<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997
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)
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<S> <C> <C>
DELAWARE 7375 06-1455771
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Code Identification No.)
organization) Number)
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N2K INC.
55 BROAD STREET, 26TH 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, 26TH 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:
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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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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(3)
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Common Stock, par value $0.001 per share............. $43,400,000 $13,152
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(1) Includes 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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 7, 1997
SHARES
N2K INC.
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby are being offered by N2K
Inc. ("N2K" or the "Company"). Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $ and $ per share. See
"Underwriting" for certain factors to be considered in determining the initial
public offering price. The Company intends to apply for quotation of the Common
Stock on the Nasdaq National Market under the trading symbol "NTKI."
These securities involve a high degree of risk. See "Risk Factors"
beginning on page 7 of this Prospectus for a discussion of certain factors that
should be considered by prospective investors.
------------------------
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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Price to Proceeds to
Public Underwriting Company(2)
Discounts and
Commissions(1)
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Per Share......................... $ $ $
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Total............................. $ $ $
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Total Assuming Full Exercise of
Over-Allotment Option(3)........ $ $ $
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(1) See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to additional shares, on the same terms, solely
to cover over-allotments. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about
, 1997.
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PAINEWEBBER INCORPORATED UNTERBERG HARRIS
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[INSIDE FRONT COVER GATEFOLD -- GRAPHIC INCORPORATING THE N2K LOGO AND
FEATURING THE MUSIC BOULEVARD WEBSITE AS THE CENTRAL LINK FOR THE FOLLOWING
ELEMENTS: (1) N2K ENCODED MUSIC, (2) THE JAZZ CENTRAL STATION WEBSITE (INCLUDING
PHOTOS REPRESENTING ARTIST AREAS), (3) THE CLASSICAL INSITES WEBSITE, (4) THE
ROCKTROPOLIS WEBSITE, (5) WEBSITES OF DAVID BOWIE, THE ROLLING STONES AND
LEONARD BERNSTEIN (INCLUDING ARTIST PHOTOS OR LOGOS), (6) THE CONCEPT OF
INTERNET ACCESS FOR USERS OF THE WORLD WIDE WEB AND (7) THE UNDERLYING TECHNICAL
INFRASTRUCTURE ON WHICH MUSIC BOULEVARD IS BASED]
Music Boulevard(R) and Telebase(R) (and their related logos) and EasyNet(R)
are registered service marks of the Company. The Company has also applied for
trademark and/or service mark registrations for Jazz Central Station(TM) (and
its related logo), Music Blvd.(TM), N2K Encoded(TM) and Rocktropolis(TM). In
addition, the Company is using allstar(TM), Classical Insites(TM), e _ mod(TM),
N2K(TM), Need To Know(TM) and RAM(TM) as trademarks and/or service marks. All
other trademarks or service marks appearing in this Prospectus are the property
of their respective holders.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
Unless otherwise indicated, all information in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised and gives effect
to (a) the reorganization of N2K Inc., a Pennsylvania corporation, as a Delaware
corporation immediately prior to the date of this Prospectus, (b) the automatic
conversion of all outstanding shares of the Company's Preferred Stock, $0.001
par value (the "Preferred Stock"), into an aggregate of shares of
Common Stock upon the consummation of this offering (the "Preferred Stock
Conversion") and (c) the automatic conversion of the Management Notes (as
defined) into an aggregate of shares of Common Stock upon the
consummation of this offering (the "Management Note Conversion"). It should be
noted that the information in this Prospectus does not currently give effect to
an anticipated 1-for- reverse stock split of the outstanding shares of
common stock of N2K Inc., a Pennsylvania corporation, to be effected prior to
the reorganization of N2K Inc. as a Delaware corporation. Fiscal year references
are to the respective fiscal year ended December 31.
THE COMPANY
N2K is a music entertainment company using the Internet as a global
platform for promoting, marketing and selling music and related merchandise. The
Company's strategy is to build loyal user communities around genre-specific
websites that provide music content and enable consumers to purchase compact
discs ("CDs"), cassettes and related merchandise. The Company believes that as
its user base continues to grow, it will be able to increase revenues from sales
of music, related merchandise, advertising and sponsorship programs. The Company
estimates, based on internal reports, that the number of page impressions per
month has grown from approximately 1.4 million in June 1996 to approximately
10.1 million in June 1997.
The Company's music retail website is Music Boulevard (www.musicblvd.com),
around which the Company organizes its genre-specific music websites,
Rocktropolis (www.rocktropolis.com), Jazz Central Station
(www.jazzcentralstation.com) and Classical Insites (www.classicalinsites.com).
In addition to these genre websites, the Company also hosts websites for such
artists as David Bowie, The Rolling Stones and Leonard Bernstein. The Company's
websites allow users to view current music news, including news from MTV and
from such magazines as SPIN and JazzTimes, reviews, artist biographies and
discographies, musicians' favorite artist recordings and historical and
educational information, and to hear and view cybercasts and recording and video
samples. Consumers may search, browse and purchase music recordings from a
catalog of approximately 165,000 CD and cassette titles and related merchandise,
digitally access 30-second music samples from a selection of approximately
275,000 songs, read from over 60,000 reviews and related articles and view music
video clips. In July 1997, the Company introduced its e _ mod system, which
allows consumers to purchase and digitally download from a collection of music
singles. All product purchases are coordinated through Music Boulevard, which
acts as the Company's on-line retail store. The Company believes that by
providing a wealth of information in a highly personalized, interactive context,
it creates an entertaining environment that attracts traffic to its websites,
fosters brand awareness and encourages purchases of music and related
merchandise.
As part of its growth strategy, the Company seeks to establish strategic
alliances with global on-line, music and media companies to attract additional
users to, and increase brand awareness of, the Company's websites. For example,
the Company has established an exclusive strategic alliance with MTV Networks
(the "MTV/VH1 Alliance"), under which MTV Networks provides Music Boulevard with
content and presents Music Boulevard, both on-air and on-line, as the exclusive
partner for retail sales of CDs, cassettes and related merchandise for each of
the MTV (www.mtv.com) and VH1 (www.vh1.com) websites. N2K has established
strategic agreements as exclusive co-branded on-line music retailer for Excite
Inc.'s WebCrawler ("WebCrawler"), as most prominently featured music content
provider and on-line music retailer for WebTV Networks ("WebTV") and as most
prominently featured music content provider and exclusive music retailing anchor
tenant for At Home Corporation's @Home Shopping Guide ("@Home").
The Company intends to capitalize on the global nature of the Internet to
build an international user base by creating local language versions of, and
localized content for, the Company's websites. Currently, approximately
one-third of the Company's on-line revenues are generated from sales of CDs,
cassettes and related merchandise outside the U.S. The Company has established a
wholly-owned subsidiary in Japan, the
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world's second largest market for recorded music sales, and has launched
Japanese versions of Music Boulevard (WWW.MUSICBLVD.COM/JP) and Jazz Central
Station (JP.JAZZCENTRALSTATION.COM). The Company also offers registration and
ordering instructions on Music Boulevard in English, Japanese, German, French
and Spanish.
The Company has also established its own record label, N2K Encoded Music,
which uses the Company's websites, as well as record stores and other
traditional distribution channels, to promote, distribute and sell original and
licensed artist recordings. Since January 1997, the Company has released its
initial eight recordings on the N2K Encoded Music label under the direction of
Grammy Award-winning producer, Phil Ramone. The Company expects to release five
new titles through December 1997, and currently has agreements with twelve
artists for future recordings. The Company expects that many of its N2K Encoded
Music CDs will feature enhanced multimedia capabilities ("Enhanced CDs" or
"E-CDs") and Internet connectivity software. Domestic distribution for the
Company's record label is handled by Sony Music Entertainment, Inc.'s
distribution company, RED Distribution, Inc.
The Company's management team has significant experience in managing music
industry and artist relationships, promoting and marketing recorded music and
developing state-of-the-art music recordings. Larry Rosen and Dave Grusin
founded and, together with Jon Diamond, built GRP Records, Inc. ("GRP") into one
of the largest independent record labels and one of the first to digitally
produce music titles from concept through finished recording in CD format. With
more than 75 Grammy Award nominations and 20 Grammy Awards to its credit, GRP
was purchased by MCA Inc. in 1990. Phil Ramone is a renowned record producer,
having produced records for artists including Billy Joel, Paul Simon, Chicago,
Barbra Streisand, Paul McCartney, Elton John and Frank Sinatra.
The Company's executive offices are located at 55 Broad Street, New York,
New York 10004, its telephone number is 212-378-5555 and its Internet address is
WWW.N2K.COM.
THE OFFERING
Common Stock Offered by the
Company............................. shares
Common Stock to be Outstanding After
the Offering........................ shares(1)
Use of Proceeds..................... The net proceeds from this offering
will be used by the Company for
repayment of short-term indebtedness,
sales and marketing, research and
development, working capital and other
general corporate purposes, which may
include investments in strategic
alliances and acquisitions of
complementary businesses, products and
technologies. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.............................. NTKI
- ---------------
(1) Excludes (i) shares of Common Stock issuable upon exercise of
outstanding options, (ii) shares of Common Stock reserved for future
grants under the Company's stock option and purchase plans and (iii)
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 $ per share. See
"Management -- Stock Plans," "Certain Transactions," "Description of Capital
Stock" and Note 8 of Notes to Consolidated Financial Statements.
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<PAGE> 6
SUMMARY 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.
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THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
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1994 1995 1996 1996 1997
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STATEMENT OF OPERATIONS DATA(1):
Net revenues..................... $ -- $ 96,505 $ 1,655,704 $ 216,800 $ 1,115,897
Cost of revenues................. -- 85,176 1,637,319 213,003 969,884
----------- ----------- ------------ ----------- -----------
Gross profit................... -- 11,329 18,385 3,797 146,013
Operating expenses............... 1,327,436 2,983,933 18,257,870 5,556,670 4,533,351
----------- ----------- ------------ ----------- -----------
Operating loss(2)................ (1,327,436) (2,972,604) (18,239,485) (5,552,873) (4,387,338)
Income (loss) from:
Continuing operations.......... (1,302,475) (2,884,471) (17,939,235) (5,544,521) (4,358,390)
Discontinued operations(3)..... 1,444,885 1,289,671 (968,674) 160,309 (159,943)
Net income (loss)................ 142,410 (1,594,800) (18,907,909) (5,384,212) (4,518,333)
Pro forma loss per common share
from(4):
Continuing operations.......... $ $
Discontinued operations........
------------ -----------
Pro forma net loss per common
share........................ $ $
============= ============
Shares used in computing pro
forma net loss per common
share(4).......................
============= ============
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MARCH 31, 1997
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ACTUAL PRO FORMA(5) AS ADJUSTED(6)
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BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 1,118,662 $ $
Working capital (deficit)............................. (1,826,368)
Total assets.......................................... 7,821,846
Senior notes.......................................... --
Management notes...................................... --
Stockholders' equity.................................. 390,046
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(1) Telebase Systems, Inc. ("Telebase") was founded in 1984 as a provider of
on-line information services. In 1994, Telebase expanded its on-line
business strategy to include music entertainment and in 1995 began offering
on-line sales of music through its Music Boulevard website. On February 13,
1996, Telebase merged with N2K Inc., a New York corporation ("New York
N2K"), and changed its name to N2K Inc. In April 1997, the Company decided
to discontinue its on-line information services business to focus
exclusively on its music entertainment business. See note (3) below.
(2) Included in the 1996 operating loss are aggregate one-time charges totaling
$5,242,523 for purchased research and development incurred in connection
with the acquisitions of New York N2K ($4,133,281 in February 1996) and the
rock website, Rocktropolis ($1,109,242 in June 1996). See Notes 1 and 2 of
Notes to Consolidated Financial Statements.
(3) In April 1997, the Company's board of directors (the "Board of Directors")
approved a formal plan of disposal for its on-line information services
business. Accordingly, the operating results and assets and liabilities of
this business have been accounted for as a discontinued operation and
reflected separately from continuing operations. See Note 3 of Notes to
Consolidated Financial Statements.
(4) See Note 1 of Notes to Consolidated Financial Statements.
(5) Reflects (i) the expiration upon consummation of this offering of the put
rights associated with shares of Common Stock (valued at $537,498)
issued in connection with the purchase of the rock website, Rocktropolis,
(ii) the sale of shares of Series G Preferred Stock subsequent to March 31,
1997, (iii) the issuance of the Senior Notes (as defined) and the Management
Notes, (iv) the Preferred Stock
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Conversion and (v) the Management Note Conversion. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(6) As adjusted to give effect to the sale of the shares of Common Stock offered
hereby assuming an initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and
offering expenses and the initial application of the net proceeds therefrom
to repay the outstanding balance of the Senior Notes. See "Use of Proceeds"
and "Capitalization."
------------------------
The preceding summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements of the Company and the notes thereto appearing elsewhere in this
Prospectus. 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 "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.
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors 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.
HISTORICAL AND ANTICIPATED 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, 1997, the Company had an accumulated deficit of $31.3
million. Since its inception, the Company has incurred costs to develop and
enhance its technology, to create, introduce and enhance its websites, to
establish marketing and distribution relationships and to build an
administrative organization. The Company currently intends to increase
substantially its operating expenses to fund increased sales and marketing, to
enhance existing websites and to implement strategic relationships important to
the success of the Company. 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 be able to generate sufficient
revenues from the sale of music recordings, related merchandise, advertising and
sponsorships to achieve or maintain profitability on a quarterly or annual basis
in the future. The Company expects negative cash flow from operations to
continue for the foreseeable future as it continues to develop and market its
business. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NEW BUSINESS CHALLENGES
Although the Company was founded in 1984 and has been conducting an on-line
information services business for more than ten years, it began development of
its central website, Music Boulevard, in 1994. To date, the Company has only a
limited operating history in its music entertainment business upon which an
evaluation of N2K and its prospects can be based. 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, expand its customer
base, respond to competitive developments, continue to attract, retain and
motivate qualified employees and continue to upgrade its 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 N2K Encoded Music label, sales of
advertising on its websites and development of related business opportunities,
the Company's ability to achieve profitability will be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
The market for Internet 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. With no substantial barriers to entry, the Company expects that
competition will continue to intensify. With respect to competition for
consumers' attention, in addition to intense competition from Internet content
providers, the Company also faces competition from traditional media such as
radio, television and print. N2K Encoded Music competes with the major, and
other independent, record labels. See "-- Risks Inherent in the Record Label
Industry." With respect to recorded music sales, the Company competes with
numerous Internet retailers, including traditional music retail chains, record
labels and independents with websites on the Internet. In addition, the Company
competes with traditional retail stores, including chains and megastores, mass
merchandisers, consumer electronics stores and music clubs. 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
will depend heavily upon its ability to provide high quality, entertaining
content, along with cutting-edge technology and value-added Internet services.
Other factors that will affect the Company's
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success include the Company's continued ability to attract experienced
marketing, sales and management talent. The Company's failure to compete
successfully in the music entertainment business would have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the competition for advertising revenues, both on 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 and
sponsorships on its websites, the Company's business, results of operations and
financial condition will be materially adversely affected.
Many of the Company's current and potential competitors in the Internet and
music entertainment businesses have longer operating histories, significantly
greater financial, technical and marketing resources, greater name recognition
and larger existing customer bases than the Company. 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. See
"Business -- Competition."
DEPENDENCE UPON STRATEGIC ALLIANCES
The Company relies on certain strategic alliances to attract users to its
websites to purchase recorded music and related merchandise, as well as to
attract paid advertising to its websites. The Company has entered into such
alliances with MTV Networks, Virgin Records America, Inc. ("Virgin Records"),
WebCrawler, WebTV and @Home, which provide for music sales transactions and, in
some cases, co-marketing and website content. The Company believes that such
alliances will result in increased traffic to its websites. Although the Company
has only recently entered into such strategic alliances, the Company's ability
to generate revenues from Internet commerce may depend on the increased traffic,
purchases, advertising and sponsorships that the Company expects to generate
through such strategic alliances. There can be no assurance that these
relationships will be maintained beyond their initial terms or that additional
third-party alliances will be available to the Company on acceptable commercial
terms or at all. The inability to enter into new, and to maintain any one or
more of its existing, strategic alliances could have a material adverse effect
on the Company's business, results of operations and financial condition.
DEPENDENCE ON KEY SUPPLIERS AND DISTRIBUTORS
The Company currently has a contract with Valley Record Distributors
("Valley"), which is currently the Company's primary 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 one of the few other fulfillment operations. 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, or that it will be able to find an alternative,
comparable supplier capable of providing fulfillment services on terms
satisfactory to the Company should its relationship with Valley terminate. An
unanticipated termination of the Company's relationship with Valley,
particularly during the fourth quarter of the calendar year 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. To date, Valley has satisfied the Company's
requirements on a timely basis. However, to the extent that Valley does not have
sufficient capacity and is unable to satisfy on a timely basis increasing
requirements of the Company, such capacity constraint would have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company currently has an exclusive agreement with RED Distribution,
Inc., a subsidiary of Sony Music Entertainment, Inc. ("Sony's RED
Distribution"), which provides for Sony's RED Distribution to act as exclusive
distribution agent in the United States for the N2K Encoded Music label. The
Company does not have a distribution operation of its own and, accordingly, is
dependent upon maintaining its existing relationship with Sony's RED
Distribution or establishing a new distribution relationship with a comparable
distributor. There can be no assurance that the Company will maintain its
relationship with Sony's RED
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Distribution beyond the term of its existing agreement, which was entered into
in October 1996 for a three-year period. The termination of such relationship
would, absent establishing a substitute relationship with another distributor,
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company believes that alternative distributors
would be available on terms satisfactory to the Company should its relationship
with Sony's RED Distribution terminate. See "Business -- N2K Encoded Music" and
"Business -- Ordering, Fulfillment and Customer Service."
INTERNET-RELATED RISKS
Dependence on the Internet; Uncertain Acceptance of the Internet as a Medium
for Commerce
Use of the Internet by consumers is at an early stage of development, and
market acceptance of the Internet as a medium for commerce is subject to a high
level of uncertainty. The Company's future success will depend on its ability to
significantly increase revenues, which will require the development and
widespread acceptance of the Internet as a medium for commerce. 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. 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. See "Business -- On-line Music
Industry."
Uncertain Acceptance of the Company's Internet Content
The Company's future success will be significantly dependent upon its
ability to create, license 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 its
websites. The Company launched its first music website, Music Boulevard, in
August 1995 and has limited experience in the on-line 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 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.
Uncertain Acceptance of the Internet as a Medium for Advertising
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. To date, sales of Internet
advertising represent only a small percentage of total advertising sales. The
Company has begun to sell advertising on its websites but has not recognized
material advertising revenues to date. 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, or if the Company is not
successful in generating significant advertising revenues from, advertisers and
advertising agencies, the Company's business, results of operations and
financial condition could be materially adversely affected. See
"Business -- On-line Music Industry."
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. 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. Computer viruses,
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<PAGE> 11
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 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.
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 the Internet. However, due to
the increasing popularity and use of the Internet, it is possible that a number
of laws and regulations may be adopted with respect to the Internet. Such laws
and regulations may cover issues such as user privacy, pricing and
characteristics and quality of products and services. The enactment of any such
laws or regulations in the future may slow the growth of 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 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 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 material may be downloaded from websites 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 material.
Such claims have been brought, and sometimes successfully pressed, against
on-line services in the past. In addition, the Company could be exposed to
liability with respect to the material 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 the Company's websites. Although the Company carries
general liability insurance, the Company's insurance may not cover 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.
The Company is currently not aware of any such claims.
MANAGEMENT OF GROWTH
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. To the extent that the Company
continues to grow internally or through acquisitions, the Company will be faced
with risks, including risks associated with the assimilation of new operations,
websites 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
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<PAGE> 12
the Company to effectively manage its growth and to respond to changes in its
business would have a material adverse effect on the Company's business, results
of operations and financial condition.
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 business is highly dependent upon the
services and music industry expertise of Larry Rosen, Dave Grusin, Jon Diamond
and Phil Ramone. 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 assure the services of such
employees. 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. 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 and music entertainment
industries. There can be no assurance that the Company will be able to attract
and retain key personnel. The loss of one or more key employees could have a
material adverse effect on the Company. See "Business -- Employees" and
"Management."
