shall not be obligated to
make moving arrangements with Landlord for items moved in and out of the Leased
Space in the ordinary course of business, including, but not limited to, any
equipment constructed which is necessary to service Tenant's software;
(d) Bring into the Leased Space or use any furniture or
equipment that might be harmful thereto or harmful or annoying to others in the
Building in the reasonable opinion of Landlord;
(e) Conduct itself or permit its agents, servants, employees
or invitees to conduct themselves in a manner that in Landlord's judgment
reasonably exercised is improper or unsafe;
(f) Manufacture any commodity with the exception of the
construction of the equipment which is necessary to service Tenant's software or
prepare or dispense any foods or beverages in the Leased Space;
(g) Remove, attempt to remove or manifest any intention to
remove Tenant's goods or property from the Leased Space other than in the
ordinary course of business; or
(h) vacate the Leased Space, or permit the Leased Space to be
empty or unoccupied, without (1) notifying Landlord in advance of its intention
to do so; and (2) performing all of the obligations of Tenant hereunder,
including but not limited to the full and timely payment of all Rent and
Additional Rent throughout the remainder of the Term and the timely payment of
all electric bills and (3) taking all steps necessary to prevent the Leased
Space from falling into a state of disrepair, reasonable wear and tear and
damage by fire or other casualty excepted.
9. TENANT'S ACTIONS REQUIRING LANDLORD'S CONSENT. Without prior written
consent of Landlord, Tenant will not:
(a) Make any use of the Leased Space other than that described
in Section 1;
(b) See Rider
(c) See Rider
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<PAGE> 7
(d) Do anything that would result in the cancellation,
suspension or increase in the premium of any fire or other insurance policy
carried by Landlord;
(e) Remove any of Tenant's property from the Leased Space
other than in the ordinary course of Tenant's business conducted in the Leased
Space, subject to paragraph 8(c) hereof; or
(f) deleted.
10. ADDITIONAL RIGHTS OF LANDLORD. Landlord may at reasonable times and
upon telephone notice to Tenant inspect the Leased Space, show it to prospective
tenants during the last year of the original or any extended term, and alter,
improve, repair or add to it to the extent that Landlord determines to be
necessary for the protection and maintenance of the Leased Space or other parts
of the Building and shall have access to the Leased Space for all such purposes
and to exercise any other rights or obligations hereunder.
11. LOSS, DAMAGE OR INJURY. Tenant will be responsible for and hereby
relieves Landlord from and indemnifies Landlord against all liability by reason
of any injury, damage or loss to any person or property that occurs in the
Leased Space or in any other part of the Building, which results from the
negligence of Tenant, its agents or employees. Landlord will be responsible for
and hereby relieves Tenant from and indemnifies Tenant against all liability by
reason of any injury, damage or loss to any person or property that occurs in
the Leased Space or in any other part of the Building which results from the
negligence of Landlord, its agents or employees. Landlord and Tenant will
maintain in force, and at either party's request will produce evidence of
general public liability insurance with limits that in either party's judgment
reasonably exercised constitute adequate protection in light of the other
party's particular circumstances and then existing practices with respect to
such insurance carried by landlords and tenants occupying office space in
similar buildings in the Suburban Philadelphia area.
Notwithstanding any other provision herein, Landlord and Tenant hereby
release each other, to the extent of the others insurance coverage, from
liability of loss or damage to the property of the party granting such release,
even if the loss or damage occurred through the negligence of such other party
or its agents, servants, invitees or employees, provided this release shall be
effective only with respect to loss or damage occurring during such time as the
relevant insurance policy of the party granting such
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<PAGE> 8
release contains a clause to the effect that this release does not affect such
policy or the right of the insured to recover thereunder. Each party will use
its best efforts to cause its policies of insurance to contain such a clause,
but if an additional premium is charged for such waiver, the party benefiting
therefrom, if it desires to have the waiver, will pay to the other the amount of
such additional premium promptly upon being billed therefor.
12. RESTORATION OF DAMAGE. If the Lease space is damaged by fire or
other casualty and can be restored by Landlord within one hundred twenty days
(120) of the occurrence, as determined by Landlord and/or its casualty insurer,
then:
(a) Landlord will restore the Leased Space (but not Tenant's
property located therein) with reasonable promptness at Landlord's expense,
except that Tenant may be liable for restoration costs under Section 7(e), and
Rent and Additional Rent shall abate from the date of such occurrence until the
date the Leased Space is re-occupied by the Tenant. Landlord shall be obligated
to restore the Leased Space to at least the condition which existed immediately
prior to the occurrence. However, in the event repairs are not completed within
one hundred twenty (120) days from the date of damage or destruction, Tenant
shall have the right to terminate the Lease, unless Landlord is diligently
completing the work in which event the one hundred twenty (120) day period will
be extended for an additional thirty (30) days.
(b) If the damage to the Building is so extensive that
Landlord, in its sole discretion, determines not to restore it, then Landlord
will so notify Tenant within thirty (30) days after the occurrence of such
casualty and upon such notice this Lease will terminate.
Landlord will not be liable to the Tenant for any interruption
in use of the Leased Space that results from damage to any part of the Building,
but Rent and Additional Rent will be proportionately suspended during any period
of time when any part (or all) of the Leased Space is untenantable, based on the
extent to which tenant's use of the Leased Space is impaired during the period
of any damage and/or restoration.
13. CONDITION OF LEASED SPACE. Landlord leases the Leased Space in its
condition when the term of this Lease begins and without any representation with
respect to it or any duty to repair or alter it. Notwithstanding the foregoing,
Landlord warrants and represents that on the Commencement Date and during the
Term hereof, the Leased Space and Building will comply with all applicable laws,
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<PAGE> 9
ordinances, rules and regulations of governmental authorities having
jurisdiction, and that all mechanical, plumbing and HVAC systems will be in good
working order.
14. DEFAULT BY TENANT. If Tenant does one or more of the following:
(a) Fails to pay when due all amounts hereunder, and such
default continues for five (5) days after written notice from Landlord;
(b) Takes any action prohibited hereunder, or takes any action
requiring prior written notice by Tenant without giving Landlord such notice;
(c) Fails to perform any of its other obligations hereunder
within thirty (30) days after written notice of any such failure has been given
by Landlord;
(d) Becomes insolvent, makes an assignment for the benefit of
creditors, files or has filed against it a petition in bankruptcy, bill in
equity, or other proceeding for the appointment of a receiver or trustee for its
property which is not dismissed within sixty (60) days, or if proceedings for
reorganization or composition with creditors under any law is instituted by or
against tenant;
Then Landlord will have the right to do once or more often any
one or more of the following:
(a) Declare due and payable and sue to recover all unpaid rent
and additional rent and all rent for the unexpired term of this Lease and all
costs, commissions, and damage provided or permitted by law;
(b) Declare this Lease ended;
(c) By any means, enter and dispossess Tenant of the Leased
Space, and remove, distrain upon and/or sell any property in it;
(d) Lease all or any part of the Leased Space to any other
person with or without first altering the same;
(e) deleted
(f) Enter an amicable action and judgment in ejectment against
Tenant, using this Lease or a copy as authority and causing a writ of possession
to be issued. Tenant hereby empowers any attorney of any court of record to
appear for it one or more times and to take on its behalf any or all of the
actions described in this subsection,
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including entry of judgment by confession of judgment or
otherwise.
(g) All of the remedies hereinabove given to Landlord and all
rights and remedies given to it by law and equity shall be cumulative and
concurrent. No determination of this Lease or the taking or recovering of the
premises shall deprive Landlord of any of its remedies or action against the
Tenant for rent due at the time or which, under the terms hereof, would in the
future become due as if there has been no determination, or for sums due at the
time or which, under the terms hereof, would in the future become due as if
there had been no determination, nor shall the bringing of any action for rent
or breach of covenant, or the resort to any other remedy herein provided for the
recovery of rent be construed as a waiver of the right to obtain possession of
the Leased Space. In any action commenced by Landlord in exercise of any
remedies provided hereunder, Landlord shall be entitled to recover its
reasonable attorney's fees expended in such action or such specific attorney's
commission as is otherwise specified herein.
15. CONDEMNATION. If any part of the Leased Space shall be taken or
condemned for a public or quasi-public use, and a part thereof remains which, in
Tenant's opinion, is susceptible of occupation hereunder, this Lease shall, as
to the part so taken, terminate as of the date Tenant vacates the condemned
portion or the date title shall vest in the condemnor, whichever is earlier and
the Rent payable hereunder shall be adjusted so that the Tenant shall be
required to pay for the remainder of the Lease Term only such portion of such
Rent as the number of square feet in the part remaining after the condemnation
bears to the number of scare feet in the entire Leased Space at the date of
condemnation; but in such event either party shall have the option to terminate
this Lease as of the date Tenant vacates the condemned portion or the date when
title to the part so condemned vests in the condemnor, whichever is earlier. If
all the Leased Space of such part thereof, be taken or condemned so that there
does not remain a portion susceptible for occupation hereunder, or if a portion
of the parking or loading area is taken, which, in Tenant's opinion,
detrimentally affects Tenant's business or will violate the requirements of any
applicable zoning or similar law (or any permitted variance or exception), then
this Lease shall thereupon terminate. If a part or all of the Leased Space be
taken or condemned, all compensation awarded upon such condemnation or taking
shall go to the Landlord and the Tenant shall have no claim thereto, and the
Tenant hereby expressly waives, relinquishes and releases to Landlord any claim
for damages or other compensation to which Tenant might otherwise be entitled
because of any such
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taking or limitation of the leasehold estate hereby created and irrevocably
assigns and transfers to the Landlord any right to compensation or damages to
which the Tenant may be entitled by reason of the condemnation of all or a part
of the Leased Space or the leasehold estate.
See Rider
16. SUBORDINATION. This Lease shall be subject and subordinate at all
times to all ground and underlying leases which now exist or may hereafter be
executed affecting the building or the land upon which the building is situated
or both, whatsoever now or hereafter placed on or against the land and the
building or either thereof, or on Landlord's interest or estate therein, or
portion thereof, or on or against any ground or underlying lease, without the
necessity of the execution and delivery of any further instruments on the part
of Tenant to effectuate such subordination; provided, however, that so long as
Tenant is not in default, the terms of this Lease shall not be affected by
termination proceedings in respect to such ground or underlying lease or
foreclosure or other proceedings under such mortgages, Tenant hereby agreeing,
at the written request of the Landlord under such ground or underlying lease or
mortgage or purchaser of the mortgaged Premises in such foreclosure or other
proceedings, to attorn to such Landlord or to such mortgagee or purchased or, at
such Landlord's, mortgagee's or purchaser's option, to enter into a new lease
for the balance of the Lease Term upon the same terms and provisions as are
contained in this Lease. Notwithstanding the foregoing, Tenant shall execute and
deliver upon demand, such further instrument or instruments evidencing such
subordination of this Lease to the lien of any such mortgage or mortgages as may
be required by Landlord.
17. (Deleted)
18. NOTICES. All notices hereunder to be effective must be in writing
and sent registered or certified mail to the landlord at its principal office,
Lieberman, Inc., 485 Devon Park Drive, #100, Wayne, Pennsylvania, 19087 and to
Tenant after the term begins at the address stated after its name above, and
before the Lease Term begins at: 763 West Lancaster Avenue, Bryn Mawr,
Pennsylvania, 19010, Attention: Mr. Bruce Johnson or at such other address as
either party may hereafter give the other for such purpose. Notices will be
deemed to have been given when so mailed.
19. DELAYS IN EXERCISING RIGHTS. No delay or omission by Landlord or
Tenant in exercising any right upon any default by the other will impair any
such right or be
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construed as a waiver of any such default or an acquiescence in it. No waiver of
any default will affect any later default or impair any rights of Landlord or
Tenant with respect thereto.
20. PARTIES BOUND, ETC. This Lease will bind and inure to the benefit
of (a) Landlord, its successors and assigns and (b) Tenant and such of its
successors and assigns as are approved by Landlord pursuant to Section 9(b).
21. LUNCH ROOM. Landlord agrees to provide for Tenant an area not to
exceed 286 square feet on the lower level of Building 600 for Tenant's exclusive
use as a lunch room for Tenant's employees, invitees and guests. Landlord, at
Landlord's sole cost and expense, will construct the improvements in the lunch
room located as shown in Exhibit "A-1" hereto and in accordance with the
specifications attached hereto as Exhibit "A-2" and Exhibit "B". Such lunch room
improvements will be constructed using materials and components of equal or
superior quality to those incorporated in the other improvements within the
Leased Space prepared pursuant to paragraph 4 hereof. Such improvements shall be
completed by the Commencement Date. Landlord and Tenant agree that Landlord may
open this area to others in the Complex at any time during the Lease Term,
provided that Landlord enlarges this area to maintain a minimum of 286 square
feet exclusively for Tenant and the base cabinets, countertop, sink and
appliances owned by Tenant shall also be for the exclusive use of Tenant.
22. EXPANSION OPTIONS. Landlord agrees to reserve for Tenant two
contiguous 1,500 square foot areas on the lower level of the Building. Said
areas must be adjacent to windows and the location must be acceptable to
Landlord and Tenant. Tenant must exercise its right to expand into on the
initial 1,500 square foot area ("Area 1") by written notice to Landlord on or
before January 1, 1993 or Tenant forfeits its rights to Area 1. Tenant must
exercise its right to expand into the second 1,500 square foot area ("Area 2")
by written notice to Landlord on or before January 1, 1994 or Tenant forfeits
its rights to Area 2. The base rental rate for Area 1 and Area 2 shall remain at
$16.25 per square foot per year until September 1, 1996. Thereafter, the base
rental shall be at a rate of $16.75 until August 1, 2001. In all other respects,
Tenant's occupancy of Area 1 and/or Area 2 shall be under the same terms and
conditions contained in this Lease. In the event Tenant exercises its expansion
options with respect to Area 1 and/or Area 2, Landlord shall, at Landlord's sole
cost and expense, build out such areas to suit Tenant's requirements using
materials and components of equal quality to those incorporated in the other
improvements within the Lease
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Space prepared pursuant to paragraph 4 hereof. Said build out shall be completed
within sixty (60) days after Landlord and Tenant execute an Addendum to this
Lease providing for such expansion for such space and the fit-up plans for such
space are given to Landlord for Area 1 and/or Area 2. Rent and Additional Rent
for Area 1 and/or Area 2 shall not commence until Landlord delivers possession
of Area 1 and/or Area 2 to Tenant and shall be payable pursuant to the schedule
set forth in paragraph 2 of the Lease.
23. MISCELLANEOUS. "Landlord" means the Landlord named herein
irrespective of the pronoun used with respect to the term, and all persons
acting for it. "Tenant" means all names which appear before the term at the
beginning hereof, irrespective of the pronoun use with respect to the term. This
Lease contains the entire agreement of Landlord and Tenant except for any
changes and additions to rules and regulations pursuant to Section 7(i), and is
subject to change only by a writing referring to this Lease and executed by both
parties.
IN WITNESS WHEREOF, and intending to be bound, Landlord and Tenant have
executed this Agreement on the day and year first above written.
TENANT: LANDLORD:
TELEBASE SYSTEMS, INC. BEBOB ASSOCIATES
BY:________________________ BY:______________________
_________________ (title)
ATTEST:____________________ ATTEST:__________________
Lieberman, Inc. hereby executes this Lease as Agent for Landlord. All rental
payments shall be paid to Agent at 485 Devon Park Drive, Suite 100, Wayne,
Pennsylvania 19087 or at such other address as Agent may direct.
LIEBERMAN, INC.
BY:______________________
ATTEST:__________________
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RULES AND REGULATIONS COVERING
USE OF OFFICE UNDER THIS LEASE
(Constituting a part of this Lease as stated in Section 7(i))
1. The building entries or sidewalks shall not be obstructed by any of the
Tenants, or used by them for any other purpose than for ingress and
egress from and to their respective offices. The building entries and
roof are not for the use of the general public, and Landlord shall in
all cases retain the right to control and prevent access thereto of all
persons whose presence in the judgment of Landlord, or his employees,
shall be prejudicial to the safety, character, reputation, and
interests of the Building and its Tenants.
2. The floors, windows, doors and transoms that reflect or admit light in
passage ways, or into any place in said building shall not be covered
or obstructed by any of the Tenants. The toilet rooms, water closets,
and other water apparatus shall not be used for any purpose other than
those for which they were constructed, and no sweepings, rubbish, rags,
ashes, chemicals, or the refuse from electric batteries, or other
injurious substances, shall be thrown therein. Any damage resulting
from the misuse or abuse shall be borne and immediately paid by Tenant
by whom or by whose employees it shall have been caused.
3. Nothing shall be placed by the Tenants, or their employees, on the
outside of the Building or on the windows, window sills or projections.
4. No sign, advertisement, or notice shall be inscribed, painted, or
affixed on any part of the outside or within the Common Area of any
building by the Tenant unless (a) the sign, advertisement or notice is
in compliance with all Applicable Township Ordinances and regulations;
and (b) the design and form of the same is first approved by Landlord,
which approval will not be unreasonably withheld.
5. No additional locks shall be placed upon any doors of the premises and
the Tenant shall not permit any duplicate keys to be made, but if more
than two keys for any door or lock shall be desired, the additional
number must be paid for by the Tenant. Each Tenant must, upon the
termination of this Lease, leave the
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windows and doors in the demised premises in like condition as of the
date of said lease, and must then surrender all keys of the offices.
6. No Tenant shall do or permit anything to be done in said premises, or
bring or keep anything therein, which will in any way increase the rate
of fire insurance on said Building, or on property kept therein, or
obstruct or interfere with the rights of other Tenants, or in any other
way injure or annoy them, or conflict with the laws relating to fires,
or with the regulations of the Fire Department or with any insurance
policy upon said leased premises.
7. In order that the leased premises may be kept in good state of
preservation and cleanliness, each Tenant shall, during the continuance
of his Lease, permit the Landlord's employees to take charge of and
clean the said leased premises.
8. No Tenant shall employ any person or persons, other than the Landlord's
employees for the purpose of such cleaning, or taking charge of said
premises. Tenants will see each day that the doors are securely locked
before leaving the Building.
9. The Landlord or his agents shall have the right to enter any promises
at reasonable times and upon telephone notice to Tenant to examine the
same, or to run telegraph or other electric wires, or to make such
repairs, additions and alterations as he shall deem necessary for the
safety, improvements, preservation, and restoration of the said
Building, or for the safety or convenience of the occupants thereof.
10. Tenants, their employees or others shall not make or commit any
improper noises or disturbances of any kind in the Building, or mark or
defile the water-closets, or toilet-rooms, or the walls, windows,
doors, or any other Tenants or those having business with them. Tenants
shall be liable for any damage to the Building done by their employees.
11. No carpet, rug, or other article shall be hung or shaken out of any
doors, and nothing shall be thrown or allowed to drop by the Tenants,
their clerks, or employees out of the doors, and no Lessee shall sweep
or throw, or permit to be swept or throw from the leased premises, any
dirt or other substances into the building entries or upon any
adjoining building or roof.
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12. No animals or birds shall be kept in or about the premises or permitted
therein.
13. If Tenant desires to introduce signalling and telegraphic (but not
telephonic) wires and instruments, the Landlord will direct the
electricians as to where and how the same are to be placed, and without
such directions no placing, boring or cutting will be permitted.
Landlord shall in all cases retain the right to require the placing and
using of such electrical protecting devices to prevent the transmission
of excessive currents of electricity into or through the Building and
to require the hanging of wires and of their placing and arrangement as
Landlord may deem necessary, and further to require compliance on the
part of all using or seeking access to such wires, with such rules as
Landlord may establish relating thereto and in the event of
noncompliance with the requirements and rules Landlord shall have the
right to immediately cut and prevent the use of such wires. Notice
requiring such changing of wires and their replacing and rearrangement
given by Landlord to any company or individual furnishing service by
means of such wires to any Tenant shall be regarded as notice to such
Tenant, and shall take effect immediately. All wires used by Tenants
must be clearly tagged at the distributing boards and junction boxes
and elsewhere in the Building with the number of the office to which
said wires lead, and the purpose for which said wires respectively are
used, together with the name of the company operating same.
14. Tenants shall not use nor keep nor permit to be used or kept in the
Building any articles having an offensive odor, nor any explosives,
kerosene, gasoline, benzine, camphere, burning fluid or other
illuminating material.
15. No Tenant and no employees of any Tenant shall go upon the roofs of
said Building, or any adjoining building, without the written consent
of Landlord or of the agent of Landlord.
16. No furniture, packages or merchandise will be received in the Building,
except between such hours as shall be designated by the Landlord,
subject to paragraph 8(c) of the Lease. The Landlord in all cases shall
prescribe the method and manner in which any merchandise, heavy
furniture or safes shall be brought in or taken out of the Building,
and also the hours at which such moving shall be done. The Landlord
shall in all cases retain the right to prescribe the weight and proper
position of such heavy furniture and safes and all damages done to the
Building by taking in or out of
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such merchandise, heavy furniture or safes or any damage done to the
Building while said property shall be therein, shall be made good and
paid for by the Tenant by, through or under whom the said damage may
have been done.
17. The walls or partitions shall not be marked, perforated or broken by
Tenant without restoration of the same by Tenant at its sole expense.
Tenant shall not make any attachment to the electric lighting wires of
the Building for storing of electricity, nor shall any Tenant use any
other method of heating than that provided by Landlord, without the
written consent of the Landlord. Tenants desiring to put in call boxes
will notify the Landlord, who will designate where the same shall be
placed. No mechanics shall be allowed in or about the Building other
than those employed by the Building Management without the written
consent of the Landlord first having been obtained.
18. Tenants shall be so requested to give no fees to the employees of the
Building. Tenants are also retested to give immediate notice to the
office of any canvassers, newsboys, peddlers or beggars plying their
trade in the Building with view to the prevention of same.
19. The Landlord reserves the right to rescind any of these rules and to
make such other and further reasonable rules and regulations as in
Landlord's judgment, may from time to time be needful for the safety,
care, maintenance, operation and cleanliness of the Building, and for
the preservation of good order therein, which when so made, and notice
thereof given to the Tenants, shall have the same force and effect as
if originally made a part of the foregoing lease.
20. The use of rooms as drinking, eating and sleeping apartments is
prohibited with the exception of the Lunch Room.
21. The delivery of towels, ice, water, newspapers and other supplies to
Tenants in the Building will be permitted only under the direction,
control and supervision of the Landlord.
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EXHIBIT "A-2"
BUTTONWOOD PARK
TELEBASE FIT-UP, BUILDING #6
1. PERMITS
Hough/Loew will obtain and pay for all permits required for the construction of
the suite including Pennsylvania State Department of Labor and Industry.
2. SCOPE OF WORK
All work will be in accordance with the plans dated January 8, 1991, last
revised on April 23, 1991, (the "Plans") and as further described in this
"fit-up" work letter.
3. PARTITIONS
Hough/Loew will furnish and install fixed drywall partitions as shown on the
"Plans". Interior office partitions shall have 3 5/8" metal studs 16" on centers
with 1/2" gypsum board on each side. Exterior walls will be drywalled on top of
existing shell perimeter wall system. Batt insulation will be installed in the
walls around all bathrooms.
All walls will receive two coats of flat latex paint with the exception of
upgrades noted in Exhibit "A-1". Bathrooms to have vinyl wallcovering with the
exception of the "wet wall" which will be ceramic tile.
4. DOORS AND HARDWARE
Interior doors shall be nominal 3'0"x 6'8"x 1 3/4" solid core, pre-finished
stain grade oak veneer, with an 18 gauge metal frame. All interior doors shall
be equipped with a door stop and light commercial grade hardware.
5. CEILINGS
Ceilings to be fully accessible with 2' x 4' Armstrong "fissured mina-board".
All ceilings shall be installed to provide a nominal finished height of 8'0".
6. WINDOW TREATMENT
All exterior windows in the building will be trimmed and shall be provided with
horizontal 1" mini-blinds.
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7. FLOORING
Building standard carpeting with vinyl base will be installed throughout the
space with the exception of upgrades noted in Exhibit "A-1". VCT is included for
the vending and lunch areas. Carpet installation shall be by means of direct
glue down. Bathroom flooring will be ceramic tile.
8. CABINETRY AND MILLWORK
The vending area on the first floor and coffee nook area on the second will have
stock laminate wall and base cabinets with counter top. Bathrooms to have
plastic laminate counter tap. Millwork will be constructed in the coffee room,
mail copyroom, USD Bullpen, SOS area, C/E Bullpen and S/E Lab, as noted in
Exhibit "A-1". The costs, as shown below, shall be shared by Landlord and Tenant
to be paid when and as provided in paragraph 35 of the Rider to the Lease.
MILLWORK COSTS
<TABLE>
<CAPTION>
TELEBASE BEBOB ASSOCIATES
-------- ----------------
<S> <C> <C>
Coffee area $1,500
Shelving/Storage $2,400*
Mail/Copy 1,500 1,500
USD Bullpen 850 850
SOS Area 2,975 2,000
C/E Bullpen 412.50 412.50
Reception station 5,000*
S/E Lab 1,250 1,250
* Option Items
</TABLE>
9. HEATING, VENTILATING, AND AIR-CONDITIONING
Hough/Loew will provide a split-system designed HVAC system in accordance with
ASHRAM standards. The system shall include roof mounted packaged heat pump units
for the second floor and ground-mounted electric condensing heat pump unit, with
joist mounted air handler with evaporator and back-up electric resistance heat
for the first floor areas. The work will include a duct distribution system
consisting of 1" energy-efficient fiber-board supply and return trunk lines,
insulated flexible branch lines, diffusers and grilles all installed in
accordance with SMACNA standards.
Exhaust fans will be provided for both bathrooms and all conference rooms and
lunch room areas.
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10. PLUMBING
Hough/Loew will provide two bathrooms as shown on the plan. Mens room to have
two commodes, two urinals and two sinks. Ladies room to have three commodes and
two sinks. Sinks will be installed in countertop (no base cabinets).
Miscellaneous toilet room fit-up including partitions. Toilet paper holder,
mirror, etc. are included. One sink is also included in the vending area and
coffee area. One electric water cooler will be supplied outside the second floor
bathrooms.
11. ELECTRICAL
Lighting fixtures shall be '2 x 4' standard recessed fluorescent lighting
fixtures with acrylic prismatic lens covers with the exception of upgrades noted
in Exhibit "A-1". Open plan lighting has been calculated in accordance with the
ratio of one light fixture for each 75 sq. ft. of open plan area.
We have included an empty four-hundred amp 120v/206v, 3 phase panel board in the
computer room for connection by Telebase. We have also included single point
panel electrical connection feeds to the landscape partition work.
Individual electrical metering and distribution equipment consisting of
electrical panels and all service work specific to this suite is included.
A computer power distribution system will be provided in the Leased Space
pursuant to the specifications set forth in A-3, the cost of which shall be
shared by Landlord and Tenant to be paid when and as provided in paragraph 35 of
the Rider to the Lease.
The Leased Space shall be provided with electrical service of not less than 400
amps. Landlord agrees to reserve an additional 200 amps capacity for Tenant's
use for a total of 600 amps electrical service. Tenant shall pay all of the
costs associated with the connection of its equipment to the additional 200 amps
of reserved capacity provided herein at such time as Tenant elects to use such
additional reserve capacity amperage.
12. SECURITY SYSTEM
A security system will be installed in the Leased Space pursuant to
specifications to be determined by Tenant with the cost of such security system
to be shared by Landlord and Tenant to be paid when and as provided in paragraph
35 of the Rider to the Lease.
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13. LIGHTNING SUPPRESSION SYSTEM
A lightning suppression system will be made available by Landlord for use by
Tenant in conjunction with the electrical system serving the Leased Space. In
the event that such a lightning suppression system is not already in place
serving the electrical system of the Leased Space, Landlord will, at its sole
expense, provide for the installation of such systems to be made available for
Tenant's use.
14. MISCELLANEOUS
We have included a Halon fire suppression system for the computer room area as
noted within the request for proposal.
15. COMPUTER ROOM
Computer Room fit-up work shall be constructed or installed by DataCenter
Design, Inc. in accordance with the specification set forth in Exhibit "A-3"
attached hereto.
16. EXCLUSIONS
The following items have not been included
Telephone wiring or equipment
Wiring of owner's equipment or panel systems Appliances Upgraded finishes as
depicted on Exhibit A-1 Modular partition systems
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EXHIBIT B
To Lease Dated April 26, 1991, Between BEBOB ASSOCIATES, ("Landlord")
and TELEBASE SYSTEMS, INC. ("Tenant").
1. Landlord will at its expense prior to commencement of the term
of the Lease complete the following building standard work
with building standard materials in the Leased Space, all in
good and workmanlike manner and in compliance with all
applicable laws, ordinances, rules and regulations of
governmental authorities having jurisdiction and as provided
in Exhibits "A-1", "A-2", and "A-3";
(a) Furnish and install straight partitions, together
with doors and hardware according to building
standard.
(b) Furnish and install acoustical hung ceilings.
(c) Furnish and install carpeting.
(d) Furnish and install fluorescent light fixtures
throughout leased space. Install lamps and bulbs in
all light fixtures.
(e) Furnish and install light switches throughout leased
space.
(f) Furnish and install duplex electrical receptacles
throughout leased space.
(g) Paint all doors and trim.
(h) Furnish and install standard window blinds on all
exterior windows.
(i) Furnish and install sink, countertop, and cabinets in
the kitchen area.
(j) HVAC.
(k) Plumbing work.
(l) Computer Room fit up.
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(m) Security System.
(n) Lighting Suppression System.
2. On or before May 6, 1991, and for carpet and paint selections,
May 15, 1991, Tenant will furnish complete and detailed
written information for drawings, or shall indicate its
written acceptance of drawings or specifications prepared by
Landlord, for the following items:
(a) Partition locations and type.
(b) Door locations, sizes and type.
(c) Lighting plan for space.
(d) Location of electrical outlets and telephone outlets.
(e) Specific plumbing requirements, if any, including
plans and sections.
(f) Decorative plans, including paint schedule, and wall
coverings.
(g) Any other requirements.
3. If Tenant fails to furnish the information for drawings above
referred to by the specified date, Tenant will bear any
additional expense thereby occasioned to Landlord, and any
date by which Landlord shall have agreed to complete such work
and give occupancy to Tenant shall be automatically extended
for a time period equal to such delay.
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EXHIBIT C
To Lease Dated April 26, 1991, Between BEBOB ASSOCIATES ("Landlord"),
and TELEBASE SYSTEMS. INC.
Tenant shall pay as Additional Rent its proportionate share of any
increase in Operating Expenses, over the operating expense stop (the "Operating
Expense Stop") which shall be defined herein as the product of 42,600 square
feet multiplied by $3.75 per square foot for a total of $159,750.00, incurred by
Landlord during the term of this Lease in operating the Land and Buildings known
as Buildings Six Hundred (600) and Seven Hundred (700) within Buttonwood Park
("the Land and Buildings") which include a combined total of 42,600 square feet
of rental space ("Rental Space).
The amount of Additional Rent, if any, due hereunder shall be
determined in the following manner:
During each calendar year thereof (pro-rated for any period less than a
year), Tenant shall pay to Landlord as additional rent ("Additional Rent"), upon
being billed therefor as provided herein, a sum equal to (1) the Operating
Expense for such calendar year less the Operating Expense Stop of the Land and
Buildings multiplied by (2) that percentage which is derived by dividing the
number of square feet leased by Tenant (15,000) by the total amount of square
feet of Rentable Space (42,600) within that phase of Buttonwood Park of which
the Leased Premises are a part. That percentage is (35.2%). "Operating Expenses"
as used herein means the actual, necessary and competitive out-of-pocket
expenses, costs and charges incurred for the operation, maintenance, repair,
capital investments and improvements of the Land and Buildings and common areas,
as defined in the Lease, as determined by generally accepted accounting
principles, and shall include, but not be limited to:
(a) wages and salaries, and taxes imposed upon employers with
respect thereto (including social security, old age,
unemployment insurance, and disability insurance), fringe
benefits (including without limitation vacation, holiday and
other proper allowances), paid to employees, independent
contractors or agents of the Landlord engaged in the
operation, repair, management or maintenance of the Land and
Buildings and Common Areas;
(b) costs of utilities serving the Land and Buildings and Common
Areas other than areas
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intended to be leased to Tenants at a rate which will not
exceed that rate actually charged to Landlord by the utility
company, services and supplies by whomever performed or
furnished;
(c) cost of electricity at a rate which will not exceed the rate
which is actually charged to Landlord by the utility company
consumed by lighting fixtures and power appliances and
equipment used for lighting of common and service areas and
operation of equipment, services and facilities supplied by
Landlord;
(d) real estate taxes, assessments, and other governmental and
public assessments assessed upon the Land and Buildings, or
arising in connection with the use, occupancy or possession
thereof, or any interest therein, including but not limited to
real property taxes, municipal authority assessments, and
highway improvement assessments, if any. Nothing herein
contained shall be construed to require Tenant to pay (i)
franchise, inheritance, estate, succession, capital stock,
gift or transfer tax of Landlord; (ii) income or excess
profits tax assessed upon or in respect of any income of
Landlord or chargeable to or required to be paid by Landlord,
or (iii) penalties or interest for late payment of Real Estate
taxes or assessments;
(e) water rents and sewer rents, at a rate which will not exceed
the rate which is actually charged to Landlord by the utility
company;
(f) cost of all insurance that is customarily carried by operators
of comparable first class office buildings. No charge for
insurance shall be included that reflects an increase in
premiums due to an act or omission of any of the tenants of
the Buildings for which Landlord is reimbursed by such
tenants;
(g) reasonable accounting, bookkeeping, legal and management fees.
All expenses to be taken into account pursuant to this Section shall be
"net" only and for such purpose shall be deemed reduced by the amounts of any
insurance or other reimbursement, recoupment, payment discount, credit
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reduction or allowance received by Landlord in connection
with such expenses.
On account of the Additional Rent payable, Tenant shall pay to Landlord
on the first day of each month during the term hereof in advance one-twelfth
(1/12) of the amount Landlord estimates will be due hereunder for the current
year. After the end of such year, Landlord shall render a statement itemizing
the operating expenses and certified by Landlord's accountants to Tenant for the
actual amount of the Additional Rent, and, within thirty (30) days thereafter,
Tenant will pay any additional amount shown to be due by Tenant pursuant to this
section and the other terms of this Lease. If the actual amount paid by Tenant
for such year is less than the estimated payments made by Tenant for such year,
Landlord shall, at option of Tenant, reimburse Tenant the difference within
thirty (30) days of receipt of such statement or credit such excess to the
additional rent due for the following lease year.
All sums payable hereunder by Tenant, or which are at the expense of
Tenant, are deemed and considered to be rent, and, if not paid, Landlord shall
have with respect thereto all the rights and remedies provided for herein and by
law for the nonpayment of rent.
Tenant's obligation to pay its proportionate share of any increases in
Operating Expenses for the calendar year in which this Lease terminates shall
survive termination of this Lease.
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RIDER
Rider to Lease dated of even date herewith between BEBOB ASSOCIATES
("Landlord") and TELEBASE SYSTEMS, INC. ("Tenant").
1. The following shall be added to Paragraph 1 of the Lease:
(b) Landlord hereby leases to Tenant for use only as a lawful and
respectable office and for the periodic construction of computer equipment
necessary to service and process Tenant's software, 15,000 square feet of space
located in Building 600 (the "Building") of the Buttonwood Park Office Center
(the "Complex"). The Leased Space includes a portion of the first floor and the
entire second floor of the Building as shown on Exhibit "A-1" attached hereto
and those areas and facilities of the Building and the land ("Land") on which
the Building is located which Landlord provides and designates for the general
non-exclusive use and convenience of Landlord, Tenant and other tenants of
Landlord and their respective employees and invitees (collectively "Common
Areas"). Common Areas include: parking and loading areas; access roads;
driveways; exterior walls, ramps and stairways; common loading docks;
landscaping; interior corridors and stairs; underground storm and sanitary
sewers and utility lines installed at the expense of Landlord; public bathrooms;
lobby; common entrances and drinking fountains and excluding all areas of the
Building intended for the use of one occupant. Landlord shall operate, manage
and maintain all of the Common Areas as hereinafter set forth.
Landlord agrees that it will use the Land for and manage the Building
as a first-class office building and will not lease or permit any tenant or
occupant, including Landlord, to occupy, use or maintain any space in the
Building or Land for a use or in a condition which tends to materially impair
the use, condition or reputation of the Land or Building as a first-class office
building.
Notwithstanding anything contained in the Lease, Rider, Rules and
Regulations, Plans contained in Exhibit "A- 1" and Specifications contained in
Exhibits "A-2", "A-3" and "B" attached hereto, Landlord acknowledges and agrees
that the base building systems shall be adequate to accommodate Tenant's
proposed business, including, but not limited to, electrical, mechanical and
HVAC systems.
2. Paragraph 4 of the Lease is hereby amended in its entirety to
provide as follows:
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Landlord, at Landlord's sole cost and expense, will prepare the Lease
Space for occupancy by Tenant pursuant to the Proposed Plans for Tenant dated
January 8, 1991 and last revised April 23, 1991 (the "Plans") as more fully set
forth in Exhibit "A-1" and the Specifications set forth in Exhibits "A-2", "A-3"
and "B" and shall complete the improvements by August 15, 1991 ("Completion
Date"). Landlord and Tenant acknowledge that the Plans are not in final form.
Landlord shall not begin construction of the Leased Space until Tenant has
reviewed and approved any and all related plans used in the construction of the
Leased Space, all of which shall be in substantially the same form as the Plans.
The improvements shall be deemed "completed" on the date when (a)
Tenant is able to use the Leased space for the purposes set forth in Paragraph
1(b); (b) state and local certificates of occupancy have been issued; and (c)
the Leased Space is in compliance with the Plans set forth in Exhibit "A-1" and
the Specifications set forth in Exhibit "A-2", "A-3" and "B". Landlord hereby
gives Tenant permission to enter into possession of the Leased Space on the
Completion Date and prior to the Commencement Date, for the purpose of
installing (i) telecommunication lines, (ii) lines for local area networks and
(iii) modular furniture. During the period between the Completion Date and the
Commencement Date, Tenant covenants and agrees that such occupancy of the Leased
Space shall be deemed to be under all of the terms, covenants, conditions and
provisions of this Lease, except as to the covenant to pay Rent which shall
commence as specified in Paragraph 2 of the Lease, and Additional Rent which
shall commence as specified in Paragraph 6 of the Lease and Exhibit "C".
If Landlord is not able to give actual possession of the Leased Space
to Tenant within sixty (60) days of the Commencement Date by reason of the fact
that improvements or alterations shall not have been sufficiently completed by
Landlord to make the Leased Space ready for occupancy, Tenant shall have the
option to terminate this Lease. If Tenant chooses not to terminate this Lease,
the Commencement Date shall begin on the date Landlord delivers possession of,
and certificates of occupancy for, the Leased Space to Tenant, Tenant is able to
use the Leased Space for the purposes set forth in Paragraph 1(b), and the
Leased Space is in compliance with the Plans set forth in Exhibit "A-1" and the
Specifications set forth in Exhibits "A-2", "A-3" and "B". In that event, Rent
and Additional Rent shall not commence until seven (7) months following such
date and the rental schedule set forth in Paragraph 2 of the Lease shall be
deferred to reflect the delayed Commencement Date.
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<PAGE> 29
Notwithstanding the foregoing, in the event that Landlord is unable to
give actual possession of the Leased Space to Tenant within sixty (60) days of
the Commencement Date because Landlord is delayed in performing the improvements
by an act of God or by requirements of governmental agencies established after
the date of this Lease, then the Commencement Date shall automatically be
extended for a time period equal to such delay. The Commencement Date shall
begin on the date Landlord delivers possession of, and certificates of occupancy
for, the Leased Space to Tenant, Tenant is able to use the Leased Space for the
purposes set forth in Paragraph 1(b), and the Leased Space is in compliance with
the Plans set forth in Exhibit "A-1" and the Specifications set forth in
Exhibits "A-2", "A-3" and "B". In that event, Rent and Additional Rent shall not
commence until seven (7) months following such date and the rental schedule set
forth in following such date and the rental schedule set forth in Paragraph 2 of
the Lease shall be deferred to reflect the delayed Commencement Date.
Notwithstanding the foregoing, in no event shall such delay extend beyond one
hundred and twenty (120) days from the Commencement Date or Tenant shall have
the right to terminate this Lease.
In the event that Landlord is unable to give actual possession of the
Lease Space to Tenant within sixty (60) days of the Commencement Date because of
the failure of Tenant to timely or fully provide all information necessary to
enable Landlord to perform the improvements, the term of this Lease shall begin
on the Commencement Date and Rent and Additional Rent shall be paid in
accordance with Paragraph 2 and Paragraph 6 of the Lease.
Before the Completion Date, the parties shall inspect the Leased Space,
have all systems demonstrated, and prepare a punchlist. The punchlist shall list
incomplete, minor or insubstantial details of construction, necessary mechanical
adjustments, and needed finishing touches. Landlord will complete the punchlist
items within thirty (30) days after the Completion Date. Landlord will promptly
correct any latent defects as they become known, if Tenant notifies Landlord of
the defect within thirty (30) days after Tenant first learns of the defect.
3. The following shall be added to Paragraph 5 of the Lease:
d) Maintain the Common Areas in a manner comparable to other first
class office buildings. Such maintenance shall include snow removal, repairs,
replacements, lawn care and landscaping;
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<PAGE> 30
e) If any essential services supplied by Landlord are interrupted and
such interruption is caused by the negligent or intentional conduct of the
Landlord, its employees or agents, Tenant shall be entitled to an abatement of
Rent and Additional Rent (Interruption Abatement"). The Interruption Abatement
shall begin on the second consecutive business day of the interruption or when
Tenant stops using the Leased Space because of the interruption, whichever is
later. The Interruption Abatement shall end when the services are restored.
Tenant shall have the option to cancel the Lease if the interruption
unreasonably or materially interferes with Tenant's use of or access to the
Leased Space for more than ten (10) consecutive days;
f) Keep the Building and the Leased Space insured against damage or
destruction by fire, earthquake, vandalism and other perils in the amount of the
full replacement value of the Building and the Leased Space, but not Tenant's
property therein, as the value may exist from time to time. Upon written request
of Tenant, Landlord shall furnish Tenant with a copy of the certificate or
certificates of such insurance policy or policies. All such insurance shall be
procured from a responsible insurance company or companies authorized to do
business in the state where the Leased Space is located and have a rating of not
less than "A" and of not less than "Class VII" in financial size as rated in the
most current available "Best's Insurance Reports". All such policies shall
provide that the same may not be cancelled or altered except upon thirty (30)
days prior written notice to Tenant. Such insurance shall include an extended
coverage endorsement of the kind required by an institutional lender to repair
and restore the Building and Leased Space;
g) Provide Tenant, its employees, agents and invitees access to the
Leased Space twenty-four (24) hours a day, seven (7) days a week; and
h) Except for the maintenance obligations of Tenant set forth in
Paragraph 7(d), Landlord shall maintain and keep in good condition, and replace
if necessary, the roof, all structural components, the Building lavatories and
all utility systems serving the Building, the Common Areas and the Leased Space,
including, the mechanical, electrical, plumbing and HVAC systems. Landlord shall
make such repairs and replacements in order to maintain the Building, Common
Areas and the Leased Space in a condition comparable to other first class office
buildings.
Tenant shall give Landlord prompt written notice of any damage to or
defects in the Leased Space, Common Areas or Building for which Landlord is
responsible. Except
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as otherwise herein provided, if Landlord fails to do any work required by this
Section 5(h) and such failure continues for more than thirty (30) days after
Landlord receives written notice from Tenant directing Landlord to do such work
(which 30-days period shall be extended for an additional fifteen (15) days to
complete the work, provided Landlord is diligently prosecuting the same), then
Tenant may do such work and deduct said cost from the Rent due the Landlord. In
the event of an emergency, Tenant may immediately perform or have performed the
work required to cure the problem if and only if Tenant has first attempted to
telephone Landlord and such attempt proves unsuccessful.
4. The following shall be added as Paragraph 9(b) of the Lease:
Tenant shall have the right to sublet all or part of the Leased Space
provided that Tenant obtains Landlord's written consent, which consent will not
be unreasonably withheld or delayed by Landlord, and provided further that
Tenant will remain primarily liable to Landlord for all Rent and Additional Rent
due under this Lease.
Tenant shall have the right to assign the Leased Space and Landlord
will give its consent to such assignment provided such assignment is (a) to an
entity whose financial condition is equal to or exceeds the financial condition
of Tenant, or (b) to any corporation or partnership that controls, is controlled
by, or is under common control with Tenant, or any corporation resulting from
the merger or consolidation with Tenant, or to any entity that acquires all of
Tenant's assets as a going concern of the business that is being conducted at
the Leased Space as long as the assignee is a bona fide entity and assumes all
of the obligations of Tenant under this Lease.
5. The following shall be added as Paragraph 9(c) of the Lease:
Notwithstanding the foregoing, all of Tenant's trade fixtures and all
personal property, removable fixtures, apparatus, machinery and equipment now or
hereafter located in the Leased Space or Building, owned by Tenant or any other
occupant of the Leased Space and whether or not the same are affixed thereto,
shall be and remain the personal property of the Tenant.
Tenant shall not make any alteration of or addition to the Leased Space
after the Commencement Date without the prior written approval of Landlord which
approval shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, Tenant may make alterations and/or additions to the specially
constructed Computer Room
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located within the Leased Space and designated on Exhibit "A-1" without
Landlord's consent. All such alterations and additions, as well as all fixtures,
equipment, improvements and appurtenances installed in the Leased Space at the
inception of the term of this Lease shall, upon installation, become and remain
the property of Landlord and shall be maintained by Tenant during the term
hereof and any renewals and extensions thereof, in the same good order in which
the Leased Space is generally required to be maintained by Tenant, reasonable
wear and tear and damage by fire other casualty excepted. Tenant may, at the
expiration of the term hereof, remove Tenant's trade fixtures and other personal
property which can be removed without damage to the Leased Space. Any trade
fixtures that cannot be removed without causing damage to the Leased Space shall
be removed by Tenant at Tenant's election, provided Tenant restores the Leased
Space to the same good condition they were in prior to the installation thereof,
reasonable wear and tear excepted. All alterations and additions by Tenant shall
be performed in accordance with plans and specifications therefor submitted to
Landlord, in a good and workmanlike manner and in conformity with all laws,
regulations, rules, ordinances and other requirements of all government or
quasi-governmental authorities having jurisdiction.
6. The following shall be added to the end of Paragraph 15:
The foregoing shall not, however, deprive Tenant of those items Tenant
is permitted by law to receive, including but not limited to, any separate award
for moving expenses, business dislocation damages, Tenant's personal property
and fixtures or for any other award to which Tenant is entitled.
7. The following shall be added after the word "that" and before the
word "so" on line 10 of Paragraph 16:
"this provision for subordination shall not apply unless the mortgagee
or landlord shall agree in writing that"
8. The following provisions shall be added to the Lease:
24. Covenant of Quiet Enjoyment.
Landlord further represents, covenants and warrants for itself, its
successors and assigns that as long as Tenant, its successors and assigns
faithfully performs the terms of this Lease within the applicable grace and
cureperiods, Tenant, its successors and assigns shall quietly and peaceably
enjoy the Leased Space and shall not
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be disturbed or interfered with by Landlord or by any person claiming by,
through or under Landlord, during the Term of the Lease or any renewals or
extensions thereof.
25. Enforceability.
If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease shall
not be affected thereby, but each term and provision of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
26. Choice of Law.
This Lease shall be construed and enforced in accordance with the laws
of the Commonwealth of Pennsylvania.
27. Modification.
This Lease may be changed, waived, discharged or terminated only by an
instrument in writing signed by the parties hereto.
28. Entire Agreement.
This Lease and Rider represent the entire agreement between the parties
hereto. Except as set forth herein, there are no promises, representations or
understandings between the parties of any kind or nature whatsoever.
29. Brokers.
Tenant and Landlord each represent and warrant to the other that it or
they have not made any agreement or taken any action which may cause anyone to
become entitled to a commission as a result of this Lease, except for the
Commission Agreement between Landlord and Smith, Mack and Birmingham and Co.,
Inc. dated May 3, 1991 ("Commission Agreement") for which Landlord shall be
totally responsible for the commission of Broker John Birmingham ("Broker's
Commission"). The Commission Agreement provides that the Broker's Commission
shall be six percent (6%) of the total rental due for the entire Term as more
particularly set forth in Paragraph 2 of this Lease. The Broker's Commission
shall be payable consistent with Paragraph 4(b) of the Commission Agreement,
subject to the terms and conditions of the Commission Agreement, solely by
Landlord to Smith, Mack and Birmingham and Co., Inc. in monthly installments
equal to six percent (6%) of the monthly Rent payments set forth in Paragraph 2
of this Lease and shall be due and payable
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not more than ten (10) days after the day when Landlord receives the monthly
Rent payment from Tenant. Both Landlord and Tenant hereby agree that each will
indemnify, defend and hold harmless the other from any and all claims, actual or
threatened, for compensation by any third party by reason of the breach of any
representation or warranty contained in this Paragraph 29.
30. Security Interest.
Notwithstanding anything contained in the Lease to the contrary,
Landlord acknowledges that Tenant may enter into security agreements which grant
a security interest in the goods and property which may be located upon or
affixed to the Leased Space and Landlord hereby waives landlord's statutory
lien, if any, with respect to the same. Notwithstanding the foregoing, Tenant
shall not bring onto the Leased Space, or grant a security interest in, any
items permanently affixed or to be permanent affixed to the Leased Space, and
shall not grant a security interest in any built-in improvements or building
mechanical systems.
31. Authority to Execute Lease.
Landlord represents, warrants and covenants to Tenant that it is the
sole owner of the Leased Space, that it has the full right, power and authority
to make this Lease and that no other person or entity needs to join in the
execution hereof in order for this Lease to be binding on Landlord. Tenant
represents, warrants and covenants to Landlord that it has the full right, power
and authority to make this Lease and that no other person or entity needs to
join in the execution hereof in order for this Lease to be binding upon Tenant.
32. Time is of the Essence.
Time is of the essence of this Lease, and all provisions herein
relating thereto shall be strictly construed.
33. Exhibits.
Exhibits "A-1", "A-2", "A-3" and "B" and the Rules and Regulations
referred to in this Lease are attached hereto and shall be deemed an integral
part hereof.
34. Signs.
Landlord, at Landlord's cost and expense, will place a building
standard plaque bearing Tenant's name or logo on the door leading to the Leased
Space. Notwithstanding anything contained herein to the contrary,
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Tenant shall be permitted, at Tenant's expense, to erect a sign, similar in
shape and size to Building 800 in the Complex bearing the Tenant's name or an
abbreviation or portion thereof or logo as the same may change from time to
time. Such sign shall be erected in accordance with the Tredyffrin Township
Zoning Code and Tenant shall maintain and repair such sign.
35. Miscellaneous Construction Items. In addition to the other items that shall
be constructed in the Leased Space, Landlord and Tenant agree as follows:
(a) Cabinetry and Millwork. Landlord shall install the Cabinetry and
Millwork in the Leased Space in accordance with the Plans set forth in Exhibit
"A-1" and the Specifications set forth in Exhibits "A-2" and "B" by the
Commencement Date. Tenant shall pay an amount equal to $6,987.50 toward the cost
of such items directly to Landlord at any time prior to the date when Rent is to
commence under this Lease. In the event that Tenant desires to have
Shelving/Storage and/or a Reception Station in the Leased Space as set forth in
Paragraph 8 of Exhibit "A-2", Landlord shall construct and install such items in
the Leased Space by the Commencement Date, provided that Tenant shall pay the
cost of such items ($7,400.00) directly to Landlord at any time prior to the
date when Rent is to Commence under this Lease.
(b) Electrical Service. Landlord shall make available, by the
Commencement Date, at Landlord's sole cost and expense, 400 amps of electrical
service to the Leased Space, in accordance with the Plans set forth in Exhibit
"A- 1" and the Specifications set forth in Exhibits "A-2", "A-3" and "B". In
addition, Landlord agrees to reserve and make available, for use by Tenant, at
any time during the term of the Lease, an additional 200 amps of electrical
service capacity for the Leased Space, at Landlord's sole cost and expense,
provided that Tenant shall pay for the cost associated with the connection of
the electrical service from Landlord's mechanical room to the Leased Space at
such time as Tenant elects to use the additional reserve.
(c) Security System. Landlord shall install, by the Commencement Date,
a Security System in the Leased Space approved by Tenant. The cost of the
Security System (currently estimated to be $7,000.00) shall be divided equally
between Landlord and Tenant. In the event the cost of the Security System
exceeds $7,000.00, Tenant shall be responsible for such additional cost.
(d) Lightning Protection System. Landlord shall make available by the
Commencement Date, a Lightning Protection System for use by Tenant in the Leased
Space in
9
<PAGE> 36
accordance with the Plans set forth in Exhibit "A-1" and the Specifications set
forth in Exhibits "A-2", "A-3" and "B", at Landlord's sole cost and expense.
(e) Computer Power Distribution System. Landlord shall install, by the
Commencement Date, a Computer Power Distribution System in the Leased Space in
accordance with the Plans set forth in Exhibit "A-1" and the Specifications set
forth in Exhibits "A-2", "A-3" and "B". The cost of the Power Distribution
System (currently estimated by the parties to be $13,500.00) shall be divided
equally between the Landlord and Tenant. In the event the cost of the Power
Distribution System exceeds $13,500.00, Tenant shall be responsible for such
additional cost.
36. Computer Room.
Landlord covenants, represents and warrants that:
(a) Landlord shall construct the Computer Room in the Leased Space in a
good and workmanlike manner and accordance with the Plans set forth in Exhibit
"A-1" and the Specifications set forth in Exhibit "A-2", "A-3" and "B", and that
the construction of the Computer Room shall be completed by the Completion Date.
(b) Landlord has the authority to assign, and will assign, any and all
manufacturers or other warranties for the installation work and all equipment
installed in the Computer Room as more fully set in Exhibits "A-2", "A-3" and
"B".
(c) The installation work and all equipment in the Computer Room shall
be warranted for a period of one (1) year from the Commencement Date. Landlord
shall also deliver to Tenant, on the Commencement Date, a complete owner's
manual of all equipment installed in the Computer Room including, but not
limited to, appropriate drawings, test documentation and operations manuals.
(d) Landlord will provide a training session for Tenant and Tenant's
employees on the operation of the equipment in the Computer Room. Such training
session shall be conducted at the Leased Space at a time convenient to Tenant.
37. Memorandum of Lease. This Lease shall not be recorded, but the parties
agree to execute a Memorandum of Lease for recording, containing the name of the
parties, the legal description, paragraph 29 and the terms of the Lease required
by law to be included in any such memorandum
10
<PAGE> 37
9. The following shall be added to Exhibit "C" of the Lease:
Notwithstanding anything contained in Exhibit "C", Operating Expenses
shall exclude:
(a) leasing commissions, costs, disbursements and other expenses
incurred for leasing, renovating or improving space for other
tenants;
(b) costs (including permit, license and inspection fees) incurred in
renovating, improving, constructing or painting vacant space or
space for other tenants;
(c) costs incurred by Landlord for alterations that are considered
capital improvements and replacements under generally accepted
accounting principles consistently applied except that the annual
amortization of these costs shall be included as follows: the
annual amortization over its useful life with a reasonable salvage
value on a straight-line basis of the costs of any capital
improvements made by Landlord and required by any changes in
applicable laws, rules, or regulations of any governmental
authorities enacted after the Building was fully assessed as a
completed and occupied unit and the Lease was signed; and the
annual amortization over its useful life with a reasonable salvage
value on a straight-line basis of the costs of any equipment or
capital improvements made by Lessor after the Building was fully
assessed as a completed and occupied unit and the Lease was
signed, as a labor-saving measure or to accomplish other savings
in operating, repairing, managing, or maintaining the Building but
only to the extent of the savings;
(d) depreciation and amortization on the Building;
(e) cost of a capital nature including capital improvements, capital
repairs, capital equipment, and capital tools, as determined under
generally accepted accounting principles consistently applied,
except that the annual amortization of these costs shall be
included as set forth in (c) above;
11
<PAGE> 38
(f) costs incurred because the Landlord or another tenant violated the
terms of any lease;
(g) overhead and profit paid to subsidiaries or affiliates of Landlord
for management or other services on or to the Building or for
supplies or other materials, to the extent that the cost of the
services, supplies, or materials exceed the competitive cost of
the services, supplies, or materials were they not provided by a
subsidiary or affiliate;
(h) interest on debt or amortization payments on mortgages or deeds of
trust or any other debt for borrowed money;
(i) items and services for which Tenant reimburses Landlord or pays
third parties or that Landlord provides selectively to one or more
tenants of the Building other than Tenant without reimbursement;
(j) advertising and promotional expenditures;
(k) repairs or other work needed because of fire, windstorm, or other
casualty or cause insured against by Landlord for which insurance
proceeds are recovered and equal or exceed the cost of the repair;
(l) costs incurred to remedy structural defects in original
construction materials or installations;
(m) any costs, fines, or penalties incurred because Landlord or any
other tenant violated any governmental law, rule or authority;
(n) costs incurred to test, survey, cleanup, contain, abate, remove,
or otherwise remedy hazardous wastes or asbestos-containing
materials from the Leased Space, the Building or surrounding
property owned by Landlord unless the wastes or
asbestos-containing materials were in or on the Leased Space
because of Tenant's negligence or intentional acts;
(o) electricity or other utilities metered to tenants in the Building
in their demised space or spaces;
12
<PAGE> 39
(p) salaries of executive personnel of Landlord other than the
salaries for employees as set forth in Paragraph (a) of Exhibit
"C"; and
(q) Legal fees (a) relating to disputes with tenants, (b) based upon
Landlord's negligence or other tortious conduct, (c) relating to
enforcing any leases, or (d) relating to the defense of Landlord's
title to, or interest in, the Building, Land, Leased Space, Common
Areas or Complex.
(r) other expenses that under generally accepted accounting principles
consistently applied would not be considered normal maintenance,
repair, management or operation expenses.
Landlord shall use its best efforts to keep Operating Expenses at
reasonable amounts, while maintaining a first class office Building.
In the event Tenant disputes Landlord's statement of Operating
Expenses, Landlord shall allow Tenant reasonable access to review Landlord's
books and records concerning the Land and Building to verify the statement of
Operating Expenses.
(Signatures are on following page)
13
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed on this 26th day of April, 1991.
LANDLORD:
BEBOB ASSOCIATES
Attest:
By:
- ---------------------------------- -------------------------------------
Title:
----------------------------------
TENANT:
TELEBASE SYSTEMS, INC.
Attest:
By:
- ---------------------------------- -------------------------------------
Title:
----------------------------------
Lieberman, Inc.
Agent for Landlord
Attest:
By:
- ---------------------------------- -------------------------------------
Title:
----------------------------------
14
<PAGE> 41
EXHIBIT A-3
- --------------------------------------------------------------------------------
INTRODUCTION PAGE 1
- --------------------------------------------------------------------------------
This plan has been specifically designed to provide for the construction of a
computer facility for Telebase Systems, Inc. at their new corporate headquarters
at 600 Buttonwood Park, Wayne, PA. The total effort will be coordinated by Data
Center Design, Inc. as a TURNKEY project in cooperation with Lieberman, Inc. and
its general contractor.
Included in this plan are the following additional sections:
GENERAL CONSTRUCTION
ACCESS FLOORING
ENVIRONMENTAL COOLING
ELECTRICAL
FIRE DETECTION & SUPPRESSION
TERMS & CONDITIONS
Data Center Design, Inc. is a TURNKEY design/build firm specializing in the
construction management of sophisticated data processing and high technology
facilities. The success of this project is predicated on the use of experienced
affiliated contractors and the highest quality equipment. The coordination of
resources and schedules is accomplished using a Critical Path Method project
management technique to insure achievement of defined customer installation
objectives. All work is GUARANTEED for a period of one (1) year and all
equipment is warranted as stated by the manufacturer.
PROPRIETARY RIGHTS NOTICE
The information contained in this document is of a proprietary nature and
represents substantial effort on the part of Data Center Design, Inc. No portion
of this document may be copied or reproduced by any means without the expressed
written permission of Data Center Design, Inc. In addition, the recipient of
this document agrees not to reveal its contents or to use it to solicit other
bids or proposals.
This document is copyright protected, Copyright(C) 1991, Data Center Design,
Inc. All rights reserved.
<PAGE> 42
EXHIBIT A-3
- --------------------------------------------------------------------------------
GENERAL CONSTRUCTION PAGE 2
- --------------------------------------------------------------------------------
All general construction associated with the Telebase Systems, Inc. computer
room is to be provided by the building's selected general contractor. The
following is a description of the general construction work associated with the
computer room project.
1. Computer room perimeter walls are to be constructed to meet building
standard specifications and a 1 hour fire rating. Perimeter walls for the
computer room are to be insulated with a fiberglass insulation and contain
a vapor barrier. The vapor barrier is to extend the entire height of the
perimeter walls. Glass and doors called for on the architectural plan are
to be included and meet the specified 1 hour fire rating.
2. All columns inside the computer room are to be boxed-in and a sheetrock
soffit is to be installed to enclose the horizontal steel beam connecting
columns B-2 and C-2.
3. A 2' x 4' layin ceiling is to be installed throughout the interior of the
computer room (excluding soffit area). Ceiling tiles are to be USG
"Auratone" model 56- 090. Layin ceiling height is to be 8' 8" above the
deck as conditions permit.
4. Furnish and install two (2) rated doors complete with hardware and closers
and per building standard specifications. Doors are to be installed at the
raised floor finished floor height of 8". The single door at the top of the
ramp is to be 3' 6" wide.
5. All wall construction is to be made ready for paint. All areas to be
painted are to contain two coats of latex wall paint per building standard
specification and the architect's plan. Doors are to be finished per
building standard specification.
6. All construction, lighting and electrical in the CE Room adjoining the
computer room is to be provided by the building general contractor.
7. The building general contractor is to provide a main electrical service at
208 volts, 400 amps, 3 phase with full size neutral and full size ground
and terminated in a panel in the computer room. The panel is to be supplied
by Data Center Design, Inc. An option for 600 amp service is to be
provided.
QUALIFICATIONS
All electrical work, lighting, raised flooring, air conditioning and fire
detection and suppression inside the computer room is to be provided by Data
Center Design, Inc. as described in the following sections.
<PAGE> 43
EXHIBIT A-3
- --------------------------------------------------------------------------------
ACCESS FLOORING PAGE 3
- --------------------------------------------------------------------------------
Data Center Design, Inc. plans to furnish and install an access (raised) floor
system as described below, providing all necessary and appropriate labor and
materials.
- Approximately 1,000 square feet new access raised floor system
- 2 x 2 wood-core panel by Donn Access Floor Systems, Inc.
- 1/16" High Pressure Laminate surface (color Greytone)
- Bolted stringer understructure
- 8" finished floor height
- One (1) ramp (8' x 4' nominal), exclusive of handrail
- One (1) step, double riser
- One (1) panel lifter with wall mounted bracket
- Twelve (12) perforated panels
- Up to twenty-three (23) cable cut-outs (trimmed)
This access floor system has been carefully selected to meet the specific needs
of this installation, providing 1000 psi concentrated and 800 psi rolling load
bearing characteristics and the lateral and vertical stability required in this
data center application. Data Center Design, Inc. guarantees that this floor
will be level and rigid upon completion of installation.
The concrete deck below the raised floor will be sealed using a commercial grade
latex concrete sealer. The purpose of this sealer is to eliminate dusting of the
concrete within the underfloor air plenum.
<PAGE> 44
EXHIBIT A-3
- --------------------------------------------------------------------------------
ENVIRONMENTAL COOLING PAGE 4
- --------------------------------------------------------------------------------
Data Center Design, Inc. plans to furnish and install an Environmental Cooling
System (air conditioning) as described below, providing all necessary and
appropriate labor and materials.
AIR CONDITIONING
Two (2) Liebert Model CF067A 5-ton nominal downflow systems each with:
- Integral microprocessor control system
- Unit mounted monitor/control system
- Unit mounted monitor/control panel
- 208 volts, 3 phase, 60 Hz
- 51,300 BTUH sensible capacity @ 72-(degrees)/50% RH
- 2,600 CFM with 1 HP motor
- Single hermetic compressor
- 2 stage electric reheat
- Infrared humidifier with Autoflush cleaning cycle
- Non-locking, unit mounted disconnect switch
- 2" pleated filters
- Two (2) Liqui-tect underfloor water detectors
- Outdoor condenser (roof mounted)
- 5 year extended compressor warranty
INSTALLATION
Installation will include all necessary piping materials, type L copper
refrigerant lines, silver solder, piping of humidifier water and condensate
drain, leak testing, line charging and system start-up. Condensate will be
gravity fed through the floor below and will include coring of the deck and
properly sealed. Both indoor and outdoor units will be delivered to the site and
set in their designated places. The outdoor units will be set on the roof on
prefabricated roof curbs. The indoor units will be set on the raised floor in
their designated locations.
Drip pans will be provided in the ceiling area under the two PVC lines carrying
drain water from the roof. Sheetmetal drip pans will be fabricated and installed
to slope in the direction of the perimeter of the computer room and drains
installed and fed to the floor below.
WATER DETECTION
Water detection under the raised floor will be accomplished using the underfloor
water detectors supplied with the air conditioning system (two at each unit). In
addition, 3 separate water detection systems will be installed to sense water in
the drip pans in the ceiling area of the computer room.
<PAGE> 45
EXHIBIT A-3
- --------------------------------------------------------------------------------
ELECTRICAL PAGE 5
- --------------------------------------------------------------------------------
Data Center Design, Inc. plans to furnish and install electrical service
throughout the interior of the data center, supplying all necessary labor and
materials as described below. Options will be provided for the installation of a
50 kVA UPS (Uninterruptible Power Supply) system or a 50 kVA PDU (Power
Distribution Unit) system for distribution of power to computer equipment.
ELECTRICAL INSTALLATION
- - Furnish and install a 400 amp, 208 volt panel (with option for 600 amp
panel) in the computer room.
- - Electrically install two (2) 5-ton computer room air conditioners with roof
condensers including all necessary control wiring.
- - Furnish and install seventeen (17) 2' x 4' layin ceiling light fixtures, 4-
bulb fluorescent with paracube lenses. Light fixtures will be split between
two switches and five fixtures will be powered from backup batteries for
emergency purposes.
- - Furnish and install a 208 volt, 100 amp, 1 phase, 24-pole for non-computer
equipment.
- - Provide duplex convenience outlets inside the computer room on perimeter
walls at 12' intervals from the 100 amp utility panel.
- - Provide a 120 VAC circuit to the computer room Halon panel.
- - Install an optional 50 kVA UPS system or a 50 kVA Power Distribution Unit.
- - Furnish and install two (2) Emergency Power Off (EPO) switches at the two
doors to the computer room and tie-in to the Halon system, air conditioning
system and UPS or Power Distribution Unit.
- - Ground the raised floor system per consultants specifications at every fifth
pedestal. Provide grounding per code for the entire computer facility.
- - Provide electrical circuiting and control wiring to the Halon damper to be
installed in the computer rooms makeup air system.
<PAGE> 46
EXHIBIT A-3
- --------------------------------------------------------------------------------
ELECTRICAL PAGE 6
- --------------------------------------------------------------------------------
- - Furnish and install an optional TVSS (Transient Voltage Surge Suppression)
lightning protection system at the tenants main service entrance.
- - All wire is to be copper.
POWER DISTRIBUTION UNIT
- One (1) Liebert Model PPC050C Power Distribution Unit
- 50 kVA capacity
- 208 volt input, 208 volt output
- Main input breaker (shunt trip)
- Two (2) 42-pole panel boards
- Voltage/Current Monitoring Panel
- Shielded isolation transformer
- Input surge suppression
- Lightning arrestor option
- Manufacturer's start-up and warranty
- Furnish and install twenty-five (25) power cables, breakers and connectors
each with IG5-20R2 receptacles as described in UPS option
<PAGE> 47
EXHIBIT A-3
- --------------------------------------------------------------------------------
FIRE DETECTION & SUPPRESSION PAGE 7
- --------------------------------------------------------------------------------
Data Center Design, Inc. plans to furnish and install a Halon 1301 automatic
fire detection and suppression system as described below, providing all
necessary and appropriate labor and materials.
A detection system will be provided to detect, alarm and actuate the suppression
system. The detection system will consist of a control panel, alarm bell, horn
and flashing light, manual pull stations, abort stations and smoke detectors
(located on the ceiling and under the raised floor). Automatic Halon release
will be arranged by means of a "Verified" detection concept. The automatic mode
will have the following operating sequence.
Should any one detector in the system go into alarm, an
audible signal (bell) will sound and the appropriate light on
the control panel will be energized. Should any second
detector then go into alarm, a horn will sound and a 0 to 59
second adjustable time delay period will begin. During this
delay period, halon discharge can be prevented by manually
depressing an abort button. Discharge is prevented as long as
the abort button is held. Upon release of the abort button,
the automatic mode will continue. Upon discharge of the Halon
gas, a strobe light will be energized.
Detectors will be spaced at 250 square feet per detector in order to provide
optimum performance in this high air movement area. The manual mode will consist
of manual release stations located near each means of egress. Operation of a
manual station will release the Halon gas immediately, bypassing the automatic
mode. A complete emergency 24 hour standby battery supply capable of maintaining
full system operation in the event of a primary source power failure will be
supplied as part of this system. Detectors for this installation will contain
alarm indicator lamps and a remote detector lamp will be installed on the
ceiling above the location of each underfloor detector to indicate underfloor
detectors which are in alarm.
The Halon 1301 storage and distribution system will be designed and installed
per the requirements of Underwriters Laboratory, the National Fire Protection
Association and the system's manufacturer. The system will be a central storage
type with the cylinder located in the hazard area and piped to nozzles on the
ceiling and under the raised floor. The design concentration will be a minimum
of 5% by volume with complete discharge of agent accomplished within ten (10)
seconds.
<PAGE> 48
EXHIBIT A-3
- --------------------------------------------------------------------------------
FIRE DETECTION & SUPPRESSION PAGE 8
- --------------------------------------------------------------------------------
The components to be supplied as part of this system are:
<TABLE>
<CAPTION>
<S> <C>
1 Control Panel 2 Abort switches
1 Battery Set 1 Auxiliary relay
1 Alarm bell 1 Storage container
1 Horn with light 190 Pounds Halon 1301
2 Manual stations 1 Control head
3 Discharge nozzles 4 Ionization detectors
4 Photoelectric detectors 4 Remote ceiling detector lamps
</TABLE>
A "dump" test will not be performed for environmental reasons. An
"Infiltrometer" fan test will be performed as part of this installation. The
"Infiltrometer" test is recognized as an indication of Halon system integrity
only and is not a pass/fail test. This system will be certified upon completion
and a certification provided. The system installation will be warranted fully
for one year. If the system is inspected and maintained by this installer, the
warranty will be extended for a total of five years in one year increments.
The computer room will be sealed to maintain the integrity of the Halon system.
This will include door sweeps and weather stripping.
Four (4) portable Halon fire extinguishers will be furnished and installed and
listed separately in the "Pricing" section.
<PAGE> 49
FIRST AMENDMENT TO LEASE
This is an Amendment made this 15th day of April, 1996, by and between
BEBOB ASSOCIATES ("Landlord") and TELEBASE SYSTEMS, INC., DBA/N2K, INC.
("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into an Agreement of Lease dated
April 26, 1991 for a 15,000 rentable square foot portion of Building 600 for a
period of ten years terminating August 31, 2001; and,
WHEREAS, Tenant desires to Lease an additional 6,448 square feet, as
shown on the attached plan, for a Four (4) year and Eleven (11) month Lease term
commencing October 1, 1996 and terminating August 31, 2001; and,
WHEREAS, Landlord has agreed to Tenant's desires.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound hereby, the parties, by their duly
authorized officers or representatives, hereby agree as follows:
1. Effective October 1, 1996, the term of the Lease for the 6,448
square feet shall commence October 1, 1996 and terminate August 31, 2001.
2. The Total Base Rental for the 6,448 square feet shall be Five
Hundred Forty-six Thousand Eight Hundred Seventy-one and 00/100 Dollars
($546,871.00).
3. The Monthly Base Rental for the 6,448 square feet shall be Nine
Thousand Two Hundred Sixty-nine and 00/100 Dollars ($9,269.00) per month.
4. Payment for increases in Real Estate Taxes and/or Operating Expenses
over $4.65 per square foot for the 6,448 square feet will begin as of January 1,
1997, based upon the percentage of Phase II in Safeguard Corporate Campus in
which the 6,448 square feet is situated, that percentage being 15.8%.
5. Landlord and Tenant agree and understand that a third party
currently occupies the 6,448 square feet. If Landlord shall be unable to give
possession of the Leased Space on the date of the commencement of the term
hereof by reason of the fact that the third party has not vacated the 6,448
square feet, Landlord shall not be subject to any
<PAGE> 50
liability for the failure to give possession on said date. Under such
circumstances the annual rental reserved and covenanted to be paid herein shall
not commence until the possession of the Leased Space is given or the Leased
Space is available for occupancy by Tenant, and no such failure to give
possession on the date of commencement of the term shall in any wise affect the
validity of this Lease or the obligations of Tenant hereunder, nor shall same be
construed in any way to extend the term of this Lease. If the third party has
not vacated the Leased Space by January 1, 1997, then Tenant may at its option
control this amendment.
6. Tenant accepts the 6,448 square feet in an "as is" condition, and
will be responsible for the cost of any changes or alterations to said 6,448
square feet.
7. All other terms and conditions as contained in said Lease shall
remain the same, except herein modified.
TELEBASE SYSTEMS, INC.
DBA/N2K, INC. BEBOB ASSOCIATES
By: By:
------------------------------- ------------------------------------
Attest: Attest:
By: By:
------------------------------- ------------------------------------
<PAGE> 51
[Diagrams of Leased Space]
<PAGE> 1
Exhibit 10.9
AGREEMENT OF LEASE
BETWEEN
55 BROAD STREET COMPANY,
OWNER
AND
N2K INC.,
TENANT
PREMISES
PORTIONS TENTH AND ELEVENTH (10TH & 11TH) FLOORS
NEW YORK INFORMATION TECHNOLOGY CENTER
55 BROAD STREET
NEW YORK, NEW YORK
DATED SEPTEMBER 7, 1995
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 Demised Premises, Term, Rents
ARTICLE 2 Use and Occupancy
ARTICLE 3 Alterations
ARTICLE 4 Ownership of Improvements
ARTICLE 5 Repairs
ARTICLE 6 Compliance With Laws
ARTICLE 7 Subordination Attornment, Etc.
ARTICLE 8 Property Loss, Etc.
ARTICLE 9 Destruction-Fire or Other Casualty
ARTICLE 10 Eminent Domain
ARTICLE 11 Assignment and Subletting
ARTICLE 12 Owner's Initial Construction
[Alt.-- Existing Conditions/Owner's Initial Work]
ARTICLE 13 Access to Demised Premises
ARTICLE 14 Vault Space
ARTICLE 15 Certificate of Occupancy
ARTICLE 16 Default
ARTICLE 17 Remedies
ARTICLE 18 Damages
ARTICLE 19 Fees and Expenses; Indemnity
ARTICLE 20 Entire Agreement
ARTICLE 21 End Of Term
ARTICLE 22 Quiet Enjoyment
ARTICLE 23 Escalation
ARTICLE 24 No Waiver
ARTICLE 25 Mutual Waiver of Trial by Jury
ARTICLE 26 Inability to Perform
ARTICLE 27 Notices
ARTICLE 28 Partnership Tenant
ARTICLE 29 Utilities and Services
ARTICLE 30 Table of Contents, Etc.