RISKS INHERENT IN THE RECORD LABEL INDUSTRY
The record label 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 the N2K Encoded Music label. Furthermore, the
Company believes that it is standard practice for record companies to pay
substantial advances to artists. The Company may incur significant expenses in
connection with paying its artists such advances, which could materially
adversely affect the Company's results of operations. In circumstances when the
Company does not pay such advances, it will be competing for artistic talent at
a disadvantage to other record labels that do pay such advances. 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 record
label 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 compete effectively in that market. The failure of the Company to grow N2K
Encoded Music would have a material adverse effect on the Company's growth,
financial condition and results of operations. See "Business -- N2K Encoded
Music."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by a variety of factors, many of
which are outside the Company's control. Factors that may affect the Company's
quarterly operating results include, without limitation, (i) the Company's
ability to retain existing customers, attract new customers at a steady rate and
maintain customer satisfaction, (ii) the announcement or introduction of new or
enhanced websites, products and strategic alliances by the Company and its
competitors, (iii) the mix of products sold by the Company, (iv) seasonality of
the recorded music industry, (v) seasonality of advertising sales, (vi) Company
promotions and sales programs, (vii) price competition or higher recorded music
prices in the industry, (viii) the level of use of the Internet and increasing
consumer acceptance of the Internet for the purchase of consumer products such
as those offered by the Company, (ix) the Company's ability to upgrade and
develop its systems and infrastructure in a timely and effective manner, (x) the
level of traffic on the Company's websites, (xi) technical difficulties, system
downtime or Internet brownouts, (xii) the amount and timing of operating costs
and capital expenditures relating to expansion of the Company's business,
operations and infrastructure and the implementation of marketing programs, key
agreements and strategic alliances, (xiii) the number of recorded music releases
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<PAGE> 13
introduced during the period, (xiv) the level of merchandise returns experienced
by the Company and (xv) general economic conditions and economic conditions
specific to the Internet, on-line commerce and the recorded music industry.
While the Company has a limited operating history in the music entertainment
business, it anticipates that revenues will eventually track traditional music
purchase and advertising sales patterns. 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 Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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 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 have 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. In the event of a catastrophic loss at the Wayne,
Pennsylvania facility resulting in the destruction of the Company's computer and
telecommunications operations, the Company would experience a significant
interruption of its business. 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.
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 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 -- Technology."
RISKS ASSOCIATED WITH GLOBAL EXPANSION
An important component of the Company's growth strategy is its planned
expansion into global markets. The Company has established a wholly-owned
subsidiary in Japan. There can be no assurance that the Company will be able to
successfully market, sell and distribute its products in global markets due to
legal, contractual and practical considerations. The Company does not currently
have any overseas fulfillment or 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
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<PAGE> 14
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.
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
this offering, will enable it to maintain its operations for at least twelve
months from the date of this Prospectus. The Company may require additional
funds to sustain and expand its sales and marketing and research and development
activities and its strategic alliances, particularly if a well-financed
competitor emerges or if there is a shift in the type of Internet 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 and
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."
RISKS ASSOCIATED WITH DISCONTINUED OPERATIONS
In April 1997, the Board of Directors approved a formal plan of disposal
for its on-line information services business. The Company expects to sell
substantially all of the assets of such business by April 1998. However, no
assurance can be given that the Company will be able to dispose of such assets
on satisfactory terms and conditions, or at all. In the event that such business
is sold at a loss, the Company would record a charge in the fiscal quarter in
which such sale occurred. The Company believes that such business will not incur
significant operating losses through the anticipated disposal date. However, no
assurance can be given that current levels of information services revenues will
be maintained and will not decline. Information services revenues have declined
in seven of the preceding eight fiscal quarters. In the event that such revenues
continue to decline, the Company may suffer additional losses, which may be
significant. If the Company is unable to sell the information services business
or if such business begins to suffer additional losses, the Company may seek to
wind down and liquidate such business. However, certain of the Company's
agreements with its information services customers require 90 days' advance
notice of termination of service. Accordingly, the Company may be required to
continue to operate such business for 90 days beyond any decision to wind down
the business. In addition, the Company would incur severance and other costs to
shut down its information services business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Discontinued
Operations."
CONTROL BY MANAGEMENT
Upon completion of this offering, the Company's executive officers and
directors and their respective affiliates will beneficially own an aggregate
of % of the Company's outstanding shares of Common Stock ( % 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, 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."
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<PAGE> 15
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 stockholders to
fix the rights, privileges and preferences of, and to issue shares of, 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."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
After the completion of this offering, shares of Common Stock
will be outstanding. Of such shares, the shares sold pursuant to this
offering will be tradeable without restriction by persons other than
"affiliates" of the Company. The remaining shares of Common Stock to
be outstanding after this 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. shares of Common Stock will be available for immediate
resale upon the consummation of this offering without restriction pursuant to
the exemption provided by Rule 144(k). 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 prior to this offering, have agreed not to offer to sell, sell, contract
to sell, grant any option to sell, encumber, pledge or otherwise dispose of, or
exercise any demand rights with respect to, any Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
PaineWebber Incorporated. Upon expiration of the 180-day period,
shares of Common Stock will be eligible for immediate resale under the
Securities Act, subject, in certain cases, to certain volume, manner of sale 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 this offering, registering under the Securities Act an aggregate of
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 shares of
Common Stock. The exercise of such rights 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."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. The Company intends to apply 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
among 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 this
offering. Among the factors to be considered in determining the initial public
offering price will be the Company's record of operations, its current financial
condition, its future prospects, the market for its products, the experience of
its management, the economic conditions of the Company's industry in general,
the general condition of the equity securities market, the demand for similar
securities of companies considered comparable to the Company and other relevant
factors. See "Underwriting."
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<PAGE> 16
Moreover, the trading price of the 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." Recent history relating to the market prices of other newly
public companies indicates that the market price of the Common Stock following
this offering may be highly volatile. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many high technology
companies, particularly Internet-related companies, and that often have been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely effect the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the pro forma net tangible book value per share of
$ at an assumed initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
offering expenses. In addition, as of , 1997, the Company had issued
warrants to purchase shares of Common Stock, and options to purchase
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
$ . See "Dilution."
In the event that the initial public offering price of the Common Stock is
less than $ per share, holders of certain series of the Preferred Stock
will be entitled to an adjustment of their respective conversion prices,
resulting in the issuance of additional shares of Common Stock to such holders
in connection with the Preferred Stock Conversion. Furthermore, pursuant to the
stock purchase agreement for the Series G Preferred Stock, if the Company
consummates an initial public offering of the Common Stock in 1997 at a price
per share that is less than $ , the Company is required to pay each of the
purchasers of the Series G Preferred Stock, either in cash or in additional
shares of Common Stock, the difference between the initial public offering price
and $ (the "Series G Purchase Price Adjustment"). See "Dilution" and
"Certain Transactions -- Preferred Stock Conversion."
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."
NO SPECIFIC USE OF PROCEEDS
The Company has not designated any specific use for the net proceeds from
this offering, other than the repayment of the Senior Notes. Rather, the Company
intends to use the balance of the net proceeds primarily for sales and
marketing, research and development, working capital and other general corporate
purposes, which may include investments in strategic alliances and acquisitions
of complementary businesses, products and technologies. Accordingly, management
will have significant flexibility in applying the net proceeds of this offering.
See "Use of Proceeds."
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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 $ per share and
after deducting estimated underwriting discounts and commissions and offering
expenses, are estimated to be approximately $ million (approximately $
million if the Underwriters' overallotment option is exercised in full). The net
proceeds from this offering will be utilized for repayment of short-term
indebtedness, sales and marketing, research and development, working capital and
other general corporate purposes, which may include investments in strategic
alliances and acquisitions of complementary businesses, products and
technologies. See "Risk Factors -- No Specific Use of Proceeds."
The short-term indebtedness to be repaid is comprised of $6 million
aggregate principal amount of promissory notes (the "Senior Notes") issued by
the Company in August 1997. The Senior Notes bear interest at 14% per annum and
are due on the earliest of (i) consummation of this offering, (ii) a "change of
control of the Company," as that term is defined in the Senior Notes, and (iii)
March 31, 1998. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
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 this 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
agreements 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, 1997 was
$ million or $ 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
shares of Series G Preferred Stock subsequent to March 31, 1997, (ii) the
Preferred Stock Conversion, (iii) the expiration upon the consummation of this
offering of the put rights associated with the shares of Common Stock
issued in connection with the purchase of the rock website, Rocktropolis, and
(iv) the Management Note Conversion. Giving effect to the sale of the Common
Stock offered hereby at an assumed public offering price of $ 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, 1997 would have been $ million or $ per share
representing an immediate increase in net tangible book value of $ per
share to the existing stockholders and an immediate dilution to new investors of
$ per share. The following table illustrates the dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share before this offering... $
Net increase in pro forma net tangible book value per share
attributable to this offering...................................
------
Pro forma net tangible book value per share after this offering......
------
Dilution per share to new investors in this offering(1).............. $
======
</TABLE>
- ---------------
(1) Based on the assumptions set forth above, the dilution to new investors
would be $ per share if all outstanding warrants and options to
purchase shares of Common Stock were exercised in full.
In the event that the initial public offering price of the Common Stock is
less than $ per share, holders of certain series of the Preferred Stock
will be entitled to an adjustment of their respective conversion prices,
resulting in the issuance of additional shares of Common Stock to such holders
in connection with the Preferred Stock Conversion. Furthermore, pursuant to the
stock purchase agreement for the Series G Preferred Stock, if the Company
consummates an initial public offering of the Common Stock in 1997 at a price
per share that is less than $ , the Company is required to pay each of the
purchasers of the Series G Preferred Stock, either in cash or in additional
shares of Common Stock, the Series G Purchase Price Adjustment. See "Certain
Transactions -- Preferred Stock Conversion."
The following table summarizes, on a pro forma basis (as described above),
as of March 31, 1997, 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 this offering, at an assumed initial public offering
price of $ per share and before deducting estimated underwriting
discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ----------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... % $ % $
New investors............................
------ ------- ------ -------
Total.......................... 100.0% $ 100.0%
====== ====== ====== ======
</TABLE>
The above tables exclude (i) shares of Common Stock issuable upon
exercise of outstanding stock options, (ii) shares of Common Stock
reserved for future grants under the Company's stock option and purchase plans
and (iii) 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 $ per share. See
"Management -- Stock Plans," "Certain Transactions," "Description of Capital
Stock" and Note 8 of Notes to Consolidated Financial Statements.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
March 31, 1997, (ii) the pro forma capitalization of the Company as of such date
giving effect to (a) the sale of certain shares of Series G Preferred Stock
subsequent to March 31, 1997, (b) the Preferred Stock Conversion, (c) the
expiration upon the consummation of this offering of the put rights associated
with the shares of Common Stock issued in connection with the purchase of
the rock website, Rocktropolis, (d) the issuance of the Senior Notes and (e) the
issuance of the Management Notes and the Management Note Conversion and (iii)
the 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
$ per share and after deducting estimated underwriting discounts and
commissions and offering expenses and the initial application of the net
proceeds therefrom to repay the outstanding balance of the Senior Notes. 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, 1997
------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------ -----------
<S> <C> <C> <C>
Senior notes.......................................... $ -- $ -- $ --
----------- ------------ -----------
Management notes...................................... $ -- $ -- $ --
----------- ------------ -----------
Common stock subject to put rights.................... $ 537,498 $ --(1) $ --
----------- ------------ -----------
Deposits from Series G stockholders(2)................ $ 1,597,983 $ -- $ --
----------- ------------ -----------
Stockholders' equity:
Preferred stock, $0.001 par value; 40,000,000 shares
authorized, 15,397,088 shares issued and
outstanding, actual; none issued and outstanding,
pro forma and as adjusted........................ $ 15,397 $ $
Common stock, $0.001 par value; 100,000,000 shares
authorized; 11,692,973 shares issued and
outstanding, actual; shares issued and
outstanding, pro forma; and shares issued
and outstanding, as adjusted(3).................. 11,693
Additional paid-in capital............................ 31,685,615
Accumulated deficit................................... (31,322,659)
----------- ------------ -----------
Total stockholders' equity....................... 390,046
----------- ------------ -----------
Total capitalization........................ $ 2,525,527 $ $
========== =========== =========
</TABLE>
- ---------------
(1) Reflects the expiration upon the consummation of this offering of the put
rights associated with the shares of Common Stock (valued at
$537,498) issued in connection with the purchase of the rock website,
Rocktropolis.
(2) Reflects deposits received by the Company in March 1997 with respect to the
sale of certain shares of Series G Preferred Stock subsequent to March 31,
1997.
(3) Excludes (i) shares of Common Stock issuable upon exercise of
outstanding stock options, (ii) shares of Common Stock reserved for
future grants under the Company's stock option and purchase plans and (iii)
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 $ per share. See
"Management -- Stock Plans," "Certain Transactions," "Description of Capital
Stock" and Note 8 of Notes to Consolidated Financial Statements.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
years ended December 31, 1992, 1993, 1994, 1995 and 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, 1996
and the related balance sheets at December 31, 1995 and 1996, which have been
audited by Arthur Andersen LLP, have been included elsewhere in this Prospectus.
The selected balance sheet data as of March 31, 1997 and the selected statement
of operations data for the three months ended March 31, 1996 and 1997 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 these interim periods. The results of operations for
the three months ended March 31, 1996 and 1997 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 MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
----------- ---------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenues.................... $ -- $ -- $ -- $ 96,505 $ 1,655,704 $ 216,800 $ 1,115,897
Cost of revenues................ -- -- -- 85,176 1,637,319 213,003 969,884
----------- ---------- ----------- ----------- ------------ ----------- -----------
Gross profit.................. -- -- -- 11,329 18,385 3,797 146,013
Operating expenses:
Operating and
development(2).............. -- -- 257,826 1,034,617 7,811,061 735,666 2,212,046
Sales and marketing........... -- -- 173,415 1,077,649 2,726,291 254,223 1,484,059
General and administrative.... 666,043 541,241 896,195 871,667 2,477,995 433,500 837,246
Charge for purchased research
and development(3).......... -- -- -- -- 5,242,523 4,133,281 --
----------- ---------- ----------- ----------- ------------ ----------- -----------
Operating loss................ (666,043) (541,241) (1,327,436) (2,972,604) (18,239,485) (5,552,873) (4,387,338)
Interest income................. 65,658 43,761 73,359 106,370 352,531 24,904 47,890
Interest expense................ (105,658) (82,890) (48,398) (18,237) (52,281) (16,552) (18,942)
----------- ---------- ----------- ----------- ------------ ----------- -----------
Loss from continuing
operations.................... (706,043) (580,370) (1,302,475) (2,884,471) (17,939,235) (5,544,521) (4,358,390)
Income (loss) from discontinued
operations(4)................. (526,555) 1,085,256 1,444,885 1,289,671 (968,674) 160,309 (159,943)
----------- ---------- ----------- ----------- ------------ ----------- -----------
Net income (loss)............... $(1,232,598) $ 504,886 $ 142,410 $(1,594,800) $(18,907,909) $(5,384,212) $(4,518,333)
========== ========= ========== ========== =========== ========== ==========
Pro forma loss per common
share(5):
Continuing operations......... $ $
Discontinued operations.......
------------ -----------
Pro forma net loss per common
share....................... $ $
=========== ==========
Shares used in computing pro
forma net loss per common
share(5)......................
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, ------------------------
-------------------------------------------------------------- PRO
1992 1993 1994 1995 1996 ACTUAL FORMA(6)
---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 466,606 $ 858,272 $1,469,764 $ 547,624 $4,483,450 $ 1,118,662 $
Working capital (deficit)............. 62,708 543,947 1,756,815 3,960 2,054,665 (1,826,368)
Total assets.......................... 1,304,440 1,645,275 2,685,317 1,973,332 9,386,470 7,821,846
Senior notes.......................... -- -- -- -- -- --
Long-term debt, excluding current
portion............................. 75,000 -- -- -- -- --
Management notes...................... -- -- -- -- -- --
Stockholders' equity.................. 37,244 542,130 2,243,704 648,984 4,908,379 390,046
</TABLE>
19
<PAGE> 21
- ---------------
(1) Telebase was founded in 1984 as a provider of on-line information services.
In 1994, Telebase expanded its on-line business strategy to include music
entertainment and in 1995 began offering on-line sales of music through its
Music Boulevard website. On February 13, 1996, Telebase merged with New York
N2K, and changed its name to N2K Inc. In April 1997, the Company decided to
discontinue its on-line information services business to focus exclusively
on its music entertainment business. See note (4) below.
(2) For the years ended December 31, 1995, 1996 and the three months ended March
31, 1996 and 1997, the Company incurred costs of $0.7 million, $3.1 million,
$0.3 million and $0.9 million, respectively, 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.
(3) In 1996, aggregate one-time charges of $5,242,523 for purchased research and
development were incurred in connection with the acquisitions of New York
N2K ($4,133,281 in February 1996) and the rock website, Rocktropolis
($1,109,242 in June 1996). See Notes 1 and 2 of Notes to Consolidated
Financial Statements.
(4) In April 1997, the Board of Directors approved a formal plan of disposal for
its on-line information services business. Accordingly, the operating
results and assets and liabilities of this business have been accounted for
as a discontinued operation and reflected separately from continuing
operations. See Note 3 of Notes to Consolidated Financial Statements.
(5) See Note 1 of Notes to Consolidated Financial Statements.
(6) Reflects (i) the expiration upon the consummation of this offering of the
put rights associated with the shares of Common Stock (valued at
$537,498) issued in connection with the purchase of the rock website,
Rocktropolis, (ii) the sale of shares of Series G Preferred Stock subsequent
to March 31, 1997, (iii) the issuance of the Senior Notes and the Management
Notes, (iv) the Preferred Stock Conversion and (v) the Management Note
Conversion. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
N2K is a music entertainment company using the Internet as a global
platform for promoting, marketing and selling music and related merchandise. The
Company's strategy is to build loyal user communities around genre-specific
websites that provide music content and enable consumers to purchase CDs,
cassettes and related merchandise. The Company has also established its own
record label, N2K Encoded Music, which uses the Company's websites, as well as
record stores and other traditional distribution channels, to promote,
distribute and sell original and licensed artist recordings.
The Company was founded as Telebase in 1984 as a provider of on-line
information services. In 1994, recognizing increasing opportunities in the
consumer entertainment market, Telebase expanded its on-line business strategy
to include music entertainment and began expending significant resources to
enter this market. Telebase launched its Music Boulevard website and began
selling recorded music and related merchandise in 1995. In February 1996,
Telebase merged with New York N2K, a New York corporation founded in 1995 as a
developer of on-line music entertainment content, and the merged entity changed
its name to N2K Inc. (the "Merger"). The Company recently decided to focus
exclusively on its music entertainment business, and, as such, has elected to
discontinue its on-line information services business. In April 1997, the Board
of Directors approved a formal plan of disposal for its on-line information
services business. The expected manner of disposal is the sale of substantially
all of the assets of this business. See "--Discontinued Operations."
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. Since January 1997, the Company has released its initial eight
recordings on the N2K Encoded Music label. Revenues have grown from $85,000 for
the three months ended December 31, 1995 to $1.1 million for the three months
ended March 31, 1997 while the Company incurred net losses for 1995 and 1996 and
the first quarter of 1997 as it built its business. Gross profit since its
inception has been approximately $176,000. The Company is currently generating
revenues from the sale of CDs and cassettes produced by others, N2K Encoded
Music CDs, the sale of advertising on its websites and the sale of related
merchandise. The Company believes that increased sales of N2K Encoded Music CDs
and advertising on its websites will contribute to higher margins in the future.
The Company believes that its future financial performance will be determined in
large part by its success in selling advertising and sponsorship programs on its
websites and by selling recorded music under its N2K Encoded Music label.
The Company's strategy to develop products and services for the music
entertainment business was primarily responsible for the decline in net income
for the years ended December 31, 1994, December 31, 1995 and December 31, 1996.
See "Risk Factors--Historical and Anticipated Losses; Uncertainty of Future
Results," "--New Business Challenges" and "--Management of Growth." To date, the
Company has only a limited operating history in its continuing operations 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 minimal revenues, are not meaningful indications of
future performance. The Company incurred a net loss of $1.6 million for the year
ended December 31, 1995 and a net loss of $18.9 million for the year ended
December 31, 1996, of which $5.2 million represents aggregate one-time charges
in connection with the write-off of purchased research and development.
Pursuant to the Merger, the shareholders of New York N2K received
shares of Common Stock valued at $ and shares of Series E
Preferred Stock valued at $ . The Series E Preferred Stock is
convertible into shares of Common 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 it represented 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
21
<PAGE> 23
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 shares of Common
Stock. The acquisition has been accounted for as a purchase. The Company
incurred a one-time charge of $1.1 million for purchased research and
development. The Company also recorded an intangible asset of $100,000 that is
being amortized over five years on a straight-line basis. The Common Stock
issued in connection with the acquisition of the Rocktropolis website may be put
back to the Company at a price of $ 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 the Common Stock. Accordingly, the value of these shares ($537,498) is
not included in stockholders' equity in the Company's consolidated balance
sheets at December 31, 1996. The put right will expire upon the consummation of
this offering.