ARTICLE 31 Miscellaneous Definitions, Severability and Interpretation Provisions
ARTICLE 32 Adjacent Excavation
ARTICLE 33 Building Rules
ARTICLE 34 Broker
ARTICLE 35 Security
ARTICLE 36 Arbitration, Etc.
ARTICLE 37 Parties Bound
ARTICLE 38 Deleted
ARTICLE 39 Renewal Option
ARTICLE 40 Tenant's Right of First Offer for Additional Space
ARTICLE 41 Tenant's Single Termination Option
ARTICLE 42 Satellite Dish
SCHEDULE A Building Rules
ADDENDUM A Owner's Initial Construction
</TABLE>
i
<PAGE> 3
LEASE dated as of the 7th day of September, 1995, between 55
BROAD STREET COMPANY, a New York partnership having its principal office at 345
Park Avenue, Borough of Manhattan, City, County, and State of New York, as
landlord (referred to as "Owner"), and N2K Inc., a New York corporation having
its principal office at c/o Pryor, Cashman, Sherman & Flynn, 410 Park Avenue,
Borough of Manhattan, City, County and State of New York 10022, as tenant
(referred to as "Tenant").
W I T N E S S E T H:
Owner and Tenant hereby covenant and agree as follows:
ARTICLE 1
DEMISED PREMISES, TERM, RENTS
SECTION 1.01. DEMISED PREMISES: Owner hereby leases to Tenant
and Tenant hereby hires from Owner those portions of the tenth (10th) and
eleventh (11th) floors indicated by outlining and diagonal markings on the floor
plans initialled by the parties and annexed hereto as Exhibit "1" and Exhibit
"2", respectively, in the building known as 55 Broad Street, in the Borough of
Manhattan, City of New York (said building is referred to as the "Building", and
the Building together with the plot of land upon which it stands is referred to
as the "Real Property"), at the annual rental rate or rates set forth in Section
1.03, and upon and subject to all of the terms, covenants and conditions
contained in this Lease. The premises leased to Tenant, together with all
appurtenances, fixtures, improvements, additions and other property attached
thereto or installed therein at the commencement of, or at any time during, the
term of this Lease, other than Tenant's Personal Property (as defined in Article
4), are referred to, collectively, as the "Demised Premises".
SECTION 1.02. DEMISED TERM: A. The Demised Premises are
leased for a term (referred to as the "Demised Term") to commence on October 1,
1995 and to end on February 28, 2001 (subject to the provisions of Subsection B
of this Section 1.02), unless the Demised Term shall sooner terminate pursuant
to any of the terms, covenants or conditions of this Lease or pursuant to law.
B. Notwithstanding anything in Subsection A of this
Section 1.02 to the contrary, if, on or prior to the date set forth in said
Subsection A for the commencement of the Demised Term, Owner shall have failed
substantially to complete Owner's Initial Construction (as defined in Article
12), then: (a) the Demised Term shall not commence on the date set forth in said
Subsection A but shall, instead, commence on a date, fixed by Owner in a notice
to Tenant, not sooner than ten (10) days next following the date of the giving
of such notice, which notice shall state that Owner has, or prior to the
commencement date fixed in said notice will have, substantially completed
Owner's Initial Construction; and (b) the Demised Term shall end on the last day
of the calendar month in which the day immediately preceding the date which is
five (5) months next following the fifth (5th) anniversary date of the
commencement of the Demised Term shall occur, unless sooner terminated pursuant
to any of the terms, covenants or conditions of this Lease or pursuant to law;
and (c) except as aforesaid, neither the validity of this Lease nor the
obligations of Tenant under this Lease shall be affected thereby. The date upon
which the Demised Term shall commence pursuant to
<PAGE> 4
Subsection A of this Section or pursuant to this Subsection B is referred to as
the "Commencement Date", and the date fixed pursuant to said Subsection A or
this Subsection B as the date upon which the Demised Term shall end is referred
to as the "Expiration Date".
C. Tenant waives any right to rescind this Lease under
Section 223-a of the New York Real Property Law or any successor statute of
similar import then in force and further waives the right to recover any damages
which may result from Owner's failure to deliver possession of the Demised
Premises on the date set forth in Subsection A of this Section, or in any given
pursuant to Subsection B of this Section, for the commencement of the Demised
Term.
D. After the determination of the Commencement Date,
each party agrees, upon demand of the other, to execute, acknowledge and deliver
to each other, an instrument, in form reasonably satisfactory to Owner, setting
forth said Commencement Date and the Expiration Date.
SECTION 1.03. FIXED RENT: A. This Lease is made at the annual
rental rates (referred to as "Fixed Rent") of ONE HUNDRED EIGHT THOUSAND SEVEN
HUNDRED SEVENTY-ONE and 85/100 ($108,771.85) DOLLARS with respect to the period
("First Rent Period") from the Commencement Date to the date three hundred
sixty-five days next following the Commencement Date, ONE HUNDRED EIGHTY-SIX
THOUSAND FOUR HUNDRED SIXTY-SIX and 00/100 ($186,466.00) DOLLARS with respect to
the period ("Second Rent Period") from the date next following the expiration of
the First Rent Period to the last day of the calendar month in which the day
immediately preceding the second anniversary of the Commencement Date shall
occur, and TWO HUNDRED THIRTEEN THOUSAND ONE HUNDRED FOUR and 00/100
($213,104.00) DOLLARS with respect to the remainder of the Demised Term ("The
Third Rent Period").
B. The Fixed Rent, any increases in the Fixed Rent and
any additional rent payable pursuant to the provisions of this Lease shall be
payable by Tenant to Owner at its office (or at such other place as Owner may
designate in a notice to Tenant) in lawful money of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment or by Tenant's good check drawn on a bank or trust company
whose principal office is located in New York City and which is a member of the
New York Clearinghouse Association, without prior demand therefor and without
any offset or deduction whatsoever except as otherwise specifically provided in
this Lease. The Fixed Rent shall be payable in equal monthly installments of
NINE THOUSAND SIXTY-FOUR and 32/100 ($9,064.32) DOLLARS with respect to the
First Rent Period, FIFTEEN THOUSAND FIVE HUNDRED THIRTY-EIGHT and 83/100
($15,538.83) DOLLARS with respect to the Second Rent Period and SEVENTEEN
THOUSAND SEVEN HUNDRED FIFTY-EIGHT and 67/100 ($17,758.67) DOLLARS with respect
to the Third Rent Period and shall be payable, in advance, on the first (1st)
day of each month during the Demised Term (except as otherwise provided in
Subsection C of this Section).
C. The sum of NINE THOUSAND SIXTY-FOUR and 32/100
($9,064.32) DOLLARS, representing the installment of Fixed Rent for the first
(1st) full calendar month of the Demised Term, is due and payable at the time of
the execution and delivery of this Lease. In the event that the Commencement
Date shall occur on a date other than the first (1st) day of any calendar month,
Tenant shall pay to Owner, on the first (1st)
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day of the month next succeeding the month during which the Commencement Date
shall occur, a sum equal to THREE HUNDRED TWO and 14/100 ($302.14) DOLLARS,
multiplied by the number of calendar days in the period from the Commencement
Date to the last day of the month in which the Commencement Date shall occur,
both inclusive. Such payment, together with the sum paid by Tenant upon the
execution of this Lease, shall constitute payment of the Fixed Rent for the
period from the Commencement Date to and including the last day of the next
succeeding calendar month.
SECTION 1.04. TENANT'S GENERAL COVENANT: Tenant covenants (i)
to pay the Fixed Rent, any increases in the Fixed Rent, and any additional rent
payable pursuant to the provisions of this Lease, and (ii) to observe and
perform, and to permit no violation of, the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed. Owner covenants to
observe and perform and to permit no violation of, the terms, covenants and
conditions of this Lease on Owner's part to be observed and performed.
ARTICLE 2
USE AND OCCUPANCY
SECTION 2.01. GENERAL COVENANT OF USE: Tenant shall use and
occupy the Demised Premises for the following purpose: Executive and general
offices of Tenant for Tenant's information technology and related media business
and executive and general offices for information technology and related media
business of any permitted subtenants and occupants.
SECTION 2.02. NO ADVERSE USE: Tenant shall not use or occupy,
or permit the use or occupancy of, the Demised Premises or any part thereof, for
any purpose other than the purpose specifically set form in Section 2.01, or in
any manner which, (a) shall adversely affect or interfere with (i) any services
required to be furnished by Owner to Tenant or to any other tenant or occupant
of the Building, or (ii) the proper and economical rendition of any such
service, or (iii) the use or enjoyment of any part of the Building by any other
tenant or occupant, or (b) shall tend to impair the character or dignity of the
Building.
ARTICLE 3
ALTERATIONS
SECTION 3.01. GENERAL ALTERATION COVENANTS: Tenant shall not
make or perform, or permit the making or performance of, any alterations,
installations, improvements, additions or other physical changes in or about the
Demised Premises (referred to collectively, as "Alterations" and individually as
an "Alteration") without Owner's prior consent in each instance. Owner agrees
not unreasonably to withhold its consent to any non-structural Alterations
proposed to be made by Tenant to adapt the Demised Premises for Tenant's
business purposes. Owner agrees that Tenant may, without Owner's prior consent,
make any merely decorative changes and other non-structural Alterations in the
Demised Premises the estimated cost of which constituting a single project shall
not exceed ONE HUNDRED THOUSAND and 00/100 ($100,000.00) DOLLARS and which shall
not affect the electrical,
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<PAGE> 6
plumbing and heating, ventilation and air conditioning systems in the Building
or any portion of the Building outside the Demised Premises; such sum of ONE
HUNDRED THOUSAND and 00/100 ($100,000.00) DOLLARS set forth in this sentence
shall be deemed increased annually by the percentage increase in the Consumer
Price index (as hereinafter defined) for the month in which the first
anniversary of the Commencement Date, and each subsequent anniversary date
thereof, occurs over the Consumer Price Index for the month in which the
Commencement Date shall occur. The Consumer Price Index set forth in the
immediately preceding sentence shall mean the Consumer Price Index for Urban
Wage Earners and Clerical Workers based upon the New York-Northern New Jersey
area for All Group Commodities and Items, published by the United States
Department of Labor, Bureau of Labor Statistics, or a successor substitute
index; if in any year the 1982-84 average of one hundred (100) is no longer used
as the basis of calculation, then, for the purposes of this Article, the
Consumer Price Index for such year shall be recalculated as though such 1982-84
average of one hundred (100) were still the basis of calculation of the Consumer
Price Index for such year; in the event such Consumer Price Index (or a
successor substitute index) is not available, a reliable government or other
non-partisan publication evaluating the information theretofore used in
determining the Consumer Price Index shall be used to reflect the increase in
the national cost of living. Notwithstanding the foregoing provisions of this
Section or Owner's consent to any Alterations, all Alterations and decorations
shall be made and performed in conformity with and subject to the following
provisions:
A. All Alterations and decorations shall be made and
performed at Tenant's sole cost and expense and at such time and in such manner
as Owner may, from time to time, reasonably designate;
B. No Alteration shall adversely affect the structural
integrity of the Building;
C. Alterations and decorations shall be made only by
contractors or mechanics approved by Owner, such approval not unreasonably to be
withheld (notwithstanding the foregoing, all Alterations requiring mechanics in
heating, ventilation, air conditioning, electrical, plumbing, sprinklers and
other mechanical trades with respect to which Owner has adopted or may hereafter
adopt a list or lists of approved contractors shall be made only by contractors
selected by Tenant from such list or lists provided there are at least three [3]
contractors on each such list and the prices charged by such contractors are
competitive for similar work in the Borough of Manhattan in comparable first
class office buildings);
D. No Alteration or decoration shall affect any part of
the Building other than the Demised Premises or adversely affect any service
required to be furnished by Owner to Tenant or to any other tenant or occupant
of the Building (including, without limitation, the Building-wide standard
systems required to provide elevator, heat, ventilation, air-conditioning and
electrical and plumbing services in the Building);
E. No Alteration shall reduce the value or utility of
the Building or any portion thereof;
F. No Alteration shall affect the Certificate of
Occupancy for the Building or the Demised Premises;
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G. No Alteration or decoration shall affect the outside
appearance of the Building or the color or style of any venetian blinds (except
that Tenant may remove any venetian blinds provided that they are promptly
replaced by Tenant with blinds of a similar type, material and color);
H. All business machines and mechanical equipment shall
be placed and maintained by Tenant in settings sufficient, in Owner's reasonable
judgment, to absorb and prevent vibration, noise and annoyance to other tenants
or occupants of the Building;
I. Tenant shall submit to Owner detailed plans and
specifications stamped by Tenant's architect (including layout, architectural,
mechanical and structural drawings) for each proposed Alteration and shall not
commence any such Alteration without first obtaining Owner's approval of such
plans and specifications, such approval not unreasonably to be withheld or
delayed. Notwithstanding the foregoing, Tenant shall not be required to submit
any detailed plans and specifications for any Alterations unless such plans and
specifications are, in the ordinary course, prepared for such Alterations or are
required to be prepared in connection with any filings or other applicable
requirements of any law, order, rule or regulation of any federal, state, county
or municipality, including but not limited to, the Department of Buildings of
the City of New York, and in those cases where Tenant shall not be required to
submit such detailed plans and specifications, Tenant shall submit to Owner, in
lieu thereof, information with respect to such Alterations in reasonably
sufficient detail so as to enable Owner to determine the nature and extent of
the work to be performed, and following the completion of each Alteration,
Tenant shall submit to Owner a computerized "as built" drawing file for the
Demised Premises (or if the Demised Premises comprise more than one (1) floor,
for each floor of the Demised Premises being altered) and in those cases where
Tenant shall not be so required to submit such detailed plans and
specifications, Tenant shall submit to Owner, in lieu thereof, information with
respect to such Alterations in reasonably sufficient detail so as to enable
Owner to determine the nature and extent of the work to be performed; such file
will be in DXF format and contain, on a separate layer, all ceiling-height
partitions and doors within the Demised Premises (or if the Demised Premises
comprise more than one (1) floor, within each floor of the Demised Premises
being altered);
J. Prior to the commencement of each proposed
Alteration, Tenant shall have procured and paid for and exhibited to Owner, so
far as the same may be required from time to time, all permits, approvals and
authorizations of all Governmental Authorities (as defined in Section 6.01.)
having or claiming jurisdiction;
K. Prior the commencement of each proposed Alteration
and decoration, Tenant shall furnish to Owner duplicate original policies of
workmen's compensation insurance covering all persons to be employed in
connection with such Alteration or decoration, including those to be employed by
all contractors and subcontractors, and of comprehensive public liability
insurance (including property damage coverage) in which Owner, its agents, the
holder of any Mortgage (as defined in Section 7.01.) and any lessor under any
Superior Lease (as defined in Section 7.01.) shall be named as parties insured,
which policies shall be issued by companies, and shall be in form and amounts,
satisfactory to Owner and shall be maintained by Tenant until the completion of
such Alteration;
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L. In the event Owner or its agents employ any
independent architect or engineer to examine any plans or specifications
submitted by Tenant to Owner in connection with any proposed major Alteration
and it is reasonable for Owner to so employ such architect or engineer in the
circumstances, Tenant agrees to pay to Owner a sum equal to any reasonable
out-of-pocket fees incurred by Owner in connection therewith.
M. All fireproof wood test reports, electrical and air
conditioning certificates if any are required by law, and all other permits,
approvals and certificates required by all Governmental Authorities shall be
timely obtained by Tenant and submitted to Owner;
N. All Alterations and decorations, once commenced,
shall be made reasonably promptly and in a good and workmanlike manner;
O. Notwithstanding Owner's approval of plans and
specifications for any Alteration, all Alterations and decorations shall be made
and performed in full compliance with all Legal Requirements (as defined in
Section 6.01.) and with all applicable rules, orders, regulations and
requirements of the New York Board of Fire Underwriters and the New York Fire
Insurance Rating Organization or any similar body;
P. All Alterations and decorations shall be made and
performed in accordance with the Building Rules and Building Rules for
Alterations;
Q. All materials and equipment to be installed,
incorporated or located in the Demised Premises as a result of all Alterations
shall be in good condition;
R. No materials or equipment shall be subject to any
lien, encumbrance, chattel mortgage or title retention or security agreement of
any kind;
S. Tenant, before commencement of each Alteration, the
estimated cost of which constituting a single project shall exceed ONE MILLION
and 00/100 ($1,000,000.00) DOLLARS, shall furnish to Owner a performance bond or
other security satisfactory to Owner, in an amount at least equal to the
estimated cost of such Alteration, guaranteeing the performance and payment
thereof. Such sum of ONE MILLION and 00/100 ($1,000,000.00) DOLLARS set forth in
this subsection shall be deemed increased annually by the percentage increase in
the Consumer Price Index for the month in which the first anniversary of the
Commencement Date and each subsequent anniversary date thereof occurs over the
Consumer Price Index in the month in which the Commencement Date shall occur;
T. Following the completion of each Alteration, Tenant,
at Tenant's expense, shall obtain certificates of final approval of such
Alteration required by any Governmental Authority and shall furnish Owner with
copies thereof;
U. Tenant agrees Tenant will not install, affix, add or
paint in or on, nor permit, any work of visual art (as defined in the Federal
Visual Artists' Rights Act of 1990 or any successor law of similar import) or
other Alteration to be installed in or on, or affixed, added to, or painted on,
the interior or exterior of the Demised Premises, or any part thereof,
including, but not limited to, the walls, floors, ceilings, doors, windows,
fixtures and on land included as part of the Demised Premises, which work of
visual art or other Alteration would, under the provisions of the Federal Visual
Artists' Rights Act of 1990, or any
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successor law of similar import, require the consent of the author or artist of
such work or Alteration before the same could be removed, modified, destroyed or
demolished;
V. Under no circumstances shall Tenant be permitted
to locate any telecommunications facilities in the telecommunications closets of
the Building. With respect to Tenant's telecommunications facilities, Tenant
shall use, exclusively, the telecommunications cable distribution system in the
Building designated by Owner and shall contract separately with the company
providing cable distribution service in the Building (referred to as the
"Telecommunications Cable Distribution Company") for the supply and maintenance
of Tenant's cables, and Tenant shall pay the Telecommunications Cable
Distribution Company for the services provided by it at the rates established by
it from time to time. Such rates shall be reasonably competitive with rates
charged by available alternative telecommunications cable distribution systems
in the area in which the Building is located. Tenant shall comply with all
reasonable rules and regulations adopted by Owner and the Telecommunications
Cable Distribution Company. Owner shall not be liable to Tenant or anyone
claiming through or under Tenant for any damages, including, but not limited to,
incidental, remote or consequential damages, including, without limitation, lost
revenue, lost profits and additional operating or personnel expenses Arising
from any acts, omissions or negligence of the Provider and the
Telecommunications Cable Distribution Company.
SECTION 3.02. NO CONSENT TO CONTRACTOR/NO MECHANICS LIEN:
Nothing in this Lease shall be deemed or construed in any way as constituting
the consent or request of Owner, express or implied, by inference or otherwise,
to any contractor, subcontractor, laborer or materialmen, for the performance of
any labor or the furnishing of any material for any specific Alteration to, or
repair of, the Demised Premises, the Building, or any part of either. Any
mechanic's or other lien filed against the Demised Premises or the Building or
the Real Property for work claimed to have been done for, or materials claimed
to have been furnished to, Tenant or any person claiming through or under Tenant
or based upon any act or omission or alleged act or omission of Tenant or any
such person shall be discharged by Tenant, at Tenant's sole cost and expense,
within thirty (30) days after Tenant's receipt of notice of the filing of such
lien by bonding or otherwise.
SECTION 3.03. LABOR HARMONY: Tenant shall not, at any time
prior to or during the Demised Term, directly or indirectly employ, or permit
the employment of, any contractor, mechanic or laborer in the Demised Premises.
whether in connection with any Alteration or otherwise, if such employment will
interfere or cause any conflict with other contractors, mechanics, or laborers
engaged in the construction, maintenance or operation of the Building by Owner,
Tenant or others. In the event of any such interference or conflict, Tenant,
upon demand of Owner, shall cause all contractors, mechanics or laborers causing
such interference or conflict to leave the Building immediately.
SECTION 3.04. COMPLIANCE WITH FIRE SAFETY: Without in any way
limiting the generality of the provisions of Section 3.01, all Alterations shall
be made and performed in full compliance with all standards and practices
adopted by Owner for fire safety in the Building. No Alteration shall affect all
or any part of any Class E Fire Alarm and Communication system installed in the
Demised Premises, except that in connection with any such Alteration Tenant may
relocate certain components of such system, provided (i) such relocation shall
be performed in a manner first approved by Owner such approval not to be
unreasonably withheld or delayed, (ii) the new location of any such component
shall be first
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approved by Owner such approval not to be unreasonably withheld or delayed,
(iii) prior to any such relocation Tenant shall submit to Owner detailed plans
and specifications therefor which shall be first approved by Owner such approval
not to be unreasonably withheld or delayed and (iv) Owner shall have the
election of relocating such components either by itself or by its contractors,
in which event all reasonable expenses incurred by Owner shall be reimbursed by
Tenant upon demand of Owner, as additional rent. Owner represents that the
Demised Premises will be in compliance with Local Law #5 of 1973, Local Law #16
of 1984 and Local Law #58 and the Americans With Disabilities Act on the
Commencement Date, and as Owner completes Alterations in the public portions of
the Building such public portions of the Building will by completed in
compliance with Local Law #5 of 1973, Local Law #16 of 1984 and Local Law #58
and the Americans With Disabilities Act.
SECTION 3.05. SPRINKLERS: The Demised Premises shall contain a
sprinkler system and notwithstanding anything to the contrary set forth in
Sections 5.01 and 6.01, Owner, at Owner's expense, shall perform routine
maintenance of, and shall repair and replace if necessary, said sprinkler system
and any replacements thereof, unless such repair or replacement is due to
Tenant's acts, omissions or negligence, in which event Owner shall repair or
replace same, at Tenant's sole cost and expense. Owner shall also perform
controlled inspections of said sprinkler system as and when required by law and
Tenant shall give Owner reasonable access to perform such repairs, maintenance
and inspections upon reasonable prior notice. Any sprinkler system and any
replacements thereof whether made at Tenant's expense or Owner's expense, shall
be deemed the property of Owner.
SECTION 3.06. ASBESTOS OR OTHER HAZARDOUS MATERIAL: If any
Legal Requirement or any Governmental Authority requires that any asbestos or
other hazardous material contained in or about the Demised Premises and
installed therein by Tenant or any person claiming through or under Tenant be
removed or dealt with in any particular manner in connection with any
Alterations of the Demised Premises or otherwise, then it shall be Tenant's
obligation, at Tenant's expense, to remove or so deal with such asbestos or
other hazardous material in accordance with all such laws, orders, rules and
regulations. In the event Tenant is required to remove or so deal with such
asbestos or other hazardous material in accordance with the provisions of the
foregoing sentence then, notwithstanding anything to the contrary contained
herein, Owner, at Owner's election, shall have the option to itself remove or so
deal with such asbestos or other hazardous material and, in such event, Tenant
shall pay to Owner all of Owner's reasonable costs in connection therewith
within ten (10) days next following the rendition of a statement thereof by
Owner to Tenant.
SECTION 3.07. DISPUTE RESOLUTION: Any dispute with respect to
the reasonability of any failure or refusal of Owner to grant its consent or
approval to any request for such consent or approval pursuant to the provisions
of Section 3.01 with respect to which request Owner has agreed, in such Section
not unreasonably to withhold such consent or approval, shall be determined by
arbitration in accordance with the provisions of Article 36.
SECTION 3.08. FIRE ALARM AND COMMUNICATION SYSTEM CONNECTION
FEES: In the event that Tenant, pursuant to the provisions of this Lease,
including, but not limited to, the provisions of this Article 3 and Article 6,
connects any of the following equipment to any Class E Fire Alarm and
Communication system installed in the Demised Premises, Tenant shall pay to
Owner as a one (1) time connection fee the following sums set forth opposite the
equipment listed below (which sums shall be subject to increases due to
increases in the cost
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to Owner of operating and maintaining such Class E Fire Alarm and Communication
system over such costs on the date of this Lease):
<TABLE>
<S> <C>
A. Speakers in excess of 4 per floor of the
Demised Premises (or if the Demised
Premises contain less than one (1)
floor, in excess of four in the Demised
Premises) $500.00 per device
B. Strobe Lights (single unit) $100.00 per device
C. Combination Speaker/Strobe light $250.00 per device
D. Duct Detectors (supplementary air conditioning
systems) $500.00 per point
E. Smoke Detectors (multi-purpose) $500.00 per point
F. Preaction Sprinkler System:
waterflow $500.00 per point
tamper $500.00 per point
G. Warden Phone (additional) $1,000.00 per unit
H. Fail Safe Door Release $250.00 per connection
</TABLE>
SECTION 3.09. A. In the event that, at any time during the
Demised Term, in connection with any Alterations proposed to be performed by
Tenant in the Demised Premises Tenant is unable to obtain a New York City
Department of Environmental Protection Form ACP5 dated 10/88 (or any successor
form), signed by a certified asbestos investigator, or any other form or
approval required by Federal, State, County or Municipal authorities, indicating
that said Alterations do not constitute an asbestos project, Owner agrees, upon
notice from Tenant to such effect, to perform such work as shall be required to
enable Tenant to obtain any such form or approval.
B. If any laws, orders, rules or regulations of any
Federal, State, County or Municipal authority require that any asbestos or other
hazardous material contained in or about the Demised Premises be removed or
dealt with in any particular manner, then it shall be Owner's obligation, at
Owner's expense, to remove or so deal with such asbestos or other hazardous
material in accordance with such laws, orders, rules and regulations.
C. Notwithstanding the provisions of subsections A
and B of this Section, in the event any work performed by Owner pursuant to the
provisions of either or both of such subsections is in any way disturbed or
damaged by Tenant or any person claiming through or under Tenant, or asbestos or
other hazardous material is installed in the Demised Premises by or on behalf of
Tenant, or any person claiming through or under Tenant, Owner shall have no
responsibility in connection with the disturbed or damaged work or the asbestos
or other hazardous material so installed by Tenant or any person claiming
through or under Tenant and no obligation to perform any work with respect to
the disturbed or damaged work or the asbestos or other hazardous material so
installed by Tenant or any person claiming through or under Tenant, but it shall
be Tenant's obligation, at Tenant's expense, to (i)
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perform such work with respect to such disturbed or damaged work or the asbestos
or other hazardous material so installed by Tenant or any person claiming
through or under Tenant as shall be required to enable Tenant to obtain any form
or approval referred to in subsection A, and (ii) remove or so deal with such
asbestos or other hazardous material in accordance with all such laws, orders,
rules and regulations referred to in subsection B.
ARTICLE 4
OWNERSHIP OF IMPROVEMENTS
SECTION 4.01. GENERAL RIGHTS OF OWNER AND TENANT: All
appurtenances, fixtures, improvements, additions and other property attached to
or installed in the Demised Premises, whether by Owner or Tenant or others, and
whether at Owner's expense, or Tenant's expense, or the joint expense of Owner
and Tenant, shall be and remain the property of Owner, except that any such
fixtures, improvements, additions and other property installed at the sole
expense of Tenant with respect to which Tenant has not been granted any credit
or allowance by Owner, whether pursuant to Addendum A or otherwise, and which
are removable without material damage to the Demised Premises shall be and
remain the property of Tenant and are referred to as "Tenant's Personal
Property". Any replacements of any property of Owner, whether made at Tenant's
expense or otherwise, shall be and remain the property of Owner. Notwithstanding
anything to the contrary set forth in the foregoing provisions of this Section,
Tenant may remove from the Demised Premises at any time during the Demised Term
or on the Expiration Date or sooner termination of the Demised Term the
following: any non-structural Alterations performed by Tenant which do not
affect any Building systems, provided that Tenant shall make all repairs to the
Demised Premises and the Building occasioned by such removal.
ARTICLE 5
REPAIRS
SECTION 5.01. TENANT'S REPAIR OBLIGATIONS: Tenant shall take
good care of the Demised Premises (including, but not limited to, any Class E
Fire Alarm and Communication system and any sprinkler system installed therein
and any installations made or equipment installed therein as a result of any
requirement of New York City Local Law #16 of 1984 or any successor law of like
import) and, at Tenant's sole Cost and expense, shall make all repairs and
replacements, structural and otherwise, ordinary and extraordinary, foreseen and
unforeseen as and when needed to preserve the Demised Premises (including, but
not limited to, any Class E Fire Alarm and Communication system and any
installations made or equipment installed therein as a result of any requirement
of New York City Local Law #16 of 1984 or any successor law of like import) in
good and safe working order and in first class repair and condition, except that
Tenant shall not be required to make any repairs or replacements to the Demised
Premises unless necessitated or occasioned by the acts, omissions or negligence
of Tenant or any person claiming through or under Tenant or any of their
servants, employees, contractors, agents, visitors or licensees, or by the
manner of use or occupancy of the Demised Premises by Tenant or any such person
(in contradistinction to the mere use or occupancy of the Demised Premises for
the purposes set forth in Section 2.01).
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For the purposes of this Article, any repairs or work involving asbestos or
other hazardous materials or involving compliance with Local Laws #5 of 1973,
#16 of 1984, #58 of 1987 and the Americans With Disabilities Act and any
successor laws of like import shall be deemed to be non-structural repairs or
replacements. Without affecting Tenant's obligations set forth in the preceding
sentence, Tenant, at Tenant's sole Cost and expanse, shall also (i) make all
repairs and replacements, and perform all maintenance as and when necessary, to
the lamps, tubes, ballasts, and starters in the lighting fixtures installed in
the Demised Premises, (ii) make all repairs and replacements, as and when
necessary, to Tenant's Personal Property and to any Alterations made or
performed by or on behalf of Tenant or any person claiming through or under
Tenant, and (iii) if the Demised Premises shall include any space on any ground,
street, mezzanine or basement floor in the Building, make all replacements, as
and when necessary, to all windows and plate and other glass in, on or about
such space, and obtain and maintain, throughout the Demised Term, plate glass
insurance policies issued by companies, and in form and amounts, satisfactory to
Owner, in which Owner, its agents and any lessor under any ground or underlying
lease shall be named as parties insured, and (iv) perform all maintenance and
make all repairs and replacements, as and when necessary, to any air
conditioning equipment, private elevators, escalators, conveyors or mechanical
systems (other than the Building's standard equipment and systems) which may be
installed in the Demised Premises by Owner, Tenant or others. However, the
provisions of the foregoing sentence shall not be deemed to give to Tenant any
right to install air conditioning equipment, elevators, escalators, conveyors or
mechanical systems. All repairs and replacements made by or on behalf of Tenant
or any person claiming through or under Tenant shall be made and performed in
conformity with, and subject to the provisions of Article 3 and shall be at
least equal in quality and class to the original work or installation. The
necessity for, and adequacy of, repairs and replacements pursuant to this
Article 5 shall be measured by the standard which is appropriate for first class
office buildings of similar construction and class in the Borough of Manhattan,
City of New York.
SECTION 5.02. Supplementing the provisions of Section 5.01,
Owner, at Owner's sole cost and expense, shall timely make (i) all structural
repairs to the Demised Premises as and when required, (ii) all repairs necessary
to furnish the plumbing, electrical, air conditioning, ventilating, heating and
elevator services required to be furnished by Owner to Tenant under the
provisions of Article 29, and (iii) all necessary repairs to the public portions
of the Building which affect Tenant's use and enjoyment of the Demised Premises,
except that Owner shall not be required to make any of the repairs referred to
in subdivision (i), (ii) or (iii) of this sentence if Tenant is obligated to
make such repairs pursuant to the provisions of Section 5.01. Notwithstanding
the foregoing provisions of this Section, Owner shall have no obligation to make
any repairs unless and until specific actual notice or the necessity therefor
shall have been given to Owner.
ARTICLE 6
COMPLIANCE WITH LAWS
SECTION 6.01. GENERAL COVENANTS: Tenant, at Tenant's sole cost
and expense, shall comply with all Legal Requirements (hereinafter defined)
which shall impose any duty upon Owner or Tenant with respect to the Demised
Premises or the use or occupation thereof, including, but not limited to, any
requirement that asbestos or other
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hazardous material installed in the Demised Premises by Tenant or any person
claiming through or under Tenant be removed or dealt with in any particular
manner, except that Tenant shall not be required to make any Alterations in
order so to comply unless such Alterations shall be necessitated or occasioned,
in whole or in part, by the acts, omissions, or negligence of Tenant or any
person claiming through or under Tenant or any of their servants, employees,
contractors, agents, visitors or licensees, or by the manner of use or occupancy
of the Demised Premises by Tenant or by any such person (in contradistinction to
the mere use or occupancy of the Demised Premises for the purposes set forth in
Section 2.01). For all purposes of this Lease the term "Legal Requirements"
shall mean all present and future laws, codes, ordinances, statutes,
requirements, orders and regulations, ordinary and extraordinary, foreseen and
unforeseen (including, but not limited to, the New York State Energy
Conservation Construction Code, New York City Local Laws #5 of 1973, #16 of 1984
and #58 of 1987 and the Americans with Disabilities Act, and any successor laws
of like import) of any Governmental Authority (hereinafter defined) and all
directions, requirements, orders and notices of violations thereof. For all
purposes of this Lease, the term "Governmental Authority" shall mean the United
States of America, the State of New York, the County of New York, the Borough of
Manhattan, the City of New York, any political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality of any of the
foregoing, now existing or hereafter created, having jurisdiction over Owner,
Tenant, this Lease or the Real Property or any portion thereof. Any work or
installations made or performed by or on behalf of Tenant or any person claiming
through or under Tenant pursuant to the provisions of this Article shall be made
in conformity with, and subject to the provisions of Article 3. Compliance with
any requirement regarding asbestos or other hazardous material shall be made in
conformity with the provisions of Section 3.06.
SECTION 6.02. TENANT'S COMPLIANCE WITH OWNER'S FIRE INSURANCE:
Tenant shall not do anything, or permit anything to be done, in or about the
Demised Premises which shall (i) invalidate or be in conflict with the
provisions of any fire and/or other insurance policies covering the Building or
any property located therein, or (ii) result in a refusal by fire insurance
companies of good standing to insure the Building or any such property in
amounts reasonably satisfactory to Owner, or (iii) subject Owner to any
liability or responsibility for injury to any person or property by reason of
any business operation being conducted in the Demised Premises, or (iv) cause
any increase in the fire insurance rates applicable to the Building or property
located therein at the beginning of the Demised Term or at any time thereafter.
Tenant, at Tenant's expense, shall comply with all present and future rules,
orders, regulations and/or requirements of the New York Board of Fire
Underwriters and the New York Fire Insurance Rating Organization or any similar
body and the issuer of any insurance obtained by Owner covering the Building
and/or the Real Property, whether ordinary or extraordinary, foreseen or
unforeseen, including, but not limited to, any requirement that asbestos or
other hazardous material installed in the Demised Premises by Tenant or any
person claiming through or under Tenant be removed or dealt with in any
particular manner and any requirement of New York City Local Law #5 of 1973, #16
of 1984, #58 of 1987 and the Americans With Disabilities Act or any successor
laws of like import.
SECTION 6.03. FIRE INSURANCE RATES: In any action or
proceeding wherein Owned and Tenant are parties, a schedule or "make up" of
rates applicable to the Building or property located therein issued by the New
York Fire Insurance Rating Organization, or other similar body fixing such fire
insurance rates, shall be conclusive evidence of the facts therein
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stated and of the several items and charges in the fire insurance rates then
applicable to the Building or property located therein.
SECTION 6.04. Notwithstanding anything contained in Sections
6.01, 6.02 or 6.03 to the contrary, Tenant shall not be deemed to have caused
any increase in the fire insurance rates applicable to the Building or property
located therein at the beginning of the Demised Term or at any time thereafter,
nor shall Tenant be required to make any Alterations in order to comply with any
rules, orders, regulations or requirements of the New York Board Organization or
any similar body, unless such rates are increased, or such Alterations shall be
necessitated or occasioned, in whole or in part, by the acts, omissions or
negligence of Tenant or any person claiming through or under Tenant, or any of
their servants, employees, contractors, agents, visitors or licensees, or by the
manner of use or occupancy of the Demised Premises by Tenant or any such persons
(in contradistinction to the mere use or occupancy of the Demised Premises for
the purposes set forth in Section 2.01).
SECTION 6.05. Owner agrees solely to the extent that
non-compliance by Owner prevents Tenant from using the Demised Premises for its
normal business operations, Owner, at Owner's sole cost and expense, shall
comply with all Legal Requirements and with all rules, orders, regulations and
requirements of the New York Board of Fire Underwriters and the New York Fire
Insurance Rating Organization or any similar body and the issuer of any
insurance obtained by Owner covering the Building and/or the Real Property,
which shall impose any duty upon Owner or Tenant with respect to the Demised
Premises or the use or occupation thereof, or any public portion of the Building
which affects Tenant's use of the Demised Premises, all of which are of
Building-wide application and with which Tenant is not required to comply
pursuant to the provisions of Sections 6.01 or Section 6.02; provided, however,
Owner shall not be required to so comply unless and until Owner shall have
received notice of the necessity therefor from Tenant
SECTION 6.06. Owner shall have the right to contest, by
appropriate legal proceedings diligently conducted in good faith, at its own
cost and expense, the validity or application of any Legal Requirement with
which Owner is required to comply under the provisions of Section 6.05 provided
that such contest shall not subject Tenant to any criminal penalty or place
Tenant in imminent danger of being required to vacate the Demised Premises.
ARTICLE 7
SUBORDINATION ATTORNMENT, ETC.
SECTION 7.01. LEASE SUBORDINATION: This Lease and all rights
of Tenant under this Lease are, and shall remain, unconditionally subject and
subordinate in all respects to all ground and underlying leases now or hereafter
in effect affecting the Real Property or any portion thereof, and to all
mortgages which may now or hereafter affect such leases or the Real Property,
and to all advances made or hereafter to be made under such mortgages, and to
all renewals, modifications, consolidations, correlations, replacements and
extensions of, and substitutions for, such leases and mortgages (such leases as
above described are referred to herein collectively as the "Superior Lease" and
such mortgages as above described are referred to herein collectively as the
"Mortgage"). The foregoing provisions of this Section shall be self-operative
and no further instrument of subordination shall be required. In confirmation of
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such subordination, Tenant shall execute and deliver promptly any certificate or
other instrument which Owner, or any lessor under any Superior Lease, or any
holder of any Mortgage may request, and Tenant hereby, irrevocably constitutes
and appoints Owner and all such lessors and holders, acting jointly or
severally, as Tenant's agent and attorney-in-fact to execute any such
certificate or other instrument for or on behalf of Tenant. If, in connection
with obtaining financing with respect to the Building, the Real Property, or the
interest of the lessee under any Superior Lease, any recognized lending
institution shall request reasonable modifications of this Lease as a condition
of such financing, Tenant covenants not unreasonably to withhold or delay its
agreement to such modifications, provided that such modifications do not
materially increase the obligations, or materially and adversely affect the
rights, of Tenant under this Lease. No act or failure to act on the part of
Owner which would entitle Tenant under the terms of this Lease, or by law, to be
relieved of Tenant's obligations hereunder or to terminate this Lease shall
result in a release or termination of such obligations or a termination of this
Lease unless (i) Tenant shall have first given written notice of Owner's act or
failure to act to the holder or holders of any Mortgage and/or the lessor under
any Superior Lease of whom Tenant has been given written notice, specifying the
act or failure to act on the part of Owner which could or would give basis to
Tenant's rights; and (ii) the holder or holders of such Mortgage and/or the
lessors under any Superior Lease, after receipt of such notice, have failed or
refused to correct or cure the condition complained of within a reasonable time
thereafter, but nothing contained in this sentence shall be deemed to impose any
obligation on any such holder or lessor to correct or cure any such condition.
"Reasonable time" as used above means and includes a reasonable time to obtain
possession of the Building if any such holder or lessor elects to do so
(provided such holder or lessor institutes proceedings to obtain possession
within a reasonable time after notice from Tenant pursuant to the foregoing
provisions and conducts such proceedings with reasonable diligence) and a
reasonable time after so obtaining possession to correct or cure the condition
if such condition is determined to exist (provided such holder or lessor
commences said cure within ten (10) days after obtaining possession and
prosecutes the work required to cure with reasonable diligence).
SECTION 7.02. TENANT ATTORNMENT: If, at any time prior to the
expiration of the Demised Term, any Superior Lease under which Owner then shall
be the lessee shall terminate or be terminated for any reason, or the holder of
any Mortgage comes into possession of the Real Property or the Building or the
estate created by any Superior Lease by a receiver or otherwise, Tenant agrees,
at the election and upon demand of any owner of the Real Property, or of the
holder of any Mortgage so in possession, or of any lessee under any Superior
Lease covering the premises which include the Demised Premises, to attorn, from
time to time, to any such owner, holder, or lessee, upon the then executory
terms and conditions of this Lease, for the remainder of the term originally
demised in this Lease, provided that such owner, holder or lessee, as the case
may be, shall then be entitled to possession of the Demised Premises. The
provisions of this Section shall inure to the benefit of any such owner, holder,
or lessee, shall apply notwithstanding that, as a matter of law, this Lease may
terminate upon the termination of any Superior Lease, shall be self-operative
upon any such demand, and no further instrument shall be required to give effect
to said provisions. Tenant, however, upon demand of any such owner, holder, or
lessee, agrees to execute, from time to time, instruments in confirmation of the
foregoing provisions of this Section, satisfactory to any such owner, holder, or
lessee, acknowledging such attornment and setting forth the terms and conditions
of its tenancy. Nothing contained in this Section shall be construed to impair
any right otherwise exercisable by any such owner, holder, or lessee.
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Notwithstanding anything to the contrary set forth in this Article no such
owner, holder or lessee shall be bound by (i) any payment of any instalment of
Fixed Rent or increases therein or any additional rent which may have been made
more than thirty (30) days before the due date of such instalment (except
prepayments in the nature of security for the performance of Tenant's obligation
under this Lease), or (ii) any amendment or modification to this Lease which is
made without its consent.
SECTION 7.03. TENANT ESTOPPEL CERTIFICATE: From time to time,
within ten (10) days next following Owner's request, Tenant shall deliver to
Owner a written statement executed and acknowledged by Tenant, in form
satisfactory to Owner, (i) stating that this Lease is then in full force and
effect and has not been modified (or if modified, setting forth the specific
nature of all modifications), and (ii) setting forth the date to which the Fixed
Rent has been paid, and (iii) stating whether or not, to the best knowledge of
Tenant, Owner is in default under this Lease, and, if Owner is in default,
setting forth the specific nature of all such defaults and (iv) stating that
Tenant has accepted and occupied the Demised Premises and all improvements
required to be made by Owner pursuant to the provisions of this Lease, have been
made, if such be the case. Tenant acknowledges that any statement delivered
pursuant to this Section may be relied upon by any purchaser or owner of the
Building, or of the Real Property, or any part thereof, or of Owner's interest
in the Building or the Real Property or any Superior Lease, or by the holder of
any Mortgage, or by any assignee of the holder of any Mortgage, or by any lessor
under any Superior Lease.
SECTION 7.04. OWNER ASSIGNMENT OF LEASE AND RENTS: If Owner
assigns its interest in this Lease, or the rents payable hereunder, to the
holder of any Mortgage or the lessor under any Superior Lease, whether the
assignment shall be conditional in nature or otherwise, Tenant agrees that (a)
the execution thereof by Owner and the acceptance by such holder or lessor shall
not be deemed an assumption by such holder or lessor of any of the obligations
of the Owner under this Lease unless such holder or lessor shall, by written
notice sent to Tenant, specifically otherwise elect; and (b) except as
aforesaid, such holder or lessor shall be treated as having assumed Owner's
obligations hereunder only upon the foreclosure of such holder's Mortgage or the
termination of such lessor's Superior Lease and the taking of possession of the
Demised Premises by such holder or lessor, as the case may be.
SECTION 7.05. OWNER'S ESTOPPEL CERTIFICATE: From time to time,
within ten (10) days next following Tenant's request, Owner shall deliver to
Tenant a written statement executed and acknowledged by Owner, in form
satisfactory to Tenant, (i) stating that this Lease is then in full force and
effect and has not been modified (or if modified, setting forth the specific
nature of all modifications), and (ii) setting forth the date to which the Fixed
Rent has been paid, and (iii) stating whether or not, to the best knowledge of
Owner, Tenant is in default under this Lease, and, if Tenant is in default,
setting forth the specific nature of all such defaults and (iv) stating that
Tenant has accepted and occupied the Demised Premises and all improvements
required to be made by Owner pursuant to the provisions of this Lease, have been
made, if such be the case.
SECTION 7.06. Owner agrees within a reasonable time after the
execution and delivery of this Lease to request the then holder or holders of
the existing Mortgage to enter into an agreement substantially to the effect
that in the event of any foreclosure of the existing Mortgage, such holder or
holders will not make Tenant a party-defendant to such foreclosure (unless
required by law in order to obtain jurisdiction, but in such event, no judgment
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foreclosing this Lease will be sought) nor disturb its possession under this
Lease so long as there shall be no default by Tenant under this Lease beyond
applicable grace periods (any such agreement, or any agreement of similar
import, is referred to as a "Non-Disturbance Agreement" and any provisions in
any Mortgage substantially to the same effect as those contained in a
Non-Disturbance Agreement are referred to as "Non-Disturbance Provisions"). At
or about the time that Owner executes any future Mortgage, Owner agrees to
request the then holder or holders of such future Mortgage to enter into a
Non-Disturbance Agreement or include Non-Disturbance Provisions in such future
Mortgage. At or about the time that Owner executes any future Superior Lease of
the Real Property or the Building, Owner shall request the lessor thereof to
enter into an agreement substantially to the effect that in the event of the
termination of such Superior Lease by reason of the default or insolvency of the
lessee thereunder, such lessor will permit Tenant to attorn to such lessor and
will not disturb its possession under this Lease so long as there shall be no
default by Tenant under this Lease beyond applicable grace periods (any such
agreement, or any agreement of similar import, is referred to as a "Tenant
Recognition Agreement" and any provisions in any such Superior Lease
substantially to the same effect as those contained in a Tenant Recognition
Agreement are referred to as "Tenant Recognition Provisions"). If Owner is
unable in good faith to obtain any such Non-Disturbance Agreement,
Non-Disturbance Provisions, Tenant Recognition Agreement or Tenant Recognition
Provisions, neither the validity of this Lease nor the obligations of Tenant
under this Lease shall be affected thereby and Owner shall not be liable to
Tenant for its failure to obtain any such Non-Disturbance Agreement,
Non-Disturbance Provisions, Tenant Recognition Agreement or Tenant Recognition
Provisions, it being intended that Owner's sole obligation with respect to any
Non-Disturbance Agreement, Non-Disturbance Provisions, Tenant Recognition
Agreement or Tenant Recognition Provisions, shall be to request, in good faith,
(a) within a reasonable time after the execution and delivery of this Lease
(with respect to the existing Mortgage) and (b) at or about the date of
execution of any future Mortgage or Superior Lease (with respect to any future
Mortgage or Superior Lease) the then holders of any Mortgage or the then lessor
under the Superior Lease, as the case may be, to enter into such Non-Disturbance
Agreement (with respect to the existing Mortgage) or enter into such
Non-Disturbance Agreement or include Non-Disturbance Provisions in any future
Mortgage or enter into such Tenant Recognition Agreement or include Tenant
Recognition Provisions in any future Superior Lease, as the case may be. If
required by the holder of any Mortgage or by the lessor under any Superior
Lease, Tenant shall promptly join in any commercially reasonable Non-Disturbance
Agreement or Tenant Recognition Agreement to indicate its concurrence with the
provisions thereof. Owner will pay any commercially reasonable fee charged by
any holder or lessor for preparing such Agreement or Provisions.
ARTICLE 8
PROPERTY LOSS, ETC.
SECTION 8.01. Any Building employee to whom any property shall
be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Owner nor Owner's agents shall
be liable for any loss of or damage to any such property by theft or otherwise.
Except as otherwise expressly set forth in this Lease, neither (i) the
performance by Owner, Tenant or others of any decorations, repairs, alterations,
additions or improvements in or to the Building or the Demised Premises, nor
(ii) the failure of Owner or others to make any such decorations, repairs,
alterations,
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additions or improvements, nor (iii) any damage to the Demised Premises or to
the property of Tenant, nor any injury to any persons, caused by other tenants
or persons in the Building, or by operations in the construction of any private,
public or quasi-public work, or by any other cause, nor (iv) any latent defect
in the Building or in the Demised Premises, nor (v) any temporary (i.e., six [6]
months or less) or permanent closing, darkening or bricking up of any windows of
the Demised Premises for any reason whatsoever beyond Owner's reasonable
control, nor any permanent closing, darkening or bricking up of any such windows
if required by law or in connection with any construction upon adjacent
property, nor (vi) any inconvenience or annoyance to Tenant or injury to or
interruption of Tenant's business by reason of any of the events or occurrences
referred to in the foregoing subdivisions (i) through (v), shall constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Owner, or its agents, or any
lessor under any Superior Lease, other than such liability as may be imposed
upon Owner by law for Owner's negligence or the negligence of Owner's agents,
servants or employees in the operation or maintenance of the Building or for the
breach by Owner of any express covenant of this Lease on Owner's part to be
performed. Tenant's taking possession of the Demised Premises shall be
conclusive evidence, as against Tenant, that, at the time such possession was so
taken, the Demised Premises and the Building were in good and satisfactory
condition and Owner's Initial Construction was substantially completed.
ARTICLE 9
DESTRUCTION-FIRE OR OTHER CASUALTY
SECTION 9.01. OWNER'S REPAIR OBLIGATIONS: If the Demised
Premises shall be damaged by fire or other casualty and if Tenant shall give
prompt notice to Owner of such damage, Owner, at Owner's expense, shall repair
such damage. However, Owner shall have no obligation to repair any damage to, or
to replace, Tenant's Personal Property or any other property or effects of
Tenant. Except as otherwise provided in Section 9.03, if the entire Demised
Premises shall be rendered untenantable by reason of any such damage, the Fixed
Rent shall abate for the period from the date of such damage to the earlier of
(x) the date ten (10) days next following the date when such damage shall have
been repaired or (y) the date upon which Tenant shall have completed its repairs
thereto and commenced the conduct of its business therein, and if only a part of
the Demised Premises shall be so rendered untenantable, the Fixed Rent shall
abate for such period in the proportion which the area of the part of the
Demised Premises so rendered untenantable bears to the total area of the Demised
Premises. However, if, prior to the date when all of such damage shall have been
repaired, any part of the Demised Premises so damaged shall be rendered
tenantable and shall be used or occupied by Tenant or any person or persons
claiming through or under Tenant, then the amount by which the Fixed Rent shall
abate shall be equitably apportioned for the period from the date of any such
use or occupancy to the date when all such damage shah have been repaired.
Tenant hereby expressly waives the provisions of Section 227 of the New York
Real Property Law, and of any successor law of like import then in force, and
Tenant agrees that the provisions of this Article shall govern and control in
lieu thereof. Notwithstanding the foregoing provisions of this Section, if,
prior to or during the Demised Term, (i) the Demised Premises shall be totally
damaged or rendered wholly untenantable by fire or other casualty, and if Owner
shall decide not to restore the Demised Premises, or (ii) the Building shall be
so damaged by (ire or
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other casualty that, in Owner's opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the Demised
Premises shall have been damaged or rendered untenantable), then, in any of such
events, Owner, at Owner's option, may give to Tenant, within ninety (90) days
after such fire or other casualty, a five (5) days' notice of termination of
this Lease and, in the event such notice is given, this Lease and the Demised
Term shall come to an end and expire (whether or not said term shall have
commenced) upon the expiration of said five (5) days with the same effect as if
the date of expiration of said five (5) days were the Expiration Date, the Fixed
Rent shall be apportioned as of such date or as of any earlier date upon which
the Fixed Rent shall have abated as hereinabove provided in this Section and any
prepaid portion of Fixed Rent for any period after such date shall be refunded
by Owner to Tenant.
SECTION 9.02. OWNER'S SUBROGATION WAIVER PROVISIONS: Owner
shall attempt to obtain and maintain, throughout the Demised Term, in Owner's
fire insurance policies covering the Building, provisions to the effect that
such policies shall not be invalidated should the insured waive, in writing,
prior to a loss, any or all right of recovery against any party for loss
occurring to the Building. In the event that at any time Owner's fire insurance
carriers shall exact an additional premium for the inclusion of such or similar
provisions, Owner shall give Tenant notice thereof. In such event, if Tenant
agrees, in writing, to reimburse Owner for such additional premium for the
remainder of the Demised Term, Owner shall require the inclusion of such or
similar provisions by Owner's fire insurance carriers. As long as such or
similar provisions are included in Owner's fire insurance policies then in
force, Owner hereby waives (i) any obligation on the part of Tenant to make
repairs to the Demised Premises necessitated or occasioned by fire or other
casualty that is an insured risk under such policies, and (ii) any right of
recovery against Tenant, any other permitted occupant of the Demised Premises,
and any of their servants, employees, agents or contractors, for any loss
occasioned by fire or other casualty which is an insured risk under such
policies. In the event that at any time Owner's fire insurance carriers shall
not include such or similar provisions in Owner's fire insurance policies, the
waivers set forth in the foregoing sentence shall, upon notice given by Owner to
Tenant, be deemed of no further force or effect.
SECTION 9.03. TENANT NEGLIGENCE: Except to the extent
expressly provided in Section 9.02, nothing contained in this Lease shall
relieve Tenant of any liability to Owner or to its insurance carriers which
Tenant may have under law or the provisions of this lease in connection with any
damage to the Demised Premises or the Building caused by fire or other casualty.
Notwithstanding the provisions of Section 9.01, if any such damage, occurring
after any date when the waivers set forth in Section 9.02 are no longer in force
and effect, is due to the fault or neglect of Tenant, any person claiming
through or under Tenant, or any of their servants, employees, agents,
contractors, visitors or licensees, then there shall be no abatement of Fixed
Rent by reason of such damage.
SECTION 9.04. TENANT SUBROGATION WAIVER PROVISIONS: Tenant
acknowledges that it has been advised that Owner's insurance policies do not
cover Tenant's Personal Property or any other property of Tenant in the Demised
Premises; accordingly, it shall be Tenant's obligation to obtain and maintain
insurance covering its property in the Demised Premises and loss of profits
including, but not limited to, water damage coverage and business interruption
insurance. Tenant shall attempt to obtain and maintain, throughout the Demised
Term, in Tenant's fire and other insurance policies covering Tenant's Personal
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Property and other property of Tenant in the Demised Premises, and Tenant's use
and occupancy of the Demised Premises, and/or Tenants profits (and shall cause
any other permitted occupants of the Demised Premises to attempt to obtain and
maintain, in similar policies), provisions to the effect that such policies
shall not be invalidated should the insured waive, in writing, prior to a loss,
any or all right of recovery against any party for loss occasioned by fire or
other casualty which is an insured risk under such policies. In the event that
at any time the fire insurance carriers issuing such policies shall exact an
additional premium for the inclusion of such or similar provisions, Tenant shall
give Owner notice thereof. In such event, if Owner agrees, in writing, to
reimburse Tenant or any person claiming through or under Tenant, as the case may
be, for such additional premium for the remainder of the Demised Term. Tenant
shall require the inclusion of such or similar provisions by such insurance
carriers. As long as such or similar provisions are included in such insurance
policies then in force, Tenant hereby waives (and agrees to cause any other
permitted occupants of the Demised Premises to execute and deliver to Owner
written instruments waiving) any right of recovery against Owner, any lessors
under any Superior Leases, the holders of any Mortgage, and all other tenants or
occupants of the Building, and any servants, employees, agents or contractors of
Owner, or of any such lessor, or holder or any such other tenants or occupants,
for any loss occasioned by fire or other casualty which is an insured risk under
such policies. In the event that at any time such insurance carriers shall not
include such or similar provisions in any such insurance policy, the waiver set
forth in the foregoing sentence (or in any written instrument executed by any
other permitted occupant of the Demised Premises) shall, upon notice given by
Tenant to Owner, be deemed of no further force or effect with respect to any
insured risks under such policy from and after the giving of such notice. During
any period while any such waiver of right of recovery is in effect, Tenant, or
any other permitted occupant of the Demised Premises, as the case may be, shall
look solely to the proceeds of such policies to compensate Tenant or such other
permitted occupant for any loss occasioned by fire or other casualty which is an
insured risk under such policies.
SECTION 9.05. Owner agrees, during the Demised Term, to obtain
and keep in full force and effect insurance against loss or damage by fire or
other casualty to the Building and to all of Owner's property referred to in
Article 4 as may be insurable under then obtainable standard forms of "all-risk"
insurance policies in an amount equal to not less than (i) the amount sufficient
to avoid coinsurance or (ii) eighty (80%) percent of the replacement value of
the Building and such property exclusive of footings and foundations, whichever
is greater.
ARTICLE 10
EMINENT DOMAIN
SECTION 10.01. TAKING OF THE DEMISED PREMISES: If the whole of
the Demised Premises shall be acquired for any public or quasi-public use or
purpose, whether by condemnation or by deed in lieu of condemnation, this Lease
and the Demised Term shall end as of the date of the vesting of title with the
same effect as if said date were the Expiration Date. If only a part of the
Demised Premises shall be so acquired or condemned then, except as otherwise
provided in this Section, this Lease and the Demised Term shall continue in
force and effect but, from and after the date of the vesting of title, the Fixed
Rent shall be reduced
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in the proportion which the area of the part of the Demised Premises so acquired
or condemned bears to the total area of the Demised Premises immediately prior
to such acquisition or condemnation. If only a part of the Real Property shawl
be so acquired or condemned, then (i) whether or not the Demised Premises shall
be affected thereby, Owner, at Owner's option, may give to Tenant, within sixty
(60) days next following the date upon which Owner shall have received notice of
vesting of title, a five (5) days' notice of termination of this Lease, and (ii)
if the part of the Real Property so acquired or condemned shall contain more
than ten (10%) percent of the total area of the Demised Premises immediately
prior to such acquisition or condemnation, or if, by reason of such acquisition
or condemnation, Tenant no longer has reasonable means of access to the Demised
Premises, Tenant, at Tenant's option, may give to Owner, within sixty (60) days
next following the date upon which Tenant shall have received notice of vesting
of title, a five (5) days' notice of termination of this Lease. In the event any
such five (5) days' notice of termination is given, by Owner or Tenant, this
Lease and the Demised Term shall come to an end and expire upon the expiration
of said five (5) days with the same effect as if the date of expiration of said
five (5) days were the Expiration Date. If a part of the Demised Premises shall
be so acquired or condemned and this Lease and the Demised Term shall not be
terminated pursuant to the foregoing provisions of this Section. Owner, at
Owner's expense, shall restore that part of the Demised Premises not so acquired
or condemned to a self-contained rental unit. In the event of any termination of
this Lease and the Demised Term pursuant to the provisions of this Section, the
Fixed Rent shall be apportioned as of the date of such termination and any
prepaid portion of Fixed Rent for any period after such date shall be refunded
by Owner to Tenant.
SECTION 10.02. CONDEMNATION AWARD OR CLAIMS: In the event of
any such acquisition or condemnation of all or any part of the Real Property,
Owner shall be entitled to receive the entire award for any such acquisition or
condemnation, Tenant shall have no claim against Owner or the condemning
authority for the value of any unexpired portion of the Demised Term and Tenant
hereby expressly assigns to Owner all of its right in and to any such award.
Nothing contained in this Section shall be deemed to prevent Tenant from making
a claim in any condemnation proceedings for the value of any items of Tenant's
Personal Property which are compensable, in law, as trade fixtures, or for
Tenant's moving expenses.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
SECTION 11.01. GENERAL COVENANT: Tenant, for itself, its
heirs, distributees, executors, administrators, legal representatives,
successors and assigns, covenants that, without the prior consent of Owner in
each instance, it shall not (i) assign whether by merger, consolidation or
otherwise, mortgage or encumber its interest in this Lease, in whole or in part,
or (ii) sublet, or permit the subletting of, the Demised Premises or any part
thereof, or (iii) permit the Demised Premises or any part thereof to be
occupied, or used for desk space (other than by affiliates), mailing privileges
or otherwise, by any person other than Tenant. The sale, pledge, transfer or
other alienation of (a) any of the issued and outstanding capital stock of any
corporate Tenant (unless such stock is publicly traded on a recognized security
exchange or over-the counter market) or (b) any interest in any partnership or
joint venture
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Tenant, however accomplished, and whether in a single transaction or in a series
of related and/or unrelated transactions, shall be deemed for the purposes of
this Section as an assignment of this Lease which shall require the prior
consent of Owner in each instance.
SECTION 11.02. OWNER'S RIGHTS UPON ASSIGNMENT: If Tenant's
interest in this Lease is assigned, whether or not in violation of the
provisions of this Article, Owner may collect rent from the assignee; if the
Demised Premises or any part thereof are sublet to, or occupied by, or used by,
any person other than Tenant, whether or not in violation of this Article,
Owner, after default by Tenant under tints Lease, may collect rent from the
subtenant, user or occupant. In either case, Owner shall apply the net amount
collected to the rents reserved in this Lease, but neither any such assignment,
subletting, occupancy, or use, whether with or without Owner's prior consent,
nor any such collection or application, shall be deemed a waiver of any term,
covenant or condition of this Lease or the acceptance by Owner of such assignee,
subtenant, occupant or user as tenant. The consent by Owner to any assignment,
subletting, occupancy or use shall not relieve Tenant from its obligation to
obtain the express prior consent of Owner to any further assignment, subletting,
occupancy or use. If this Lease is assigned to any person or entity pursuant to
any proceeding of the type referred to in Subsections 16.01(c) and 16.01(d), any
and all monies or other consideration payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Owner, shall be
and remain the exclusive property of Owner and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of any proceeding of the
type referred to in Subsections 16.01(c) and 16.01(d). Any and all monies or
other considerations constituting Owner's property under the preceding sentence
nor paid or delivered to Owner shall be held in trust for the benefit of Owner
add shall be promptly paid to or turned over to Owner. Any person or entity to
which this Lease is assigned pursuant to any proceeding of the type referred to
in Subsections 16.01(c) and 16.01 (d) shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease on and
after the date of such assignment. Any such assignee shall execute and deliver
to Owner upon demand an instrument confirming such assumption. The listing of
any name other than that of Tenant on any door of the Demised Premises or on any
directory or in any elevator in the Building, or otherwise, shall not operate to
vest in the person so named any right or interest in this Lease or in the
Demised Premises, or the Building, or be deemed to constitute, or serve as a
substitute for, any prior consent of Owner required under this Article, and it
is understood that any such listing shall constitute a privilege extended by
Owner which shall be revocable at Owner's will by notice to Tenant. Tenant
agrees to pay to Owner reasonable counsel fees incurred by Owner in connection
with any proposed assignment of Tenant's interest in this Lease or any proposed
subletting of the Demised Premises or any part thereof. Neither any assignment
of Tenant's interest in this Lease nor any subletting, occupancy or use of the
Demised Premises or any part thereof by any person other than Tenant, nor any
collection of rent by Owner from any person other than Tenant as provided in
this Section, nor any application of any such rent as provided in this Section
shall, in any circumstances, relieve Tenant of its obligation fully to observe
and perform the terms, covenants and conditions of this Lease on Tenant is part
to be observed or performed.
SECTION 11.03. SUBLET RIGHTS: A. As long as Tenant is not in
default under any of the terms, covenants or conditions of this Lease on
Tenant's part to be observed or performed after notice and beyond the expiration
of any applicable grace and cure periods, Tenant shall have the right to give
notice to Owner (referred to as a "Tenant's Section 11.03 Sublet Notice") of
Tenant's intention to sublet all or any part of the Demised Premises (the
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space which Tenant intends to sublet is referred to in this Section as the
"Section 11.03 Sublet Space"), which notice shall set forth the proposed
commencement and expiration dates of the term of such intended subletting (and,
if the Section 11.03 Sublet Space, or any portion thereof, shall constitute less
than an entire floor, such notice shall be accompanied by a floor plan
delineating such Section 11.03 Sublet Space or portion thereof).
B. Within a period of thirty (30) days after the
giving of Tenant's Section 11.03 Sublet Notice, if the Section 11.03 Sublet
Space shall contain all or substantially all of the Demised Premises and the
proposed subletting shall be for all or substantially all of the remainder of
the Demised Term, Owner, at Owner's option, may give to Tenant, a notice
terminating this Lease on the date (referred to as the "Earlier Termination
Date") immediately prior to the proposed commencement date set forth in Tenant's
Section 11.03 Sublet Notice but in no event shall the Earlier Termination Date
occur prior to the expiration of the thirty (30) day period set forth above,
and, in the event such notice is given, this Lease and the Demised Term shall
come to an end and expire on the Earlier Termination Date with the same effect
as if it were the Expiration Date, the Fixed Rent shall be apportioned as of the
Earlier Termination Date and any prepaid portion of Fixed Rent for any period
after such date shall be refunded by Owner to Tenant. Within a period of thirty
(30) days after the giving of Tenant's Section 11.03 Sublet Notice, Owner, at
Owner's option, may give to Tenant a notice (referred to as a "Section 11.03
Elimination Notice") electing to eliminate the Section 11.03 Sublet Space (after
the giving of such notice, such Space is referred to as the "Eliminated Space")
from the Demised Premises during the period (referred to as the "Elimination
Period") commencing on the date (referred to as the "Elimination Date") which is
the proposed commencement date set forth in Tenant's Section 11.03 Sublet
Notice, but, in any event, not earlier than the date next following the
expiration of the thirty (30) day period set forth above, and ending on the
proposed expiration date set forth in Tenant's Section 11.03 Sublet Notice. In
the event any Section 11.03 Elimination Notice shall be given, the provisions of
Section 11.04 shall apply to the Eliminated Space.
C. If, at the expiration of the thirty (30) day
period set forth in subsection B of this Section 11.03, (1) Owner shall not have
given a notice terminating this Lease or a Section 11.03 Elimination Notice, and
(2) Tenant is not in default under any of the terms, covenants or conditions of
this Lease on Tenant's part to be observed or performed after notice and beyond
the expiration of any applicably grace and cure periods, Owner agrees thereafter
not unreasonably to withhold its prior consent to a subletting by Tenant of the
Section 11.03 Sublet Space. Without Owner's prior consent, Tenant shall not
publicly advertise the Demised Premises or any part thereof for subletting at a
rental lower than the rental at which Owner is then offering to rent comparable
space in the Building. Any such subletting shall be (a) for substantially the
same term set forth in Tenant's Section 11.03 Sublet Notice, (b) for undivided
occupancy by the subtenant of that part of the Demised Premises affected
thereby, and (c) for the use permitted in this Lease, and at no time shall there
be more than three (3) occupants in addition to Tenant and its subsidiaries and
affiliates, on any one (1) floor. At least fifteen (15) days prior to any such
proposed subletting, Tenant shall submit to Owner a statement (referred to as
the "Proposed Sublet Statement") containing the name and address of the proposed
subtenant, the nature of the proposed subtenant's business and its current
financial status, if such status is obtained or obtainable by Tenant, and all of
the principal terms and conditions of the proposed subletting, including, but
not limited to, the proposed commencement and expiration dates of the term
thereof, and unless the Section 11.03 Sublet Space shall constitute an entire
floor or floors, the Proposed Sublet
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Statement shall be accompanied by a floor plan delineating the Section 11.03
Sublet Space. Owner may, however, withhold such consent if, in Owner's
reasonable judgment, the occupancy of the proposed subtenant will tend to impair
the character or dignity of the Building or impose any additional burden upon
Owner in the operation of the Building or the proposed subtenant shall be a
person or entity with whom Owner is then actively negotiating to lease space in
the Building or in Owner's reasonable judgment the occupancy of the proposed
subtenant will tend to impair the reputation of (x) the Building as an
information technology center or (y) the door on which the Section 11.03 Sublet
Space is located as a floor for information technology tenants or if Owner has
any other reasonable objections to such subletting. In the event of any dispute
between Owner and Tenant as to the reasonableness of Owner's refusal to consent
to any such proposed subletting, such dispute shall be determined by arbitration
in the City of New York in accordance with the provisions of subsection 11.03E.
Any such determination shall be final and binding upon the parties, whether or
not a judgment shall be entered in any court. If the determination of any such
arbitration shall be adverse to Owner, Owner, nevertheless, shall not be liable
to Tenant for a breach of Owner's covenant not unreasonably to withhold such
consent, and Tenant's sole remedy in such event shall be to enter into the
proposed subletting.
D. The covenant of Owner contained in Subsection C of
this Section 11.03 not unreasonably to withhold its consent to a proposed
subletting by Tenant of the Section 11.03 Sublet Space shall apply only for a
period of three hundred sixty-five (365) days next following the expiration of
the thirty (30) day period set forth in Subsection B of this Section 11.03 and
shall not apply after the expiration of such three hundred sixty-five (365) day
period subject, however, to Tenant's right to give to Owner another Tenant's
Section 11.03 Sublet Notice pursuant to the provisions of subsection A of this
Section 11.03.
E. If Tenant desires to determine any dispute between
Owner and Tenant as to (a) the reasonableness of Owner's decision to refuse to
consent to any subletting in accordance with the provisions of this Section
11.03, or (b) the validity of any assignment of Tenant's interest in this Lease
in accordance with the provisions of Section 11.08 dispute shall be settled and
finally determined by arbitration in the City of New York in accordance with the
following provisions of this Section. Within five (5) business days next
following the giving of any notice by Tenant to Owner stating that it wishes
such dispute to be so determined, Owner and Tenant shall each give notice to the
other setting forth the name and address of an arbitrator designated by the
party giving such notice. If either party shall fail to give notice of such
designation within said five (5) business days, then the arbitrator chosen by
the other side shall make the determination alone. The two arbitrators shall
designate a third arbitrator. If the two arbitrators shall fail to agree upon
the designation of a third arbitrator within five (5) business days after the
designation of the second arbitrator, then either party may apply to the Supreme
County of the State of New York, New York County, or to any other court having
jurisdiction, for the designation of such arbitrator. All arbitrators shall be
persons who shall have had at least ten (10) years continuous experience in the
business of appraising or managing real estate or acting as real estate agents
or brokers in the Borough of Manhattan. The three arbitrators shall conduct such
hearings as they deem appropriate, making their determination in writing and
giving notice to Owner and Tenant of their determination as soon as practicable,
and if possible, within five (5) business days after the designation of the
third arbitrator; the concurrence of any two of said arbitrators shall be
binding upon Owner and Tenant, or, in the event no two of the arbitrators shall
render a concurrent determination, then the determination of the third
arbitrator designated shall be
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binding upon Owner and Tenant. Any award rendered in any arbitration held
pursuant to this Section shall be final and binding upon Owner and Tenant,
whether or not a judgment shall be entered in any court. Each party shall pay
its own counsel fees and expenses, if any, in connection with any arbitration
under this Section, including the expenses and fees of any arbitrator selected
by it in accordance with the provisions of this Section, and the parties shall
otherwise share all other expenses and fees of any such arbitration. The
arbitrators shall be bound by the provisions of this Lease, and shall not add
to, subtract from or otherwise modify such provisions.
SECTION 11.04. ELIMINATED SPACE: A. In the event any Section
11.03 Elimination Notice shall be given by Owner (i) the Eliminated Space shall
be eliminated from the Demised Premises during the Elimination Period; (ii)
Tenant shall surrender the Eliminated Space to Owner on or prior to the
Elimination Date in the same manner as if said Date were the Expiration Date;
(iii) if the Eliminated Space shall constitute less than an entire floor, (a)
Owner, at Owner's expense, shall have the right to make any alterations and
installations in the Demised Premises required, in Owner's judgment, reasonably
exercised, to make the Eliminated Space a self-contained rental unit with access
through corridors to the elevators and core toilets serving the Eliminated
Space, and if the Demised Premises shall contain any core toilets (for the
purposes of this Article, core toilets shall be deemed to include any unisex
toilets) or any corridors (including any corridors proposed to be constructed by
Owner pursuant to this subdivision [iii]), providing access from the Eliminated
Space to the core area, (b) Owner and any tenant or other occupant of the
Eliminated Space shall have the right to use such toilets and corridors in
common with Tenant and any other permitted occupants of the Demised Premises,
and the right to install signs and directional indicators in or about such
corridors indicating the name and location of such tenant or other occupant;
(iv) during the Elimination Period, the Fixed Rent and the Demised Premises Area
(as defined in Article 23) shall each be reduced in the proportion which the
area of the Eliminated Space bears to the total area of the Demised Premises
immediately prior to the Elimination Date and the applicable Tenant's Electrical
Share (as defined in Section 29.05) shall be reduced in the proportion which the
area of the Eliminated Space bears to the total area of that portion of the
Demised Premises on the floor on which the Eliminated Space is located
(including an equitable portion of the area of any corridors referred to in
subdivision (iii) of this sentence as part of the area of the Eliminated Space
for the purpose of computing all such reductions), and any prepaid portion of
Fixed Rent for any period after the Elimination Date allocable to the Eliminated
Space shall be refunded by Owner to Tenant and in the event that the Eliminated
Space shall be the entire Demised Premises, during the Elimination Period,
Tenant shall have no rights with respect to the Demised Premises nor any
obligations with respect to the Demised Premises, including, but not limited to,
any obligations to pay Fixed Rent or any increases therein or any additional
rent, (v) there shall be an equitable apportionment of any increase in the Fixed
Rent pursuant to Article 23 for the Escalation Year and Tax Escalation Year (as
defined in Article 23) in which said Elimination Date shall occur; (vi) if the
Elimination Period shall end prior to the Expiration Date, the Eliminated Space,
in its then existing condition, (provided it is usable for general offices as an
information technology and related media business [or is put in such condition
by Owner at Owner's expense prior to the Restoration Period]) shall be deemed
restored to and once again a part of the Demised Premises during the period
Referred to as the "Restoration Period") commencing an the date next following
the expiration of the Elimination Period and ending on the Expiration Date;
(vii) during the Restoration Period, if any, the Fixed Rent and the Demised
Premises Area, shall each be increased in the proportion which the area of the
Eliminated Space bears to the
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total area of the Demised Premises immediately prior to the commencement of the
Restoration Period and the applicable Tenant's Electrical Share shall be
increased in the proportion which the area of the Eliminated Space bears to the
total area of that portion of the Demised Premises on the floor on which the
Eliminated Space is located (including an equitable portion of the area of any
corridors referred to in subdivision (iii) of this sentence as a part of the
area of the Eliminated Space for the purpose of computing all such increases)
and in the event that the Eliminated Space shall be the entire Demised Demises,
during the Restoration Period, the Demised Premises, in its then existing
condition, (provided it is usable for general offices as an information
technology and related media business [or is put in such condition by Owner at
Owner's expense prior to the Restoration Period]) shall be deemed restored to
Tenant and Tenant shall have all rights with respect to the Demised Premises
which are set forth in this Lease and all obligations with respect to the
Demised Premises which are set forth in this Lease, including, but not limited
to, the obligations for the payment of Fixed Rent and any increases therein and
any additional rent (as they would have been adjusted if Tenant occupied the
Demised Premises during the Elimination Period); and (viii) there shall be an
equitable apportionment of any increase in the Fixed Rent pursuant to Article 23
for the Escalation Year and Tax Escalation Year in which the Restoration Period,
if any, shall commence; however, notwithstanding the foregoing, Owner and Tenant
acknowledge the possibility that all or any of the tenants or occupants of the
Eliminated Space may not have vacated and surrendered all or any portions of the
Eliminated Space to Owner by the Commencement of the Restoration Period;
accordingly, notwithstanding anything to the contrary contained in the foregoing
provisions of this Section, (1) the Restoration Period applicable to the
Eliminated Space shall not commence until the date upon which Owner shall give
Tenant possession of the Eliminated Space vacant and free of any occupancies and
(2) except as set forth in this sentence, neither the validity of this Lease nor
the obligations of Tenant under this Lease shall be affected thereby and (3)
Tenant waives any right to rescind this Lease and to recover any damages from
Owner which may result from the failure of Owner to deliver possession of all or
any portions of the Eliminated Space on the commencement of she Restoration
Period and Owner shall institute, within thirty (30) days after the commencement
of the Restoration Period, possession proceedings against any tenants and
occupants who have not so vacated and surrendered all or any portions of the
Eliminated Space, and shall prosecute such proceedings with reasonable
diligence.
B. At the request of Owner, Tenant shall execute and
deliver an instrument or instruments, in form reasonably satisfactory to Owner,
setting forth any modifications to this Lease contemplated in or resulting from
the operation of the provisions of this Section and Section 11.03; however,
neither Owner's failure to request any such instrument nor Tenant's failure to
execute or deliver any such instrument stall vitiate the effect of the
provisions of this Section and Section 11.03. The failure by Owner to exercise
its option under Section 11.03 with respect to any subletting shall not be
deemed a waiver of such option with respect to any extension of such subletting
or any subsequent subletting of the premises affected thereby or any other
portion of the Demised Premises. If (a) Owner shall (i) fail or refuse to
consent to any proposed subletting, or (ii) exercise any of its options under
this Section 11.03, or (b) any proposed subletting shall fail to be consummated
for any reason whatsoever, Tenant shall indemnify Owner from all loss, cost,
liability, damage and expense, including, but not limited to, reasonable counsel
fees and disbursements, arising from any claims against Owner by any broker or
other person, for a brokerage commission or other similar compensation in
connection with any such proposed subletting.
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C. Tenant agrees that (1) one-half (1/2) of any
increase in the rental value of the Demised Premises over and above the Fixed
Rent payable pursuant to the provisions of this Lease, as such Fixed Rent may be
increased from time to time pursuant to the provisions of this Lease, and (2)
any consideration paid to Tenant or any subtenant or other person claiming
through or under Tenant in connection with an assignment of Tenant's interest in
this Lease or the interest of any subtenant or other person claiming through or
under Tenant under any sublease whether or not such assignment shall be effected
with court approval in a proceeding of the types described in Subsection
16.01(c) or (d), or in any similar proceeding, or otherwise, shall accrue to the
benefit of Owner and not to the benefit of Tenant, or of any subtenant or other
person claiming through or under Tenant, or of the creditors of Tenant or of any
such subtenant or other person claiming through or under Tenant. Accordingly,
Tenant agrees that if Owner shall fail to exercise its option to sooner
terminate this Lease in connection with any proposed subletting by Tenant of all
or substantially all of the Demised Premises, or its option to eliminate the
Demised Premises or to eliminate from the Demised Premises any portion thereof,
in connection with any proposed subletting by Tenant of the entire Demised
Premises or any portion thereof, or if any subtenant or other person claiming
through or under Tenant shall sublet all or any portion of the Demised Premises,
Tenant shall pay to Owner a sum equal to one-half (1/2) of any Subletting
Profit, as such term is hereinafter defined. All rentals and other sums
(including, but not limited to, sums payable for the sale or rental of any
fixtures, leasehold improvements, equipment, furniture or other personal
property, less, in the case of the sale thereof, the then net unamortized [on a
straight-line basis over the term of this Lease or, in the event of a further
subletting; over the term of the initial sublease, as the case may be] cost
thereof, which were provided and installed in the sublet premises at the sole
cost and expense of Tenant or such subtenant or other person claiming through or
under Tenant and for which no allowance or other credit has been given by Owner)
paid by any subtenant to Tenant or to any subtenant or other person claiming
through or under Tenant in connection with (i) any subletting of the entire
Demised Premises in excess of the Fixed Rent then payable by Tenant to Owner
under this Lease, or (ii) any subletting of a portion of the Demised Premises in
excess of that proportion of the Fixed Rent payable by Tenant to Owner under
this Lease which the area of the portion Demised Premises so sublet bears to the
total area of the Demised Premises, are referred to, in the aggregate, as
"Subletting Profit"; provided, however, in computing any Subletting Profit there
shall first be deducted from such excess a reasonable brokerage commission
reasonable counsel fees, the reasonable cost of altering the sublet space, any
reasonable rental concessions and so-called takeover obligations and other
reasonable expenses incurred in connection with such subletting. Tenant agrees
that if Tenant, or any subtenant or other person claiming through or under
Tenant, shall assign or have assigned its interest as Tenant under this Lease or
its interest as subtenant under any sublease, as the case may be, whether or not
such assignment shall be effected with court approval in a proceeding of the
types described in Subsections 16.01(c) or (d), or in any similar proceeding, or
otherwise. Tenant shall pay to Owner a sum equal to any consideration payable to
Tenant or any subtenant or other person claiming through or under Tenant for
such assignment. All sums payable hereunder to Tenant shall be paid to Owner as
additional rent immediately upon such sums being paid to Tenant or to any
subtenant or other person claiming through or under Tenant and, if requested by
Owner, Tenant shall promptly enter into a written agreement with Owner setting
forth the amount of such sums to be paid to Owner, however, neither Owner's
failure to request the execution of such agreement nor Tenant's failure to
execute such agreement shall vitiate the provisions of this Section. For the
purposes of this Article, a
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trustee, receiver or other representative of the Tenant's or any subtenant's
estate under any federal or state bankruptcy act shall be deemed a person
claiming through or under Tenant.
D. Neither Owner's consent to any subletting nor
anything contained in this Section shall be deemed to grant to any subtenant or
other person claiming through or under Tenant the right to sublet all or any
portion of the Demised Premises or to permit the occupancy of all or any portion
of the Demised Premises by others. Neither any subtenant referred to in this
Section nor its heirs, distributees, executors, administrators, legal
representatives, successors nor assigns, without the prior consent of Owner in
each instance, shall (i) assign, whether by merger, consolidation or otherwise,
mortgage or encumber its interest in any sublease, in whole or in part, or (ii)
sublet, or permit the subletting of, that part of the Demised Premises affected
by such subletting or any portion thereof, or (iii) permit such part of the
Demised Premises affected by such subletting or any portion thereof to be
occupied or used for desk space, mailing privileges or otherwise, by any person
other than such subtenant and any sublease shall provide that any violation of
the foregoing provisions of this sentence shall be an event of default
thereunder. The sale, pledge, transfer or other alienation of (a) any of the
issued and outstanding capital stock of any corporate subtenant (unless such
stock is publicly traded on any recognized security exchange or over-the-counter
market) or (b) any interest in any partnership or joint venture subtenant,
however accomplished, and whether in a single transaction or in a series of
related or unrelated transactions, shall be deemed for the purposes of this
Section to be an assignment of such sublease which shall require the prior
consent of Owner in each instance and any sublease shall so provide.
SECTION 11.05. OWNER'S RIGHTS UPON LEASE DISAFFIRMANCE: A. In the event
that, at any time after Tenant may have assigned Tenant's interest in this
Lease, this Lease shall be disaffirmed or rejected in any proceeding of the
types described in Subsections 16.01(c) and (d), or in any similar proceeding,
or in the event of termination of this Lease by reason of any such proceeding or
by reason of lapse of time following notice of termination given pursuant to
Section 16.01 based upon any of the Events of Default set forth in said
Subsections, Tenant, upon request of Owner given within thirty (30) days next
following any such disaffirmance, rejection or termination (and actual notice
thereof to Owner in the event of a disaffirmance or rejection or in the event of
termination other than by act of Owner), shall (i) pay to Owner all Fixed Rent,
additional rent and other charges due and owing by the assignee to Owner under
this Lease to and including the date of such disaffirmance, rejection or
termination, and (ii) as "tenant", enter into a new lease with Owner of the
Demised Premises for a term commencing on the effective date of such
disaffirmance, rejection or termination and ending on the Expiration Date unless
sooner terminated as in such lease provided, at the same Fixed Rent and then
executory terms, covenants and conditions as are contained in this Lease, except
that (a) Tenant's rights under the new lease shall be subject to the possessory
rights of the assignee under this Lease and the possessory rights of any person
claiming through or under such assignee or by virtue of any statute or of any
order of any court, and (b) such new lease shall require all defaults existing
under this Lease to be cured by Tenant with due diligence, and (c) such new
lease shall require Tenant to pay all increases in the Fixed Rent reserved in
this Lease which, had this Lease not been so disaffirmed, rejected or
terminated, would have accrued under the provisions of Article 23 of this Lease
after the date of such disaffirmance, rejection or termination with respect to
any period prior thereto. In the event Tenant shall default in its obligation to
enter into said new lease for a period of ten (10) days next following Owner's
request therefor, then, in addition to all other rights and
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remedies by reason of such default, either at law or in equity, Owner shall have
the same rights and remedies against Tenant as if Tenant had entered into such
new lease and such new lease had thereafter been terminated as at the
commencement date thereof by reason of Tenant's default thereunder. Nothing
contained in this Section shall be deemed to grant to Tenant any right to assign
Tenant's interest in this Lease.
SECTION 11.06. Notwithstanding anything to the contrary
contained in this Lease, Tenant agrees that the stock of Tenant shall not be
sold, pledged, transferred or otherwise alienated except to or among David
Gruson, Larry Rosen and John Diamond or any spouse of David Gruson, Larry Rosen
and John Diamond or any of the lineal descendants of David Gruson, Larry Rosen
and John Diamond or their spouses.
SECTION 11.07. Notwithstanding anything to the contrary
contained in the foregoing provisions of this Lease, including, but not limited
to, the provisions of this Article, a public offering of the stock or interest
of Tenant named herein on a recognized security exchange or over-the-counter
market shall not be considered an assignment of this lease requiring the prior
approval of Owner.
SECTION 11.08. Supplementing the provisions of Article 11, as
long as Tenant is not then in default under any of the terms, covenants or
conditions of this Lease on Tenant's part to be observed or performed, after
notice and expiration of applicable cure periods, Owner's consent shall not be
required to an assignment of Tenant's interest in this Lease to any person,
corporation, partnership, or other business entity which is a successor of
Tenant, either by merger or consolidation or the purchase of all or
substantially all of the assets, business and goodwill of N2K Inc., Tenant named
herein, provided that said person, corporation, partnership or other business
entity shall have a net worth, as determined in accordance with generally
accepted accounting principles consistently applied, at least equal to that of
Tenant named herein as of the date of this Lease, and provided further that such
successor, person, corporation, partnership or other business entity shall
continue to operate Tenant's present business in the Demised Premises and the
interest of Tenant named herein in this Lease is not the sole or principal asset
of Tenant named herein and such assignment is made for a good business purpose.
At the time of said proposed assignment, Tenant shall deliver to Owner a
reasonably detailed statement of the financial condition of the aforesaid
proposed assignee, prepared in accordance with generally accepted accounting
principles applied on a consistent basis, sworn to by an executive officer of
Tenant and the proposed Assignee, which statement shall rented the financial
condition of the aforesaid proposed assignee at that time. Notwithstanding
anything contained in this Section to the contrary, such assignment shall not be
valid if the aforesaid proposed assignee shall not have a net worth, at least
equal to that of Tenant as of the date of this Lease or the interest of Tenant
named herein in this Lease is the sole or principal asset of Tenant named herein
or such assignment is not made for a good business purpose. In the event of any
dispute between Owner and Tenant as to the validity of any such assignment such
dispute shall be determined by arbitration in the City of New York in accordance
with the provisions of Subsection 11.03E. Any such determination shall be final
and binding upon the parties whether or not a judgment shall be entered in any
court. If the determination of any such arbitration shall be adverse to Owner,
Owner, nevertheless, shall not be liable to Tenant and Tenant's sole remedy in
such event shall be to have the proposed assignment deemed valid. No such
assignment shall be valid, unless, within ten (10) days after the execution
thereof, Tenant shall deliver to Owner (I) a duplicate original instrument of
assignment in form and substance reasonably satisfactory to
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Owner duly executed by Tenant, acknowledged before a notary public, in customary
and reasonable form and substance in which Tenant shall (a) waive all notices of
default given to the assignee and ail other notices of every kind or
description, now or hereafter provided in this Lease, by statute or by rule of
law; (b) acknowledge that Tenant's obligations with respect to this Lease shall
not be discharged, released or impaired by (i) such assignment; (ii) any
amendment or modification of this Lease (whether or not the obligations of
Tenant are increased thereby); (iii) any further assignment or transfer of
Tenant's interest in this Lease; (iv) any non-exercise or waiver by Owner of any
right, remedy, power or privilege under or with respect to this Lease; (iv) any
waiver, consent, extension, indulgence or other act or omission with respect to
any of the obligations of Tenant under this Lease: (vi) any act or thing which,
but for the provisions of such assignment, might be deemed a legal or equitable
discharge of a surety or assignor, to all of which Tenant shall consent in
advance; it being the purpose and intent of Owner and Tenant that the
obligations of Tenant hereunder as assignor shall be absolute and unconditional
under any and all circumstances; and (II) an instrument in form and substance
reasonably satisfactory to Owner, duly executed by the proposed assignee,
acknowledged before a notary public, in which such proposed assignee shall
assume observance and performance of, and agree to be bound by, all of the
terms, covenants and conditions of this Lease on Tenant's part to be performed.
SECTION 11.09. A. Supplementing the provisions of Article 11,
as long as Tenant is not in default under any of the terms, covenants or
conditions of this Lease on Tenant's part to be observed and performed, after
notice and expiration of applicable cure periods, N2K Inc., Tenant named herein,
shall have the right, without the prior consent of Owner, to assign its interest
in this Lease, for the use permitted in this Lease, to any subsidiary or
affiliate of Tenant named herein, which is in the same general line of business
as Tenant named herein and only for such period as it shall remain such
subsidiary or affiliate. For the purposes of this Article: (a) a "subsidiary" of
Tenant named herein shall mean any corporation not less than fifty-one (51%)
percent of whose outstanding voting stock at the time shall be owned by Tenant
named herein, and (b) an "affiliate" of Tenant named herein shall mean Tenant's
parent and any corporation, partnership or other business entity which controls
or is controlled by, or is under common control with Tenant. For the purpose of
the definition of "affiliate" the word "control" (including, "controlled by" and
"under common control with") as used with respect to any corporation,
partnership or other business entity, shall mean the possession of the power to
direct or cause the direction of the management and policies of such
corporation, partnership or other business entity, whether through the ownership
of voting securities or contract. No such assignment shall be valid or effective
unless, within ten (10) days after the execution thereof, Tenant shall deliver
to Owner all of the following: (I) a duplicate original instrument of
assignment, in form and substance reasonably satisfactory to Owner, duly
executed by Tenant, in customary and reasonable form and substance in which
Tenant shall (a) waive all notices of default given to the assignee, and all
other notices of every kind or description now or hereafter provided in this
Lease, by statute or rule of law, and (b) acknowledge that Tenant's obligations
with respect to this Lease shall not be discharged, released or impaired by (i)
such assignment, (ii) any amendment or modification of this Lease, whether or
not the obligations of Tenant are increased thereby, (iii) any further
assignment or transfer of Tenant's interest in this Lease, (iv) any exercise,
non-exercise or waiver by Owner of any right, remedy, power or privilege under
or with respect to this Lease, (v) any waiver, consent, extension, indulgence or
other act or omission with respect to any other obligations of Tenant under this
Lease, (vi) any act or thing which, but for the provisions of such assignment,
might be deemed a legal or equitable discharge of a surety or
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assignor, to all of which Tenant shall consent in advance, it being the purpose
and intent of Owner and Tenant that the obligations of Tenant hereunder as
assignor shall be absolute and unconditional under any and all circumstances,
and (II) an instrument, in form and substance reasonably satisfactory to Owner,
duly executed by the assignee, in which such assignee shall assume the
observance and performance of, and agree to be bound by, all of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed.
B. Further supplementing the provisions of Article
11, as long as Tenant is not in default under any of the terms, covenants or
conditions of this Lease on Tenant's part to be observed and performed, after
notice and the expiration of applicable cure periods N2K Inc. Tenant named
herein, shall have the right without the prior consent of Owner, to sublet to,
or permit the use or occupancy of, all or any part of the Demised Premises by
any subsidiary or affiliate (as said terms are defined in Section 11.09A.) of
Tenant named herein for the use permitted in this Lease provided that such
subsidiary or affiliate is in the same general line of business as the Tenant
named herein and only for such period as it shall reattain such subsidiary or
affiliate and in the same general line of business as the Tenant named herein.
However, no such subletting shall be valid unless, prior to the execution
thereof, Tenant shall give notice to Owner of the proposed subletting, and
within ten (10) days prior commencement of said subletting, Tenant shall deliver
to Owner an agreement, in form and substance reasonably satisfactory to Owner,
duly executed by Tenant and said subtenant, in which said subtenant shall assume
performance of and agree to be bound by, all of the terms, covenants and
conditions of this Lease which are applicable to said subtenant and such
subletting. Tenant shall give prompt notice to Owner of any such use or
occupancy of all or any part of the Demised Premises and such use or occupancy
shall be subject and subordinate to all of the terms, covenants and conditions
of this Lease. No such use or occupancy shall operate to vest in the user or
occupant any right or interest in this Lease or the Demised Premises. For the
purposes of determining the number of subtenants or occupants in the Demised
Premises, the occupancy of any such permitted subsidiary or affiliate of Tenant
shall be deemed the occupancy of Tenant and such subsidiary or affiliate shall
not be counted as a subtenant or occupant for the purposes of Section 11.03 and
the provisions of Section 11.03 relating to Owner's option to terminate this
Lease and the provisions of Section 11.03 relating to Subletting Profits shall
not be applicable to any proposed subletting to any such subsidiary or affiliate
of Tenant pursuant to the provisions of this Section.
ARTICLE 12
OWNER'S INITIAL CONSTRUCTION
SECTION 12.01. Owner agrees to perform work and make
installations in the Demised Premises as set forth in Addendum A. Such work and
installations are referred to as "Owner's Initial Construction". All of the
terms, covenants and conditions of Addendum A are incorporated in this Lease by
reference and shall be deemed a part of this Lease as though fully set forth in
the body of this Lease.
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ARTICLE 13
ACCESS TO DEMISED PREMISES
SECTION 13.01. OWNER'S RIGHT TO ENTER: Owner and its agents
shall have the following rights in and about the Demised Premises: (i) to enter
the Demised Premises at all times to examine the Demised Premises or for any of
the purposes set forth in this Article or for the purpose of performing any
obligation of Owner under this Lease or exercising any right or remedy reserved
to Owner in this Lease, or complying with any Legal Requirement which Owner is
obligated to comply with hereunder, and if Tenant, its officers, partners,
agents or employees shall not be personally present or shall not open and permit
an entry into the Demised Premises at any time when such entry shall be
necessary or permissible, to use a master key or to forcibly enter the Demised
Premises: (ii) to erect, install, use and maintain pipes, ducts and conduits in
and through the Demised Premises: (iii) to exhibit the Demised Premises to
others; (iv) to make such decorations, repairs, alterations, improvements or
additions, or to perform such maintenance, including, but not limited to, the
maintenance of all heating, air conditioning, ventilating, elevator, plumbing,
electrical, telecommunication and other mechanical facilities, as Owner may deem
necessary or desirable; (v) to take all materials into and upon the Demised
Premises that may be required in connection with any such decorations, repairs,
alterations, improvements, additions or maintenance: add (vi) to alter, renovate
and decorate the Demised Premises at any time during the Demised Term if Tenant
shall have removed all or substantially all of Tenant's property from the
Demised Premises. The lessors under any Superior Lease and the holders of any
Mortgage shall have the right to enter the Demised Premises from time to hum
through their respective employees, agents, representatives and architects to
inspect the same or to cure any default of Owner or Tenant relating thereto.
Owner shall have the right, from time to time, to change the name, number or
designation by which the Building is commonly known which right shall include,
without limitation, the right to name the Building after any tenant of the
Building.
SECTION 13.02. OWNER'S RESERVATION RIGHTS TO PORTIONS OF THE
BUILDING: All parts (except surfaces facing the interior of the Demised
Premises) of all walls, windows and doors bounding the Demised Premises
(including exterior Building walls, core corridor walls, doors and entrances),
all balconies, terraces and roofs adjacent to the Demised Premises, all space in
or adjacent to the Demised Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air conditioning, ventilating,
plumbing, electrical, telecommunication and other mechanical facilities,
closets, service closets and other Building facilities, and the use thereof, as
well as access thereto through the Demised Premises for the purposes of
operation, maintenance, alteration and repair, are hereby reserved to Owner.
Owner also reserves the right at any time to change the arrangement or location
of entrances, passageways, doors, doorways, corridors, elevators, stairs,
toilets and other public parts of the Building, provided any such change does
not permanently and unreasonably obstruct Tenant's access to the Demised
Premises. Nothing contained in this Article shall impose any obligation upon
Owner with respect to the operation, maintenance, alteration or repair of the
Demised Premises or the Building.
SECTION 13.03. ACCESS TO THIRD PARTIES: Owner and its agents
shall have the right to permit access to the Demised Premises, whether or not
Tenant shall be present, to any receiver, trustee, assignee for the benefit of
creditors, sheriff, marshal or court officer entitled to, or reasonably
purporting to be entitled to, such reasonable access for the purpose of taking
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possession of, or removing, any property of Tenant or any other occupant of the
Demised Premises, or for any other lawful purpose, or by any representative of
the fire, police, building, sanitation or other department of the City, State or
Federal Governments. Neither anything contained in this Section, nor any action
taken by Owner under this Section, shall be deemed to constitute recognition by
Owner that any person other than Tenant has any right or interest in this Lease
or the Demised Premises.
SECTION 13.04. NO ACTUAL OR CONSTRUCTIVE EVICTION: The
exercise by Owner or its agents or by the lessor under any Superior Lease or by
the holder of any Mortgage of any right reserved to Owner in this Article shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner, or
its agents, or upon any lessor under any Superior Lease or upon the holder of
any Mortgage, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
SECTION 13.05. Supplementing the provisions of Sections 13.01,
13.02 and 13.03, Owner agrees that except in cases of emergency, any entry upon
the Demised Premises pursuant to the provisions of said Sections shall be made
at reasonable times, and only after reasonable advance notice (which may be
retailed, delivered or left at the Demised Premises, notwithstanding any
contrary provisions of Article 27), and any work performed or installation made
pursuant to said Section shall be made with reasonable diligence and any such
entry, work or installations shall be made in a manner designed to minimize
interference with Tenant's normal business operations (however, nothing
contained in this Section shall be deemed to impose upon Owner any obligation to
employ contractors or labor at so-called overtime or other premium pay rates).
SECTION 13.06. Further supplementing the provisions of
Sections 13.01 and 13.03, Owner's right to exhibit the Demised Premises m others
shall be limited to insurance companies and representatives thereof, prospective
purchasers of the Real Property or the Building, holders or prospective holders
of any mortgage affecting the Real Property or the Building or any ground or
underlying lease, and other legitimate business visitors, and, during the last
eighteen (18) months of the Demised Term, any prospective tenant of the Demised
Premises.
SECTION 13.07. Further supplementing the provisions of Section
13.01, Owner agrees that any pipes, ducts or conduits installed in or through
the Demised Premises during the Demised Term pursuant to the provisions of
Section 13.01, shall either be concealed behind, beneath or within partitioning,
columns, ceilings or floors, or completely furred at points immediately adjacent
to partitioning, columns or ceilings, and that when the installation of such
pipes, ducts or conduits shall be completed, such pipes, ducts or conduits shall
not materially reduce the usable area of the Demised Premises.
SECTION 13.08. In the event that all or part of the Demised
Premises are rendered untenantable by reason of interruption or reduction of
services, Tenant may give to Owner written notice thereof. Owner agrees that if
after the expiration of ten (10) consecutive business days following receipt of
such notice, in which the Demised Premises are so untenantable as hereinabove
provided the Demised Premises or the applicable portion thereof shall continue
to be untenantable by reason of such interruption or reduction of services (but
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excluding any interruption caused by, or repair necessitated by, a casualty, a
taking by exercise of the right of eminent domain or the wrongful acts, wrongful
omissions or negligence of Tenant or anyone claiming by, through or under
Tenant, or their respective employees, agents, contractors or invitees), then,
commencing on the day after the expiration of such consecutive ten (10) day
period in which the Demised Premises are so untenantable as hereinabove
provided, Fixed Rent under Article 1 and increases thereof under Article 23
shall abate until the Demised Premises, or such portion thereof as has been
rendered untenantable, are rendered tenantable, provided, (i) Tenant shall not
have been using or occupying all or such portion of the Demised Premises for the
conduct of its business; and (ii) if less than substantially all of the Demised
Premises are untenantable, Tenant shall continue to pay Fixed Rent under Article
1 and increases thereof under Article 23 with respect to the tenantable portion
of the Demised Premises which is satisfactory for the conduct of Tenant's normal
business based on the proportion that the rentable square feet of the tenantable
portion of the Demised Premises bears to the total rentable square feet of the
Demised Premises.
ARTICLE 14
VAULT SPACE
SECTION 14.01. The Demised Premises do not contain any vaults,
vault space or other space outside the boundaries of the Real Property,
notwithstanding anything contained in this Lease or indicated on any sketch,
blueprint or plan. Owner makes no representation as to the location of the
boundaries of the Real Property. All vaults and vault space and all other space
outside the boundaries of the Real Property which Tenant may be permitted to use
or occupy are to be used or occupied under a revocable license, and if any such
license shall be revoked, or if the amount of such space shall be diminished or
required by any Federal, State or Municipal Authority or by any public utility
company, such revocation, diminution or requisition shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Owner. Any fee, tax or charge
imposed by any governmental authority for any such vault, vault space or other
space shall be paid by Tenant.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.01. Tenant will not at any time use or occupy, or
permit the use or occupancy of the Demised Premises in violation of any
Certificate(s) of Occupancy covering the Demised Premises. Owner agrees that a
temporary or permanent Certificate(s) of Occupancy covering the Demised Premises
will be in force on the Commencement Date permitting the Demised Premises to be
used as "offices". Owner agrees not to change the Certificate(s) of Occupancy
covering the Demised Premises to prevent their use as offices in accordance with
the provisions of this Section. However, neither such agreement, nor any other
provision of this Lease, nor any act or omission of Owner, its agents or
contractors, shall be deemed to constitute a representation or warranty that the
Demised Premises, or any part thereof, may be lawfully used or occupied for any
particular purpose or in any particular manner, in contradistinction to mere
"office" use. In the event that during the Demised Term
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any such Certificate(s) of Occupancy covering the Demised Premises are not in
force and effect and (i) the loss of any such Certificate(s) of Occupancy is due
to the improper acts, improper omissions or negligence of Tenant or any person
claiming through or under Tenant or any of their servants, employees,
contractors, agents, visitors or licensees or (ii) Tenant is not required to
vacate the Demised Premises or any portion thereof by any action, proceeding or
direction of the applicable governmental authority, then neither Owner nor its
agents, nor the lessor under any ground or underlying lease nor the holder of
any mortgage affecting the Building or the Real Property shall have any
liability to Tenant by reason of the fact that any such Certificate(s) of
Occupancy covering the Demised Premises are not in force and effect and no such
fact shall constitute an actual or constructive eviction, in whole or in part,
or entitle Tenant to any abatement or diminution of rent or relieve Tenant from
any of its obligations under this Lease or impose any liability upon Owner.
ARTICLE 16
DEFAULT
SECTION 16.01. EVENTS OF DEFAULT: Upon the occurrence, at any
time prior to or during the Demised Term, of any one or more of the following
events (referred to herein, singly, as an "Event of Default" and collectively as
"Events of Default"):
(A) if Tenant shall default in the payment when due
of any installment of Fixed Rent or any increase in the Fixed
Rent or in the payment when due of any additional rent and
such default shall continue for a period of ten (10) days
after notice by Owner to Tenant of such default; or
(B) if Tenant shall default in the observance or
performance of any term, covenant or condition of this Lease
on Tenant's part to be observed or performed (other than the
covenants for the payment of Fixed Rent, any increase in the
Fixed Rent and additional rent) and Tenant shall fail to
remedy such default within thirty (30) days after notice by
Owner to Tenant of such default, or if such default is of such
a nature that it cannot be completely remedied within said
period of thirty (30) days and Tenant shall not commence,
promptly after receipt of such notice, or shall not thereafter
diligently prosecute to completion, all steps necessary to
remedy such default; or
(C) if Tenant shall file a voluntary petition in
bankruptcy or insolvency, or shall be adjudicated a bankrupt
or insolvent, or shall file any petition or answer seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present
or any future federal bankruptcy act or any other present or
future applicable federal, state or other statute or law, or
shall make an assignment for the benefit of creditors, or
shall seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of Tenant or of all or any
part of Tenant's property; or
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(D) if, within ninety (90) days after the
commencement of any proceeding against Tenant, whether by the
filing of a petition or otherwise, seeking any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future
federal bankruptcy act or any other present or future
applicable federal, state or other statute or law, such
proceeding shall not have been dismissed, or if, within ninety
(90) days after the appointment of any trustee, receiver or
liquidator of Tenant, or of all or any part of Tenant's
property, without the consent or acquiescence of Tenant, such
appointment shall not have been vacated or otherwise
discharged, or if any execution or attachment shall be issued
against Tenant or any of Tenant's property pursuant to which
the Demised Premises shall be taken or occupied or attempted
to be taken or occupied; or
(E) if Tenant shall default in the observance or
performance of any term, covenant or condition on Tenant's
part to be observed or performed under any other lease with
Owner of space in the Building and such default shall continue
beyond any grace period set forth in such other lease for the
remedying of such default; or
(F) if (i) Tenant's interest in this Lease shall
devolve upon or pass to any person, whether by operation of
law or otherwise, or (ii) there shall be any sale, pledge,
transfer or other alienation described in Section 11.01 of
this Lease which is deemed an assignment of this Lease for
purposes of said Section 11.01, except as expressly permitted
under Article 11;
then, during such time as such Event(s) of Default is/are continuing, Owner may
at any time, at Owner's option, give to Tenant a five (5) days' notice of
termination of this Lease and, in the event such notice is given, this Lease and
the Demised Term shall come to an end and expire (whether or not said term shall
have commenced) upon the expiration of said five (5) days with the same effect
as if the date of expiration of said five (5) days were the Expiration Date, but
Tenant shall remain liable for damages and all other sums payable pursuant to
the provisions of Article 18.
SECTION 16.02. "TENANT"/MONEYS RECEIVED: If, at any time (i)
Tenant shall be comprised of two (2) or more persons, or (ii) Tenant's
obligations under this Lease shall have been guaranteed by any person other than
Tenant, or (iii) Tenant's interest in this Lease shall have been assigned, the
word "Tenant", as used in Subsections (c) and (d) of Section 16.01, shall be
deemed to mean any one or more of the persons primarily or secondarily liable
for Tenant's obligations under this Lease. Any monies received by Owner from or
on behalf of Tenant during the pendency of any proceeding of the types referred
to in said Subsections (c) and (d) shall be deemed paid as compensation for the
use and occupation of the Demised Premises and the acceptance of any such
compensation by Owner shall not be deemed an acceptance of rent or a waiver on
the part of Owner of any rights under Section 16.01.
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ARTICLE 17
REMEDIES
SECTION 17.01. OWNER'S RIGHT OF RE-ENTRY AND RIGHT TO RELET:
If Tenant shall default in the payment when due of any installment of Fixed Rent
or in the payment when due of any increase in the fixed Rent or any additional
rent, or if this Lease and the Demised Term shall expire and come to an end as
provided in Article 16:
(A) Owner and its agents and servants may
immediately, or at any time after such default or after the
date upon which this Lease and the Demised Term shall expire
and come to an end, re-enter the Demised Premises or any part
thereof, without notice, either by summary proceedings or by
any other applicable action or proceeding, or by force or
otherwise which is permitted by law (without being liable to
indictment, prosecution or damages therefor), and may
repossess the Demised Premises and dispossess Tenant and any
other persons from the Demised Premises and remove any and all
of their property and effects from the Demised Premises; and
(B) Owner, at Owner's option, may relet the whole or
any part or parts of the Demised Premises, from time to time,
either in the name of Owner or otherwise, to such tenant or
tenants, for such term or terms ending before, on or after the
Expiration Date, at such rental or rentals and upon such other
conditions, which may include concessions and free rent
periods, as Owner, in its sole discretion, may determine.
Owner shall have no obligation to relet the Demised Premises
or any part thereof and shall in no event be liable for
refusal or failure to relet the Demised Premises or any part
thereof, or, in the event of any such reletting, for refusal
or failure to collect any rent due upon any such reletting,
and no such refusal or failure shall operate to relieve Tenant
of any liability under this Lease or otherwise to affect any
such liability; Owner, at Owner's option, may make such
repairs, replacements, alterations, additions, improvements,
decorations and other physical changes in and to the Demised
Premises as Owner, in its sole discretion, considers advisable
or necessary in connection with any such reletting or proposed
reletting, without relieving Tenant of any liability under
this Lease or otherwise affecting any such liability.
SECTION 17.02. WAIVER OF RIGHT TO REDEEM, ETC.: Tenant hereby
waives the service of any notice of intention to re-enter or to institute legal
proceedings to that end which may otherwise be required to be given under any
present or future law. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does further hereby
waive any and all rights which Tenant and all such persons might otherwise have
under any present or future law to redeem the Demised Premises, or to re-enter
or repossess the Demised Premises, or to restore the operation of this Lease,
after (i) Tenant shall have been dispossessed by a judgment or by warrant of any
court or judge, or (ii) any lawful re-entry by Owner, or (iii) any expiration or
termination of this Lease and the Demised Term, whether such dispossess,
re-entry, expiration or termination shall be by operation of law or pursuant to
the provisions of this Lease. The words "re-enter", "re-entry" and "re-entered"
as used in this Lease shall not be deemed to be restricted to their technical
legal
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meanings. In the event of a breach or threatened breach by Tenant, or any
persons claiming through or under Tenant, of any term, covenant or condition of
this Lease on Tenant's part to be observed or performed, Owner shall have the
right to enjoin such breach and the right to invoke any other remedy allowed by
law or in equity as if re-entry, summary proceedings and other special remedies
were not provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth in this Lease is cumulative and shall not
preclude Owner from invoking any other remedy allowed by law or in equity. Owner
agrees that the first sentence of this Section 17.02 shall not be deemed a
waiver of Tenant's right to be served with any notice of petition and petition
in any summary proceedings under the provisions of the Real Property Actions and
Proceedings Law of the State of New York and any successor law of like import
then in force.
ARTICLE 18
DAMAGES
SECTION 18.01. AMOUNT OF OWNER'S DAMAGES: If this Lease and
the Demised Term shall expire and come to an end as provided in Article 16, or
by or under any summary proceeding or any other action or proceeding, or if
Owner shall re-enter the Demised Premises as provided in Article 17, or by or
under any summary proceeding or any other action or proceeding, then, in any of
said events:
(A) Tenant shall pay to Owner all Fixed Rent,
additional rent and other charges payable under this Lease by
Tenant to Owner to the date upon which this Lease and the
Demised Term shall have expired and come to an end or to the
date of re-entry upon the Demised Premises by Owner, as the
case may be; and
(B) Tenant shall also be liable for and shall pay to
Owner, as damages, any deficiency (referred to as a
"Deficiency") between the Fixed Rent reserved in this Lease
for the period which otherwise would have constituted the
unexpired portion of the Demised Term and the net amount, if
any, of rents collected under any reletting effected pursuant
to the provisions of Section 17.01 for any part of such period
(first deducting from the rents collected under any such
reletting all of Owner's expenses in connection with the
termination of this Lease or Owner's re-entry upon the Demised
Premises and with such reletting including, but not limited
to, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, alteration costs and other expenses
of preparing the Demised Premises for such reletting). Any
such Deficiency shall be paid in monthly installments by
Tenant on the days specified in this Lease for payment of
installments of Fixed Rent. Owner shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise,
and no suit to collect the amount of the Deficiency for any
month shall prejudice Owner's right to collect the Deficiency
for any subsequent month by a similar proceeding. Solely for
the purposes of this Subsection (b), the term "Fixed Rent"
shall mean the Fixed Rent in effect immediately prior to the
date upon which this Lease and the Demised Term shall have
expired and come to
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an end, or the date of re-entry upon the Demised Premises by
Owner, as the case may be, adjusted, from time to time, to
reflect any increases which would have been payable pursuant
to any of the provisions of this Lease including, but not
limited to, the provisions of Article 23 of this Lease if the
term hereof had not been terminated; and
(C) At any time after the Demised Term shall have
expired and come to an end or Owner shall have re-entered upon
the Demised Premises, as the case may be, as a result of any
Event of Default set forth in Subsection (c) or (d) of Section
16.01 whether or not Owner shall have collected any monthly
Deficiencies as aforesaid, Owner shall be entitled to recover
from Tenant, and Tenant shall pay to Owner, on demand, as and
for liquidated and agreed final damages, a sum equal to the
amount by which the Fixed Rent reserved in this Lease for the
period which otherwise would have constituted the unexpired
portion of the Demised Term exceeds the then fair and
reasonable rental value of the Demised Premises for the same
period, both discounted to present worth at the rate of eight
(8%) percent per annum. If, before presentation of proof of
such liquidated damages to any court, commission or tribunal,
the Demised Premises, or any part thereof, shall have been
relet by Owner for the period which otherwise would have
constituted the unexpired portion of the Demised Term, or any
part thereof, the amount of rent reserved upon such reletting
shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Demised Premises
so relet during the term of the reletting. Solely for the
purposes of this Subsection (c), the term "Fixed Rent" shall
mean the Fixed Rent in effect immediately prior to the date
upon which this Lease and the Demised Term shall have expired
and come to an end, or the date of re-entry upon the Demised
Premises by Owner, as the case may be, adjusted to reflect any
increases pursuant to the provisions of Article 23 for the
Escalation Year and Tax Escalation Year immediately preceding
such event.
SECTION 18.02. RENTS UNDER RELETTING: If the Demised Premises,
or any part thereof, shall be relet together with other space in the Building,
the rents collected or reserved under any such reletting and the expenses of any
such reletting shall be equitably apportioned for the purposes of this Article
18. Tenant shall in no event be entitled to any rents collected or payable under
any reletting, whether or not such rents shall exceed the Fixed Rent reserved in
this Lease. Nothing contained in Articles 16, 17 or this Article shall be deemed
to limit or preclude the recovery by Owner from Tenant of the maximum amount
allowed to be obtained as damages by any statute or rule of law, or of any sums
or damages to which Owner may be entitled in addition to the damages set forth
in Section 18.01.
ARTICLE 19
FEES AND EXPENSES; INDEMNITY
SECTION 19.01. OWNER'S RIGHT TO CURE TENANT'S DEFAULT: If
Tenant shall default in the observance or performance of any term, covenant or
condition of this Lease on Tenant's part to be observed or performed, Owner, at
any time thereafter and without notice in
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cases of emergency and in other cases after the expiration of thirty (30) days
after notice by Owner to Tenant thereof, may remedy such default for Tenant's
account and at Tenant's expense, without thereby waiving any other rights or
remedies of Owner with respect to such default.
SECTION 19.02. TENANT'S INDEMNITY AND LIABILITY INSURANCE
OBLIGATIONS: A. Tenant agrees to indemnify and save Owner and "Owner's
Indemnitees" (as hereinafter defined) harmless of and from all loss, cost,
liability, damage and expense including, but not limited to, reasonable counsel
fees, penalties and fines incurred in connection with or arising from (i) any
default by Tenant in the observance or performance of any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed, or (ii) the breach or failure of any representation or warranty made
by Tenant in this Lease, or (iii) the use or occupancy or manner of use or
occupancy of the Demised Premises by Tenant or any person claiming through or
under Tenant, or (iv) any acts, omissions or negligence of Tenant or any such
person, or the contractors, agents, servants, employees, visitors or licensees
of Tenant or any such person, in or about the Demised Premises or the Building
either prior to, during, or after the expiration of, the Demised Term,
including, but not limited to, any acts, omissions or negligence in the making
or performing of any Alterations. Tenant further agrees to indemnify and save
harmless Owner and Owner's Indemnitees of and from all loss, cost, liability,
damage and expense, including, but not limited to, reasonable counsel fees and
disbursements incurred in connection with or arising from any claims by any
persons by reason of injury to persons or damage to property occasioned by any
use, occupancy, act, omission or negligence referred to in the preceding
sentence. "Owner's Indemnitees" shall mean the Owner, the shareholders or the
partners comprising Owner and its and their partners and shareholders, officers,
directors, employees, agents (including, without limitation, any leasing and
managing agents) and contractors together with the lessor under any Superior
Lease and the holder of any Mortgage. If any action or proceeding shall be
brought against Owner or Owner's Indemnitees based upon any such claim and if
Tenant, upon notice from Owner, shall cause such action or proceeding to be
defended at Tenant's expense by counsel acting for Tenant's insurance carriers
in connection with such defense or by other counsel reasonably satisfactory to
Owner, without any disclaimer of liability by Tenant or such insurance carriers
in connection with such claim, Tenant shall not be required to indemnify Owner
and Owner's Indemnitees for counsel fees in connection with such action or
proceeding.
B. Throughout the Demised Term Tenant shall maintain
comprehensive public liability and water legal liability insurance against any
claims by reason of personal injury, death and property damage occurring in or
about the Demised Premises covering, without limitation, the operation of any
private air conditioning equipment and any private elevators, escalators or
conveyors in or serving the Demised Premises or any part thereof, whether
installed by Owner, Tenant or others, and shall furnish to Owner duplicate
original policies of such insurance at least ten (10) days prior to the
Commencement Date and at least ten (10) days prior to the expiration of the term
of any such policy previously furnished by Tenant, in which policies Owner and
Owner's Indemnitees shall be named as parties insured, which policies shall be
issued by companies, and shall be in form and amounts, satisfactory to Owner.
SECTION 19.03. PAYMENTS: Tenant shall pay to Owner, within
fifteen (15) days next following rendition by Owner to Tenant of bills or
statements therefor: (i) sums
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equal to all expenditures made and monetary obligations incurred by Owner
including, but not limited to, expenditures made and obligations incurred for
reasonable counsel fees and disbursements, in connection with the remedying by
Owner, for Tenant's account pursuant to the provisions of Section 19.01, of any
default of Tenant, and (ii) sums equal to all losses, costs, liabilities,
damages and expenses referred to in Section 19.02, and (iii) sums equal to all
expenditures made and monetary obligations incurred by Owner including, but not
limited to, expenditures made and obligations incurred for reasonable counsel
fees and disbursements, in collecting or attempting to collect the Fixed Rent,
any additional rent or any other sum of money accruing under this Lease or in
enforcing or attempting to enforce any rights of Owner under this Lease or
pursuant to law, whether by the institution and prosecution of summary
proceedings or otherwise, and (iv) all other sums of money (other than Fixed
Rent) accruing from Tenant to Owner under the provisions of this Lease. Any sum
of money (other than Fixed Rent) accruing from Tenant to Owner pursuant to any
provision of this Lease including, but not limited to, the provisions of
Addendum A, whether prior to or after the Commencement Date, may, at Owner's
option, be deemed additional rent, and Owner shall have the same remedies for
Tenant's failure to pay any item of additional rent when due as for Tenant's
failure to pay any installment of Fixed Rent when due. Tenant's obligations
under this Article shall survive the expiration or sooner termination of the
Demised Term.
SECTION 19.04. TENANT'S LATE PAYMENTS - LATE CHARGES: If
Tenant shall fail to make payment of any installment of Fixed Rent or any
increase in the Fixed Rent or any additional rent within ten (10) days after the
date when such payment is due after more than two (2) occasions in any calendar
year, Tenant shall pay to Owner, in addition to such installment of Fixed Rent
or such increase in the Fixed Rent or such additional rent, as the case may be,
as a late charge and as additional rent, a sum equal to two (2%) percent per
annum above the then current prime rate (as the term "prime rate" is defined in
Section 31.03) charged by Chemical Bank or its successor of the amount unpaid
computed from the date such payment was due to and including the date of
payment.
SECTION 19.05. Owner agrees to indemnify and save Tenant
harmless of and from all loss, cost, liability, damage and expense, including,
but not limited to, reasonable counsel fees, penalties and fines incurred in
connection with or arising from (i) any default by Owner in the performance or
observance of any of the terms, covenants or conditions of this Lease on Owner's
part to be observed or performed, or (ii) any acts, omissions or negligence of
Owner or its employees, agents, contractors or servants in or about the Demised
Premises or the Building either prior to, during, or after, the expiration of
the Demised Term. Owner further agrees to indemnify and save harmless Tenant and
its agents of and from all loss, cost, liability, damage, and expense,
including, but not limited to, reasonable counsel fees incurred in connection
with or arising from any claims by any persons or damage to property occasioned
by any act, omission or negligence referred to in the preceding sentence. If any
action or proceeding shall be brought against Tenant or Tenant's agents based
upon any such claim and if Owner, upon notice from Tenant, shall cause such
action or proceeding to be defended at Owner's expense by counsel acting for
Owner's insurance carriers in connection with such defense or by other counsel
reasonably satisfactory to Tenant, without any disclaimer of liability by Owner
in connection with such claim, Owner shall not be required to indemnify Tenant
or Tenant's agents for counsel fees in connection with such action or
proceeding.
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SECTION 19.06. Owner shall pay to Tenant, within five (5) days
next following rendition by Tenant to Owner of statements therefor, or shall
credit Tenant, at Owner's election, against the next accruing monthly
installments of Fixed Rent, sums equal to all loss, costs, liabilities, damages
and expenses referred to in Section 19.05. Owner's obligations under this
Article shall survive the expiration or sooner termination of the Demised Term.
ARTICLE 20
ENTIRE AGREEMENT
SECTION 20.01. ENTIRE AGREEMENT: This Lease contains the
entire agreement between the parties and all prior negotiations and agreements
are merged in this Lease. Neither Owner nor Owner's agents have made any
representations or warranties with respect to the Demised Premises, the
Building, the Real Property or this Lease except as expressly set forth in this
Lease and no rights, easements or licenses are or shall be acquired by Tenant by
implication or otherwise unless expressly set forth in this Lease. This Lease
may not be changed, modified or discharged, in whole or in part, orally and no
executory agreement shall be effective to chant modify or discharge, in whole or
in part, this Lease or any provisions of this Lease, unless such agreement is a
forth in a written instrument executed by the party against whom enforcement of
the change, modification or discharge is sought. All references in this Lease to
the consent or approval of Owner shall be deemed to mean the written consent of
Owner, or the written approval of Owner, as the case may be, and no consent or
approval of Owner shall be effective for any purpose unless such consent or
approval is set forth in a written instrument executed by Owner.
ARTICLE 21
END OF TERM
SECTION 21.01. END OF TERM: On the date upon which the Demised
Term shall expire and come to an end, whether pursuant to any of the provisions
of this Lease or by operation of law, and whether or prior to the Expiration
Date, Tenant, at Tenant's sole cost and expense, (i) shall quit and surrender
the Demised Premises to Owner, broom clean and in good order and condition,
ordinary wear excepted, and (ii) shall remove all of Tenant's Personal Property
and all other property and effects of Tenant and all persons claiming through or
under Tenant (including, but not limited to, all telecommunications facilities)
from the Demised Premises and the Building, and (iii) shall repair all damage to
the Demised Premises and the Building occasioned by such removal. Owner shall
have the right to retain any property and effects which shall remain in the
Demised Premises after fifteen (15) days following the giving of a notice by
Owner to Tenant requesting such property be removed, which notice may be given
at any time after the expiration or sooner termination of the Demised Term, and
any net proceeds from the sale thereof, without waiving Owner's rights with
respect to any default by Tenant under the foregoing provisions of this Section.
Tenant expressly waives, for itself and for any person claiming through or under
Tenant, any rights which Tenant or any such person may have under the provisions
of Section 2201 of the New
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York Civil Practice Law and Rules and of any successor law of like import then
in force, in connection with any holdover summary proceedings which Owner may
institute to enforce the foregoing provisions of this Article. If said date upon
which the Demised Term shall expire and come to an end shall fall on a Sunday or
holiday, then Tenant's obligations under the first sentence of this Section
shall be performed on or prior to the Saturday or business day immediately
preceding such Sunday or holiday. Tenant's obligations under this Section shall
survive the expiration or sooner termination of the Demised Term.
ARTICLE 22
QUIET ENJOYMENT
SECTION 22.01. QUIET ENJOYMENT: Owner covenants and agrees
with Tenant that upon Tenant paying the Fixed Rent and additional rent reserved
in this Lease and observing and performing all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the Demised Premises during the Demised Term,
subject, however, to the terms, covenants and conditions of this Lease
including, but not limited to, the provisions of Section 37.01, and subject to
the Superior Lease and the Mortgage referred to in Section 7.01.
ARTICLE 23
TAX PAYMENTS AND OPERATING ESCALATION
SECTION 23.01. DEFINITIONS: In the determination of any
increase in the Fixed Rent under the provisions of this Article, Owner and
Tenant agree that the following terms shall have the following meanings:
A. The term "Tax Escalation Year" shall mean each fiscal year
commencing July 1st and ending on the following June 30th which shall include
any part of the Demised Term.
B. The term "Escalation Year" shall mean each calendar year
which shall include any part of the Demised Term.
C. The term "Taxes" shall be deemed to mean a sum equal to the
aggregate of: (i) the product determined by multiplying (a) the then applicable
full New York City real estate tax rate in effect with respect to the Borough of
Manhattan by (b) the then applicable assessed valuation of the Real Property (as
the same may be abated pursuant to the ICIP Program ([as hereinafter defined])
plus (ii) amounts assessed by any business improvement district in which the
Real Property is located plus (iii) any other assessments, special or otherwise,
upon or with respect to the Real Property imposed by the City or Country of New
York or any other taxing authority. If, due to any change in the method of
taxation, any franchise, income, profit, sales, rental, use and occupancy or
other tax or payments in lieu of any such taxes shall be substituted for, or
levied against Owner or any owner of the
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Building or the Real Property, in lieu of any real estate taxes or assessments
upon or with respect to the Real Property, such tax or payments in lieu of any
such taxes shall be included in the term Taxes for the purposes of this Article.
Notwithstanding anything to the contrary set forth in this Lease (including, but
not limited to, the provisions of Section 23.02) Taxes shall not include any
sums or amounts unless Owner is required to pay a corresponding sum or amount to
the appropriate taxing authority, business improvement district, tenant (as in
connection with payments or rent credits given or granted in connection with a
so called Pilot Program or the Tax Abatement Program [as hereinafter defined])
condominium owner or other bona fide person, which payments may be made either
by direct payments or direct credits granted to the appropriate taxing
authority, business improvement district, condominium owner, tenant or other
bona fide person or otherwise, it being the intention of the parties that Taxes
shall include only the aggregate amounts of money which Owner is obligated to
pay or credit to bona fide others in connection with any impositions, or sums
directly or indirectly in lieu thereof, which are levied or imposed against the
Real Property.
D. The term "Demised Premises Area" shall mean 13,319 square
feet.
E. The term "Building Area" shall mean 398,537 square feet. In
the event that at any time during the Demised Term Owner increases the "Building
Area" for any other tenant for the purposes of escalation then the "Building
Area" set forth in this Lease, automatically, shall be deemed increased to the
same amount as of the date of such increase for such other tenant.
F. The term "Tenant's Proportionate Share" shall mean the
fraction, the denominator of which is the Building Area and the numerator of
which is the Demised Premises Area.
G. (1) The term "Operating Expenses" shall, subject to the
provisions of Paragraph (2) of this Subsection 23.01.G, mean the aggregate
reasonable cost and expense actually incurred by Owner in the operation,
maintenance, management and security of the Real Property and any plazas,
sidewalks and curbs adjacent thereto including, without limitation, the cost and
expense of the following:
(a) salaries, wages, medical, surgical and general
welfare and other so-called "fringe" benefits (including group insurance and
retirement benefits) for employees (including, but not limited to, employees who
provide twenty-four (24) hour services, seven (7) days per week throughout the
year) of Owner or any contractor of Owner engaged in the cleaning, operation,
maintenance or management of the Real Property, or engaged for security purposes
and/or for receiving or transmitting deliveries to and from the Building, and
payroll taxes and workmen's compensation insurance premiums relating thereto,
(b) gas, steam, water and sewer rental,
(c) thirty-five (35%) percent of all electrical costs
incurred in the of the Building, provided, however, in the event that Owner
discontinues the redistribution or furnishing of electrical energy to the
tenants and occupants of the Building, then the cost and expense incurred by
Owner
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for electricity shall thereafter be deemed to be one hundred
(100%) percent of (i) the total cost and expense to Owner of
purchasing electricity for the Building less (ii) any
reimbursement to Owner by the tenants in the Building for the
payment for the Floor HVAC Units and the Floor Public Light
and Power (as said terms are defined in Section 29.05),
(d) utility taxes,
(e) rubbish removal,
(f) fire, casualty, liability, rent and
other insurance carried by Owner,
(g) repairs, repainting, replacement,
maintenance of grounds, and Included Improvements (as provided
in Paragraph (2) of this Subsection 23.01.G),
(h) Building supplies,
(i) uniforms and cleaning thereof,
(j) snow removal,
(k) window cleaning,
(l) service contracts with independent
contractors for any of the foregoing (including, but not
limited to, elevator, heating, air conditioning, ventilating,
sprinkler system, fire alarm and telecommunication equipment
maintenance),
(m) management fees (whether or not paid to
any person, firm or corporation having an interest in or under
common ownership with Owner or any of the persons, firms or
corporations comprising Owner) in the amount of one ($1.00)
dollar per rentable square foot of the Building Area in the
first Escalation Year which amount for management fees shall
increase in each Escalation Year subsequent to the first
Escalation Year by the same percentage of increase as the
percentage of increase in the aggregate of all other Operating
Expenses,
(n) legal fees and disbursements and other
expenses (excluding, however, legal fees and expenses incurred
in connection with any application or proceeding brought for
reduction of the assessed valuation of the Real Property or
any part thereof or legal fees and expenses incurred in
landlord/tenant matters),
(o) auditing fees,
(p) deleted,
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(q) all costs of compliance under the
provisions of any present or future Superior Lease other than
the payment of rental and impositions thereunder and increases
in the basic rent under such leases as a result of adjustments
in such basic rent, and
(r) all other costs and expenses incurred in
connection with the operation, maintenance, management and
security of the Real Property, and any plazas, sidewalks and
curbs adjacent thereto.
(2) The cost and expense of the following
shall be excluded from the calculation of operating expenses:
(a) leasing commissions and advertising and
promotional expenses;
(b) executives' salaries above the grade of
building manager and superintendent;
(c) capital improvements and replacements
which under general accepted accounting principles and
practice would be classified as capital expenditures, except
the cost and expense of any improvement, alteration,
replacement or installation which is either (i) required by
any Legal Requirement, or (ii) designed, in Owner's reasonable
judgment, to result in savings or reductions in Operating
Expenses or (iii) designed, in Owner's reasonable judgment, to
benefit the tenants of the Building (such improvements,
alterations, replacements and installations are referred to as
"Included Improvements"); the cost and expense of Included
Improvements whenever made shall be included in Operating
Expenses for any Escalation Year to the extent of (x) the
annual amortization or depreciation of the cost and expense to
Owner of such Included Improvements, as amortized on a
straight line basis over fifteen (15) years allocable to such
Escalation Year plus (y) an annual charge for interest upon
the unamortized or undepreciated portions of such cost and
expense at the average prime rate during the Escalation Year
in question (provided, however, with respect to the Included
Improvements referred to in (ii), the amount of such Included
Improvements included in Operating Expenses for any such
Escalation Year, inclusive of such charge for interest for
such Year allocable to such Included Improvement, shall not
exceed the amount of such savings or reductions for such
Escalation Year unless such savings or reductions in Operating
Expenses for prior Escalation Years exceeded, in the
aggregate, the amounts, inclusive of interest, paid by Tenant
to Owner with respect to such Included Improvements for such
prior Escalation Years (any such excess is referred to as a
"Shortfall"), in which event the amount of such Included
Improvements inclusive of interest included in Operating
Expenses for such Escalation Year shall not exceed the total
of the amount of such savings or reductions in Operating
Expenses for such Escalation Year plus such Shortfall as
aforesaid;
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(d) any other item which under generally
accepted accounting principles and practice would not be
regarded as an operating, maintenance or management expense;
(e) any item for which Owner is compensated
through proceeds of insurance;
(f) any specific compensation which Owner
receives from any tenant for services rendered to such tenant
by Owner above and beyond those services generally rendered by
Owner to tenants in the Building without specific compensation
therefor; and
(g) sixty-five (65%) percent of all
electrical costs incurred in the operation of the Building,
provided, however, in the event that Owner discontinues the
redistribution or furnishing of electrical energy to the
tenants and occupants of the Building, then the aforesaid
exclusion of sixty-five (65%) percent of such electrical costs
shall not apply;
(h) costs incurred in connection with the
original construction of the Building or in connection with
any major change in the Building, such as adding or deleting
floors which under generally accepted accounting principles
consistently applied are properly classified as capital
expenditure;
(i) deleted;
(j) depreciation or amortization;
(k) interest and principal payments on
mortgages and other debt costs, if any;
(l) costs of correcting defects in or
inadequacy of the design or construction of the Building;
(m) expenses directly resulting from the
negligence of the Owner, its agents, servants or employees or
another tenant;
(n) legal fees, space planners' fees, real
estate brokers' leasing commissions, accountants, consultants,
other third party experts and advertising expenses incurred in
connection with the original development or original leasing
of the Building or current or future leasing of the Building;
(o) costs for which Owner is reimbursed by
any tenant or occupant of the Building or by insurance by its
carrier or any tenant's carrier or by anyone else (excluding
any reimbursement from tenants pursuant to additional rent or
rent escalation provisions in the nature of this Article 23);
(p) any bad debt loss, rent loss, or
reserves for bad debts or rent loss;
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(q) costs associated with the operation of
the business of the partnership or entity which constitutes
the Owner, as the same are distinguished from the costs of
operation of the Building, including partnership accounting
and legal matters, costs of defending any lawsuits with any
mortgagee (except as the actions of Tenant may be in issue),
costs of selling, syndicating, financing, mortgaging or
hypothecating any of Owner's interest in the Building, costs
(including attorney's fees and costs of settlement judgments
and payments in lieu thereof) arising from the claims,
disputes or potential disputes in connection with potential or
actual claims, litigation or arbitrations pertaining to Owner
and/or the Building and/or the site upon which the Building is
situated;
(r) the wages and benefits of any executive
or administrative employee above building manager or
supervisor or any non-executive employee to the extent it does
not devote substantially all of his or her time to the
Building;
(s) fines, penalties and interest;
(t) amounts paid by Owner under any ground
lease;
(u) any recalculation of or additional
operating costs actually incurred more than two (2) years
prior to the year in which Owner proposes that such costs be
included;
(v) costs incurred in the removal,
containment, encapsulation, or disposal of or repair or
cleaning of areas affected by asbestos or other substances
installed by Owner in the Building which, at the time of such
installation, were deemed by any applicable federal, state or
municipal law, order, rule or regulation to be hazardous to
health or the environment and which were installed in
violation of law;
(w) costs incurred by Owner with respect to
goods and services (including utilities sold and supplied to
tenants and occupants of the Building) to the extent that
Owner would be entitled to reimbursement for such costs if
incurred by Tenant pursuant to this lease;
(x) costs, including permit, license and
inspection costs, incurred with respect to the installation of
tenant improvements made for new tenants in the Building or
incurred in renovating or otherwise improving, decorating,
painting or redecorating vacant space for tenants or other
occupants of the Building except for such costs which are
repairs which would have been made in the absence of such
leasing to such new tenants;
(y) Expenses in connection with services or
other benefits which are not provided to Tenant or for which
Tenant is charged directly but which are provided to another
tenant or occupant of the Building without a separate charge;
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(z) Overhead and profit increment paid to
Owner or to subsidiaries or affiliates of Owner for services
in the Building to the extent the same exceeds the costs of
such services rendered by unaffiliated third parties on a
competitive basis;
(aa) any compensation paid to clerks,
attendants or other persons in commercial concessions operated
by Owner;
(bb) rentals and other related expenses
incurred in leasing air conditioning systems, elevators or
other equipment ordinarily considered to be a capital nature
if purchased subject to subparagraph "c" with respect to
Included Improvements;
(cc) all items and services for which Tenant
or any other tenant in the Building reimburses Owner or which
Owner provides selectively to one or more tenants (other than
Tenant) without reimbursement;
(dd) electric power costs for which any
other tenant directly contracts with the local public service
company and pays therefor;
(ee) costs arising from Owner's political or
charitable contributions;
(ff) costs, other than those incurred in
ordinary maintenance, for sculpture, paintings or other
objects of art;
(gg) tax penalties incurred as a result of
Owner's negligence, inability or unwillingness to make
payments when due;
(hh) costs arising from the gross negligence
or fault of Owner or its agents, or any vendors, contractors,
or providers of materials or services selected or engaged by
Owner or its agents including, without limitation, the
selection of building materials;
(ii) Owner's general corporate overhead and
general and administrative expenses;
(jj) costs incurred by Owner due to the
violation by Owner or any tenant of the terms and conditions
of any lease of space in the Building;
(kk) the cost of any work or services
performed or other expenses incurred in connection with
installing, operating and maintaining any specialty service or
facility other than Common Building Facilities (e.g., an
observatory, broadcasting facility or any luncheon, athletic
or recreational club), provided, however, the exclusion set
forth in this subdivision (kk) shall not apply to the cost of
any building services furnished to an area of space leased to
another tenant and used by such tenant for such purposes for
itself alone (the term "Common Building Facilities" shall mean
all of the common
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facilities in or around the Building designed and intended for
use by the tenants of the Building in common with Owner and
each other, including, but not limited to, hallways, fire
stairs, elevator shaftways, voice, data and signal equipment,
if any, telephone and electric closets, truckdocks, public
restrooms, service areas, lobbies, landscaped areas, and all
other common and service areas of the Real Property and
Building).
H. The term "Base Operating Expenses" shall mean the sum of
$2,391,222.00. In the event that during the calendar year 1995 Owner enters into
a lease with any other non-retail space tenants in which Owner increases the sum
of Base Operating Expenses for any such other non-retail space tenant for the
purposes of escalation, then Base Operating Expenses set forth in this Lease,
automatically, shall be deemed increased to the same amount as of the date of
such increase for such other non-retail space tenant.
I. The term "Owner's Tax Statement" shall mean an instrument
containing a computation of any increase in the Fixed Rent in reasonable detail
pursuant to the provisions of Section 23.02A. of this Article.
J. The term "Owner's Operating Expense Statements" shall mean
an instrument in reasonable detail containing a computation of any increase in
the Fixed Rent pursuant to the provisions of Section 23.04 of this Article.
K. The term "Monthly Escalation Installment" shall mean a sum
equal to one-twelfth (1/12th) of the increase in the Fixed Rent payable pursuant
to the provisions of Subsection 23.04 A. for the Escalation Year with respect to
which Owner has most recently rendered an Owner's Operating Expense Statement,
appropriately adjusted to reflect (i) in the event such Escalation Year is a
partial calendar year, the increase in the Fixed Rent which would have been
payable for such Escalation Year if it had been a full calendar year, and (ii)
the amount by which current Operating Expenses as reasonably estimated by Owner
exceed Operating Expenses as reflected in such Owner's Operating Expense
Statement, and (iii) any net credit balance to which Tenant may be entitled
pursuant to the provisions of Subsection 23.05 C.
L. The term "Monthly Escalation Installment Notice" shall mean
a notice given by Owner to Tenant which sets forth the current Monthly
Escalation Installment; such Notice may be contained in a regular monthly rent
bill, in an Owner's Operating Expense Statement, or otherwise, and may be given
from time to time, at Owner's election.
M. Owner has applied for a certificate of eligibility from the
Department of Finance of the City of New York determining that Owner is eligible
to apply for exemption from tax payments for the Real Property pursuant to the
provisions of Section 11-256 through 11-267 (the "ICIP Program") of the
Administrative Code of the City of New York and the regulations promulgated
pursuant to the ICIP Program. Any such tax exemption for the Real Property is
referred to as "Tax Exemption" and the period of such Tax Exemption is referred
to as the "Tax Exemption Period." Owner agrees that Tenant shall not be required
to (a) pay Taxes or charges which become due because of the willful neglect or
fraud by Owner in connection with the ICIP Program or (b) otherwise relieve or
indemnify Owner from any personal liability arising under the ICIP Program,
except where imposition of such Taxes, charges or liability is occasioned by
actions of Tenant in violation of this Lease. Tenant
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agrees to report to Owner, as often as is necessary under such regulations, the
number of workers engaged in employment in the Demised Premises, the nature of
each worker's employment and the residency of each worker and to provide access
to the Demised Premises by employees and agents of the Department of Finance of
the City of New York at all reasonable times at the request of Owner. Tenant
represents to the Owner that, with n the seven (7) years immediately preceding
the date of this Lease, Tenant has not been adjudged by a court of competent
jurisdiction to have been guilty of (x) an act, with respect to a building,
which is made a crime under the provisions of Article 150 of the Penal Law of
the State of New York or any similar law of another state, or (y) any act made a
crime or violation by the provisions of Section 235 of the Real Property Law of
the State of New York, nor is any charge for a violation of such laws presently
pending against Tenant. Upon request of Owner, from time to time, Tenant agrees
to update said representation when required because of the ICIP Program and
regulations thereunder. Tenant further agrees to cooperate with Owner in
compliance with such ICIP Program and regulations to aid Owner in obtaining and
maintaining the Tax Exemption and, if requested by Owner, to post a notice in a
conspicuous place in the Demised Premises and to publish a notice in a newspaper
of general circulation the City of New York, in such form as shall be prescribed
by the Department of Finance stating that persons having information concerning
any violation by Tenant of Section 235 of the Real Property Law or any Section
of Article 150 of the Penal Law or any similar law of another jurisdiction may
submit such information to the Department of Finance to be considered in
determining Owner's eligibility for benefits. Tenant acknowledges that its
obligations under the provisions of Subsection 23.02A. may be greater if Owner
fails to obtain a Tax Exemption, and agrees that Owner shall have no liability
to Tenant nor shall Tenant be entitled to any abatement or diminution of rent if
Owner fails to obtain a Tax Exemption.
N. Owner and Tenant acknowledge that Tenant may apply for a
certificate of abatement from the Department of Finance of the City of New York
pursuant to the provisions of Title 4 of the Real Property Law of the State of
New York Section 11-704(i) of the Administrative Code of the City of New York
(the "Tax Abatement Program"). Owner agrees, at no cost or expense to Owner, to
cooperate with Tenant in its efforts to procure a certificate of abatement
including, if necessary, and if Owner approves of its contents, co-signing
Tenant's application for a certificate of abatement. Pursuant to the Tax
Abatement Program, Owner hereby informs Tenant that:
"(1) an application for abatement of real property taxes
pursuant to this title will be made for the premises;
(2) the rent, including amount payable by the tenant for real
property taxes, will accurately reflect any abatement of real property taxes
granted pursuant to this title for the premises;
(3) at least ten dollars per square foot or thirty-five
dollars per square foot must be spent on improvements to the premises and the
common areas, the amount being dependent upon the length of the lease and
whether it is a new or a renewal lease; and
(4) all abatements granted with respect to a building pursuant
to this title will be revoked if, during the benefit period, real estate taxes
or water or sewer charges are unpaid for more than one year, unless such
delinquent amounts are paid as provided in subdivision four of section four
hundred ninety-nine-f of this title."
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Owner and Tenant acknowledge that the Tax Abatement Program (a
copy of which has been initialled by both Owner and Tenant) has not yet been
enacted into law by the New York State Legislature. It is the intention of the
parties, however, that Tenant shall receive at least the benefits of this
initial Tax Abatement Program even if it is not enacted into law or is enacted
into law with lesser benefits given to Tenant. Accordingly, Owner and Tenant
agree that in the event that (a) the initial Tax Abatement Program is not
enacted into law or (b) a substituted tax abatement program (the "Substituted
Program") is enacted into law providing lesser benefits than the initial Tax
Abatement Program then, in the event of (a) Tenant shall receive all the
benefits of the initial Tax Abatement Program, as if same had been enacted or
effective with respect to the Real Property (which would initially be
approximately $1.12 per rentable square foot based on an assessment of
$8,600,000.00) or in the event of (b) Tenant shall receive the difference
between the benefits accorded to Tenant by the initial Tax Abatement Program and
the lesser benefits accorded to Tenant by the Substituted Program, as the case
may be, which benefits to which Tenant is entitled pursuant to the provisions of
this sentence shall be given at the same time they would have accrued under the
initial Tax Abatement Program, by way of a rent credit, to be applied against
the next accruing monthly installments of Fixed Rent, or if there are an
insufficient number of monthly installments of Fixed Rent remaining, shall be
paid to Tenant after the Expiration Date. In the event of any dispute between
the parties as to the determination of any rent credit to which Tenant shall be
entitled pursuant to the foregoing provisions of this Section, such dispute
shall be determined by arbitration in New York City in the same manner as
provided under Article 36.
Tenant agrees that Owner shall have no liability to Tenant nor
shall Tenant be entitled to any abatement or diminution of rent if Tenant fails
to obtain a certificate of abatement under the Tax Abatement Program.
SECTION 23.02. TAXES: A. The Fixed Rent for each Tax
Escalation Year shall be increased by a sum equal to Tenant's Proportionate
Share of Taxes for such Tax Escalation Year.
B. Unless the Commencement Date shall occur on a July 1st, any
increase in the Fixed Rent pursuant to the provisions of Subsection A of this
Section 23.02 for the Tax Escalation Year in which the Commencement Date shall
occur shall be apportioned in that percentage which the number of days in the
period from the Commencement Date to June 30th of such Tax Escalation Year, both
inclusive, bears o the total number of days in such Tax Escalation Year. Unless
the Demised Term shall expire on a June 30th, any increase in the Fixed Rent
pursuant to the provisions of said Subsection A for the Tax Escalation Year in
which the date of the expiration of the Demised Term shall occur shall be
apportioned in that percentage which the number of days in the period from July
1st of such Tax Escalation Year to such date of expiration, both inclusive,
bears to the total number of days in such Tax Escalation Year.
SECTION 23.03. CALCULATION AND PAYMENT OF TAXES: A. Owner
shall render to Tenant, either in accordance with the provisions of Article 27
an Owner's Tax Statement or Statements with respect to each Tax Escalation Year,
either prior to or during such Tax Escalation Year. Owner's failure to render an
Owner's Tax Statement with respect to any Tax Escalation Year shall not
prejudice Owner's right to recover any sums due to Owner hereunder with respect
to such Tax Escalation Year, unless same is not rendered within two (2) years,
nor shall it deprive Tenant of any credit to which it otherwise might be
entitled to for any Tax
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Escalation Year pursuant to the provisions of Subsection B of this Section
23.03. Tenant acknowledges that under present law, Taxes are payable by Owner
(i) with respect to a fiscal year commencing July 1st and ending on the
following June 30th, and (ii) in two (2) installments, in advance, the first of
which is payable on July 1st, and the second and final payment of which is
payable on the following January 1st. Within twenty (20) days next following
rendition of the first Owner's Tax Statement which shows an increase in the
Fixed Rent for any Tax Escalation Year, Tenant shall pay to Owner one-half of
the amount of the increase shown upon such Owner's Tax Statement for such Tax
Escalation Year (including any apportionment pursuant to the provisions of
Subsection B of Section 23.02); and, subsequently, provided Owner shall have
rendered to Tenant an Owner's Tax Statement, Tenant shall pay to Owner not later
than thirty (30) days prior to the date on which the installment of Taxes is
required to be paid by Owner a sum equal to one half (1/2) of Tenant's
Proportionate Share of Taxes payable with respect to such Tax Escalation Year as
shown on such Owner's Tax Statement. Tenant further acknowledges that it is the
purpose and intent of this Section 23.03 to provide Owner with Tenant's
Proportionate Share of Taxes thirty (30) days prior to the time such installment
of Taxes is required to be paid by Owner without penalty or interest.
Accordingly, Tenant agrees if the number of such installments and/or the date of
payment thereof and/or the fiscal year used for the purpose of Taxes shall
change then (a) at the time that any such revised installment is payable by
Owner, Tenant shall pay to Owner the amount which shall provide Owner with
Tenant's Proportionate Share of Taxes applicable to the revised installment of
Taxes then required to be paid by Owner, and (b) this Article shall be
appropriately adjusted to reflect such change and the time for payment to Owner
of Tenant's Proportionate Share of Taxes as provided in this Article shall be
appropriately revised so that Owner shall always be provided with Tenant's
Proportionate Share of Taxes thirty (30) days prior to the installment of Taxes
required to be paid by Owner. Notwithstanding the foregoing provisions of this
Subsection A to the contrary, in the event the holder of any mortgage affecting
the Real Property shall require Owner to make monthly deposits on account of
real estate taxes, then this Article shall be appropriately adjusted to reflect
the requirement that Owner make monthly deposits on account of real estate taxes
so that Owner shall always be provided with one-twelfth (1/12th) of Tenant's
Proportionate Share of Taxes with respect to any Tax Escalation Year thirty (30)
days prior to the payment by Owner of such monthly deposits on account of real
estate taxes.
B. If, as a result of any application or proceeding brought by
or on behalf of Owner for reduction of the assessed valuation of the Real
Property there shall be a decrease in Taxes for any Tax Escalation Year with
respect to which Owner shall have previously rendered an Owner's Tax Statement,
the next monthly installment or installments of Fixed Rent following such
decrease shall include an adjustment of the Fixed Rent for such Tax Escalation
Year reflecting a credit to Tenant equal to the amount by which (i) the Fixed
Rent actually paid by Tenant with respect to such Tax Escalation Year (as
increased pursuant to the operation of the provisions of Subsection A of Section
23.02) shall exceed (ii) the Fixed Rent payable with respect to such Tax
Escalation Year (as increased pursuant to the operation of the provisions of
Subsection A of Section 23.02) based upon such reduction of the assessed
valuation.
SECTION 23.04. OPERATING EXPENSES: A. If Operating Expenses in
any Escalation Year shall be in such an amount as shall constitute an increase
above Base Operating Expenses, the Fixed Rent for such Escalation Year shall be
increased by a sum equal to Tenant's Proportionate Share of any such increase.
In the event that Base Operating
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Expenses shall be in excess of Operating Expenses in any Escalation Year, in no
event shall Tenant be entitled to any such excess and the Fixed Rent shall not
be reduced in any way.