RESULTS OF OPERATIONS
Quarterly Results
The following table sets forth certain financial information for each of
the last six quarters. This unaudited quarterly information has been prepared on
the same basis as the audited financial statements included 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
---------------------------------------------------------------------------------------
DECEMBER SEPTEMBER DECEMBER
31, MARCH 31, JUNE 30, 30, 31, MARCH 31,
1995 1996 1996 1996 1996 1997
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues..................... $ 84,903 $ 216,800 $ 312,779 $ 446,889 $ 679,236 $ 1,115,897
Cost of revenues................. 73,989 213,003 298,054 431,552 694,710 969,884
----------- ----------- ----------- ------------ ----------- -----------
Gross profit..................... 10,914 3,797 14,725 15,337 (15,474) 146,013
Operating expenses:
Operating and development...... 253,957 735,666 1,416,735 1,940,018 3,718,642 2,212,046
Sales and marketing............ 350,936 254,223 489,142 825,506 1,157,420 1,484,059
General and administrative..... 200,517 433,500 564,332 596,275 883,888 837,246
Charge for purchased research
and development.............. -- 4,133,281 1,109,242 -- -- --
----------- ----------- ----------- ------------ ----------- -----------
Operating loss................... (794,496) (5,552,873) (3,564,726) (3,346,462) (5,775,424) (4,387,338)
Interest income (net of interest
expense)....................... 13,949 8,352 65,947 144,281 81,670 28,948
----------- ----------- ----------- ------------ ----------- -----------
Loss from continuing
operations..................... (780,547) (5,544,521) (3,498,779) (3,202,181) (5,693,754) (4,358,390)
Income (loss) from discontinued
operations..................... 47,397 160,309 (3,038) (363,455) (762,490) (159,943)
----------- ----------- ----------- ------------ ----------- -----------
Net loss......................... $(733,150) $(5,384,212) $(3,501,817) $(3,565,636) $(6,456,244) $(4,518,333)
=========== ========== ========== ============ =========== ==========
</TABLE>
In August 1995, the Company launched its first Internet website, Music
Boulevard, and in January 1996, introduced Jazz Central Station, its first music
genre website. The Company released its initial recordings on the N2K Encoded
Music label during the first quarter of 1997.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by a variety of factors,
including, without limitation, (i) the Company's ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction, (ii) the announcement or introduction of new or enhanced websites,
products and strategic alliances by the Company and its competitors, (iii) the
mix of products sold by the Company, (iv) seasonality of the recorded music
industry, (v) seasonality of advertising sales, (vi) Company promotions and
sales programs, (vii) price competition or higher recorded music prices in the
industry, (viii) the level of use of the Internet and increasing consumer
acceptance of the Internet for the purchase of consumer products such as those
offered by the Company,
22
<PAGE> 24
(ix) the Company's ability to upgrade and develop its systems and infrastructure
in a timely and effective manner, (x) the level of traffic on the Company's
websites, (xi) technical difficulties, system downtime or Internet brownouts,
(xii) the amount and timing of operating costs and capital expenditures relating
to expansion of the Company's business, operations and infrastructure and the
implementation of marketing programs, key agreements and strategic alliances,
(xiii) the number of recorded music releases introduced during the period, (xiv)
the level of merchandise returns experienced by the Company and (xv) general
economic conditions and economic conditions specific to the Internet, on-line
commerce and the recorded music industry. While the Company has a limited
operating history in the music entertainment business, it anticipates that
revenues will eventually track traditional music purchase and advertising sales
patterns. 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."
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996
Revenues. Revenues for the three months ended March 31, 1997 totaled $1.1
million compared to $217,000 for the three months ended March 31, 1996. Revenues
for the three months ended March 31, 1997 consisted of increased sales of CDs
and cassettes produced by others, sales of N2K Encoded Music CDs and the sale of
advertising on the Company's websites, while revenues for the three months ended
March 31, 1996 consisted primarily of sales of CDs and cassettes produced by
others.
Cost of Revenues. Cost of revenues totaled $970,000 for the three months
ended March 31, 1997 compared to $213,000 for the three months ended March 31,
1996. Cost of revenues consists of payments to third parties for distribution of
CDs and cassettes, fulfillment of customer orders, manufacturing expenses,
royalties, copyrights, telecommunications charges, credit card processing
charges, database usage fees, profit participations payable to strategic
alliance partners and content costs. The Company expects revenues from the sale
of advertising and related merchandise to increase in future periods, which the
Company believes will contribute to higher margins and reduce the cost of
revenues as a percentage of revenues.
Operating and Development Expenses. Operating and development expenses
increased from $736,000 for the three months ended March 31, 1996 to $2.2
million for the three months ended March 31, 1997, due to increased staffing as
the Company expanded its operations. Operating and development expenses consist
primarily of software engineering, multimedia production, graphic design, artist
relations, inventory management and computer operations which support the
Company's music entertainment business. This infrastructure is sufficient to
support higher revenues and, accordingly, the Company expects that, as revenues
increase, operating and development expenses will decrease as a percentage of
revenues.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$254,000 for the three months ended March 31, 1996 to $1.5 million for the three
months ended March 31, 1997, due to additional staffing and marketing
expenditures for N2K Encoded Music's first three releases. Sales and marketing
expenses consist primarily of external advertising, promotion, trade show,
advertising sales and personnel expenses associated with marketing of the
Company's websites and N2K Encoded Music CDs. The Company expects that levels of
sales and marketing expenditures will increase in future periods due to the
execution of new advertising programs to promote the Company's websites and N2K
Encoded Music releases.
General and Administrative Expenses. General and administrative expenses
increased from $434,000 for the three months ended March 31, 1996 to $837,000
for the three months ended March 31, 1997, primarily due to increased staffing
and facilities expenses.
Interest Income and Expense. Interest income and expense consists of
interest income on short-term liquid investments of the Company's excess cash
and interest expense incurred as a result of the financing of equipment through
capital leases and the use of the Company's revolving credit line. Interest
income increased from the three months ended March 31, 1996 to the three months
ended March 31, 1997 due to the Company investing the proceeds of equity
financings received in the second quarter of 1996.
23
<PAGE> 25
Fiscal 1996 Compared with Fiscal 1995
Revenues. Revenues for 1996 totaled $1.7 million compared to $97,000 for
1995. Revenues in 1996 and 1995 consisted primarily of sales of CDs and
cassettes produced by others and a limited amount of advertising revenues. The
Company did not have any revenues from continuing operations prior to August
1995 when the Company launched Music Boulevard.
Cost of Revenues. Cost of revenues totaled $1.6 million for 1996 compared
to $85,000 for 1995. Cost of revenues 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 charges, credit card
processing charges, database usage fees, profit participations payable to
strategic alliance partners, content costs and costs associated with customer
subscription programs, which programs have been discontinued.
Operating and Development Expenses. Operating and development expenses
increased from $1.0 million for 1995 to $7.8 million for 1996 due to increased
staffing resulting from the Merger and an increased development effort for the
Company's music websites.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$1.1 million for 1995 to $2.7 million for 1996 due to increased staffing and
supporting higher levels of sales.
General and Administrative Expenses. General and administrative expenses
increased from $872,000 for 1995 to $2.5 million for 1996 due to the addition of
personnel as a result of the Merger.
Interest Income and Expense. Interest income increased from $106,000 for
1995 to $353,000 for 1996 due to the Company investing the proceeds of equity
financings received in 1996. Interest expense increased from $18,000 for 1995 to
$52,000 for 1996 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.
Fiscal 1995 Compared with Fiscal 1994
Revenues. Revenues for 1995 totaled $97,000, reflecting the Company's
launch of Music Boulevard in August 1995. The Company had no revenues from
continuing operations prior to 1995.
Cost of Revenues. Cost of revenues totaled $85,000 in 1995, primarily
reflecting 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.
Operating and Development Expenses. Operating and development expenses
increased from $258,000 in 1994 to $1.0 million in 1995. The increase reflects
the expansion of the Company's engineering staff to develop and launch Music
Boulevard.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$173,000 in 1994 to $1.1 million in 1995. The increase in sales and marketing
expenses primarily reflects costs associated with the launch of Music Boulevard.
General and Administrative Expenses. General and administrative expenses
declined from $896,000 in 1994 to $872,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital expenditures primarily
from equity financings, cash generated from operations, lease financings, a
revolving bank credit line and short-term loans described herein. At March 31,
1997, the Company had a cash balance of $1.1 million. From April 1, 1997 to
date, the Company has received an aggregate of $15.1 million from the issuance
of Series G Preferred Stock, the Senior Notes and the Management Notes. The
Company believes that the proceeds of this offering, together with the current
cash balance, will be sufficient to finance the Company's planned operations and
capital expenditures for at least the next twelve months. The Company expects
negative cash flow from operations to continue for the foreseeable future, as it
continues to develop and market its operations. Inflation has not had any
material
24
<PAGE> 26
impact on the Company's operations. See "Risk Factors -- Historical and
Anticipated Losses; Uncertainty of Future Results," "-- Possible Need for
Additional Funds" and "Use of Proceeds."
Net cash of $96,000, $874,000, $10.7 million and $3.4 million was used for
operating activities for the years ended December 31, 1994, 1995, 1996 and the
three months ended March 31, 1997, respectively. The Company financed these
activities through the private placement of Series D Preferred Stock, which
yielded net proceeds of $1.6 million in 1994, and Series E Preferred Stock and
Series F Preferred Stock, which yielded net proceeds of $19.0 million in 1996.
The Company also borrowed $400,000 under its revolving line of credit in 1995 to
fund operating activities, which was repaid in 1996 with the proceeds of the
sale of Preferred Stock. The Company borrowed $850,000 under its revolving
credit line in the first quarter of 1997 to fund operating activities.
Purchases of property and equipment totaled $256,000, $339,000, $2.9
million and $781,000 for the years ended December 31, 1994, 1995, 1996 and the
three months ended March 31, 1997, respectively. The Company projects that total
purchases of property and equipment will be approximately $3.5 million for 1997,
primarily to support the expansion of facilities and operating systems for its
websites, as well as computer-related equipment to support increased personnel
levels. The Company also invested cash of $672,000 to acquire the rock website,
Rocktropolis, in June 1996.
In April 1997, the Company sold an aggregate of shares of Series
G Preferred Stock to a class of accredited investors at a price of $
per share. Pursuant to the stock purchase agreement for the Series G Preferred
Stock, if the Company consummates an initial public offering of stock in 1997 at
a price per share that is less than $ , the Company is required to pay
each of the purchasers of the Series G Preferred Stock, either in cash or in
additional shares of Common Stock, the Series G Purchase Price Adjustment. In
connection with the issuance of the Series G Preferred Stock in April 1997, the
Company issued warrants to purchase shares of Common Stock at an
exercise price of $ per share as a placement fee. See "Dilution" and
"Certain Transactions -- Preferred Stock Conversion."
In July 1997, the Company issued $1.75 million aggregate principal amount
of promissory notes to Lawrence L. Rosen, Jonathan V. Diamond and Robert David
Grusin (the "Management Notes"), each of whom loaned the Company $583,333. The
Management Notes bear interest at 14% per annum and are due on the earlier of
(i) a "change of control of the Company," as that term is defined in the
Management Notes, and (ii) March 31, 1998; provided, however, that if the
Management Notes are outstanding at the time of this offering, the Management
Notes will convert into shares of Common Stock at the initial public offering
price of $ per share upon consummation of this offering. In
consideration for these loans, the Company issued an aggregate of
warrants to purchase shares of Common Stock, representing
warrants to each of Messrs. Rosen, Diamond and Grusin. The warrants are
exercisable at a price of $ per share and expire in July 2004. See
"Dilution."
In August 1997, the Company issued $6 million aggregate principal amount of
Senior Notes to a group of institutional investors affiliated with an insurance
company in return for loans in that amount to the Company. The Senior Notes bear
interest at 14% per annum and are due on the earliest of (i) consummation of
this offering, (ii) a "change of control of the Company," as that term is
defined in the Senior Notes, and (iii) March 31, 1998. In consideration for
these loans, the Company issued an aggregate of warrants to purchase
shares of Common Stock. The warrants are exercisable at a price of
$ per share and expire in August 2004. In connection with the issuance of
the Senior Notes in August 1997, the Company issued warrants to purchase
shares of Common Stock at an exercise price of $ per share as
a placement fee. A portion of the proceeds of this offering will be used to
repay the Senior Notes. See "Use of Proceeds."
The Company has a commitment for a $2.0 million revolving line of credit
with CoreStates Bank, N.A. (the "CoreStates Facility"), which was to expire on
June 30, 1997. Pursuant to a letter agreement dated August 6, 1997, the
CoreStates Facility will expire on August 31, 1997, and the defaults by the
Company as to certain financial covenants contained in the CoreStates Facility
have been waived. The CoreStates Facility bears interest at the bank's "national
commercial rate" (as defined in the commitment letter of CoreStates, N.A.) and
is secured by a security interest in substantially all of the Company's assets.
Maximum borrowings
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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. As of March 31, 1997, the Company had total borrowings of $850,000 under
the CoreStates Facility, which was approximately the maximum amount available as
of such date pursuant to the terms 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."
DISCONTINUED OPERATIONS
Since 1984, the Company has operated an on-line information services
business. In 1994, the Company expanded its business strategy to include music
entertainment. In April 1997, the Company decided to focus exclusively on its
music entertainment business, and, as such, has elected to discontinue its
on-line information services business. At that time, the Board of Directors
approved a formal plan of disposal for its on-line information services
business. The expected manner of disposal is the sale of substantially all of
the assets of this business. The Company anticipates that this sale will be
completed by April 1998.
The on-line information services business is being accounted for as a
discontinued operation. Accordingly, the operating results and assets and
liabilities of this business have been reflected separately from continuing
operations. The Company expects, based upon management's best estimate of the
amount to be realized, that the sale of the on-line information services
business will result in a gain on the disposal of the business' net assets.
Additionally, the Company believes that such business will not incur significant
operating losses through the anticipated disposal date. The Company expects that
the sale of the on-line information services business will result in a gain on
the disposal of its assets which will be sufficient to offset the losses of the
on-line services business from the measurement date to the disposal date. As a
result, no amounts have been accrued at March 31, 1997 relating to the disposal
of such business. Any actual gain on the disposal will be recognized when
realized. The amount the Company will ultimately realize could differ from
management's current estimate. The anticipated net loss from discontinued
operations through the disposal date will be recorded as an adjustment to the
net assets of the discontinued operations. See Note 3 of Notes to Consolidated
Financial Statements.
If the Company is unable to sell the assets of the on-line information
services business, the Company would incur expenses in connection with the
closing of this business and may incur additional losses while operating this
business prior to closing.
For the years ended December 31, 1994, 1995, 1996 and the three months
ended March 31, 1996 and 1997, the discontinued operations generated revenues of
$11.4 million, $11.0 million, $7.9 million, $2.5 million and $1.3 million,
respectively. The discontinued operations generated net income of $1.4 million,
$1.3 million and $160,000 in 1994, 1995 and the three months ended March 31,
1996, respectively, a net loss of $969,000 in 1996 and $160,000 for the three
months ended March 31, 1997.
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BUSINESS
N2K is a music entertainment company using the Internet as a global
platform for promoting, marketing and selling music and related merchandise. The
Company's strategy is to build loyal user communities around genre-specific
websites that provide music content and enable consumers to purchase CDs,
cassettes and related merchandise. The Company believes that as its user base
continues to grow, it will be able to increase revenues from sales of music,
related merchandise, advertising and sponsorship programs. The Company
estimates, based on internal reports, that the number of page impressions per
month has grown from approximately 1.4 million in June 1996 to approximately
10.1 million in June 1997.
The Company's music retail website is Music Boulevard (www.musicblvd.com),
around which the Company organizes its genre-specific music websites,
Rocktropolis (www.rocktropolis.com), Jazz Central Station
(www.jazzcentralstation.com) and Classical Insites (www.classicalinsites.com).
In addition to these genre websites, the Company also hosts websites for such
artists as David Bowie, The Rolling Stones and Leonard Bernstein. The Company's
websites allow users to view current music news, including news from MTV and
from such magazines as SPIN and JazzTimes, reviews, artist biographies and
discographies, musicians' favorite artist recordings and historical and
educational information, and to hear and view cybercasts and recording and video
samples. Consumers may search, browse and purchase music recordings from a
catalog of approximately 165,000 CD and cassette titles and related merchandise,
digitally access 30-second music samples from a selection of approximately
275,000 songs, read from over 60,000 reviews and related articles and view music
video clips. In July 1997, the Company introduced its e _ mod system, which
allows consumers to purchase and digitally download from a collection of music
singles. All product purchases are coordinated through Music Boulevard, which
acts as the Company's on-line retail store. The Company believes that by
providing a wealth of information in a highly personalized, interactive context,
it creates an entertaining environment that attracts traffic to its websites,
fosters brand awareness and encourages purchases of music and related
merchandise.
As part of its growth strategy, the Company seeks to establish strategic
alliances with global on-line, music and media companies to attract additional
users to, and increase brand awareness of, the Company's websites. For example,
the Company has established the MTV/VH1 Alliance, under which MTV Networks
provides Music Boulevard with content and presents Music Boulevard, both on-air
and on-line, as the exclusive partner for retail sales of CDs, cassettes and
related merchandise for each of the MTV (www.mtv.com) and VH1 (www.vh1.com)
websites. N2K has established strategic agreements as exclusive co-branded
on-line music retailer for WebCrawler, as most prominently featured music
content provider and on-line music retailer for WebTV and as most prominently
featured music content provider and exclusive music retailing anchor tenant for
@Home.
The Company intends to capitalize on the global nature of the Internet to
build an international user base by creating local language versions of, and
localized content for, the Company's websites. Currently, approximately
one-third of the Company's on-line revenues are generated from sales of CDs,
cassettes and related merchandise outside the U.S. The Company has established a
wholly-owned subsidiary in Japan, the world's second largest market for recorded
music sales, and has launched Japanese versions of Music Boulevard
(www.musicblvd.com/jp) and Jazz Central Station (jp.jazzcentralstation.com). The
Company also offers registration and ordering instructions on Music Boulevard in
English, Japanese, German, French and Spanish.
The Company has also established its own record label, N2K Encoded Music,
which uses the Company's websites, as well as record stores and other
traditional distribution channels, to promote, distribute and sell original and
licensed artist recordings. Since January 1997, the Company has released its
initial eight recordings on the N2K Encoded Music label under the direction of
Grammy Award-winning producer, Phil Ramone. The Company expects to release five
new titles through December 1997, and currently has agreements with twelve
artists for future recordings. The Company expects that many of its N2K Encoded
Music CDs will feature enhanced multimedia capabilities and Internet
connectivity software. Domestic distribution for the Company's record label is
handled by Sony's RED Distribution.
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ON-LINE MUSIC INDUSTRY
The Company believes that substantial growth opportunities exist in the
on-line music industry. According to Jupiter Communications ("Jupiter"), total
on-line music revenues, which include prerecorded music sales, music related
merchandising, advertising and concert ticketing, are expected to grow to $2.8
billion by the year 2002, up from an estimated $22.5 million in 1996 and $71.0
million in 1997. Jupiter estimates that the number of on-line households and the
percentage of those households making purchases is expected to grow from an
estimated 15.2 million households in 1996 to 57.0 million households,
representing over 50% of U.S. households, by the year 2002. During the same time
period, Jupiter estimates that the percentage of on-line households making an
on-line purchase during the year is expected to grow from approximately 20% to
70%.
The Company believes that the multimedia features available through the
Internet, including audio, video and graphics, make it an ideal medium for
promoting, marketing and selling music and related merchandise. Potential
purchasers of music recordings can preview their purchases by listening to
high-quality sound samples, viewing text and video clips (including cover art,
artists' discographies, music videos and reviews) and searching from an
extensive catalog of available titles. The Internet and current technologies
also allow users to digitally download music in a compressed format to a
personal computer ("PC") and store it on a CD using a read/write CD-ROM drive.
Internet users can also search for music by genre or artist, access a wealth of
information and events, including music history and news, artists' biographies,
cybercast concerts and radio broadcasts, and participate in live interviews with
artists. Because the Internet is a highly interactive medium and user responses
can be tracked, the Company believes that advertisers will become increasingly
attracted to opportunities to focus their marketing efforts on specific user
groups and individuals.