B. Unless the Commencement Date shall occur on a January 1st,
any increase in the Fixed Rent pursuant to the provisions of Subsection A of
this Section 23.04 for the Escalation Year in which the Commencement Date shall
occur shall be apportioned in that percentage which the number of days in the
period from the Commencement Date to December 31st of such Escalation Year, both
dates inclusive, bears to the total number of days in such Escalation Year.
Unless the Demised Term shall expire on December 31st any increase in the Fixed
Rent pursuant to the provisions of Subsection A of this Section 23.04 for the
Escalation Year in which the date of the expiration of the Demised Term shall
occur shall be apportioned in that percentage which the number of days in the
period from January 1st of such Escalation Year to such date of expiration, both
dates inclusive, bears to the total number of days in such Escalation Year.
C. In the determination of any increase in the Fixed Rent
pursuant to the foregoing provisions of this Section 23.04, if the Building
shall not have been fully occupied during an Escalation Year, Operating Expenses
for such Escalation Year shall be equitably adjusted (by including such
additional expenses as Owner would have incurred) to the extent, if any,
required to reflect full occupancy.
SECTION 23.05. CALCULATION AND PAYMENT OF OPERATING EXPENSES:
A. Owner shall render to Tenant, either in accordance with the provisions of
Article 27 or by personal delivery at the Demised Premises, an Owner's Operating
Expense Statement with respect to each Escalation Year on or before the next
succeeding October 1st. Owner's failure to render an Owner's Operating Expense
Statement with respect to any Escalation Year shall not prejudice Owner's right
to recover any sums due to Owner hereunder with respect to such Escalation Year
if same is rendered within two (2) years.
B. Within twenty (20) days next following rendition of the
first Owner's Operating Expense Statement which shows an increase in the Fixed
Rent for any Escalation Year, Tenant shall pay to Owner the entire amount of
such increase. In order to provide for current payments on account of future
potential increases in the Fixed Rent which may be payable by Tenant pursuant to
the provisions of Subsection 23.04.A, Tenant shall also pay to Owner at such
time, provided Owner has given to Tenant a Monthly Escalation Installment
Notice, a sum equal to the product of (i) the Monthly Escalation Installment set
forth in such Notice multiplied by (ii) the number of months or partial months
which shall have elapsed between January 1st of the Escalation Year in which
such payment is made and the date of such payment, less any amounts theretofore
paid by Tenant to Owner on account of increases in the Fixed Rent for such
Escalation Year pursuant to the provisions of the penultimate sentence of this
Subsection 23.05.B; thereafter Tenant shall make payment of a Monthly Escalation
Installment throughout each month of the Demised Term. Monthly Escalation
Installments shall be added to and payable as part of each monthly installment
of Fixed Rent. Notwithstanding anything to the contrary contained in the
foregoing provisions of this Article, prior to the rendition of the first
Owner's Operating Expense Statement which shows an increase in the Fixed Rent
for any Escalation Year, Owner may render to Tenant a pro-forma Owner's
Operating Expense Statement containing a bona fide estimate of the increase in
the Fixed Rent for the Escalation Year in which the Commencement Date shall
occur and/or the subsequent Escalation Year. Following the rendition of such
pro-forma Owner's Operating
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Expense Statement, Tenant shall pay to Owner a sum equal to one twelfth (1/12th)
of the estimated increase in the Fixed Rent shown thereon for such Escalation
Year or Years multiplied by the number of months which may have elapsed between
the Commencement Date and the month in which such payment is made and thereafter
pay to Owner, on the first day of each month of the Demised Term (until the
rendition by Owner of the first Owner's Operating Expense Statement) a sum equal
to one twelfth (1/12th) of the increase in the Fixed Rent shown on such
pro-forma Owner's Operating Expense Statement. Any sums paid pursuant to the
provisions of the immediately preceding sentence shall be credited against the
sums required to be paid by Tenant to Owner pursuant to the Owner's Operating
Expense Statement for the first Escalation Year for which there is an increase
in the Fixed Rent pursuant to the provisions of Subsection A.
C. Following rendition of the first Owner's Operating Expense
Statement and each subsequent Owner's Operating Expense Statement a
reconciliation shall be made as follows: Tenant shall be debited with any
increase in the Fixed Rent shown on such Owner's Operating Expense Statement and
credited with the aggregate amount, if any, paid by Tenant in accordance with
the provisions of Subsection B of this Section on account of future increases in
the Fixed Rent pursuant to Subsection 23.04 A. which has not previously been
credited against increases in the Fixed Rent shown on Owner's Operating Expense
Statements. Tenant shall pay any net debit balance to Owner within fifteen (15)
days next following rendition by Owner, either in accordance with the provisions
of Article 27 or by personal delivery at the Demised Premises of an invoice for
such net debit balance; any net credit balance shall be applied as an adjustment
against the next accruing monthly installments of Fixed Rent.
SECTION 23.06. DISPUTE RESOLUTION: A. In the event of any
dispute between Owner and Tenant arising out of the application of the Operating
Expense provisions of this Article, such dispute shall be determined by
arbitration in New York City in accordance with the provisions of Article 36.
Notwithstanding any such dispute and submission to arbitration, or any dispute
with respect to the Tax Escalation provisions of this Article (which dispute
shall not be subject to arbitration but which can only be prosecuted by the
institution of legal proceedings by Tenant), any increase in the Fixed Rent
shown upon any Owner's Operating Expense Statement or any Monthly Escalation
Installment Notice or any Owner's Tax Statement shall be payable by Tenant
within the time limitation set forth in this Article. If the determination in
such arbitration or legal proceedings shall be adverse to Owner, any amount paid
by Tenant to Owner in excess of the amount determined to be properly payable
shall be credited against the next accruing installments of Fixed Rent due under
this Lease. However, if there are no such installments, such amounts shall be
paid by Owner to Tenant within thirty (30) days following such determination.
B. In the event Tenant disagrees with any computation or other
matter contained in any Owner's Operating Expense Statement or any Monthly
Escalation Installment Notice, Tenant shall have the right to give notice to
Owner within one hundred eighty (180) days next following rendition of such
Statement or Notice setting forth the particulars of such disagreement. If the
matter is not resolved within ninety (90) days next following the giving of such
notice by Tenant, it shall be deemed a dispute which either party may submit to
arbitration pursuant to the provisions of Subsection A of this Section. If (i)
Tenant does not give a timely notice to Owner in accordance with the foregoing
provisions of this Subsection disagreeing with any computation or other matter
contained in any Owner's Operating Expense
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Statement or any Monthly Escalation Installment Notice and setting forth the
particulars of such disagreement, or (ii) if any such timely notice shall have
been given by Tenant, the matter shall not have been resolved and neither party
shall have submitted the dispute to arbitration within ninety (90) days next
following the giving of such notice by Tenant, Tenant shall be deemed
conclusively to have accepted such Owner's Operating Expense Statement or
Monthly Escalation Installment Notice, as the case may be, and shall have no
further right to dispute the same.
SECTION 23.07. COLLECTION OF INCREASES IN FIXED RENT: The
obligations of Owner and Tenant under the provisions of this Article with
respect to any increase in the Fixed Rent, or any credit to which Tenant may be
entitled, shall survive the expiration or any sooner termination of the Demised
Term. All sums payable by Tenant under this Article shall be collectible by
Owner in the same manner as Fixed Rent.
ARTICLE 24
NO WAIVER
SECTION 24.01. OWNER'S TERMINATION NOT PREVENTED: Neither any
option granted to Tenant or Owner in this Lease or in any collateral instrument
to renew or extend the Demised Term, nor the exercise of any such option by
Tenant or Owner, as the case may be, shall prevent Owner or Tenant, as the case
may be, from exercising any option or right granted or reserved to such party in
this Lease or in any collateral instrument or which Owner or Tenant may have by
virtue of any law, to terminate this Lease and the Demised Term or any renewal
or extension of the Demised Term either during the original Demised Term or
during the renewed or extended term. Any termination of this Lease and the
Demised Term shall serve to terminate any such renewal or extension of the
Demised Term and any right of Tenant or Owner, as the case may be, to any such
renewal or extension, whether or not Tenant or Owner, as the case may be, shall
have exercised any such option to renew or extend the Demised Term. Any such
option or right on the part of Owner or Tenant to terminate this Lease shall
continue during any extension or renewal of the Demised Term. No option granted
to Tenant or Owner to renew or extend the Demised Term shall be deemed to give
Tenant or Owner any further option to renew or extend.
SECTION 24.02. NO TERMINATION BY TENANT/NO WAIVER: No act or
thing done by Owner or Owner's agents during the Demised Term shall constitute a
valid acceptance of a surrender of the Demised Premises or any remaining portion
of the Demised Term except a written instrument accepting such surrender,
executed by Owner. No employee of Owner or of Owner's agents shall have any
authority to accept the keys of the Demised Premises prior to the termination of
this Lease and the Demised Term, and the delivery of such keys to any such
employee shall not operate as a termination of this Lease or a surrender of the
Demised Premises; however, if Tenant desires to have Owner sublet the Demised
Premises for Tenant's account, Owner or Owner's agents are authorized to receive
said keys for such purposes without releasing Tenant from any of its obligations
under this Lease, and Tenant hereby relieves Owner of any liability (except for
Owner's negligence or improper acts or improper omissions) for loss of, or
damage to, any of Tenant's property or other effects in connection with such
subletting. The failure by either party to seek redress for breach or violation
of, or to insist upon the strict performance of, any term, covenant or condition
of this
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Lease on the other party's part to be observed or performed, shall not prevent a
subsequent act or omission which would have originally constituted a breach or
violation of any such term, covenant or condition from having all the force and
effect of an original breach or violation. The receipt by Owner of rent with
knowledge of the breach or violation by Tenant of any term, covenant or
condition of this Lease on Tenant's part to be observed or performed shall not
be deemed a waiver of such breach or violation. Owner's failure to enforce any
Building Rule against Tenant or against any other tenant or occupant of the
Building shall not be deemed a waiver of any such Building Rule. No provision of
this Lease shall be deemed to have been waived by either party unless such
waiver shall be set forth in a written instrument executed by the party against
which such waiver is sought. No payment by Tenant or receipt by Owner of a
lesser amount than the aggregate of all Fixed Rent and additional rent then due
under this Lease shall be deemed to be other than on account of the first
accruing of all such items of Fixed Rent and additional rent then due, no
endorsement or statement on any check and no letter accompanying any check or
other rent payment in any such lesser amount and no acceptance of any such check
or other such payment by Owner shall constitute an accord and satisfaction, and
Owner may accept any such check or payment without prejudice to Owner's right to
recover the balance of such rent or to pursue any other legal remedy.
ARTICLE 25
MUTUAL WAIVER OF TRIAL BY JURY
SECTION 25.01. Owner and Tenant hereby waive trial by jury in
any action, proceeding or counterclaim brought by Owner or Tenant against the
other on any matter whatsoever arising out of or in any way connected with this
Lease, the relationship of landlord and tenant, the use or occupancy of the
Demised Premises by Tenant or any person claiming through or under Tenant, any
claim of injury or damage, and any emergency or other statutory remedy; however,
the foregoing waiver shall not apply to any action for personal injury or
property damage. The provisions of the foregoing sentence shall survive the
expiration or any sooner termination of the Demised Term. If Owner commences any
summary proceeding, or any other proceeding of like import, Tenant agrees: (i)
not to interpose any counterclaim of whatever nature or description in any such
summary proceeding, or any other proceeding of like import, unless failure to
interpose such counterclaim would preclude Tenant from asserting such claim in a
separate action or proceeding; and (ii) not to seek to remove to another court
or jurisdiction or consolidate any such summary proceeding, or other proceeding
of like import, with any action or proceeding which may have been, or will be,
brought by Tenant. In the event that Tenant shall breach any of its obligations
set forth in the immediately preceding sentence, Tenant agrees (a) to pay all of
Owner's attorneys' fees and disbursements in connection with Owner's enforcement
of such obligations of Tenant and (b) in all events, to pay all accrued, present
and future Fixed Rent and increases therein and additional rent payable pursuant
to the provisions of this Lease.
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ARTICLE 26
INABILITY TO PERFORM
SECTION 26.01. If, by reason of strikes or other labor
disputes, fire or other casualty (or reasonable delays in adjustment of
insurance), accidents, any Legal Requirements, any orders of any Governmental
Authority or any other cause beyond Owner's reasonable control, whether or not
such other cause shall be similar in nature to those hereinbefore enumerated,
Owner is unable to furnish or is delayed in furnishing any utility or service
required to be furnished by Owner under the provisions of Article 29 or any
other Article of this Lease or any collateral instrument, or is unable to
perform or make or is delayed in performing or making any installations,
decorations, repairs, alterations, additions or improvements, whether or not
required to be performed or made under this Lease or under any collateral
instrument, or is unable to fulfill or is delayed in fulfilling any of Owner's
other obligations under this Lease or any collateral instrument, no such
inability or delay shall constitute an actual or constructive eviction, in whole
or in part, or entitle Tenant to any abatement or diminution of rent, or relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Owner or its agents by reason of inconvenience or annoyance to Tenant, or
injury to or interruption of Tenant's business, or otherwise.
SECTION 26.02. If by reason of strikes or other labor
disputes, fire or other casualty (or reasonable delays in adjustment of
insurance), accidents, orders or regulations of any Federal, State, County or
Municipal authority, or any other cause beyond Tenant's reasonable control,
Tenant is unable to fulfill any of Tenant's obligations under this Lease or any
collateral instrument (with the exception of any obligations on Tenant's part to
pay any sum of money due Owner, including, without limitation, the payment of
Fixed Rent or increases thereof, or any additional rent, which monetary
obligation shall remain unaffected by the provisions of this Section 26.02),
Tenant shall not be required to fulfill such non-monetary obligations during the
period that Tenant is so unable to fulfill them by reason of the above,
provided, however, that Tenant shall employ reasonable diligence to attempt to
eliminate the cause of such inability referred to in this Section 26.02.
ARTICLE 27
NOTICES
SECTION 27.01. Except as otherwise expressly provided in this
Lease, any bills, statements, notices, demands, requests or other communications
given or required to be given under this Lease shall be effective only if
rendered or given in writing, sent by certified mail (return receipt requested
or by recognized courier guaranteeing overnight delivery or same day delivery
and providing dated evidence of receipt or refusal to receive delivery by the
addressee), addressed as follows:
(A) To Tenant (i) at Tenant's address set forth in
this Lease if mailed prior to Tenant's taking possession of the Demised
Premises, or (ii) at the Building if mailed subsequent to Tenant's taking
possession of the Demised Premises, or (iii) at any place where Tenant or any
agent or employee of Tenant may be found if mailed subsequent to Tenant's
vacating, deserting, abandoning or surrendering the Demised Premises, and (iv)
in all
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cases by photocopy, in like manner, to: Pryor, Cashman, Sherman & Flynn, 410
Park Avenue, New York, New York 10022, Attention: Eric B. Woldenberg, Esq., or
(b) To Owner at Owner's address set forth in this
Lease, with a copy to Goldfarb & Fleece, 345 Park Avenue, New York, New York
10154, Attention: Partner-in-Charge, Rudin Management, or
(c) addressed to such other address as either Owner
or Tenant may designate as its new address for such purpose by notice given to
the other in accordance with the provisions of this Section. Any such bill,
statement, notice, demand, request or other communication shall be deemed to
have been rendered or given on the date when it shall have been received or
delivery refused by the addresses as indicated on the receipt as provided in
this Section.
Nothing contained in this Section 27.01 shall preclude, limit or modify Owner's
service of any notice, statement, demand or other communication in the manner
required by law, including, but not limited to, any demand for rent under
Article 7 of the New York Real Property Actions and Proceedings Law or any
successor law of like import.
ARTICLE 28
PARTNERSHIP TENANT
SECTION 28.01. If Tenant is a partnership or professional
corporation or limited liability company (or is comprised of two (2) or more
persons, individually and as co-partners of a partnership or shareholders of a
professional corporation or members of a limited liability company) or if
Tenant's interest in this Lease shall be assigned to a partnership or
professional corporation or limited liability company (or to two (2) or more
persons, individually and as co-partners of a partnership or shareholders of a
professional corporation or members of a limited liability company) pursuant to
Article 11 (any such partnership, professional corporation, limited liability
company and such persons are referred to in this Section as "Partnership
Tenant"), the following provisions of this Section shall apply to such
Partnership Tenant: (i) the liability of each of the persons comprising
Partnership Tenant shall be joint and several, individually and as a partner or
shareholder or member, with respect to all obligations of the Tenant under this
Lease whether or not such obligations arose prior to, during, or after any
period when any party comprising Partnership Tenant was a member or shareholder
of Partnership Tenant, and (ii) each of the persons comprising Partnership
Tenant, whether or not such person shall be one of the persons comprising Tenant
at the time in question, hereby consents in advance to, and agrees to be bound
by, any written instrument which may hereafter be executed, changing, modifying
or discharging this Lease, in whole or in part, or surrendering all or any part
of the Demised Premises to Owner, and by any notices, demands, requests or other
communications which may hereafter be given by Partnership Tenant or by any of
the persons comprising Partnership Tenant, and (iii) any bills, statements,
notices, demands, requests or other communications given or rendered to
Partnership Tenant or to any of the persons composing Partnership Tenant shall
be deemed given or rendered to Partnership Tenant and to all such persons and
shall be binding upon Partnership Tenant and all such persons, and (iv) if
Partnership Tenant shall admit new partners or shareholders or members, all of
such new partners or shareholders or members, as
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the case may be, shall, by their admission to Partnership Tenant, be deemed to
have assumed performance of all of the terms, covenants and conditions of this
Lease on Tenant's part to be observed and performed, and shall be liable for
such performance, together with all other parties, jointly or severally,
individually and as a partner or shareholder or member, whether or not the
obligation to comply with such terms, covenants or conditions arose prior to,
during or after any period when any party composing Partnership Tenant was a
member or shareholder of Partnership Tenant and (v) Partnership Tenant shall
give prompt notice to Owner of the admission of any such new partners, or
shareholders, or members, as the case may be, and, upon demand of Owner, shall
cause each such new partner or shareholder or member to execute and deliver to
Owner an agreement, in form satisfactory to Owner, wherein each such new partner
or shareholder or member shall so assume performance of all of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed whether or not the obligation to comply with such terms, covenants or
conditions arose prior to, during or after any period when any party comprising
Partnership Tenant was a member or shareholder of Partnership Tenant (but
neither Owner's failure to request any such agreement nor the failure of any
such new partner, shareholder or member to execute or deliver any such agreement
to Owner shall vitiate the provisions of subdivision (iv) or any other provision
of this Section).
ARTICLE 29
UTILITIES AND SERVICES
SECTION 29.01. ELEVATORS: Owner, at Owner's expense, shall
furnish necessary passenger elevator facilities twenty-four (24) hours per day
on business days (as defined in Section 31.01) and on Saturdays from 8:00 A.M.
to 6:00 P.M. and shall have a passenger elevator subject to call at all other
times. Tenant shall be entitled to the non-exclusive use of the freight elevator
in common with other tenants and occupants of the Building from 8:00 A.M. to
6:00 P.M. on business days, subject to such reasonable rules as Owner may adopt
for the use of the freight elevator. At any time or times all or any of the
elevators in the Building may, at Owner's option, be automatic elevators, and
Owner shall not be required to furnish any operator service for automatic
elevators. If Owner shall, at any time, elect to furnish operator service for
any automatic elevators, Owner shall have the right to discontinue furnishing
such service with the same effect as if Owner had never elected to furnish such
service.
SECTION 29.02. HEAT: As long as Tenant is not in default under
any of the terms, covenants or conditions of this Lease on Tenant's part to be
observed or performed, Owner, at Owner's expense, shall furnish heat to the
Demised Premises, as and when required by law, twenty-four (24) hours per day on
business days and on Saturdays from 8:00 A.M. to 6:00 P.M.
SECTION 29.03. AIR CONDITIONING AND VENTILATION: As long as
Tenant is not in default under any of the terms, covenants or conditions of this
Lease on Tenant's part to be observed or performed, Owner, at Owner's expense,
shall furnish and distribute to the Demised Premises (i) conditioned air at
reasonable temperatures, pressures and degrees of humidity and in reasonable
volumes and velocities, twenty-four (24) hours per day on business days and on
Saturdays from 8:00 A.M. to 6:00 P.M. during the months of May, June, July,
August, September and October when required for the comfortable occupancy of the
Demised
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Premises: and (ii) mechanical ventilation through the Building air conditioning
system twenty-four (24) hours per day on business days and on Saturdays from
8:00 A.M. to 6:00 P.M. throughout the year, except when conditioned air or heat
is being furnished. Notwithstanding the foregoing provisions of this Section,
Owner shall not be responsible if the normal operation of the Building air
conditioning system shall fail to provide conditioned air at reasonable
temperatures, pressures or degrees of humidity or in reasonable volumes or
velocities in any portions of the Demised Premises (a) which, by reason of any
machinery or equipment installed by or on behalf of Tenant or any person
claiming through or under Tenant, shall have an electrical load in excess of
four (4) watts per square foot of usable area for all purposes (including
lighting and power excluding the Building heating, ventilation and air
conditioning system), or which shall have a human occupancy factor in excess of
one person per 100 square feet of usable area (the average electrical load and
human occupancy factors for which the Building air conditioning system is
designed) or (b) because of any rearrangement of partitioning or other
Alterations made or performed by or on behalf of Tenant or any person claiming
through or under Tenant. Whenever said air conditioning system is in operation,
Tenant agrees to cause all the windows in the Demised Premises to be kept closed
and to cause the Venetian blinds in the Demised Premises to be kept closed if
necessary because of the position of the sun. Tenant agrees to cause all the
windows in the Demised Premises to be closed whenever the Demised Premises are
not occupied. Tenant shall cooperate fully with Owner at all times and abide by
all regulations and requirements which Owner may reasonably prescribe for the
proper functioning and protection of the air conditioning and ventilating
system. In addition to any and all other rights and remedies which Owner may
invoke for a violation or breach of any of the foregoing provisions of this
Section, Owner may discontinue heating, air conditioning and ventilating service
during the period such violation or breach, and such discontinuance shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Owner, or its agents,
by reason of inconvenience or annoyance to Tenant, or injury to or interruption
of Tenant's business, or otherwise.
SECTION 29.04. CLEANING: A. Tenant, at Tenant's expense, shall
keep the Demised Premises in order, shall cause the Demised Premises to be
cleaned and shall cause Tenant's refuse and rubbish to be removed, all at
regular intervals in accordance with standards and practices adopted by Owner
for the Building. Tenant shall cooperate with any waste and garbage recycling
program of the Building and shall comply with all reasonable rules and
regulations of Owner with respect thereto. Tenant, at Tenant's expense, shall
cause all portions of the Demised Premises used for the storage, preparation,
service or consumption of food or beverages to be cleaned daily in a manner
satisfactory to Owner, and to be exterminated against infestation by vermin,
roaches or rodents regularly and, in addition, whenever there shall be evidence
of any infestation.
B. Owner, at Owner's expense, shall clean the public portions
of the Building at regular intervals in accordance with practices and standards
adopted by Owner for the Building.
C. The removal of refuse and rubbish and the furnishing of
office cleaning services to Tenant by persons other than Owner and its
contractors shall be performed in accordance with such regulations and
requirements as, in Owner's judgment, are necessary for the proper operation of
the Building, and Tenant agrees that Tenant will not permit any
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person to enter the Demised Premises or the Building for such purposes, or for
the purpose of providing extermination services required to be performed by
Tenant pursuant to Subsection A of this Section, other than persons first
approved by Owner, such approval not unreasonably to be withheld.
SECTION 29.05. ELECTRICITY: A. Owner shall redistribute or
furnish electrical energy to or for the use of Tenant in the Demised Premises
for the operation of the lighting fixtures and the electrical receptacles
installed in the Demised Premises on the Commencement Date. If either the
quantity or character of electrical service is changed by the public utility
corporation supplying electrical service to the Building or is no longer
available or suitable for Tenant's requirements, no such change, unavailability
or unsuitability shall constitute an actual or constructive eviction, in whole
or in part, or entitle Tenant to any abatement or diminution of rent, or relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Owner, or its agents, by reason of inconvenience or annoyance to Tenant, or
injury to or interruption of Tenant's business or otherwise, unless such change,
unavailability or unsuitability is caused by Owner's negligence or willful
misconduct or the negligence or willful misconduct of Owner's agents, employees
or contractors.
B. Owner shall provide for an electrical load of eight (8)
watts per square foot of usable area demand load other than during any period it
is prohibited from doing so by any laws, orders, rules and/or regulations of any
applicable governmental authorities (including, but not limited to, the New York
State Energy Conversation Construction Code) in which event the reference to
eight (8) watts hereinabove set forth shall, during such period, be decreased to
the maximum number of watts per usable square foot which is permitted by any
such laws, orders, rules and/or regulations. The foregoing shall be exclusive of
the electrical power for the Building HVAC systems. Solely for the proposes of
this section, the Demised Premises shall be deemed to contain 8,999 square feet.
Any additional feeders or risers to supply Tenant's additional electrical
requirements, and all other equipment proper and necessary in connection with
such feeders or risers shall be installed by Owner upon Tenant's request, at the
sole cost and expense of Tenant, provided, that, in Owner's judgment, such
additional feeders or risers are necessary and are permissible under applicable
laws and insurance regulations and the installation of such feeders or risers
will not cause permanent damage or injury to the Building or the Demised
Premises or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations or repairs to or interfere with or disturb
other tenants or occupants of the Building. Tenant covenants that at no time
shall the use of electrical energy in the Demised Premises exceed the capacity
of the existing feeders or risers or wiring installations then serving the
Demised Premises.
C. Prior to the Commencement Date Owner, at Owner's expense,
shall have installed a submeter or submeters in the Demised Premises to measure
Tenant's actual consumption of electricity in the entire Demised Premises.
Tenant shall pay to Owner, from time to time, upon demand, for the electricity
consumed in the Demised Premises, as determined by such submeter or submeters,
the actual cost to Owner of purchasing electricity for the Demised Premises (as
such actual cost is hereinafter defined) plus all applicable taxes thereon.
Owner's actual cost for Tenant's KW and KWH shall be determined by the
application of the Building's electric rate schedule per month to Tenant's
usage. With respect to any period when any such submeter is not in good working
order, Tenant shall pay Owner for electricity consumed in the portion of the
Demised Premises served by such submeter at the rate paid by Tenant to Owner
during the most recent comparable period when such
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submeter was in good working order. Tenant shall take good care of any such
submeter and all submetering installation equipment, at Tenant's sole cost and
expense, and make all repairs thereto occasioned by any acts, omissions or
negligence of Tenant or any person claiming through or under Tenant as and when
necessary to insure that any such submeter is, at all times during the Demised
Term, in good working order. With respect to the period (referred to as the
"Interim Periods"), if any, from the Commencement Date through the date
immediately prior to the date upon which the submeter or submeters shall be
operable, Tenant shall pay to Owner monthly on demand of Owner, for the
electricity consumed in the Demised Premises, a sum equal to one-twelfth
(1/12th) of the product of (x) $1.50 multiplied by (y) the Demised Premises
Area. With respect to any period during the Interim Period constituting less
than a full calendar month, the monthly payment referred to in the preceding
sentence shall he appropriately prorated.
D. (1) Owner may, at any time, elect to discontinue the
redistribution or furnishing of electrical energy. In the event of any such
election by Owner, (i) Owner agrees to give reasonable advance notice of any
such discontinuance to Tenant, (ii) Owner agrees to permit Tenant to receive
electrical service directly from the public utility corporation supplying
electrical service to the Building and to permit the existing feeders, risers,
wiring and other electrical facilities serving the Demised Premises to be used
by Tenant for such purpose to the extent they are suitable and safely capable,
(iii) Owner agrees to pay such charges and costs, if any, as such public utility
corporation may impose in connection with the installation of Tenant's meters,
(iv) the provisions of Subsection C of this Section 29.05 shall be deemed
deleted from this Lease, and (v) this Lease shall remain in full force and
effect and such discontinuance shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Owner or its agents by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant's business, or
otherwise.
(2) Notwithstanding anything to the contrary
contained in subsection D(1) of this Section 29.05, Owner agrees that Owner
shall not voluntarily discontinue the redistribution or furnishing of electrical
energy until Owner shall have made or paid for all installations required to
provide Tenant with electrical service similar to the electrical service which
Tenant had in the Demised Premises immediately prior to such discontinuance and
the public utility corporation supplying electrical service to the Building has
agreed to furnish such service so that Tenant shall immediately upon such
discontinuance be able to receive electrical service directly from such public
utility corporation. Unless a shorter time is required by the public utility
corporation supplying electrical service to the Building, Owner shall give
Tenant at least ninety (90) days prior notice of any such discontinuance.
E. Notwithstanding anything to the contrary set forth in this
Lease, any sums payable or granted in any way by the public utility corporation
supplying electricity to the Building resulting from the installation in the
Demised Premises of energy efficient lighting fixtures, lamps, special
supplemental heating, ventilation and air conditioning systems or any other
Alterations, which sums are paid or given by way of rebate, direct payment,
credit or otherwise, shall be and remain the property of Owner, and Tenant shall
not be entitled to any portion thereof, unless such lighting fixtures, lamps,
supplemental heating, ventilation and air conditioning systems or other
Alterations were installed by Tenant, solely at Tenant's expense, without any
contribution, credit or allowance by Owner, in accordance with
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all of the provisions of this Lease. For the purposes of the preceding sentence
any such lighting fixtures, lamps, supplemental heating, ventilation and air
conditioning systems or other Alterations composing part of Owner's Initial
Construction shall be deemed installed solely at Tenant's expense. Nothing
contained in the foregoing, however, shall be deemed to obligate Owner to supply
or install in the Demised Premises any such lighting fixtures, lamps,
supplemental heating, ventilation and air conditioning systems or other
Alterations.
F. Tenant acknowledges that the Building heating, ventilating
and air conditioning system units serving the floors of the Building on which
the Demised Premises are located (each referred to herein as the "Floor HVAC
Unit") shall not be connected to the submeter(s) serving the Demised Premises,
but, instead, shall be connected to a separate meter(s) measuring the electrical
energy consumed by each such Floor HVAC Unit. Accordingly, Tenant agrees that
during the Demised Term, Tenant shall pay to Owner, from time to time upon
demand of Owner and submission by Owner to Tenant of invoices or bills therefor,
sixty-two and 13/100 (62.13%) percent (hereinafter "Tenant's Electrical Share")
of all amounts shown on said separate meter(s) for such Floor HVAC Unit serving
the tenth (10th) floor and twenty-two and 40/100 (22.40%) percent of all amounts
shown on said separate meter(s) for such Floor HVAC Unit serving the eleventh
(11th) floor (also hereinafter referred to as Tenant's Electrical Share).
G. Tenant acknowledges that the light and power systems
serving the public areas of the floors of the Building on which the Demised
Premises are located (each referred to herein as the "Floor Public Light and
Power") shall not be connected to the submeter(s) serving the Demised Premises
but, instead, shall be connected to a separate meter(s) measuring the electrical
energy consumed by each such Floor Public Light and Power. Accordingly, Tenant
agrees that during the Demised Term, Tenant shall pay to Owner, from time to
time upon demand of Owner and submission by Owner to Tenant of invoices or bills
therefor, the applicable Tenant's Electrical Shares of all amounts shown on said
applicable separate meter(s) for such applicable Floor Public Light and Power
for each floor of the Building on which the Demised Premises are located.
SECTION 29.06. WATER: Tenant shall only be permitted to use
and be given, water for ordinary lavatory, drinking, showering and a Dwyer-type
unit purpose.
SECTION 29.07. OVERTIME PERIODS: The Fixed Rent does not
reflect or include any charge to Tenant for the furnishing or distributing of
any necessary elevator facilities, heat, conditioned air or mechanical
ventilation to the Demised Premises during periods (referred to as "Overtime
Periods") other than the hours and days set forth above in this Article for the
furnishing and distributing of such services. Tenant shall not be charged for
its initial move into the Demised Premises. Accordingly, if Owner shall furnish
any such elevator facilities, heat, conditioned air or mechanical ventilation to
the Demised Premises at the request of Tenant during Overtime Periods. Tenant
shall pay Owner for such services at the following rates as of the date of this
Lease: $10.00 Dollars per hour per floor receiving such services for
air-conditioning, $10.00 Dollars per hour per floor receiving such services for
ventilation, $10.00 Dollars per hour per floor receiving such services for
heating and $60.00 Dollars per hour for freight elevator service. Any increases
above such rates shall be in an amount equal to the actual increases after the
date of this Lease in the cost to Owner of furnishing such services. Owner shall
not be required to furnish any such services during Overtime Periods, unless
Owner has received reasonable advance notice from Tenant
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requesting such services. If Tenant fails to give Owner reasonable advance
notice requesting such services during any Overtime Periods, then, whether or
not the Demised Premises are habitable during such Overtime Periods, failure by
Owner to furnish or distribute any such services during such Overtime Periods
shall not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner or
its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. If other tenants on the
applicable floor of the Demised Premises where overtime heat, conditioned air or
mechanical ventilation are requested by Tenant also request the same service for
the same period then the hourly charge shall be apportioned among the tenants
requesting the same services during the same periods.
SECTION 29.08. OWNER'S RIGHT TO STOP SERVICE: Owner reserves
the right to stop the service of the heating, air conditioning, ventilating,
elevator, plumbing, electrical or other mechanical systems or facilities in the
Building when necessary by reason of accident or emergency, or for repairs,
alterations, replacements or improvements, which, in the reasonable judgment of
Owner are desirable or necessary, until said repairs, alterations, replacements
or improvements shall have been completed. The exercise of such right by Owner
shall not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any Liability upon Owner or
its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise. Owner shall employ reasonable
diligence in attempting to restore the operation of any such system or
facilities without any obligation, however, to employ labor at overtime or other
premium pay rates, except that in cases where there is a material interference
with Tenant's business or the health or safety of the occupants of the Demised
Premises is adversely affected. Owner shall employ contractors or labor at
overtime or other premium pay rates.
ARTICLE 30
TABLE OF CONTENTS, ETC.
SECTION 30.01. TABLE OF CONTENTS/CAPTIONS: The Table of
Contents and the captions following the Articles and Sections of this Lease have
been inserted solely as a matter of convenience and in no way define or limit
the scope or intent of any provision of this Lease.
ARTICLE 31
MISCELLANEOUS DEFINITIONS,
SEVERABILITY AND INTERPRETATION PROVISIONS
SECTION 31.01. The term "business days" as used in this Lease
shall exclude Saturdays, Sundays and holidays, the term "Saturdays" as used in
this Lease shall exclude holidays and the term "holidays" as used in this Lease
shall mean all days observed as legal holidays by either the New York State
Government or the Federal Government.
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SECTION 31.02. The terms "person" and "persons" as used in
this Lease shall be deemed to include natural persons, firms, corporations,
associations and any other private or public entities, whether any of the
foregoing are acting on their own behalf or in a representative capacity.
SECTION 31.03. The term "prime rate" shall mean the rate of
interest announced publicly by Chemical Bank, or its successor, from time to
time, as Chemical Bank's or such successor's base rate, or if there is no such
base rate, then the rate of interest charged by Chemical Bank or its successor
to its most credit worthy customers on commercial loans having a ninety (90) day
duration.
SECTION 31.04. If any term, covenant or condition of this
Lease or any application thereof shall be invalid or unenforceable, the
remainder of this Lease and any other application of such term, covenant or
condition shall not be affected thereby.
SECTION 31.05. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease to be drafted. In the event of any action, suit, dispute or
proceeding affecting the terms of this Lease, no weight shall be given to any
deletions or striking out of any of the terms of this Lease contained in any
draft of this Lease and no such deletion or strike out shall be entered into
evidence in any such action, suit or dispute or proceeding given any weight
therein.
ARTICLE 32
ADJACENT EXCAVATION
SECTION 32.01. If an excavation shall be made upon land
adjacent to the Real Property, or shall be authorized to be made, Tenant shall
afford to the person causing or authorized to cause such excavation license to
enter upon the Demised Premises for the purpose of doing such work as said
person shall deem necessary to preserve the walls and other portions of the
Building from injury or damage and to support the same by proper foundations and
no such entry shall constitute an actual or constructive eviction, in whole or
in part, or entitle Tenant to any abatement or diminution of rent, or relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Owner or said person.
ARTICLE 33
BUILDING RULES
SECTION 33.01. Tenant shall observe faithfully, and comply
strictly with, and shall not permit the violation of, the Building Rules set
forth in Schedule A annexed to and made a part of this Lease and such additional
reasonable Building Rules as Owner may, from time to time, adopt. All Of the
terms, covenants and conditions of Schedule A are incorporated in this Lease by
reference and shall be deemed part of this Lease as though fully set forth in
the body of this Lease. The term "Building Rules" as used in this Lease shall
include those set forth in Schedule A and those hereafter made or adopted as
provided in this Section. In case Tenant disputes the reasonableness of any
additional Building Rule hereafter
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adopted by Owner, the parties hereto agree to submit the question of the
reasonableness of such Building Rule for decision to the Chairman of the Board
of Directors of the Management Division of the Real Estate Board of New York,
Inc., or its successor (the "Chairman"), or to such impartial person or persons
as the Chairman may designate, whose determination shall be final and conclusive
upon Owner and Tenant. Tenant's right to dispute the reasonableness of any
additional Building Rule shall be deemed waived unless asserted by service of a
notice upon Owner within ten (10) days after the date upon which Owner shall
give notice to Tenant of the adoption of any such additional Building Rule.
Owner shall have no duty or obligation to enforce any Building Rule, or any
term, covenant or condition of any other lease, against any other tenant or
occupant of the Building, and Owner's failure or refusal to enforce any Building
Rule or any term, covenant or condition of any other lease against any other
tenant or occupant of the Building shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Owner or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
SECTION 33.02. Any Building Rule not enforced generally
against other tenants of the Building shall not be enforced against Tenant.
Wherever the Building Rules provide for a matter to be determined by Owner or
its agents, Owner or its agents shall exercise their reasonable judgment with
respect thereto and any determination to be made by Owner or its agents
thereunder shall not be unreasonably withheld or delayed.
ARTICLE 34
BROKER
SECTION 34.01. Owner and Tenant each represent and warrant to
the other that with the exception of Rudes Realty Company, Owner's consultant,
R.B. Schlesinger & Company, Inc. is the sole broker with whom either party has
negotiated or otherwise dealt with in connection with the Demised Premises or in
bringing about this Lease. Owner and Tenant shall indemnify each other from all
loss, cost, liability, damage and expenses, including, but not limited to,
reasonable counsel fees and disbursements, arising from any breach of the
foregoing representation and warranty. Owner shall pay any commission or
compensation due hereunder pursuant to a separate agreement with such broker.
ARTICLE 35
SECURITY
SECTION 35.01. The sum of THIRTY-THREE THOUSAND TWO HUNDRED
NINETY-SEVEN and 50/100 ($33,297.50) DOLLARS representing security (referred to
as "Security") for the faithful performance and observance by Tenant of the
terms, covenants and conditions of this Lease on Tenant's part to be observed
and performed is due and payable at the time of the execution and delivery of
this Lease. In the event of any default by Tenant in the observance or
performance of any of the terms, covenants or conditions of this Lease on the
part of Tenant to be observed or performed including, but not limited to, any
default in the
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payment when due of any monthly installment of the Fixed Rent or increase in the
Fixed Rent payable pursuant to the provisions of Articles 23 or 29 or of any
additional rent, Owner may use or apply all or any part of the Security for the
payment to Owner for Tenant's account of any sum or sums due under this Lease
without thereby waiving any other rights or remedies of Owner with respect to
such default. Tenant agrees to replenish all or any part of the Security so used
or applied during the Demised Term. After (i) the Expiration Date or any other
date upon which the Demised Term shall expire and come to an end, and (ii) the
full observance and performance by Tenant of all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed,
including, but not limited to, the provisions of Article 21, Owner shall return
to Tenant the balance of the Security then held or retained by Owner. Owner
agrees that, unless prohibited by law or by the general policies of lending
institutions in New York City, Owner shall deposit the Security in an
interest-bearing savings account with a bank selected by Owner, in which event
all interest accruing thereon shall be added to and become part of the Security
and shall be retained by Owner under the same conditions as the sum originally
deposited as Security. Tenant agrees that Tenant shall not assign or encumber
any part of the Security, and no assignment or encumbrance by Tenant of all or
any part of the Security shall be binding upon Owner, whether made prior to,
during, or after the Demised Term. Owner shall not be required to exhaust its
remedies against Tenant or against the Security before having recourse to any
other form of security held by Owner and recourse by Owner to any form of
security shall not affect any remedies of Owner which are provided in this Lease
or which are available to Owner in law or equity. In the event of any sale,
assignment or transfer by Owner named herein (or by any subsequent Owner) of its
interest in the Building as owner or lessee. Owner (or such subsequent owner)
shall have the right to assign or transfer the Security to its grantee, assignee
or transferee and, in the event of such assignment or transfer and the
assumption of Owner's obligations under this Article by the grantee, assignee or
transferee, Owner named herein, (or such subsequent Owner) shall have no
liability to Tenant for the return of the Security and Tenant shall look solely
to the grantee, assignee or transferee for such return. A lease of the entire
Building shall be deemed a transfer within the meaning of the foregoing
sentence. Notwithstanding anything to the contrary set forth in the foregoing
provisions of this Article, Owner shall be entitled to retain the one (1%)
percent administrative fee permitted by law to be retained by landlords with
respect to security deposits.
ARTICLE 36
ARBITRATION, ETC.
SECTION 36.01. Any dispute (i) with respect to the
reasonability of any failure or refusal of Owner to grant its consent or
approval to any request for such consent or approval pursuant to the provisions
of Section 3.01 with respect to which request Owner has agreed, in such Section,
not unreasonably to withhold such consent or approval, or (ii) arising out of
the application of the Operating Expenses provisions of Article 23, which is
submitted to arbitration shall be finally determined by arbitration in the City
of New York in accordance with the rules and regulations then obtaining of the
American Arbitration Association or its successor. Any such determination shall
be final and binding upon the parties, whether or not a judgment shall be
entered in any court. In making their determination, the arbitrators shall not
subtract from, add to, or otherwise modify any of the provisions of this Lease.
Owner and Tenant may, at their own expense, be represented by counsel and employ
expert witnesses in
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any such arbitration. Any dispute as to the reasonableness of Owner's failure or
refusal to consent to any subletting in accordance with Section 11.03 or the
validity of any assignment in accordance with Section 11.08 shall be determined
by arbitration in accordance with Section 11.03E. Any dispute with respect to
the reasonability of any failure or refusal of Owner to grant its consent or
approval to any request for such consent or approval pursuant to any of the
provisions of this Lease (other than Sections 3.01 and 11.03) with respect to
which Owner has covenanted not unreasonably to withhold such consent or
approval, and any dispute arising with respect to the increases in Fixed Rent
due to the provisions of Section 23.02 shall be determined by applicable legal
proceedings. If the determination of any such legal proceedings, or of any
arbitration held pursuant to the provisions of this Section with respect to
disputes arising under Section 3.01 or the Operating Expense provisions of
Article 23 or any arbitration held pursuant to the provisions of Section 11.03E,
shall be adverse to Owner, Owner shall be deemed to have granted the requested
consent or approval, or be bound by any determination as to Taxes and Operating
Expenses and the increases in Fixed Rent relating thereto or the validity of any
assignment, but that shall be Tenant's sole remedy in such event and Owner shall
not be liable to Tenant for a breach of Owner's covenant not unreasonably to
withhold such consent or approval, or otherwise. Each party shall pay its own
counsel and expert witness fees and expenses, if any, in connection with any
arbitration held pursuant to the provisions of this Section and the parties will
share all other expenses and fees of any such arbitration.
ARTICLE 37
PARTIES BOUND
SECTION 37.01. The terms, covenants and conditions contained
in this Lease shall bind and inure to the benefit of Owner and Tenant and,
except as otherwise provided in this Lease, their respective heirs, distributee,
executors, administrators, successors and assigns. However, the obligations of
Owner under this Lease shall no longer be binding upon Owner named herein after
the sale, assignment or transfer by Owner named herein (or upon any subsequent
Owner after the sale, assignment or transfer by such subsequent Owner) of its
interest in the Building as owner or lessee, and in the event of any such sale,
assignment or transfer, such obligations shall thereafter be binding upon the
grantee, assignee or other transferee of such interest, and any such grantee,
assignee or transferee, by accepting such interest, shall be deemed to have
assumed such obligations. A lease of the entire Building shall be deemed a
transfer within the meaning of the foregoing sentence. Neither the partners
(direct or indirect) composing Owner, nor the shareholders (nor any of the
partners composing same), partners, directors or officers of any of the
foregoing (collectively, the "Owner's Parties") shall be liable for the
performance of Owner's obligations under this Lease. Tenant shall look solely to
Owner to enforce Owner's obligations hereunder and shall not seek any damages
against any of the Owner's Parties. Notwithstanding anything contained in this
Lease to the contrary, Tenant shall look solely to the estate and interest of
Owner, its successors and assigns, in the Real Property and Building for the
collection or satisfaction of any judgment recovered against Owner based upon
the breach by Owner of any of the terms, conditions or covenants of this Lease
on the part of Owner to be performed, and no other property or assets of Owner
or any of Owner's Parties shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to either this Lease,
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the relationship of landlord and tenant hereunder, or Tenant's use and occupancy
of the Demised Premises.
ARTICLE 38
DELETED
ARTICLE 39
RENEWAL OPTION
SECTION 39.01. Provided (i) Tenant is not then in default
under any of the terms, covenants or conditions of this Lease on Tenant's part
to be observed or performed after notice and beyond the expiration of any
applicable grace and cure periods; and (ii) Tenant and its subsidiaries and
affiliates, in contradistinction to any subtenants or occupants, shall then be
in occupancy of at least fifty (50%) percent of the space leased to Tenant under
this Lease (for the purposes of this Article 39, any space leased to Tenant
under this Lease which has been eliminated from the Demised Premises pursuant to
Section 11.03 shall be deemed space leased to Tenant under this Lease), Tenant
shall have the single option to renew this Lease and the Demised Term for a
single renewal term (referred to as the "Renewal Term") of five (5) years
commencing on the date next following the Expiration Date set forth in Section
1.02.A and ending, unless sooner terminated pursuant to the terms, covenants and
conditions of this Lease or pursuant to law, on the last day (referred to as the
"Extended Expiration Date") of the calendar month in which the day immediately
preceding the fifth (5th) anniversary date of the commencement of the Renewal
Term shall occur. If Tenant exercises such option in accordance with the
provisions and limitations of this Article, this Lease and the Demised Term
shall be renewed for the Renewal Term at a Fixed Rent equal to the fair market
annual rental value of the Demised Premises as of the commencement date of the
Renewal Term, as agreed by the parties or determined in accordance with the
provisions of Section 39.03, but in no event shall the Fixed Rent for the
Renewal Term be less than the Fixed Rent in effect as of the Expiration Date
(before giving effect to any abatement or apportionment of the Fixed Rent) but
otherwise upon the same then executory terms, covenants and conditions as the
original Demised Term (including, but not limited to, Base Operating Expenses
set forth in Article 23).
SECTION 39.02. The option set forth in Section 39.01 may only
be exercised by notice given by Tenant to Owner on or prior to the date which is
fifteen (15) months immediately preceding the commencement date of the Renewal
Term. Time is of the essence with respect to the exercise of such option. Tenant
shall not have the right to give any such notice after the date which is fifteen
(15) months immediately preceding the commencement date of the Renewal Term, and
any notice given after said date, purporting to exercise such option shall be
void and of no force and effect.
SECTION 39.03. In the event Owner and Tenant are unable to
agree as to the fair market annual rental value of the Demised Premises for the
Renewal Term pursuant to Section 39.01 then, upon the demand of either Owner or
Tenant, such fair market annual rental value shall be determined by arbitration
as follows:
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(a) Owner and Tenant shall each appoint an arbitrator within
thirty (30) days after notice by either party requesting arbitration of the
issue. If either Owner or Tenant shall have failed to appoint an arbitrator
within such period of time, then such arbitrator shall be appointed by the
American Arbitration Association, or its successor pursuant to its rules for
commercial matters, or if at such time such association is not in existence and
has no successor, then by the presiding Justice of the Appellate Division, First
Department, of the Supreme Court of the State of New York, or any successor
court, upon request of either Owner or Tenant, as the case may be.
(b) The two arbitrators appointed, as above provided, shall
select a third arbitrator and if they fail to do so within thirty (30) days
after their appointment, such third arbitrator shall be appointed as above
provided for the appointment of an arbitrator in the event either party fails to
do so.
(c) All of such arbitrators shall be real estate appraisers or
brokers having at least fifteen (15) years of experience in such field in the
Borough of Manhattan, City of New York.
(d) The three arbitrators, selected as aforesaid, forthwith
shall convene and render their decision as promptly as practicable after the
appointment of the third arbitrator. The decision of such arbitrators shall be
in writing and the vote of the majority of them (or, if there be no majority
decision, then the decision of the last appointed arbitrator) shall be the
decision of all and binding upon Owner and Tenant whether or not a judgment
shall be entered in any court. Duplicate original counterparts of such decision
shall be sent by the arbitrators to both Owner and Tenant.
(e) The arbitrators, in arriving at their decision, shall be
entitled to consider all testimony and documentary evidence which may be
presented at any hearing as well as facts and data which the arbitrators may
discover by investigation and inquiry outside of such hearings. The arbitrators
shall be bound by the provisions of this Lease, and shall not add to, subtract
from, or otherwise modify such provisions. The cost and expense of such
arbitration shall be borne equally by Owner and Tenant, except that each party
shall pay its own counsel fees and expenses.
(f) Notwithstanding any findings of the arbitrators, such fair
market annual rental rate with respect to the Renewal Term shall not be less
than the Fixed Rent in effect as of the Expiration Date (before giving effect to
any abatement or apportionment of Fixed Rent).
(g) If the determination of the Fixed Rent for the Renewal
Term has not been made by the commencement of the Renewal Term, Tenant, until
such determination, shall continue to pay the minimum Fixed Rent required and
after such determination Tenant shall pay to Owner, upon demand, any additional
sums due to Owner as a result of such determination.
SECTION 39.04. Tenant, upon request of Owner, from time to
time, will execute and deliver to Owner an instrument in form reasonably
satisfactory to Owner stating whether or not Tenant has exercised the right to
renew contained in the provisions of Section 39.01 and, if Tenant has exercised
such right, setting forth the Fixed Rent for the Renewal
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Term. However, failure of Owner to request the execution and delivery of any
such instrument or failure of Tenant to execute and deliver such instrument
shall not vitiate the foregoing provisions of this Article.
SECTION 39.05. Notwithstanding the foregoing, and regardless
of the stage of any then arbitration proceeding with respect to the
determination of the fair market annual rental for the Renewal Term, Tenant
shall have the single right to rescind its notice of its option to renew this
Lease by notice to Owner not later than twelve (12) months immediately preceding
the commencement date of the Renewal Term, in such event, Tenant shall pay all
of Owner's costs in connection with any arbitration with respect to this
numbered Article. From and after such Tenant's notice, the provisions of this
Article 39 shall have no further force and effect. In the event that by the date
twelve (12) months immediately preceding the commencement date of the Renewal
Term the arbitration has not been concluded, Owner and Tenant shall notify the
arbitrators that the arbitration must be expeditiously concluded and the last
date upon which Tenant may exercise its right to rescind shall be extended to
the earlier of the date eleven (11) months immediately preceding the
commencement date of the Renewal Term or the date five (5) days following the
determination of the arbitration.
ARTICLE 40
TENANT'S RIGHT OF FIRST OFFER FOR ADDITIONAL SPACE
SECTION 40.01. TENANT'S FIRST OFFER RIGHT: Provided that (a)
Tenant is not then in default under any of the terms, covenants or conditions of
this Lease on Tenant's part to be observed or performed after notice and beyond
the expiration of any applicable grace and cure periods and (b) Tenant and its
subsidiaries and affiliates, in contradistinction to any subtenants or other
occupants, shall then be in occupancy of at least fifty (50%) percent of the
space leased to Tenant under this Lease (for the purposes of this Article 40 any
space leased to Tenant under this Lease which has been eliminated from the
Demised Premises pursuant to Section 11.03 shall be deemed space leased to
Tenant under this Lease), then Tenant shall have the right (sometimes referred
to herein as "Tenant's First Offer Right"), subject to the provisions of this
Article, exercisable in accordance with the provisions of Section 40.02, to
lease and add to the Demised Premises that portion of the tenth (10th) floor of
the Building indicated by outlining and diagonal markings on the floor plan
initialled by the parties and annexed hereto as Exhibit 3 (such space is
referred to herein as the "Additional Space"), if after the initial leasing by
Owner of such Additional Space it becomes "available for leasing" during the
Demised Term. Tenant acknowledges that Owner may initially lease the Additional
Space for whatever term, and upon all other terms, covenants and conditions, and
to whomever it desires in Owner's sole judgment. The Additional Space shall not
be deemed "available for leasing" if (a) the then tenant of the Additional Space
or any assignee, subtenant or other occupant holding through or under such
tenant shall enter into (i) any agreement with Owner extending the letting
agreement affecting the Additional Space or (ii) any new lease with Owner
affecting the Additional Space, or (b) any other tenant in the Building or any
assignee of such other tenant shall exercise any contractual option or right
which such tenant or assignee has to lease the Additional Space. Notwithstanding
the foregoing provisions of this Section 40.01, Tenant shall not have the right
to lease and add to the Demised Premises the Additional Space pursuant to
Tenant's First Offer Right which becomes available for leasing if, at the time
of the exercise of such Tenant's First Offer Right by Tenant, there are
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less than eighteen (18) months remaining of the Demised Term of this Lease,
unless Tenant has unconditionally exercised Tenant's single renewal option set
forth in Article 39 so as to extend the Demised Term for more than eighteen (18)
months.
SECTION 40.02. NOTICE OF TENTH (10TH) FLOOR AVAILABILITY AND
TENANT'S EXERCISE OF OPTION.
A. In the event that the Additional Space shall become or
about to become available for leasing in accordance with the provisions of
Section 40.01, Owner shall give notice thereof to Tenant (any such notice is
referred to as an "Owner's Availability Notice"), which Notice shall contain the
date such Space is expected to be vacant or available for leasing). Owner's
Availability Notice may be given up to fifteen (15) months prior to the date set
forth in such Notice upon which such Additional Space is expected to become
vacant and available for leasing (the date set forth in Owner's Availability
Notice on which such Additional Space is expected to become available for
leasing is sometimes referred to as an "Expected Vacancy Date"). Upon Owner
giving Tenant an Owner's Availability Notice, Tenant may exercise Tenant's First
Offer Right only by notice given to Owner within ten (10) days next following
the date of the giving of such Owner's Availability Notice, and by giving such
notice thereby lease and add such Additional Space to the Demised Premises for a
term to begin, subject to Section 40.03, on the Expected Vacancy Date; and any
notice given by Tenant to Owner exercising such Tenant's First Offer Right is
referred to as ("Tenant's First Offer Notice".)
B. It is understood and agreed that "time is of the essence"
with respect to Tenant's exercise of its Tenant's First Offer Right pursuant to
this Article and that if Tenant does not exercise such Tenant's First Offer
Right within the ten (10) day time limitation set forth in Subsection A above,
any notice purporting to exercise such Tenant's First Offer Right given after
the expiration of such time limitation shall be void and of no force and effect
and Tenant shall have no further right to lease and add the Additional Space to
the Demised Premises.
C. If Tenant exercises Tenant's First Offer Right in
accordance with the provisions of this Article 40, then the Additional Space
shall be leased by Tenant and added to the Demised Premises upon all of the then
executory terms, covenants and conditions as are contained in this Lease
(including, but not limited to, the provisions of Article 23 and the definition
of Base Operating Expenses set forth therein) except as otherwise provided in
this Article for a term to commence on the Expected Vacancy Date, as the same
may be accelerated or delayed pursuant to the provisions of Section 40.03.
SECTION 40.03. A. ACCELERATION OF FIRST OFFER VACANCY DATE. In
the event that the Additional Space shall become available for leasing sooner
than the Expected Vacancy Date because of the termination of the term of the
lease or occupancy affecting such Additional Space, Owner shall have the right
to accelerate the Expected Vacancy Date to such sooner date upon not less than
thirty (30) days notice to Tenant, provided that such date is not more than six
(6) months prior to the Expected Vacancy Date originally set forth in Owner's
Availability Notice.
B. HOLDOVER OCCUPANT. Owner and Tenant acknowledge the
possibility that all or any of the tenants or occupants of the Additional Space
may not have vacated and surrendered the Additional Space to Owner by the
Expected Vacancy Date. Accordingly,
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notwithstanding anything to the contrary contained in Sections 40.01 or 40.02 or
in any Owner's Availability Notice, if such tenants or occupants shall not have
vacated and surrendered the Additional Space to Owner by the Expected Vacancy
Date, then, the term of this Lease applicable to the Additional Space shall
commence on the date next following the day upon which the Additional Space
becomes vacant and Owner gives notice to Tenant of such vacancy.
C. LEASE NOT AFFECTED. In the event that the provisions of
this Section 40.03 shall apply, then, the parties agree that (a) the Expiration
Date shall not be affected by operation of the provisions of this Section 40.03;
(b) except as expressly set forth in this Section 40.03, neither the validity of
this Lease nor the obligations of Tenant under this Article 40 shall be affected
by operation of the provisions of this Section 40.03; (c) Tenant waives any
rights under Section 223-a of the Real Property Law of New York or any successor
statute of similar import to rescind this Lease or such Tenant's exercise of
Tenant's First Offer Right and further waives the right to recover any damages
against Owner which may result from the failure of Owner to deliver possession
of the Additional Space on the Expected Vacancy Date; and (d) Owner shall
institute, within thirty (30) days after the Expected Vacancy Date set forth in
Owner's Availability Notice, appropriate proceedings against any such Additional
Space tenants or occupants who have not vacated and surrendered all or any
portion of the Additional Space in order to obtain possession thereof, and shall
prosecute such proceedings to completion with reasonable diligence.
SECTION 40.04. MODIFICATION OF LEASE - INCLUSION OF THE
ADDITIONAL SPACE: In the event that Tenant shall timely exercise Tenant's First
Offer Right in accordance with the provisions of this Article then, on the
effective commencement date of the term applicable to the Additional Space, this
Lease shall be deemed modified as follows:
A. The Demised Premises shall include the Additional Space
(together with all appurtenances, fixtures, improvements, additions and other
property attached thereto or installed therein at the commencement of the term
applicable to the Additional Space or at any time during said term, other than
Tenant's Personal Property) for all purposes of this Lease;
B. The Fixed Rent reserved in this Lease shall be increased by
the fair market annual rental value of the Additional Space as of the
commencement dare of the demised term applicable thereto, as determined by
agreement between Owner and Tenant or by arbitration as provided in Section
40.06, but in no event shall such increase in the Fixed Rent per rentable square
foot, from time to time, be less than the Fixed Rent per rentable square foot in
effect from time to time applicable to the original portion of the Demised
Premises (before giving effect to any abatement or apportionment of such Fixed
Rent), and the monthly installments of the Fixed Rent shall each be increased
accordingly to conform with the foregoing. In the event that the term applicable
to the Additional Space shall commence on a date other than the first day of any
month, the monthly installment of the Fixed Rent for the month during which the
term applicable to the Additional Space shall occur shall be increased pro rata
to reflect such increase in the Fixed Rent;
C. The Demised Premises Area set forth in Section 23.01 shall
be increased by 2,033 square feet; and
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D. Tenant's Electrical Share of sixty-two and 13/100 (62.13%)
percent set forth in Section 29.05 shall be increased by twelve and 9/10 (12.9%)
percent.
SECTION 40.05. Tenant agrees to accept the Additional Space in
the condition which shall exist on the commencement date of the term applicable
thereto "as is" and further agrees that Owner shall have no obligation to
perform any work or make any installations in order to prepare the Additional
Space for Tenant's occupancy.
SECTION 40.06. In the event Owner and Tenant are unable to
agree as to the fair market annual rental value of the Additional Space, then,
upon the demand of either Owner or Tenant, such fair market annual rental value
shall be determined by arbitration as follows:
(a) Owner and Tenant shall each appoint an arbitrator
within thirty (30) days after notice by either party
requesting arbitration of the issue. If either Owner
or Tenant shall have failed to appoint an arbitrator
within such period of time, then such arbitrator
shall be appointed by the American Arbitration
Association, or its successor, or if at such time
such association is not in existence and has no
successor, then by the presiding Justice of the
Appellate Division, First Department, of the Supreme
Court of the State of New York, or any successor
court, upon request of either Owner or Tenant, as the
case may be.
(b) The two arbitrators appointed, as above provided,
shall select a third arbitrator and if they fail to
do so within thirty (30) days after their
appointment, such third arbitrator shall be appointed
as above provided for the appointment of an
arbitrator in the event either party fails to do so.
(c) All of such arbitrators shall be real estate
appraisers or brokers having at least fifteen (15)
years of experience in such field in the Borough of
Manhattan, City of New York.
(d) The three arbitrators, selected as aforesaid,
forthwith shall convene and render their decision as
promptly as practicable after the appointment of the
third arbitrator. The decision of such arbitrators
shall be in writing and the vote of the majority of
them (or, if there be no majority decision, then the
decision of the last appointed arbitrator) shall be
the decision of all and binding upon Owner and Tenant
whether or not a judgment shall be entered in any
court. Duplicate original counterparts of such
decision shall be sent by the arbitrators to both
Owner and Tenant.
(e) The arbitrators, in arriving at their decision, shall
be entitled to consider all testimony and documentary
evidence which may be presented at any hearing as
well as facts and data which the arbitrators may
discover by investigation and inquiry outside of such
hearings. The arbitrators shall be bound by the
provisions of this Lease, and shall not add to,
subtract from, or otherwise modify such provisions.
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The cost and expense of such arbitration shall be
borne equally by Owner and Tenant, apt that each
party shall pay its own counsel fees and expenses.
(F) Notwithstanding any findings of the arbitrators, such
fair market annual rental value per rentable square
foot and, accordingly, the Fixed Rent applicable to
the Additional Space from time to time per rentable
square foot shall not be less than the Fixed Rent per
rentable square foot in effect from time to time
applicable to the original of the Demised Premises
(before giving effect to any abatement or
apportionment of such Fixed Rent).
SECTION 40.07. Upon demand of Owner, Tenant will execute and
deliver to Owner an instrument in form satisfactory to Owner stating whether or
not Tenant has exercised the option contained in this Article and if Tenant has
exercised such option setting forth the effective commencement date of the term
applicable to the Additional Space and the Fixed Rent applicable to the
Additional Space. However, neither the failure of Owner to demand the execution
and delivery of such instrument nor the failure of Tenant to execute and deliver
such instrument shall vitiate the provisions of this Article.
ARTICLE 41
TENANT'S SINGLE TERMINATION OPTION
SECTION 41.01. For the purposes of this Section, the
"Notification Date" shall mean the date upon which Owner shall have notified
Tenant that at least 75,000 rentable square feet in the Building have been
leased to tenants pursuant to bona fide executed leases (whether or not the
tenants or occupants thereof are actually then in occupancy of the premises
demised in their leases) provided the notification by Owner to Tenant is true.
If the Notification Date has not yet occurred by January 1, 1998, then Tenant
shall have the single option, exercisable by notice to Owner on or prior to
February 1, 1998, to terminate this Lease as of June 30, 1998 provided (i) this
Lease has not been terminated previously pursuant to the provisions of this
Lease or pursuant to law and (ii) Tenant is not then in default under any of the
terms, covenants or conditions of this Lease on Tenant's part to be observed or
performed beyond the applicable grace period provided in this Lease for the
curing of such default. In the event Tenant shall give such notice of
termination pursuant to the provisions of this Section and shall otherwise
comply with the conditions of the exercise of Tenant's right to terminate this
Lease, this Lease and the Demised Term shall come to an end and expire on June
30, 1998 with the same force and effect as though June 30, 1998 were the
Expiration Date, unless sooner terminated pursuant to any other term, covenant
or condition of this Lease or pursuant to law. Notwithstanding anything to the
contrary set forth in this Section, in the event that the Notification Date
shall have occurred prior to the date upon which Tenant shall have exercised
Tenant's option to terminate this Lease as hereinabove provided, then thereupon
the option set forth in this Section shall be null and void and of no further
force and effect and Tenant shall have no further option under the provisions of
this Article. The fact that, subsequent to the Notification Date, less than
75,000 rentable square feet in the Building are leased to tenants pursuant to
bona fide executed leases (whether or not the tenants or occupants thereof are
actually then in occupancy of the premises demised in their leases) shall
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not affect the validity of the Notification Date or the fact that Tenant's
option set forth in this Section is of no further force and effect.
SECTION 41.02. Time is of the essence with respect to the
Notification Date and the exercise by Tenant of the option to terminate this
Lease in accordance with the provisions of Section 41.02 and any Notification
Date occurring after January 1, 1998 and any exercise by Tenant of the option
set forth in Section 41.01 after February 1, 1998 shall be void and of no force
and effect.
SECTION 41.03. Upon request of Tenant Owner shall deliver to
Tenant not more frequently than once every six (6) months a status report as to
the number of rentable square feet in the Building then leased to tenants
pursuant to bona fide executed leases. Owner's obligation under this Section
shall no longer apply after the earlier of the Notification Date or February 1,
1998.
SECTION 41.04. Upon request of either party, from time to
time, the parties will execute and deliver to each other an instrument, in form
reasonably satisfactory to both parties, stating that Tenant has not exercised
the option contained in Section 41.01 or that Tenant has exercised the option
contained in Section 41.01 or that the option contained in Section 41.01 is of
no further force and effect, as the ease may be. Failure of either party to
request the execution and delivery of such instrument or failure of either party
to execute such instrument, however, shall not vitiate the foregoing provisions
of this Article.
ARTICLE 42
SATELLITE DISH
SECTION 42.01. In the event that and as long as Owner installs
a master satellite dish ("Master Satellite Dish") in the Building, Owner shall
permit Tenant to connect to the Master Satellite Dish, upon payment to Owner of
any reasonable and competitive charges (in similar work and services in the
Borough of Manhattan) imposed by Owner in connection with the connection to and
use of the Master Satellite Dish. Tenant's cables connecting to the Master
Satellite Dish shall run through such conduits, pipes and shafts in the Building
designated by Owner. Tenant shall comply with all reasonable rules and
regulations imposed by Owner from time to time with respect to the use of the
Master Satellite Dish provided that ail such rules and regulations shall be
applied in a nondiscriminatory fashion with Tenant given "most favored nation
status" with respect to any rules and regulations and connection to and use of
the Master Satellite Dish (with appropriate adjustment based on the number of
square feet of the Demised Premises). Owner agrees to operate and maintain in
good condition the Master Satellite Dish throughout the period of Tenant's
connection thereto and make all repairs and replacements thereto as and when
needed.
SECTION 42.02. In the event that Owner does not install the
Master Satellite Dish on the roof of the Building or discontinues such Master
Satellite Dish, Tenant shall have the right to install (i) a Tenant's satellite
dish ("Tenant's Satellite Dish") of a size approved by Owner on the roof of the
Building, such approval not to be unreasonably withheld or delayed, the exact
location of which shall be designated by Owner, and (ii) cables connecting
Tenant's Satellite Dish to equipment in the Demised Premises running through
conduits, pipes or shafts
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in the Building, the exact location of which shall be designated by Owner. All
of the foregoing installations shall be made at Tenant's sole cost and expense
and in accordance with all the provisions of this Lease, including, but not
limited to, the provisions of Article 3 and Article 6. Owner shall have no
responsibility for the maintenance and repair of any such installations and
Tenant, at Tenant's sole cost and expense, shall keep all said installations in
good condition and make all necessary repairs and replacements thereto and to
the Building occasioned thereby. Upon the Expiration Date or sooner termination
of the Demised Term, or if required by any applicable governmental authorities,
or if Owner installs the Master Satellite Dish, Tenant, at Tenant's sole cost
and expense, shall, upon request of Owner, remove such installations and make
all repairs to the Building occasioned by such removal. Any of the foregoing
installations shall be subject to such conditions with respect to such
installations and the maintenance thereof as may reasonably be imposed by Owner
with Tenant entitled to "most favored nation status" with respect to such
conditions (with appropriate adjustment based on the number of square feet in
the Demised Premises). At Owner's election, such installations shall be made on
behalf of Tenant by Owner or a contractor or contractors designated by Owner
which contractors shall charge competitive prices for similar work in the
Borough of Manhattan in either event, at Tenant's sole cost and expense. Tenant
agrees that Tenant's Satellite Dish shall be designed in such a manner that it
shall not interfere with any other telecommunication equipment or satellite
dishes on the roof of the Building and all other tenants of the Building shall
be deemed third parry beneficiaries of the foregoing provision with the right to
enforce the same. Owner will cause a provision to the same effect to be included
in any other future lease of space in the Building or in any future agreement,
or consent, as the case may be, in which a tenant is given the right to install
similar equipment on the roof of the Building and all other tenants of the
Building, including Tenant, shall be deemed third party beneficiaries of such
provision with the right to enforce the same; in enforcing any such rights
Tenant may commence an action or proceeding in Owner's name, provided Owner
incurs no expense therefor and Tenant indemnifies Owner from all loss, cost,
liability, damage and expense, including, but not limited to, reasonable counsel
fees and disbursements, arising from any such action or proceeding; Owner
agrees, however, at no cost to Owner, to cooperate with Tenant with respect to
any such action or proceeding. Owner shall have no obligation to enforce any
such provision and no breach by any other tenant of the Building of its
obligations under said provision or resulting interference with Tenant's
Satellite Dish shall be deemed to constitute an actual or constructive eviction,
in whole or in part, or entitle Tenant to any abatement or diminution of rent,
or relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Owner or its agents by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business or otherwise.
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IN WITNESS WHEREOF, Owner and Tenant have respectively signed
and sealed this Lease as of the day and year first above written.
55 BROAD STREET COMPANY
Witness:
______________________________ By:________________________________
Owner
Name:
Title: Partner
N2K INC.
Witness:
Attest:
______________________________ By:________________________________
Tenant
Name:
Title:
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<PAGE> 81
SCHEDULE A
BUILDING RULES
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls of the Building shall not be obstructed or
encumbered or used for any purpose other than ingress and egress to and from the
premises demised to any tenant or occupant. Any tenant whose premises are
situate on the ground floor of the Building shall, at said tenant's own expense,
keep the sidewalks and curb directly in front of said premises clean and free
from ice and snow.
2. No awnings or other projections shall be attached to the outside
walls or windows of the Building without the prior consent of Owner. No
curtains, blinds, shades, or screens shall be attached to or hung in, or used in
connection with, any window or door of the premises demised to any tenant or
occupant, without the prior consent of Owner. Such awnings, projections,
curtains, blinds, shades, screens or other fixtures must be of a quality, type,
design and color, and attached in a manner, approved by Owner.
3. No sign, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or inside of
the premises demised to any tenant or occupant of the Building without the prior
consent of Owner. Interior signs on doors and directory tablets, if any, shall
be of a size, color and style approved by Owner.
4. The sashes, sash doors, skylights, windows, and doors that reflect
or admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed, nor shall any bottles, parcels, or
other articles be placed on any window sills.
5. No showcases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the halls, corridors,
vestibules or other public parts of the Building.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. No tenant
shall bring or keep, or permit to be brought or kept, any inflammable,
combustible or explosive fluid, material, chemical or substance in or about the
premises demised to such tenant.
7. No tenant or occupant shall mark, paint, doll into, or in any way
deface any part of the Building or the premises demised to such tenant or
occupant. No boring, cutting or stringing of wires shad be permitted, except
with the prior consent of Owner, and as Owner may direct. No tenant or occupant
shall install any resilient tile or similar floor covering in the premises
demised to such tenant or occupant except in a manner approved by Owner.
8. No bicycles, vehicles or animals of any kind shall be brought into
or kept in or about the premises demised to any tenant. No cooking shall be done
or permitted in the Building by any tenant without the approval of Owner. No
tenant shall cause or permit any unusual or objectionable odors to emanate from
the premises demised to such tenant.
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9. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of any
kind at auction.
10. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with other tenants or occupants of the
Building or neighboring buildings or premises whether by the use of any musical
instrument, radio, television set or other audio device, unmusical noise,
whistling, singing, or in any other way. Nothing shall be thrown out of any
doors or windows.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows, nor shall any changes be made in locks or the mechanism
thereof. Each tenant must, upon the termination of its tenancy, restore to Owner
all keys of stores, offices and toilet rooms, either furnished to, or otherwise
procured by, such tenant.
12. All removals from the Building, or the carrying in or out of the
Building or the premises demised to any tenant, of any safes, freight, furniture
or bulky matter of any description must take place at such time and in such
manner as Owner or its agents may determine, from time to time. Owner reserves
the right to inspect all freight to be brought into the Building and to exclude
from the Building all freight which violates any of the Building Rules or the
provisions of such tenant's lease.
13. No tenant shall use or occupy, or permit any portion of the
premises demised to such tenant to be used or occupied, as an office for a
public stenographer or typist, or as a barber or manicure shop, or as an
employment bureau. No tenant or occupant shall engage or pay any employees in
the Building, except those actually working for such tenant or occupant in the
Building, nor advertise for laborers, giving an address at the Building.
14. No tenant or occupant shall purchase spring water, ice, food,
beverage, lighting maintenance, cleaning, towels, or other like service, from
any company or persons not approved by Owner, such approval not unreasonably to
be withheld.
15. Owner shall have the right to prohibit any advertising by any
tenant or occupant which, in Owner's opinion, tends to impair the reputation of
the Building or its desirability as a building for offices, and upon notice from
Owner, such tenant or occupant shall refrain from or discontinue such
advertising.
16. Owner reserves the right to exclude from the Building, between the
hours of 6 P.M. and 8 A.M. on business days and at all hours on Saturdays,
Sundays and holidays, all persons who do not present a pass to the Building
signed by Owner. Owner will furnish passes to persons for whom any tenant
requests such passes. Each tenant shall be responsible for all persons for whom
it requests such passes and shall be liable to Owner for all acts of such
persons.
17. Each tenant, before closing and leaving the premises demised to
such tenant at any time, shall see that all entrance doors are locked and all
windows closed.
18. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Owner's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
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19. No premises shall be used, or permitted to be used, for lodging or
sleeping or for any immoral or illegal purpose.
20. The requirements of tenants will be attended to only upon
application at the office of Owner. Building employees shall not be required to
perform, and shall not be requested by any tenant or occupant to perform, any
work outside of their regular duties, unless under specific instructions from
the office of Owner.
21. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant and occupant shall cooperate in seeking their prevention.
22. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance except those equipped with rubber tires, rubber side guards and such
other safeguards as Owner may require.
23. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Owner, and shall employ
such exterminators therefor as shall be approved by Owner.
24. No premises shall be used, or permitted to be used, at any time, as
a store for the sale or display of goods, wares or merchandise of any kind, or
as a restaurant, shop, booth, bootblack or other stand; or for the conduct of
any business or occupation which predominately involves direct patronage of the
general public in the premises demised to such tenant, or for manufacturing or
for other similar purposes.
25. No tenant shall clean, or permit to be cleaned, any window of the
Building from the outside in violation of Section 202 of the New York Labor Law
or any successor law or statute, or of the rules of the Board of Standards and
Appeals or of any board or body having or asserting jurisdiction.
26. No tenant shall move, or permit to be moved, into or out of the
Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific approval of Owner. If any such matter requires special
handling, only a person holding a Master Rigger's license shall be employed to
perform such special handling. No tenant shall place, or permit to be placed, on
any part of the floor or floors of the premises demised to such tenant, a load
exceeding the floor load per square foot which such floor was designed to carry
and which is allowed by law. Owner reserves the right to prescribe the weight
and position of safes and other heavy matter, which must be placed so as to
distribute the weight.
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ADDENDUM A
OWNER'S INITIAL CONSTRUCTION
I. Owner agrees to supply and install in the Demised Premises all of
the items set forth on Tenant's Plan referred to in Paragraph IV of this
Schedule unless prevented by job conditions or other circumstances beyond the
reasonable control of Owner. In consideration of the performance of such work by
Owner, Tenant shall pay to Owner, from time to time upon demand, whether or not
the Demised Term shall have commenced, a sum (referred to as "Tenant's
Construction Sum") equal to the amount, if any, by which the aggregate of: (a)
the actual cost and expense to Owner of supplying and installing all of the
items set forth on Tenant's Plan (including, but not limited to, the cost to
Owner of a field superintendent, operating engineer, laborers, freight elevator
costs, rubbish removal, temporary sprinklers and lighting, electric and heat,
protection, insurance, Building Department filing and expediting, Building
permits, any other governmental approvals, blueprint costs and every other item
which customarily would be considered a general condition and any construction
management or other fees paid to the general contractor or construction manager
who is performing Owner's Initial Construction) shall exceed the sum of FOUR
HUNDRED SIXTY-SIX THOUSAND ONE HUNDRED SIXTY-FIVE and 00/100 ($466,165.00)
DOLLARS. In the event that said sum of FOUR HUNDRED SIXTY-SIX THOUSAND ONE
HUNDRED SIXTY-FIVE and 00/100 ($466,165.00) DOLLARS shall be in excess of the
aggregate amounts set forth in subdivision (a) above, Tenant shall be entitled
to apply such excess against any of Tenant's architects, engineers or designers
fees incurred by Tenant in connection with Owner's Initial Construction and the
cost of any moving expenses and telecommunications and telephone systems
installed in the Demised Premises. In the event that any further excess remains
after such application Tenant shall not be entitled to any such further excess.
Any such sums due Owner shall be payable by Tenant to Owner, from time to time
whether or not the Demised Term shall have commenced, within five (5) days next
following the rendition of a statement therefor by Owner to Tenant. Tenant shall
furnish to Owner security satisfactory to Owner in an amount at least equal to
Owner's estimate of Tenant's Construction Sum within five (5) days after demand
by Owner therefor. In the event Owner's estimate of the amount of Tenant's
Construction Sum is increased, then Tenant shall increase the amount of such
security to an amount at least equal to such revised increased estimate of
Tenant's Construction Sum, within five (5) days after demand therefor by Owner.
In connection with Owner's Initial Construction, Owner agrees to employ
competitive bidding and to promptly submit copies of all bids to Tenant and to
engage the lowest responsible bidder in each category after advising Tenant of
the bidder selected and, if such bidder is not the lowest bidder, then the
reason for such selection. Tenant and its architect shall be permitted to
participate in the bidding process and awarding of all Contracts.
II. The work and installations required to be performed and made by
Owner pursuant to the provisions of Paragraph I of this Schedule shall be equal
to standards adopted by Owner for the Building. Owner's Initial Construction
shall constitute a single nonrecurring obligation on the part of Owner. In the
event the Lease is renewed or extended for a further term by agreement or
operation of law, Owner's obligation to perform Owner's Initial Construction
shall not apply to any such renewal or extension.
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III. Subject to the provisions of Paragraphs IV(4) and VI of this
Schedule, Owner's Initial Construction shall be substantially completed prior to
the Commencement Date. At any time after such substantial completion, Owner may
enter the Demised Premises to complete unfinished details of Owner's Initial
Construction and entry by Owner, its agents, servants, employees or contractors
for such purpose shall not constitute an actual or constructive eviction, in
whole or in part, or entitle Tenant to any abatement or diminution of rent or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Owner or its agents by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise.
IV. (1) Tenant has submitted to Owner a complete set of detailed
plans and specifications (referred to as "Tenant's Plan") for those Alterations
to the Demised Premises which Tenant desires Owner to perform as Owner's Initial
Construction. Copies of Tenant's Plan have been initialled by Owner and Tenant
and Owner has approved Tenant's Plan with the conditions set forth therein, if
any. Tenant's Plan consists substantially of the drawings indicated on the
letter of Tenant's architects annexed hereto as Exhibit 4. Tenant agrees that
any revisions to Tenant's Plan shall be signed, certified and sealed by a
registered architect, and, if required, engineer, duly licensed in the State of
New York and approved by Owner, such approval not to be unreasonably withheld,
so that Tenant's Plan and any revisions thereto may be filed with, and approved
by, the Department of Buildings of the City of New York.
(2) At or about the time that Owner performs Owner's Initial
Construction, Owner shall, at Owner's expense, supply and install a single
unisex toilet located outside the Demised Premises adjacent to the core toilets
on the floor, where designated by Owner. The supply and installation of such
unisex toilet shall not affect the substantial completion of Owner's Initial
Completion or the Commencement Date. Owner's Initial Construction shall be
performed in accordance with all Legal Requirements including, but not limited
to, the provisions of the Americans With Disabilities Act.
(3) In the event substantial completion of Owner's Initial
Construction shall be delayed by reason of Tenant's unreasonable delays in
submitting any other plans or specifications, or in supplying information, or in
approving plans or specifications or estimates, or in giving authorizations or
by reason of any Change Work (as hereinafter defined) or by reason of any other
similar acts or omissions of Tenant, then, in such event, Tenant agrees to pay
to Owner, as agreed liquidated damages for Tenant's failures aforesaid or for
such delays occasioned by Tenant's acts or omissions, as the case may be, sums
equal to one (1) day's rent applicable to the Second Rent Period for each day
that such failure or delay shall continue.
(4) Tenant, after the submission of Tenant Plan, may
designate, subject to Owner's approval, not unreasonably to be withheld,
substitute or additional work, materials or installations (referred to,
collectively, as "Change Work") to be supplied and installed by Owner in
replacement of, or in addition to, the work, materials and installations set
forth on Tenant's Plan provided that such Change Work; (i) is in compliance with
the provisions of Articles 3 and 6 of the Lease; (ii) is practical and
consistent with the physical conditions in the Building and with the plans for
the Building filed with the Department of Buildings of the City of New York:
(iii) will not impair Owner's ability to perform any of Owner's obligations
under the provisions of the Lease; (iv) will not affect any portions of the
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Building other than the Demised Premises; (v) complies with the provisions of
Section 29.05; (vi) shall (a) be signed, sealed and certified by a registered
architect and, if applicable, engineer duly licensed in the State of New York
and (b) comply with all applicable laws, orders, rules and regulations of
governmental authorities so that Tenant's Plan may without further amendment or
change be used for engineering drawings and specifications and filed with and
approved by the Department of Buildings of the City of New York; (vii) will not
tend to delay completion of Owner's Initial Construction; (viii) shall not
designate any area which shall have an electrical load in excess of four (4)
watts per square foot of usable area for all purposes (including lighting and
power) or which shall have a human occupancy factor in excess of one (1) person
per one hundred (100) square feet of usable area; and (ix) is practical and
consistent with Tenant's Plan and does not represent a material change thereof.
At or about the time of the submission by Tenant to Owner of any Change Work, if
it appears to Owner that any item of Change Work designated by Tenant will tend
to delay completion of Owner's Initial Construction, or, notwithstanding Owner's
approval of any Change Work, if it subsequently appears to Owner that any item
of Change Work designated by Tenant will tend to delay completion of Owner's
Initial Construction, Owner in each case shall notify Tenant to that effect and
Tenant, within five (5) days after notice from Owner to that effect, will
designate, subject to the foregoing limitations (i) through (viii), other
available items of Change Work which will not so tend to delay completion. If
Tenant fails to make such designations within five (5) days after said notice
from Owner, Owner will have no obligation to supply or install the items set
forth m such Owner's notice or, at Owner's election, owner shall have the right
to perform such items of Change Work in accordance with the provisions of this
Schedule, except that, solely for the "purpose of determining whether or not
Owner's Initial Construction has been substantially completed and for the
purpose of fixing the Commencement Date, such items of Change Work and all other
related work and installations shall be deemed unfinished details of Owner's
Initial Construction which may be performed after the Commencement Date in
accordance with the provisions of Paragraph III of this Schedule and,
accordingly, shall not affect the Commencement Date.
V. INTENTIONALLY DELETED
VI. The approval of Tenant's Plan has stated which items
contained in Tenant's Plan, if any, will or might be subject to certain delays
in delivery and which might affect the date of substantial completion of Owner's
Initial Construction. Tenant may, within five (5) days after such notice from
Owner, designate, subject to the limitations (i) through (ix) set forth in
subparagraph (4) of Paragraph IV, other available items which will not be
subject to delays in delivery. If Tenant fails to timely make such designations,
Owner will have no obligation to supply or install the items set forth in such
Owner's notice or, at Owner's election, Owner shall have the right to perform
such items and for the purpose of determining whether or not Owner's Initial
Construction shall have been substantially completed and for the purpose of
fixing the Commencement Date, said items set forth in such notice and all other
related work and installations (sometimes hereinafter referred to collectively
as "Long Lead Items") shall be deemed unfinished details of Owner's Initial
Construction which may be performed by Owner after the substantial completion of
Owner's Initial Construction in accordance with the provisions of Paragraph III
of this Schedule and, accordingly, shall not affect the Commencement Date. Owner
and Tenant agree that notwithstanding anything to the contrary set forth in the
provisions of this Schedule the supply and installation of (the internal
stairway connecting the portions of the Demised Premises and different floors
shall be deemed a Long Lead Item.
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VII. In the event that the Commencement Date shall not have
occurred by December 22, 1995, as said date may be extended pursuant to the
provisions of this Paragraph VII, then Owner shall pay to Tenant a sum equal to
(a) ONE THOUSAND FOUR HUNDRED TWENTY-EIGHT and 57/100 DOLLARS ($1,428.57)
multiplied by (b) the number of days occurring between December 22, 1995 and the
later date immediately preceding the Commencement Date, both dates inclusive. At
Tenant's election such sum may be given to Tenant as a rent credit under the
Lease. The date December 22, 1995 set forth in this Section shall be extended by
a period equal to the aggregate of (i) the number of days, if any, of delays in
substantial completion of Owner's Initial Construction occasioned by reason of
Tenant's delays in submitting any other plans and specifications or in supplying
information, or in approving plans, specifications or estimates, or in giving
authorizations or by reason of any Change Work or by reason of any similar acts
or omissions of Tenant plus (ii) the number of days, if any, of delay or delays
in substantial completion of Owner's Initial Construction occasioned by reason
of strikes or other labor disputes, fire or other casualty (or reasonable delays
in adjustment of insurance), accidents, orders or regulations of any adjustment
of insurance) accidents, orders or regulations of any Federal, State, County or
Municipal authority, or by any other cause beyond Owner's control, whether or
not such other cause shall be similar in nature to those hereinbefore
enumerated.
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Exhibit 1
[Diagrams of Leased Space]
<PAGE> 89
Exhibit 2
[Diagrams of Leased Space]
<PAGE> 90
Exhibit 3
[Diagrams of Leased Space]
<PAGE> 91
FIRST ADDITIONAL SPACE AGREEMENT
AGREEMENT made as of the 1st day of April, 1996 between 55
BROAD STREET COMPANY, a New York partnership having its principal office at 345
Park Avenue, Borough of Manhattan, City, County and State of New York, as
landlord (referred to herein as "Owner"), and N2K INC., a Pennsylvania
corporation having an office at 55 Broad Street, Borough of Manhattan, City,
County and State of New York, as tenant (referred to herein as "Tenant").
WITNESSETH:
WHEREAS:
(1) Under date of September 7, 1995, Owner and N2K,
Inc., a New York corporation, Tenant's predecessor-in-interest, entered into a
lease affecting portions of the tenth (10th) and eleventh (11th) floors in the
building (referred to herein as the "Building") known as 55 Broad Street,
Borough of Manhattan, City, County and State of New York; and
(2) N2K, Inc., a New York corporation, merged into
Tenant by statutory merger effective February 13, 1996; and
(3) Said lease, as modified by written agreement dated
December 31, 1995, is for a term (referred to herein as the "Demised Term")
which shall end on May 31, 2001, unless sooner terminated or extended pursuant
to any of the terms, covenants or conditions of said lease or pursuant to law,
and is referred to herein as the "Lease"; and the premises so leased to Tenant
pursuant to the provisions of the Lease, together with all appurtenances,
fixtures, improvements, additions and other property attached thereto or
installed therein at any time during the Demised Term other than Tenant's
Personal Property (as defined in the Lease), are referred to herein,
collectively, as the "Demised Premises"; and
<PAGE> 92
(4) Tenant now desires to lease and add to the Demised
Premises that portion of the eleventh (11th) floor of the Building as shown on
Exhibit "1", initialled by the parties, which is annexed hereto and made part
hereof, and Owner is willing to lease said portion of the eleventh (11th) floor
to Tenant, subject to the provisions of this Agreement (said portion of the
eleventh (11th) floor of the Building, together with all appurtenances,
fixtures, improvements, additions and other property attached thereto or
installed therein at any time during the Demised Term, other than Tenant's
Personal Property as defined in the Lease, is referred to herein as the
"Additional Space"); and
(5) The Demised Term of the Lease applicable to the
Additional Space shall commence on a date (referred to as the "Additional Space
Commencement Date") fixed by Owner in a notice to Tenant, not sooner than ten
(10) days next following the date of the giving of such notice, which notice
shall state that Owner has, or prior to the Additional Space Commencement Date
will have, substantially completed Owner's Additional Construction (as
hereinafter defined); and
(6) All capitalized terms shall have the same meanings
ascribed to them in the Lease, unless otherwise set forth herein; and
(7) The parties desire to record herein their
understandings with respect to the foregoing.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
FIRST: The Lease is hereby modified as follows:
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A. Owner hereby leases to Tenant and Tenant hereby
hires from Owner the Additional Space for a term to commence upon the
Additional Space Commencement Date and to end on the Expiration Date (as it may
be extended pursuant to the provisions of this Agreement or the Lease), unless
the Demised Term shall sooner terminate pursuant to any of the terms, covenants
or conditions of the Lease or pursuant to law.
B. Owner agrees to perform work and make
installations in the Additional Space as set forth in Addendum A. Such work
and installations are referred to as "Owner's Additional Construction". All of
the terms, covenants and conditions of Addendum A are incorporated in this
agreement by reference and shall be deemed a part of this agreement as though
fully set forth in the body of this agreement.
C. From and after the Additional Space Commencement
Date, the Lease shall be deemed modified, as follows:
(1) The Demised Premises shall include the
Additional Space for all purposes of the Lease;
(2) a. The Fixed Rent reserved in the Lease shall be
increased by FORTY TWO THOUSAND and 00/100 ($42,000) DOLLARS
per annum with respect to the period ("First Additional Space
Rent Period A") from the Additional Space Commencement Date to
the date 365 days next following the Additional Space
Commencement Date, SEVENTY TWO THOUSAND and 00/100 ($72,000)
DOLLARS per annum with respect to the period ("First
Additional Space Rent Period B") from the date next following
the expiration of First Additional Space Rent Period A to
December 31, 1997, and EIGHTY THOUSAND and 00/100 ($80,000)
DOLLARS per annum with respect to the remainder of the Demised
Term ("First Additional Space Rent Period C").
b. In the event that the Additional Space
Commencement Date shall occur on a date other than the first
(lst) day of any calendar month, then the increase in the
Fixed Rent for the month in which the Additional Space
Commencement Date shall occur shall be prorated.
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(3) The Demised Premises Area, as set forth in
Section 23.01. shall be increased by 4,000 square feet.
(4) Section 29.05B of the Lease shall be modified to
the extent that wherever the figure "8,999" appears, the
figure "11,702" shall be substituted in lieu thereof; and
(5) Section 29.05F of the Lease shall be modified to
the extent that wherever the figure "twenty two and 40/100
(22.40%) percent" appears, the figure "forty seven and
79/100(47.79%) percent" shall be substituted in lieu thereof;
and
(6) The provisions of Article 40 (entitled "Tenant's
Right of First Offer For Additional Space") is hereby deemed
deleted from the Lease and of no further force and effect.
SECOND: In the event that the Demised Term of the Lease
applicable to the Additional Space shall be less than five (5) full years then
the Demised Term shall be automatically extended to the last day of the
calendar month in which the day immediately preceding the fifth (5th)
anniversary of the Additional Space Commencement Date shall occur, unless
sooner terminated pursuant to the provisions of the Lease or pursuant to law;
any such extension shall be upon all of the then applicable executory terms,
covenants and conditions set forth in the Lease (including, but not limited to,
the provisions of Articles 23 and 29).
THIRD: Owner and Tenant each represent and warrant to the
other that with the exception of Rudes Realty Company, Owner's consultant,
Schlesinger & Company, L.L.C. is the sole broker with whom either party has
negotiated or otherwise dealt with in connection with the Additional Space or
in bringing about this Agreement. Owner and Tenant shall indemnify each other
from all loss, cost, liability, damage and expenses, including, but not limited
to, reasonable counsel fees and disbursements, arising from any breach of the
foregoing representation and warranty. Owner shall pay any commission or
compensation due hereunder pursuant to a separate agreement with such broker.
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FOURTH: Except to the extent expressly modified by the
foregoing provisions of this Agreement, the Lease is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have here unto set
their hands and seals as of the day and year first above written,
55 BROAD STREET COMPANY, Owner
BY: /s/ LEWIS RUDIN
-------------------------------
Lewis Rudin, Partner
N2K Inc., Tenant
BY: /s/ JONATHAN V. DIAMOND
--------------------------------
Jonathan V. Diamond, Vice Chairman
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<PAGE> 96
STATE OF NEW YORK)
ss:
COUNTY OF NEW YORK)
On the 12th day of April, 1996, before me personally came
Jonathan V. Diamond to me known, who, being by me duly sworn, did depose and
say that he resides at 1 W. 67th St., NY, NY that he is the Vice Chairman of N2K
Inc., the corporation described in and which executed the foregoing instrument;
and that he signed his name thereto by authority of the Board of Directors of
said corporation.
/s/ ERIC B. WOLDENBERG
----------------------
Notary Public
ERIC B. WOLDENBERG
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-4941738
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUGUST 29, 1996
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<PAGE> 97
ADDENDUM A
OWNER'S ADDITIONAL CONSTRUCTION
I. Owner agrees to supply and install in the
Additional Space all of the items set forth on Tenant's Additional Plan
referred to in Paragraph IV of this Schedule unless prevented by job conditions
or other circumstances beyond the reasonable control of Owner. In
consideration of the performance of such work by Owner, Tenant shall pay to
Owner, from time to time upon demand, whether or not the Additional Space
Commencement Date shall have occurred, a sum (referred to as "Tenant's
Additional Construction Sum") equal to the amount, if any, by which the
aggregate of: (a) the actual cost and expense to Owner of supplying and
installing all of the items set forth on Tenant's Additional Plan (including,
but not limited to, the cost to Owner of a field superintendent, operating
engineer, laborers, freight elevator costs, rubbish removal, temporary
sprinklers and lighting, electric and heat, protection, insurance, Building
Department filing and expediting, Building permits, any other governmental
approvals, blueprint costs and every other item which customarily would be
considered a general condition and, if applicable, any construction management
or other fees paid to the general contractor or construction manager who is
performing Owner's Additional Construction) (such aggregate actual cost and
expense is referred to as "Owner Construction Cost") plus (b) if there is no
general contractor or construction manager who is performing Owner's
Additional Construction, ten (10%) percent of Owner's Construction Cost for
office overhead and as a construction management fee, shall exceed (c) the sum
of ONE HUNDRED FORTY THOUSAND AND 00/100 $140,000.00) DOLLARS. In the event
that said sum of ONE HUNDRED FORTY THOUSAND AND 00/100 $140,000.00) DOLLARS
shall be in excess of the aggregate amounts set forth in subdivision (a) and if
applicable, (b) above, Tenant shall be entitled to apply such excess against
any of Tenant's architects, engineers or designers fees incurred by Tenant in
connection with Owner's Additional Construction and the cost of any moving
expenses and telecommunications and telephone systems installed in the Demised
Premises. In the event that any further excess remains after such application
Tenant shall not be entitled to any such further excess. Any such sums due
Owner shall be payable by Tenant to Owner, from time to time whether or not the
Additional Space Commencement Date shall have occurred, within five (5) days
next following the rendition of a statement therefor by Owner to Tenant.
Tenant shall furnish to Owner security satisfactory to Owner in an amount at
least equal to Owner's estimate of Tenant's Additional Construction Sum within
five (5) days after demand by Owner therefor. In the event Owner's estimate of
the amount of Tenant's Additional Construction Sum is increased, then Tenant
shall increase the amount of such security to an amount at least equal to such
revised increased estimate of Tenant's Additional Construction Sum, within five
(5) days after demand therefor by Owner. In connection with Owner's Additional
Construction, Owner agrees to employ competitive bidding and to promptly submit
copies of all bids to Tenant and to engage the lowest responsible bidder in
each category after advising Tenant of the bidder selected and, if such bidder
is not the lowest bidder, then the reason for such selection. Tenant and its
architect shall be permitted to participate in the bidding process and awarding
of all contracts.
II. The work and installations required to be
performed and made by Owner pursuant to the provisions of Paragraph I of this
Schedule shall be equal to standards adopted by Owner for the Building. Owner's
Additional Construction shall constitute a single non-recurring obligation on
the part of Owner. In the event the Lease is renewed or extended for a further
term by agreement or operation of law, Owner's obligation to perform Owner's
Additional Construction shall not apply to any
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such renewal or extension.
III. Subject to the provisions of Paragraphs IV(4) and VI of
this Schedule, Owner's Additional Construction shall be substantially completed
prior to the Additional Space Commencement Date. At any time after such
substantial completion, Owner may enter the Demised Premises to complete
unfinished details of Owner's Additional Construction and entry by Owner, its
agents, servants, employees or contractors for such purpose shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of rent or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Owner or its agents
by reason of inconvenience or annoyance to Tenant, or injury to or interruption
of Tenant's business, or otherwise.
IV.(1) On or prior to April 22, 1996, Tenant, at Tenant's sole
cost and expense, shall prepare and submit to Owner a complete set of detailed
plans and specifications (referred to as "Tenant's Additional Plan") for those
Alterations to the Additional Space which Tenant desires Owner to perform as
Owner's Additional Construction. Tenant's Additional Plan shall include, but
shall not be limited to, engineering plans and specifications and Tenant's
Additional Plan shall indicate the heat factor, if any, of all equipment
intended to be used in, and the human load factor proposed for, each room or
other area. All engineering drawings and specifications in connection with
Tenant's Additional Plan (mechanical, electrical, plumbing, etc.) shall be
prepared by licensed professional engineers, at Tenant's expense, selected by
Tenant from a list of engineers submitted by Owner. Tenant's Additional Plan
shall not designate any area which shall have an electrical load in excess of
four (4) watts per square foot of usable area for all purposes (including
lighting and power) or which shall have a human occupancy factor in excess of
one (1) person per one hundred (100) square feet of usable area (the average
electrical load and human occupancy factors for which the Building's HVAC
systems have been designed). Tenant's Additional Plan shall not designate any
work, materials or installations which (i) are not in compliance with the
provisions of Articles 3 and 6 of the Lease; (ii) are not practical and
consistent with the physical conditions in the Building and with the plans for
the Building filed with the Department of Buildings of the City of New York;
(iii) will impair Owner's ability to perform any of Owner's obligations under
the provisions of the Lease; (iv) will affect any portions of the Building
other than the Demised Premises; or (v) does not comply with the provisions of
Section 29.05, Tenant agrees that Tenant's Additional Plan and any revisions
thereto shall be, signed, certified and sealed by a registered architect, and,
if required, engineer, duly licensed in the State of New York and approved by
Owner, such approval not to be unreasonably withheld, so that Tenant's
Additional Plan and any revisions thereto may be filed with, and approved by,
the Department of Buildings of the City of New York.
Tenant's Additional Plan shall designate a sprinkler system,
and, accordingly, shall designate, subject to compliance with all laws, orders
and regulations of all governmental authorities having jurisdiction, the
location of sprinkler heads and associated piping. Tenant's Additional Plan
also shall designate all work in the Additional Space which is required so that
the Additional Space shall comply with all applicable provisions of the
Americans With Disabilities Act and Local Law #58. Owner's Additional
Construction shall be performed in accordance with all Legal Requirements
including, but not limited to, the provisions of the Americans With
Disabilities Act.
(2) Tenant's Additional Plan shall be subject to Owner's
approval, which Owner agrees not unreasonably to withhold or delay. Owner's
approval of Tenant's Additional Plan shall not, unless expressly set forth in
such approval, be deemed to authorize Tenant to make any Alterations
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in or about the Additional Space.
(3) In the event (i) Tenant on or prior to April 22, 1996,
shall fail to submit to Owner a Tenant's Additional Plan which shall meet with
Owner's approval, or (ii) substantial completion of Owner's Additional
Construction shall be delayed by reason of Tenant's unreasonable delays in
submitting any other plans or specifications, or in supplying information, or
in approving plans or specifications or estimates, or in giving authorizations
or by reason of any Change Work (as hereinafter defined) or by reason of any
other similar acts or omissions of Tenant, then, in such event, Tenant agrees
to pay to Owner, as agreed liquidated damages for Tenant's failures aforesaid
or for such delays occasioned by Tenant's acts or omissions, as the case may
be, sums equal to one (1) day's rent applicable to the Additional Space for the
first period of rent applicable thereto for each day that such failure or delay
shall continue.
(4) Tenant, after the submission of Tenant's Additional
Plan, may designate, subject to Owner's approval, not unreasonably to be
withheld, substitute or additional work, materials or installations (referred
to, collectively as "Change Work") to be supplied and installed by Owner in
replacement of, or in addition to, the work, materials and installations set
forth on Tenant's Additional Plan provided that such Change Work: (i) is in
compliance with the provisions of Articles 3 and 6 of the Lease; (ii) is
practical and consistent with the physical conditions in the Building and with
the plans for the Building filed with the Department of Buildings of the City
of New York; (iii) will not impair Owner's ability to perform any of Owner's
obligations under the provisions of the Lease; (iv) will not affect any
portions of the Building other than the Demised Premises; (v) complies with the
provisions of Section 29.05; (vi) shall (a) be signed, sealed and certified by
a registered architect and, if applicable, engineer duly licensed in the State
of New York and (b) comply with all applicable laws, orders, rules and
regulations of governmental authorities so that Tenant's Additional Plan may
without further amendment or change be used for engineering drawings and
specifications and filed with and approved by the Department of Buildings of
the City of New York; (vii) will not tend to delay completion of Owner's
Additional Construction; and (viii) shall not designate any area which shall
have an electrical load in excess of four (4) watts per square foot of usable
area for all purposes (including lighting and power) or which shall have a
human occupancy factor in excess of one (1) person per one hundred (100) square
feet of usable area. At or about the time of the submission by Tenant to Owner
of any Change Work if it appears to Owner that any item of Change Work
designated by Tenant will tend to delay completion of Owner's Additional
Construction, or, notwithstanding Owner's approval of any Change Work, if it
subsequently appears to Owner that any item of Change Work designated by Tenant
will tend to delay completion of Owner's Additional Construction, Owner in each
case shall notify Tenant to that effect and Tenant, within five (5) days after
notice from Owner to that effect, will designate, subject to the foregoing
limitations (i) through (viii), other available items of Change Work which will
not so tend to delay completion. If Tenant fails to make such designations
within five (5) days after said notice from Owner, Owner will have no
obligation to supply or install the items set forth in such Owner's notice or,
at Owner's election, Owner shall have the right to perform such items of Change
Work in accordance with the provisions of this Schedule, except that, solely
for the purpose of determining whether or not Owner's Additional Construction
has been substantially completed and for the purpose of fixing the Additional
Space Commencement Date, such item of Change Work and all other related work
and installations shall be deemed unfinished details of Owner's Additional
Construction which may be performed after the Additional Space Commencement
Date in accordance with the provisions of Paragraph III of this Schedule and,
accordingly, shall not affect the Additional Space Commencement Date.
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<PAGE> 100
V. INTENTIONALLY DELETED
VI. At or about the time that Owner shall notify Tenant of
the approval of Tenant's Additional Plan, such notice of approval shall state
which items contained in Tenant's Additional Plan, if any, will or might be
subject to certain delays in delivery and which might affect the date of
substantial completion of Owner's Additional Construction. Tenant may, within
five (5) days after such notice from Owner, designate, subject to the
limitations (i) through (viii) set forth in subparagraph (4) of Paragraph IV,
other available items which will not be subject to delays in delivery. If
Tenant fails to timely make such designations, Owner will have no obligation to
supply or install the items set forth in such Owner's notice or, at Owner's
election, Owner shall have the right to perform such items and for the purpose
of determining whether or not Owner's Additional Construction shall have been
substantially completed and for the purpose of fixing the Additional Space
Commencement Date, said items set forth in such notice and all other related
work and installations (sometimes hereinafter referred to collectively as "Long
Lead Items") shall be deemed unfinished details of Owner's Additional
Construction which may be performed by Owner after the substantial completion
of Owner's Additional Construction in accordance with the provisions of
Paragraph III of this Schedule and, accordingly, shall not affect the
Additional Space Commencement Date.
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[FLOOR PLAN]
EXHIBIT 1
This floor plan of a portion of the eleventh (11th) floor of the Building
known as 55 Broad Street, New York, New York, is annexed to this Agreement and
is made a part hereof solely to delineate by outlining and diagonal markings
the Additional Space. All areas, dimensions, conditions and locations are
approximate.
<PAGE> 102
SECOND ADDITIONAL SPACE AGREEMENT
AGREEMENT made as of the 2nd day of April, 1996 between 55
BROAD STREET COMPANY, a New York partnership having its principal office
at 345 Park Avenue, Borough of Manhattan, City, County and State of New York,
as landlord (referred to herein as "Owner"), and N2K INC., a Pennsylvania
corporation having an office at 55 Broad Street, Borough of Manhattan, City,
County and State of New York, as tenant (referred to herein as "Tenant").
WITNESSETH:
WHEREAS:
(1) Under date September 7, 1995, Owner and N2K
Inc., a New York corporation, Tenant's predecessor interest, entered into a
lease affecting portions of the tenth (10th) and eleventh (11th) floors in the
building (referred to herein as the "Building") known as 55 Broad Street,
Borough of Manhattan, City, County and State of New York; and
(2) N2K Inc., a New York corporation, merged
into Tenant by statutory merger effective February 13, 1996; and
(3) Said lease, as modified by written
agreements dated December 31, 1995 and April 1, 1996 (said agreement dated
April 1; 1996 is referred to as the "First Additional Space Agreement"), is for
a term (referred to herein as the "Demised Term") which shall end on May 31,
2001, unless extended pursuant to the provisions of Article SECOND of the First
Additional Space Agreement or sooner terminated or extended pursuant to any of
the terms, covenants or conditions of said lease or pursuant to law, and is
referred to herein as the "Lease"; and the premises so leased to Tenant
pursuant
<PAGE> 103
to the provisions of the Lease, together with all appurtenances, fixtures,
improvements, additions and other property attached thereto or installed
therein at any time during the Demised Term other than Tenant's Personal
Property (as defined in the Lease), are referred to herein, collectively, as
the "Demised Premises"; and
(4) Tenant now desires to lease and add to the Demised
Premises that portion of the tenth (10th) floor of the Building as shown on
Exhibit "1", initialled by the parties, which is annexed hereto and made part
hereof, and Owner is willing to lease said portion of the tenth (10th) floor to
Tenant, subject to the provisions of this Agreement (said portion of the tenth
(10th) floor of the Building, together with all appurtenances, fixtures,
improvements, additions and other property attached thereto or installed
therein at any time during the Demised Term, other than Tenant's Personal
Property as defined in the Lease, is referred to herein as the "Second
Additional Space"); and
(5) The Demised Term of the Lease applicable to the
Second Additional Space shall commence on a date (referred to as the "Second
Additional Space Commencement Date") fixed by Owner in a notice to Tenant, not
sooner than ten (10) days next following the date of the giving of such notice,
which notice shall state that Owner has, or prior to the Second Additional
Space Commencement Date will have, substantially completed Owner's Second
Additional Construction (as hereinafter defined); and
(6) All capitalized terms shall have the same meanings
ascribed to them in the Lease, unless otherwise set forth herein; and
(7) The parties desire to record herein their
understandings with respect to the foregoing.
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NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
FIRST: The Lease is hereby modified as follows:
A. Owner hereby leases to Tenant and Tenant hereby
hires from Owner the Second Additional Space for a term to commence upon the
Second Additional Space Commencement Date and to end on the Expiration Date (as
it may have been extended pursuant to the First Additional Space Agreement or
as it may be extended pursuant to the provisions of this Agreement or the
Lease), unless the Demised Term shall sooner terminate pursuant to any of the
terms, covenants or conditions of the Lease or pursuant to law.
B. Owner agrees to perform work and make
installations in the Second Additional Space as set forth in Addendum A. Such
work and installations are referred to as "Owner's Second Additional
Construction". All of the terms, covenants and conditions of Addendum A are
incorporated in this agreement by reference and shall be deemed a part of this
agreement as though fully set forth in the body of this agreement.
C. From and after the Second Additional Space
Commencement Date, the Lease shall be deemed modified, as follows:
(1) The Demised Premises shall include the Second
Additional Space for all purposes of the Lease;
(2) a. The Fixed Rent reserved in the Lease shall be
increased by TWENTY EIGHT THOUSAND FOUR HUNDRED SIXTY-TWO AND
00/100 ($28,462.00) DOLLARS per annum with respect to the
period ("Second Additional Space Rent Period
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<PAGE> 105
A") from the Second Additional Space Commencement Date to
December 31, 1997, and THIRTY TWO THOUSAND FIVE HUNDRED
TWENTY-EIGHT AND 00/100 ($32,528.00) DOLLARS per annum with
respect to the remainder of the Demised Term ("Second
Additional Space Rent Period B").
b. In the event that the Second Additional Space
Commencement Date shall occur on a date other than the first
(1st) day of any calendar month, then the increase in the
Fixed Rent for the month in which the Second Additional Space
Commencement Date shall occur shall be prorated.
(3) The Demised Premises Area, as set forth in Section
23.01, shall be increased by 2,033 square feet.
(4) Section 29.05B of the Lease shall be modified to
the extent that wherever the figure "8,999", as increased to
"11,702" by the First Additional Space Agreement, appears, the
figure "13,076" shall be substituted in lieu thereof; and
(5) Section 29.05F of the Lease shall be modified to
the extent that wherever the figure "sixty two and 13/100
(62,13%) percent" appears, the figure "seventy five and 03/100
(75.03%) percent" shall be substituted in lieu thereof.
SECOND, In the event that the Demised Term of the Lease
applicable to the Second Additional Space shall be less than five (5) full
years then the Demised Term shall be automatically extended to the last day of
the calendar month in which the day immediately preceding the fifth (5th)
anniversary of the Second Additional Space Commencement Date shall occur,
unless sooner terminated pursuant to the provisions of the Lease or pursuant to
law; any such extension shall be upon all of the then applicable executory
terms, covenants and conditions set forth in the Lease (including, but not
limited to, the provisions of Articles 23 and 29).
THIRD: Owner and Tenant each represent and warrant to the
other that with the exception of Rudes Realty Company, Owner's consultant,
Schlesinger & Company, L.L.C. is the sole broker with whom either party has
negotiated or otherwise dealt with in connection with the Second Additional
Space or in bringing about this Agreement. Owner and Tenant shall indemnify
each other from all loss, cost, liability, damage and expenses, including, but
not limited to, reasonable counsel fees
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<PAGE> 106
and disbursements, arising from any breach of the foregoing representation and
warranty. Owner shall pay any commission or compensation due hereunder pursuant
to a separate agreement with such broker.
FOURTH: Except to the extent expressly modified by the
foregoing provisions of this Agreement, the Lease is hereby ratified and
confirmed in all respects
IN WITNESS WHEREOF, the parties hereto have here unto set
their hands and seals as of the day and year first above written.
55 BROAD STREET COMPANY, Owner
BY: /s/ LEWIS RUDIN
--------------------------------
Lewis Rudin, Partner
N2K INC., Tenant
BY: /s/ JONATHAN V. DIAMOND
--------------------------------
Jonathan V. Diamond, Vice Chairman
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<PAGE> 107
STATE OF NEW YORK)
ss:
COUNTY OF NEW YORK)
On the 12th day of April, 1996, before me personally came
Jonathan V. Diamond to me known, who, being by me duly sworn, did depose and
say that he resides at 1 W. 67th St. NY, NY that he is the Vice Chairman of N2K
Inc., the corporation described in and which executed the foregoing instrument;
and that he signed his name thereto by authority of the Board of Directors of
said corporation.
/s/ ERIC B. WOLDENBERG
----------------------
Notary Public
ERIC B. WOLDENBERG
NOTARY PUBLIC, STATE OF NEW YORK
No. 31-4941738
Qualified in New York County
Commission Expires August 29, 1996
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<PAGE> 108
ADDENDUM A
OWNER'S SECOND ADDITIONAL CONSTRUCTION
1. Owner agrees to supply and install in the
Second Additional Space all of the items set forth on Tenant's Second
Additional Plan referred to in Paragraph IV of this Schedule unless prevented
by job conditions or other circumstances beyond the reasonable control of
Owner. In consideration of the performance of such work by Owner, Tenant shall
pay to Owner, from time to time upon demand, whether or not the Second
Additional Space Commencement Date shall have occurred, a sum (referred to as
"Tenant's Second Additional Construction Sum") equal to the amount, if any, by
which the aggregate of. (a) the actual cost and expense to Owner of supplying
and installing all of the items set forth on Tenant's Second Additional Plan
(including, but not limited to, the cost to Owner of a field superintendent,
operating engineer, laborers, freight elevator costs, rubbish removal,
temporary sprinklers and lighting, electric and heat, protection, insurance,
Building Department filing and expediting, Building permits, any other
governmental approvals, blueprint costs and every other item which customarily
would be considered a general condition and, if applicable, any construction
management or other fees paid to the general contractor or construction manager
who is performing Owner's Second Additional Construction) (such aggregate
actual cost and expense is referred to as "Owner Construction Cost") plus (b)
if there is no general contractor or construction manager who is performing
Owner's Second Additional Construction, ten (10%) percent of Owner's
Construction Cost for office overhead and as a construction management fee,
shall exceed (c) the sum of SEVENTY-ONE THOUSAND ONE HUNDRED FIFTY-FIVE AND
00/100 ($71,155.00) DOLLARS. In the event that said sum of SEVENTY-ONE
THOUSAND ONE HUNDRED FIFTY-FIVE AND 00/100 $71,155.00) DOLLARS shall be in
excess of the aggregate amounts set forth in subdivision (a) and if applicable,
(b) above, Tenant shall be entitled to apply such excess against any of
Tenant's architects, engineers or designers fees incurred by Tenant in
connection with Owner's Second Additional Construction and the cost of any
moving expenses and telecommunications and telephone systems installed in the
Demised Premises. In the event that any further excess remains after such
application Tenant shall not be entitled to any such further excess. Any such
sums due Owner shall be payable by Tenant to Owner, from time to time whether
or not the Second Additional Space Commencement Date shall have occurred,
within five (5) days next following the rendition of a statement therefor by
Owner to Tenant. Tenant shall furnish to Owner security satisfactory to Owner
in an amount at least equal to Owner's estimate of Tenant's Second Additional
Construction Sum within five (5) days after demand by Owner therefor. In the
event Owner's estimate of the amount of Tenant's Second Additional Construction
Sum is increased, then Tenant shall increase the amount of such security to an
amount at least equal to such revised increased estimate of Tenant's Second
Additional Construction Sum, within five (5) days after demand therefor by
Owner. In connection with Owner's Second Additional Construction, Owner agrees
to employ competitive bidding and to promptly submit copies of all bids to
Tenant and to engage the lowest responsible bidder in each category after
advising Tenant of the bidder selected and, if such bidder is not the lowest
bidder, then the reason for such selection. Tenant and its architect shall be
permitted to
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<PAGE> 109
participate in the bidding process and awarding of all contracts.
II. The work and installations required to be performed and
made by Owner pursuant to the provisions of Paragraph I of this Schedule shall
be equal to standards adopted by Owner for the Building. Owner's Second
Additional Construction shall constitute a single non-recurring obligation on
the part of Owner. In the event the Lease is renewed or extended for a further
term by agreement or operation of law, Owner's obligation to perform Owner's
Second Additional Construction shall not apply to any such renewal or
extension.
III. Subject to the provisions of Paragraphs IV(4) and VI of
this Schedule, Owner's Second Additional Construction shall be substantially
completed prior to the Second Additional Space Commencement Date. At any time
after such substantial completion, Owner may enter the Demised Premises to
complete unfinished details of Owner's Second Additional Construction and entry
by Owner, its agents, servants, employees or contractors for such purpose shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner or
its agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
IV.(1) On or prior to April 15, 1996, Tenant, at Tenant's sole
cost and expense, shall prepare and submit to Owner a complete set of detailed
plans and specifications (referred to as "Tenant's Second Additional Plan") for
those Alterations to the Second Additional Space which Tenant desires Owner to
perform as Owner's Second Additional Construction. Tenant's Second Additional
Plan shall include, but shall not be limited to, engineering plans and
specifications and Tenant's Second Additional Plan shall indicate the heat
factor, if any, of all equipment intended to be used in, and the human load
factor proposed for, each room or other area. All engineering drawings and
specifications in connection with Tenant's Second Additional Plan (mechanical,
electrical, plumbing, etc.) shall be prepared by licensed professional
engineers, at Tenant's expense, selected by Tenant from a list of engineers
submitted by Owner. Tenant's Second Additional Plan shall not designate any
area which shall have an electrical load in excess of four (4) watts per square
foot of usable area for all purposes (including lighting and power) or which
shall have a human occupancy factor in excess of one (1) person per one hundred
(100) square feet of usable area (the average electrical load and human
occupancy factors for which the Building's HVAC systems have been designed).
Tenant's Second Additional Plan shall not designate any work, materials or
installations which (i) are not in compliance with the provisions of Articles 3
and 6 of the Lease; (ii) are not practical and consistent with the physical
conditions in the Building and with the plans for the Building filed with the
Department of Buildings of the City of New York; (iii) will impair Owner's
ability to perform any of Owner's obligations under the provisions of the
Lease; (iv) will affect any portions of the Building other than the Demised
Premises; or (v) does not comply with the provisions of Section 29.05. Tenant
agrees that Tenant's Second Additional Plan and any revisions thereto shall
be, signed, certified and sealed by a registered architect, and, if required,
engineer, duly licensed in the State of New York and approved by Owner, such
approval not to be unreasonably withheld, so that Tenant's Second
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<PAGE> 110
Additional Plan and any revisions thereto may be filed with, and approved by,
the Department of Buildings of the City of New York.
Tenant's Second Additional Plan shall designate a sprinkler
system, and, accordingly, shall designate, subject to compliance with all laws,
orders and regulations of all governmental authorities having jurisdiction, the
location of sprinkler heads and associated piping. Tenant's Second Additional
Plan also shall designate all work in the Second Additional Space which is
required so that the Second Additional Space shall comply with all applicable
provisions of the Americans With Disabilities Act and Local Law #58. Owner's
Second Additional Construction shall be performed in accordance with all Legal
Requirements including, but not limited to, the provisions of the Americans
With Disabilities Act.
(2) Tenant's Second Additional Plan shall be subject to
Owner's approval, which Owner agrees not unreasonably to withhold or delay.
Owner's approval of Tenant's Second Additional Plan shall not, unless expressly
set forth in such approval, be deemed to authorize Tenant to make any
Alterations in or about the Second Additional Space.
(3) In the event (i) Tenant on or prior to April 15, 1996,
shall fail to submit to Owner a Tenant's Second Additional Plan which shall
meet with Owner's approval, or (ii) substantial completion of Owner's Second
Additional Construction shall be delayed by reason of Tenant's unreasonable
delays in submitting any other plans or specifications, or in supplying
information, or in approving plans or specifications or estimates, or in
giving authorizations or by reason of any Change Work (as hereinafter defined)
or by reason of any other similar acts or omissions of Tenant, then, in such
event, Tenant agrees to pay to Owner, as agreed liquidated damages for Tenant's
failures aforesaid or for such delays occasioned by Tenant's acts or omissions,
as the case may be, sums equal to one (1) day's rent applicable to the Second
Additional Space for the first period of rent applicable thereto for each day
that such failure or delay shall continue.
(4) Tenant, after the submission of Tenant's Second
Additional Plan, may designate, subject to Owner's approval, not unreasonably
to be withheld, substitute or additional work, materials or installations
(referred to, collectively as "Change Work") to be supplied and installed by
Owner in replacement of, or in addition to, the work, materials and
installations set forth on Tenant's Second Additional Plan provided that such
Change Work: (i) is in compliance with the provisions of Articles 3 and 6 of
the Lease; (ii) is practical and consistent with the physical conditions in the
Building and with the plans for the Building filed with the Department of
Buildings of the City of New York; (iii) will not impair Owner's ability to
perform any of Owner's obligations under the provisions of the Lease; (iv) will
not affect any portions of the Building other than the Demised Premises; (v)
complies with the provisions of Section 29.05; (vi) shall (a) be signed, sealed
and certified by a registered architect and, if applicable, engineer duly
licensed in the State of New York and (b) comply with all applicable laws,
orders, rules and regulations of governmental authorities so that Tenant's
Second Additional Plan may without further amendment or change be used for
engineering drawings and
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<PAGE> 111
specifications and filed with and approved by the Department of Buildings of
the City of New York; (vii) will not tend to delay completion of Owner's Second
Additional Construction; and (viii) shall not designate any area which shall
have an electrical load in excess of four (4) watts per square foot of usable
area for all purposes (including lighting and power) or which shall have a
human occupancy factor in excess of one (1) person per one hundred (100) square
feet of usable area. At or about the time of the submission by Tenant to Owner
of any Change Work if it appears to Owner that any item of Change Work
designated by Tenant will tend to delay completion of Owner's Second Additional
Construction, or, notwithstanding Owner's approval of any Change Work, if it
subsequently appears to Owner that any item of Change Work designated by Tenant
will tend to delay completion of Owner's Second Additional Construction, Owner
in each case shall notify Tenant to that effect and Tenant, within five (5)
days after notice from Owner to that effect, will designate, subject to the
foregoing limitations (i) through (viii), other available items of Change Work
which will not so tend to delay completion. If Tenant fails to make such
designations within five (5) days after said notice from Owner, Owner will have
no obligation to supply or install the items set forth in such Owner's notice
or, at Owner's election, Owner shall have the right to perform such items of
Change Work in accordance with the provisions of this Schedule, except that,
solely for the purpose of determining whether or not Owner's Second Additional
Construction has been substantially completed and for the purpose of fixing the
Second Additional Space Commencement Date, such items of Change Work and all
other related work and installations shall be deemed unfinished details of
Owner's Second Additional Construction which may be performed after the Second
Additional Space Commencement Date in accordance with the provisions of
Paragraph III of this Schedule and, accordingly, shall not affect the Second
Additional Space Commencement Date.
V. INTENTIONALLY DELETED
VI. At or about the time that Owner shall notify Tenant of
the approval of Tenant's Second Additional Plan, such notice of approval shall
state which items contained in Tenant's Second Additional Plan, if any, will or
might be subject to certain delays in delivery and which might affect the date
of substantial completion of Owner's Second Additional Construction. Tenant
may, within five (5) days after such notice from Owner, designate, subject to
the limitations (i) through (viii) set forth in subparagraph (4) of Paragraph
IV, other available items which will not be subject to delays in delivery. If
Tenant fails to timely make such designations, Owner will have no obligation to
supply or install the items set forth in such Owner's notice or, at Owner's
election, Owner shall have the right to perform such items and for the purpose
of determining whether or not Owner's Second Additional Construction shall have
been substantially completed and for the purpose of fixing the Second
Additional Space Commencement Date, said items set forth in such notice and all
other related work and installations (sometimes hereinafter referred to
collectively as "Long Lead Items") shall be deemed unfinished details of
Owner's Second Additional Construction which may be performed by Owner after
the substantial completion of Owner's Second Additional Construction in
accordance with the provisions of Paragraph III of this Schedule and,
accordingly, shall not affect the Second Additional Space Commencement Date.
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<PAGE> 112
[FLOOR PLAN]
EXHIBIT 1
This floor plan of a portion of the tenth (10th) floor of the Building
known as 55 Broad Street, New York, New York, is annexed to this Agreement and
is made a part hereof solely to delineate by outlining and diagonal markings
the Second Additional Space. All areas, dimensions, conditions and locations
are approximate.
<PAGE> 113
THIRD ADDITIONAL SPACE AGREEMENT
AGREEMENT made as of the 3rd day of April, 1996 between 55
BROAD STREET COMPANY, a New York partnership having its principal office at 345
Park Avenue, Borough of Manhattan, City, County and State of New York, as
landlord (referred to herein as "Owner"), and N2K INC., a Pennsylvania
corporation having an office at 55 Broad Street, Borough of Manhattan, City,
County and State of New York, as tenant (referred to herein as "Tenant").
WITNESSETH:
WHEREAS:
(1) Under date of September 7, 1995, Owner and N2K
Inc., a New York corporation, Tenant's predecessor in interest, entered into a
lease affecting portions of the tenth (10th) and eleventh (11th) floors in the
building (referred to herein as the "Building") known as 55 Broad Street,
Borough of Manhattan, City, County and State of New York, and
(2) N2K Inc., a New York corporation, merged into
Tenant by statutory merger effective February 13, 1996; and
(3) Said lease, as modified by written agreements
dated December 31, 1995, April 1, 1996 (said agreement dated April 1, 1996 is
referred to as the "First Additional Space Agreement") and April 2, 1996 (said
agreement dated April 2, 1996 is referred to as the "Second Additional Space
Agreement"), is for a term (referred to herein as the "Demised Term") which
shall end on May 31, 2001, unless extended pursuant to the provisions of
Article SECOND of the First and/or Second Additional Space Agreements or sooner
terminated or extended pursuant to any of the terms, covenants or, conditions
<PAGE> 114
of said lease or pursuant to law, and is referred to herein as the "Lease"; and
the premises so leased to Tenant pursuant to the provisions of the Lease,
together with all appurtenances, fixtures, improvements, additions and other
property attached thereto or installed therein at any time during the Demised
Term other than Tenant's Personal Property (as defined in the Lease), are
referred to herein, collectively, as the "Demised Premises"; and
(4) Tenant now desires to lease and add to the Demised
Premises that portion of the eleventh (11th) floor of the Building as shown on
Exhibit "1", initialled by the parties, which is annexed hereto and made part
hereof, and Owner is willing to lease said portion of the eleventh (11th) floor
to Tenant, subject to the provisions of this Agreement (said portion of the
eleventh (11th) floor of the Building, together with all appurtenances,
fixtures, improvements, additions and other property attached thereto or
installed therein at any time during the Demised Term, other than Tenant's
Personal Property as defined in the Lease, is referred to herein as the "Third
Additional Space"); and
(5) The Third Additional Space is presently
temporarily occupied by New York New Media Association (the "Present Occupant")
whose lease shall expire upon the completion by Owner of the Present Occupant's
new space on the third (3rd) floor in the Building. Owner anticipates that
said new space shall be completed on or about July 1, 1996 and Owner shall use
reasonable diligence to complete same. The Demised Term of the Lease
applicable to the Third Additional Space shall commence on a date (referred to
as the "Third Additional Space Commencement Date") fixed by Owner in a notice
to Tenant, not sooner than ten (10) days next following the date of the giving
of such notice, which notice shall state that Owner has, or prior to the Third
Additional Space Commencement Date will have, substantially completed Owner's
Third Additional Work (as hereinafter defined); and
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<PAGE> 115
(6) All capitalized terms shall have the same meanings
ascribed to them in the Lease, unless otherwise set forth herein; and
(7) The parties desire to record herein their
understandings with respect to the foregoing.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
FIRST: The Lease is hereby modified as follows:
A. Owner hereby leases to Tenant and Tenant hereby hires
from Owner the Third Additional Space for a term to commence upon the Third
Additional Space Commencement Date and to end on the Expiration Date (as it may
have been extended pursuant to the First and/or Second Additional Space
Agreements or as it may be extended pursuant to the provisions of this
Agreement or the Lease), unless the Demised Term shall sooner terminate
pursuant to any of the terms, covenants or conditions of the Lease or pursuant
to law.
B. The work performed by Owner in the Third
Additional Space which was completed on or about December 22, 1995 together
with the work hereinafter set forth in this Paragraph B is referred to,
collectively, as "Owner's Third Additional Work". Owner, at Owner's expense,
shall paint the painted surfaces in the Third Additional Space with a single
coat of paint in flat finish in colors selected by Tenant from Building
standard colors, but not more than one (1) color in any room or other area. If
Tenant fails to designate its selection of paint colors by June 1, 1996 then
the Third Additional Space Commencement Date shall be deemed to occur on the
date upon which the Present Occupant shall
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<PAGE> 116
have vacated and surrendered the Third Additional Space to Owner, and Owner may
enter the Third Additional Space after the Third Additional Space Commencement
Date to perform such painting, and any entry by Owner therefor shall not
constitute an actual or constructive eviction in whole or in part, or entitle
Tenant to any abatement or diminution of rent, or relieve Tenant from any of
its obligations under the Lease, or impose any liability upon Owner, or its
agents, by reason of any inconvenience or annoyance to Tenant or injury to or
interruption of Tenant's business or otherwise.
C. From and after the Third Additional Space
Commencement Date, the Lease shall be deemed modified, as follows:
(1) The Demised Premises shall include the Third
Additional Space for all purposes of the Lease;
(2) a. The Fixed Rent reserved in the Lease shall be
increased by TWENTY-THREE THOUSAND TWO HUNDRED TWENTY-SIX AND
00/100 ($23,226.00) DOLLARS per annum with respect to the
period ("Third Additional Space Rent Period A") from the Third
Additional Space Commencement Date to December 31, 1997, and
TWENTY-SIX THOUSAND FIVE HUNDRED FORTY-FOUR AND 00/100
($26,544.00) DOLLARS per annum with respect to the remainder
of the Demised Term ("Third Additional Space Rent Period B").
Tenant shall not be required to pay any portion of the
increase in the Fixed Rent set forth in this subparagraph
C(2)a applicable solely to the Third Additional Space with
respect to the period ("Third Additional Space Rent Holiday
Period") from the Third Additional Space Commencement Date to
and including the date one hundred fifty (150) days thereafter
as said date of one hundred fifty (150) days is reduced by
multiplying it by the fraction the numerator of which is the
number of days from the Third Additional Space Commencement
Date to the Expiration Date and the denominator of which is
the number of days from December 22, 1995 to the Expiration
Date. During the Third Additional Space Rent Holiday Period
Tenant shall otherwise be required to comply with all of the
other terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed, including, but not
limited to, the payment of all sums required to be paid
pursuant to the provisions of Articles 23 and 29. The date
next following the expiration of the Third Additional Space
Rent Holiday Period is referred to as the Third Additional
Space Rent Commencement Date.
b. In the event that the Third Additional Space
Rent Commencement Date shall occur on a date other than the
first (1st) day of any calendar month, then the increase in
the Fixed Rent for the month in which the Third Additional
Space Rent
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<PAGE> 117
Commencement Date shall occur shall be prorated.
(3) The Demised Premises Area, as set forth in Section
23.01, shall be increased by 1,659 square feet.
(4) Section 29.05B of the Lease shall be modified to
the extent that wherever the figure "8,999", as increased to
"11,702" by the First Additional Space Agreement and "13,076"
by the Second Additional Space Agreement, appears, the
figure "14,197" shall be substituted in lieu thereof; and
(5) Section 29.05F of the Lease shall be modified to
the extent that wherever the figure "twenty two and 40/100
(22.40%) percent" as increased to the figure "forty seven and
79/100 (47.79%) percent", by the First Additional Space
Agreement, appears, the figure "fifty-eight and 32/100
(58.32%) percent" shall be substituted in lieu thereof.
SECOND: In the event that the Demised Term of the Lease
applicable to the Third Additional Space shall be less than five (5) full years
then the Demised Term shall be automatically extended to the last day of the
calendar month in which the day immediately preceding the fifth (5th)
anniversary of the Third Additional Space Commencement Date shall occur, unless
sooner terminated pursuant to the provisions of the Lease or pursuant to law;
any such extension shall be upon all of the then applicable executory terms,
covenants and conditions set forth in the Lease (including, but not limited to,
the provisions of Articles 23 and 29).
THIRD: Owner and Tenant each represent and warrant to the
other that with the exception of Rudes Realty Company, Owner's consultant,
Schlesinger & Company, L.L.C. is the sole broker with whom either party has
negotiated or otherwise dealt with in connection with the Third Additional
Space or in bringing about this Agreement. Owner and Tenant shall indemnify
each other from all loss, cost, liability, damage and expenses, including, but
not limited to, reasonable counsel fees and disbursements, arising from any
breach of the foregoing representation and warranty. Owner shall pay any
commission or compensation due hereunder pursuant to a separate agreement with
such broker.
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<PAGE> 118
FOURTH: Except to the extent expressly modified by the
foregoing provisions of this Agreement, the Lease is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have here unto set
their hands and seals as of the day and year first above written.
55 BROAD STREET COMPANY, Owner
BY: /s/ LEWIS RUDIN
---------------------------------
Lewis Rudin, Partner
N2K INC., Tenant
BY: /s/ JONATHAN V. DIAMOMD
----------------------------------
Jonathan V. Diamond, Vice Chairman
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<PAGE> 119
STATE OF NEW YORK)
ss:
COUNTY OF NEW YORK)
On the 12th day of April, 1996, before me personally came
Jonathan V. Diamond to me known, who, being by me duly sworn, did depose and
say that he resides at 1 W. 67th St, NY, NY that he is the Vice Chairman of N2K
Inc., the corporation described in and which executed the foregoing instrument;
and that he signed his name thereto by authority of the Board of Directors of
said corporation.
/s/ ERIC B. WOLDENBERG
-----------------------
Notary Public
ERIC B. WOLDENBERG
Notary Public, State of New York
No. 31-4941738
Qualified in New York County
Commission Expires August 29, 1996
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<PAGE> 120
EXHIBIT 1
This floor plan of a portion of the eleventh (11th) floor of the Building
known as 55 Broad Street, New York, New York, is annexed to this Agreement and
is made a part hereof solely to delineate by outlining and diagonal markings
the Third Additional Space. All areas, dimensions, conditions and locations are
approximate.
[FLOOR PLAN]
55 BOARD STREET LEASE PLAN 11TH FLOOR PLAN
<PAGE> 1
Exhibit 10.10
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
COMPUSERVE GATEWAY SERVICES Telebase Systems, Inc.
SOFTWARE AGREEMENT FOR 134 North Narberth Avenue
INFORMATION PROVIDERS Narberth, PA 19072
This is an agreement between CompuServe and Telebase Systems
("Telebase") for services, information and/or computer programs (the "Product"),
as defined in Schedule A, according to the following terms:
1. SERVICES AND/OR PRODUCTS PROVIDED BY TELEBASE.
(a) Telebase grants to CompuServe i) the world-wide, non-exclusive
(except as provided in paragraph 1(a) (i) below), license to market, sell,
distribute and provide access to the Product, as defined in Schedule A of this
Agreement, and ii) the non-exclusive license to use the Product for the purpose
of supporting it, marketing and promotion, and market research.
(i) For the duration of this agreement and in recognition of the
expense and effort which CompuServe will incur in making the Product available
as part of the CompuServe Information Service (the "Service"), Telebase shall
not directly or indirectly grant any license, sublicense, marketing,
distribution or other rights to the Product or any product which is similar to
the Product to Dow Jones & Company, Inc., Source Telecomputing Corporation,
General Videotex Corporation, MCI Communications Corporation, Quantum Computer
Services, General Electric Company, Trintex, Covidea, and/or any of the
affiliates of the foregoing companies. The restriction in this paragraph 1(a)(i)
shall terminate if, at any time, CompuServe provides access to more than ten
(10) of the databases listed in Schedule B to this agreement other than through
Telebase. This agreement does not preclude Telebase from granting licenses to
customized versions of the Product to non-U.S. distributors.
(ii) Except as expressly provided in this agreement, the Product
remains the property of Telebase.
(b) CompuServe and Telebase shall jointly establish and maintain the
communications interface to Telebase's computer system in accordance with
standard CompuServe Network Services policies and procedures. Telebase will
assist CompuServe in the installation and maintenance of the Product in
accordance with Schedule A.
(i) Telebase shall make the Product available to the Users, as
defined herein, on the same schedule as it makes the Product available to its
own users. Telebase shall provide the schedule of Product availability to Users.
(ii) Telebase will incorporate the minimum subset of CompuServe
navigation commands as described in Schedule D in the
<PAGE> 2
Product and will conform the Product to the CompuServe menu standards as
described in Schedule E.
(iii) CompuServe will report problems and errors it discovers in
the Product to Telebase, which will promptly take such action as is necessary to
correct them.
(iv) Without request from CompuServe, Telebase will make available
to CompuServe all improvements to the Product which Telebase makes or acquires
during the term of this agreement, and makes available to its own end users.
(v) Telebase will cooperate with CompuServe in the development and
production of promotional or instructional literature and information relating
to the Product.
(c) Telebase agrees to provide CompuServe with the same level of
Product service that it offers to its own end users, including but not limited
to content, quality, and timeliness of material. Reasonable efforts will be made
by Telebase to provide additional communications capacity as needed.
(d) Telebase shall not permit the Product to be used for the purpose of
advertising or merchandising goods or services to Users, with the exception of
ordering hard copy output of selected articles.
2. SERVICES AND/OR FACILITIES PROVIDED BY COMPUSERVE.
(a) CompuServe will use reasonable efforts to promote User Access, as
defined herein, to the Service, however, the amount and methods of such
promotion shall be subject to the sole business judgment of CompuServe.
CompuServe may produce and publish promotional or instructional literature or
information relating to the Product.
(b) Upon the execution by Telebase of the CompuServe Information
Service Request and Agreement, CompuServe will provide Telebase with Access to
the CompuServe Information Service ("Service") for the purpose of reviewing or
demonstrating the Service and/or the Product.
(c) CompuServe will provide Telebase with documentation necessary for
the purpose of providing the Product and related services required under
Paragraph 1.
(d) All programs, documents, data, inventions, discoveries related to
the Service and improvements to the Service are, and shall remain the sole and
exclusive property of CompuServe. Similarly, all programs, documents, data,
inventions and discoveries related to the Product and improvements to the
product or its adaptions for use on the Service are, and shall remain the sole
and exclusive property of Telebase.
-2-
<PAGE> 3
(e) CompuServe will install and maintain necessary equipment for
maintaining a Gateway communications link. The description, terms and charges
for maintaining the communications link are described in the CompuServe Network
Services agreement.
3. PAYMENTS FOR USER ACCESS TO THE PRODUCT.
(a) CompuServe will pay Telebase, a royalty based on the Users' Access
to the Product in accordance with the terms of Schedule A hereto.
(i) Any User Access to the Product which generates a charge to the
User but where the Telebase systems fail to provide full display to the User of
the requested information, will be free and not subject to a royalty.
(ii) Telebase will transmit daily to CompuServe the billing
records for that day's User Access to the Product. Any billing record which does
not match with CompuServe's User Access records will be free and not subject to
a royalty.
(iii) In the event that a User disputes a billing for Access to
the Product, CompuServe and Telebase will cooperate in attempting to resolve the
dispute. If the User is correct, an appropriate credit will be granted by
CompuServe. Telebase will pay CompuServe an amount equal to any credits given by
CompuServe during any month, except to the extent such credits exceed one
percent (1%) of the royalties paid by CompuServe to Telebase for the respective
month.
(iv) If during any calendar month or similar accounting period
used by CompuServe the credits given by CompuServe with respect to Access to the
Product and/or bad debt allocated to the Product by CompuServe in accordance
with its standard procedures exceed ten percent (10%) of CompuServe's gross
revenues from the Product during such month or similar period, CompuServe may
upon not less than thirty (30) days written notice to Telebase terminate this
agreement.
(v) CompuServe will make an advance royalty of payment of $10,000
on the first date the Product is available on the Service. Thereafter,
CompuServe will pay royalties due within sixty (60) days following the end of
the month in which Users are billed for Access to the Product. Until such time
as the advance royalty payment is repaid to CompuServe in full, CompuServe will
withhold ten (10%) percent, or such lesser percentage as is required to repay
the advance royalty payment in full, from each royalty payment otherwise due
Telebase and apply the withheld amount to repay the advance royalty payment;
provided that if the advance royalty payment has not been repaid in full at the
time the twelfth (12th) monthly royalty payment is due from CompuServe,
CompuServe may withhold an amount equal to the unpaid balance of the advance
royalty payment from the twelfth (12th) monthly royalty
-3-
<PAGE> 4
payment due Telebase. If such withholding is insufficient to repay the advance
royalty payment, Telebase, without demand, will repay the remaining unpaid
balance within ten (10) days after receipt of notice of the withholding. If this
agreement is terminated for any reason prior to the repayment of the advance
royalty payment, the unpaid balance of the advance royalty payment shall become
immediately due and payable.
(b) Notwithstanding any other term of this agreement, including its
schedules, to the contrary, CompuServe reserves the right to modify the pricing
structure for the Service. If CompuServe intends to do so and, in CompuServe's
sole judgment, the modification requires a change in the Rate Schedule in
Schedule A and/or royalty payments due hereunder, CompuServe will give Telebase
at least ninety (90) days written notice of the required changes to the Rate
Schedule and/or royalty payments. Such changes will be binding upon Telebase
unless Telebase gives CompuServe at least thirty (30) days written notice prior
to the expiration of the ninety (90) day period that it is terminating this
agreement as of the end of the ninety (90) day period, at which time this
agreement shall terminate.
4. CONFIDENTIAL MATERIALS.
(a) The following materials and information and all copies thereof of
whatever nature, herein called "Confidential Materials," are confidential and
trade secrets as defined in Section 1333.51, Ohio Revised Code, of the
respective party:
(i) Confidential Materials of CompuServe. All of the following
information, unless and to the extent that CompuServe generally makes such
information available to the public, regardless of its form or format and
whether it has been reduced to writing or other hard copy are Confidential
Materials of CompuServe: all technical information regarding the Service,
including without limitation any source documents or technical specifications
related to the Service or any of its parts; all User information, including
without limitation the names and addresses of Users, other personally
identifiable User information, and history of using the Service or any of its
parts; all marketing information regarding the Service and plans for enhancing
or modifying the Service; and all other information possessed by CompuServe
which CompuServe does not generally make available to the public.
(ii) Confidential Information of Telebase. All of the following
information, unless and to the extent that Telebase generally makes such
information available to the public, regardless of its form or format and
whether it has been reduced [CUT-OFF].
Telebase; all technical information regarding the Product, including without
limitation any source documents or technical
-4-
<PAGE> 5
specifications related to the Product or any of its parts; all information about
persons who use the Product other than through the Service, including without
limitation the names and addresses of such persons, other personally
identifiable information regarding such persons, and their history of using the
Product or any of its parts; all marketing information regarding the Product
developed by Telebase and plans for enhancing or modifying the Product; and all
other information possessed by Telebase which Telebase does not generally make
available to the public.
(b) Both parties will not disclose or use, and will assure that their
employees and/or agents do not disclose or use, any Confidential Materials of
the other party, except as needed to assist in performing, or to exercise rights
granted under this agreement. In the event of the breach of the provisions of
this Paragraph 4, the nonbreaching party will be entitled to a restraining
order, preliminary or permanent injunction, and/or either relief so as to
enforce such provisions.
(c) Both parties acknowledge that the Confidential Materials of the
other party are valuable, special and unique and that their unauthorized
disclosure or use would cause irreparable injury not compensable adequately in
monetary damages.
5. WARRANTIES AND DISCLAIMERS.
(a) Telebase warrants that:
(i) its entry into this agreement is rightful and does not violate
any other agreement to which it is a party;
(ii) the granting of the licenses to CompuServe hereunder does not
and will not violate any other agreement to which it is a party;
(iii) it has and will retain good and marketable title to the
Product and electronic distribution rights to the Product and all databases
which are part of the Product;
(iv) its conduct, the performance of its obligations under this
agreement, and the Product will conform to all applicable and valid laws and
government rules and regulations, and will not violate any agreement to which it
is now or hereafter a party; and
(v) the Product and the marketing, sale, distribution and
providing Access thereto by CompuServe does not and will not infringe on any
copyright or patent or violate any trade secret.
-5-
<PAGE> 6
(b) CompuServe warrants that:
(i) its entry into this agreement is rightful and does not violate
any other agreement to which it is a party; and,
(ii) the acceptance of the license granted hereunder does not and
will not violate any other agreement to which it is a party.
(c) THERE ARE NO IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE MATTERS COVERED BY THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
THE PRODUCT, TELEBASE'S COMPUTING SYSTEMS OR ANY OTHER COMPUTER OR OTHER
RESOURCES PROVIDED BY TELEBASE, THE SERVICE, COMPUSERVE'S COMPUTING SYSTEMS OR
ANY OTHER COMPUTER OR OTHER RESOURCES PROVIDED BY COMPUSERVE. THE PRODUCT, THE
SERVICE, AND ALL COMPUTER SYSTEMS AND RESOURCES PROVIDED BY EITHER PARTY ARE
PROVIDED ON AN "AS-IS, AS-AVAILABLE" BASIS.
6. USER AGREEMENTS.
CompuServe will require all paying Users of the Product to agree to
substantially the following terms:
The Service is provided on an "as is, as available" basis. Neither
CompuServe nor its suppliers make any warranties, expressed or implied,
including without limitation those of merchantability and fitness for a
particular purpose, with respect to the Service. The Customer is
responsible for implementing sufficient procedures and checkpoints to
satisfy his requirements for accuracy of data input and output and for
maintaining a means external to the Service for the reconstruction of
any lost data.
The Customer will not reproduce, sell, publish, or in any manner
commercially exploit any information obtained through the Service or
participate in or allow such reproduction, sale, publication or
exploitation by any person.
The provisions of these two paragraphs are for the benefit of
CompuServe and its Information Providers and any such data supplier
shall have the right to assert and/or to enforce such provisions
directly on its own behalf.
-6-
<PAGE> 7
7. FORCE MAJEURE.
Neither CompuServe nor Telebase shall be liable for any failure or
delay in the performance of this agreement when and to the extent that such
failure or delay results from any of the following causes: Acts of God; any law
or applicable regulation; war or effects of war; civil commotion; riot; strike;
lockout or other labor trouble; flood; hurricane; tornado; fire; explosion;
injunction; telecommunications failures; disruption of information from third
party suppliers; or any other cause beyond the reasonable control of the parties
hereto which interferes with the performance of this agreement.
8. INDEMNIFICATION.
If either party breaches any of its warranties or obligations under
this agreement, it will indemnify, save and hold harmless the other party and
the officers, directors, agents and employees of the other party from any and
all claims, demands, liabilities, costs or expenses, including attorneys' fees,
resulting from such breach, except where such claims, demands, liabilities,
costs or expenses result solely from the negligence or knowing and willful
misconduct of the other party.
9. TERM.
(a) This agreement shall be effective from the date of its written
acceptance by an officer of CompuServe and shall continue in force for an
initial term of three (3) years. Thereafter, this agreement shall be renewed on
the same terms and conditions for one (1) year renewal terms unless a party
gives the other party at least ninety (90) days written notice prior to the end
of the term or the then current renewal term that it is not renewing this
agreement.
(b) Either party may terminate this agreement in the event that the
other party breaches any material terms or material conditions hereof, fails to
cure such breach within thirty (30) days (or such other time as may be specified
herein) after written notice of the breach which describes the breach with
reasonable particularity, and the breach is continuing.
(c) Either party may terminate the agreement immediately should the
other party make an assignment of its property for the benefit of creditors, or
file a petition for adjudication as bankrupt, for reorganization or for an
arrangement under any bankruptcy or insolvency law, or if any involuntary
petition under any such law is filed against the other party and not dismissed
within sixty (60) days.
-7-
<PAGE> 8
10. ADVERTISING.
Except as provided herein, neither party may present or permit any
advertising or promotional material which makes reference to the other party's
products or services without prior written approval by the other party. All
advertising or promotional material which makes reference to the other party's
products or services must be reviewed by the other party before final release.
Each party will act on all requests for approval within five (5) business days,
and neither party will unreasonably withhold a request for approval.
11. GENERAL.
(a) Definitions:
(i) "Users" shall mean CompuServe prospects, customers, agents,
and employees who are provided Access to the Service.
(ii) "Access" shall mean the electronic connection through
standardized procedures established by CompuServe via its computer network to
CompuServe's hardware programs and databases designated by it to constitute the
Service and to the portion of the Product residing on Telebase's computer.
Notwithstanding such standardized procedures, Telebase acknowledges that the
Service does not prevent Users from copying to other storage devices or creating
printed output of all or a part of the Product so retrieved.
(iii) "Area" shall mean a section of the Service accessible by
Users of the Service as defined by CompuServe.
(iv) "Gateway" shall mean an electronic transfer of Users from
CompuServe computers to Telebase's computer via a CompuServe Network Services
link between the two host computers. Upon completion of the User's session on
Telebase computer, the User will be returned to the CompuServe computer.
(b) Neither party may assign this agreement except to an affiliate who
controls, or is controlled by, or is under common control with, that party.
(c) No modification of this agreement or waiver of any of its terms
will be effective against a party unless set forth in writing and signed by an
officer of the other party. Both parties acknowledge that no other person has
authority to modify this agreement or waive any of its terms.
(d) The terms and conditions of this agreement shall be construed in
accordance with the laws of the State of Ohio. Any suit brought to enforce any
provision of this agreement or any remedy with respect hereto shall be brought
in the Common Pleas
-8-
<PAGE> 9
Court, Franklin County, Ohio, and each party hereby expressly consents to the
jurisdiction of such Court.
(e) The following paragraphs shall survive the termination of this
agreement: 4., 8., and 11.(d).
(f) Notices. All notices required or permitted under this agreement
will be deemed to be given if in writing and a) mailed via certified mail to the
other party at its address shown at the beginning of this agreement or at such
different address as the party may give notice, or b) delivered personally to an
officer of the other party. Any mailed notice will be effective when deposited
in the United States mail, properly addressed and with postage prepaid.
(g) THIS AGREEMENT, INCLUDING THE SCHEDULES THERETO, CONSTITUTES THE
ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND
SUPERSEDES ALL PRIOR AND CONTEMPORANEOUS PROPOSALS, ORAL OR WRITTEN, AND ALL
PRIOR AND CONTEMPORANEOUS NEGOTIATIONS, CONVERSATIONS, AND OTHER COMMUNICATIONS
BETWEEN THE PARTIES WITH RESPECT TO SUCH SUBJECT MATTER.