The Company believes that Internet-based retailers have certain advantages
over traditional retail channels. Traditional retail stores limit the amount of
inventory they carry and tend to focus on carrying a greater percentage of hit
releases. The Company estimates that a traditional retail store stocks an
average of 10,000 stock keeping units ("SKUs") and megastores stock an average
of approximately 39,000 SKUs out of a total of more than 165,000 SKUs generally
available in the U.S. and offered by the Company. According to SoundScan, Inc.
("SoundScan"), a retail audio sales data collection company, the number of new
releases in 1995 alone was more than 28,000 titles. According to Jupiter, 80% of
unit sales at traditional retail stores come from only 20% of available titles.
The Company believes that traditional retail stores do not have the same
capability to track individual customer purchases and demographic data for use
in direct marketing programs and in developing a one-to-one relationship with
the consumer. Internet-based stores can operate 24-hours a day, seven days a
week, and are not limited by geographic boundaries.
An individual electronic commerce website can maximize its awareness and
traffic through the use of strategic alliances with other websites having high
user traffic. Through the use of embedded hyperlinks, higher traffic websites
can refer potential customers to electronic commerce websites for potential
purchases of goods or services. These agreements generally involve economic
arrangements including upfront payments or commissions on the dollar volume of
goods sold. These payments are analagous to rent paid by traditional "brick and
mortar" retail locations, and can be critical to an electronic commerce
website's ability to expand.
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 ("RIAA"), domestic purchases of recorded music by those
30 and over have increased from approximately 34% of U.S. sales in 1986 to
approximately 47% of sales, or approximately $5.9 billion, in 1996. The Company
believes that the Internet represents an attractive retail and promotion medium
for customers in this age group as they are less "hits-driven" than younger age
groups, typically can afford to buy more titles at one time, often own PCs and
generally have credit cards, which are generally used to make electronic
payments.
Historically, the music industry has benefited from innovations in
technology, such as the introduction of the CD in 1983. Over the last ten years,
much of the industry's growth resulted from consumers replacing existing music
collections with the CD format. According to the RIAA, domestic music sales grew
from $5.6 billion in 1987 to $12.5 billion in 1996. In recent years, however,
music sales growth has slowed due to a number of factors, including a shortage
of major releases by new artists and a slowdown in the rate of growth
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of CD sales, as consumers have replaced most of their music collections.
Nevertheless, the number of retailers distributing music during this time period
has increased, resulting in greater competition and the closure of a number of
traditional record stores. For example, according to the RIAA, traditional
record stores' market share of music sales dropped from a peak of 72% in 1989 to
50% in 1996. During the same time period, stores such as mass merchandisers,
discount chains and consumer electronics stores have increased their market
share from 16% to 32% and music clubs have increased their market share from 8%
to 14%.
BUSINESS STRATEGY
The Company's strategy includes the following key elements:
Create Strong Brand Awareness. The Company believes that building brand
awareness of the N2K websites is critical to attracting and expanding its global
Internet user base. N2K promotes its brand identities through on-line and
traditional media, event sponsorships and other marketing activities. The
Company enhances brand awareness of its individual websites by providing
original and proprietary content, providing consumers the ability to purchase
music and related merchandise and establishing strategic and bounty
relationships whereby other websites engage Music Boulevard as their on-line
music retailer and content provider.
Develop Key Industry and Website Alliances. The Company seeks to establish
strategic alliances with global music and media companies to attract additional
users to, and increase brand awareness of, the Company's websites. For example,
the Company has established the MTV/VH1 Alliance, an exclusive strategic
alliance under which MTV Networks provides Music Boulevard with content and
presents Music Boulevard as the exclusive partner for retail sales of CDs,
cassettes and related merchandise for each of the MTV (WWW.MTV.COM) and VH1
(WWW.VH1.COM) websites, both on-air and on-line. N2K has established strategic
agreements as exclusive co-branded on-line music retailer for WebCrawler, as
most prominently featured music content provider and on-line music retailer for
WebTV and as most prominently featured music content provider and exclusive
music retailing anchor tenant for @Home. The Company views these agreements as a
significant competitive advantage. In addition, N2K has recently established its
Remote Access Music ("RAM") program, whereby third-party websites may register
with N2K and establish hyperlinks to Music Boulevard for on-line music
retailing.
Offer Largest Selection of Music and Related Merchandise. The Company's
merchandising strategy centers around offering users one of the largest
collections of music and related items (including over 165,000 music titles and
related merchandise) in a multimedia, interactive and personalized environment.
Through the Company's e
- -mod system, users can also digitally download a select number of singles. The
Company believes that its extensive music catalog, combined with specific artist
features, music reviews, sound samples and music videos, draws users into areas
of personal interest and generates incremental sales by exposing consumers to
music for which their knowledge or access may be limited or which may be
unavailable in traditional retail environments.
Build User Communities and Attract Advertising. The Company's strategy is
to build global on-line communities around specific genres of music, all of
which link to the Company's retail website, Music Boulevard. The Company
believes that organizing its websites by music genres such as rock, jazz and
classical music parallels traditional radio and other media formats as well as
consumer buying patterns. By organizing its websites by music genre, the Company
is able to aggregate targeted demographic user groups, thereby offering
advertisers and sponsors access to highly defined audiences. These targeted user
groups enable advertisers and sponsors to customize their messages through
banner advertisements, event and program sponsorships and music recording
promotions. The Company provides its advertisers and sponsors with quantitative
feedback on the effectiveness of their website advertising and sponsorship
programs.
Leverage Infrastructure Through Multiple Websites. The Company intends to
utilize its current infrastructure to enhance existing, and add new, genre and
artist websites. Retailing components in each genre website are dynamically
driven from Music Boulevard databases, and are presented within the interface
and design of the genre website. The Company believes that both users and
advertisers prefer websites designed for specific audiences and that a multiple
website approach enhances the Company's ability to promote content
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within each website, encourages more users to bookmark the Company's websites
and attracts greater numbers of third-party hyperlinks to the Company's
websites.
Expand International Presence. Approximately one-third of the Company's
on-line revenues are currently generated from sales of CDs, cassettes and
related merchandise outside the U.S. The Company intends to capitalize on this
trend and the global nature of the Internet to build an international user base
by creating local language versions of, and culture-specific content for, the
Company's websites. The Company has established a wholly-owned subsidiary in
Japan, the world's second largest market for recorded music sales, and has
launched Japanese versions of Music Boulevard and Jazz Central Station. The
Company also offers registration and ordering instructions on Music Boulevard in
English, Japanese, German, French and Spanish.
Build and Leverage N2K Encoded Music Label. The Company has established its
own record label, N2K Encoded Music, which uses the Company's websites, as well
as record stores and other traditional distribution channels, to promote,
distribute and sell original and licensed artist recordings. Since January 1997,
the Company has released its initial eight recordings on the N2K Encoded Music
label under the direction of Grammy Award-winning producer, Phil Ramone. The
Company expects to release five new titles through December 1997, and currently
has agreements with twelve artists for future recordings. The Company believes
that it can leverage its Internet platform by promoting and selling its own
proprietary titles produced by N2K Encoded Music. The artists and products of
N2K Encoded Music also provide an additional source of engaging content for the
Company's genre websites.
N2K WEBSITES
The Company's music retail website is Music Boulevard (WWW.MUSICBLVD.COM),
around which the Company organizes its genre-specific music websites,
Rocktropolis (WWW.ROCKTROPOLIS.COM), Jazz Central Station
(WWW.JAZZCENTRALSTATION.COM) and Classical Insites (WWW.CLASSICALINSITES.COM).
In addition to these genre websites, the Company also hosts websites for such
artists as David Bowie (WWW.DAVIDBOWIE.COM), The Rolling Stones
(WWW.STONESWORLD.COM) and Leonard Bernstein (WWW.LEONARDBERNSTEIN.COM). As part
of its multiple website strategy, the Company assigns, whenever possible, a
separate universal resource locator or "URL" to each of its genre and artist
websites. The Company believes that both users and advertisers prefer websites
with distinct URLs designed for specific audiences.
Music Retail and Genre Websites. The Company believes that by providing a
wealth of information in a highly personalized, interactive context, it creates
an entertaining environment that attracts traffic to its websites, fosters brand
awareness and encourages purchases of music and related merchandise. The
Company's existing music retail and genre websites include the following:
WWW.MUSICBLVD.COM
Music Boulevard is the Company's flagship website, featuring a rich
graphical and musical environment containing over 75,000 graphic images and
offering over 165,000 CD and cassette titles and related merchandise. The Music
Boulevard URL address leads to an entrance page containing a front door to the
retail store, in addition to direct links to Music Boulevard departments
(including the MTV and VH1 boutique areas). By clicking on the front door, users
enter the retail store where a main page displays featured areas and
departments. This page also serves as a familiar home base to which users may
return to find key destinations within the store. Users may choose desired
locations by clicking on a navigation bar or hyperlinked text allowing them to
begin (i) searching for artists, titles and songs; (ii) accessing the Music
Boulevard Newsstand, Billboard charts, Help, e-mail and on sale items; (iii)
ordering and browsing; (iv) linking to genre departments, including MTV's CD
Lounge, VH1's Sound Shop, Popular, Jazz, Classical, Country and Other Music; (v)
ordering not-yet-released titles; (vi) linking directly to MTV and VH1 News;
(vii) joining the Frequent Buyers Club; and (viii) listening to sound samples in
MPEG, RealAudio or Liquid Audio formats. The Music Boulevard Newsstand features
over 60,000 reviews and features from MTV News, VH1 News, Jazz Track (news from
Jazz Central Station) and CI Classical Review (news from Classical Insites), and
provides links to articles from SPIN, JazzTimes, Puncture, Fanfare, Dirty Linen,
Relix, Blues Access and IAJE Jazz Educators Journal magazines.
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A personal shopping cart allows the user to select merchandise for purchase
while navigating through Music Boulevard. Items can be added to or subtracted
from a shopping cart at any time. As a user completes a search, similar or
complementary artists and titles are suggested. By pressing the "buy" button,
the customer completes the ordering process. See "-- Ordering, Fulfillment and
Customer Service." Music Boulevard customers can join a Frequent Buyers Club and
receive a free CD after purchasing a certain quantity of CDs. To join the
Frequent Buyers Club, customers complete a brief survey which provides valuable
demographic data. The Company currently utilizes the Frequent Buyers Club data
to analyze customer shopping trends and demographics, and is evaluating ways in
which it may utilize this data to customize marketing programs. Each Music
Boulevard department contains new releases, on sale items and a listening post
from which users may choose selected sound samples by title. Virtual end caps
are displayed in each department, featuring specially-priced titles and icons
for sound sampling.
In March 1997, Yahoo Internet Life named Music Boulevard the Best On-line
Music Store. In Summer 1997, Music Boulevard was one of Internet Shopper's
Choice winners for Internet Shopper Best Website.
WWW.ROCKTROPOLIS.COM
The Rocktropolis website is an in-depth, multimedia entertainment and
information resource for the global rock and pop music communities. Rocktropolis
offers a comprehensive guide to the world of rock and pop music, enabling users
to listen to live performances, discuss their favorite artists and access music
reviews on-line. Rocktropolis' design consists of graphic elements based on a
futuristic city. Each section of Rocktropolis has a unique design and content
matching its neighborhood theme, and utilizes advanced music, video and other
multimedia elements to enhance the visual experience of being in a city.
Rocktropolis' primary areas include: Rocket Ballroom (featuring broadcasts,
performances and other live events); Buzz Cafe (featuring chat areas devoted to
favorite artists, lifestyle choices, pop culture and other popular issues);
Groove Lounge (an underground nightclub featuring cybercasts with today's top
DJ's performing Electronica, Ambient, Techno, Drum & Bass and Acid Jazz); and
Rocktropolis Radio (featuring four separate streaming audio stations covering
Rock, Dance, Punk and Ambient). Rocktropolis has featured such artists as David
Bowie, Sting, Beck, Sex Pistols, Porno for Pyros, Bush, The Tragically Hip,
Chemical Brothers, Motley Crue, Los Lobos and Sheryl Crow. In October 1996,
Rocktropolis was the recipient of a Yahoo Internet Life Five-Star Award.
Rocktropolis is the home of the award-winning allstar magazine, which
provides daily music news and gossip online. allstar also features album and
live reviews, as well as in-depth interviews with some of rock music's most
important musicians. In July 1997, at the 3rd Annual Music Journalism Awards,
allstar was the winner of an Online Media award.
In September 1997, the Company expects to launch a revised version of the
Rocktropolis website which will include time-based programming with regularly
scheduled events, additional content and enhanced multimedia features.
WWW.JAZZCENTRALSTATION.COM
Jazz Central Station is an in-depth jazz, multimedia music entertainment
and information resource for the global jazz community. Jazz Central Station
provides a dynamic graphical user interface through which visitors are able to
explore the contemporary and historical world of jazz through text, graphic and
multimedia elements, organized in a virtual train station theme. Featured areas
include: Featured Artists (comprehensive overviews of artists' careers); The
Listening Car (providing Recommended Listening, CD Reviews, New Artist Profiles,
Film and Video Reviews and a complete listing of jazz box sets); 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 the official website for the International Association of
Jazz Educators); artist websites (including featured areas for Chick Corea,
Joshua Redman and Gerry Mulligan); Jazz Destinations (highlighting jazz events
and venues worldwide); Jazz Cafe (featuring regularly scheduled chats as well as
the very popular Bulletin Boards); and The Newsstand (including JazzTimes
Magazine, Jazz
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Educators Journal, The History of Jazz, BRAVO Cable Jazz listings, Hennessey
Jazz Notes and Jazz Central Station's own daily Jazz Track). Other features
include artist interviews, cover art, videos, photos, liner notes, reviews,
biographies, concert calendars and educational listings.
Jazz Central Station is the official website for JazzTimes Magazine, the
International Association of Jazz Educators, The Monterey Jazz Festival, George
Wein's Festival Productions (producer of the JVC Jazz Festival), Playboy Jazz
Festival, North Sea Jazz Festival and a 24-hour a day, seven-day a week on-line
simulcast of WBGO 88.3 FM, a leading straight-ahead jazz radio station. In 1996,
Jazz Central Station inaugurated the first annual JCS Global Jazz Poll, in which
its on-line users voted for their favorite artists. The winners were chosen and
selected winning tracks were compiled for one of the Company's initial releases
under the N2K Encoded Music label in the first quarter of 1997.
Jazz Central Station has an acclaimed Board of Advisors, including Chick
Corea, Quincy Jones, Ramsey Lewis, Bruce Lundvall, Dan Morgenstern and George
Wein. The Board of Advisors is composed of industry leaders, each of whom the
Company believes possesses distinct knowledge of various aspects of the jazz
community.
Jazz Central Station has received numerous awards for its design and
content, including the 1996 America On-line Music Award for the Best Jazz
Cybersite and recognition by Excite Inc. as the Best Entertainment Site of 1996
and from Yahoo Internet Life for The Best (4-Star Rating) in August 1997.
WWW.CLASSICALINSITES.COM
Classical Insites is an in-depth, multimedia music entertainment and
information resource for the global classical music community. Classical Insites
offers a comprehensive guide to the world of classical music, enabling users to
explore the history and personalities of classical music, listen to performances
and discussions by legendary artists, seek out worldwide classical music events
and purchase music and related merchandise on-line. In addition to text,
features are enhanced by graphic and multimedia elements. Classical Insites'
primary areas include: The Hall of Fame, a gallery of great classical composers
and performers (including recent inductees Luciano Pavarotti, Leontyne Price,
Yo-Yo Ma, and Pierre Boulez); and The Performance Center, including a concert
hall (featuring broadcasts, performances and other events), a spotlight area
(introducing the work of important lesser-known composers and performers), an
information booth (providing links to performing organizations around the world)
and a screening room (featuring exciting new films and great film scores). Other
highlights of Classical Insites include the official website of Leonard
Bernstein (WWW.LEONARDBERNSTEIN.COM).
Classical Insites also hosts the official website of WQXR (96.3 FM), one of
the country's leading classical music radio stations, offering music listings,
program information and a live audio stream to allow users worldwide to hear
WQXR's classical programming. Classical Insites' users can enjoy on-line
editions of Fanfare Magazine (a leading classical music publication) and CI
Classical Review (an in-house publication of CD reviews and feature articles).
Among its plans for 1997, Classical Insites intends to launch the official
website of Cecilia Bartoli, one of the world's renowned mezzo-sopranos, and to
induct Maria Callas, Mstislav Rostropovich, Serge Koussevitsky and Sir Georg
Solti into the Classical Insites Hall of Fame. Classical Insites will also
announce the winners of its first Global Classical Music Poll, in which users
voted for their favorite artists. The Lifetime Achievement category of this
award is being voted on by Classical Insite's distinguished Board of Advisors,
which includes Betty Allen, Marilyn Bergman, Nina Bernstein, John Corigliano,
Peter Gelb, Charles Hamlen, Omus Hirschbein, Bobby McFerrin, Arnold Steinhardt,
Michael Tilson Thomas and Charles Webb. The Board of Advisors is composed of
artists and industry leaders that as a whole represent the various aspects of
the diverse classical music community.
Classical Insites has received numerous awards since its launch, including
a Best of The Web (4-Star Rating) from NetGuide Live and The Best (4-Star
Rating) from Yahoo Internet Life during 1997.
Artist Websites. The Company's artist websites include interviews,
discographies, sound and video samples, artists' best recordings, artists'
recommended listening and touring and biographical information. These artist
websites each have a separate URL.
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WWW.DAVIDBOWIE.COM
This official David Bowie website contains many features on the artist,
including an exploration of his latest album releases, Outside and Earthling.
The website also takes visitors inside the murder-mystery world explored in
Bowie's short story, "The Diaries of Nathan Adler." The website features sound
samples, band biographies, concert clips and information, interviews, cover art,
the full text of "The Diaries of Nathan Adler" and information on Bowie's latest
releases and tours (including coverage of his 50th Birthday Concert at Madison
Square Garden). David Bowie's Telling Lies was one of the first singles to be
released exclusively on the Internet. The single has been digitally downloaded
over 300,000 times by website visitors. In addition, the website contains a
special section featuring the artist's selected websites and samples of his
digital art. Bowie fans can communicate with each other and with the artist via
the website's Message Board.
WWW.STONESWORLD.COM
Stones World is a Rolling Stones website that features an extensive
overview of the band. The website features a comprehensive catalog of the
Rolling Stones' music, comprised of five separate sections: Discography, Down on
the Corner, Mile Stones and Index and a welcome message from Mick Jagger and
Keith Richards. This website incorporates sound samples, live concert clips,
band and concert information, interviews, archival photos, full lyrics and an
interactive poker game. Stones fans can communicate with each other via the
website's Message Board.
WWW.LEONARDBERNSTEIN.COM
The Leonard Bernstein website is the official website celebrating Leonard
Bernstein's life and legacy, developed in conjunction with the Bernstein family
and estate. Drawing primarily on the vast archive of Bernstein materials left to
the Library of Congress, this website presents a multifaceted portrait of
Leonard Bernstein through an extensive collection of rare documents,
photographs, interview excerpts, audio samples and video material. Visitors to
the Leonard Bernstein website enter a virtual rendition of Bernstein's actual
studio and can explore "themes" that offer unique insight into this great
American musician's creative mind. The website offers users the opportunity to
read from a selection of Leonard Bernstein's private letters and peruse his
manuscript scores, working notes, rare photographs, programs and more. Among
some of the website's recent offerings were exhibits featuring West Side Story
(including documentation of its long and complicated genesis), The Young
People's Concerts with the New York Philharmonic (including letters from devoted
fans of all ages whose lives were changed by these ground-breaking educational
programs) and Bernstein's 1943 debut with the New York Philharmonic. Many of the
elements featured on the website have never before been available to the public.
Special Leonard Bernstein recordings and related merchandise are available
exclusively through Music Boulevard.
International Websites. The Company intends to capitalize on the global
nature of the Internet to build an international user base by creating local
language versions of, and localized content for, the Company's websites.
Currently, approximately one-third of the Company's on-line revenues are
generated from sales of CDs, cassettes and related merchandise outside the U.S.
The Company has established a wholly-owned subsidiary in Japan, the world's
largest market for recorded music sales, and has launched Japanese versions of
Music Boulevard (WWW.MUSICBLVD.COM/JP) and Jazz Central Station
(JP.JAZZCENTRALSTATION.COM). The Company also offers registration and ordering
instructions on Music Boulevard in English, Japanese, German, French and
Spanish.
N2K ENCODED MUSIC
In January 1997, the Company launched its own record label, N2K Encoded
Music, to create, produce, license, acquire and market high-quality recorded
music, which is distributed through the Company's websites as well as through
record stores and other traditional retail and distribution channels. N2K
Encoded Music intends to produce recordings across several music genres,
including rock, pop, jazz, classical and blues. In building and expanding the
N2K Encoded Music record label, the Company will license master recordings from
other record labels, acquire master recordings and publishing catalogs and sign
artists to the record label.