BILLING INFORMATION:
Company Name: Telebase Systems, Inc.
-------------------------------------------------------------------
Assigned User Name: Richard Kollin
-------------------------------------------------------------
Street Address: 134 North Narberth Avenue
-----------------------------------------------------------------
City: Narberth, PA 19072
---------------------------------------------------------------------------
Telephone Number: (215) 667-8942
---------------------------------------------------------------
ACCEPTED BY COMPUSERVE: ACCEPTED BY TELEBASE:
CompuServe Incorporated Telebase Systems, Inc.
5000 Arlington Centre 134 North Narberth Avenue
Boulevard Narberth, PA 19072
Columbus, OH 43220
By: By:
-------------------------- --------------------------
Title: Title:
----------------------- -----------------------
Date: Date:
------------------------ ------------------------
-9-
<PAGE> 10
COMPUSERVE SERVICES/
SOFTWARE AGREEMENT FOR
INFORMATION PROVIDERS
SCHEDULE A
PRODUCT DEFINITION AND INFORMATION
1. DEFINITION OF THE PRODUCT.
The Product shall mean i) collectively and individually, all the
databases and their constituent parts, which Telebase licenses, sublicenses,
and/or sells or has the right to license, sublicense and/or sell, as they are
made available by Telebase, and ii) the software resident on Telebase's computer
which collects Users' information requests, determines the database where the
information can be found, accesses the database and retrieves the requested
information.
The databases which are part of the Product reside with seven (7)
on-line database vendors. There are presently over six hundred (600) databases
available to be part of the Product from these vendors. CompuServe shall have
the right to determine which of these databases will be included in the Product.
Telebase will provide for two (2) methods of information retrieval on
its computing systems using the Product. The first method of information
retrieval provided by Telebase will involve the use of menus resident on
Telebase's computing systems. These menus will list subject areas as an aid to
novice Users unfamiliar with database content. The second method for information
retrieval will involve prompting for a specific database name.
In providing for information retrieval, Telebase will incorporate the
minimum subset of CompuServe's standard navigational commands as described in
Schedule D of this agreement. In addition, Telebase will ensure that the menu
structure and prompts will conform to CompuServe's menu standards as described
in Schedule E of this agreement.
The Product will be labeled with a CompuServe product name. Telebase
will feature this name where appropriate on the Product's menus.
2. PRODUCT UPDATES AND REQUIREMENTS.
(a) The proposed Product availability date on the Service is February
1, 1986. If the Product is not ready for availability on the Service within
thirty (30) days of the installation and testing of the telephone lines used to
provide Access to the Product, CompuServe may, in its discretion, terminate this
agreement upon fifteen (15) days written notice to Telebase.
A-1
<PAGE> 11
(b) If the owner or operator of any database which is part of the
Product objects to that database being included as part of the Service, Telebase
will give immediate notice of the objection to CompuServe, and, upon notice from
CompuServe, will remove such database from the Product.
CompuServe reserves the right to review and require Telebase to modify
the availability of databases as part of the Product during the term of this
agreement. Requests for modification will be made in writing, and Telebase will
modify the Product as requested within thirty (30) days of the request.
CompuServe may remove the Product from the Service and cancel this agreement
upon at least thirty (30) days written notice if Telebase fails to modify the
Product as requested within such thirty (30) day period.
(c) Telebase shall obtain written permission for the seven (7) database
vendors listed in Schedule G of the inclusion of their databases as part of the
Product within ninety (90) days of the date of this agreement, and provide
copies of such written permission to CompuServe within the ninety (90) day
period. CompuServe may remove the Product from the Service and cancel this
agreement upon at least thirty (30) days written notice to Telebase if such
permission is not obtained and copies are not provided to CompuServe.
3. CALCULATION OF ROYALTY PAYMENTS.
(a) User Charges. Except as expressly provided herein, CompuServe will
charge Users for Access to the Product on a transactional basis at not less than
the rates specified below:
RATE SCHEDULE
<TABLE>
<S> <C>
No-hit Charge $[****], after first no-hit
during single Access
Minimum Access Charge $[****]
Search (10 titles) Charge $[****]
Abstract Charge $[****]
Hard Copy Delivery Charge $[****]
(regular mail)
Hard Copy Delivery Charge $[****]
(overnight)
Data Base Surcharges $[****] or $[****]
</TABLE>
(i) After one hundred twenty (120) days following the first
customer Access of the Product and upon not less than sixty (60) days written
notice to the other party, either party may request that such rates be modified.
No request to modify such rates will be unreasonably denied. The rights granted
under this paragraph 3(a)(i) are in addition to the right of CompuServe
A-2
<PAGE> 12
to raise the rates provided that the foregoing rates shall not be modified more
than three (3) times during any calendar year.
(b) If Telebase charges any persons or end users rate(s) for the
Product or any Product which is substantially similar to the Product, which are
different than the rates provided for in paragraph 3(a) of this schedule,
CompuServe may in its discretion elect to substitute such other rates for the
rates in paragraph (a).
(c) Recording and Transmittal of User Charges. Telebase will apply and
record all User charges in accordance with the rates applicable under paragraph
3(a) of this schedule. Each day, Telebase will transmit to CompuServe,
electronically and in a format approved by CompuServe, the recorded User charges
for each User's Access of the Product during the preceding twenty-four (24) hour
period.
(d) Royalty. The royalty payments due Telebase from CompuServe will be
in an amount equal to seventy percent (70%) of the Minimum Access and Search
Charges and ninety-five percent (95%) of the Hard Copy Delivery Charges,
Abstract, No-Hit, and Data Base Surcharges, all as provided for in paragraph
3(a) of this schedule.
(e) Notwithstanding any other term of this agreement, if User Access to
the Product does not generate revenue for CompuServe, the amount payable by
CompuServe to Telebase for the non-revenue generating User Access will be
limited to the amount which Telebase is required to pay unaffiliated third
persons on account of such Access.
4. CompuServe is willing to begin negotiations for access to CompuServe
financial data and news with Telebase (subject to any restrictions on such
access including, but not limited to, restrictions on redistribution of the
information thereunder).
ACKNOWLEDGED BY COMPUSERVE: ACKNOWLEDGED BY TELEBASE:
By: By:
-------------------------- --------------------------
Title: Title:
----------------------- -----------------------
Date: Date:
------------------------ ------------------------
A-3
<PAGE> 13
SCHEDULE B
ABI/INFORM
ABLEDATA
ABSTRACTS OF TROPICAL AGRICULTURE
ABSTRACTS OF WORKING PAPERS IN ECONOMICS
ABSTRAX 400
ACCESS REPORTS/FREEDOM OF INFORMATION
ACCOUNTANTS
ADTRACX
AFRICA NEWS
AGRI-MARKETS DATA SERVICE
AIR POLLUTION TECHNICAL INFORMATION CENTER
AIR/WATER POLLUTION REPORT
AKRON BEACON - JOURNAL
ALLENTOWN CALL - CHRONICLE
ALTMAN & WEIL REPORT TO LEGAL MANAGEMENT
AMERICA: HISTORY AND LIFE
AMERICAN MEN AND WOMEN OF SCIENCE
AMERICAN PETROLEUM INSTITUTE
AMERICAN STATISTICS INDEX
ANTARCTIC BIBLIOGRAPHY
APS DIPLOMAT
APS REVIEW
AQUACULTURE
AQUALINE
AQUATIC SCIENCES AND FISHERIES ABSTRACTS
ARTBIBLIOGRAPHIES MODERN
ARTHUR D. LITTLE/ONLINE
ARTIFICIAL INTELLIGENCE REPORT
ASSOCIATION PUBLICATIONS IN PRINT
AUTOMATED OFFICE SYSTEMS
BANKER
BANKING REGULATOR
BANQUE: FRENCH BANKING LAW
BI/DATA FORECASTS
BI/DATA TIME SERIES
BIBLAT: LATIN AMERICA
BIBLIOGRAPHY OF AGRICULTURE
BILINGUAL EDUCATION BIBLIOGRAPHIC ABSTRACTS
BIOGRAPHIES MASTER INDEX
BIOLOGICAL ABSTRACTS
BIOTECHNOLOGY INVESTMENT OPPORTUNITIES
BLS CONSUMER PRICE INDEX
BLS EMPLOYMENT, HOURS, AND EARNINGS
BLS LABOR FORCE
BLS PRODUCER PRICE INDEX
BOOK REVIEW INDEX
BOOKS IN PRINT
<PAGE> 14
PAGE NO. 00002
EASYNET DATABASES
BOOKS INFORMATION
BOSTON GLOBE
BRITISH HYDROMECHANICS RESEARCH ASSOCIATION
BUSINESS COMPUTER
BUSINESS COMPUTER DIGEST
BUSINESS PROFIT DIGEST
BUSINESS/PROFESSIONAL SOFTWARE DATABASE
CABLE & SATELLITE NEWS
CABLENEWS
CALIFORNIA UNION LIST OF PERIODICALS
CANADIAN BUSINESS AND CURRENT AFFAIRS
CANCERNET
CAREER PLACEMENT REGISTRY/EXPERIENCED PERSONNEL
CAREER PLACEMENT REGISTRY/STUDENT
CATALYST RESOURCES FOR WOMEN
CCH TAX DAY: FEDERAL
CCH THY DAY: STATE
CECILE: INDUSTRIAL DESIGN
CELLULAR RADIO NEWS
CHAPTER II REPORTER
CHARITABLE GIVING
CHEMICAL ABSTRACTS
CHEMICAL ABSTRACTS SOURCE INDEX
CHEMICAL ENGINEERING ABSTRACTS
CHEMICAL EXPOSURE
CHEMICAL INDUSTRY NOTES
CHEMICAL REGULATIONS AND GUIDELINES SYSTEMS
CHEMIS
CHEMNAME
CHEMSEARCH
CHEMZERO
CHICAGO TRIBUNE
CHILD ABUSE AND NEGLECT
CHRISTIAN SCIENCE MONITOR
CHRONOLOG NEWSLETTER
CHURCHNEWS INTERNATIONAL
CIM: CEMENTS AND HYDRAULIC BINDINGS
CIS - INTERNATIONAL LABOUR ORGANIZATION
CLAIMS/CITATION
CLAIMS/CLASS
CLAIMS/COMPOUND REGISTRY
CLAIMS/REASSIGNMENT & REEXAMINATION
CLAIMS/U.S. PATENT ABSTRACTS
CLAIMS/U.S. PATENT ABSTRACTS WEEKLY
CLAIMS/UNITERM
COFFEELINE
COMMERCE BUSINESS DAILY
B-2
<PAGE> 15
PAGE NO. 00003
EASYNET DATABASES
COMMON CARRIER WEEK
COMMONWEALTH AGRICULTURAL BUREAUX ABSTRACTS
COMMUNICATIONS & DISTRIBUTED RESOURCES REPORT
COMMUNICATIONS DAILY
COMPLIANCE ALERT: FEDERAL REGISTER DIGEST
COMPLIANCE MANAGEMENT REPORT
COMPREHENSIVE CORE MEDICAL LIBRARY
COMPUTER BOOK REVIEW
COMPUTER COOKBOOK
COMPUTER DATABASE
COMPUTER MARKET OBSERVER
COMPUTERPAT LINE BREAK CONFERENCE PAPERS INDEX
CONGRESSIONAL ACTIVITIES
CONGRESSIONAL INFORMATION SERVICES
CONGRESSIONAL RECORDS ABSTRACTS
CONSUMER ELECTRONICS
COPYRIGHT MANAGEMENT
CORPORATE EFT REPORT
CORPORATE SHAREHOLDER
CORROSION
CRECORD
CRIMINAL JUSTICE PERIODICAL INDEX
CURRENT BIOTECHNOLOGY ABSTRACTS
CURRENT RESEARCH INFORMATION/USDA
D&B-DUN'S MARKET IDENTIFIERS
D&B-MILLION DOLLAR DIRECTORY
DAILY INDUSTRIAL INDEX ANALYZER
DAILY METALS REPORT
DAILY PETRO FUTURES
DATA BASE INFORMER
DATA CHANNELS
DBS NEWS
DEFENSE INDUSTRY REPORT
DEFENSE R&D UPDATE
DEFOTEL: STOCK EXCHANGE INFORMATION
DIACK NEWSLETTER
DIF: FRENCH TAX LAW
DIGITAL SYPASS REPORT
DIRECTORY OF GRADUATE RESEARCH
DISSERTATION ABSTRACTS ONLINE
DOE ENERGY
DONNELLEY DEMOGRAPHICS
DRUG INFORMATION FULLTEXT
DRUGINFO
B-3
<PAGE> 16
PAGE NO. 00004
EASYNET DATABASES
ECOMINE: FRENCH ECONOMIC LAW
ECONOMIC LITERATURE INDEX
EDF-DOC: ELECTRICITY AND ENERGY
EDITORS ONLY
EDUCATIONAL RESOURCES INFORMATION CENTER
EDUCATIONAL TESTING SERVICE TEST COLLECTION
EFT REPORT
EI ENGINEERING MEETINGS
EIS INDUSTRIAL PLANTS
EIS NONMANUFACTURING ESTABLISHMENTS
ELECTRIC POWDER DATABASE
ELECTRIC POWER INDUSTRY ABSTRACTS
ELECTRIC VEHICLE PROGRESS
ELECTRICAL & ELECTRONIC ABSTRACTS
ELECTRONIC INFORMATION REPORT
ELECTRONIC MAIL NEWS
ELECTRONIC PUBLISHING ABSTRACTS
ENCYCLOPEDIA OF ASSOCIATIONS
ENERGY & MINERALS RESOURCES
ENERGY BIBLIOGRAPHY AND INDEX
ENERGY DATA BASE
ENERGY MANAGMENT ONLINE NETWORK
ENERGYLINE
ENERGYNET
ENGELSMAN'S CONSTRUCTION COST INDEXES
ENGINEERING INDEX
ENGINEERING MICROSOFTWARE REVIEW
ENTREPRENEURIAL MANAGER'S NEWSLETTER
ENVIROLINE
ENVIRONMENTAL BIBLIOGRAPHY
EPILEPSYLINE
ESCOTHEK: LOCAL ENVIRONMENT
ESSOR: DIRECTORY OF FRENCH COMPANIES
EXCEPTIONAL CHILD EDUCATION ABSTRACTS
EXCERPTA MEDICA
EXECUTIVE PRODUCTIVITY
EXPORTER
FACTS ON FILE
FAIREC: TROPICAL AND CITRUS FRUITS
FAMILY RESOURCES
FEARLESS TASTER
FEDERAL INDEX
FEDERAL REGISTER ABSTRACTS
FEDERAL RESEARCH IN PROGRESS
B-4
<PAGE> 17
PAGE NO. 00005
EASYNET DATABASES
FEDERAL RESEARCH REPORT
FEDERAL RESEARCH SOLICITATIONS
FEDERAL RESERVE WEEK
FIBER OPTICS AND COMMUNICATIONS NEWSLETTER
FIBER OPTICS AND COMMUNICATIONS WEEKLY NEWSLETTER
FIBER/OPTICS NEWS
FINANCIAL SERVICES WEEK
FINANCIAL TIMES COMPANY INFORMATION DATABASE
FIND/SVP REPORTS AND STUDIES INDEX
FINE CHEMICALS DIRECTORY
FINIS: FINANCIAL INDUSTRY INFORMATION SERVICE
FINTEX ALL-DAY FOREIGN EXCHANGE MONITOR
FINTEX INTERNATIONAL ECONOMIC SUMMARIES
FOOD SCIENCE AND TECHNOLOGY ABSTRACTS
FOODS ADLIBRA
FORD INVESTMENT REVIEW
FOREIGN TRADE & ECONOMICS ABSTRACTS
FOREIGN TENDERS INDEX
FOREST
FOSTER NATURAL GAS REPORT
FOUNDATION DIRECTORY
FRCIS-H: HUMANITIES
FRCIS-S: SOCIAL SCIENCES
FROST & SULLIVAN MARKET RESEARCH REPORTS
FROST & SULLIVAN'S POLITICAL RISK LETTER
FTC FOIA LOG
FTC: WATCH
FUTURES FOCUS
GARY NORTH'S REMNANT REVIEW
GEOARCHIVE
GEODE: GEOLOGY
GEOLOGICAL REFERENCE
GEOMECHANICS
GOLD SHEET
GPO MONTHLY CATALOG
GPO PUBLICATIONS REFERENCE FILE
GRANTS
GRAPPE: FRENCH FIRMS-MARKETS
HARFAX INDUSTRY DATA SOURCES
HARVARD BUSINESS REVIEW
HAZARDOUS WASTE NEWS
HEALTH AUDIO-VISUAL ONLINE CATALOG
HEALTH COST MANAGEMENT WEEKLY
HEALTH PLANNING AND ADMINISTRATION
HELIOS: FRENCH GOVT. LIBRARIES
HI TECH PATENTS: DATA COMMUNICATIONS
B-5
<PAGE> 18
PAGE NO. 00006
EASYNET DATABASES
HI TECH PATENTS: FIBER OPTICS TECHNOLOGY
HI TECH PATENTS: LASER TECHNOLOGY
HI TECH PATENTS: TELEPHONY
HIGH TECH GERMANY
HISTORICAL ABSTRACTS
HOUSTON POST
HSELINE: HEALTH AND SAFETY
IALINE: AGRICULTURE AND FOOD INDUSTRY
IBSEDEX: MECHANICAL AND ELECTRICAL
ICC BRITISH COMPANY DIRECTORY
ICC BRITISH COMPANY FINANCIAL DATASHEETS
ICONOS: FRENCH PHOTOGRAPHIC COLLECTION
IDP REPORT
IFP-TH: PROPERTIES OF COMPOUNDS
IHS VENDOR INFORMATION DATABASE
IIA FRIDAY MEMO
IMS WEEKLY MARKETEER
INDEX CHEMICUS ONLINE
INDUSTRIAL HEALTH & HAZARDS UPDATE
INDUSTRY AND INTERNATIONAL STANDARDS
INFORMATION SCIENCE ABSTRACTS
INFORMATION SERVICE IN MECHANICAL ENGINEERING
INFORUM
INNOVATOR'S DIGEST
INPADOC: PATENTS
INPANEW: PATENTS
INPI1: FRENCH PATENTS
INPI2: EUROPEAN PATENTS
INPI3: PATENT FAMILIES
INPI4: INTERNATIONAL PATENT CLASSIFICATION
INSTRUCTIONAL RESOURCES INFORMATION SYSTEM
INSURANCE ABSTRACTS
INTERACTIVE VIDEO TECHNOLOGY
INTERCONNECTION
INTERNATIONAL DUN'S MARKET IDENTIFIERS
INTERNATIONAL INTERTRADE INDEX
INTERNATIONAL LISTING SERVICE
INTERNATIONAL MICROCOPUTER SOFTWARE DIRECTORY
INTERNATIONAL PHARMACEUTICAL ABSTRACTS
INTERNATIONAL VIDEOTEX TELETEXT NEWS
INVENTION MANAGEMENT
JANSSEN: CHEMICAL PRODUCT CATALOG
JAPAN COMPUTER INDUSTRY SCAN
JAPAN HIGH TECH REVIEW
JAPAN SEMICONDUCTOR QUARTERLY
JAPAN WEEKLY MONITOR
B-6
<PAGE> 19
PAGE NO. 00007
EASYNET DATABASES
JAPAN'S MONTHLY FINANCE REVIEW
JAPANESE AVIATION NEWS: WING
JAPANESE TRADE & INDUSTRY BRIEFS
JOURNAL OF THE SOCIETY OF ARCHITECTURAL HISTORIANS
KEN WINSLOW'S VIDEOPLAY REPORT
KEY BRITISH ENTERPRISES
KIRK-OTHMER ENCYCLOPEDIA OF CHEMICAL TECHNOLOGY
LABINFO: LAB RESEARCH ACTIVITIES
LABOR: WORLD LABOR INFORMATION
LABORATORY HAZARDS BULLETIN
LABORDOC
LABORLAW
LAN
LAND USE PLANNING REPORT
LANGUAGE AND LANGUAGE BEHAVIOR ABSTRACTS
LAWYERS' MICRO USERS GROUP NEWSLETTER
LC MARC
LEGAL RESOURCE INDEX
LEX: FRENCH LAW
LEXINGTON HERALD - LEADER
LIBRARY AND INFOMRATION SCIENCE ABSTRACTS
LIFE SCIENCES COLLECTION
LINK NEWS BRIEFS
LOGOS: FRENCH POLITICAL INFORMATION
LONG-DISTANCE LETTER
LOW-PRICED STOCK ALERT
MAGAZINE INDEX
MANAGEMENT AND MARKETING ABSTRACTS
MANAGEMENT CONTENTS
MANUFACTURED HOUSING NEWSLETTER
MARQUIS PRO-FILES
MARQUIS WHO'S WHO
MASS SPECTROMETRY BULLETIN
MATHEMATICAL REVIEWS ONLINE
MCGRAW-HILL NEW BUSINESS BOOKS/SOFTWARE
MEDIA GENERAL DATABANK
MEDIA SCIENCE REPORTS
MEDIAWIRE
MEDICAL ABSTRACTS NEWSLETTER
MEETING: FUTURE MEETINGS AND CONFERENCES
MENTAL HEALTH ABSTRACTS
MENTAL MEASUREMENTS YEARBOOK
METADEX
MEDALS INFORMATION DESIGNATIONS & SPECIFICATIONS
METEOROLOGICAL AND GEOASTROPHYSICAL ABSTRACTS
MIAMI HERALD
B-7
<PAGE> 20
PAGE NO. 00008
EASYNET DATABASES
MICRO MOONLIGHTER
MICROCOMPUTER INDEX
MID-EAST BUSINESS DIGEST
MILITARY AND FEDERAL SPECIFICATIONS AND STANDARDS
MINI/MICRO BULLETIN
MMWR PLUS
MOBILE PHONE NEWS
MODERN LANGUAGE ASSOCIATION BIBLIOGRAPHY
NA HOTLINE
NATIONAL COUNCIL ON FAMILY RELATIONS
NATIONAL CRIMINAL JUSTICE REFERENCE SERVICE
NATIONAL INFORMATION CENTER FOR EDUCATIONAL MATERIALS
NATIONAL INFORMATION SOURCES ON THE HANDICAPPED
NATIONAL INSTRUCTIONAL MATERIALS INFORMATION SYSTEM
NATIONAL NEWSPAPER INDEX
NATIONAL REHABILITATION INFORMATION CENTER
NATIONAL TECHNICAL INFORMATION SERVICE
NEWSEARCH
NEWSNET ACTION LETTER
NEWSPAPER INDEX
NONFERROUS METALS ABSTRACTS
NORIANE: STANDARDS IN FORCE
NTT TOPICS
NUCLEAR WASTE NEWS
NURSING AND ALLIED HEALTH
OCCUPATIONAL SAFETY AND HEALTH
OCEANIC ABSTRACTS
ON-LINE COMPUTER TELEPHONE DIRECTORY
ONLINE CHRONICLE
ONLINE MICROCUMPUTER SOFTWARE GUIDE AND DIRECTORY
ONTARIO EDUCATIONAL RESOURCES INFORMATION
OUTLOOK ON IBM
PACIFIC ISLANDS ECOSYSTEMS
PACS & LOBBIES
PAPERCHEM
PAPERMAKING ABSTRACTS
PASCAL: CNRS: CDST
PATDATA
PATLAW
PATLAW: PROPERTY
PATSEARCH: UTILITY
PENNY STOCK PREVIEW
PERSONAL COMPUTERS TODAY
PETROLEUM INFORMATION INTERNATIONAL
PETROLEUM PATENTS
PETROLEUM/ENERGY NEWS
B-8
<PAGE> 21
PAGE NO. 00009
EASYNET DATABASES
PHARMACEUTICAL NEWS INDEX
PHILADELPHIA DAILY NEWS
PHILADELPHIA INQUIRER
PHILOSOPHER'S INDEX
PHOTOLETTER
PLUMB
POLLUTION ABSTRACTS
POPULATION BIBLIOGRAPHY
POWER
PR HI-TECH ALERT/VIDEO MONITOR
PRE-MED
PROCESS: FRENCH LEGISLATIVE PROCESS
PSYCALERT
PSYCHOLOGICAL ABSTRACTS
PTS ANNUAL REPORTS ABSTRACTS
PTS DEFENSE MARKETS AND TECHNOLOGY
PTS DOMESTIC STATISTICS
PTS F&S INDEXES
PTS INTERNATIONAL FORECASTS
PTS INTERNATIONAL TIME SERIES
PTS PROMPT
PTS U.S. FORECASTS
PUBLIC AFFAIRS INFORMATION SERVICE
PUBLIC BROADCASTING REPORT
PUBLIC TRANSIT REPORT
PUBLISHERS, DISTRIBUTORS, AND WHOLESALERS
QUESTA6: FRENCH NATL. ASSEM.-6TH
QUESTA7: FRENCH NATL. ASSEM.-7TH
REAL ESTATE INVESTING LETTER
REDOSI: INFORMATION SYSTEMS
RELIGION INDEX
REPERTOIRE INTERNATIONAL DE LITTERATURE MUSICALE
REPORTS OF INTEREST TO LAWYERS
RESEARCH MONITOR NEWS
RESOURCE ORGANIZATIONS AND MEETINGS FOR EDUCATION DATABASE
RESOURCES IN COMPUTER EDUCATION
RESOURCES IN VOCATIONAL EDUCATION
RFC NEWS SERVICE
RNS DAILY NEWS REPORT
ROBOTICS INFORMATION
ROBOTRONICS AGE NEWSLETTER
RUBBER AND PLASTICS RESEARCH ABSTRACTS
RUNZHEIMER REPORTS ON AUTOMOTIVE ALTERNATIVES
SACRAMENTO BEE
SALES PROSPECTOR/CA AZ NV HI
SALES PROSPECTOR/CANADA
B-9
<PAGE> 22
SALES PROSPECTOR/CO ID MT OR UT WA WY AK
SALES PROSPECTOR/GA FL AL NC SC
SALES PROSPECTOR/IL IN
SALES PROSPECTOR/LA MS AR OK KY TN
SALES PROSPECTOR/MD VA WY NC SC DC
SALES PROSPECTOR/MO KS IA NB
SALES PROSPECTOR/NEW ENGLAND
SALES PROSPECTOR/NY NJ SOUTHERN CT
SALES PROSPECTOR/OH MI
SALES PROSPECTOR/OHIO RIVER VALLEY
SALES PROSPECTOR/PA DE SOUTHERN NJ
SALES PROSPECTOR/TX OK NM
SATES PROSPECTOR/WI MN IA ND SD
SATELLITE NEWS
SATELLITE TELEVISION NEWSLETTER
SATELLITE WEEK
SB-I: DATA PROCESSING APPLICATIONS
SCHOOL PRACTICES INFORMATION FILE
SCIENCE CITATION INDEX
SEARCHABLE PHYSICS INFORMATION NOTICES
SELECTED WATER RESOURCES ABSTRACTS
SEMICONDUCTOR INDUSTRY & BUSINESS SURVEY
SERVICE DEALER'S NEWSLETTER
SEYBOLD REPORT ON OFFICE SYSTEMS
SEYBOLD REPORT ON PROFESSIONAL COMPUTING
SEYBOLD REPORT ON PUBLISHING SYSTEMS
SID CATO'S NEWSLETTER ON ANNUAL REPORTS
SILICON MOUNTAIN REPORT
SLUDGE NEWSLETTER
SMALL BUSINESS TAX REVIEW
SMR NEWS
SOC: FRENCH LABOR LAW
SOCIAL SCIENCE CITATION INDEX
SOCIETY OF AUTOMOTIVE ENGINEERS MEETINGS
SOCIOLOGICAL ABSTRACTS
SOFIE: FINANCIAL SOURCES
SOFTWARE REVIEW
SOLAR ENERGY INTELLIGENCE REPORT
SOVIET SCIENCE AND TECHNOLOGY
SPACE CALENDAR
SPACE COMMERCE BULLETIN
SPACE R&D ALERT
SPACETIME
SPORT
SPORTS INDUSTRY NEWS
SSIE CURRENT RESEARCH
B-10
<PAGE> 23
PAGE NO. 00011
EASYNET DATABASES
STANDARDS & SPECIFICATIONS
STANGER REPORT
STANLEY KLEIN NEWSLETTER ON COMPUTER GRAPHICS
STATE REGULATION REPORT: TOXICS
STOCK SEARCH
SUPER INDEX
SURPLUS ALERT
SYD: SYDONI: FRENCH FAMILY AND PROPERTY LAW
TAX NOTES INTERNATIONAL
TAX NOTES TODAY
TAX SHELTER INSIDER
TECYLINE
TELECOMMUNICATIONS COUNSELOR
TELEDOC: TELECOMMUNICATIONS
TELEGEN
TELEPHONE NEWS
TELEVISION DIGEST
TENANT COMMUNICATIONS
TEXAS EDUCATION COMPUTER COOPERATIVES
TEXTILE TECHNOLOGY DIGEST
THOMAS REGISTER ONLINE
TITUS: TEXTILE
TOXIC MATERIALS NEWS
TOXIC MATERIALS TRANSPORT
TOXIC SUBSTANCES CONTROL ACT INITIAL INVENTORY
TRADE AND INDUSTRY INDEX
TRADE OPPORTUNITIES
TRADE OPPORTUNITIES WEEKLY
TRADEMARKSCAN
TRANSIN: TECHNOLOGY TRANSFERS
TRANSPORTATION RESEARCH INFORMATION SERVICE
TRAVELWRITER MARKETLETTER
TRENDVEST RATINGS
TROISE AUTOMOTIVE NEWSLETTER
U.S. EXPORTS
U.S. PUBLIC SCHOOL DIRECTORY
U.S. RAIL NEWS
ULRICH'S INTERNATIONAL PERIODICALS DIRECTORY
UNIQUE: YOUR INDEPENDENT UNIX/C ADVISOR
UNITED METHODIST INFORMATION
UNITED NATIONS REPORT
UNITED STATES POLITICAL SCIENCE DOCUMENTS
UNIVERSAL SERIALS AND BOOK EXCHANGE
UPDATE/THE AMERICAN STATES
URBAMET: TOWN AND REGIONAL PLANNING
B-11
<PAGE> 24
PAGE NO. 00012
EASYNET DATABASES
US CLASSIFICATION
US CONTRACT AWARDS
US PATENT OFFICE
UTILITY REPORTER - FUELS, ENERGY & POWER
VIDEO WEEK
VIDEONEWS
VIDEOTEX NOW NEWSWIRE
VIDEOTEX PRODUCTS
VIEWTEXT
VOCATIONAL EDUCATION CURRICULUM MATRIALS
VOLUNTARY STANDARDS INFORMATION NETWORK
VU/QUOTE
WALL STREET BOOK STORE
WALL STREET MONITOR: WEEKLY MARKET DIGEST
WALL STREET S.O.S.
WALL STREET TRANSCRIPT
WASHINGTON BEVERAGE INSIGHT
WASHINGTON CREDIT LETTER
WATERLIT
WATERNET
WELDASEARCH
WELLINGTON COMMODITY TECHNICIAN
WELLINGTON LETTER
WELLINGTON LETTER ALERT
WELLINGTON'S CAPITAL
WICHITA EAGLE - BEACON
WILEY BOOK NEWS
WORLD AFFAIRS REPORT
WORLD ALUMINUM ABSTRACTS
WORLD ENVIRONMENT REPORT
WORLD PATENTS INDEX
WORLD SURFACE COATINGS ABSTRACTS
WORLD TEXTILES ABSTRACTS
WORLDWIDE VIDEOTEX UPDATE
ZINC, LEAD AND CADMIUM ABSTRACTS
ZOOLOGICAL RECORD
B-12
<PAGE> 25
- --------------------------------------------------------------------------------
COMPUSERVE GATEWAY
SERVICES/SOFTWARE AGREEMENT
FOR INFORMATION PROVIDERS
- --------------------------------------------------------------------------------
SCHEDULE D
CompuServe Navigational Commands
Minimum Standard Subset
The following represents the minimum standard CompuServe navigational commands
that must be implemented in the BRIKTHRU(TM) software:
T (TOP) - return to TOP menu of your application
M (MENU) - return to next previous MENU page
E (EXIT) - exit application and return to
CompuServe host
OFF - exit application and log off of your
host. Do not return to CompuServe
H (HELP) - display information text describing
options and capabilities available at
the current menu/prompt, then
redisplay the menu/prompt. The
question mark (?) should also be
accepted as a HELP request.
D
<PAGE> 26
SCHEDULE E
MENU PAGE STANDARDS
This section discusses the standards which will be followed when creating menus.
PAGE LAYOUTS
The following diagram illustrates the standard for menu pages.
- ------------------------------------------------------------------
LOGO PAGE #/REF WORD HEADER
(blank line)
- ------------------------------------------------------------------
MENU DESCRIPTOR (if applicable)
TEXT MENU TEXT
- ------------------------------------------------------------------
(blank line) TRAILER
ONE-LINE TRAILER
- ------------------------------------------------------------------
Headers and Trailers
Headers are always two lines in length consisting of one line of text (logo and
page number or Quick Reference Word) and one blank line. The quick reference
word is an alternate way of designating a page. For example, it may be easier
for the user to remember to enter 'GO TRAVEL' than 'GO TRA-1'.
Information Providers should have a local logo for their database. In all other
parts of the service, the logo will be "CompuServe".
Quick Reference Words should be used in place of symbolic page numbers on all
top level menus. Quick Reference Words can be used for submenus where
appropriate. If a Quick Reference Word is not used, then the page number will
appear.
Examples:
CompuServe COM-1
CompuServe COMMUNICATIONS
E
<PAGE> 27
Documentation and help messages should avoid referring to specific menu page
numbers and menu choice numbers because these can change as the database is
updated. Instead, messages should refer to a Quick Reference Word or full
command (i.e., SCAN instead of SC).
The following is a list of CompuServe standard trailers:
1. The trailer for the top Information Service menu:
Enter choice number !
2. The trailer for a one-page menu:
Enter choice number !
3. For the first page(s) of a multiple-page menu:
Enter choice or (CR) for more !
4. The last page of a multiple-page menu:
List page, enter choice number !
5. For a service that has a one-page introductory article:
Press (CR) !
6. For a service that has a multiple-page introductory article:
Press (CR) for more !
7. A multiple page article:
Press (CR) for more !
8. The last page of an article:
Last page !
Menu Choice Numbers
Menu choice numbers should be in columns one and two only. Menu choice numbers
less than 10 should be indented one space (i.e., start in column 2). This scheme
limits the number of menu choices to 99.
No periods, dashes or special characters should appear after the menu choice
number - only one space.
E-2
<PAGE> 28
The following is an example of how a typical menu page should look.
- --------------------------------------------------------
CompuServe XYZ-1
SALES/PROMOTIONAL INFORMATION
1 Product Information
2 Management Reports
3 Monthly Sales Figures
4 Financial Reports
5 Sales Brochures
6 Widgets Quality Control
7 Radio/TV Commercial Schedule
8 Advertising Strategies
9 Profit/Loss Reports
10 Sales Projections
Enter choice !
- --------------------------------------------------------
There should be no missing menu choices in videotex databases. If necessary, a
blank line should be inserted to represent a missing menu choice but if more
than two consecutive menu choices are missing only on blank line is sufficient.
Example:
1 Product Information
2 Management Reports
5 Sales Brochures
An alternative solution to allow for missing menu choices would be to place an
N/A following a menu choice number. For example:
1 Product Information
2 Management Reports
3 N/A
4 N/A
5 Sales Brochures
On menus that span multiple pages, the choice numbers are continuous; that is,
they do not begin at 1 again on the continuation pages.
On menus with numerous choices and short descriptions, it may be possible to
list the choices in two columns; for example choices 1 through 10 in column 1,
and 11 through 20 in column 2.
Menu Flags
The following menu codes are currently being used:
($) = surcharged product
(E) = Executive service product
($E) = surcharged Executive service product
(W) = Wide display (more than 32 characters)
E-3
<PAGE> 29
Menu flags will be in one set of parenthesis and will always follow the menu
description. Multiple flags will be listed alphabetically, and the $ takes
precedence over alpha menu flags. For example:
Demographics ($E)
E-4
<PAGE> 30
COMPUSERVE SERVICES/
SOFTWARE AGREEMENT FOR
INFORMATION PROVIDERS
SCHEDULE F
CHARGES TO TELEBASE FOR SERVICES AND/OR FACILITIES
PROVIDED BY COMPUSERVE
--------------------------------------------------
1. The following level of computer system and Service resources will be
provided by CompuServe to Telebase.
Information Provider Usage Schedule
Prime Connect Time 40 Hours Per Period
Standard Connect Time 40 Hours Per Period
Disk Storage 750 Blocks Per Period
Number of User Id's 2
*** - Note - Any CompuServe computing system or Service resources greater than
specified above will, at CompuServe's sole option, be charged at the then
applicable "Telebase overage" rates. A period consists of four (4) consecutive
weeks.
2. The following restrictions and limitations are the responsibility of
Telebase: providing all telephone and other equipment necessary to access
CompuServe's computer resources; all surcharges incurred while using any common
carrier communications facilities other than CompuServe's communications
network; any charges for transactions performed or merchandise purchased; access
to any portion of the Service may be restricted, at the sole discretion of
CompuServe.
F
<PAGE> 31
- --------------------------------------------------------------------------------
MUTUAL NON-DISCLOSURE AND
NON-SOLICITATION AGREEMENT
- --------------------------------------------------------------------------------
The Information Provider ("I.P.") and CompuServe agree to exchange Confidential
Materials subject to the following terms and conditions:
1. RECITALS AND ACKNOWLEDGEMENT
(a) It is acknowledged that each party possesses proprietary
information used in its business which is confidential and not
generally known to the public. This information is a valuable business
asset of each party and the protection of such information is,
therefore, essential.
(b) To promote the potential business dealings between I.P. and
CompuServe, it is necessary and desirable that certain proprietary
information be disclosed to the other party hereto and that each party
have contact with employees of the other.
(c) Each party acknowledges that the disclosure of proprietary
information, as defined in this agreement, and the mutual obligations
herein are good consideration for each party's obligations, that each
party in disclosing any proprietary information to the other party
hereto will do so in trust and confidence and in reliance upon the
receiving party fulfilling its obligations under this agreement, and
that any proprietary information which each party discloses to the
other will be received and maintained by the receiving party in trust
and confidence.
2. PROPRIETARY INFORMATION
(a) Proprietary information will mean any and all information relating
to the business of each party hereto or any third parties with whom it
deals, which is disclosed by one party hereto to the other, except
where the receiving party establishes that:
(i) Such information is known by the receiving party prior to
its disclosure by other party; or
(ii) Such information is generally available to the public in
the form in which it is disclosed at the time of disclosure,
or is thereafter available to the public in such form through
no fault of the receiving party.
(b) Proprietary information will include, but not be limited to, source
documents and source information relating to computer programs owned or
possessed by the parties hereto, information about the development of
services by or for each party, information about the services used by
customers of either party, information stored by customers of
CompuServe on its computing system, and information which is labeled
"confidential".
(c) It is acknowledged that proprietary information, as defined, will
almost always consist of a compilation of information which is
collected from public sources by the
G-1
<PAGE> 32
parties hereto or third parties with whom they deal, and that it is the
compiled information which gives the party or such third parties an
advantage over their competition.
3. OWNERSHIP/USE RESTRICTIONS
All proprietary information will remain the property of the original
[slanted text] receiving party. Except as directly necessary for the
performance of the dealings between CompuServe and I.P., the receiving
party will not reproduce, use or disclose to others any proprietary
information without the prior written consent of the other party.
4. PROTECTION OF PROPRIETARY INFORMATION
Each party hereto will take all necessary action to ensure that there
is no unauthorized disclosure of proprietary information by it or any
of its employees or persons with whom it deals. If, as a result of its
business dealings with the other party hereto, it is necessary and
proper for the receiving party to disclose proprietary information to
any of its employees or persons with whom it deals, that party will
require such employees or persons with whom it deals to hold such
proprietary information in trust and confidence subject to the
restrictions in this agreement.
5. RETURN/DESTRUCTION OF PROPRIETARY INFORMATION
Within thirty (30) days following a request or the completion of
business dealings between the parties, each party will deliver to the
other all tangible materials that relate to such proprietary
information, unless a party requests in writing that such materials be
destroyed. If a party requests that such materials be destroyed, the
other party will destroy them and within such thirty (30) day period
certify in writing their destruction.
6. NON-SOLICITATION
For two (2) years after the entry into this Agreement or the
termination of business dealings between the parties, whichever is
later, neither party will hire or solicit for the purpose of hiring any
employees of the other party.
7. INJUNCTION
If a party breaches or threatens to breach any of the provisions of
Paragraphs 3, 4, 5, or 6 herein, the other party, in addition to any
other remedies it may have at law or equity, will be entitled to a
restraining order, injunction or similar remedy so as to specifically
enforce such provisions. The parties acknowledge that money damages
alone would be an inadequate remedy for the injury which would be
suffered by a breach of any of the provisions of Paragraphs 3, 4, 5, or
herein.
(a) No modification of this agreement or waiver of any of its terms
will be effective unless set forth in a written document signed by I.P.
and an officer of CompuServe. The parties
G-2
<PAGE> 33
acknowledge that no person has authority to modify this Agreement or
waive any of its terms except as expressly set forth in this Paragraph
8(a).
(b) This agreement and any modifications of it will be governed by the
laws of the State of Ohio.
ACCEPTED BY COMPUSERVE: ACCEPTED BY TELEBASE:
CompuServe Incorporated Telebase Systems, Inc.
5000 Arlington Centre 134 North Narberth Avenue
Boulevard Narberth, PA 19072
Columbus, OH 43220
By: By:
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
-------------------------- --------------------------
G-3
<PAGE> 34
ADDENDUM
Addendum to the Agreement between CompuServe Incorporated and Telebase Systems
Inc. dated November 4, 1985 (the "Agreement") as subsequently amended.
The parties agree as follows:
1) Schedule A the last subparagraph of paragraph 1, 3(a) up
to, but not including 3(a)(i), and 3(d) are deleted in
their entirety and replaced by the following:
1. DEFINITION OF THE PRODUCT
CompuServe may offer access to the Product either as a
collection of databases (which CompuServe has labeled
"IQuest") or as individual databases from the IQuest
collection (the "Direct Gateway"). If offered as the Direct
Gateway, CompuServe may determine which databases are to be
offered. Telebase will feature the name of products where
appropriate on the Product's menus.
3. CALCULATION OF ROYALTY PAYMENTS.
a. User Charges. Except as expressly provided herein,
CompuServe will change Users for Access to the Product on a
transactional basis at not less than the rates specified
below:
RATE SCHEDULE (IQUEST)
<TABLE>
<S> <C>
No-hit Charge $[****], after first
no-hit during single
access
Search Charge $[****]
Abstract Change $[****]
Hard Copy Delivery Charge
(Regular) $[****]
Hard Copy Delivery Charge
(Express) $[****]
Scan Charge $[****]
Data Base Search Surcharges $[****] - $[****]
</TABLE>
A Search provides 10 citations (for bibliographic
databases) or the portion thereof if less than 10 are
retrieved or 15 references (for full text databases) or the
portion thereof if less than 15 are retrieved. In addition,
one full-text article may be displayed free of charge with
each search of a full-text database. Additional groups of
citations/references can be retrieved as subsequent
searches.
H
<PAGE> 35
RATE SCHEDULE (DIRECT GATEWAY)
<TABLE>
<S> <C>
No-hit Charge no charge
Search Charge see Appendix 1
Full Record Charge see Appendix 1
Hard Copy Delivery Charge
(Regular) $[****]
Hard Copy Delivery Charge
(Express) $[****]
Scan Charge no charge
</TABLE>
A Search provides up to 10 headings (usually titles for
bibliographic databases) or the portion thereof if less
than 10 are retrieved. The full record for all 10 headings
can be retrieved without incurring additional search
charges, but the full record charge shown above will be
applied. Additional groups of 10 headings can be retrieved
as subsequent searches at the above search charge.
(d) Royalty. The royalty payments due Telebase from CompuServe
for the Product are as follows:
ROYALTY SCHEDULE (IQUEST)
<TABLE>
<S> <C>
No-hit Charge [****]
Search Charge [****]
Abstract Charge [****]
Hard Copy Delivery Charge
(Regular) [****]
Hard Copy Delivery Charge
(Express) [****]
Scan Charge [****]
Data Base Surcharges [****]
Connect Charges [****]
</TABLE>
ROYALTY SCHEDULE (DIRECT GATEWAY)
<TABLE>
<S> <C>
Search Charge [****]
Full Record Charge [****]
Hard Copy Delivery Charge
(Regular) [****]
Hard Copy Delivery Charge
(Express) [****]
Connect Charges [****]
</TABLE>
H-2
<PAGE> 36
As herein amended, the Agreement remains in full force and effect.
TELEBASE SYSTEMS, INC. COMPUSERVE INCORPORATED
BY: BY:
---------------------------- ----------------------------
TITLE: TITLE:
------------------------- -------------------------
DATE: DATE:
-------------------------- --------------------------
H-3
<PAGE> 37
APPENDIX 1 - DIRECT GATEWAY DATABASES AND CHARGES
as of July 25, 1989
<TABLE>
<CAPTION>
SEARCH FULL RECORD
DATABASE CHARGE CHARGE
- -------------------------------------------------------------------------------
<S> <C> <C>
Books In Print $[****] $[****]
Magill's Cinema $[****] $[****]
Book Review Digest $[****] $[****]
Commerce Business Daily $[****] $[****]
AIDS (CCML) $[****] $[****]
Dissertation Abstracts $[****] $[****]
PTS Newsletters-Broadcast $[****] $[****]
PTS Newsletters Computer $[****] $[****]
Marquis Who's Who $[****] $[****]
Business Dateline $[****] $[****]
Corporate Affiliations $[****] $[****]
PDQ - Cancer Files $[****] $[****]
Investext - Report Number Finder $[****] $[****]
Investext - Keyword Report Number $[****] $[****]
LEGAL RESEARCH SCAN $[****] [****]
- Criminal Justice Per Index $[****] $[****]
- NCJRS $[****] $[****]
- Child Abuse & Neglect $[****] $[****]
- Legal Resources Index $[****] $[****]
- Tax Notes Today $[****] $[****]
- Congressional Info Service $[****] $[****]
- American Banker Fulltext $[****] $[****]
MARKETING SCAN $[****] [****]
- FINIS $[****] $[****]
- McGraw Hill Pubs Online $[****] $[****]
- Industry Data Sources $[****] $[****]
- ABI/Inform $[****] $[****]
- FINDEX $[****] $[****]
- PTS Promt $[****] $[****]
- PTS MARS $[****] $[****]
- PTS New Product Announcem $[****] $[****]
</TABLE>
NOTE: Other Databases will be added and documented with an updated Appendix 1.
I
<PAGE> 38
[COMPUSERVE LOGO]
April 22, 1988
Mr. James E. Coane
Telebase Systems, Inc.
763 West Lancaster Avenue
Bryn Mawr, PA 19010
Dear Jim:
We have reached agreement on several issues that I would like to document in
this letter. These issues include: new IQuest prices; advance on royalties; and
demonstration account usage.
1. Pricing
A. The new IQuest charges will be in the following amounts:
<TABLE>
<S> <C>
Search Charge $[****]
Document Delivery Charges:
Regular $[****] (includes shipping & handling)
Express $[****] (includes shipping & handling)
</TABLE>
B. Abstract Charge ($[****] each) and No Hit Charge ($[****] for second
and subsequent no hit searches) will remain the same. Database
Surcharges may be imposed at varying rates, but no more than 25% of
IQuest databases may carry Surcharges. Connect Charges will remain at
base CompuServe rates.
C. Searches will continue to provide ten citations (for bibliographic
databases) or fifteen references (for full-text databases). In
addition, one full-text article may be displayed free of charge with
each search or a full-text database.
D. CompuServe will pay Telebase [****] of Search Charges and [****] of
Document Delivery Charges, Abstract Charges, No Hit Charges, and
Database Surcharges.
E. CompuServe will pay Telebase [****] of Connect Charges, up from [****].
This change will go into effect when the Search Charge is increased.
J-1
<PAGE> 39
F. Scan Charges will be priced at the level of Search Charges until
Telebase has developed new billing programs. Once the new billing
programs have been implemented, but in no case later than September 1,
l988, CompuServe may, at its sole discretion, change the Scan Charge to
any rate it desires. At this time, CompuServe will pay Telebase $[****]
per Scan, regardless or the Scan Charge in effect.
G. The new Search Charge will go into effect when Telebase has implemented
the new MS-DOS-based system and has moved all IQuest usage from the
current system to the MS-DOS system.
2. Royalty Advance
CompuServe will pay Telebase an advance on royalties of $[****].
Telebase will repay the advance in ten months at the rate of $[****]
per month. Repayment will begin 90 days after the receipt of the
advance. Repayment will be collected by CompuServe by deducting the
monthly amounts from monthly royalty payments to Telebase.
The royalty advance will be used by Telebase to finance the development
of the new MS-DOS-based system. Telebase will move all usage from the
current system to the MS-DOS system by July 15, 1988.
During the royalty advance repayment period, CompuServe reserves the
right to deduct from royalties any amounts outstanding for sixty (60)
days or more for network services provided by CompuServe to Telebase.
3. Demonstration Usage
Telebase will grant CompuServe a monthly usage credit for
demonstrations. The amount of the credit will be two percent of that
month's royalty payment to Telebase. If the credit is less than the
demonstration search charges, the excess will be paid to Telebase. If
the credit is greater than the demonstration search charges, the excess
credit will be accrued by Telebase for jointly approved
promotional/advertising activities.
By signing below, CompuServe and Telebase acknowledge the terms and conditions
established herein.
Sincerely,
Kevin Knott
J-2
<PAGE> 40
Acknowledged by Telebase Systems, Inc. Acknowledged by CompuServe, Inc.
- -------------------------------------- -----------------------------------
- -------------------------------------- -----------------------------------
J-3
<PAGE> 41
[TELEBASE SYSTEMS, INC. LOGO]
December 19, 1988
Mr. Kevin Knott
CompuServe, Incorporated
P.O. Box 20212
Columbus, OH 43220
Re: Extension of 1985 Agreement
Dear Kevin:
Inasmuch as the current (November 1985) agreement, by its terms (although the
parties by their actions have deemed the original agreement to have continued
until the current date), terminated November 4, 1988. I propose that Telebase
and CompuServe extend the current agreement while we are discussing and
finalizing the terms of a new agreement. Specifically, I propose that the
current agreement be extended and remain in full force and effect until November
4, 1989.
If the above sets forth a satisfactory manner in which to proceed while we
discuss and negotiate our concerns for a new agreement, please countersign the
enclosed copy of this letter and return same to me.
Yours sincerely,
James E. Coane
President
JEC/Jr
Accepted and Agreed:
CompuServe, Incorporated
By:
------------------------------------
K
<PAGE> 42
[COMPUSERVE LOGO]
November 10, 1989
Mr. James E. Coane
Telebase Systems, Inc.
763 West Lancaster Avenue
Bryn Mawr, PA 19010
Dear Jim:
This letter acknowledges that both CompuServe and Telebase Systems, Inc. agree
that the current Agreement between both parties, effective November 4, 1985, be
extended and remain in full force and effect until November 4, 1990.
Yours sincerely,
Jeffrey T. Weisner
Vice President, Secretary and Treasurer
Accepted and Agreed:
Telebase Systems, Inc.
By:
-----------------------------------
L
<PAGE> 43
[COMPUSERVE LETTERHEAD]
October 25, 1990
Mr. James E. Coane
Telebase Systems, Inc.
763 West Lancaster Avenue
Bryn Mawr, PA 19010
Dear Jim:
This letter acknowledges that both CompuServe and Telebase Systems, Inc. agree
that the current Agreement between both parties, effective November 4, 1985, be
extended and remain in full force and effect until November 4, 1991.
Yours sincerely,
Jeffrey T. Weisner
Vice President, Secretary and Treasurer
Accepted and Agreed:
Telebase Systems, Inc.
By: ________________________________
M
<PAGE> 44
[COMPUSERVE LETTERHEAD]
March 1, 1991
Mr. James E. Coane
Telebase Systems, Inc.
763 West Lancaster Avenue
Bryn Mawr, PA 19072
Dear Jim:
Per my telephone conversations with Steve Gross, I want to take this opportunity
to formally acknowledge that, effective February 24, 1991 (CompuServe will pay
[****]% of Document Delivery Charges. Abstract Charges, No Hit Charges, and
Database Surcharges for IQuest products to Telebase Systems, Inc. based upon the
modified menu presence of IQuest on the CompuServe Information Service.
All other terms and conditions of the November 4, 1991 agreement and its
subsequent addendums, dated April 22, 1988 and August 25, 1989, remain in
effect.
By signing below, CompuServe and Telebase Systems, Inc., Inc. acknowledge that
the November 4, 1991 agreement and its subsequent addendums, dated April 22,
1988 and August 25, 1989, are amended according to the terms and conditions
established herein.
Sincerely,
Eben L. Kent
Acknowledged by Acknowledged by
Telebase Systems, Inc.: CompuServe, Inc.:
_________________________ ___________________________
Name Date Name Date
_________________________ ___________________________
Title Title
N
<PAGE> 45
[COMPUSERVE LETTERHEAD]
June 14, 1991
Steve Moss
Vice President
Telebase Systems, Inc.
763 West Lancaster Ave.
Bryn Mawr, PA 19010
Dear Steve:
CompuServe and Telebase have added several new Direct Gateway products to our
offerings. The purpose of this letter is to update our agreement to recognize
these additions. Please sign both copies of this letter, and return them to me
for execution.
The parties agree that APPENDIX 1 - DIRECT GATEWAY DATABASES AND CHARGES as of
July 25, 1989 that is part of the contract addendum dated August 25, 1989 is
deleted in its entirety and replaced by the attached APPENDIX 1 - DIRECT GATEWAY
DATABASES AND CHARGES as of June 11, 1991.
By signing below, CompuServe and Telebase Systems acknowledge that the November
4, 1985 agreement and its subsequent addendums dated April 21, 1988, August 25,
1989 and March 1, 1991 are amended according to the terms and conditions
established herein. All other terms and conditions of the agreement and its
addendums remain in effect.
Sincerely,
Steve Zinn
Acknowledged by Acknowledged by
TELEBASE SYSTEMS, INC. COMPUSERVE, INC.
BY: ____________________________ BY: __________________________
TITLE: _________________________ TITLE: _______________________
DATE: __________________________ DATE: ________________________
O-1
<PAGE> 46
APPENDIX 1 - DIRECT GATEWAY DATABASES AND CHARGES
as of June 11, 1991
<TABLE>
<CAPTION>
SEARCH FULL RECORD
DATABASE CHARGE CHARGE
- -----------------------------------------------------------------------
<S> <C> <C>
Books In Print $[****] $[****]
Magill's Cinema $[****] $[****]
Book Review Digest $[****] $[****]
Commerce Business Daily $[****] $[****]
ERIC (Educ. Research Info. Center) $[****] $[****]
NTIS (Nat'l. Technical Info. Srv.) $[****] $[****]
D&B-Dun's Electronic Business Dir. $[****] $[****]
Newspaper Library (all newspapers) $[****] $[****]
PsycINFO $[****] $[****]
Thomas Register $[****] $[****]
Compendex $[****] $[****]
D&B-Dun's Market Identifiers $[****]* $[****]
D&B-Canadian Dun's Market Ident. $[****]* $[****]
D&B-Int'l. Dun s Market Ident. $[****]* $[****]
Data Processing Newsletters $[****] $[****]
Media Newsletters $[****] $[****]
AIDS (CCML) $[****] $[****]
Dissertation Abstracts $[****] $[****]
PTS Newsletters-Broadcast $[****] $[****]
PTS Newsletters-Computer $[****] $[****]
Marquis Who's Who $[****] $[****]
Business Dateline $[****] $[****]
Corporate Affiliations $[****] $[****]
PDQ - Cancer Files $[****] $[****]
Investext (all Search methods) $[****] $[****]
TRW Business Credit Profiles $[****]** $[****]
LEGAL RESEARCH CENTER $[****] $[****]
- Criminal Justice Per Index $[****] [****]
- NCJRS $[****] $[****]
- Child Abuse & Neglect $[****] $[****]
- Legal Resources Index $[****] $[****]
- Tax Notes Today $[****] $[****]
- Congressional Info Service $[****] $[****]
- American Banker Fulltext $[****] $[****]
</TABLE>
O-2
<PAGE> 47
<TABLE>
<CAPTION>
SEARCH FULL RECORD
DATABASE CHARGE CHARGE
- -----------------------------------------------------------------------
<S> <C> <C>
MARKETING/MANAGEMENT RESEARCH CTR $[****] [****]
- FINIS $[****] $[****]
- McGraw Hill Pubs Online $[****] $[****]
- Industry Data Sources $[****] $[****]
- ABI/Inform $[****] $[****]
- FINDEX $[****] $[****]
- PTS Promt $[****] $[****]
- PTS MARS $[****] $[****]
- PTS New Product Announcem $[****] $[****]
TRADEMARK RESEARCH CENTER $[****] [****]
- Trademarkscan Federal $[****] $[****]
- Trademarkscan State $[****] $[****]
PATENT RESEARCH CENTER $[****] [****]
- Claims/US Patent Abstracts $[****] $[****]
- World Patents (1981+) $[****] $[****]
- World Patents (1963-1980) $[****] $[****]
UK COMPANY LIBRARY
- D&B Euro. Dun's Mkt. Ident. $[****]* $[****]
- Extel Card $[****] $[****]
- ICC British Co. Dir. $[****] $[****]
- ICC Brit. Co. Financial Ds. $[****] $[****]
- InfoCheck $[****] $[****]
- Key British Enterprises $[****] $[****]
- Kompass UK $[****] $[****]
GERMAN COMPANY LIBRARY
- Creditreform $[****]* $[****]
- D&B-German Dun's Mkt. Id. $[****] $[****]
- Hoppenstedt Dir. Ger. Co. $[****] $[****]
- Kompass Germany $[****] $[****]
EUROPEAN COMPANY LIBRARY
- D&B Euro. Dun's Mkt. Ident. $[****]* $[****]
- Europe's Largest Cos. $[****] $[****]
- Hoppenstedt Austria $[****] $[****]
- Hoppenstedt Benelux $[****] $[****]
- Irish Company Profiles $[****] $[****]
- Kompass Europe $[****] $[****]
</TABLE>
* The Search Charges marked with an asterisk identify databases where a Search
provides up to 5 headings or portion thereof if less than 5 headings are
retrieved. Addition groups of up to 5 headings can be retrieved as subsequent
searches at the stated Search Charge.
O-3
<PAGE> 48
** A Search in TRW Business Credit Profiles retrieves up to 25 headings. The
Full Record Charge for the first Full Record is $[****]. Up to 4 more Full
Records may be retrieved in a single search at a Full Record Charge of
$[****]/each. Only 5 Full Records may be retrieved in each Search.
Other Databases will be added and documented with an updated Appendix 1.
O-4
<PAGE> 49
[COMPUSERVE LETTERHEAD]
8/14/91
Steve Moss
Vice President
Telebase Systems, Inc.
763 West Lancaster Ave.
Bryn Mawr, PA 19010
Dear Steve:
CompuServe and Telebase have added several new Direct Gateway products to our
offerings. The purpose of this letter is to update our agreement to recognize
these additions. Please sign both copies of this letter, and return them to me
for execution.
The parties agree that APPENDIX 1 - DIRECT GATEWAY DATABASES AND CHARGES as of
June 11, 1991 that is part of the contract addendum dated August 25, 1989 is
deleted in its entirety and replaced by the attached APPENDIX 1 - DIRECT GATEWAY
DATABASES AND CHARGES as of August 14, 1991.
By signing below, CompuServe and Telebase Systems acknowledge that the November
4, 1985 agreement and its subsequent addendums dated April 21, 1988, August 25,
1989 and March 1, 1991 are amended according to the terms and conditions
established herein. All other terms and conditions of the agreement and its
addenda remain in effect.
Sincerely,
Steve Zinn
Acknowledged by Acknowledged by
TELEBASE SYSTEMS, INC. COMPUSERVE, INC.
BY: ________________________ BY: ________________________
TITLE: _____________________ TITLE: _____________________
DATE: ______________________ DATE: ______________________
P-1
<PAGE> 50
APPENDIX 1 - DIRECT GATEWAY DATABASES AND CHARGES
as of August 14, 1991
<TABLE>
<CAPTION>
SEARCH FULL RECORD
DATABASE CHARGE CHARGE
- ------------------------------------------------------------------------------
<S> <C> <C>
Books In Print $[****] $[****]
Magill's Cinema $[****] $[****]
Book Review Digest $[****] $[****]
Commerce Business Daily $[****] $[****]
ERIC (Educ. Research Info. Center) $[****] $[****]
NTIS (Nat'l. Technical Info. Srv.) $[****] $[****]
D&B-Dun's Electronic Business Dir. $[****] $[****]
Newspaper Library (all newspapers) $[****] $[****]
PsycINFO $[****] $[****]
Thomas Register $[****] $[****]
Compendex $[****] $[****]
D&B-Dun's Market Identifiers [****]* $[****]
D&B-Canadian Dun's Market Ident. [****]* $[****]
D&B-Int'l. Dun's Market Ident. [****]* $[****]
AIDS (CCML) $[****] $[****]
Dissertation Abstracts $[****] $[****]
PTS Newsletters-Broadcast $[****] $[****]
PTS Newsletters-Computer $[****] $[****]
Marquis Who's Who $[****] $[****]
Business Dateline $[****] $[****]
Corporate Affiliations $[****] $[****]
PDQ - Cancer Files $[****] $[****]
Investext (all Search methods) $[****] $[****]
TRW Business Credit Profiles [****]** $[****]
LEGAL RESEARCH CENTER $[****] [****]
- Criminal Justice Per Index $[****] $[****]
- NCJRS $[****] $[****]
- Child Abuse & Neglect $[****] $[****]
- Legal Resources Index $[****] $[****]
- Tax Notes Today $[****] $[****]
- Congressional Info Service $[****] $[****]
- American Banker Fulltext $[****] $[****]
MARKETING/MANAGEMENT RESEARCH CTR $[****] [****]
- FINIS $[****] $[****]
- McGraw Hill Pubs Online $[****] $[****]
- Industry Data Sources $[****] $[****]
- ABI/Inform $[****] $[****]
- FINDEX $[****] $[****]
- PTS Promt $[****] $[****]
- PTS MARS $[****] $[****]
- PTS New Product Announcem $[****] $[****]
TRADEMARK RESEARCH CENTER $[****] [****]
- Trademarkscan Federal $[****] $[****]
- Trademarkscan State $[****] $[****]
</TABLE>
P-2
<PAGE> 51
<TABLE>
<CAPTION>
SEARCH FULL RECORD
DATABASE CHARGE CHARGE
- ------------------------------------------------------------------------------
<S> <C> <C>
PATENT RESEARCH CENTER $[****] [****]
- Claims/US Patent Abstracts $[****] $[****]
- World Patents (1981+) $[****] $[****]
- World Patents (1963-1980) $[****] $[****]
UK COMPANY LIBRARY
- D&B Euro. Dun's Mkt. Ident. $[****]* $[****]
- Extel Card $[****] $[****]
- ICC British Co. Dir. $[****] $[****]
- ICC Brit. Co. Financial Ds. $[****] $[****]
- InfoCheck $[****] $[****]
- Key British Enterprises $[****] $[****]
- Kompass UK $[****] $[****]
GERMAN COMPANY LIBRARY
- Creditreform $[****] $[****]
- D&B-German Dun's Mkt. Id. $[****]* $[****]
- Hoppenstedt Dir. Ger. Co. $[****] $[****]
- Kompass Germany $[****] $[****]
EUROPEAN COMPANY LIBRARY
- D&B Euro. Dun's Mkt. Ident. $[****]* $[****]
- Europe's Largest Cos. $[****] $[****]
- Hoppenstedt Austria $[****] $[****]
- Hoppenstedt Benelux $[****] $[****]
- Irish Company Profiles $[****] $[****]
- Kompass Europe $[****] $[****]
UK NEWSPAPER LIBRARY
- The Daily & Sun. Telegraph $[****] $[****]
- The Financial Times $[****] $[****]
- The Guardian $[****] $[****]
- Times/Sunday Times $[****] $[****]
- UK News $[****] $[****]
UP MARKETING LIBRARY
- Consumer Magazine Index $[****] $[****]
- Marketing Surveys Index $[****] $[****]
- ICC Key Note Market Resch $[****] $[****]
- MSI Market Research Reports $[****] $[****]
- Mintel Research Reports $[****] $[****]
- Mintel Special Reports $[****] $[****]
EC NEWS AND LEGISLATION
- Celex $[****] $[****]
- Spearhead $[****] $[****]
</TABLE>
* The Search Charges marked with an asterisk identify databases where a Search
provides up to 5 headings or portion thereof if less than 5 headings are
retrieved. Additional groups of up to 5 headings can be retrieved as subsequent
searches at the stated Search Charge.
** A Search in TRW Business Credit Profiles retrieves up to 25 headings. The
Full Record Charge for the first Full Record is $[****]. Up to 4 more Full
Records may be retrieved in a single search at a Full Record Charge of
$[****]/each. Only 5 Full Records may be retrieved in each Search.
P-3
<PAGE> 52
Other Databases will be added and documented with an updated Appendix 1.
P-4
<PAGE> 53
[COMPUSERVE LETTERHEAD]
October 25, 1991
Mr. James E. Coane
Telebase Systems, Inc.
435 Devon Park Drive - Suite 600
Wayne, PA 19087
Dear Jim:
This letter acknowledges that both CompuServe and Telebase Systems, Inc. agree
that the current Agreement between both parties, effective November 4, 1985, be
extended and remain in full force and effect until November 4, 1992.
Yours sincerely,
Kent D. Stuckey,
General Counsel
Accepted and Agreed:
Telebase Systems, Inc.
By: ______________________________
Date: ____________________________
Q
<PAGE> 54
[COMPUSERVE LETTERHEAD]
June 14 1995
Mr. Bruce Johnson
Chief Financial officer
Telebase Systems, Inc.
435 Devon Park Drive
Wayne, PA 19087
Dear Bruce:
Telebase Systems and CompuServe have restructured the IQUEST product line and
made adjustments to the IQUEST Royalty Schedule. These changes became effective
on May 25, 1995 when the modified product was made available on the CompuServe
on-line service.
This letter serves as official notice of the above mentioned chances and the
modifications to the November 4, 1985 Agreement. This addendum also serves as an
amendment to CompuServe and Telebase addenda dated April 26, 1988, August 25,
1989, March 26, 1991, June 19, 1991 and August 30, 1991.
The signatures below indicate acceptance of the attached APPENDIX 1 - ROYALTY
SCHEDULE (IQUEST AND DIRECT GATEWAY). All other terms and conditions of the 1985
Agreement, and subsequent Addenda remain in effect.
Sincerely
Scott Scharadin
Acknowledged by Acknowledged by
TELEBASE SYSTEMS, INC. COMPUSERVE, INC.
BY: _______________________ BY: _______________________
TITLE: ____________________ TITLE: ____________________
DATE: _____________________ DATE: _____________________
<PAGE> 55
June 14 1995
TELEBASE SYSTEMS, INC. AND COMPUSERVE, INC.
IQUEST Product and Royalty Changes
APPENDIX 1
ROYALTY SCHEDULE
(IQUEST AND DIRECT GATEWAY)
<TABLE>
<S> <C>
- ----------------------------------------------------
No-hit Charge [****]%
- ----------------------------------------------------
Search/Additional Citation Charge [****]%
- ----------------------------------------------------
Abstract Charge [****]%
- ----------------------------------------------------
Full Record Charge [****]%
- ----------------------------------------------------
Scan Charge [****]%
- ----------------------------------------------------
Hard Copy Delivery Charge (Regular) [****]%
- ----------------------------------------------------
Hard Copy Delivery Charge (Express) [****]%
- ----------------------------------------------------
Database Surcharges [****]
- ----------------------------------------------------
Connect Charges [****]%
- ----------------------------------------------------
</TABLE>
Note: Above percent indicates royalty share payable to Telebase Systems. Inc.
R-2
<PAGE> 56
[COMPUSERVE LETTERHEAD]
September 27, 1995
Bruce Johnson
Vice President
Telebase Systems, Inc.
435 Devon Park Drive
Wayne, PA 19087
Re: Network Services Account #50223 & 50262
Dear Mr. Johnson:
This is to confirm execution of Telebase Systems. Inc.'s Attachment. We have
processed this Attachment in accordance with the terms contained therein. and
enclosed an executed copy.
If you have any questions concerning your contractual obligations with
CompuServe, please contact your local CompuServe representative, Harold Hellmig
at (215) 563-7607.
Sincerely,
Michelle A. Freeman
Contract Analyst
Marketing Support
MAF/bw
Enclosure
cc: Jeff Kiely
Harold Hellmig
S-1
<PAGE> 57
- --------------------------------------------------------------------------------
ATTACHMENT TO NETWORK SERVICES AGREEMENT
- --------------------------------------------------------------------------------
In addition to the terms of the Network Services Agreement, Customer and
CompuServe agree to the following:
l. MODIFICATIONS TO PRODUCT TERMS AND CONDITIONS
1. Beginning with the September 1995 billing period and for the remainder of
the Customer's initial Extended Term Plan, CompuServe agrees that
Customer's Monthly Minimum shall be $[****].
ll. MODIFICATIONS TO PACKET NETWORK RATE SCHEDULE
1. Beginning with the September 1995 billing period and for each month of the
remainder of Customer's initial Extended Term Plan, Customer will be
billed at a Special Rate of $[****] for [****] up to 28.8 bps asynchronous
dial connections in lieu of the Fixed-dial Hourly Rate specified in the
Packet Network Rate Schedule. Customer will also be billed applicable
Dial-up Access Surcharges, Worldwide Inbound Service Surcharges, and
International CompuServe Access Service Surcharges specified in the Packet
Network Rate Schedule and International/Gateway Access Rates Schedule.
Neither Discunt Schedule "a" nor "B" will apply to the Special Hourly
Rate. Charges for the Special Rate apply towards Customer's Monthly
Minimum.
2. Beginning with September 1995 billing period and for each month of the
remainder of Customer's initial Extended Term Plan, charges eligible for
Discount Schedule A will be discounted at a rate of [****]% and charges
eligible for Discount Schedule B will be discounted at a rate of [****]%.
Network Services
Account No. 50262 and 50223
ACCEPTED FOR CUSTOMER: ACCEPTED FOR COMPUSERVE
INCORPORATED:
Company: Telebase Systems, Inc.
Signature: _____________________ Signature: ___________________
S-2
<PAGE> 58
By: __________________________ By: _________________________
Title: _______________________ Title: ______________________
Date: ________________________ Date: _______________________
S-3
<PAGE> 59
[COMPUSERVE LETTERHEAD]
May 23, 1995
Bruce Johnson
Vice President
Telebase Systems Inc.
435 Devon Polk Drive
Suite 600
Wayne, PA 19087
Re: Network Services Account # 5022
Dear Mr. Johnson:
On behalf of CompuServe I would like to express our appreciation of Telebase
Systems Inc.'s continued confidence in our ability to meet your data
communication needs. Your new agreement has been executed by CompuServe and a
copy of the agreement will accompany this letter.
We would like to reconfirm our commitment to quality customer service and
technical support. Continued communication and feedback from our customers is
vital to CompuServe, Please contact your local CompuServe representative, Harold
Hellmig at (215) 563-7607, with any questions regarding your new agreement.
Thank you for your business, and we look forward to supporting Telebase Systems
Inc., as our business partnership continues to expand.
Sincerely,
Michelle A. Freeman
Contract Analyst
Marketing Support
MAF/bw
Enclosures
cc: Jeff Kiely
Harold Hellmig
T
<PAGE> 60
III. MODIFICATIONS TO THE PACKET NETWORK RATE SCHEDULE
1. During Customer's initial Extended Term Plan, Customer will be billed at a
Special Hourly Rate of $[****] for [****] up to 28,800 bps asynchronous
dial connections in lieu of the Fixed-dial Hourly Rate specified in the
Packet Network Rate Schedule. Customer will also be billed applicable
Dial-up Access Surcharges, Worldwide Inbound Service Surcharges, and
International CompuServe Access Service Surcharges specified in the Packet
Network Rate Schedule and International/Gateway Access Rates Schedule.
Neither Discount Schedule "A" nor "B" will apply to the Special Hourly
Rate. Charges for the Special Hourly Rate apply towards Customer's Monthly
Minimum.
2. Charges eligible for Discount Schedule A will be discounted at a rate of
[****]% and charges eligible for Discount Schedule B will be discounted at
a rate of [****]% each month during Customer's initial Extended Term Plan.
Network Services
Account No. 50262
ACCEPTED FOR CUSTOMER: ACCEPTED FOR COMPUSERVE
INCORPORATED:
Company: Telebase Systems, Inc.
Signature: ______________________ Signature: ______________________
By: _____________________________ By: _____________________________
Title: __________________________ Title: __________________________
Date: ___________________________ Date: ___________________________
U
<PAGE> 61
COMPUSERVE
--------------------------------------------------------------------------
NETWORK SERVICES AGREEMENT COMPUSERVE INCORPORATE
CUSTOMER ELECTIONS 5000 Arlington Centre Blvd.
Columbus, OH 43220
614/457-8600
================================================================================
1. AGREEMENT The Agreement between CompuServe and Customer is comprised of
the Exhibits and elections indicated below. Customer agrees to
be bound by the provisions of the following:
<TABLE>
<CAPTION>
Version Date Customer
Initials
<S> <C> <C>
Agreement Terms and Conditions 6/94 ____
Product Terms and Conditions 6/94 ____
Packet Network Rate Schedule 4/91 ____
International/Gateway Access Rates Schedule 2/93 ____
End User Billing Services 4/93 ____
Software Sublicense, Telepartner International 4/93 ____
Network End User Billing Services Rates Schedules 3/91 ____
Other Agreements:
</TABLE>
<TABLE>
<CAPTION>
Agreement Name Customer Signature Customer
Date Initials
<S> <C> <C>
________________________ _________ ____
________________________ _________ ____
________________________ _________ ____
</TABLE>
2. ELECTIONS INITIAL TERM PLAN (Check One)
Base Term Plan Extended Term Plan
[ ]30 Day Term [ ]1 Year Term [ ]2 Year Term
[ ]3 Year Term [ ]Other: ___Year Term (Enter number of years)
Primary Pricing Plan
[ ]FIXED-Dial [ ]Open Port Arrangement
MONTHLY MINIMUM (Enter Amount) $_______
V-1
<PAGE> 62
ACCEPTED FOR CUSTOMER: ACCEPTED FOR COMPUSERVE
INCORPORATED:
Company: Telebase Systems, Inc.
Signature: _______________________ Signature: _________________________
By: ______________________________ By: ________________________________
Title: ___________________________ Title: _____________________________
Date: ____________________________ Date: ______________________________
V-2
<PAGE> 63
- --------------------------------------------------------------------------------
ATTACHMENT TO NETWORK SERVICES AGREEMENT
- --------------------------------------------------------------------------------
In addition to the terms and conditions contained in the Network Services
Agreement. Customer and CompuServe further agree:
I. AGREEMENTS SUPERSEDED
1. Customer agrees to execute a new Network Services Agreement with an
initial term of seven (7) years and a Monthly Minimum of $[****] to be
effective May 1. 1995, and CompuServe agrees that the:
- Network Services Initial Order Addendum. accepted by Customer on
December 18, 1990 and
- Service Agreement accepted by Customer on December 18, 1990, and
Attachment accepted by Customer on December 18, 1990, and
- All Network Services Change Order Addenda and/or Network Equipment
Addenda.
will be terminated effective May 1, 1995.
II. MODIFICATIONS TO AGREEMENT TERMS AND CONDITIONS
1. Paragraph 1 is modified to include the following:
If Customer's CompuServe Gateway Services Software Agreement for
Information Providers is terminated by CompuServe, or if CompuServe
decreases member's hourly connect-time rate to access the CompuServe
Information Service as published online via the CompuServe Information
Service, and upon written notice to CompuServe, CompuServe agrees to
cooperate with Customer in the effort to develop a new mutually agreeable
alternative Agreement satisfying the concerns of both Customer and
CompuServe that would supersede this Agreement. By way of example and not
limitation, such alternative may include changes in rates, the Monthly
Minimum, discounts, the term of the new Agreement, and other provisions.
This provision does not constitute a waiver of any charges, including
shortfall charges, incurred by the Customer prior to the time the parties
mutually agree to supersede this Agreement.
W
<PAGE> 1
Exhibit 10.11
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [****], have been
separately filed with the Commission.
DISTRIBUTORSHIP AGREEMENT
THIS DISTRIBUTORSHIP AGREEMENT made and entered into as of this 1st
day of August, 1992 by and between TELEBASE SYSTEMS, INC. ("Telebase"), 435
Devon Park Drive, Suite 600, Wayne, Pennsylvania 19087, USA and NIFTY
CORPORATION ("NIFTY") (formerly N.I.F. Corporation), Omori Bellport A, 26-1,
Minami-oi 6-chome, Shinagawa-ku, Tokyo 140 Japan.
WHEREAS, Telebase is the owner and operator of EasyNet(R) which is
a menu-driven Knowledge Gateway service that gives untrained users access to a
wide range of commercially available databases; and
WHEREAS, Telebase and NIFTY entered into an Exclusive
Distributorship Agreement dated as of December 30, 1986, (with two side letter
agreements of even date), effective on May l, 1987, as amended on April 30, 1990
(the "Original Agreement"); and
WHEREAS, in the Original Agreement, Telebase granted NIFTY certain
rights, including the exclusive distributorship for Japanese subscribers for a
customized, value-added version of EasyNet(R) and a non-exclusive
distributorship for subscribers in the United States of America, the Republic of
China (Taiwan) and, via posDATA Company, Ltd., the Republic of Korea (South
Korea); and
<PAGE> 2
WHEREAS, Telebase and NIFTY both desire to execute a new agreement
which contains similar terms to the Original Agreement,
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby mutually agree as follows:
I. Definitions
As used in this Agreement, unless otherwise clearly indicated in the
context, the following terms shall have the meanings set forth in this Section
and no other:
"Direct Access Database": shall mean an individual database or subset
of databases accessible through the System
(as hereinafter defined) using a simplified
menu and database(s) specific pricing.
"EasyNet": shall mean EasyNet(R), a menu and/or common
command driven Knowledge Gateway(R) service.
"Effective Date": shall mean the date of validation of this
Agreement by the competent governmental
authorities in Japan or the United States,
if such validation is required,
2
<PAGE> 3
otherwise the date of acceptance and
execution of this Agreement by both parties.
"Front-end Support
System": shall mean a telecomputing service with a
gateway function, a clearing function, and a
command conversion function which creates a
unique user interface to different database
vendors.
"Japanese Subscriber": shall mean any customer or subscriber of the
System (as hereinafter defined) which has
registered its billing address in Japan.
"NIFTY-Serve": shall mean the Japanese-language based
version of NIFTY's computer network and
information service.
"NIFTY-Serve ES": shall mean the English-language based
version of NIFTY's computer network and
information service.
3
<PAGE> 4
"Non-Japanese
Subscriber": shall mean any customer or subscriber of the
System (as hereinafter defined) which has
registered its billing address in a country
other than Japan.
"System": shall mean a customized value added version
of EasyNet, including all existing and
subsequently developed services and systems
derived from EasyNet, which version is
comprised of at least databases common to
the systems serviced by Telebase (and all of
the distributors or licensees of Telebase)
and excludes databases and features
specially designed for a particular
distributor or licensee at its own cost.
II. Grant of Distributorship
A. Telebase hereby grants to NIFTY and NIFTY hereby accepts, upon the
terms and conditions herein contained, the exclusive rights, including the right
to grant subdistributorships, to market and distribute access to the
4
<PAGE> 5
System (including related training and customer support) to Japanese
Subscribers.
B. In order to protect the exclusive rights granted to NIFTY pursuant to
Section II A above, Telebase agrees that, to the extent that the exclusive
rights granted hereunder remain in effect:
1. Telebase shall not directly or indirectly solicit from or sell to
any Japanese Subscriber or otherwise authorize others to specifically sell
access to the System to Japanese Subscribers; and
2. If Telebase establishes or otherwise authorizes any other party to
establish a system operator as an EasyNet Center in Japan, such EasyNet Center
shall market or sell access to the System for NIFTY's exclusive distribution
hereunder; and
3. Telebase will not, and will not cause or permit any subsidiary,
affiliate, licensee, or distributor, directly or indirectly, to engage in
competition with NIFTY with regard to the marketing or distribution of the
System or any other version of EasyNet to Japanese Subscribers.
C. NIFTY shall be free to grant subdistributorships to, and develop
marketing relationships with, Japanese Subscribers, but shall provide thirty
(30) days prior written notice to Telebase of any such subdistributorships.
NIFTY shall share with Telebase any fees received by NIFTY from such
subdistributors as follows: (a) for annual subdistributorship fees received from
a subdistributor
5
<PAGE> 6
totalling [****] or less, NIFTY shall pay Telebase an amount equivalent to
[****]% of such fees; and (b) for annual subdistributorship fees received
from a subdistributor totalling more than [****], NIFTY shall pay Telebase an
amount equivalent to [****].
D. To the extent that the exclusive rights granted hereunder remain
in effect, NIFTY hereby agrees that it shall not, without prior approval of
Telebase, market and/or distribute to Japanese Subscribers telecomputing
services through any Front-end Support System which has substantially the same
subset of databases as that serviced by the System. For the purposes of this
paragraph, "substantially the same subset of databases as that serviced by the
System" shall be determined as the subset of databases serviced by the Front-
end Support System which:
(a) has four or more of the seven (7) most popular databases
of the System as measured by the Usage Costs (as such
term is hereinafter defined) paid to Telebase directly
from NIFTY under this Agreement or the Original Agreement
(the "Usage Cost Revenues"), and/or
(b) has any combination of databases of the System which
account for more than twenty
6
<PAGE> 7
five per cent (25%) of the Usage Cost Revenues.
The determination of whether a Front-end Support System, if any, has
"substantially the same subset of databases as that serviced by the System"
shall be made on a calendar year basis before the launching by NIFTY of such
Front-end Support System or the first day of March of each year if such
Front-end Support System continues. By the first day of February of each year
that the exclusive rights granted herein remain in effect, Telebase shall
provide NIFTY with a report setting forth the Usage Cost Revenues on a database-
by-database basis for the previous calendar year. Using such report, NIFTY shall
determine whether such Front-end Support Systems, if any, have "substantially
the same subset of databases as that serviced by the System" and shall inform
Telebase of its determination. Such determination, once made, shall remain in
effect until the next determination is made in the following year.
Notwithstanding the foregoing, Telebase hereby acknowledges, accepts and grants
its approval for NIFTY to market CompuServe to Japanese Subscribers and for
NIFTY to market databases developed, produced, maintained and hosted within
Japan provided through the Japanese service "Global Search" to Japanese
Subscribers.
E.
1. For the term of this Agreement, Telebase hereby grants to
NIFTY and NIFTY hereby
7
<PAGE> 8
accepts, upon the terms and conditions hereinafter
contained, the non-exclusive rights to market and
distribute access to the System (including related
training and customer support) through NIFTY-Serve and
NIFTY-Serve ES to Non-Japanese Subscribers as follows:
(a) NIFTY's right to market and distribute through
NIFTY-Serve shall be world-wide, and
(b) NIFTY's right to market and distribute through
NIFTY-Serve ES shall be limited to the East Asian
territory comprised of the People's Republic of
China, Indonesia, Malaysia, the Philippines,
Singapore, and Thailand (the "East Asian
Territory").
2. The non-exclusive rights granted pursuant to Section II E
I shall be subject to the written consent of Telebase on
a country-by-country basis (except with respect to Non-
Japanese Subscribers in the United States of America, the
Republic of China (Taiwan), and the Republic of Korea
(South Korea) for which no consent shall be required),
such consent to be withheld with respect to any
particular country only if Telebase is in bona fide
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<PAGE> 9
negotiations concerning or has granted a right of
exclusive distribution in such country; provided,
however, that if NIFTY is authorized under its
arrangement with CompuServe, Inc. to distribute
NIFTY-Serve ES in countries outside the East Asian
Territory, Japan, and the United States, NIFTY may
distribute access to the System in such countries upon
obtaining the aforementioned written consent.
3. If, subsequent to approving NIFTY's non-exclusive
distributorship of the System to Non-Japanese Subscribers
in a country except those in the United States of
America, the Republic of China (Taiwan), the Republic of
Korea (South Korea) and Japan, Telebase intends to grant
to a third party an exclusive distributorship in such
country, Telebase may revoke such approval of NIFTY's
nonexclusive distributorship with respect to such country
only and NIFTY will accept such revocation provided that
Telebase uses its best efforts to cause such party to
enter into good faith negotiations with NIFTY regarding
NIFTY's continued distribution of the System in such
country either under this Agreement or as a sublicensee
of such third
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<PAGE> 10
party on terms no less favorable to NIFTY than provided
hereunder.
III. Assignment of Leads
Telebase shall expeditiously submit to NIFTY the names and addresses of
all future inquiry leads relating to Japanese Subscribers, and shall refer all
such inquiries to NIFTY.
IV. Grant of EasYNet Name
A. Telebase hereby grants to NIFTY the exclusive right to use the name
"EasyNet" in connection with marketing the System to Japanese Subscribers, and
to register the trademark and/or servicemark in the English and Japanese
languages for such name in Japan on behalf of Telebase, if such name becomes
registrable under Japanese Trademark Law. NIFTY shall identify EasyNet as the
registered trademark and/or servicemark of Telebase with respect to any and all
uses of such name. Telebase shall bear the expense of, and will reimburse NIFTY
for, any expenses associated with the registration in Japan of the trademark
and/or servicemark for the name "EasyNet." NIFTY shall be entitled to register
the exclusive right to use such trademark and/or servicemark ("Senyou-Jishiken")
under Japanese Trademark Law at its own expense. Upon termination of this
Agreement for any reason, the right of NIFTY to use such trademark or
servicemark shall immediately terminate.
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<PAGE> 11
B. NIFTY may market the System under another, exclusive, name of NIFTY's
choosing, and may at its own expense register said name in Japan as a trademark
and/or servicemark owned exclusively by NIFTY. The parties agree that upon
termination of this Agreement for any reason, each party shall not use such name
in connection with database services similar to the System.
V. Term of Distributorship and Fee
A. The term of this Agreement shall be for a period of four (4) years
commencing with the Effective Date (the "Initial Term"), and subject to Section
V B, this Agreement shall be renewed automatically for another period of four
(4) years (the "Renewal Term").
B. By ninety (90) days prior to the end of the Initial Term, the parties
shall determine whether to continue the exclusive rights granted herein, and if
by the end of such ninety (90) day period, the parties fail to agree on such
continuation, then the exclusive distributorship right granted herein shall
automatically convert to a non-exclusive right at the beginning of the Renewal
Term; provided, however, that upon the conversion to non-exclusive rights, NIFTY
shall have the right to terminate this Agreement on thirty (30) days prior
written notice given within the first sixty (60) days of the Renewal Term. In
the event that, after the conversion of the exclusive right of distributorship,
Telebase establishes or
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<PAGE> 12
otherwise authorizes any other party to establish a system operator as an
EasyNet Center in Japan, such EasyNet Center shall market or sell access to the
System for NIFTY's non-exclusive distribution hereunder until the end of the
Renewal Term.
C. In consideration of the exclusive rights granted to NIFTY hereby,
NIFTY shall pay Telebase an annual distributorship fee of [****] for each year
of the term of this Agreement so long as NIFTY enjoys the exclusive
distributorship rights granted herein. The annual distributorship fee for the
first year shall be due and payable by NIFTY within thirty (30) days after the
Effective Date. The annual distributorship fee for each subsequent year
("Subsequent Year Fee") shall be due and payable by NIFTY within thirty (30)
days after each respective anniversary of the Effective Date; provided, however,
that in the event of the early termination of this Agreement, NIFTY shall not be
required to make or be liable for any Subsequent Year Fee.
VI. First Refusal Right
A. Telebase hereby grants NIFTY a right of first refusal to establish
a system operator as an EasyNet Center within Japan (the "Japanese EasyNet
Center") for marketing or selling access to the System. Such right of first
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<PAGE> 13
refusal shall terminate on the second anniversary of the Effective Date.
B. If established, the Japanese EasyNet Center shall be operated in
collaboration with Telebase, shall have access to all available relevant and
useful know-how and trade secrets owned by Telebase, and shall have access to
database publishers and vendors located in Japan and the United States. Access
by the Japanese EasyNet Center to U.S. database publishers and vendors shall be
via the U.S. EasyNet Center (unless agreed otherwise by the parties) in order to
minimize costs and take advantage of special links between the U.S. EasyNet
Center and local database publishers and vendors. Once the Japanese EasyNet
Center is established, access from the U.S. EasyNet Center to Japanese databases
shall be routed via the Japanese EasyNet Center and Telebase shall promptly
assign to the Japanese EasyNet Center any and all database publishers and
vendors located in Japan to which it has access. Any and all further terms and
conditions relating to the establishment of such Japanese EasyNet Center shall
be determined through good faith negotiations.
VII. Telebase Responsibilities
A. Telebase shall reasonably attempt to provide and maintain the System
(at a site selected by Telebase) on a 24 hours a day, 7 days a week basis,
providing the same caliber of technical and SOS support as afforded its other
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<PAGE> 14
distributors or direct users of EasyNet. Improvements made by (or on behalf of)
Telebase to EasyNet, including all universal changes to the EasyNet system,
shall promptly be incorporated into the System, and at no cost to NIFTY, except
such improvements shall not be made where NIFTY declines such improvements or
such improvements are otherwise restricted by applicable laws, regulations or
intellectual property agreements between Telebase and third parties.
B. Telebase shall provide to NIFTY such customization of and
improvements to the System as the parties agree in order to serve Japanese
Subscribers and Non-Japanese Subscribers, except where such customization would
infringe on the intellectual property of another distributor or other party.
Telebase shall perform such customization within a time frame agreed to by the
parties at a cost of a maximum hourly rate of $95/hour, plus out-of-pocket,
software, hardware, travel and other expenses, including appropriate maintenance
charges. Such customization (the total costs for which shall be quoted by
Telebase and consented to by NIFTY in advance of work on a particular project)
may include menu rewrites, the development of Direct Access Databases, and the
incorporation of NIFTY's databases, electronic newsletters, electronic mail and
other features. NIFTY shall have all proprietary rights in any such
customization requested by NIFTY and performed by Telebase (the "NIFTY
Customization"), including but not limited to
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<PAGE> 15
all menu rewrites in Japanese and other foreign languages. Notwithstanding
anything to the contrary in this Section, in the case of Direct Access Databases
which Telebase develops for NIFTY and other Telebase licensees, Telebase shall
have all proprietary rights in such Direct Access Database user interfaces,
providing that NIFTY shall pay Telebase for the costs incurred in developing
NIFTY's customized user interface therefor and shall have the right to use such
Direct Access Databases.
C. Telebase shall provide and maintain such ports for access to the
System (the number of which are the determinant of the number of simultaneous
users the System will support) as may reasonably be required to support NIFTY's
end-users. NIFTY will provide Telebase with at least thirty (30) days notice of
any specifically anticipated short-term or long-term increase in the number of
end-users who will be simultaneously accessing the System, whether due to a
special promotion or otherwise. Access to the System ports shall be via the
Compuserve Network Service, Venus-P, via a dedicated line, via the Telenet or
Tymnet packet switch networks, or via such other network as Telebase may specify
and NIFTY shall agree to. The network address for the System is currently
located in Wayne, Pennsylvania. Telebase will provide at least sixty (60) days
notice to NIFTY of any plans to move or change the network address for the
System.
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<PAGE> 16
D. Telebase shall provide NIFTY's staff and representatives with
training, at NIFTY's request, over the term of this Agreement, such training to
be conducted at the offices of Telebase or at a site other than the Telebase
facilities. Such training will be provided at a cost of $500 a day (travel time
included) plus travel, equipment and other expenses incurred by Telebase.
E. Telebase shall cooperate with NIFTY in preparing appropriate
documentation, advertising copy and other support and sales promotion materials
for the System. In furtherance of this, Telebase shall supply to NIFTY at no
cost a copy of all such materials as prepared by Telebase for the marketing of
EasyNet to its own distributors and direct users. Telebase shall be afforded the
opportunity to review and approve a copy of all support and marketing materials
proposed by NIFTY. The review by Telebase of such materials shall be expeditious
and limited to ascertaining accuracy and the reflection of intellectual property
and related interests. Approval by Telebase of such materials shall not be
unreasonably withheld.
F. At NIFTY's request, Telebase shall provide a representative to assist
at trade shows, seminars and similar events in which NIFTY participates. Such
representative will be provided by Telebase at a cost to NIFTY of $500 a day
(travel time included) plus expenses incurred.
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<PAGE> 17
G. Telebase will cooperate with NIFTY in selecting and/or developing
software, books, seminars and other services and materials which may be sold, at
NIFTY's option, in specific conjunction with the System. The parties will agree
upon an appropriate sharing of revenue from such sales of services or materials
(which Telebase will grant to NIFTY the license to develop, make, copy, market
and service), based on the parties' contribution to the services or materials
sold, but in no event shall Telebase receive less than five percent (5%) of the
gross revenue generated from such sales.
VIII. NIFTY Responsibilities
A. NIFTY shall use its best efforts to market the System and provide
customer support of the System.
B. NIFTY shall, in its sole discretion,
1. Set charges for equipment, documentation, seminars and any
other materials which relate to the System, and
2. Establish the prices to be charged for the subscription to,
and use of the System by, Japanese Subscribers, Non-Japanese
Subscribers and NIFTY's other end-users.
C. NIFTY shall be invoiced on a monthly basis for System usage,
customization and other expenses. Payment of such expenses will be due within
twenty (20) days after NIFTY receives Telebase's invoice.
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<PAGE> 18
IX. Charges to NIFTY for Use of the System
A. NIFTY shall bear all usage costs associated with network access to
the System which are itemized on the Wholesale Price List attached hereto as
Schedule A (the "Usage Costs"), but shall not bear charges by Telebase for
telecommunications or passwords issued by Telebase for use by NIFTY's end-users.
For Direct Access Databases, Telebase will charge NIFTY for the Usage Costs at
the discount rate of at least twenty five per cent (25%). For all other
databases, Telebase will charge NIFTY for the Usage Costs at the discount rate
listed on the attached Schedule A, provided that the effective aggregate
discount rate equals at least thirty five point two per cent (35.2%). In
addition, NIFTY shall bear all telecommunications costs associated with such
high-speed dedicated line between the United States and Japan as NIFTY may
establish, employ or contract to use in connection with the System. NIFTY will
use its best efforts to minimize the telecommunications costs charged to its
end-users.
B. Telebase reserves the right to adjust search, demonstration,
surcharge, or other charges by giving NIFTY three months prior written notice
thereof; provided, however, that for databases other than Direct Access
Databases, such adjustment shall guarantee to NIFTY an effective aggregate
discount rate, against the applicable charges itemized on Schedule A, as
adjusted by Telebase from time to time (but restricted to the items listed on
Schedule
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<PAGE> 19
A except by prior consent of the parties), at least equal to [****]
X. Intellectual Property Rights and Warranties
A. Telebase has taken and will take such steps as are reasonably
necessary to preserve and protect the ownership and validity of its proprietary
rights in the System (trademark, copyright, patent or otherwise). The property
rights to the System, software, hardware, documentation, copyrights, trademarks,
patent rights and other intellectual property are and shall at all times remain
the sole property of Telebase, except those trademarks registered pursuant to
Section IV B above and the NIFTY Customization described in Section VII B above
(excluding Direct Access Databases), which shall remain the sole property of
NIFTY. NIFTY acquires no other ownership interest in the System. NIFTY agrees
not to take any action which might reasonably be expected to encumber or expose
the System to any claims, liens or other forms of encumbrance.
B. The System shall at all times reflect the respective intellectual
property rights (as well as the disclaimers) of Telebase and its database
vendors and publishers. NIFTY shall respect such rights. NIFTY shall take all
reasonable and necessary actions to protect the proprietary nature of the
System.
C. Telebase has entered into certain agreements with database vendors
and database publishers regarding the
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<PAGE> 20
databases accessible via the System. NIFTY agrees to abide by the restrictions
and requirements imposed by the respective database publishers and vendors as
relates to distributing the System to Japanese Subscribers and Non-Japanese
Subscribers, if Telebase so notifies NIFTY in writing. Furthermore, the addition
or deletion of available databases, whether due to government or vendor
restrictions or otherwise, shall not affect the terms of this Agreement;
provided, however, that Telebase shall at all times maintain at least five
hundred (500) databases accessible via the System to Japanese Subscribers and
Non-Japanese Subscribers. Telebase shall give NIFTY reasonable prior written
notice of any addition or deletion of available databases.
D. Telebase warrants that it has the right to enter into this Agreement
and to grant the rights granted herein. In addition, Telebase warrants that the
System will conform, as to all substantial operational features, to Telebase's
current published specifications, which specifications (including all revisions
and updates thereto) Telebase shall promptly provide to NIFTY. EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, TELEBASE MAKES AND NIFTY RECEIVES NO OTHER
WARRANTY, EXPRESS OR IMPLIED, AND THERE ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. TELEBASE SHALL HAVE NO
LIABILITY WITH RESPECT TO ITS OBLIGATIONS UNDER THIS AGREEMENT FOR
CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES, EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. TELEBASE SHALL
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<PAGE> 21
HAVE NO LIABILITY OTHER THAN THAT WHICH IS EXPRESSLY STATED IN THIS AGREEMENT.
E. TELEBASE MAKES NO WARRANTIES OR REPRESENTATIONS REGARDING THE
ACCURACY, COMPLETENESS OR EFFICIENCY OF THE INFORMATION CONTAINED WITHIN THE
SYSTEM. FURTHERMORE, TELEBASE SHALL NOT BE RESPONSIBLE FOR ANY INTERRUPTION OF
SERVICE OR AVAILABILITY OF INFORMATION IN THE SYSTEM AS CAUSED BY A DATABASE
VENDOR, DATABASE PUBLISHER, GOVERNMENTAL ENTITY OR OTHER THIRD PARTY. THE
LIABILITY OF TELEBASE IN ANY CASE SHALL BE LIMITED TO THE BILLABLE AMOUNT OF THE
USAGE CHARGE FOR ANY SEARCH THAT IS NOT SATISFACTORILY COMPLETED.
XI. Confidentiality
A. It is recognized that certain confidential or proprietary information
(including without limitation, technical, financial, business planning
information, trade secrets and know-how) may be disclosed in furtherance of the
relationship defined herein between Telebase and NIFTY. Any information
identified as confidential or proprietary ("Confidential Information") shall be
used only for the purpose of furtherance of the System defined herein, and shall
not be used to compete with the other party in any manner or be disclosed to
third parties, including but not limited to, subsidiaries, affiliates and equity
partners, except in the case of an assignment of this Agreement to a wholly
owned subsidiary of either party pursuant to Section
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XV D of the Agreement, and each party shall take all reasonable care to insure
that the Confidential Information shall not be disclosed by its employees to
third parties; provided, however, that neither party shall be liable for
disclosure or use of information which:
(a) is or becomes publicly available other than
through a breach of this confidentiality
provision of this Agreement,
(b) is subsequently lawfully obtained from a
third party not, to recipient's knowledge,
bound by a confidentiality agreement,
(c) is known to recipient prior to disclosure or
is thereafter independently developed by
recipient,
(d) is disclosed by the disclosing party to a
third party without restrictions
substantially similar to those contained
herein, or
(e) is disclosed pursuant to governmental or
judicial requirement.
B. All proprietary information furnished hereunder shall remain the
property of the furnishing party and shall be returned to it or destroyed
promptly at its request together with all copies made thereof by the receiving
party hereunder; provided, however, that the receiving party may retain one copy
of each item of such information in order to verify the compliance by the
receiving party with the terms
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<PAGE> 23
of this Section XI. Upon request, the receiving party shall send the furnishing
party a destruction certificate.
XII. Indemnification
Each party shall defend and indemnify the other, its directors,
officers and employees from any liability and expense (including reasonable
attorneys' fees) imposed upon the indemnified party as a result of any claim
arising out of the performance of the indemnitor under this Agreement and
including all costs, expenses and damages (including any direct, incidental or
consequential damages, losses and liabilities whatsoever) incurred or suffered
by the indemnified party in connection therewith; provided, however, that each
party's liability under this Section shall be limited to the amount of the
limitation on Telebase's liability to NIFTY pursuant to Section X E hereof.
XIII. Relationship of the Parties
The parties recognize that they are independent
entities and neither is an agent, employee, legal representative, subsidiary,
partner or joint venturer of the other. Furthermore, neither party is authorized
to waive any right of, make any representation in the name of, or assume or
create any contract or obligation of any kind in the name of, or on behalf of,
the other, or to make any statement that it has the authority to do so.
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<PAGE> 24
XIV. Termination
A. Either party shall be entitled to terminate this Agreement by
sending a written notice of termination to the other party, effective upon
receipt, in any of the following events:
1. The breach of any material term, obligation,
or responsibility under this Agreement by the
other, which breach shall have remained
uncured for sixty (60) days after written
notice thereof; or
2. The bankruptcy, general assignment for the benefit of
creditors, insolvency or similar filing or proceeding
by or against the other party, which filing or
proceeding had not been withdrawn or dismissed within
sixty (60) days from its institution.
B. Notwithstanding the termination, expiration or assignment of
this Agreement, the confidentiality and indemnification covenants set forth
above shall survive and be binding on the parties, and on all successors and
permitted assigns of the parties for a period of five (5) years following the
termination or expiration of this Agreement.
C. Telebase shall be entitled to exclude from the
non-exclusive distributorship territory hereunder a country
with respect to which a material breach relating to the non-
exclusive distributorship has occurred. However, if
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<PAGE> 25
material breach occurs with respect to more than three (3) such countries, and
such breach evidences NIFTY's imminent material breach relating to the exclusive
distributorship granted hereunder, Telebase, at its option, may terminate this
Agreement in its entirety.
XV. Miscellaneous
A. This Agreement constitutes the entire agreement between the
parties and supersedes any and all prior understandings, written or oral,
concerning the subject matter of this Agreement.
B. Any amendment or modification of this Agreement must be approved
in writing by a duly authorized representative of each party.
C. All payments from NIFTY to Telebase under this Agreement shall
be in U.S. dollars, payable to such bank accounts and in such manner (i.e., by
wire transfer or other mechanism) as Telebase shall direct. Any conversion
between Japanese Yen and U.S. dollars shall be made at the telegraphic transfer
selling rate for dollars quoted by the Bank of Tokyo on the date of payment.
D. Neither party may assign this Agreement without the prior
express written consent of the other; provided, however, that either party may
assign this Agreement to its wholly owned subsidiary without prior written
consent.
E. No waiver by either party of any term or condition of this
Agreement, whether by conduct or otherwise, shall be
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<PAGE> 26
deemed a further or continuing waiver of any such term or condition, or a waiver
of any other term or condition of this Agreement.
F. If any provision of this Agreement is found to be invalid by any
court, the invalidity of such provision shall not affect the validity of the
remaining provisions hereof.
G. All notices provided for hereunder shall be addressed to the
President of the intended recipient, shall be delivered in writing (whether via
postal service, facsimile, electronic mail or other acceptable mechanism), and
shall be deemed given upon actual receipt at the address of the receiving party
specified at the beginning of this Agreement.
H. Each party represents that all necessary approvals and consents
have been or will be obtained for entry into this Agreement and agrees that this
Agreement is executed subject to all necessary government approvals. NIFTY will
make all necessary registrations with, and pay all applicable taxes to, the
relevant governmental bodies in Japan and other countries as such may be
required for NIFTY to proceed under this Agreement, except that Telebase shall
ultimately bear the cost of the trademark registration described in Sections IV
A and X A above, of withholding taxes and of such export/import licenses,
permits and approvals as are customarily obtained by a party in its position. In
particular, NIFTY shall withhold the amount of any national tax levied by the
Government of Japan or other
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<PAGE> 27
national governments on the payments to be made to Telebase under the terms of
this Agreement, shall promptly effect payment thereof to the appropriate tax
authorities, and shall promptly transmit to Telebase official tax receipts or
other evidence issued by such tax authorities sufficient to enable Telebase to
support a claim for income tax credit in respect of any such taxes so withheld
and paid.
I. All disputes, controversies or differences which may arise
between the parties hereto out of, in relation to, or in connection with this
Agreement, unless settled by mutual consent after good faith negotiations, shall
be finally settled by arbitration conducted in New York, New York, under the
rules then in effect of the American Arbitration Association. Any award rendered
in such arbitration shall be final and binding upon the parties hereto and may
be entered in and enforced by any court of competent jurisdiction.
J. The parties will further cooperate in identifying individuals
and organizations that can contribute Knowledge Gateway technology for
incorporation within the System.
K. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.
L. This Agreement is binding upon the parties, their successors,
trustees and assigns.
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IN WITNESS WHEREOF, the parties have executed this Agreement
by their duly authorized representatives as of the date written below.
NIFTY CORPORATION TELEBASE SYSTEMS, INC.
By: By:
--------------------- ----------------------------
Title: Title:
Date: Date:
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SCHEDULE A
[* * * *]
29
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[NIFTY Corporation Letterhead]
FIRST SIDE LETTER
August 1, 1992
Telebase Systems, Inc.
435 Devon Port Drive, Suite 600
Wayne, Pennsylvania 19087
United States of America
Re: Non-competition with respect to
Distributorship Agreement with NIFTY
Gentlemen:
We write this letter to confirm the undertaking by Telebase
Systems, Inc. for itself and any Telebase affiliate ("Telebase") to use its best
efforts to preserve the exclusivity of the distributorship granted to NIFTY
Corporation ("NIFTY") under a certain Distributorship Agreement (the
"Agreement") entered into as of the date hereof by and between Telebase and
NIFTY. In this connection, Telebase and NIFTY have agreed to the following:
Telebase will not enter into any agreement, written or oral, with
other distributors or licensees which would cause or permit any of such
distributors or licensees to engage in competition with NIFTY with regard to the
marketing or distribution of the System (as defined in the Agreement) to
Japanese Subscribers (as defined in the Agreement), or which would allow any
such distributors or licensees to advertise or otherwise disclose publicly that
the System (or any other version of EasyNet, as defined in the Agreement) is
available to Japanese Subscribers through such distributors or licensees.
In the event that it is technically impossible for a Telebase
distributor or licensee to determine whether it currently has Japanese
Subscribers, Telebase may continue an existing relationship with respect to
EasyNet (or a version of EasyNet other than the System) with such distributor or
licensee, provided that Telebase uses its best efforts to have such distributor
or licensee modify, update and/or enhance its customer list system so that
Japanese Subscribers can be identified and their access to EasyNet (or a version
thereof) eliminated.
<PAGE> 31
Telebase Systems, Inc.
August 1, 1992
Page 2
In the event that Telebase can not determine whether a Telebase
distributor or licensee has the capability of identifying Japanese Subscribers
among its customers, and in the further event that NIFTY discovers that EasyNet
(or another version of EasyNet) is being made available to Japanese Subscribers
through such distributor or licensee, then, upon NIFTY's informing Telebase,
Telebase shall request that such distributor or licensee modify its customer
list system so that Japanese Subscribers can be identified and their access to
EasyNet (or a version thereof) eliminated.
In the event that Telebase receives any income from any other
distributor or licensee derived from Japanese Subscribers, Telebase shall pay
NIFTY Royalties as more fully described in a second side letter to the Agreement
dated as of the date hereof.
In addition, Telebase has undertaken to give NIFTY thirty (30) days
written notice prior to the execution of any distributorship or license
agreement between Telebase and a distributor or licensee who has (to Telebase's
knowledge) Japanese Subscribers.
Kindly sign in the space provided below if the above reflects the
further understanding and agreement of Telebase with respect to its obligations
to preserve the exclusivity of NIFTY's rights under the Agreement.
Very truly yours,
NIFTY CORPORATION
By:
---------------------------
Title:
------------------------
Acknowledged and agreed to
TELEBASE SYSTEMS, INC.
By:
---------------------------
Title:
------------------------
<PAGE> 32
[NIFTY Corporation Letterhead]
SECOND SIDE LETTER
August 1, 1992
Telebase Systems, Inc.
435 Devon Port Drive, Suite 600
Wayne, Pennsylvania 19087
United States of America
Re: Royalties relating to impairment of exclusive
distributorship right granted to NIFTY
Gentlemen:
This letter is to confirm further our understanding and agreement
with regard to the undertaking by Telebase Systems, Inc. ("Telebase") to use its
best efforts to preserve the exclusive distributorship granted to NIFTY
Corporation ("NIFTY") under a certain Distributorship Agreement (the
"Agreement") entered into as of the date hereof by and between Telebase and
NIFTY. In particular, this letter is to confirm our understanding and agreement
with respect to royalties to be paid to NIFTY by Telebase in the event that any
other Telebase distributor or licensee has been granted rights with respect to
EasyNet (or any version thereof) in Japan. In this connection, Telebase and
NIFTY have agreed to the following:
1. Telebase shall pay royalties (the "Royalties") to NIFTY equal to
[* * * *] per search by Japanese Subscribers (as defined in the Agreement) for
all access to EasyNet (or versions thereof) by Japanese Subscribers through any
other Telebase distributor or licensee for which Telebase (or any Telebase
affiliate) receives compensation.
2. With respect to the worldwide (including Asia) distributorship
rights granted by Telebase to AT&T (and/or its affiliates) and AT&T's
distribution of EasyNet under the name "Infomaster" to Japanese Subscribers,
Telebase hereby agrees that during negotiations regarding the next amendment to
the agreement between AT&T and Telebase, Telebase shall use its best efforts to
cause AT&T either to (1) cease distributing EasyNet to Japanese Subscribers, or
(2) become a subdistributer or NIFTY under the Agreement. In the event that
Telebase's best efforts are in vain, Telebase hereby
<PAGE> 33
Telebase Systems, Inc.
August 1, 1992
Page 2
agrees to pay NIFTY the Royalties described above relating to the income
received from the distribution of Infomaster to Japanese Subscribers. In
addition, Telebase hereby covenants that Telebase will not make any agreement
with AT&T during the Initial Term (as defined in Article V A of the Agreement)
whereby AT&T will launch an EasyNet Center in Japan prior to the Renewal Term
(as defined in the same Article).
3. It is understood that Telebase has no obligation to pay
Royalties relating to the income received from the distribution by CompuServe
Inc. to Japanese Subscribers of (1) EasyNet under the name "IQUEST" and/or (2)
Direct Access Database (as defined in the Agreement) services, since such
distribution takes place through NIFTY.
4. All payments from Telebase of the Royalties due hereunder shall
be made quarterly, shall be made within thirty (30) days following the end of
each calendar quarter, shall be made in Japanese Yen, and shall be payable to
such bank accounts and in such manner (i.e., by wire transfer or other
mechanism) as NIFTY shall direct. Any conversion between U.S. Dollars and
Japanese Yen shall be made at the telegraphic transfer selling rate for Yen
quoted by the Bank of Tokyo on the date of payment.
5. At the time of each payment of Royalties hereunder, Telebase
shall provide NIFTY with a Royalties Report setting forth a computation of the
amount of such payment of Royalties, which report shall identify the distributor
or licensee with respect to whom Telebase is obligated to pay the Royalties, and
shall state all amounts received by Telebase from such distributors and
licensees relating to Japanese Subscribers, the telecommunications costs
incurred by Telebase in connection with servicing such Japanese Subscribers, and
the number of searches attributed to such Japanese Subscribers. Telebase shall
keep complete, true and accurate books of account and shall keep and maintain
all records and documents relating to the Japanese Subscribers in such detail as
will enable NIFTY to ascertain the Royalties payable to NIFTY under this letter
agreement and Telebase's compliance with the payment of such Royalties. During
the term of the Agreement and for a period of one (1) year thereafter, NIFTY
shall have the right to inspect, or cause its duly authorized representative to
inspect, such books of account, records and documents upon reasonable notice to
Telebase and during Telebase's regular business hours.
<PAGE> 34
Telebase Systems, Inc.
August 1, 1992
Page 3
Kindly sign in the space provided below if the above reflects the
understanding and agreement of Telebase with respect to the obligations and
other matters covered herein.
Very truly yours,
NIFTY CORPORATION
By:
---------------------------
Title:
Acknowledged and agreed to ------------------------
TELEBASE SYSTEMS, INC.
By:
---------------------------
Title:
------------------------
<PAGE> 35
[NIFTY Corporation Letterhead]
THIRD SIDE LETTER
August 1, 1992
Telebase Systems, Inc.
435 Devon Port Drive, Suite 600
Wayne, Pennsylvania 19087
United States of America
Re: Withholding of Japanese national tax from
Annual distributorship fee
Gentlemen:
This letter is to confirm our understanding and agreement with
regard to the withholding of Japanese income tax on the annual distributorship
fee ("the Fee") payable by NIFTY Corporation ("NIFTY") to Telebase Systems, Inc.
("Telebase") under a certain Distributorship Agreement (the "Agreement") entered
into as of the date hereof by and between NIFTY and Telebase.
Without making any representation of any kind, NIFTY is of the
opinion that no withholding of Japanese income tax on the Fee is required. In
the event that the Japanese national tax authorities attempt to assess such
withholding on the Fee, NIFTY hereby agrees to use its best efforts to justify
that the Japanese national tax authorities do not have the right to do so. In
the event that NIFTY's best efforts are in vain, Telebase hereby agrees that
NIFTY may deduct such Japanese withholding tax from the Fee pursuant to Section
XV H of the Agreement.
<PAGE> 36
Telebase Systems, Inc.
August 1, 1992
Page 2
Kindly sign in the space provided below if the above reflects the
further understanding and agreement of Telebase with respect to NIFTY's
obligations with respect to the withholding of Japanese income tax on the Fee.
Very truly yours,
NIFTY CORPORATION
By:
---------------------------
Title:
------------------------
Acknowledged and agreed to
TELEBASE SYSTEMS, INC.
By:
---------------------------
Title:
------------------------
<PAGE> 37
[NIFTY Corporation Letterhead]
May 1st, 1996
Mr. Meyer
Senior Vice President
General Manager
N2K Inc.
435 Davon Park Drive, Suite 600
Wayne, Pennsylvania 19087
USA
Dear Mr. Meyer:
Amendment of the Agreement
With reference to the Distributorship Agreement signed between NIFTY Corporation
and Telebase Systems, Inc.(then), dated July 30, 1992, we inform you that we
would like to continue our contractual relations after July 31, 1996: the date
of expiry of the present Agreement, subject to modification of the present
Agreement.
The details of codifications which we understand to be made in the coming
Agreement are to be discussed with you later, such as, for example, that the
Renewal Term shall be two (2) instead of four (4) years of the present
Agreement, etc.,.
This letter is for the purpose of informing you of our intention of modifying
the terms of the Agreement in relation to Section V (Term of Distributorship and
Fee).
Thank you for your attention.
Sincerely yours,
Nobutoshi Okubi
General Manager
Corporate Planning Dept.
NIFTY Corporation
<PAGE> 1
Exhibit 10.12
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [* * * *], have been
separately filed with the Commission.
KNIGHT-RIDDER INFORMATION, INC. AND TELEBASE SYSTEMS, INC.
DISCOUNT AGREEMENT
1995-1996
TERM:
The term of this Agreement shall be for two years beginning at 12:01 a.m.
January 1, 1995 and ending 11:59 p.m. December 31, 1996.
USE OF THE DIALOG SERVICE BY TELEBASE:
Subject to any necessary permissions, approvals or restrictions from owners of
databases, Telebase Systems, Inc. will have access to the full services
available on the DIALOG Service.
CHARGES & FEES -- 1995:
Open Access:
Telebase Systems, Inc. agrees to pay Knight-Ridder Information, Inc. the sum of
$[* * * *] paid in 12 equal monthly installments, for connect time charges, view
fee charges, usage of DIALMAIL and telecommunication charges associated with
access to the DIALOG Service. There will be a [* * * *]% cap on related usage.
Thus, if such usage exceeds $[* * * *] at retail prices, Telebase will receive a
[* * * *]% discount on all usage exceeding the [* * * *]% cap.
Output Charges:
Output will be available via a four tiered discount structure. Appendix A
delineates which files are within which tier. Telebase Systems, Inc. agrees to
pay Knight-Ridder Information, Inc. output data charges according to the
following discount schedule:
Green Files [* * * *]
Yellow Files [* * * *]
Red Files [* * * *]
D&B Files [* * * *]
CHARGES & FEES -- 1996:
No later than November 1, 1995, Telebase Systems, Inc. and Knight-Ridder
Information, Inc. will determine which of two pricing/discount structures will
be invoked effective January 1, 1996 through December 31, 1996.
The two options are:
EITHER: a similar structure to that in force for 1995 (open access and
discounted tiered output):
OR: full output based pricing, with no charges for the open access components.
<PAGE> 2
It is herewith understood that, if the open access option is selected,
associated fees will be increased by [* * * *] over the 1995 billings [* * * *].
If full output based pricing is preferred, output charges will be increased to
offset the elimination of the access charge costs.
It is also is understood that the discount schedule for 1996 will be at least
equivalent to the 1995 schedule provided Telebase's business volume in 1995 is
higher than 1994.
EXCLUSIONS:
Charges associated with applicable taxes, as well as use of DIALOG.ERA,
Knight-Rider SourceOne, Knight-Ridder OnDisc, DIALOG Alerts and private
telecommunications access are specifically excluded from the terms of this
Agreement.
PAYMENT TERMS:
Invoices are payable within 60 days. Failure to comply will justify forfeiture
of output discount for the delinquent period. For invoices unpaid beyond 60
days, Telebase will be provided with a notice of delinquency and given 15 days
from date of said notice to remedy the delinquency by making the required
payment. After two delinquencies in any 12 month period, no notice is required
to invoke the aforementioned forfeiture of discount.
AMENDMENT TO EXISTING AGREEMENT:
This document, once countersigned by representatives of both parties, will be
deemed as an amendment to that preexisting Agreement dated as of 12/7/87 and any
successor documents. When taken together, the preexisting documents constitute
one and the same contractual agreement. It is acknowledged that, on and after
January 3, 1995, Dialog Information Services, Inc. became Knight-Ridder
Information, Inc.
Bruce Johnson Hal Espo
Vice President & Chief Financial Officer Director, National Resellers
Telebase Systems, Inc. Knight-Ridder Information, Inc.
January 25, 1995
2
<PAGE> 3
APPENDIX A
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 000 PARKING FILE
___ 001 ERIC
___ 002 INSPEC (1969+)
___ 003 INSPEC (1969-1982)
___ 004 INSPEC (1983+)
___ 005 BIOSIS PREVIEWS
___ 006 NTIS 1964-1993
___ 007 SOCIAL SCISEARCH
___ 008 COMPENDEX PLUS
___ 009 AIM/ARM R90
___ 010 AGRICOLA
___ 011 PSYCINFO
___ 012 INSPEC R92
___ 013 INSPEC R92
___ 014 ISMEC
___ 015 ABI/INFORM
___ 016 PTS PROMT
___ 017 PTS ANNUAL REPORT ABS
___ 018 PTS F&S INDEXES 1979+
___ 019 CHEMICAL INDUSTRY NOTES
___ 020 FEDERAL INDEX
___ 021 NCJRS
___ 022 EMPL BENEFIT INFO
___ 023 CLAIMS/U.S. PATENTS
___ 024 CLAIMS/U.S. PATENTS
___ 025 CLAIMS/U.S. PATENTS
___ 026 FOUNDATION DIRECTORY
___ 027 FOUNDATION GRANTS INDEX
___ 028 OCEANIC ABS
___ 029 METEOROLOGICAL & GEOASTROPHYSICAL AB
___ 030 ASIA-PACIFIC
___ 032 METADEX
___ 033 ALUMIN INDUSTRY ABS
___ 034 SCISEARCH CURRENT
___ 035 DISSERTATION ABS
___ 036 LINGUISTICS & LANGUAGE BEHAVIOR ABS
___ 037 SOCIOLOGICAL ABS
___ 038 AMERICA: HISTORY & LIFE
___ 039 HISTORICAL ABS
___ 040 ENVIROLINE
___ 041 POLLUTION ABS
___ 042 PARMACEUT NEWS INDEX
___ 043 HEALTH NEWS DAILY
___ 044 AQUATIC SCIENCES ABS
___ 045 APTIC
___ 046 A-V ONLINE
___ 047 MAGAZINE INDEX
A-1
<PAGE> 4
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 048 SPORT DATABASE
___ 049 PAIS INTL
___ 050 CAB ABSTRACTS
___ 051 FOOD SCI & TECH ABS
___ 052 TSCA INITIAL INVENTORY
___ 053 CAB ABS 1972-1983
___ 054 EXCEPTIONAL CHILD EDUCATION RES R93
___ 055 BIOSIS PREVIEWS
___ 056 MODERN ART BIBLIOGRAPHIES
___ 057 PHILOSPHER'S INDEX
___ 058 GEOARCHIVE
___ 059 FROST & SULLIVAN DM2
___ 060 CRIS
___ 061 LISA
___ 062 SPIN
___ 063 TRIS
___ 064 CHILD ABUSE & NEGLECT R94
___ 065 SSIE
___ 066 GP0 MONTHLY CATALOG
___ 067 WORLD TEXTILES
___ 068 ENVIRONMENTAL BIBL
___ 069 ENERGYLINE
___ 070 SEDBASE
___ 071 M.L.A. BIBLIOGRAPHY
___ 072 EMBASE
___ 073 EMBASE
___ 074 INTL PHARMACEUTICAL ABS
___ 075 MANAGEMENT CONTENTS
___ 076 LIFE SCIENCES COLLECTION
___ 077 CONFERENCE PAPERS INDEX
___ 078 DIALOG SRC1 ENGNG
___ 079 FOODS ADLIBRA
___ 080 PTS AEROSPACE DEFENSE MKTS & TECH
___ 081 PTS US FORECASTS
___ 082 PTS US TIME SERIES
___ 083 PTS INTL FORECASTS
___ 084 PTS INTL TIME SERIES
___ 085 GRANTS
___ 086 MENTAL HEALTH ABS
___ 087 PETROLEUM EXPLORATION R92
___ 088 ACADEMIC INDEX
___ 089 GEOREF
___ 090 FOREIGN TRADE & ECONOMICS ABS
___ 091 P0PULATION BIBLIOGRAPHY
___ 092 IHS INTL STDS & SPECS
___ 093 US POLITICAL SCIENCE DOCUMENTS
___ 094 SCISEARCH 1978-1980 R92
___ 095 RAPRA
___ 096 FLUIDEX
A-2
<PAGE> 5
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 097 MUSIC LITERATURE INTL (RILM)
___ 098 PTS F&S INDEXES 1972-1978
___ O99 WELDASEARCH
___ 100 DISCLOSURE II
___ 101 CIS
___ 102 ASI
___ 103 ENERGY SCI TECH
___ 104 ENERGY SCI T 74-82 R91
___ 105 FOREIGN TRADERS INDEX R89
___ 106 TRADE OPPORTUNITIES
___ 107 TRADE OPPORTUNITIES WEEKLY
___ 108 AEROSPACE DATABASE
___ 109 NUCLEAR SCIENCE ABS
___ 110 AGRICOLA 1970-1978
___ 111 NATIONAL NEWSPAPER
___ 112 AQUACULTURE
___ 113 STANDARDS & SPECS
___ 114 ENCYCLOPEDIA OF ASSOCIATIONS
___ 115 RESRCH CTRS & SVC
___ 116 TRADE NAMES
___ 117 WATER RESOURCES ABS
___ 118 NONFERROUS METALS
___ 119 TEXTILE TECHNOLOGY DIGEST
___ 120 U.S. COPYRIGHTS
___ 121 BRITISH EDUCATION INDEX
___ 122 HARVARD BUSINESS REVIEW
___ 123 CLAIMS/REASSIGN
___ 124 CLAIMS/REFERENCE
___ 125 CLAIMS/U. S. PATENTS
___ 126 TRADEMARKSCAN-U.K.
___ 127 TRADEMARKSCAN-CANADA
___ 128 PHARMAPROJECTS
___ 129 PHARMACEUTICAL & HEALTH CARE INDUSTR
___ 130 PHARACEUTICAL & HEALTH CARE INDUSTR
___ 132 STANDARD & POOR'S DAILY NEWS
___ 133 STANDARD & POOR'S CORPORATE DESCRIPT
___ 134 STANDARD & POOR'S DAILY NEWS
___ 135 CONG RECORD ABS
___ 136 FED REGISTER ABS
___ 137 BOOK REVIEW INDEX
___ 138 CHEMICAL EXPOSURE
___ 139 ECONOMIC LIT
___ 140 UNLISTED DRUGS
___ 141 MARTINDALE ONLINE
___ 142 CURRENT TECHNOLOGY INDEX
___ 144 PASCAL
___ 145 WASHINGTON PRESSTEXT
___ 146 WASHINGTON POST
___ 147 WASHINGTON POST BACKFILE
A-3
<PAGE> 6
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 148 TRADE & INDUSTRY INDEX
___ 149 HEALTH PERIODICALS
___ 150 LEGAL RESOURCE INDEX
___ 151 HEALTH PLANNING
___ 152 MEDLINE 1966-1974
___ 153 MEDLINE 1975-1984
___ 154 MEDLINE 1985-1993
___ 155 MEDLINE 1966-1993
___ 156 TOXLINE
___ 157 AIDSLINE
___ 158 DIOGENES HEALTH CARE REGULATORY INFO
___ 159 CANCERLIT
___ 160 SMOKING & HEALTH R94
___ 161 OCCUP SAFETY HEALTH
___ 162 CAREER PLACEMENT REGISTRY R94
___ 163 AGELINE
___ 164 COFFELINE R94
___ 165 EVENTLINE
___ 166 GPO/PUBLICATIONS REFERENCE FILE
___ 167 WORLD AFFAIRS REPORT
___ 168 INSURANCE ABS
___ 169 INSURANCE PERIODICALS INDEX
___ 170 ONLINE/CD-ROM NEWS R93
___ 171 CRIMINAL JUSTICE PERIODICALS INDEX
___ 172 EMBASE 1980-1981 R91
___ 173 EMBASE 1974-1979 R91
___ 174 CHEMICAL REGULATIONS & GUIDELINES
___ 175 QUOTATIONS DATABASE
___ 176 ONTAP ART LITERATURE INTL
___ 177 ONTAP SOCIOLOGICAL ABS
___ 178 GETTY A.H.I.P.
___ 179 THE ARCHITECTURE DATABASE
___ 180 ACADEMIC AMERICAN ENCYCLO R90
___ 181 KALEIDOSCOPE
___ 182 EVERYMAN'S ENCYCLOPEDIA
___ 183 EXPERTNET R93
___ 184 WASHINGTON POST INDEX R91
___ 185 ZOOLOGICAL RECORD
___ 186 SCIS-ARC 1974-1977 R92
___ 187 FDC REPORTS
___ 188 HLTH DEVICES SRCBK
___ 189 INDUSTRY DATA SOURCES
___ 190 RELIGION INDEX
___ 191 ART LITERATURE INTL
___ 192 DECISION RESOURCES
___ 194 COMM BUS DAILY
___ 195 COMM BUS DAILY
___ 196 FINDEX
___ 197 CHEMLAW
A-4
<PAGE> 7
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 198 HLTH DEVICES ALERTS
___ 199 ONTAP TAX NOTES TODAY R93
___ 200 DIALOG PUBLICATIONS
___ 201 ONTAP ERIC
___ 202 INFO SCIENCE ABS
___ 203 AGRIS
___ 204 ONTAP CA SEARCH
___ 205 ONTAP BIOSIS PREVIEWS
___ 206 ONTAP NTIS
___ 207 ONTAP SOCIAL SCISEARCH
___ 208 ONTAP EI COMPENDEX PLUS
___ 209 INTL LISTING SVC
___ 210 ONTAP AGRICOLA
___ 211 NEWSEARCH
___ 212 ONTAP PSYCINFO
___ 213 ONTAP INSPEC
___ 214 PETERSON'S COLLEGE DATABASE
___ 215 ONTAP ABI INFORM
___ 216 ONTAP PTS PROMT
___ 217 NEW FILE
___ 218 NURSING
___ 219 CLINICAL ABS R91
___ 220 CLAIMS/CITATION
___ 221 CLAIMS/CITATION
___ 222 CLAIMS/CITATION
___ 223 CLAIMS/UNITERM 1950-1970
___ 224 CLAIMS/UNITERM
___ 225 CLAIMS/UNITERM
___ 226 TRADEMARRSCAN-U.S. FED
___ 227 BRITISH OFFICIAL PUBLICATIONS R93
___ 228 BRITISH OFFICIAL PUBLICATIONS (NON-H
___ 229 DRUG INFORMATION FULLTEXT
___ 230 COMPUTER READABLE DATABASES
___ 231 ONTAP CHEMSEARCH
___ 232 INTL SOFTWARE DIRECTORY
___ 233 MICROCOMPUTER ABSTRACTS
___ 234 MARQUIS WHO'S WHO
___ 235 PEOPLEBANK
___ 236 AMERICAN MEN & WOMEN OF SCIENCE
___ 237 SOFT ONLINE MICROCOMPUTER S/W GUIDE
___ 238 SUPERTECH R93
___ 239 MATHSCI
___ 240 PAPERCHEM (NONSUB)
___ 241 EPRI
___ 242 CLAIMS/COMPOUND
___ 243 LABORLAW II
___ 244 LABORLAW I
___ 245 WATERNET
___ 246 TRADEMARKSCAN-STATE
A-5
<PAGE> 8
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 247 ONTAP MAGAZINE INDEX
___ 248 PIRA
___ 249 PROMPT TEST R94
___ 250 ONTAP CAB ABS
___ 251 ONTAP FSTA
___ 252 PACKAGING SCI&TECH
___ 253 ONTAP INPADOC/FAM & LGL STATUS
___ 254 ONTAP MEDLINE
___ 255 ONTAP ARTS & HUMANITIES SEARCH
___ 256 SOFTBASE: REVIEWS, COMPANIES & PRODU
___ 257 APIBIZ
___ 258 ASSOCIATED PRESS
___ 259 AP NEWS (BACKFILE)
___ 260 UPI NEWS (BACKFILE)
___ 261 UPI NEWS (CURRENT)
___ 262 CANADIAN BUSINESS & CURRENT AFFAIRS
___ 263 BOSTON GLOBE TEST R94
___ 264 ABI / INFORM TEST R94
___ 265 FED RES IN PROGRESS
___ 266 FED RES IN PROGRESS
___ 267 BUSINESS DATELINE TEST R94
___ 268 FINANCIAL INDUSTRY INFO SVC
___ 269 MATERIALS BUSINESS
___ 270 SOVIET SCIENCE & TECHNOLOGY
___ 271 CONSUMER DRUG INFORMATION FULLTX R93
___ 272 ONTAP EMBASE
___ 273 PETERSONS GRADLINE
___ 275 COMPUTER DATABASE
___ 276 ONTAP D&B MKT IDENTIFIERS
___ 277 ONTAP INVESTEXT
___ 278 MICROCOMPUTER SOFT
___ 279 ONTAP CLAIMS
___ 280 ONTAP DERWENT WORLD PATENTS INDX
___ 281 ONTAP PTS MARS
___ 282 ONTAP AEROSPACE DATABASE
___ 284 IRS TAXINFO R89
___ 285 BIOBUSINESS
___ 286 BIOCOMMERCE DATA
___ 287 BIOGRAPHY MASTER INDEX
___ 288 BIOGRAPHY MASTER INDEX, LJ-Z
___ 289 ONTAP DMS CONTRACT AWARDS
___ 290 ONTAP DIALINDEX
___ 291 FAMILY RESOURCES
___ 292 GEOBASE
___ 293 ENG MATERIALS ABS
___ 294 ONTAP SCISEARCH
___ 295 WORLD TRANSLATIONS INDEX
___ 296 ONTAP TRADEMARKSCAN-U.S. FED
___ 297 BIBLE (KING JAMES VERSION)
A-6
<PAGE> 9
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 299 MAGILL'S SURVEY OF CINEMA
___ 300 CHEMZERO R90
___ 301 CHEMNAME
___ 302 KIRK OTHMER ONLINE
___ 303 C&H CHEM DATABASE
___ 304 MERCK INDEX ONLINE
___ 305 ANALYTICAL ABS
___ 306 AGROCHEMICALS HNDBK
___ 308 CA SEARCH 1967-1971
___ 309 CA SEARCH 1972-1976
___ 310 CA SEARCH 1977-1981
___ 311 CA SEARCH 1982-1986
___ 312 CA SEARCH 1987-1991
___ 313 CA SEARCH 1992
___ 315 CHEMENG & BIOT ABS
___ 316 EUR DIR OF AGROCHM
___ 317 CHEM SAFETY NEWSBASE
___ 318 CHEMPLANT PLUS
___ 319 CHEM BUS NEWSBASE
___ 320 CA SEARCH 1977-1979 R86
___ 321 PLASPEC MATERIALS
___ 322 POLYMER ONLINE
___ 323 RAPRA ABS
___ 324 IFI COMPREHENSIVE DBASE R88
___ 325 IFI COMPREHENSIVE DBASE R88
___ 328 CHEMSTATS
___ 329 CHEMSIS 1972-1976 R90
___ 330 CHEMSIS 1977-1981 R90
___ 331 CHEMSIS 1982-1986 R90
___ 332 CHEMSSIS 1987+ R90
___ 335 CERAMIC ABS
___ 336 REG OF TOXIC EFF
___ 337 CHEMTOX ONLINE
___ 340 CLAIMS/U.S. PATENTS
___ 341 CLAIMS/UNITERM
___ 342 COMPREHENSIVE CLAIMS R88
___ 344 CHINESE PATENT ABS
___ 345 INPADOC/FAMILY & LS
___ 346 INPAD0C FAMILY WEEKLY
___ 347 JAPIO
___ 348 EUROPEAN PATENT
___ 350 WPI
___ 351 WPIL
___ 353 APIPAT
___ 354 APILIT
___ 357 BIOTECHNOLOGY ABS
___ 358 CURR BIOTECH ABS
___ 359 CHEMICAL ECONOMICS
___ 360 FINE CHEMICALS DATABASE
A-7
<PAGE> 10
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 375 DRUG REGISTRY
___ 376 DRUG FILE 64-82
___ 377 DRUG FILE 83-PRES
___ 378 CHEMPLANT PLUS R93
___ 383 ONTAP APIPAT
___ 385 ONTAP ANALYTICAL ABS
___ 386 ONTAP KIRK-OTHMER ONLINE
___ 389 ONTAP BEILSTEIN
___ 390 BEILSTEIN ONLINE
___ 398 CHEMSEARCH
___ 399 CA SEARCH 1967+
___ 400 KI DIALMAIL
___ 401 DIALOG DIALMAIL
___ 405 DIALOG HOMEBASE
___ 409 PAUSE
___ 410 CHRONOLOG NEWSLETTER
___ 411 DIALINDEX (TM)
___ 413 PRODUCT NAME FINDER
___ 414 DIALOG JOURNAL NAME INDEX
___ 415 DIALOG BLUESHEETS
___ 416 COMPANY NAME FINDER
___ 421 REMARC PRE-1900 AND UNDATED
___ 422 REMARC 1900-1939
___ 423 REMARC 1940-1959
___ 424 REMARC 1960-1963
___ 425 REMARC 1970+
___ 426 LC MARC - BOOKS
___ 427 LC MARC PRE-1980
___ 430 BRITISH BOOKS IN PRINT
___ 431 REMARC PRE-1900 & UNDATED (MARC TAG
___ 432 SCISEARCH 1974-1979 R92
___ 433 SCISEARCH 1980-1986 R92
___ 434 SCISEARCH FULL
___ 435 REMARC 1970+ (MARC TAG DISPLAY)
___ 436 LC MARC (MARC TAG DISPLAY)
___ 437 (RESERVED FOR ISI)
___ 438 (RESERVED FOR ISI)
___ 439 ARTS AND HUMANITIES SEARCH
___ 440 CURRENT CONTENTS
___ 441 CATLINE
___ 442 AMERICAN MED ASSOC JRNLS
___ 444 NEW ENGLAND JOURNAL OF MEDICINE ONLI
___ 445 IMSWORLD R&D FOCUS
___ 446 IMSWORLD NPL
___ 447 IMS PATENTS INTL
___ 449 IMS COMPANY PROFILES
___ 450 PUBLISHERS, DISTRIBUTORS, WHOLESALER
___ 451 GALE PUBLISHERS DIRECTORY
___ 455 DRUG NEWS & PERS
A-8
<PAGE> 11
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 456 NME EXPRESS
___ 460 AMERICAN LIBRARY DIRECTORY
___ 465 ARAB INFORMATION BANK
___ 466 INFO-SOUTH
___ 46B KI POLL (REFR8)
___ 469 GALE DB PUB & MEDIA
___ 470 BOOKS IN PRINT
___ 475 WASHINGTON PRESSTEXT
___ 479 COMPANY INTELLIGENCE
___ 480 ULRICH'S INT'L PERIODICALS DIRECTORY
___ 481 DELPHES EUROP BUS
___ 484 NEWSPAPER & PERIOD
___ 485 ACCOUNTING & TAX
___ 490 EXTEL
___ 491 CANCORP CANADIAN CORPORATIONS
___ 492 ARIZONA NEWSPAPERS
___ 493 SEATTLE TIMES
___ 494 ST LOUIS POST DISPATCH
___ 495 COLUMBUS DISPATCH
___ 496 SACRAMENTO BEE
___ 497 FT LAUDERDALE NEWS
___ 498 DETROIT FREE PRESS
___ 499 NEWARK STAR LEDGER
___ 500 EXTEL INTL FINANCIAL CARDS
___ 501 EXTEL INTL NEWS CARDS
___ 502 TEIKOKU DATABANK
___ 503 ELECTRONIC YELLOW PGS WHOLESALERS
___ 504 ELECTRONIC YELLOW PGS RETAILERS
___ 505 FBR ASIAN COMPANIES
___ 506 ELECTRONIC YELLOW PGS RETAILERS
___ 507 ELECTRONIC YELLOW PGS CONSTRUCTION
___ 508 ELECTRONIC YELLOW PGS BUSINESS SVC
___ 509 ELECTRONIC YELLOW PGS BUSINESS SVC
___ 510 ELECTRONIC YELLOW PGS MANUFACTURERS
___ 511 THE EDUCATIONAL DIRECTORY R92
___ 513 CORPORATE AFFILIATIONS
___ 514 DUNS BUSINESS UPDT
___ 515 DUNS ELECTRONIC BUSINESS DIR
___ 516 DMI
___ 517 MILLION DOLLAR DIR
___ 518 INTL DMI
___ 519 DUNS FINANCIALS
___ 520 CANADIAN DMI
___ 521 EUROPEAN DMI
___ 522 ASIA/PACIFIC DMI
___ 526 STANDARD & POOR'S
___ 527 STANDARD & P00R'S
___ 529 HOPPENSTEDT
___ 531 AMER BUS DIR
A-9
<PAGE> 12
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 532 AMER BUS 20 PLUS
___ 535 THOMAS REGISTER ONLINE
___ 536 THOMAS NEW INDUSTRIAL PRODUCTS R93
___ 537 THOMAS REGIONAL INDUSTRIAL SUPPLIERS
___ 540 DISCLOSURE/SPECTRM
___ 541 SEC ONLINE, INC
___ 542 SEC ONLINE, INC
___ 543 SEC ONLINE, INC
___ 544 SEC ONLINE, INC
___ 545 INVESTEXT
___ 546 MEDIA GENERAL
___ 547 TRW CREDIT PROFILE
___ 548 CHARLES E. SIMON
___ 549 THE INVEST/NET GROUP
___ 550 IDD INFORMATION R93
___ 551 SDC WORLDWIDE M&A
___ 555 MOODY'S
___ 556 MOODY'S CORPORATE NEWS U.S.
___ 557 MOODY'S CORPORATE NEWS INTL
___ 559 DIALOG / MONEYCENTER
___ 560 FINANCIAL TIMES ABS
___ 561 ICC BRITISH COMPANY DIRECTORY
___ 562 ICC BRITISH FNCLS
___ 563 ICC INTL BUSINESS RESEARCH
___ 564 ICC BRITISH COMPANY ANNUAL RPTS
___ 565 CHASE ECONOMETRICS
___ 570 PTS MARS
___ 571 PIERS EXPORTS CRNT
___ 572 PIERS EXPORTS BKFL
___ 573 PIERS IMPORTS CRNT
___ 574 PIERS IMPORTS BKFL
___ 575 DONNELLEY DEMOGRAPHICS
___ 580 CENDATA
___ 581 AGRIBUSINESS USA
___ 582 JAPAN TECHNOLOGY
___ 583 GLOBALBASE
___ 584 BIDNET - HISTORICAL
___ 585 BIDNET - CURRENT
___ 587 JANE'S DANA
___ 588 DMS/FI CONTRACT AWARDS
___ 589 DMS/FI MARKET INTELLIGENCE RPTS
___ 590 KOMPASS EUROPE
___ 591 KOMPASS UK
___ 592 KOMPASS ASIA/PACIFIC
___ 594 KOMPASS CANADA
___ 595 OAG
___ 596 QUOTES
___ 597 IDD TRADELINE
___ 598 D&B REPORT GATEWAY
A-10
<PAGE> 13
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 599 D&B OAG
___ 600 MCGRAW-HILL NEWS
___ 601 PTS RBN
___ 602 PTS PROMT DAILY
___ 603 NEWSPAPER ABS
___ 604 PERIODICAL ABSTRACTS
___ 609 KNIGHT RIDDER FIN
___ 610 BUSINESSWIRE
___ 611 REUTERS
___ 612 KYODO NEWS INTL
___ 613 PR NEWSWIRE
___ 614 AGENCE FRANCE PRES
___ 615 AGENCE FRANCE PRES
___ 616 PREDICASTS
___ 620 NOVOSTI SUMMIT
___ 621 PTS NPA/PLUS
___ 622 FINANCIAL TIMES FT
___ 623 CLAIMS 23/CHEM 1950-1962
___ 624 MCGRAW-HILL PUBLICATIONS
___ 625 AMERICAN BANKER
___ 626 THE BOND BUYER
___ 627 EIU: BUSINESS INTL
___ 630 LOS ANGELES TIMES
___ 631 BOSTON GLOBE
___ 632 CHICAGO TRIBUNE
___ 633 PHILADELPHIA INQUIRER
___ 634 SAN JOSE MERCURY
___ 635 BUSINESS DATELINE
___ 636 PREDICASTS INC
___ 637 JOURNAL OF COMMERCE
___ 638 NEWSDAY
___ 639 HOUSTON POST
___ 640 CHRONICLE PUB CO
___ 641 ROCKY MOUNTAIN NEWS
___ 642 CHARLOTTE OBSERVER
___ 644 USA TODAY UPDATE
___ 645 CURRENT DIGEST OF SOVIET PRESS R93
___ 646 CONSUMER REPORTS FULLTEXT
___ 647 MAGAZINE ASAP
___ 648 TRADE & INDUSTRY ASAP
___ 649 NEWSWIRE ASAP
___ 650 TAX NOTES TODAY
___ 651 U.S. PATENTS
___ 652 U.S. PATENTS
___ 653 U.S. PATENTS
___ 654 U.S. PATENTS
___ 655 BNA DAILY NEWS
___ 656 BNA NEWSLETTERS
___ 657 TRADEMARKSCAN-FRANCE
A-11
<PAGE> 14
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 658 TRADEMARXSCAN-BENELUX
___ 659 TRADEMARKSCAN-DENMARK
___ 660 FEDERAL NEWS SVC
___ 661 TRADEMARKSCAN-SWITZERLAND
___ 662 TRADEMARKSCAN-AUSTRIA
___ 663 TRADEMARKSCAN-MONACO
___ 664 SRC1 PATENTS
___ 665 FED ACQ REGS (FARS)
___ 666 FEDERAL PROCUREMENT DATA CNTR
___ 667 CONGRESSIONAL RECORD
___ 668 CFR
___ 669 FEDERAL REGISTER
___ 671 TRADEMARKSCAN-INTERNATIONAL REGISTER
___ 672 TRADEMARKSCAN-GERMANY
___ 673 TRADEMARKSCAN-ITALY
___ 674 COMPUTER NEWS FULLTEXT
___ 675 COMPUTER ASAP
___ 677 TRADEMARKSCAN-LEICHTENSTEIN
___ 680 CENDATA MENU
___ 681 DBC MENU
___ 682 BUSINESS CONNECTION
___ 683 AIAA CONNECTION PARKING FILE
___ 684 DIALOG COMPANY THESAURUS
___ 686 DATA-STAR LINK
___ 687 WESTLAW GATEWAY SVC
___ 688 DIALOG SRC1 PARKING
___ 689 DIALOG MENUS2 PARKING FILE
___ 690 MHNEWS
___ 692 DIALOG MENUS PARKING
___ 693 VU/TEXT INTERFACE PARKING FILE
___ 694 CBD MENU
___ 695 USA TODAY DECISIONLINE
___ 696 PREDICASTS INC
___ 697 DIALOG TEXTLINE PARKING FILE
___ 698 COMPUSERVE NEWS
___ 699 DIALOG / MONEYCENTER
___ 700 DIALORDER FILE
___ 701 ST PAUL PIONEER
___ 702 MIAMI HERALD
___ 703 USA TODAY
___ 704 OREGONIAN
___ 705 ORLANDO SENTINEL
___ 706 NEW ORLEANS TIMES
___ 707 SEATTLE TIMES
___ 708 AKRON BEACON JOURNAL
___ 709 RICEMOND NEWS LEADER
___ 710 TIMES NEWSPAPERS
___ 711 INDEPENDENT
___ 712 PALM BEACH POST
A-12
<PAGE> 15
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 713 ATLANTA JOURNAL
___ 714 BALTIMORE SUN
___ 715 CHRISTIAN SCIENCE
___ 716 DAILY NEWS OF L.A.
___ 717 WASHINGTON TIMES
___ 718 PITTSBURGH POST-GAZETTE
___ 719 ALBANY TIMES-UNION
___ 720 THE STATE
___ 721 LEXINGTON HRLD-LDR
___ 722 CINCI & KENTUCK POST
___ 723 WICHITA EAGLE
___ 724 STAR TRIBUNE
___ 725 CLEVE PLAIN DEALER
___ 726 SOUTH CHINA MORNING POST
___ 727 CANADIAN NEWSPAPERS
___ 728 EVENTLINE (REFR 3)
___ 729 DIALOG HEADLINES
___ 731 PHILA DAILY NEWS
___ 732 SAN FRANCISCO EXAMINER
___ 733 BUFFALO NEWS
___ 734 DAYTON DAILY NEWS
___ 735 ST PETERSBURG TIMES
___ 736 SEATTLE P-I
___ 737 ANCHORAGE DAILY NEWS
___ 738 MORNING CALL
___ 739 FRESNO BEE
___ 740 COMMERCIAL APPEAL
___ 741 VIRGINIA PILOT
___ 742 WISC ST JO/CAP TMS
___ 743 THE RECORD (NJ)
___ 746 TIME PUBLICATIONS
___ 747 DAILY PRESS
___ 748 ASIA PAC BUS JRNALS
___ 751 DATAPRO SOFTW DIR
___ 752 DATAPRO PROD SPECS
___ 761 DATAMONITOR
___ 762 EUROMONITOR
___ 763 FREEDONIA
___ 764 BUSINESS COMMUNICAT
___ 765 FROST & SULLIVAN MKT INTELLIGENCE
___ 771 REUTERS AMERICA
___ 772 REUTERS AMERICA
___ 773 REUTERS AMERICA
___ 774 REUTERS AMERICA
___ 775 REUTERS AMERICA
___ 776 REUTERS AMERICA
___ 777 REUTERS AMERICA
___ 778 TEXTLINE JOURNALS
___ 781 SRC1 BUS JRNL
A-13
<PAGE> 16
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 782 SRC1 ORDR MNU
___ 783 FALCONER LIBRARY
___ 784 EPO PATENT IMAGES
___ 791 TEST FILE
___ 799 REUTERS AMERICA
___ 800 SUPERINDEX
___ 802 ONTAP BOSTON GLOBE
___ 803 ONTAP ENERGY SCI & TECH
___ 804 ONTAP CHEM ECONOMICS HNDBK
___ 805 ONTAP COMPUTER DATABASE
___ 806 ONTAP KOMPASS ASIA/PACIFIC
___ 809 ONTAP DMS/FI MKT INTELLIGENCE RPTS
___ 831 TEST FILE CHEMNAME (TM)
___ 832 ONTAP METADEX
___ 835 ARTHUR D LITTLE
___ 836 COMPUSERVE
___ 837 KI NON-BILLABLE MENU FILE
___ 838 KI MENU FILE
___ 839 DMC MENU
___ 840 PAPERCHEM (SUB)
___ 841 DIALOG TEST FILE
___ 842 DIALOG TEST FILE
___ 843 DIALOG TEST FILE
___ 844 DIALOG TEST FILE
___ 845 DIALOG TEST FILE
___ 846 DIALOG TEST FILE
___ 847 MAGAZINE ASAP
___ 848 TRADE & INDUSTRY ASAP
___ 849 DCC MENU
___ 850 DIALOG TEST FILE
___ 851 DIALOG TEST FILE
___ 852 DIALOG TEST FILE
___ 853 DIALOG TEST PILE
___ 854 DIALOG TEST FILE
___ 855 DIALOG TEST FILE
___ 856 BEILSTEIN TEST FILE
___ 857 DIALOG TEST FILE
___ 858 DIALOG TEST FILE
___ 859 DIALOG TEST FILE
___ 860 DIALOG TEST FILE
___ 861 DIALOG TEST FILE
___ 862 DIALOG TEST FILE
___ 863 DIALOG TEST FILE
___ 864 DIALOG TEST FILE
___ 865 DIALOG TEST FILE
___ 866 DIALOG TEST FILE
___ 867 DIALOG TEST FILE
___ 868 TESTFILE - BEILSTEIN ONLINE
___ 869 CROSSTAB TEST FILE
A-14
<PAGE> 17
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 870 DISCLOSURE
___ 871 S&P CORPORATION
___ 872 CURRENT CONTENTS TEST FILE
___ 873 DIALOG TEST FILE
___ 874 DIALOG TEST FILE
___ 875 SCISEARCH TEST FILE
___ 876 DIALOG TEST FILE
___ 877 DIALOG TEST FILE
___ 878 DIALOG TEST FILE
___ 879 DIALOG TEST FILE
___ 880 DIALOG TEST FILE
___ 881 TESTFILE - INVESTEXT
___ 882 DIALOG TEST FILE
___ 883 DIALOG TEST FILE
___ 884 DIALOG TEST FILE
___ 885 DIALOG TEST FILE
___ 886 DIALOG TEST FILE
___ 887 DIALOG TEST FILE
___ 888 CHEM-INTELL
___ 889 DIALOG TEST FILE
___ 890 DIALOG TEST FILE
___ 891 WPIL
___ 892 WPAT LEARNING FILE
___ 893 DIALOG TEST FILE
___ 894 DIALOG TEST FILE
___ 895 WPI MARKUSH
___ 896 TEST FILE - ICC INT'L
___ 897 APIBIZ
___ 898 DIALOG TEST FILE
___ 899 DIALOG TEST FILE
___ 900 USIA/CALSPAN
___ 902 MOODY'S CORPORATE NEWS U.S.
___ 903 MOODY'S CORPORATE NEWS INTL
___ 904 HNRIMS R92
___ 905 MOODY'S CORPORATE PROFILS
___ 906 NTIS TAPE OUTPUT R94
___ 907 WATERWAYS EXPERIMENTAL STATION R92
___ 908 AB ABSTRA PRIVATE FILE
___ 909 U.S. STEEL
___ 910 MONSANTO MENU FILE
___ 911 DRUG REGISTRY
___ 912 DRUG FILE 83-PRES
___ 913 DRUG FILE CS
___ 914 KINOKUNIYA
___ 915 ARTHUR D. LITTLE ONLINE
___ 916 DUN'S MARKET IDENTIFIERS
___ 917 MILLION DOLLAR DIRECTORY
___ 918 D&B PRINCIPAL INTL IDENTIFIERS
___ 919 D&B DUN'S FINANCIAL RECORDS
A-15
<PAGE> 18
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 920 U.S. FISH & WILDLIFE R92
___ 922 ASIA/PACIFIC DMI
___ 923 CLAIMS/COMPREHENSIVE I
___ 924 CLAIMS/CDB
___ 925 CLAIMS/CDB
___ 926 OPINION BANK
___ 927 ELECTRIC POWER
___ 928 PHARMAPROJECTS
___ 929 MET/GEOASTRO ABS
___ 930 BMA R92
___ 931 ELECTRONIC BUS DIR
___ 932 LIVINGSTON PRODUCTIONS
___ 933 US BUREAU OF PRINTING & ENGRAVING
___ 934 W L GORE & ASSOCIATES, INC.
___ 935 EM/DIOL
___ 936 US FISH & WILDLIFE/ALASKA
___ 937 INTL LISTING SVC
___ 938 AT&T BUSINESS MKT DVLPMNT
___ 939 US FISH & WILDLIFE NATL COAST ECOSYS
___ 940 UNIV OF SOUTHERN MAINE
___ 941 AT&T LONG LINES
___ 942 CLAIMS/COB
___ 943 SRI NETWORK INFO CENTER
___ 944 MCGRAW-HILL
___ 945 WPIMJ
___ 946 WPILMJ
___ 947 ALLIED CORPORATION R91
___ 948 DMS MIR TRAINING DIV R90
___ 949 INTL AGRICULTURAL DVLPMNT
___ 950 WPIM
___ 951 WPILM
___ 952 SRI BUSINESS INTELLIGENCE
___ 953 APIPAT
___ 954 APILIT
___ 955 FRITO-LAY R92
___ 956 RIT-ITPAIS R90
___ 957 DEPT OF INTERIOR/FISH & WILDLIFE R92
___ 958 NTIA
___ 959 CEH ONLINE
___ 960 CRIS RESTRICTED ACCESS
___ 961 DEPT OF HEALTH & HUMAN SVCS LIBRARY
___ 963 DUN'S MARKET IDENTIFIERS
___ 964 AWWA
___ 965 DEERE & COMPANY
___ 966 PGA-STARS
___ 967 WELDING INSTITUTE FUMABS
___ 968 MARTINDALE
___ 969 GENERAL FOODS-TARRYTOWN
___ 970 PERKINS-ELMER
A-16
<PAGE> 19
FILE LIST
Printed 12/19/94 15:00 (& FILE_LIST)
. . select files+
___ 971 CANADIAN DMI
___ 972 JAPAN TECHNOLOGY
___ 973 NSF/CAPITAL SYSTEMS GROUP
___ 974 DIALOG / RS PARKING
___ 975 CBMI
___ 976 IMSWORLD NPL PHARM
___ 977 AIR PRODUCTS TRANSCRIPTS
___ 978 ICI AMERICAS INC
___ 979 HALIFAX MARITIME LIBRARY
___ 980 PTS A/DM&T R92
___ 981 SRI R92
___ 982 ARMY ENGINEERS
___ 983 GENERAL FOODS WHITE PLAINS R92
___ 984 DMS/FI CONTRACTORS R93
___ 985 MAINE STATE LIBRARY
___ 986 PETROLEUM EXPLORATION & PRODUCTION
___ 987 PETROLEUM EXPLORATION & PRODUCTION
___ 988 DMS MARKET INTELLIGENCE REPORTS
___ 989 KAISER-ALUMINUM WIRE
___ 990 KAISER-AVONDALE
___ 991 UNIV OF NEW MEXICO
___ 992 IHS PRIVATE FILE
___ 993 CORNING GLASS #2
___ 994 CORNING
___ 995 FEIS
___ 996 WEYERHAEUSER
___ 997 NIE CURRENT PROJECTS
___ 998 DIALTECH
___ 999 FBM
A-17
<PAGE> 20
December 6, 1995
Bruce Johnson
Vice President & Chief Financial Officer
Telebase Systems, Inc.