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Through its websites, the Company intends to feature and promote individual
artists who are signed to the N2K Encoded Music label. The Company anticipates
that in the short-term the majority of N2K Encoded Music's new recordings will
be sold in traditional record stores. The Company expects that many of its
releases will be in the Enhanced CD format, which utilizes advanced recording
techniques while incorporating multimedia information, including quicktime video
clips, interviews, text and an integrated link to the Company's on-line
websites. The Company believes that the E-CD format will create more visibility
for N2K Encoded Music's recording artists as well as increased traffic to the
Company's websites.
Phil Ramone, a noted independent record producer, is the President of N2K
Encoded Music. In such capacity, Mr. Ramone is responsible for managing,
conducting and developing the business of N2K Encoded Music, including signing
recording artists to perform for the N2K Encoded Music label and serving as
Producer or Executive Producer for one or more of its albums. Mr. Ramone has
produced albums for a variety of well-known recording artists, including Billy
Joel, Paul Simon, Chicago, Barbra Streisand, Paul McCartney, Elton John and
Frank Sinatra, among many others. He has also produced soundtracks or albums for
the following films: A Star is Born, Flashdance, Ghostbusters, On Her Majesty's
Secret Service, Midnight Cowboy, Reds, Shampoo, Stand By Me, White Nights and
Yentl, as well as sixteen Broadway plays including Chicago, A Funny Thing
Happened on the Way to the Forum, Hair, Passion, The Wiz, Starlight Express and
Promises, Promises. In addition to numerous platinum and gold albums and
singles, Mr. Ramone has received eight Grammy Awards and many other music
awards. See "Management -- Employment Agreements."
N2K Encoded Music's eight initial releases feature three compilation
recordings of outstanding jazz musicians, one classical recording from a new
pianist, three jazz recordings and the label's first rock/pop recording. As part
of the Company's strategy to establish the N2K brand name, many of N2K Encoded
Music's releases are currently planned to include comprehensive media campaigns
tied to promotional events and may be promoted on-line, in magazines and on
radio, with corresponding related merchandise offerings. Upcoming releases
include Dave Grusin's West Side Story, featuring Gloria Estefan and Jon Secada.
Releases from several other recording stars are due for release in September
1997, while several additional rock and jazz releases will be released during
the third and fourth quarters of 1997, including T.S. Monk's Monk on Monk,
featuring Herbie Hancock, Grover Washington, Jr. and many other major jazz
recording artists. The Company prices its Enhanced CDs on a comparable basis
with other music CDs.
On October 16, 1996, the Company and Sony's RED Distribution entered into a
letter agreement providing that Sony's RED Distribution will be the exclusive
distribution agent in the United States for the N2K Encoded Music label. The
agreement has a three-year term and provides for a distribution fee equal to a
graduated percentage of net sales. The agreement provides that the Company will
deliver at least 12 previously unreleased, newly compiled or recorded studio
albums during each year of the term of the agreement.
N2K Encoded Music promotes its image as a multimedia, Internet-oriented
label. The Company uses its websites to promote the N2K Encoded Music label and
intends to create a website or featured artist area within an existing N2K
website for each of its recording artists. N2K Encoded Music makes use of E-CDs,
which include multimedia content describing the featured artists and their
recordings. Each E-CD will contain a linking mechanism to one or more of N2K's
websites, allowing for on-line connections that can enhance a user's experience
of the label's recordings.
For each artist recording, N2K Encoded Music creates a tailored marketing
plan. In conjunction with an artist's release, N2K Encoded Music employs
traditional marketing efforts, including the coordination of radio
advertisements, distribution of CDs to radio syndicates to encourage air-time
play, distribution of point-of-purchase displays to retail locations and
organization of live performances and appearances for the artist. The Company
also uses its websites to promote artists' releases. Users are directed to an
artist's website or featured area for editorial content, sound and video
samples, digital downloading of singles and samples and artist cybercasts. The
Company also creates banner ads on its websites announcing an artist's release
and intends to utilize its strategic partners (including MTV and VH1) for
comarketing. The Company believes that these promotional tactics differentiate
N2K Encoded Music from other labels.
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SALES AND MARKETING
The Company's overall sales and marketing strategy is designed to
effectively merchandise music and related products sold through Music Boulevard
by building brand awareness, attracting repeat users and driving traffic to
N2K's websites. The Company utilizes a combination of external advertising and
promotion, internal promotion and product merchandising and on-line partnering
programs, including the RAM program, to accomplish these objectives. The Company
currently employs approximately 25 people in its sales and marketing department.
Website Promotion
The Company utilizes strategic alliances to increase brand awareness and
drive traffic to Music Boulevard. In addition, the RAM program enables
independent websites to offer their users the ability to purchase CDs, cassettes
and music-related merchandise through a link to Music Boulevard, earning a
commission on items sold through their website.
The Company also employs a combination of on-line and off-line advertising
and promotion campaigns to stimulate traffic to its websites. The Company
purchases advertisements on high-traffic websites such as Netscape and MSN, on
search engines and directories such as Infoseek, Lycos, Excite and Yahoo!, and
on selected destination websites such as CNET, PointCast and E!Online, which
have targeted demographics similar to those of N2K's users. Generally, these
advertisements are in the form of interactive banners. The Company leases
appropriate "keywords" on search engines. The Company establishes hyperlinks
between N2K websites and artist and fan club websites, posts in music-related
newsgroups and secures reviews and event notices in appropriate directory
websites. The Company also promotes its websites through traditional off-line
media, including radio, print and television. The Company has a proactive public
relations program and participates in trade shows, conferences and speaking
engagements.
The Company also promotes its Music Boulevard website through hyperlinks
from record label websites and through its relationship with SoundScan. The
Company believes that hyperlinks between Music Boulevard and record label
websites are attractive to record companies who do not sell to consumers
directly on their own websites because of conflicts with retailers. In its
relationship with SoundScan, the Company reports its weekly 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. This data is the exclusive criteria for
compiling the Billboard charts, and qualifies the N2K network of websites as a
potential advertising medium for record labels.
Merchandising and Customer Programs
A key part of the Company's merchandising and customer acquisition and
retention strategies is its ability 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 and stimulate and
facilitate consumer purchases of CDs, cassettes and related merchandise.
Pricing. The Company adjusts pricing strategies and tactics as necessary to
maintain competitiveness. The Company's strategy is to price aggressively all
recent releases and popular titles. 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.
In-Store Merchandising. The Company utilizes numerous merchandising
features to encourage and enhance a consumer's buying experience. The Company
believes that the user's ability to listen to audio samples from a selection of
approximately 275,000 songs is a significant incentive to purchase. Prior to
making a purchase on Music Boulevard, a consumer can also access a variety of
information about an artist, music group, album or music genre.
The Company regularly creates artist and sales programs on its music
websites to maximize visibility and sellthrough. The Company contracts with
Billboard to display the top selling music charts on the Music Boulevard
website, which, the Company believes, provides the consumer with an effective
resource for
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locating samples and sale pricing. The Company has recently enabled its
customers to purchase upcoming popular album releases not yet appearing in
conventional retail stores. These titles are delivered to Music Boulevard
customers on their respective titles' release dates. The Company promotes these
sales events via ad banners both on N2K websites and others' websites.
Exclusive Product Distribution. Through its relationships with music
artists and their business representatives, N2K has made arrangements with
several well known artists to sell selected recordings exclusively through the
Music Boulevard distribution channel. In addition to generating a higher profit
margin, these exclusive releases are not available through any other music
retailers, giving Music Boulevard a significant competitive advantage. The
Company currently has exclusive artist distribution relationships with The
Tragically Hip and Mayfield, featuring Curt Smith.
Push Marketing. The Company has created virtual listening posts, which
consist of CD covers prominently displayed with audio samples in multiple
formats, competitive sale pricing and "Order Now" buttons on the high-traffic
front door to Music Boulevard and in the individual music genre department
storefronts. The Company believes that record labels find the virtual listening
posts attractive for promoting new CD releases.
Customer Acquisition and Conversion. The Company collects user information
through a variety of programs which require registration on both Music Boulevard
and the genre websites and enable the Company to collect demographic data which
can be used to market directly to the Company's customer base. Such programs
include sweepstakes, contests, coupon giveaways, free shipping and other sales
promotions to generate new business.
Customer Retention. The Company has implemented a Frequent Buyers Club
membership program, allowing members to receive a free CD after a certain number
of purchases. The Company believes that a major benefit of this club is the
ability to collect user demographics and attempt to capture all or a greater
portion of a member's on-line music purchases. The Company uses an existing
technology, known as "cookies", to keep track of basic user actions and sessions
on the Music Boulevard website. The Music Boulevard cookie is able to restore a
customer's shopping basket and on-line session, even if the customer leaves the
website and returns later. The Company believes the use of this technology
facilitates and encourages customers to spontaneously visit N2K's websites.
One-To-One Marketing. The Company believes that database marketing enhances
its ability to know its customers' music and lifestyle preferences which
provides its customers with a more personal and enhanced experience. After
collecting consumer data, the Company uses e-mail to send customers compelling
messages of discount coupons, new releases and special sales, among other
things, depending on the customer's previous purchasing and browsing behavior.
ADVERTISING SALES AND SPONSORSHIPS
The Company has positioned its websites as an interconnected on-line music
network, offering advertisers and marketers the ability to reach highly targeted
communities of music fans worldwide. Advertisers on the Company's websites have
included MCA Records, Microsoft Corp. and Sony Online Ventures, among others.
Advertisers are offered a variety of advertising options which can be combined
in different percentages to reach the desired advertising mix. The Company has
implemented NetGravity's software package for advertising space management,
tracking of page impressions and reporting to advertisers. The Company also
tracks website traffic and activity through NetCount, a third-party website
traffic management firm. In order to foster advertiser confidence in reported
audience measurements, the Company has recently retained a third-party auditor,
BPA International, to provide independent verification of the traffic on its
websites.
The Company utilizes various advertising models to allow for a high degree
of flexibility in responding to individual advertisers' needs. The Company has
implemented a graduated cost per thousand ("CPM") rate structure, charging a
higher CPM for its more highly targeted audiences. The Company intends to
reserve a portion of its available advertising inventory in order to promote the
sale of merchandise and to feature content and events on its websites.
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The forms of advertising currently offered on the Company's websites
include banners, virtual endcaps, featured content presentations and integrated
page icons. Advertisements are displayed on home pages, store departments,
search results, artist discographies and on sale and new release listings, among
other high traffic Music Boulevard locations. These advertising spaces can be
dynamically served through the use of NetGravity software to rotate, change or
target existing messages or increase the number of advertisements delivered in a
given space.
The Company also offers advertisers and marketers alternative forms of
website advertising. The Company's advertising model includes sponsorship
packages to encourage users to associate specific content with an identified
sponsor. Sponsorship fees are fixed according to time-based arrangements.
ORDERING, FULFILLMENT AND CUSTOMER SERVICE
The Company has designed its ordering system to be easy-to-use and simple
to understand. In order to maintain high customer satisfaction and price
competitiveness, the Company places an emphasis on reliable product fulfillment.
At any time during a visit to Music Boulevard, a customer can click on the
"order now" button to place an item in his or her personal shopping basket. The
customer can continue to shop the website, adding chosen items. When the
customer is ready to submit an order, he or she simply returns to the order
page, chooses a shipping method (U.S. Mail, 2-Day Federal Express or Federal
Express Overnight to customers from the U.S. and air mail and DHL Express to
non-U.S. customers) and a payment method. If not previously registered with
Music Boulevard, a customer is prompted to register at the time of purchase and
to enter his or her name, address and password. The customer then has the option
of securely submitting credit card information on-line or calling or faxing the
information to the Music Boulevard Customer Service Department. Music Boulevard
also provides the option of payment by check or money order. By assigning a
password to every buyer, the Music Boulevard ordering process facilitates repeat
purchases by eliminating the need to re-submit credit card and shipping
information for subsequent orders. The Company keeps customers informed
regarding the status of their orders by sending e-mail messages, including
notification of the receipt and shipment of each order and whether an item is
back-ordered.
The Company uses Valley, a third-party fulfillment operation, to ship CDs
and cassettes. All inventory is owned and stored by Valley. Twice daily, the
Company batches customer orders and electronically transmits them to Valley. The
Company uses a secure network through which it transmits data to Valley, thereby
helping to ensure customer security as well as data integrity. Valley picks,
packs and ships customer orders in Music Boulevard boxes, and charges the
Company negotiated rates for merchandise, shipping and handling. Customer
billing is performed by the Company, which utilizes a third-party credit card
processor, First USA, Inc. If a customer's selection is not in stock, Music
Boulevard sends an e-mail to notify the customer of the backlogged items, which
are then delivered at a nominal additional charge. To date, the Company has
experienced a return rate of approximately 1% of all CDs and cassettes sold.
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. Music Boulevard Customer Service representatives are available from 10:00
AM to 10:00 PM EST on weekdays, and 10:00 AM to 6:00 PM EST on weekends for
customer service via e-mail, fax and a toll free telephone number,
1-800-99MUSIC. Customer service is assisted by automated e-mail notifications
which greatly assist in keeping customers up-to-date on the status of their
orders. 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.
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 seven primary
areas: (i) multimedia asset management, (ii) website development, (iii) audio
encoding and on-line delivery, (iv) fault tolerance,
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(v) security, (vi) scalability and (vii) advanced technologies. 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 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. The database management system allows
for rapid searching, sorting, viewing and distribution of, among other things,
audio samples, video clips, cover art and photos. The Company has chosen Oracle
7.3 as its database management system. 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
updates for page layout changes and greatly reduces the programming required to
maintain a growing amount of content. Templates also enable websites with
different formats to seamlessly integrate Music Boulevard store elements such as
"search" and "discography" pages. 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.
Audio Encoding and Delivery. The Company uses a variety of audio
compression technologies for its audio samples and downloads, tailoring them to
specific applications. In light of current user patterns, the Company uses the
popular Progressive Networks' RealAudio format for delivering realtime streaming
30-second audio previews and feature-length web broadcasts. The Liquid Audio
streaming format, which employs high quality DOLBY Digital compression, is also
used for realtime preview samples, and primarily for those tracks which are
available for digital distribution. Thirty-second downloadable preview samples
are also available in the industry standard MPEG format.
The Company is also actively pursuing new and emerging audio compression
technologies for the digital distribution of music. Full-length downloadable
master recordings, available via the Company's e _ mod system, are available as
DOLBY Digital downloads suitable for transfer to standard audio CDs. e _ mod is
the Company's delivery system developed using Music Boulevard's secure
transaction engine and music database in tandem with Liquid Audio's encoding and
digital distribution systems. The e _ mod system makes it possible to deliver
high quality audio on-line to consumers.
Fault Tolerance. The Company has operated a 24-hour a day, seven-day a week
computing facility in the on-line information industry for over ten 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 is
deploying an architecture in which all components of the on-line systems are
redundant, allowing continuous operation even in the event of occasional
component failures. The Company runs its Oracle database on the Sun Enterprise
3000 server because of its fault tolerant characteristics including redundant,
hotswappable components.
Security. The Company employs a combination of proprietary and commercially
available firewalls to keep its Internet connections secure. The Company uses
the Apache SSL 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 card companies) as they become
commercially available.
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Scalability. 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 2,000
simultaneous users currently to at least 10,000 users, while maintaining both
user performance and cost per transaction. In the rapidly changing Internet
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 website and E-CD programming. Technologies
with which the Company is currently working include Sun's Java language and
related tools for creating intelligent client-side applets, emerging electronic
payment and transaction methods, high bandwidth delivery media, Macromedia
Director software to link Enhanced CDs to the Company's websites, the Real Time
Streaming Protocol (RTSP) for orderly delivery of multimedia content over the
Internet and efforts to re-engineer streaming audio technologies using existing
high-quality compression algorithms.
COMPETITION
The market for Internet 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. With no substantial barriers to entry, the Company expects that
competition will continue to intensify. Currently, there are more than one
hundred music retailing websites on the Internet. With respect to competing for
consumers' attention, in addition to intense competition from Internet content
providers, the Company also faces competition from traditional media such as
radio, television and print. N2K Encoded Music competes with the major, and
other independent, record labels. With respect to recorded music sales, the
Company competes with numerous Internet retailers, including traditional music
retail chains, record labels and independents with websites on the Internet. In
addition, the Company competes with traditional retail stores, including chains
and megastores, mass merchandisers, consumer electronics stores and music clubs.
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 services. Other factors that will affect the
Company's success include the Company's continued ability to attract experienced
marketing, sales and management talent. In addition, the competition for
advertising revenues, both on Internet websites and in more traditional media,
is intense. 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.
Many of the Company's current and potential competitors in the Internet and
music entertainment businesses have longer operating histories, significantly
greater financial, technical and marketing resources, greater name recognition
and larger existing customer bases than the Company. 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 or future competitors.
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DISCONTINUED OPERATIONS
The Company has offered on-line information services since 1984. The
Company's principal service in this area is EasyNet, a premium-priced reference
service licensed to on-line 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 on-line information services business has become more competitive and
price sensitive as general reference content, such as newspapers and magazines,
has become available over the Internet at minimal or no cost to the user.
Recognizing this trend, in 1994, the Company expanded its business strategy to
include music entertainment and began to develop Music Boulevard, which was
launched in 1995, in order to diversify its business and customer base. The
Company also merged New York N2K, active in Internet design, into the Company in
February 1996 in order to further strengthen its efforts in the music
entertainment business.
Although the Company's on-line information services business accounted for
approximately 99.1% of its revenues in 1995, and 82.6% of its revenue in 1996,
the Company has experienced a decline in information services revenues in seven
of the last eight fiscal quarters and a further decline in the level of such
revenues is expected. Recognizing the changing competitive environment, in April
1997, the Board of Directors approved a formal plan of disposal for its on-line
information services business. The expected manner of disposal is the sale of
substantially all of the assets of this business. The Company anticipates that
this sale will be completed by April 1998.
The on-line information services business is being accounted for as a
discontinued operation. Accordingly, the operating results and assets and
liabilities of this business have been reflected separately from continuing
operations. The Company expects, based upon management's best estimate of the
amount to be realized, that the sale of the on-line information services
business will result in a gain on the disposal of the business' net assets.
Additionally, the Company believes that such business will not incur significant
operating losses through the anticipated disposal date. The Company expects the
gain on the disposal of the on-line information services business will be
sufficient to offset the losses of the business from the measurement date to the
disposal date. As a result, no amounts have been accrued at March 31, 1997
relating to the disposal of the business. Any actual gain on the disposal will
be recognized when realized. The amount the Company will ultimately realize
could differ from management's current estimate. The anticipated net loss from
discontinued operations through the disposal date will be recorded as an
adjustment to the net assets of the discontinued operations. See Note 3 of Notes
to Consolidated Financial Statements.
If the Company is unable to sell the assets of the on-line information
services business, the Company would incur expenses in connection with the
closing of this business and may incur additional losses while operating this
business prior to closing.
EMPLOYEES
As of July 31, 1997, the Company had 190 full-time employees, including 117
in operations and development, 47 in sales and marketing and 26 in general and
administrative. Of these employees, 15 employees are devoted full-time to the
on-line information services business, including 13 in operations and
development and two in sales and marketing. As of July 31, 1997, the Company
also had 24 part-time employees, primarily focused on customer service and 10
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 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.
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TRADEMARKS AND PATENTS
Music Boulevard(R) and Telebase(R) (and their related logos) and EasyNet(R)
are registered service marks of the Company. The Company has also applied for
trademark and/or service mark registrations for Jazz Central Station(TM) (and
its related logo), Music Blvd.(TM) , N2K Encoded(TM) and Rocktropolis(TM). In
addition, the Company is using allstar(TM), Classical Insites(TM), e_mod(TM),
N2K(TM), Need To Know(TM) and RAM(TM) as trademarks and/or service marks.
FACILITIES
The Company's corporate headquarters are located in the New York
Information Technology Center in New York, New York. The Company leases its
facilities and certain other equipment under operating and capital lease
agreements. The Company leases approximately 40,000 square feet of office space
at these facilities. The term of the lease expires on May 31, 2001. These
facilities offer advanced technology amenities including state-of-the-art voice,
video and data transmission and advanced telecom and data security. The Company
leases an additional 21,400 square foot facility in Wayne, Pennsylvania which
houses the Company's main computer operations. The term of the lease expires on
August 31, 2001. 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 leases approximately 2,000 square feet of office space in Los
Angeles, California. 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.
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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).......... 57 Chairman of the Board of Directors and Chief
Executive Officer
Jonathan V. Diamond........... 38 Vice Chairman and Director
Robert David Grusin........... 63 Vice Chairman and Director
James E. Coane................ 57 President, Chief Operating Officer and Director
Philip Ramone................. 58 President, N2K Encoded Music
Bruce Johnson................. 47 Vice President, Secretary, Treasurer, Chief
Financial Officer and Director
Jerold Rosen.................. 29 Senior Vice President and General Manager --
On-line Entertainment
Daniel E. Meyer............... 41 Senior Vice President and General Manager --
On-line Information
Robert C. Harris, Jr.(1)(2)... 51 Director
Susanne Harrison(1)(2)........ 52 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 also 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.
Between 1978 and 1982, Mr. Rosen served as producer, recording engineer and as
President of Arista/GRP Records under a global label distribution agreement with
Arista Records. In 1982, Mr. Rosen co-founded GRP as an independent label with
Mr. Grusin, and it became one of the first record labels to digitally produce
music titles from concept through finished recording in CD format, 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 of GRP, which was operated 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. In 1997, Mr.
Rosen was named Entrepreneur of the Year by Ernst & Young LLP in the
Entertainment and New Media category.
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. Mr. Diamond was an investor in and director of
Telebase from September 1994 to the Merger. Mr. Diamond founded and was
Chairman, from 1991 to 1995, 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
42
<PAGE> 44
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 currently serves on
the Board of Directors of The Alliance for Downtown New York and The Lower
Manhattan Cultural Council, and is a member of the Corporate Council of the
Whitney Museum and co-founder of the Whitney Museum's New Media Committee. Mr.
Diamond serves as the Chairman of Opus 118, an inner city music education
program in Harlem. 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.
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 record labels, which led to a
production agreement 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 Operating 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, the Ben Franklin Technology Council and 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.
PHILIP RAMONE has served as President, N2K Encoded Music, since October
1996. From 1973 to 1996, Mr. Ramone was President of Phil Ramone, Inc., a
company he formed to produce artist recordings for major record labels. Mr.
Ramone has received eight grammy awards and produced numerous platinum and gold
albums and singles. Mr. Ramone attended the Julliard School of Music and has
received an honorary doctorate from Berkelee College of Music.
BRUCE JOHNSON has served as Secretary, Treasurer, Vice President and Chief
Financial Officer of the Company since 1988. Mr. Johnson has served as a
director since January 1997. 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--On-line 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--On-line 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
43
<PAGE> 45
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 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 venture 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.
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, 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, C.V., in which each party agreed to vote
its shares of capital stock to elect six directors as specified therein.
Simultaneously with the closing of this offering, the Stockholders' Agreement
will terminate in accordance with its terms. See "Certain
Transactions -- Stockholders' Agreement."
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 provides
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. Section 102(b)(7) of the Delaware GCL currently provides that a
director's liability for breach of fiduciary duty to a corporation may be
eliminated except for liability (i) for any breach of the director's duty of
loyalty to the corporation or 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 Delaware GCL, for unlawful dividends or
unlawful stock repurchases or redemptions, and (iv) for any transaction from
which the director derives an improper personal benefit. 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 Company's
Certificate of Incorporation, without any vote on the part of its stockholders,
unless otherwise required.
Indemnification Agreements. Simultaneously with the completion of this
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, pending or completed legal action, proceeding or investigation
(other than actions brought by or in the right of the Company) to which any of
them was, 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
44
<PAGE> 46
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 reasonable costs and expenses 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 and stock purchase plans, determines
executive compensation and makes recommendations to the Board of Directors
concerning salaries and incentive compensation for employees and consultants of
the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Harris, Ms. Harrison and Mr. Rosen served as members of the Company's
Compensation Committee during fiscal year 1996. Other than Mr. Rosen, who served
as the Company's Chairman and Chief Executive Officer during 1996, no committee
member is or has been an officer or employee of the Company. Mr. Rosen serves
only as a non-voting member of the Compensation Committee.
COMPENSATION OF DIRECTORS
Non-employee directors currently receive a fee of $250 per meeting for
their service on the Board of Directors or any committee thereof. Directors are
eligible to receive options under the Company's 1996 Stock Option Plan.
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<PAGE> 47
EXECUTIVE COMPENSATION
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company during 1996 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 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)...................... $175,000 $50,000 881,098 $ 10,062(3)
Chairman of the Board of Directors and
Chief Executive Officer
Jonathan V. Diamond (2)................... 175,000 50,000 881,098 11,031(4)
Vice Chairman
James E. Coane............................ 171,695 -- 125,000 12,100(5)
President and Chief Operating Officer
Daniel E. Meyer........................... 120,000 -- -- 2,077(6)
Senior Vice President and General
Manager -- On-line information
Bruce Johnson............................. 114,375 -- 50,000 2,059(6)
Vice President and Chief Financial
Officer
</TABLE>
- ---------------
(1) 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) 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 a car allowance of $8,400 and Company matching contributions
under its 401(k) Matched Savings Plan of $1,662.
(4) Represents a car allowance of $8,400 and Company matching contributions
under its 401(k) Matched Savings Plan of $2,631.
(5) Represents a car lease valued at $9,250 and Company matching contributions
under its 401(k) Matched Savings Plan of $2,850.
(6) Represents Company matching contributions under its 401(k) Matched Savings
Plan.
As of July 1, 1997, each of Messrs. Rosen, Diamond and Grusin agreed not to
receive compensation from the Company (in the form of either salary or bonus) at
least through the end of fiscal year 1997.
46
<PAGE> 48
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes certain information with respect to Company
stock options granted to the Named Executives during the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE OPTION TERM
OPTIONS IN FISCAL PER ----------------------
NAME GRANTED YEAR 1996 SHARE EXPIRATION DATE 5% 10%
- ---------------------------- ---------- ---------- -------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lawrence L. Rosen........... 881,098 23.3% February 13, 2006
Jonathan V. Diamond......... 881,098 23.3% February 13, 2006
James E. Coane.............. 125,000 3.3% February 13, 2006
Daniel E. Meyer............. -- -- --
Bruce Johnson............... 50,000 1.3% February 13, 2006
</TABLE>
- ---------------
(1) All stock options reported in this table were granted pursuant to the 1996
Employee Stock Option Plan at exercise prices equal to at least the fair
market value of the Common Stock at the time of grant. The options vest
ratably over a four-year period on each anniversary of the date of grant and
have a ten-year term.
(2) This column shows the hypothetical gains on 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 (the "Commission")
and do not represent the Company's estimate or projection of future Common
Stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table shows the number of shares covered by both exercisable
and unexercisable stock options as of fiscal year-end, and the values for
exercisable and unexercisable options. No Named Executive exercised any Company
stock options during 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lawrence L. Rosen.................... -- 881,098 $ -- $ 1,898,422
Jonathan V. Diamond.................. 5,000 881,098 11,750 1,898,422
James E. Coane....................... 512,200 211,248 1,114,744 484,744
Daniel E. Meyer...................... 50,000 150,000 110,000 330,000
Bruce Johnson........................ 192,304 115,000 427,366 256,750
</TABLE>
- ---------------
(1) Based on the difference between $ , the fair market value of the
Common Stock on December 31, 1996, 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.
The Company has granted, effective upon the consummation of this offering,
options covering shares having an exercise price equal to the initial
public offering price of $ per share to executive officers and
employees of the Company, including , , and
to Messrs. Rosen, Diamond, Coane and Johnson, respectively. Such
options vest ratably over a four-year period and have a ten-year term. Assuming
an initial public offering price of $ per share and that these options
are fully vested, the total aggregated value of these options would be
$ .
47
<PAGE> 49
On July 30, 1997, options covering an aggregate of shares
having an exercise price of $3.00 per share were granted to Lawrence L. Rosen,
Jonathan V. Diamond and Robert David Grusin. Such options vest ratably over a
four-year period and have a ten-year term. Assuming an initial public offering
price of $ per share and that these options are fully vested, the value
of these options to each individual would be $ , $ and
$ , respectively, and the total aggregated value of these options would
be $ .
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,
respectively, 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.
Notwithstanding the terms of their employment agreements, as of July 1,
1997, each of Messrs. Rosen, Diamond and Grusin agreed not to receive
compensation from the Company (in the form of either salary or bonus) at least
through the end of fiscal year 1997.
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 500,000 shares of
Common Stock and additional non-qualified options to purchase 421,098 shares of
Common Stock at an exercise price of $ 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 any of such
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), such
executive will generally be entitled to (i) eighteen months severance plus an
amount equal to his average annual bonus over the prior three years (or such
lesser number of years if employed for less than three years) multiplied by 1.5,
and paid out, at the election of such executive, in a lump sum or in equal
installments over the 18 months following termination, and (ii) the immediate
vesting of any unexercised stock options. If the employment of any of Lawrence
L. Rosen, Jonathan V. Diamond or Robert David Grusin was terminated subsequent
to a "change in control" as of the date of this Prospectus, each executive would
be entitled to payment by the Company of approximately the amount set forth
immediately following his name: Lawrence L. Rosen ($375,000); Jonathan V.
Diamond ($375,000); and Robert David Grusin ($150,000). 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 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 400,000 shares of Common Stock of the Company at an exercise
price of $ per share, exercisable until May 14, 1997. Pursuant to the
terms of the Coane Employment Agreement, Mr. Coane agreed to serve as President
and
48
<PAGE> 50
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
Mr. Coane, the agreement shall be automatically renewed for consecutive one-year
periods. If the Company terminates Mr. Coane'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), Mr. Coane shall be entitled to severance for
eighteen months. If Mr. Coane's employment was terminated subsequent to a
"change of control" as of the date of this Prospectus, Mr. Coane would be
entitled to payment by the Company of approximately $262,500 over an
eighteen-month period. In accordance with the Coane Employment Agreement, Mr.
Coane 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 Mr. Johnson to purchase 125,000 shares of Common
Stock of the Company at an exercise price of $ per share, exercisable
until February 8, 1998. Pursuant to the terms of the Johnson Employment
Agreement, Mr. Johnson 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 Mr. Johnson,
the agreement shall be automatically renewed for consecutive one-year periods.
If the Company terminates Mr. Johnson'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), Mr. Johnson shall be entitled to severance for
twelve months. If Mr. Johnson's employment was terminated subsequent to a
"change of control" as of the date of this Prospectus, Mr. Johnson would be
entitled to payment by the Company of approximately $135,000 over a twelve-month
period. In accordance with the terms of the Johnson Employment Agreement, Mr.
Johnson 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 October 11, 1996, the Company entered into a letter agreement with Phil
Ramone with respect to the proposed terms of his service as the President of N2K
Encoded Music. Although Mr. Ramone is currently serving as President of N2K
Encoded Music, the letter agreement is not binding and is subject to execution
of a formal employment agreement. Mr. Ramone is responsible for managing,
conducting and developing the business of N2K Encoded Music, including signing
recording artists to the N2K Encoded Music label. Mr. Ramone may also serve as
Producer or Executive Producer for one or more of its albums. The initial term
of Mr. Ramone's employment with the Company will be three years (the "Initial
Term") with an option in the Company's discretion to continue said employment
for an additional two-year period (the "Option Period"). In addition to a salary
and performance bonus, Mr. Ramone will be entitled to 10% of the after-tax net
profit attributable to N2K Encoded Music's operations and will be entitled to
participate in the business of N2K Encoded Music if it is sold as if he were a
5% (during the Initial Term) or a 7.5% (during the Option Period and thereafter)
equity owner of N2K Encoded Music. If such a sale has not occurred by the time
Mr. Ramone leaves the employment of the Company, the Company at its option shall
have the right for a three-year period to repurchase this right for a payment
equal to the applicable percentage set forth above times a number equal to the
gross revenues for N2K Encoded Music for the prior four fiscal quarters, payable
in quarterly installments over a three-year period. Mr. Ramone will also receive
options to purchase 294,708 shares, representing % of the Company's Common
Stock at an exercise price equal to the initial public offering price for shares
sold in this offering. Of said amount, one-quarter will be deemed to have vested
at the beginning of his employment with the balance vesting ratably on the
first, second and third anniversaries of his date of employment.
49
<PAGE> 51
STOCK PLANS
The Company has historically utilized stock options as an integral
component of its compensation program for directors, officers and key employees
of the Company. The Company believes that stock options provide long-term
incentives to such persons and encourage the ownership of the 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
March 31, 1997, a total of options for Common Stock were outstanding
under 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 and have a ten-year term. 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 in full 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, and in July 1996
the stockholders of the Company approved, the Company's Amended and Restated
1996 Stock Option Plan (the "1996 Option Plan"). The 1987 Option Plan, the 1996
Option Plan and the Directors' Plan (as hereinafter defined) 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 July 31, 1997, a total of options for Common Stock
were outstanding under the 1996 Option Plan. In addition, the Board of Directors
has approved the issuance of options to purchase shares of Common
Stock which will be granted at the time of this offering.
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 employment other than for cause, death, disability or voluntary
departure, the Compensation Committee may provide that unvested stock options
previously granted shall be immediately exercisable and that such options, if
not exercised by a prescribed date, shall terminate.
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<PAGE> 52
The Company has authorized and reserved 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 stockholder 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 the Named
Executives and directors are described above under "-- Executive Compensation."
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"), which will be effective
upon the date of this Prospectus. 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 more than five months per year is eligible to
participate in the Purchase Plan after having worked for the Company for six
months. Approximately 145 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 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 Common
Stock on the first day of the Purchase Period and (y) 85% of the fair market
value of a share of the 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 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 .
The Board at any time may amend, suspend or discontinue the Purchase Plan, in
whole or in part.
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<PAGE> 53
Directors' Stock Option Plan. In April 1997, the Board of Directors adopted
and the stockholders of the Company approved, the 1997 Directors' Stock Option
Plan (the "Directors' Plan") pursuant to which each member of the Board of
Directors who is not an employee of the Company who is elected or continues as a
member of the Board of Directors is entitled to receive annually options to
purchase shares of Common Stock at an exercise price equal to fair
market value; provided, however, that no director may receive under the
Directors' Plan options to purchase an aggregate of more than shares of
Common Stock. The Compensation Committee of the Board of Directors administers
the Directors' Plan; however, it cannot direct the number, timing or price of
options granted to eligible recipients thereunder.
Each option grant under the Directors' Plan vests after the first
anniversary of the date of grant and expires three years thereafter. The number
of shares of Common Stock related to awards that expire unexercised or are
forfeited, surrendered, terminated or cancelled are available for future awards
under the Directors' Plan. If a director's service on the Board of Directors
terminates for any reason other than death, all vested options may be exercised
by such director until the earlier of his or her death and the expiration date
of the option grant. In the event of a director's death, any options which such
director was entitled to exercise on the date immediately preceding his or her
death may be exercised by a transferee of such director for the six-month period
after the date of the director's death. Pursuant to the Directors' Plan, in the
case of a director who represents an institutional investor, such as a venture
capital fund, option grants may be made directly to the institutional investor
on whose behalf a director serves on the Board of Directors.
The maximum number of shares of Common Stock reserved for issuance under
the Directors' Plan is shares (subject to adjustment for certain
events such as stock splits and stock dividends). Pursuant to the terms of the
Directors' Plan, on the effective date in April 1997, a total of options
were authorized to be granted to non-employee directors under the Directors'
Plan at an exercise price per share equal to the initial public offering price
of the Common Stock.
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<PAGE> 54
CERTAIN TRANSACTIONS
SERIES D PREFERRED STOCK
In August and September 1994, Lawrence L. Rosen and Jonathan V. Diamond,
directors and executive officers of the Company, and entities affiliated with
Robert C. Harris, Jr. and Susanne Harrison, directors of the Company, purchased
an aggregate of shares of Series D Preferred Stock, which will convert
upon consummation of this offering into shares of Common Stock. The
purchase price per share of Common Stock on an as-converted basis was
$ . 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 ( ); Jonathan V. Diamond ( ); Robert C. Harris, Jr.
( ); and Susanne Harrison ( ).
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 shares of Common Stock and shares
of Series E Preferred Stock of the Company. The shareholders 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
( ), ( ); Jonathan V. Diamond ( ), ( );
Robert David Grusin ( ), ( ); and Jerold L. Rosen
( ), ( ). 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
shares of Series E Preferred Stock at a purchase price of $
per share, which will convert into shares of Common Stock. The
purchase price per share of Common Stock on an as-converted basis was
$ . 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. ( ); Susanne Harrison ( );
Lawrence L. Rosen ( ); Jonathan V. Diamond ( ); Robert David
Grusin ( ); and Jerold Rosen ( ). In May 1996, Mr. Harris
purchased an additional shares of Series E Preferred Stock, which will
convert into shares of Common Stock. The purchase price per share of
Common Stock on an as-converted basis was $ .
SERIES G PREFERRED STOCK
In April 1997, Lawrence L. Rosen, Jonathan V. Diamond and Robert David
Grusin, directors and executive officers of the Company, purchased an aggregate
of shares of Series G Preferred Stock, which will convert upon
consummation of this offering into shares of Common Stock. The
purchase price per share of Common Stock on an as-converted basis was
$ . Each of these individuals purchased shares of Series G Preferred
Stock that convert into the number of shares of Common Stock set forth
immediately following his name: Lawrence L. Rosen ( ); Jonathan V.
Diamond ( ); and Robert David Grusin ( ).
MANAGEMENT NOTES
In July 1997, the Company issued $1.75 million aggregate principal amount
of Management Notes to Lawrence L. Rosen, Jonathan V. Diamond and Robert David
Grusin, each of whom loaned the Company $583,333. The Management Notes bear
interest at 14% per annum and are due on the earlier of (i) a "change of control
of the Company," as that term is defined in the Management Notes, and (ii) March
31, 1998; provided, however, that if the Management Notes are outstanding at the
time of this offering, the Management Notes will convert into
shares of Common Stock at the initial public offering price
of $ per share upon consummation of this offering. In consideration for these
loans, the Company issued an aggregate of warrants to purchase
shares of Common Stock, representing
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<PAGE> 55
warrants to each of Messrs. Rosen, Diamond and Grusin. The warrants are
exercisable at a price of $ per share and expire in July 2004. See "Dilution."
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."
PREFERRED STOCK CONVERSION
Upon consummation of this offering, 488,838 shares of the Company's Series
A Preferred Stock, $0.001 par value (the "Series A Stock"), will convert into
shares of Common Stock; 625,000 shares of Series B Preferred Stock,
$0.001 par value (the "Series B Stock"), will convert into shares of
Common Stock; 2,142,857 shares of Series C Preferred Stock, $0.001 par value
(the "Series C Stock"), will convert into shares of Common Stock;
800,000 shares of Series D Preferred Stock, $0.001 par value (the "Series D
Stock"), will convert into shares of Common Stock; 6,007,060 shares of
Series E Preferred Stock, $0.001 par value (the "Series E Stock"), will convert
into shares of Common Stock; 5,333,333 shares of Series F Preferred
Stock, $0.001 par value (the "Series F Stock"), will convert into
shares of Common Stock; and 2,480,329 shares of Series G Preferred Stock,
$0.0001 par value (the "Series G Stock"), will convert into shares of
Common Stock (the Series A Stock, the Series B Stock, the Series C Stock, the
Series D Stock, the Series E Stock, the Series F Stock and the Series G Stock
are referred to collectively as the "Preferred Stock"). See "Principal
Stockholders" and "Dilution."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
executive officers as described under "Management -- Employment Agreements."
INDEMNIFICATION AGREEMENTS
Simultaneously with the completion of the Merger, the shareholders of New
York N2K, including Lawrence L. Rosen, Jonathan V. Diamond, Robert David Grusin
and Jerold R. Rosen (collectively, the "New York N2K Shareholders"), entered
into an indemnification agreement with the Company (the "Indemnification
Agreement"). The Indemnification Agreement provides for indemnification by the
New York N2K Shareholders 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 Telebase 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 Shareholders shall be effected solely by return to the Company of
all or a portion of an aggregate of escrowed shares of Common Stock at
a value of $ per share and all indemnification by the Company shall be
effected by the issuance by the Company to the applicable New York N2K
Shareholders of up to an aggregate of shares of Common Stock at a
value of $ per share, in proportion to each New York N2K Shareholder's
ownership interest in the Company at the time of the Merger. The Indemnification
Agreement will terminate upon the consummation of this offering.
Upon the completion of this 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
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<PAGE> 56
person's status as a director of the Company. See "Management -- Limitations on
Directors' Liability -- Indemnification Agreements."