435 Devon Park Drive
Wayne, PA 19087
Dear Bruce:
This letter will serve to summarize our discussions of the past week in which we
have agreed that per the 1995-1997 contract between Knight-Ridder Information,
Inc. and Telebase Systems, Inc. dated January 25, 1995, Telebase will continue
with the open access plan, but that contrary to the contract stipulated [* * *
*] fee increase, Telebase will be assessed an [* * * *] increase.
This [* * * *]% increase will be applied to the current monthly open access fee
of $[* * * *]. Thus, Telebase will be billed monthly in 1996 an open access fee
of $[* * * *], or $[* * * *] for the year. Discounts applied to output charges
will remain as per the original agreement.
We at Knight-Ridder Information, Inc. are delighted to have concluded this 1996
adjustment and I look forward to meeting with you on the 21st to see how we
might work even more closely in the coming year.
Enclosed are two originals of this letter. Please affix your signature to each,
return one to me forthwith and retain the other for your records. If I can be of
further help, let me know. In any case, we should plan to speak again in
preparation for the 21st.
Sincerely,
Hal Espo
Sr. Director Strategic Alliances
For Telebase Systems, Inc.
---------------------------
DATE: Bruce Johnson
-----------------------
<PAGE> 21
Mr. Brian O'Connor
Telebase Systems, Inc.
435 Devon Park Drive
Suite 600
USA - Wayne, PA 19087
Berne, June 2, 1995
oc/fz/1385fzoc
Dear Brian,
We are pleased to confirm our new pricing agreement as follows:
Knight-Ridder Information AG is providing its services to Telebase Systems,
Inc. starting April 1, 1995
- - based on the Dollar price list
- - with the additional off peak discount of $[* * * *] respectively $[* * * *]
per hour
- - an additional [* * * *]% discount on the usage of our on-line services
excluding Derwent databases and telecommunications.
All prices do not include eventual US taxes.
Yours sincerely,
Knight-Ridder Information AG
Heinz Ochsner
<PAGE> 1
Exhibit 10.13
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [* * * *], have been
separately filed with the Commission.
SMALL ORDER FULFILLMENT AGREEMENT
PARTIES
Retailer: Telebase
Distributor: Valley Record Distributors (understood that
responsibilities will be divided between
Valley and Sound Delivery)
BASIC AGREEMENT
For the following sections of this agreement, both parties agree to develop
computer and human interfaces for the purposes of conducting music product
transactions. In addition, Valley Records agrees to pick, pack and ship small
orders of items available in the Complete Catalog to Telebase's customers.
BASIC BUSINESS TERMS
TERM OF THE AGREEMENT
Valley agrees to provide fulfillment services to Telebase for three (3) years,
and may only terminate this agreement under the following conditions:
1) With 90 day written notice,
In the event that Valley makes the decision to
discontinue fulfillment services to all on-line
services.
MERCHANDISE DISCOUNT RATE
Valley agrees to sell all products contained in its Complete Catalog to Telebase
according to the rates provided in the Audiofile database. Product rates may be
updated by Valley Records from time to time, and shall always be the same base
cost which Sound Delivery and its other customers purchase from Valley Records,
with the following additional discounts off published invoice cost (see
Audiophile database):
[* * * *]
Valley Records 5 week months for Fiscal Year 1996 (Beginning April 1, 1995) are
May, August and October 1995, and January 1996.
<PAGE> 2
SHIPPING AND HANDLING RATE
For provision of the fulfillment service (pick, pack and ship), Valley Records
shall charge Telebase $[* * * *] per order, plus $[* * * *] per unit after the
first unit. For shipping, Valley Records shall charge Telebase actual carrier
costs and shall report such costs monthly. Written notice of Carrier shipping
rate changes and effective date of changes shall be reported to Telebase upon
notification by the Carrier. Valley Records to begin charging new Carrier rate
changes upon effective date provided by Carrier. Upon request by Telebase,
Valley to provide shipping detail on specific orders.
Package insertions will be priced as follows: 1) [* * * *] per order, and 2) A
flat $[* * * *] per month to cover the handling of up to 20 different inserts.
Telebase may specify the appropriate inserts, up to 20 per order and will
provide inserts that meet the form factor of the Sound Delivery CD Mailer
package (4.75" x 4.5" and prefolded). Telebase shall be responsible for all
costs associated with the procurement of inserts and for the delivery of those
inserts to Valley. Valley will provide a monthly inventory of the inserts, so
that Telebase can maintain an adequate supply.
BILLING AND PAYMENT
Valley Records shall invoice Telebase from the 1st through the 31st of each
month. Those invoices are due (postmarked) by the 25th of the following month.
Invoices not postmarked by the 25th are subject to revocation of a [* * * *]
discount amount, as well as subject to late charges in accordance with Valley's
standard credit terms.
SALES TAX
Valley Records shall not charge Telebase sales tax.
RESPONSIBILITIES OF THE PARTIES
DEVELOPMENT AND OPERATIONS
1. Valley Records shall provide a full copy of its Audiofile inventory
database in electronic format with a daily update.
2. Valley Records shall provide a daily status file reporting "Stock on
Hand" in electronic format.
3. Valley Records shall provide and maintain access to its systems with
nominal or minimal contention, for the purpose of developing and
maintaining the necessary interfaces to support the services described
herein.
2
<PAGE> 3
4. Valley Records shall provide reasonable technical/operational support
for Telebase's development and operation of the fulfillment interface.
5. Telebase shall develop and maintain an on-line merchandising service
specializing in music products.
6. Telebase shall be responsible for its mode of electronic access to the
Sound Delivery and BBS system.
7. Valley Records shall be responsible for its mode of electronic access,
the Valley BBS, and for all Valley-Telebase EDI communication.
8. Valley will notify Telebase in advance of any changes to its electronic
interface (connection types and protocols, etc.).
ORDERING
1. Telebase shall be responsible for developing an interface to Sound
Delivery's existing order entry system, based on Sound Delivery's EDI
specs.
2. Monday through Friday, Valley Records shall receive orders throughout
the day and forward in batches of 100 items to commit inventory
throughout the day. All orders remaining at 4:00 P.M. each day shall be
submitted as necessary for final commitment of inventory for the day.
3. Valley Records shall provide complete, electronic order status
information no later than two business days after the order is placed.
Valley Records shall attempt to reduce turn-around to one day.
BACK-ORDERS
1. Telebase shall be responsible for holding and managing back-order
information, unless Telebase is willing to adopt a single-tier
back-order system (i.e., all back-orders held for up to 10 days), in
which case Valley Records shall provide back-order management.
ORDER PICKING
1. To the extent that orders have been received, Valley Records shall
utilize its best efforts to ensure that orders are picked each night,
Monday through Friday.
PACKING SLIPS
1. Telebase shall report prices to the user throughout EDI.
2. Valley Records shall accurately reflect prices to the user and
communicate by Telebase through EDI. Valley Records shall accurately
modify shipping, handling and tax prices, based on Telebase's
instructions, for
3
<PAGE> 4
orders containing out-of-stock items. The packing slip will identity
items shipped and items back ordered.
3. Telebase shall design the packing slip, with return instructions, in
compliance with existing Valley format and specifications, except where
modifications are required to eliminate customer confusion.
4. Valley Records shall implement packing slip printing and print slips,
unless special graphics are required, in which case Telebase shall
provided pre-printed packing slip paper in compliance with existing
Valley format and specifications, except where modifications are
required to eliminate customer confusion.
ORDER PACKING
1. Telebase shall be responsible for providing stickers, enclosures and
general instructions.
2. Telebase shall provide order-specific sticker/enclosure instructions
through EDI Comment field.
3. Valley Records shall ensure that all general instructions are followed
regarding stickers and enclosures for all orders.
4. Valley Records shall ensure that order-specific sticker/enclosure
instructions sent by Telebase in the EDI Comment field are properly
communicated to.
5. Valley Records shall ensure that a packing slip identifying order items
packed, cost and return instructions is enclosed.
6. Valley Records shall ensure that orders are packed each day, Sunday
through Friday, to be shipped Monday through Friday.
SHIPPING LABELS
1. Telebase shall design shipping labels (Ship to/Return to), in
compliance with existing Valley format and specifications, except where
modifications are required to eliminate customer confusion.
2. Valley Records shall implement shipping label printing (Ship to/Return
to), unless special graphics are required, in which case Telebase shall
provide pre-printed labels.
3. Valley shall affix labels to shipments.
SHIPPING
1. Telebase shall ensure that the carrier selected by the customer (or
Telebase) is properly communicated to Valley Records.
2. Valley Records shall work to ensure that all orders will be shipped no
later than the end of the business day following the day on which the
order was placed/sent to Valley Records.
4
<PAGE> 5
3. Valley Records shall ensure that the package is handed to the
appropriate carrier.
4. Valley Records shall report all shipping costs to Telebase when
charging Telebase for such costs.
5. Valley Records shall ensure that orders are shipped Monday through
Friday.
CUSTOMER CREDIT
1. Telebase shall be responsible for customer credit authorization and
associated charges.
2. Telebase shall be responsible for customer credit fraud/bad debt.
CUSTOMER INVOICING:
1. Telebase shall be responsible for customer invoicing and collections,
including applicable sales tax.
MISSHIPMENTS, RETURNS, INCOMPLETE SHIPMENTS
1. Valley Records shall track and report return information electronically
via the BBS system so that Telebase can appropriately credit accounts
and communicate with users.
2. Telebase and/or its customers shall be responsible for the original and
additional shipping, handling and product costs associated with lost
shipments (i.e., incorrect address).
3. Valley Records shall be responsible for the additional shipping and
handling costs associated with misshipments, damaged goods, and
shortages (shortages are defined as orders that are shipped with
omitted merchandise, for which Sound Delivery has invoiced Telebase).
If the customer cancels the order as a result of the misshipment,
damaged good, or shortage, Valley shall be responsible for the original
shipping and handling costs.
4. Valley Records agrees to review merchandise prices and fulfillment
rates within six (6) months after Telebase launches its retail
operation.
5. For returns of unwanted product to Valley Records, Telebase will be
subject to a restocking fee of 15%. No opened UNI Distribution Corp. or
Sony Music Distribution Corp. product will be accepted. Any product
that cannot be refurbished for resale will be returned to Telebase at
Telebase's expense, and will become the property of Telebase.
5
<PAGE> 6
LOST SHIPMENTS
1. Valley Records shall report lost shipments when reported by carrier, to
the extent to which said carrier notifies Valley.
2. Telebase shall be responsible for the additional shipping and handling
costs associated with lost shipments.
3. Valley Records shall provide support for tracking shipments made via
carrier that has tracking capabilities (e.g. Federal Express).
PRE-ORDERS
1. Telebase shall collect pre-orders until street date minus three days,
at which point these orders shall be forwarded to Valley Records.
2. Valley Records shall ship all pre-orders no later than street date
minus one day.
SAMPLER DISCS
1. Valley Records shall share any efforts in developing and maintaining a
sampler disc program for Telebase's music service.
SECURITY
1. Both parties shall strive for maximum security of transaction
information being transferred through electronic interfaces.
2. Valley Records shall not use transaction information for any purpose
except the service of Telebase's customers, as explicitly established
with Telebase.
3. Valley shall retain electronic transaction data for a minimum of four
(4) months.
This agreement is confidential and shall not be reproduced or discussed between
or among any parties other than Telebase Systems, Inc. and Valley Record
Distributors, Inc.
- ---------------------- ------------------------------
Roger Wilcox Barnaby Cohen
Vice President- Chief Executive Officer
Product Development Valley Record Distributors
Telebase Systems. Inc. 1280 Santa Anita Court
435 Devon Park Drive Woodland, CA 95776
Wayne, PA 19087
Date: Date:
6
<PAGE> 7
EXHIBIT 10.7
PERSONAL AND CONFIDENTIAL
June 3, 1996
Rocktropolis Enterprises, LLC
1145 North McCadden Place
Hollywood, CA 90038
Attn: Rick Stevens and Nick Turner
Gentlemen:
This letter (this "Letter") will confirm the discussions
between Rocktropolis Enterprises, LLC, a California limited liability company
("Seller"), and N2K Inc., a Pennsylvania corporation ("N2K"), with respect to
the proposed acquisition (the "Acquisition") by N2K or an entity formed by N2K
("Purchaser") of all of the assets but none of the liabilities of Seller
(except for the obligations specifically set forth under the heading Assumed
Obligations in Schedule A hereto (the "Assumed Obligations") that relate to the
world-wide web site known as Rocktropolis, all as set forth on Schedule A
hereto (the "Assets"). The Acquisition shall be made upon the following terms
and subject to the following conditions:
1. Price and Structure of the Acquisition. Subject to the terms
and conditions set forth herein, on the Closing Date (as defined below),
Purchaser shall purchase the Assets and pay the purchase price (the "Purchase
Price") consisting of (i) $633,000 in cash and (ii) $537,498 payable in the
form of 179,166 shares of N2K Common Stock (the "Shares"). When issued, the
Shares will be free and clear of any liens and encumbrances, except those as
may be placed thereon by Seller and the Shares shall be adjusted automatically
and proportionately in the event of any stock split, division or
reclassification affecting all common shares. The Shares will be entitled to
the same registration rights afforded the Series F Convertible Preferred Stock
of the Purchaser. The Shares will be subject to the same "lock-up" and
deferral of the exercise of registration rights agreement with the underwriters
of the proposed initial public offering (the "Lock-up") as is agreed to by the
majority in interest of the Series F Convertible Preferred Stock purchasers.
The portion of Shares subject to Lock-up will be equal to the percentage of
shares of Series F Convertible Preferred
<PAGE> 8
Stock that are subject to Lock-up. If the Series F Convertible Preferred Stock
is not issued, the Shares will be entitled to the same registration rights
afforded the Series E Convertible Preferred Stock of the Purchaser and subject
to the same Lock-up as is agreed by a majority in interest of the Series E
Convertible Preferred Stock holders. The Shares will be subject to the right
of the holder to "put" the Shares back to N2K for a consideration equal to
$3.00 per share at any time beginning 366 days after the issuance date if there
is not at that time a public market for shares of N2K Common Stock. The "put"
will be accelerated and exercisable immediately in the event that the Purchaser
becomes insolvent or a bankruptcy petition is filed with respect to the
Purchaser.
2. Closing. The parties agree to use all reasonable efforts and
to work diligently and in good faith to accomplish the closing of the
Acquisition as soon as practicable, and agree that the closing shall occur on
or prior to June 28, 1996, at a time and place to be mutually agreed upon by
the Seller and the Purchaser (the "Closing Date").
3. Conditions to Closing. The consummation of the Acquisition
shall be subject to and conditioned upon, among other things, the following:
(i) the receipt of all material consents and approvals, including those from
regulatory agencies (if any), necessary to consummate the Acquisition in
conformity with applicable law, agreements and orders; (ii) delivery by Seller
of the Assets together with all documents necessary to transfer good title to
the Assets to Purchaser against payment of the Purchase Price to Seller; (iii)
the representations and warranties set forth herein shall be true and correct;
(iv) Seller shall have entered into a noncompetition agreement with Purchaser
effective as of the Closing Date that provides that Seller for a period of one
year from the Closing shall not compete, directly or indirectly, with the
Purchaser in the creation, design, sales or marketing of world-wide web sites
or commercial on-line services engaging in the on-line sales of records, CD's
or other music recordings to consumers substantially in the form attached
hereto as Exhibit I, and (v) Nicktropolis, Inc. shall have entered into a
consulting arrangement with the Purchaser substantially in the form attached
hereto as Exhibit II.
4. Access to Facilities; Due Diligence. From the date hereof
until the Closing Date, the Seller shall, and shall cause management of the
Seller to, afford Purchaser and its attorneys, consultants, accountants and
authorized representatives full access, upon reasonable notice during normal
business hours and at other reasonable times, to all relevant properties,
books, contracts, commitments, records, personnel, lenders and advisors of the
Seller in order to permit the Purchaser to conduct its due diligence
investigation of the Seller. Such investigation shall include, among other
things, the receipt of relevant financial information, the review of any
relevant contractual obligations of the Seller, the conducting of discussions
with the Seller's management, employees and customers with the prior consent of
the Seller (such consent not to be unreasonably withheld or delayed) and such
other investigations, valuations or testing as may be deemed reasonably
necessary by Purchaser. Until the Closing Date, and thereafter if the
Acquisition does not close, Purchaser shall keep
2
<PAGE> 9
confidential, and shall cause its attorneys, consultants, accountants and
authorized representatives to keep confidential, all information relating to
the business and affairs of Seller that is obtained pursuant to this Agreement.
5. Representations and Warranties of Seller. Seller hereby
represents and warrants:
(a) Seller is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
California and has the power to carry on its business as now being
conducted.
(b) The execution of this Agreement will not violate the
operating agreement or any other constitutional documents of Seller or
any law, regulation, order, judgment or decree which may bind Seller
or the Assets, nor will it conflict with, result in a breach of the
terms and conditions of, or result in the imposition of any lien or
other encumbrance on or with respect to any of the Assets as a result
of the provision of, or constitute a default under, any agreement to
which Seller is bound.
(c) Seller has taken all necessary action to authorize,
execute and deliver and fulfill the provisions of this Agreement and
this Agreement constitutes a legal, valid and binding agreement of
Seller enforceable against Seller in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
reorganization, or similar laws affecting the enforcement of
creditors' rights generally and rules and laws concerning equitable
remedies.
(d) There is no litigation, action, investigation or
proceeding pending against Seller as a result of its ownership or
operation of the Assets for any reason whatsoever, nor has Seller
received any notice threatening the same and the use or operation of
the Assets is not subject to any injunction, order, judgment, writ or
decree.
(e) Seller has good title to and has the right to convey
all of the Assets free and clear of all liens, mortgages, security
interests, restrictions, charges and encumbrances of any nature,
except for the Assumed Obligations and Seller has not received written
notice of any claim, suit or proceeding contesting the Seller's
ownership rights or use of the Assets. No third party has any option
or right of first refusal to purchase all or any part of the Assets.
(f) Purchaser shall receive complete and exclusive right,
title and interest in and to all tangible and intangible property
rights existing in the Code, Documentation and Designwork (as such
terms are defined in Schedule A hereto) of the Rocktropolis web site
(the "Rocktropolis Software"). The Rocktropolis Software is free and
clear of all liens, claims, encumbrances, rights or equities of third
parties, except for the Assumed Obligations.
3
<PAGE> 10
Purchaser's use of the Rocktropolis Software in the same manner as
heretofore used by Seller will not infringe any patent, copyright,
trade secret or other intellectual property rights of any third party.
No such claim of any infringement has been threatened or asserted
against Seller or its affiliates.
(g) Seller has maintained the Source Code for the
Rocktropolis Software in confidence to protect its proprietary rights
therein and all employees, consultants and contractors who have
participated in the conception and design of the Rocktropolis Software
have executed (i) appropriate instruments of assignment in favor of
Seller to convey full, effective and exclusive ownership of the
Rocktropolis Software to Seller and (ii) agreements prohibiting
unauthorized copying, use and disclosure of the Rocktropolis Software.
(h) Seller has obtained full and effective right to use,
execute, reproduce, display, perform, modify, enhance, distribute and
prepare derivative works of any included third party software in the
Rocktropolis Software.
(i) Except as noted on Schedule A-1 hereto, all
advertising space on the Rocktropolis web site has been sold to
advertisers for cash payments and not in exchange for products or
services.
(j) There are no security interests in, encumbrances on
or rights, uses, or privileges of others with respect to the Assets,
except for the Assumed Obligations.
(k) The operation and use of the Assets are in material
compliance with all applicable laws and regulations of applicable
Federal, state and municipal governments.
(l) Seller has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finder's fees with respect to
matters covered by this Agreement.
(m) No taxes related to the Assets are in arrears or in
material dispute.
(n) The Assets include all material items used by Seller
in the creation and operation of the Rocktropolis web site.
(o) Except for the Assumed Obligations, no liabilities
will follow the Assets once purchased by N2K, including but not
limited to any obligation arising under the contract with Interworld
Technologies and any dispute related thereto.
4
<PAGE> 11
6. Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants:
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has the power to carry on its business as now being
conducted;
(b) The execution of this Agreement will not violate the
Charter or any other constitutional documents of Purchaser or any law,
regulation, order, judgment or decree which may bind Purchaser, nor
will it conflict with, result in a breach of the terms and conditions
of, or constitute a default under, any agreement to which Purchaser is
bound; and
(c) Purchaser has taken all necessary action to
authorize, execute and deliver and fulfill the provisions of this
Agreement and this Agreement constitutes a legal, valid and binding
agreement of Purchaser enforceable against Purchaser in accordance
with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, or similar laws affecting the enforcement
of creditors' rights generally and rules and laws concerning equitable
remedies.
7. Indemnification. (a) Seller hereby agrees to indemnify,
defend and hold N2K and its directors, officers, employees and agents harmless
from all costs, expenses and damages resulting from or caused by (i) any breach
of Seller's representations, warranties or covenants contained herein or
arising from any materially misleading or erroneous information made, done or
furnished to N2K in writing in connection with the transactions contemplated
hereby and (ii) any liabilities of Seller, except for the Assumed Obligations.
The Purchase Price hereunder shall be deemed to have been excessive to the
extent of the amount of any loss, damage or shortfall arising from a breach of
Seller's representations and warranties or covenants and any subsequently
arising liabilities of the Seller pursuant to any indemnification obligations
contained herein and N2K shall be entitled to offset against the Shares, as
provided in Paragraph 7(b) below.
(b) The Shares shall be held in escrow until January 2,
1997. Purchaser shall irrevocably release the Shares to Seller on January 2,
1997, subject to the following provisions. During such escrow period, the
Purchaser shall notify Seller in writing immediately of any claim for
indemnification arising as provided in this Paragraph 7. The notice shall
specify the amount of the claim. Seller shall respond in writing to each such
claim by accepting or rejecting the claim, within ten (10) days of receipt of
Purchaser's notice. If Seller accepts the claim, Purchaser shall have the
right of set-off with respect to the claim upon the close of the escrow. For
purposes of set-off, the Shares shall be given a per-share value equal to the
higher of $3.00 or the trading price of Purchaser's registered shares
determined by calculating the average of the bid and ask price (if then quoted
on NASDAQ) for the ten trading days prior to the close of escrow. If, upon the
close of escrow, there are claims of set-off which
5
<PAGE> 12
have been timely rejected by Seller, then Purchaser may thereupon submit the
matter of such claims to binding arbitration. Such arbitration shall be
limited to the singular issue of the parties' rights to the specified set-off
Shares in accordance with this agreement. The arbitration shall be conducted
at a location of mutual agreement, under the auspices and pursuant to the rules
of the American Arbitration Association, and the decision shall be binding.
The arbitrator shall be instructed to award attorneys fees in addition to the
award on the merits. Nothing herein shall prohibit the parties from seeking
mediation, informal arbitration or some other form of alternative dispute
resolution by mutual agreement. That portion of the set-off Shares that
relates to a claim that Seller has rejected or is still in dispute shall remain
in an extension of the escrow until the conclusion of the arbitration, with all
rights thereto accruing to the prevailing party upon resolution of the dispute.
Any shares that relate to claims Seller has accepted shall be released to
Purchaser and any shares in excess of those necessary to cover disputed claims
shall be released to Seller on January 2, 1997.
8. Conduct of Business Pending Closing and Post-Closing;
Transition Services. Seller covenants as follows:
(a) From the date hereof until the Closing Date, the
Seller shall continue to operate the Assets in the usual and ordinary course,
shall refrain from any material changes with respect thereto and shall use its
best efforts to preserve the goodwill of its customers, employees, independent
contractors, suppliers, and others with whom the Seller has business relations
that affect the Assets;
(b) Effective as of the Closing Date, Seller shall agree
not to use the Rocktropolis or similar name and shall change its name to a name
that does not include "opolis" and is not similar in sound to Rocktropolis and
Seller shall notify all of its clients of the change in name and that N2K then
owns the Rocktropolis web site and name, such notice to be in a form and with
content approved in advance by Purchaser;
(c) For a period of 120 days following the Closing Date,
Seller shall provide Purchaser transitional operating, engineering, marketing
and other transitional services as requested by Purchaser at cost and Seller
shall make available to Purchaser, at cost (including utilities and other
direct costs), the office space shown on the floor plan set forth on Schedule B
hereto, and the equipment shown on Schedule C hereto, at agreed value;
(d) Seller shall design and construct the JVC Building to
be housed in the Rocktropolis site and any other requirements of Seller in
connection with the agreement between Seller and JVC America, including but not
limited to hosting or providing for the hosting of the JVC website, all at no
cost to Purchaser, except as follows. To the extent Seller requires a third
party host to provide for this service, Purchaser will be required to pay the
actual cost of such third party host for such service subject to a maximum
monthly charge of $750 through March 7, 1997 and $1,000 from March 8, 1977
through March 7, 1998. Purchaser shall pay such invoices
6
<PAGE> 13
within 30 days of receipt. Unless the contract related to JVC America is
assigned to Purchaser such that Purchaser receives payments directly from the
contracting party, Seller shall pay all advertising fees it receives from or on
behalf of JVC America to Purchaser to house the JVC Building site on
Rocktropolis and to house the JVC America website on the Rocktropolis server
for any period after March 7, 1997; and
(e) On or before the Closing Date, the Purchaser must
confirm to the Seller the Purchaser's agreement to use all of the office space
marked on Schedule B and all of the furniture and equipment shown on Schedule C
(except that furniture and equipment in use for those offices that are not
marked as available to Purchaser on Schedule B), all as set forth in Section
8(c) hereof. The Purchaser will obtain, at the Purchaser's cost, liability
insurance covering the Purchaser's use of the premises and equipment during the
transition period.
9. Public Disclosure. Prior to the Closing Date, the parties
hereto shall consult with each other and agree on desirability, timing and
substance of any press release or public announcement or publicity statement or
other disclosures to the public relating to the Acquisition. Except as may be
required by law, prior to the Closing Date, no party shall issue such public
disclosure without the prior agreement of the other parties as to the time of
issuance, extent of distribution and form and substance of such public
disclosure.
10. No Solicitation. For thirty days from the date hereof (the
"Nonsolicitation Period"), the Seller shall, and shall use its best efforts to
cause its representatives, agents and employees to, refrain from (i)
soliciting, discussing or negotiating, directly or indirectly, with any third
party any inquiries, proposals or offers with respect to the sale of the Assets
and (ii) disclosing to any third party that the Assets are for sale. If
subsequent to the date of this Agreement the Seller or its representatives,
agents or employees receive any unsolicited offer or proposal for any such
acquisition, or obtain information that such an offer or proposal is likely to
be made, the Seller will provide the Purchaser with immediate notice of the
terms and identity of the bidder thereof.
11. Brokerage Fees; Expenses. Each of (i) the Purchaser and (ii)
the Seller shall indemnify and hold the other harmless from any claim for
brokerage or finders' fees arising out of the Acquisition contemplated hereby
by any person claiming to have been engaged by the indemnifying party. Each
party hereto agrees to pay its own fees and expenses incurred in connection
with this Letter and the Acquisition, whether or not consummated.
12. Binding Effect. This letter is intended to constitute a binding
contract between us.
13. Miscellaneous. This Letter may be executed in counterparts,
each of which shall be deemed to be an original but all or which
shall constitute one and the same document. This Letter shall be governed by
the laws of the State of New York
7
<PAGE> 14
without regard to conflicts of law principles thereof. The representations and
warranties of the parties hereto shall survive until January 2, 1997.
14. Attorneys Fees. In the event of litigation arising out of
this agreement, the prevailing party shall be entitled, in addition to all
other remedies at law or in equity, to collect reasonable attorneys fees and
court costs.
If the foregoing proposal is acceptable to you, please
indicate your agreement by executing and returning to us one fully executed
copy of this Letter.
We look forward to working with you.
Very truly yours,
N2K INC.
By:
-------------------------
Larry Rosen
Chairman and CEO
Agreed to and accepted this
3rd day of June 1996:
ROCKTROPOLIS ENTERPRISES, LLC
By:
------------------------------
Name:
Title:
- ---------------------------------
Nick Turner
8
<PAGE> 15
Schedule A
Schedule of Assets and Assumed Obligations
Assets
1. All Code and Documentation (as hereinafter defined) for the
Rocktropolis web site, including:
(a) All computer programming code (the "Code") including the
machine readable forms of the Code ("Object Code") and human
readable forms of the Code and related development
documentation, including all comments and any procedural codes
such as job control language ("Source Code").
(b) All materials and other written materials or diagrams that
relate to particular Code either in hard copy or stored or
recorded on magnetic media or machine readable text or graphic
files subject to display or printout ("Documentation"),
including Documentation for any maintenance modifications and
enhancements to the Code.
2. All related development and test utilities, enhancements and
maintenance modifications and all ideas, designs, concepts and
inventions reflected by or embodied in the foregoing (the
"Designwork").
3. The mark "ROCKTROPOLIS," which is a U.S. registered trademark.
4. All of Seller's right, title and interest, if any, in all names,
trademarks, copyrights, patents, patent applications, URL's and logos
which are related to Rocktropolis and all areas of the site, including
but not limited to:
Inspite Magazine
Ozone magazine
Seedy Cds
Downtown News
Pawn Shop
The Eldorado/Battle of the Bands
Buzz Coffee Shop
Roxy movie house
Rocktropolis City Jail
Hula Hut - souvenirs
KNDY FM/Radio Free Rocktropolis
Mustang Sally's gas
Cinetropolis Drive in
Musicians Exchange
<PAGE> 16
Fins Motel
Love Parlour
Church of Rock and Roll
Star Club
The Further Adventures of Soma and Droog
5. Any interest of Seller under oral license agreements with third
parties, including artists and record companies, to the use of their
rights, including intellectual property rights and rights of
publicity, as they are currently being used on the Rocktropolis site
and otherwise in promotional materials for the site.
6. All books and records relating to the Rocktropolis web site, including
but not limited to:
(a) To the extent available, monthly server log reports stating
hits, unique users, impressions and traffic patterns
throughout the site from the time of launch until the
Acquisition and traffic as to other sites hosted on the
servers;
(b) A list showing the content of Version 1.0 of the Rocktropolis
Software and what content from Version 1.0 is currently in
Version 2.0 and what content was created by rVision;
(c) All Code, graphics, interface design and architecture related
to Rocktropolis Software delivered on actual servers with
CD-ROM (or equivalent medium) backup masters;
(d) A printout (bound, organized and clearly indexed by exact
screen and site area derivations) with all processes (Java
Script; Shockwave and other support code) documented
separately and cross-referenced in the index of this printout;
(e) A complete, exhaustive listing and system diagram flowchart
which fully describes the site, including an indication of
content wholly-owned by Seller and also existing links out to
other sites and content partners;
(f) A basic technical specifications diagram which describes the
complete server environment, architecture, and the
telecommunications infrastructure used to support it;
(g) All original artwork, photoshop files and screen elements
(buttons, navigation elements, etc.) in their original high
resolution formats on CD-ROM (or equivalent media);
2
<PAGE> 17
(h) A complete narrative description of the site, its history, and
any "proprietary tools or techniques" used to create the site
to aid the Purchaser in the continuing production process and
a description of changes made between Version 1.0 and Version
2.0; and
(i) A listing of employee names tagged to the creation of all key
screens of the site.
The following exceptions to the provisions of this Paragraph 6 are
acknowledged by the parties:
1. The reports referred to in Item 6(a) above have not been kept
for all periods. To the extent available, they will be
provided.
2. As to Item 6(d), although this material can be compiled it may
not be available by the Closing Date, particularly in the case
of the cross-referencing in the index.
3. To the extent that software is to be delivered on a server, it
is a server owned or leased by the Company; no server is
included in the Assets.
4. Seller agrees to use reasonable efforts with existing
personnel to accomplish the above items prior to the closing.
Purchaser understands that Item 6(c) may not be completed by
the closing. However, if Purchaser should desire, it may at
its cost and with Seller's consent, provide or pay for
additional personnel to expedite the preparation of that
documentation.
ASSUMED OBLIGATIONS
1. The obligation to provide an advertising link from the
Rocktropolis website to the JVC website, as set forth in
Attachment 1 hereto, but none of the other obligations of
Seller thereunder.
2. rVision obligations (as provided in Attachment 2 hereto).
3
<PAGE> 18
SCHEDULE B
[DIAGRAM OF SUNSET BOULEVARD]
<PAGE> 19
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
Date of
Quantity Purchase Description Location
- -------- -------- ----------- --------
<S> <C> <C> <C>
1 2/27/96 Adrian TSU (connection to T1) Phone Closet
1 Pair Advent Speakers (From EFX) Glen Morrissey
1 Altec Lansing Multimedia Speakers Doug Boxer
1 12/12/95 APC UPS 1250 Power Supply (power back-up) Server Room
1 Apple Mac Keyboard Carley
1 12/8/95 Apple Mac Laptop Nick Turner
1 Apple Mac Mouse Carley
1 12/15/95 Apple MacIntosh 7500/100 Power PC Missy Leach
1 12/15/95 Apple MacIntosh 7500/100 Power PC Carley
1 11/1/95 Apple MacIntosh 8500 Power PC Missy Leach
1 12/12/95 Apple MacIntosh 8500/120 Power PC Jason DiFillippo
1 11/1/95 Apple MacIntosh 8500/120 Power PC Behind Carley
1 1/2/96 Apple MacIntosh Keyboard Jason DiFillippo
1 1/2/96 Apple MacIntosh Keyboard Carley
1 Apple MacIntosh Keyboard Behind Carley
1 Apple MacIntosh Mouse Jason DiFillippo
1 Apple MacIntosh Mouse Missy Leach
1 Apple MacIntosh Mouse Behind Carley
1 Apple MacIntosh Power PC/120 Carley
1 AT&T Answering Machines Phone Closet
1 11/2/95 BOCA 10 Base T Concentrator (hub) Server Room
1 1/6/96 BOCA hub 16 plus (hubs) Phone Closet
1 11/15/95 Brother P Touch XL35 Programming Room
1 10/30/96 CD Rom Smart & Friendly Jason DiFillippo
1 2/27/96 Cisco Pro Router (transfers data) Phone Closet
1 Compaq Keyboard David Lyle
1 Compaq mouse David Lyle
1 Compaq Mouse Server Room
1 11/2/95 Compaq Prolinea 5100 - 15 MG Gordon Drake
1 11/2/95 Compaq Prolinea 5100 w/no cd drive David Lyle
1 11/2/95 Compaq Prolinea 5100 with cd drive Server Room
(internal network server) "Soma"
1 12/5/95 Dell Dimension P100T Computer Conference Room
1 Dell Monitor Server Room
1 Dell quiet key keyboard Conference Room
1 Discdrive Behind Carley
1 Fellowes Power shred PS 50 David Wandrey
1 Gateway 2000 keyboard Gordon Drake
1 11/14/95 Gateway 2000 solo portable computer Glenn Morrissey
1 HP Fax 700 Gordon Drake
</TABLE>
Page 1
<PAGE> 20
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
Date of
Quantity Purchase Description Location
- -------- -------- ----------- --------
<S> <C> <C> <C>
1 17-Nov HP Laserjet 4 Printer Programming Room
1 12/12/95 HP Scan jet 3c Carley
1 9/12/95 HP Scan jet 3C Color Scanner Mac Behind Carley
1 12/15/95 HP Scan jet 4C/t Carley
1 Keyboard Doug Boxer
1 Keyboard Behind Carley
1 3/6/96 KitchenAid Superba Blk Dishwasher Kitchen
1 Pair 1/4/96 Labtec CS900 computer speakers system Gordon Drake
1 Pair 1/4/96 Labtec Speakers David Lyle
1 Linksys 8 port hub David Lyle
1 Logitech mouse Conference Room
1 Microsoft Mice Server Room
1 Microspeed Keyboard Missy Leach
1 Microspeed Keyboard Missy Leach
1 12/11/95 Minolta 2050 Photocopier Programming Room
1 9/12/95 Milac Syquest 200 MC C Carley
1 Mouse Doug Boxer
1 2/15/96 NEC Multisynch XV17 Monitor Doug Boxer
1 11/28/95 Pavilion 7090 Computer 16MG Ram Doug Boxer
1 Provista 14 Monitor David Lyle
1 Provista 14 Monitor Server Room
1 12/12/95 Sony Multiscan 20SE Monitor Conference Room
1 12/12/95 Sony Multiscan 20SE Monitor Missy Leach
1 12/12/95 Sony Multiscan 20SE Monitor Carley
1 12/12/95 Sony Trinitron Multiscan 20SE Monitor Jason DiFillippo
1 10/31/95 Sony Trinitron Multiscan 20SE Monitor Carley
1 11/1/95 Sony Trinitron Multiscan 20SE Monitor Glenn Morrissey
1 12/12/95 Syquest 200 MB C (Removable 200) Carley
1 Teac EW750R Double Cassette Deck Carley
1 11/8/95 Toshiba Strata DK 280 Phone System Phone Closet
1 1-Nov Trinitron Sony Multiscan SE Behind Carley
1 2/27/96 Triplight UPS (battery back-up) Phone Closet
1 Video Cassette Recorder AG-5700 Carley
1 11/2/95 Viewsonic 15 Monitor David Lyle
1 11/2/95 Viewsonic 17 Monitor Server Room
1 11/2/95 Viewsonic 17GS Monitor Gordon Drake
1 Wacom Pencil & Pad Carley
1 Zeos Keyboard Server Room
1 11/16/95 Zeos Pantera - only 1 cd drive Server Room
(main server) "Droog"
</TABLE>
Page 2
<PAGE> 21
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION LOCATION
- -------- --------- ----------- --------
<S> <C> <C> <C>
1 16-Nov Zeos Pantera with cd & tape back-up until (transaction server) Server Room
</TABLE>
<PAGE> 22
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
FIXTURES & FITTINGS
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION LOCATION
- -------- --------- ----------- --------
<S> <C> <C> <C>
1 15-Nov-95 2 drawer gray Sentry file cabinet (Fireproof) David Wandrey
1 9-Jan-96 black 2 drawer file cabinet Carley
1 9-Jan-96 black 2 drawer file cabinet (small) Jason
1 25-Jan-96 black 2 drawer horizontal file cabin Glenn Morrissey
1 black 4 drawer file cabinet David Wandrey
1 14-Dec-95 black 4 drawer file cabinet Doug Boxer
1 25-Jan-96 black 5 shelf bookcase David Wandrey
1 1-Nov-96 black 5 shelf bookcase Doug Boxer
1 14-Dec-95 black 5 shelf bookcase Jason
2 14-Dec-95 black fabric chairs w/arm rests Rick Stevens
1 20-Dec-95 black high back office chair David Lyle
1 20-Dec-95 black high back office chair Carley
2 20-Dec-95 black high back office chairs w/arm rests Jason
1 20-Dec-95 black high backed chair w/arm rests Rick Stevens
1 20-Dec-95 black high backed chair w/arm rests Trevor Gilchrist
1 20-Dec-95 black high backed office chair w/arm Doug Boxer
1 black lamp Glenn Morrissey
1 11/11/95 black leather/chrome chair w/arm rest Reception
1 8-Mar-96 black love seat Reception
1 black table lamp Doug Boxer
1 black table lamp Deana J. Smart
1 black, 2 drawer file cabinet (small) Deana J. Smart
1 13-Nov-95 black, 2 drawer horizontal file cabi Deana J. Smart
1 black, 2 drawer horizontal file cabinet Deana J. Smart
5 11-Nov-95 black, fabric low backed chairs Conference Room
1 11-Nov-95 black/chrome low backed office chair Doug Boxer
1 11-Nov-95 black/chrome low backed office chair Doug Boxer
2 11-Nov-95 black/gray marble table bases Conference Room
2 8-Mar-96 blinds - Aluminium - 118 1/2 x 43 3/8 Rick Stevens
1 8-Mar-96 blinds - Aluminium - 122 x 47 1/2 Trevor Gilchrist
2 8-Mar-96 blinds - Aluminium - 122 x 47 1/2 David Wandrey
1 8-Mar-96 blinds - Aluminium - 122 x 47 1/2 Doug Boxer
1 12-Mar-96 blinds - Aluminium - 122 x 47 1/2 Glenn Morrissey
1 12-Mar-96 blinds - Aluminium - 122 x 47 1/2 Nick Turner
1 11-Nov-95 circular glass table top Conference Room
1 copper/black table lamp Reception
</TABLE>
Page 1
<PAGE> 23
OFFICE EQUIPMENT INVENTORY AS AT 3/25/96
FIXTURES & FITTINGS
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION LOCATION
- -------- --------- ----------- --------
<S> <C> <C> <C>
1 cork pin board David Wandrey
1 drawer bookcase Trevor Gilchrist
1 27-Dec-96 glass top table (1 surface) Gordon Drake
1 glass top table (1 surface) Behind Carley
1 gray 4 drawer file cabinet Server Room
1 gray Sentry 6380 prof. quality safe Deana J. Smart
1 25-Mar-96 multicolored table lamp Rick Stevens
1 28-Nov-95 Pan KP 310 Blk Electric Sharpener Reception
1 11-Nov-95 small rectangular glass table top w/base Rick Stevens
1 8-Mar-96 small rectangular glass table top w/base Rick Stevens
4 14-Nov-95 tall black stools Programming Room
1 14-Nov-95 circular glass table top w/black base Programming Room
1 25-Mar-96 tall rectangular glass table top w/glass base Rick Stevens
1 11-Nov-95 tribal base table lamp Rick Stevens
1 white table lamp David Wandrey
1 white table lamp (adjustable) Gordon Drake
1 wooden table David Lyle
1 3-Jan-96 wraparound, glass top desk (3 surfaces) with shelf Glenn Morrissey
1 27-Dec-95 wraparound, glass top desk (3 surfaces) with shelf Trevor Gilchrist
1 14-Nov-95 wraparound, glass top desk (3 surfaces) with shelf Carley
1 14-Nov-95 wraparound, glass top desk (3 surfaces) with shelf David Lyle
1 14-Nov-96 wraparound, glass top desk (3 surfaces) with shelf David Wandrey
1 wraparound, glass top desk (3 surfaces) with shelf Doug Boxer
1 wraparound, glass top desk (3 surfaces) with shelf Deana J. Smart
1 11-Nov-95 yellow leather chair Rick Stevens
1 11-Nov-95 yellow leather couch Rick Stevens
1 11-Nov-95 yellow leather stool (low) Rick Stevens
</TABLE>
Page 2
<PAGE> 24
OFFICE EQUIPMENT INVENTORY AS AT 3/25/9?
OFFICE EQUIPMENT
<TABLE>
<CAPTION>
DATE OF
QUANTITY PURCHASE DESCRIPTION
- --------
<S> <C> <C> <C>
Computer Ram & Hard Drive
Ram Hard Drive
Missy 32 Mg 2 Gig
Pietsie 48 Mg 2 Gig
Jason 16 Mg 1 Gig
Jason 64 Mg 2 Gig
Ward 32 Mg 1 Gig
Carley 32 Mg 2 Gig
Extra 24 Mg 1 Gig
DB 16 Mg 1.6 Gig
Droog 64 Mg 2 x 2 Gig
Soma 32 Mg 1 Gig
Server 64 Mg 2 Gig & 1 Gig
Server 16 Mg 1 Gig
DW 16 Mg 1 Gig
</TABLE>
Page 1
<PAGE> 25
Attachment 1
(Attach latest draft of JVC America contract)
<PAGE> 26
ATTACHMENT 1
THIS CONTRACT IS AN AMENDMENT and acknowledgment between Rocktropolis
Enterprises, LLC, herein after referred to as the "DEVELOPER" and Boulder
Marketing Agency, Inc., herein after referred to as the "AGENCY," governing
services to be provided by the Developer and the Agency in connection with the
development and marketing of a Web-site to be made available to the market by
the Agency to JVC COMPANY OF AMERICA, herein after referred to as the "CLIENT,"
on the subject of JVC-AMERICA.COM.
1. This contract relates to the development and marketing of
JVC-AMERICA.COM, herein after referred to as the "WEB-SITE," an Internet World
Wide Web-site, being co-developed by the Agency and the Developer.
2. The Developer shall provide services as defined in the letter of intent
in connection with this project and thereby incorporated within and made a part
of this contractual agreement. All services will be provided with the best
state of the art technologies known to the Developer.
3. In consideration of the services provided by the Developer, the Agency
agrees to compensate the Developer a total of $95,000 in the following fashion:
(a) A first installment* in the amount of $30,000
* First installment already paid by J. Kevin Weinhoeft, Consultant,
now operating as Boulder Marketing Agency, Inc., J. Kevin
Weinhoeft, President.
(b) A second installment of $30,000 already paid to the Developer
(c) A final installment of $35,000 ten (10) business days after the
Web-site is fully constructed, with the Client's written approval.
4. The Agency agrees to pay the Developer within ten (10) business days
for all services which may be incurred in the performance of this agreement.
5. It is agreed and understood that the agreement for services outlined
below in paragraphs 10. and 11, and compensation outlined in paragraph 3, cover
a period commencing with the date the Web-site is fully constructed to the
Client's approval, ending one year from said date. Exceptions include paragraph
7 and 8 and the JVC Building* and which will reside in Rocktropolis for a period
from June 5, 1996 to March 31, 1998.
*See 7b.
6. It is also understood that the Developer has been employed and is being
compensated accordingly for their services by the Agency. In such, the
Developer will be required to execute all provisions and services outlined in
this agreement. Moreover, in the event the Agency cannot fully execute their
services to the term of this agreement, the Developer will guarantee to the
Client that there will be an interruption in services or Web-site updates.
<PAGE> 27
7. It is agreed and understood the following services will be offered to
the Agency and their Client. In the second year of this agreement, commencing
March 31, 1997, ending March 31, 1998. All services will be provided to the
State of the art technologies known by the Developer. In addition, it is also
understood that the fees outlined in b, c and d, will be applied as the pricing
ceiling should the Agency or Client request to make changes or additions to the
Web-site during the first year of this agreement. The services will be provided
at a reasonable cost to the Agency and Client; maintaining economics with no
compromise to the Web-site. These services will include:
(a) $500.00 a month for server time and maintenance
(b) $1,500.00 a month for the JVC Building
(c) $1,400.00 per new page template
(d) $350.00 per graphic update
(e) $250.00 per page to changeover or add product photos and text.
8. It is understood that this agreement does not imply that the Agency and
Client must use the Developer's programming and creative services in the second
year of the agreement. In such, the Agency and Client will hold a second year
option to employ the Developer for the services outlined in paragraph 7c, 7d
and 7e. However, the Web-site will reside on the Developer's server(s)* and JVC
Building will remain in Rocktropolis.**
*See 7a, **see 7b
9. It is also understood that in the event that the Developer(s) business
is purchased by any organization, the Agency reserves and maintains the right
to take control of all the Client's Web-site content at any given time.
Moreover, the Agency will also have the right to ascertain and acquire all
software, content, and have day-to-day online FTP access as it relates to the
Client's Web-site. The Agency will require the Developer to fully comply with
this point before final compensation.
10. Pursuant to the compensation outlined in paragraph 3, the Developer
agrees to provide the following services to the Agency and his Client from
March 31, 1996, to March 31, 1997.
(a) Development* and monthly updates within the Web-site
(b) A JVC Building in Rocktropolis
(c) One year server time and maintenance
(d) Monthly report on number of "hits" in the Web-site
*Please note the Web-site design has been approved by the Agency and Client,
with the only changes to be made will be textural in nature.
11. Pursuant to the compensation outlined in paragraph 3, the Developer
agrees to include the following entries in the Web-site:
(a) Forty-one page home and product area including phones and copy
(b) Promotional Event pages
<PAGE> 28
(c) Monthly FAQ's and library of FAQ's
(d) Hyperlinks to other JVC affiliated companies
(e) Retail Store ?????? including monthly updates
12. The Agent and Client rights will include the following:
(a) The Agent and Client will own and copyright all of the content
within their Web-site.
(b) Final decision on creative, content, promotion and links within
their Web-site.
(c) If the server(s), mirrored server(s) or software are off-line for a
period of more than 48 hours, the Client will be reimbursed at a
rate of $200.00 per day. Exceptions include earthquakes or any
other "acts of God."
(d) At the Agency's or Client's written request, the Web-site may be
offered to a commercial online service, however, the Client will be
required to pay any and all costs related to the translation of the
Web-site to the commercial service(s).
13. The Agent and Client reserve the rights to sell or barter advertising or
links within their Web-site. All revenues or merchandise acquired from said
relationship will be the sole property of the Agency and Client.
14. This contract may be terminated by the Agency and its Client at any
time upon written notice by the Agency. In the event of termination, the
Developer will be compensated for services provided satisfactory to the date on
the written notice.
15. This contract is binding upon and inures to the benefit of the parties
hereto and their respective administrators and personal representatives, and
shall be governed by the laws of the state of Colorado.
16. This contract is the entire and complete agreement between the parties
and may be extended in duration and or scope by mutual written agreement.
17. This version of the contract voids the previously submitted contract(s),
and is herein submitted with the understanding the Developer will tender this
agreement prior to the sale of the Rocktropolis Web-site. Moreover, it is also
understood that Rocktropolis Enterprises, LLC guarantees and agrees to the
terms of this agreement. It is also understood that all communications related
to the Web-site will be channeled through the Agency to his Client.
Signed this the day of , 1996.
- --------------------------------- ---------------------------------------
Agency Developer
<PAGE> 29
Attachment 2
(Attach rVision contract)
<PAGE> 30
ATTACHMENT 2
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
THIS MUTUAL RELEASE AND SETTLEMENT AGREEMENT (the "Agreement") entered
into as of the 15th day of June 1995, by rVision, Inc., a California
corporation, and each and all of their affiliates and related entities,
employees, officers, shareholders, directors, agents and representatives
(collectively, "Company"), on the one hand, and Nick Turner ("Client"), on the
other hand, is a mutual release whereby Company and Client, pursuant to Section
1541 of the Civil Code of the State of California, extinguish their respective
rights and claims against each other with respect to the matters hereinafter
set forth.
WHEREAS, certain controversies and disputes have arisen between the
Company and Client in connection with that certain agreement between the
Company and Client contained in a Work Order dated January 18, 1995, including
Schedule "A" (Scope of Work) thereto relating to, among other things, the
layout and design by the Company of the "Rocktropolis Internet Site", the
development of a computer screen saver on mutually agreed terms and conditions,
the distribution thereof, the payment of royalties, and other terms and
conditions (collectively the "Agreement"); and
WHEREAS, it is the purpose and desire of Company and Client to release
and discharge each other and to settle all matters between them arising
directly or indirectly out of their relationship, including, but not limited
to, their contractual relationship in connection with the Agreement.
NOW, THEREFORE, in consideration of the obligations, promises and
representations provided for hereunder and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Company and Client hereby agree as follows:
1. Agreements. The Company and the Client hereby confirm and
agree, notwithstanding the terms and conditions of this Mutual Release and
Settlement Agreement to the contrary, as follows:
(a) That Client has paid the sum of $22,500.00 to date on account of
Clients obligation to pay for the work performed by the Company for the Client
under the terms of the Agreement. All artwork created to date is solely owned
by Nick Turner.
(b) That the sum of $7,500.00 remains unpaid by the Client under
the Agreement (the "Unpaid Balance"),
(c) That Client owes to the Company, the additional sum of
$1,000.00 on account of certain, additional work requested by the Client and
performed by the Company, including, but not limited to the "Blimp"
illustration, outside of and in addition to the scope of work required to be
performed by the Company under the Agreement (the "Unpaid Additional Work
Balance"),
(d) That the Company hereby forgives this Unpaid Balance and that
the Client shall have no obligation to pay the same to the Company,
(e) That the Client agrees to pay the Unpaid Additional Work
Balance within sixty (60) days after the date of this Mutual Release and
Settlement Agreement, and that upon payment thereof to the Company, the Client
will own the "Artwork" with in connection with the "Blimp" image created by the
Company,
(f) That the Company and Client shall have no obligation to jointly
create either a screen saver or a CD Rom under mutually agreed upon terms and
conditions as provided for in paragraphs 3(a), 3(b), 3(c) and 3(h) of the
Agreement, and that the Company shall have no further rights with respect to
the creation of either a screen saver or a CD Rom as provided for in the
Agreement.
(g) That the Company shall have the right, at its election, in
accordance with paragraph 3(e), to place and to maintain at all times on the
"Rocktropolis Home Page", the "Company's Home Page" in accordance with the
terms of paragraph 3(e) of the Agreement.
(h) That the Company shall immediately deliver to the Client, all
computer artwork, files and icons to which the Client is entitled under the
Agreement.
(i) That the Company has satisfied in full, all of its obligations
to the Client under the terms and conditions of the Agreement.
(j) That the rights of the Company under paragraphs 3(c), 3(e) 3(f)
and 3(g) shall remain in full force and effect.
<PAGE> 31
(k) That there are no other agreements whatsoever between the
Company and the Client, whether oral or in writing.
2. Releases. Except as provided in this Mutual Release and
Settlement Agreement, the Company hereby releases and discharges Client, and
Client hereby releases and discharges Company, together with the agents,
representatives, employees, officers, partners, insurers, directors,
stockholders, attorneys, predecessors, successors, assigns, heirs, personal
representatives, administrators and executors of each of Company and Client,
both past and present, and all persons, firms, corporations, partnerships,
associations, copartners, coventurers, contractors, engineers, subcontractors,
subsidiaries, parents, affiliates or corporations connected therewith, and each
of them, from any and all claims, debts, liabilities, demands, obligations,
responsibilities, rights, damages, losses, costs, expenses, attorneys' fees,
compensation, actions and causes of action of every nature, character and
description, which either had hold, now holds or may in the future hold,
whether known or unknown, foreseen or unforeseen, patent or latent, inchoate or
contingent, including but not limited to those directly or indirectly arising
out of the Agreement and out of any other relationship of Company and Client,
including, but not limited to and joint venture contemplated by the Company and
the Client.
3. Waiver. Company and Client understand the following statutory
language and elect to expressly waive all rights either may have under Section
[illegible in original] of the Civil Code of the State of California which reads
as follows:
"A general release does not extent to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which is known by him must have
materially attested his settlement with the debtor."
Having read and considered such statutory language and having been
apprised of the legal effect thereof, the parties hereto nevertheless hereby
elect to and to expressly waive the provisions thereof and knowingly and
voluntarily assume all risks for claims heretofore or hereafter arising, known
or unknown, foreseen or unforeseen, patent or latent, which either may have
against the other arising directly or indirectly out of the Agreement and out of
any other relationship of Company and Client, including but not limited to and
joint venture contemplated by the Company and the Client.
4. Full Agreement. Company and Client acknowledge that no
representation or promise not expressly contained in this Mutual Release and
Settlement Agreement has been made to the other and further acknowledge that
they are not entering into this Agreement on the basis of any such promise or
representation, expressed or implied. This release is all-embracing and
all-encompassing and supersedes any and all agreements, expressed or implied,
oral or written, which Company and Client may have heretofore entered into with
respect to the Agreement and with respect to any other relationship of Company
and Client, including, but not limited to and joint venture contemplated by the
Company and the Client. Further, it is the intentions of Company and Client
that this release shall extinguish, release and effect a final and absolute
conclusion of all claims, rights, duties and obligations, actual, inchoate or
contingent, which Company or Client may previously, now or hereafter have
against each other.
5. Representations and Warranties. Company and Client hereby
represent and warrant to the other that it/he has not heretofore assigned,
transferred, sold, granted or purported to assign, transfer, sell or grant to
any entity, person or corporation, any claim, demand, debt, controversy,
liability, obligation, action, matter or cause of action disposed of and
discharged by the general and special releases set forth in paragraphs 2 and 3
above. Client represents and warrants that his spouse has no interest or right,
or disclaims any, in any action, claim or matter which is hereby being released.
6. Authority. Company and Client represent and warrant that they
have power and authority to enter into this Mutual Release and Settlement
Agreement and in the names, titles and capacities stated and on behalf of any
entities or parents they represent or purport to represent with respect to the
Agreement and any other relationship of Company and Client, including, but not
limited to any joint venture contemplated by the Company and the Client.
7. Compromise of Disputed Claims. This Mutual Release and
Settlement Agreement is a compromise of disputed claims and the fact that the
parties hereto have determined to compromise such disputed claims by entering
into this Mutual Release and Settlement Agreement is not to be construed as an
admission of liability on the part of either party hereto.
8. Binding Effect. Company and Client agree that this Mutual
Release and Settlement Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and to any and all of their present and former
agents, representatives, servants, employees, officers, directors, attorneys,
heirs, executors, assigns, predecessors and parties in interest, as the case may
be.
<PAGE> 32
9. Litigation. Company and Client shall forever refrain and
forbear from commencing, instituting or participating, either as a named or
unnamed party in any lawsuit, action or other proceeding against the other,
whether brought by themselves or by others on their behalf, based on or arising
directly or indirectly out of any facts or circumstances which are related to
the Agreement or to any other relationship of Company and Client, including but
not limited to any joint ventures contemplated by the Company and the Client. In
the event of any litigation hereunder, the losing party shall pay the costs and
expenses, including reasonable attorneys' fees of the prevailing party in
connection therewith.
10. Indemnification. Each party agrees that in the event that other
party incurs any liability because of any breach of any of the provisions of
this Mutual Release and Settlement Agreement, it/he shall indemnify and hold
harmless the other party from and against such liability, including necessary
expenses, reasonable attorney's fees and costs.
11. Governing Law. This Mutual Release and Settlement Agreement is
made pursuant to and is to be governed in accordance with the laws of the State
of California.
12. Counterparts. This Mutual Release and Settlement Agreement may
be executed in several counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same Mutual Release
and Settlement Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Mutual
Release and Settlement Agreement as of the day and year first above written.
Vision, Inc.
a California Corporation
By [SIG] By [SIG]
----------------------------- --------------------------------
Michael F. Siegel, President Nick Turner
"Company" "Client"
<PAGE> 1
Exhibit 10.14
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, dated as of February 13th, 1996, by and
among ROBERT DAVID GRUSIN, LAWRENCE L. ROSEN, JONATHAN V. DIAMOND, JEROLD L.
ROSEN, CHRISTOPHER L. BELL and MARY KAY FLETCHER (collectively, the
"Shareholders") and N2K INC., a Pennsylvania corporation formerly known as
Telebase Systems, Inc. ("Telebase").
WHEREAS, N2K Inc., a New York corporation ("N2K"), and Telebase have
entered into a Merger Agreement, dated as of January 31, 1996 (the "Merger
Agreement"); and
WHEREAS, the execution of this Agreement is a closing condition under
the Merger Agreement;
WHEREAS, the Shareholders collectively own all of the assets and
outstanding capital stock by N2K;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties agree as follows:
SECTION 1. INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders hereby
jointly and severally agree to indemnify and hold Telebase harmless against and
from any and all liabilities, losses, claims, damages or expenses, including
without limitation reasonable attorneys' fees, arising from or in connection
with:
(a) The breach of any warranty, the failure or misstatement of
any representation, or the failure to fulfill any covenant or agreement made by
N2K in the Merger Agreement or in any certificate, schedule, document or other
instrument furnished by N2K or any representative thereof under or in connection
with he Merger Agreement or the transactions contemplated therein;
(b) Any and all claims, suits, actions or proceedings for
brokerage or other commissions by reason of any claim by any person in whatever
capacity claiming to have been engaged by or on behalf of N2K, or any affiliate
or subsidiary thereof, or with whom N2K, or any affiliate or subsidiary thereof,
is claimed to have made an agreement for compensation relative to the Merger
Agreement or to the transactions contemplated thereby.
(c) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses (including without limitation
reasonable attorneys' fees) incident to any of the foregoing.
<PAGE> 2
SECTION 2. PROCEDURE FOR INDEMNIFICATION BY THE
SHAREHOLDERS.
(a) If any claim for indemnification is made by Telebase under
Section 1, Telebase shall send the Shareholders a notice setting forth the
amount claimed and the basis for such claim.
(b) If the facts giving rise to the claim for indemnification
shall involve any actual or threatened claim or demand by any third party
against Telebase or by Telebase against any third party, Telebase shall defend
or prosecute such claim at the Shareholders' expense and through counsel of
Telebase's choosing.
(c) The Shareholders shall cooperate in the defense or prosecution
of any such claim or defense and furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials, and
appeals as may be reasonably requested in connection therewith. The Shareholders
shall be entitled to participate in the defense of any such claim, demand or
litigation at their expense and through counsel of their own choosing, and
Telebase shall cooperate in such defense to the same extent as the Shareholders
are obligated to cooperate under this subparagraph (c).
(d) Telebase may not settle any claim, demand or litigation which
could result in liability of the Shareholders under this Agreement unless the
Shareholders have consented to such settlement in writing.
SECTION 3. MANNER OF INDEMNIFICATION. All indemnification by the
Shareholders hereunder shall be effected solely by return to Telebase of all or
a portion of the escrowed shares (the "Escrowed Shares") in accordance with the
Escrow Agreement as described in Section 7 hereof. Telebase shall have no
additional or separate rights against the Shareholders other than as set forth
in this Agreement.
SECTION 4. INDEMNIFICATION BY TELEBASE. Telebase hereby agrees to
indemnify and hold harmless the Shareholders and their heirs, successors or
assigns from any liabilities, losses, claims, damages or expenses, including
without limitations reasonable attorneys' fees, arising from or in connection
with:
(a) The breach of any warranty, the failure or misstatement of any
representation, or the failure to fulfill any covenant or agreement made by
Telebase in the Merger Agreement or in any certificate, schedule, document or
other instrument furnished or to be furnished by Telebase or any representative
thereof under or in connection with
2
<PAGE> 3
the Merger Agreement or the transactions contemplated therein;
(b) Any and all claims, suits, actions or proceedings for
brokerage or other commissions by reason of any claim by any Person in whatever
capacity claiming to have been engaged by or on behalf of Telebase, or any
affiliate or subsidiary thereof, or with whom Telebase, or any affiliate or
subsidiary thereof, is claimed to have made an agreement for compensation
relative to the Merger Agreement or the transactions contemplated thereby; and
(c) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses (including without limitation
reasonable attorneys' fees) incident to any of the foregoing.
SECTION 5. PROCEDURE FOR INDEMNIFICATION BY TELEBASE.
(a) If any claim for indemnification is made by any Shareholder or
Shareholders under Section 4, such Shareholder or Shareholders shall send
Telebase a notice setting forth the amount claimed and the basis for such claim.
(b) If the facts giving rise to the claim for indemnification
shall involve any actual or threatened claim or demand by any third party
against any Shareholder or Shareholders, or by any Shareholder or Shareholders
against any third party, such Shareholder or Shareholders shall defend or
prosecute such claim in the name of such Shareholder or Shareholders at
Telebase's expense and through counsel of such Shareholder's or Shareholders'
choosing.
(c) Telebase shall cooperate in the defense or prosecution of any
such claim or defense and furnish such records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials, and appeals as
may be reasonably requested in connection therewith. Telebase shall be entitled
to participate in the defense of any such claim, demand or litigation at its
expense and through counsel of its own choosing, and the Shareholders shall
cooperate in such defense to a same extent as Telebase is obligated to cooperate
under this subparagraph (c).
(d) The Shareholders may not settle any claim, demand or
litigation which could result in liability of Telebase under these indemnity
provisions unless Telebase has consented to such settlement in writing.
3
<PAGE> 4
SECTION 6. MANNER OF INDEMNIFICATION. All indemnification by Telebase
hereunder shall be effected by the issuance by Telebase to the applicable
Shareholders of up to an aggregate of 1,250,000 shares of Common Stock, par
value $0.001 per share ("Common Stock"), of Telebase at a value of $.80 per
share (the air market value of such stock as of the date hereof) in proportion
to each Shareholder's ownership interest in Telebase at the Effective Time of
the Merger. For example, a claim by any Shareholder for $160,000 would result in
such Shareholder receiving an additional 200,000 shares of Common Stock in
addition to the shares received by them at the Effective Time.
SECTION 7. SECURITY FOR PERFORMANCE; ESCROW AGREEMENT. All
indemnification by the Shareholders hereunder shall be effected by the delivery
by the Shareholders to Telebase of up to an aggregate of 1,250,000 shares of
Common Stock at a value of $.80 per share (the fair market value of such stock
as of the date hereof) in proportion to the number of Shares of Common Stock
received by each of them as part of the Merger Consideration.
SECTION 8. LIMITATIONS ON INDEMNIFICATION.
(a) The Shareholders shall not be obligated to pay any amounts for
indemnification to Telebase under Section 1 until the aggregate amounts for
indemnification for any such claims under Section 1 equal $50,000, where upon
the Shareholders shall be obligated to pay all such amounts for indemnification,
including the first $50,000, pursuant to the terms of the Escrow Agreement.
(b) Telebase shall not be obligated to pay any amounts for
indemnification to the Shareholders under Section 4 until the aggregate amounts
for indemnification for any such claims under Section 4 equal $50,000, whereupon
Telebase shall be obligated to pay all such amounts for indemnification,
including the first $50,000, pursuant to Section 6 hereof.
SECTION 9. LIMITATION OF RIGHTS. The rights and remedies contained in
this Agreement shall be the sole and exclusive rights of Telebase and of
Shareholder against each other with respect to the liabilities set forth in
Sections 1 and 4, respectively, hereof. All claims for indemnification made by
the Shareholders against Telebase pursuant to Section 4 hereof and all claims
for indemnification made by Telebase against the Shareholders pursuant to
Section 1 hereof must be made prior to the earlier to occur of (i) one (1) year
from the Effective Time and (ii) the consummation of an Initial Public Offering
by Telebase (the "Cut-Off Time"). Any claims made by any of the parties hereto
after the Cut-Off Time shall not be
4
<PAGE> 5
entitled to the rights and benefits of this Agreement. Telebase agrees that,
subject to the terms of the Escrow Agreement, if no claims have been made by
Telebase for indemnification pursuant to Section 1 hereof on or prior to the
Cut-Off Date, the Escrowed Shares promptly shall be returned to the
Shareholders.
SECTION 10. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York, without regard to conflict of laws principles.
SECTION 11. COUNTERPARTS. This Agreement may be executed pursuant
to one or more counterparts each of which shall be deemed an original and a part
hereof.
SECTION 12. DEFINED TERMS. All capitalized terms not otherwise
defined herein shall have the meaning set forth in the Merger Agreement.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first set forth above.
_____________________________________
Robert David Grusin
_____________________________________
Lawrence L. Rosen
_____________________________________
Jonathan V. Diamond
_____________________________________
Jerold L. Rosen
_____________________________________
Christopher L. Bell
_____________________________________
Mary Kay Fletcher
N2K INC.
_____________________________________
Bruce Johnson, Vice President
6
<PAGE> 1
EXHIBIT 11.1
N2K INC. AND SUBSIDIARY
PRO FORMA NET LOSS PER COMMON SHARE CALCULATION(A)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Pro forma net loss per common share:
Net loss................................................ $(1,594,800) $ (5,384,212)
============= ===============
Weighted average number of shares issued and
outstanding.......................................... 2,089,298 3,017,521
Incremental number of shares related to preferred stock
and common stock issuances and common stock options
and warrants granted within twelve months of the
initial public offering
- Preferred stock.................................... 3,780,131 3,780,131
- Common stock....................................... 1,865,200 937,005
- Common stock options and warrants.................. 1,118,383 1,103,788
Preferred stock converted into common stock upon
consummation of the initial public offering.......... 2,086,977 2,086,977
----------------- ------------------
Adjusted weighted average number of shares
outstanding.......................................... 10,939,989 10,925,422
============= ===============
Pro forma net loss per common share..................... $ (0.15) $ (0.49)
----------------- ------------------
</TABLE>
- ---------------
(A) Pro Forma Net Loss Per Common Share (Unaudited)
Pro forma net loss per Common share was calculated by dividing net loss by
the weighted average number of common shares outstanding for the respective
periods adjusted for the dilutive effect of common stock equivalents, which
consist of stock options using the treasury stock method. Pursuant to the
requirements of the Securities and Exchange Commission, common stock issued
by the Company during the twelve months immediately preceding the initial
public offering, plus the number of common equivalent shares which became
issuable during the same period pursuant to the grant of common stock
options and warrants, have been included in the calculation of the shares
used in computing pro forma net loss per Common share as if they were
outstanding for all periods presented (using the treasury stock method and
the initial public offering price of $11.00 per Common share). Pursuant to
the policy of the staff of the Securities and Exchange Commission, the
calculation of shares used in computing pro forma net loss per Common share
also includes the Series A, Series B, Series C and Series D Preferred stock
which will convert into 228,369, 238,095, 800,000 and 820,513 shares,
respectively, of Common stock upon the consummation of the Offering
contemplated by this Prospectus as if they were converted to Common stock
on their original date of issuance. The Series E and Series F Preferred
Stock which will convert into 2,002,354 and 1,777,777 shares, respectively,
of Common stock upon the consummation of the Offering, have been included
as outstanding for all periods presented since they were issued during the
twelve months immediately preceding the initial public offering.
Additionally, all common share and per share amounts have been adjusted
retroactively to give effect to the pooling-of-interests transaction that
occurred with Advanced Research Technologies, Inc. on December 15, 1995.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
The Company's only subsidiary is TSI Licensing, Inc., a wholly-owned
subsidiary which was organized under the General Corporation Law of the State
of Delaware on May 24, 1996.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To N2K Inc.:
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
June 21, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated January 31, 1996, with respect to Note F, February 13, 1996, on
our audit of the financial statements of N2K Inc. as at December 31, 1995 and
for the period beginning March 7, 1995 (date of inception) through December 31,
1995. We also consent to the reference to our firm under the caption "Experts".
Richard A. Eisner & Company, LLP
New York, New York
June 18, 1996
/s/ Richard A. Eisner & Company, LLP
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