STOCKHOLDERS' AGREEMENT
On February 13, 1996, the Stockholders' Agreement was entered into among
James E. Coane, Charles Wilson III, Poly Ventures II, Limited Partnership, AT&T
Corporation, Gary Lauder and Unterberg Harris Interactive Media Limited
Partnership, C.V. (collectively, the "Telebase Group"), Lawrence L. Rosen
("Rosen"), Jonathan V. Diamond ("Diamond"), Robert David Grusin ("Grusin") and
the Company. For the purposes of the Stockholders' Agreement, the Telebase
Group, Rosen, Diamond and Grusin are referred to collectively as the
"Stockholders" and each individually as a "Stockholder." Pursuant to the
Stockholders' Agreement, each party agreed to vote all of its shares of capital
stock to elect members of the Board of Directors as specified therein. The
Stockholders' Agreement provides that, with respect to all actions by the
stockholders of the Company for the election of members of the Board of
Directors, all capital stock held by the Stockholders shall be voted for (i) two
nominees designated by the Telebase Group, (ii) one nominee designated by Rosen,
(iii) one nominee designated by Diamond, (iv) one nominee designated by Grusin
and (v) Robert C. Harris, Jr. ("Harris"). The initial six director nominees
specified in the Stockholders' Agreement are James E. Coane, Susanne Harrison,
Lawrence L. Rosen, Jonathan V. Diamond, Robert David Grusin and Robert C.
Harris, Jr.
Subject to certain additional restrictions, the Stockholder entitled to
nominate and elect a director shall be entitled to remove such director.
Vacancies occurring on the Board of Directors by reason of the death,
disqualification, incapacity, inability to act, resignation or removal of any
director shall be filled only by the Stockholder whose nominee was affected and
by the Telebase Group in the case of a nominee of the Telebase Group; provided,
however, that in the case of Harris, his replacement on the Board of Directors
shall be nominated and elected by a majority of the remaining directors. Under
the terms of the Stockholders' Agreement, each Stockholder agrees not to
transfer shares of capital stock owned by him or it unless the transferee agrees
to join in and be bound by the terms of the Stockholders' Agreement. Any
transferee of stock held by a member of the Telebase Group must also agree to be
a member of such group for the purposes of the Stockholders' Agreement. Pursuant
to the terms of the Stockholders' Agreement, each of Rosen, Diamond and Grusin
shall retain the right to designate a nominee to the Board of Directors as long
as each owns at least 20% of the stock owned by him as of the date of the
Stockholders' Agreement. In addition, no transferee of any of Rosen, Diamond or
Grusin shall have the right to designate a nominee to the Board of Directors
unless Rosen, Diamond or Grusin, respectively, sells any of his stock to such
transferee in a single transaction or series of transactions representing more
than 80% of the stock owned by Rosen, Diamond or Grusin, respectively, as of the
date of the Stockholders' Agreement. In accordance with its terms, the
Stockholders' Agreement will terminate simultaneously with the closing of this
offering.
FUTURE INTERESTED TRANSACTIONS
The Board of Directors has adopted a policy, which will be effective
simultaneously with the completion of this 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.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The table below sets forth, as of , 1997, certain information
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)....................................
Lawrence L. Rosen(3)......................................
Robert David Grusin(4)....................................
Susanne Harrison(5).......................................
Robert C. Harris, Jr.(6)..................................
James E. Coane(7).........................................
Jerold Rosen(8)...........................................
Daniel E. Meyer(9)........................................
Bruce Johnson(10).........................................
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (9
PERSONS):...............................................
OTHER PRINCIPAL STOCKHOLDERS:
Poly Ventures II, Limited Partnership(5)..................
901 Route 110
Farmingdale, NY 11735
Unterberg Harris Interactive Media
Limited Partnership, C.V.(6)............................
Swiss Bank Tower
10 East 50th Street, 22nd Floor
New York, NY 10022
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1.0% 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 , 1997,
the Company had shares of Common Stock outstanding.
(2) Represents shares of Common Stock and exercisable options to
purchase shares of Common Stock.
(3) Represents shares of Common Stock and shares of Common
Stock held by the Lawrence L. Rosen Family Trust, with respect to which Mr.
Rosen has voting power, and exercisable options to purchase
shares of Common Stock.
(4) Represents shares of Common Stock and exercisable options to
purchase shares of Common Stock.
(5) Represents exercisable options for shares of Common Stock and
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.
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<PAGE> 58
(6) Represents shares of Common Stock and shares of Common
Stock held by Unterberg Harris Interactive Media Limited Partnership, C.V.
Mr. Harris is a Managing Director of Unterberg Harris. Mr. Harris disclaims
beneficial ownership of shares owned by Unterberg Harris
Interactive Media Limited Partnership, C.V.
(7) Represents shares of Common Stock and exercisable options to
purchase shares of Common Stock.
(8) Represents shares of Common Stock and exercisable options to
purchase shares of Common Stock.
(9) Represents shares of Common Stock and exercisable options to
purchase shares of Common Stock.
(10) Represents shares of Common Stock and an exercisable option to
purchase shares of Common Stock.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
The following summarizes the material 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 this 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 this offering, shares of Common Stock will be outstanding.
All of the issued and outstanding shares of Common Stock are, and upon the
completion of this 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 July 31, 1997, there were approximately 285
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 this offering, the issuance of shares of Preferred Stock, or
the issuance of rights to purchase such shares, may have the effect of delaying,
deterring or preventing a change of control of the Company or an unsolicited
acquisition proposal. See "Risk Factors -- Anti-Takeover Provisions."
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<PAGE> 60
REGISTRATION RIGHTS
The holders of an aggregate of shares of the Common Stock to be
outstanding upon the consummation of this 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 and Series G 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.
WARRANTS
As of August 7, 1997, there were warrants outstanding to purchase an
aggregate of shares of Common Stock at an average exercise
price of $ per share, expiring at various dates ending in August 2004,
and options to purchase an aggregate of shares of Common Stock at an
average exercise price of $ per share, expiring at various dates ending
in July 2007.
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 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 of the corporation, (ii) in
the same transaction in which it becomes an interested stockholder, the
interested stockholder acquires at least 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
59
<PAGE> 61
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 .
60
<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following this offering, there will be shares of Common
Stock issued and outstanding (assuming the Underwriters' over-allotment option
is not exercised). Of such shares, the shares of Common Stock to be sold
in this 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
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, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted securities" for at least one
year, including a person who may be deemed an affiliate 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 two years would be
entitled to sell such shares immediately following this 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 offer to sell, sell, contract to
sell, grant any option to sell, encumber, pledge or otherwise dispose of, or
exercise any demand rights with respect to, any Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
PaineWebber Incorporated. Of the remaining outstanding shares of Common
Stock, shares may be publicly resold without limitation pursuant to Rule
144(k). Certain stockholders of the Company are entitled to both demand and
incidental registration rights with respect to shares of Common Stock.
After the expiration of the 180-day period, 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.
The Company intends to file immediately following this offering
registration statements on Form S-8 under the Securities Act to register an
aggregate of shares of Common Stock reserved for issuance pursuant to the
exercise of stock options granted under the Stock Option Plans and 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, 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 on the date of this Prospectus. 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 -- Shares
Eligible for Future Sale; Registration Rights."
61
<PAGE> 63
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated and
Unterberg Harris (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company and the Representatives (the "Underwriting Agreement"), to purchase from
the Company, and the Company has agreed to sell to the Underwriters, the number
of shares of Common Stock set forth opposite the names of such Underwriters
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
PaineWebber Incorporated..................................................
Unterberg Harris..........................................................
---------
Total...........................................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase all of the shares of Common Stock are subject to
certain conditions. The Underwriters are committed to purchase, and the Company
is obligated to sell, all of the shares of Common Stock offered by this
Prospectus, if any of the shares of Common Stock being sold pursuant to the
Underwriting Agreement are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain securities dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share. After the initial public
offering, the public offering price and the concessions and discounts may be
changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price
less the underwriting discount and commissions set forth on the cover page of
this Prospectus. The Underwriters may exercise such option only to cover
over-allotments in the sale of the shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as is approximately
the percentage of shares of Common Stock that it is obligated to purchase of the
total number of the shares under the Underwriting Agreement as shown in the
table set forth above.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute
payments that the Underwriters may be required to make in respect thereof.
The Company, its directors and executive officers and certain stockholders
have agreed not to offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of any shares of Common Stock owned by them prior to the
expiration of 180 days from the date of this Prospectus, except (i) for shares
of Common Stock offered hereby; (ii) with the prior written consent of
PaineWebber Incorporated; and (iii) in the case of the Company, for the issuance
of shares of Common Stock upon the exercise of options or the grant of options
to purchase shares of Common Stock.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Accordingly, the initial public offering price will be
determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in determining the initial
public offering price will be the Company's record of operations, its current
financial condition, its future prospects, the market for its products, the
experience of its management, the economic conditions of the Company's industry
in general, the general condition of the equity securities market, the demand
for similar securities of companies considered comparable to the Company and
other relevant factors.
62
<PAGE> 64
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 shares of Common Stock at an exercise price of
$ per share as compensation.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with this offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by its counsel, 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 is acting
as counsel for the Underwriters in connection with certain legal matters
relating to the shares of Common Stock offered hereby.
EXPERTS
The audited consolidated financial statements of the Company as of December
31, 1995 and 1996, and for each of the years in the three-year period ended
December 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 financial statements of N2K Inc., a New York corporation, as of
December 31, 1995 appearing in the Registration Statement have been audited by
Richard A. Eisner & Company, LLP, independent auditors, as set forth in their
report thereon appearing elsewhere in the Registration Statement and have been
included in reliance upon such report given upon the authority of such firm as
experts in auditing and accounting.
63
<PAGE> 65
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 Statement and 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. In addition, the Company is required to file electronic versions of these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
Statements contained in this Prospectus as to the contents of any contract
or other document to which reference is made are summaries of the material terms
of such contracts or documents, 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.
64
<PAGE> 66
N2K INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF N2K INC. AND SUBSIDIARIES
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-23
Balance Sheet..................................................................... F-24
Statement of Operations........................................................... F-25
Statement of Stockholders' Equity................................................. F-26
Statement of Cash Flows........................................................... F-27
Notes to Financial Statements..................................................... F-28
</TABLE>
F-1
<PAGE> 67
After the one-for- 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 of Notes to Consolidated Financial Statements is effected,
we expect to be in a position to render the following audit report.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.
August 7, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To N2K Inc.:
We have audited the accompanying consolidated balance sheets of N2K Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1995 and 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, 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 subsidiaries as
of December 31, 1995 and 1996 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
F-2
<PAGE> 68
N2K INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, PRO FORMA
-------------------------- ------------ STOCKHOLDERS'
1995 1996 1997 EQUITY (NOTE 1)
----------- ------------ ------------ ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 547,624 $ 4,483,450 $ 1,118,662
Restricted cash...................................... 500,000 -- --
Accounts receivable, net............................. 1,515 63,549 283,382
Prepaid expenses..................................... 79,001 703,657 745,957
Inventory............................................ -- 113,824 64,590
Advances and recoupable costs........................ -- 86,525 581,978
----------- ------------ ------------
Total current assets............................... 1,128,140 5,451,005 2,794,569
----------- ------------ ------------
NET ASSETS OF DISCONTINUED OPERATIONS.................. 178,663 14,446 384,666
----------- ------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment................................... 772,851 2,289,944 2,493,727
Office furniture and equipment....................... 63,839 491,942 636,826
Leasehold improvements............................... 31,290 486,877 1,036,021
Property and equipment under capital leases.......... 498,802 868,436 1,076,662
----------- ------------ ------------
1,366,782 4,137,199 5,243,236
Less -- Accumulated depreciation and amortization.... (867,253) (1,002,435) (1,224,557)
----------- ------------ ------------
Net property and equipment......................... 499,529 3,134,764 4,018,679
----------- ------------ ------------
OTHER ASSETS:
Intangible assets, net............................... -- 320,162 301,160
Restricted cash...................................... 167,000 167,000 167,000
Other................................................ -- 299,093 155,772
----------- ------------ ------------
Total other assets................................. 167,000 786,255 623,932
----------- ------------ ------------
$ 1,973,332 $ 9,386,470 $ 7,821,846
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit....................................... $ 400,000 $ -- $ 850,000
Current portion of capital lease obligations......... 63,504 182,868 222,203
Accounts payable..................................... 236,182 1,088,657 1,432,397
Accrued compensation................................. 81,239 529,063 371,782
Accrued royalties.................................... -- -- 84,180
Other accrued liabilities............................ 343,255 1,595,752 1,660,375
----------- ------------ ------------
Total current liabilities.......................... 1,124,180 3,396,340 4,620,937
----------- ------------ ------------
CAPITAL LEASE OBLIGATIONS.............................. 149,253 235,153 356,493
----------- ------------ ------------
OTHER LONG-TERM LIABILITIES............................ 50,915 309,100 318,889
----------- ------------ ------------
COMMON STOCK SUBJECT TO PUT RIGHTS..................... -- 537,498 537,498 $ --
----------- ------------ ------------ ------------
DEPOSITS FROM SERIES G STOCKHOLDERS (Note 7)........... -- -- 1,597,983
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 40,000,000 shares
authorized, 4,056,695, 15,397,088 and 15,397,088
shares issued and outstanding; none issued and
outstanding pro forma.............................. 4,057 15,397 15,397 --
Common stock, $.001 par value, 100,000,000 shares
authorized, 6,267,957, 11,692,973 and 11,692,973
shares issued and outstanding; 29,473,464 shares
issued and outstanding pro forma................... 6,268 11,693 11,693 29,473
Additional paid-in capital........................... 8,535,076 31,685,615 31,685,615 32,220,730
Accumulated deficit.................................. (7,896,417) (26,804,326) (31,322,659) (31,322,659)
----------- ------------ ------------ ------------
Total stockholders' equity......................... 648,984 4,908,379 390,046 $ 927,544
----------- ------------ ------------ ------------
------------
$ 1,973,332 $ 9,386,470 $ 7,821,846
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 69
N2K INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES................. $ -- $ 96,505 $ 1,655,704 $ 216,800 $ 1,115,897
COST OF REVENUES............. -- 85,176 1,637,319 213,003 969,884
----------- ----------- ------------ ----------- -----------
Gross profit............ -- 11,329 18,385 3,797 146,013
OPERATING EXPENSES:
Operating and
development............. 257,826 1,034,617 7,811,061 735,666 2,212,046
Sales and marketing........ 173,415 1,077,649 2,726,291 254,223 1,484,059
General and
administrative.......... 896,195 871,667 2,477,995 433,500 837,246
Charge for purchased
research and
development............. -- -- 5,242,523 4,133,281 --
----------- ----------- ------------ ----------- -----------
Operating loss.......... (1,327,436) (2,972,604) (18,239,485) (5,552,873) (4,387,338)
INTEREST INCOME.............. 73,359 106,370 352,531 24,904 47,890
INTEREST EXPENSE............. (48,398) (18,237) (52,281) (16,552) (18,942)
----------- ----------- ------------ ----------- -----------
Loss from continuing
operations............ (1,302,475) (2,884,471) (17,939,235) (5,544,521) (4,358,390)
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS.... 1,444,885 1,289,671 (968,674) 160,309 (159,943)
----------- ----------- ------------ ----------- -----------
NET INCOME (LOSS)............ $ 142,410 $(1,594,800) $(18,907,909) $(5,384,212) $(4,518,333)
=========== =========== ============ =========== ===========
PRO FORMA LOSS PER COMMON
SHARE (Note 1) (unaudited):
Loss from continuing
operations.............. $ $
Discontinued operations....
------------ -----------
Pro forma net loss per
Common share............ $ $
============ ===========
SHARES USED IN COMPUTING PRO
FORMA NET LOSS PER COMMON
SHARE (unaudited)..........
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 70
N2K INC. AND SUBSIDIARIES
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, 1993........... $ 3,257 $ 6,268 $ 6,976,632 $ (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 6,268 8,534,996 (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 6,268 8,535,076 (7,896,417) 648,984
Issuance of Common stock and Series
E Preferred stock in connection
with purchase of New York N2K... 1,348 5,391 4,144,665 -- 4,151,404
Issuance of Series E Preferred
stock........................... 4,659 -- 3,722,701 -- 3,727,360
Issuance of Series F Preferred
stock, net...................... 5,333 -- 15,262,951 -- 15,268,284
Issuance of Common stock for
services rendered............... -- 25 14,225 -- 14,250
Common stock options exercised..... -- 9 5,997 -- 6,006
Net loss........................... -- -- -- (18,907,909) (18,907,909)
------- ------ ----------- ------------ ------------
BALANCE, DECEMBER 31, 1996........... 15,397 11,693 31,685,615 (26,804,326) 4,908,379
Net loss (unaudited)............... -- -- -- (4,518,333) (4,518,333)
------- ------ ----------- ------------ ------------
BALANCE, MARCH 31, 1997
(unaudited)........................ $ 15,397 $11,693 $31,685,615 $(31,322,659) $ 390,046
======= ====== =========== ============ ============
PRO FORMA BALANCE (Note 1)
(unaudited)........................ $ -- $29,473 $32,220,730 $(31,322,659) $ 927,544
======= ====== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 71
N2K INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 142,410 $(1,594,800) $(18,907,909) $(5,384,212) $(4,518,333)
Adjustments to reconcile net income (loss) to net cash
used in operating activities --
Depreciation and amortization........................... 290,653 238,558 767,357 118,382 271,022
Provision for doubtful accounts and returns............. 18,000 -- 18,000 4,500 54,000
Charge for purchased research and development........... -- -- 5,242,523 4,133,281 --
Issuance of Common stock for services rendered.......... -- -- 14,250 -- --
Decrease (increase) in --
Restricted cash....................................... -- -- 500,000 -- --
Accounts receivable................................... (202,463) 485,839 461,356 (83,308) (188,997)
Prepaid expenses...................................... (26,343) (30,225) (610,365) (84,893) (51,164)
Inventory............................................. -- -- (113,824) -- 49,234
Advances and recoupable costs......................... -- -- (86,525) -- (495,453)
Other assets.......................................... 7,367 (229) (49,144) 642 1,750
Increase (decrease) in --
Accounts payable...................................... 89,793 (30,951) 1,177,839 391,918 311,970
Accrued compensation.................................. 43,025 44,335 484,819 (45,855) (293,256)
Accrued royalties..................................... -- -- -- -- 84,180
Other accrued liabilities............................. (457,948) 34,121 308,858 (317,040) 1,379,265
Other long-term liabilities........................... (47) (20,671) 59,073 17,769 9,789
---------- ----------- ------------ ----------- -----------
Net cash used in operating activities.............. (95,553) (874,023) (10,733,692) (1,248,816) (3,385,993)
---------- ----------- ------------ ----------- -----------
INVESTING ACTIVITIES:
Purchases of and deposits on property and equipment....... (255,847) (338,721) (2,933,196) (167,625) (781,244)
Acquisition of New York N2K, net of cash acquired......... -- -- (224,077) (224,077) --
Purchase of Rocktropolis website.......................... -- -- (671,744) -- --
---------- ----------- ------------ ----------- -----------
Net cash used in investing activities.............. (255,847) (338,721) (3,829,017) (391,702) (781,244)
---------- ----------- ------------ ----------- -----------
FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit.......... (400,000) 400,000 (400,000) (400,000) 850,000
Payments on capital lease obligations..................... (117,959) (109,476) (103,115) (22,571) (47,551)
Payments on subordinated note............................. (75,000) -- -- -- --
Proceeds from issuance of Preferred stock, net............ 1,559,084 -- 18,995,644 3,000,000 --
Proceeds from exercise of Common stock options............ 80 80 6,006 162 --
---------- ----------- ------------ ----------- -----------
Net cash provided by financing activities.......... 966,205 290,604 18,498,535 2,577,591 802,449
---------- ----------- ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 614,805 (922,140) 3,935,826 937,073 (3,364,788)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 854,959 1,469,764 547,624 547,624 4,483,450
---------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $1,469,764 $ 547,624 $ 4,483,450 $ 1,484,697 $ 1,118,662
========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 72
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY:
Background
N2K Inc. (the Company or N2K), formerly Telebase Systems, Inc., was formed
as a result of the merger in February 1996, of N2K Inc., a New York corporation
(New York N2K) which was founded in 1995, and Telebase Systems, Inc. (Telebase),
which was founded in 1984 as a provider of on-line information services (see
Note 2). In 1994, recognizing increasing opportunities in the entertainment
market, Telebase expanded its strategy to include music entertainment. In April
1997, the Company discontinued its on-line information services business. The
operations of the on-line information services business have been accounted for
as discontinued operations (see Note 3).
The Company is a music entertainment company using the Internet as a global
platform for promoting, marketing and selling music and related merchandise. The
Company's strategy is to build loyal user communities around genre-specific
websites that provide music content and enable consumers to purchase compact
discs (CDs), cassettes and related merchandise. The Company believes that as its
user base continues to grow, it will be able to increase revenues from sales of
music and related merchandise, as well as advertising and sponsorship revenues.
The Company has also established its own record label, N2K Encoded Music,
which uses the Company's websites, as well as record stores and other
traditional distribution channels, to promote, distribute and sell original and
licensed artist recordings. Since the beginning of 1997, the Company released
its initial eight recordings on the N2K Encoded Music label under the direction
of Grammy Award-winning producer, Phil Ramone. The Company expects that many of
its N2K Encoded Music CDs will feature enhanced multimedia capabilities and
internet connectivity software.
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, 1997, the Company had an accumulated deficit of
$31,322,659. Since its inception, the Company has incurred costs to develop and
enhance its technology, to create, introduce and enhance its websites, to
establish marketing and distribution relationships and to build an
administrative organization. The Company currently intends to increase
substantially its operating expenses to fund increased sales and marketing, to
enhance existing websites and to complete strategic relationships important to
the success of the Company. 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 be able to generate sufficient
revenues from the sale of music recordings, related merchandise, advertising and
sponsorship programs to achieve or maintain profitability on a quarterly or
annual basis in the future. The Company expects negative cash flow from
operations to continue for the foreseeable future as it continues to develop and
market its business.
In April 1997, the Company sold 2,480,329 shares of Series G Preferred
Stock at $3 per share, including 17,000 shares issued as a finder's fee, and
received gross proceeds of $7,390,000. Additionally, the Company issued warrants
to purchase 93,333 shares of Common stock at an exercise price of $3 per share
as a placement fee relating to this transaction. Pursuant to the stock purchase
agreement for the Series G Preferred stock, if the Company consummates an
initial public offering of stock in 1997 at a price per share that is less than
$3, N2K is required to pay each of the purchasers of the Series G Preferred
stock, either in cash or in additional shares of Common stock, the difference
between the initial public offering price and $3 (see Note 7).
F-7
<PAGE> 73
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, the Company issued an aggregate principal amount of
$1,750,000 in the form of promissory notes to Lawrence L. Rosen, Jonathan
V. Diamond and Robert David Grusin (the Management Notes), each of whom
loaned the Company $583,333. The Management Notes bear interest at 14% per
annum and are due on the earlier of (i) a change of control of the Company,
as defined, and (ii) March 31, 1998; however, if still outstanding, the
Management Notes will convert into shares of Common stock at the initial
public offering price of $ per share upon consummation of the Company's
initial public offering. In consideration for these loans, the Company
issued an aggregate of 194,445 warrants to purchase 194,445 shares of
Common stock, representing 64,815 warrants to each of Messrs. Rosen,
Diamond and Grusin. The warrants are exercisable at a price of $3 per share
and expire in July 2004.
In August 1997, the Company issued an aggregate principal amount of
$6,000,000 in the form of Senior Notes (the Senior Notes) to a group of
institutional investors affiliated with an insurance company. The Senior
Notes bear interest at 14% per annum and are due on the earliest of (i)
consummation of the Company's initial public offering, (ii) a change of
control of the Company, as defined, and (iii) March 31, 1998. In
consideration for these loans, the Company issued an aggregate of 666,666
warrants to purchase 666,666 shares of Common stock. The warrants are
exercisable at a price of $3 per share and expire in August 2004. In
addition, the Company issued warrants to purchase 160,000 shares of Common
stock at an exercise price of $3 per share as a placement fee relating to
this transaction. A portion of the proceeds of the Offering will be used to
repay the Senior Notes. Based upon these financings, the Company believes
that adequate resources are available to fund the Company's operations for
the year ending December 31, 1997.
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, Series E and Series F Preferred stock will convert
into Common stock upon the consummation of the Offering. The unaudited pro forma
Stockholders' equity at March 31, 1997 reflects the assumed conversion of the
Series A, Series B, Series C, Series D, Series E and Series F Preferred stock
into 685,107, 714,286, 2,400,000, 2,461,539, 6,007,060 and 5,333,333 shares,
respectively, of Common stock. Additionally, the put rights associated with the
179,166 shares of Common stock issued in connection with the Rocktropolis
transaction valued at $537,498 expire upon consummation of the Offering. The
unaudited pro forma Stockholders' equity at March 31, 1997 reflects the
conversion of the Common stock Subject to Put Rights into Common stock and
Additional paid-in capital (see Note 2).
Stock Split and Reorganization
On , 1997, the Company effected a one-for- reverse stock
split of each outstanding share of Common stock in N2K Inc., a Pennsylvania
corporation, 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 not been restated to reflect the reverse
stock split.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The consolidated financial statements as of March 31, 1997 and for the
three months ended March 31, 1996 and 1997 are unaudited and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of results for these interim
periods. The results of operations for the three months ended March 31, 1996 and
1997 are not necessarily indicative of the results to be expected for the entire
year.
F-8
<PAGE> 74
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
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.
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, as well as short-term notes.
Supplemental Disclosures of Cash Flow Information
For the years ended December 31, 1994, 1995 and 1996 and the three months
ended March 31, 1996 and 1997, the Company paid interest of $50,809, $18,237,
$52,281, $16,552 and $12,547, respectively. Income taxes paid in 1994, 1995 and
1996 were immaterial. The Company incurred $159,099, $99,454 and $208,226 of
capital lease obligations during 1994, 1995 and the three months ended March 31,
1997, respectively. There were no capital lease obligations incurred during
1996.
The following table displays the noncash assets and liabilities that were
consolidated as a result of the New York N2K acquisition on February 13, 1996
(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>
F-9
<PAGE> 75
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the following table displays the noncash assets that were
acquired as a result of the Rocktropolis website acquisition on June 21, 1996
(see Note 2):
<TABLE>
<S> <C>
Noncash assets:
Charge for purchased research and development.................. $1,109,242
Intangible assets.............................................. 100,000
----------
Net noncash assets acquired................................. 1,209,242
Less -- Common stock issued................................. (537,498)
----------
Cash paid........................................................ $ 671,744
==========
</TABLE>
Advances and Recoupable Costs
In accordance with Statement of Financial Accounting Standards No. 50,
"Financial Reporting in the Record and Music Industry," advances to artists and
producers and other recoupable costs are capitalized as an asset when the
current popularity and past performance of the artist or producer provides a
sound basis for estimating the probable future recoupment of such advances from
earnings otherwise payable to the artist or producer. Any portion of such
advances not deemed to be recoupable from future royalties is reserved at the
balance sheet date. All other significant advances which do not meet the above
criteria are expensed when paid.
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. Computer
equipment is depreciated primarily over an estimated useful life of 4 years and
office furniture and equipment is depreciated over an estimated useful life of 4
to 8 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.
Intangible Assets
Intangible assets consist of goodwill and the Rocktropolis trade name and
are being amortized over 5 years on a straight-line basis.
The Company evaluates the realizability of intangible assets 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 flow is less
than the net book value of the asset, the asset is written down to its net
realizable value. As of March 31, 1997, no such write-down was required.
Revenue Recognition
Revenues from the sale of music CDs and cassettes sold via the Internet,
include shipping and handling charges, and are recognized at the time of
shipment. 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
revenues and cost of revenues in the period of shipment.
Beginning in January 1997, in connection with the Company's first record
release, revenues began to be derived from the sale of records. Revenues are
recognized at the time of shipment. Provision is made for the estimated effect
of sales returns where right-of-return privileges exist. Returns of product from
customers are accepted in accordance with standard industry practice. The full
amount of the returns allowance (estimated
F-10
<PAGE> 76
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
returns to be received net of distribution, royalty and inventory costs) is
shown, along with the allowance for doubtful accounts, as a reduction of
accounts receivable in the accompanying consolidated financial statements.
The Company has numerous agreements with other companies in the
entertainment business which provide for, among other things, the Company to pay
a percentage of revenues, as defined, derived from customers entering the
Company's website via the websites of these other companies. The Company records
these costs in cost of revenues at the time the related revenues are recorded.
Revenues from barter transactions are recognized as earned. Barter
transactions are recorded at the estimated fair value of the goods or services
received. To date, barter transactions have been insignificant.
Advertising revenues are derived from the sale of advertising on the
Company's websites. Advertising revenues are recognized in the period the
advertisement is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include guarantees of minimum number of "impressions", or
times that any advertisement is viewed by users on the Company's websites. To
the extent minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenues until guaranteed impression levels are
achieved. Revenues from the sale of certain advertising on the Company's
websites are shared with third parties under the terms of certain agreements.
The Company records advertising revenues net of amounts allocable to third
parties under the terms of such agreements. To date, amounts allocable to third
parties have not been significant.
International net revenues were $25,570, $650,258, $77,201 and $305,700,
for the years ended December 31, 1995 and 1996 and the three months ended March
31, 1996 and 1997, respectively.
Operating and Development Expenses
Operating and development expenses consist of software engineering,
multimedia production, graphic design, artist relations, inventory management
and computer operations which support the Company's products. For the years
ended December 31, 1995 and 1996 and the three months ended March 31, 1996 and
1997, the Company incurred costs of $724,326, $3,051,174, $336,997 and $913,501,
respectively, relating to research and development. These amounts are included
in operating and development expenses as shown in the accompanying consolidated
statements of operations. For periods prior to 1995, the Company did not
separately identify research and development costs.
Advertising Expenses
Promotional costs incurred in connection with the N2K Encoded Music label
are capitalized for unreleased projects and expensed when the related product is
released. All other advertising and promotional costs incurred by the Company
are expensed the first time the advertising takes place. Advertising and
promotion expense was $388,748, $1,759,515, $154,988 and $551,039 for the years
ended December 31, 1995 and 1996 and the three months ended March 31, 1996 and
1997, respectively, and is included in sales and marketing expenses in the
accompanying consolidated statements of operations. There were no advertising
expenses incurred in 1994.
Charge for Purchased Research and Development
In connection with the acquisition of New York N2K in February 1996 and the
rock website, Rocktropolis, in June 1996 (see Note 2), $5,242,523 of the
aggregate purchase price was allocated to incomplete research and development
projects. Accordingly, these costs were charged to expense as of the acquisition
dates. The development of these projects had not yet reached technological
feasibility and the technology had no alternative future use. The acquired
technology required substantial additional development by the Company.
F-11
<PAGE> 77
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 12 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 $ 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, Series D, Series E and Series F Preferred stock which will convert into
685,107, 714,286, 2,400,000, 2,461,539, 6,007,060 and 5,333,333 shares,
respectively, of Common stock upon the consummation of the Offering contemplated
in this Prospectus as if they were converted to Common stock on their original
date of issuance. The Series G Preferred stock, which will convert into
2,480,329 shares 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 7).
Major Supplier and Distribution Agreement
The Company currently has a contract with Valley Record Distributors
(Valley), which is currently the Company's primary 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 one of the few other fulfillment operations. 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, or that it will be able to find an alternative, comparable
supplier capable of providing fulfillment services on terms satisfactory to the
Company should its relationship with Valley terminate. An unanticipated
termination of the Company's relationship with Valley, particularly during the
fourth quarter of the calendar year 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. To date, Valley has satisfied the Company's requirements on a timely
basis. However, to the extent that Valley does not have sufficient capacity and
is unable to satisfy on a timely basis increasing requirements of the Company,
such a capacity constraint would have a material adverse effect on the Company's
business, results of operations and financial condition.
On October 16, 1996, the Company and RED Distribution, Inc. (RED), a
subsidiary of Sony Music Entertainment, Inc., entered into a letter agreement
which provided that RED be the exclusive distribution agent in the United States
for the N2K Encoded Music label. The Company does not have a distribution
operation of its own and, accordingly, is dependent upon maintaining its
existing relationship with RED or establishing a new distribution relationship
with a comparable distributor. The termination of such relationship would,
absent establishing a substitute with another distributor, have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company believes that alternative distributors would be available
on terms satisfactory to the Company should its relationship with RED terminate.
The agreement has a three-year term and provides for a distribution fee of
between 16% to 20% of net revenues (as defined). The agreement provides that the
Company will deliver at least 12 previously unreleased, newly compiled or
recorded studio albums during each year of the term of the agreement and no
F-12
<PAGE> 78
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
less than 4 such albums during each six months of each year of the term of the
agreement. The distribution services rendered by RED include billing and
collecting from customers, bearing bad debts, distributing promotional items,
advertising, undertaking retail marketing and inventory control activities and
processing returns. The payment of the distribution fees owed to RED by the
Company is secured by all of the Company's inventories in RED's possession
awaiting distribution. As the Company's first recording was released in January
1997, there was no activity under this agreement prior to December 31, 1996. For
the three months ended March 31, 1997, approximately $428,000 in gross product
revenues and approximately $352,000 in net product revenues were generated
through RED, respectively. Net amounts due from RED as of March 31, 1997, were
approximately $277,000, which are included in accounts receivable in the
accompanying consolidated balance sheets.
2. ACQUISITIONS:
Acquisition of New York N2K
On February 13, 1996, New York N2K merged with and into Telebase in a
transaction accounted for as a purchase. Telebase issued 5,391,437 shares of
Common stock valued at $3,073,118 and 1,347,860 shares of Series E Preferred
stock valued at $1,078,286 in exchange for all of the outstanding Common stock
of New York N2K. The fair value assigned to the Common stock was determined
based upon an independent appraisal. Telebase is the surviving corporation;
however, the corporate name of the surviving corporation was 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
$4,375,481, including transaction costs, was allocated to the assets acquired
and liabilities assumed based on their respective fair values. 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 New York N2K had occurred on January 1, 1995, the unaudited pro
forma information, after giving effect to the pro forma adjustments described
below, would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996
----------- ------------
<S> <C> <C>
Unaudited pro forma revenues........................... $ 240,131 $ 1,724,331
========== ===========
Unaudited pro forma loss from continuing operations.... $(4,129,250) $(14,189,842)
========== ===========
Unaudited pro forma net loss........................... $(2,839,579) $(15,158,516)
========== ===========
Unaudited pro forma net loss per Common share.......... $ $
========== ===========
</TABLE>
The unaudited pro forma information does not purport to be indicative of
the results that would have been attained if the operations had actually been
combined for the periods presented and is not necessarily indicative of the
operating results to be expected in the future.
The pro forma adjustments consist of compensation charges for certain
executive officers who did not receive any compensation from New York N2K prior
to the merger and the amortization of goodwill. The amount of the compensation
pro forma adjustment was $500,000 and $75,000 for the years ended December 31,
1995 and 1996, respectively. The amount of the goodwill amortization pro forma
adjustment was $46,667 and $7,000 for the years ended December 31, 1995 and
1996, respectively. Additionally, the above unaudited pro forma information
excludes the one-time charge of $4,133,281 associated with the write-off of
purchased research and development costs in connection with the New York N2K
acquisition and includes the write-off of purchased research and development
costs associated with the purchase of the Rocktropolis website for the year
ended December 31, 1996. This one-time charge would have increased the unaudited
pro forma net loss per Common share for both periods by $ .
F-13
<PAGE> 79
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 7).
Acquisition of Rocktropolis Website
On June 21, 1996, the Company acquired the assets that relate to the rock
website known as Rocktropolis, from Rocktropolis Enterprises, LLC for $633,000
in cash and 179,166 shares of Common stock valued at $537,498. The total
purchase price of $1,209,242, including transaction costs, was allocated to the
assets acquired based on their respective fair values. The Company recorded
$1,109,242 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 remaining balance of the
purchase price was allocated to the Rocktropolis tradename and is being
amortized on a straight-line basis over 5 years.
The Common stock issued in connection with the acquisition of the
Rocktropolis website may be "put" back to the Company at a price of $3 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 the Company's Common stock. Accordingly, the
value of these shares ($537,498) is shown outside of Stockholder's equity in the
accompanying consolidated balance sheets. The "put" rights expire upon the
consummation of the Offering.
3. DISCONTINUED OPERATIONS:
In April 1997, the Company's Board of Directors approved a formal plan of
disposal for its on-line information services business. The expected manner of
disposal is the sale of substantially all of its assets. The Company anticipates
this sale to be completed by April 1998.
The on-line information services business is being accounted for as
discontinued operations with a measurement date of April 4, 1997. The Company
expects that the sale of the on-line information services business will result
in a gain on the disposal of the segment's net assets which will be sufficient
to offset the losses of the segment from the measurement date to the disposal
date. As a result, no amounts have been accrued in the accompanying financial
statements relating to the disposal of the segment. The gain on the disposal
will be recognized when realized. The gain expected from the sale of the on-line
information services business is based upon management's best estimate of the
amount to be realized. The amount the Company will ultimately realize could
differ from this estimate. The anticipated net losses from discontinued
operations from the measurement date to the disposal date will be recorded as an
adjustment to the net assets of the discontinued operations in the accompanying
consolidated balance sheets. The accompanying consolidated financial statements
reflect the operating results and balance sheet items of the discontinued
operations separately from continuing operations.
Income (loss) from discontinued operations in the accompanying consolidated
statements of operations were:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................... $11,391,780 $10,976,711 $7,855,758 $2,514,382 $1,335,496
=========== =========== ========== ========== ==========
Income (loss) before income
taxes.................... $ 1,454,165 $ 1,289,971 $ (968,674) $ 160,309 $ (159,943)
Income taxes............... 9,280 300 -- -- --
----------- ----------- ---------- ---------- ----------
Income (loss).............. $ 1,444,885 $ 1,289,671 $ (968,674) $ 160,309 $ (159,943)
=========== =========== ========== ========== ==========
</TABLE>
F-14
<PAGE> 80
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assets and liabilities of the on-line information services business
have been reclassified in the accompanying consolidated balance sheets to
separately identify them as net assets of discontinued operations. A summary of
these net assets of discontinued operations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- -----------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current assets, excluding accounts
receivable.................................. $ 22,642 $ 11,891 $ 20,755
Accounts receivable........................... 1,497,034 1,033,734 948,898
Property and equipment, net................... 321,615 278,875 273,981
Other assets.................................. 22,700 -- --
Current liabilities........................... (1,503,435) (1,310,054) (858,968)
Long-term liabilities......................... (181,893) -- --
---------- ---------- ---------
Net assets of discontinued operations......... $ 178,663 $ 14,446 $ 384,666
========== ========== =========
</TABLE>
4. MTV AGREEMENT:
On December 18, 1996, the Company entered into a letter of intent creating
a strategic alliance with MTV Networks (MTVN), the entity that controls the MTV
and VH1 cable channels. As part of this alliance, MTVN provides the Company's
internet site, Music Boulevard, with content and presents Music Boulevard, both
on-air and on-line, as the exclusive partner for MTV/VH1's online music sales.
In exchange, the Company promotes MTV/VH1 on-line on Music Boulevard and has
granted to MTVN the right to sell advertising on and share profits from MTV/VH1
sales made through Music Boulevard. In addition, a MTV/VH1 popular and rock
section replaced the Company's offerings for those genres on Music Boulevard.
The agreement has a two-year term which commenced on the launch date, which was
in March 1997. As of March 31, 1997, the effect of this agreement in the
accompanying consolidated financial statements is insignificant.
5. OTHER ACCRUED LIABILITIES:
Other accrued liabilities as of December 31, 1995, 1996 and March 31, 1997
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- ----------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Office close-down............................... $ -- $ 500,722 $ 297,347
Accrued professional fees....................... -- 499,352 522,497
Other........................................... 343,255 595,678 840,531
-------- -------- ----------
$343,255 $1,595,752 $1,660,375
======== ======== ==========
</TABLE>
At March 31, 1997, the Company has future obligations relating to the
close-down of an office. The costs accrued include charges for lease payments
(net of sublease receipts) on an office facility which the Company will not
utilize, employee severance and estimated losses on the write-down of certain
non-recoverable assets. Actual results could differ from this estimate.
6. CREDIT AGREEMENTS:
The Company had a line of credit with a bank of $2,000,000 as of March 31,
1997 which originally expired on June 30, 1997. On August 6, 1997, the bank
extended the expiration date to August 31, 1997, at which time the outstanding
principal balance, if any, becomes payable unless the line of credit is
extended. Additionally, the August 6, 1997 letter agreement waived certain
financial covenants through August 31, 1997 which the Company was required to
maintain and which the Company was not in compliance with subsequent
F-15
<PAGE> 81
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to March 31, 1997. This letter agreement also limited the Company's borrowings
to the outstanding balance as of August 6, 1997, which was $850,000. The Company
is obligated to pay a commitment fee equal to 0.5% on the average daily unused
portion of the commitment. The line of credit bears interest at the bank's
"national commercial rate," as defined, and is secured by a security interest in
substantially all corporate assets. Maximum borrowings are limited to certain
percentages of eligible accounts receivable (as defined). Prior to June 30,
1996, the line of credit was $1,000,000, bore interest at the bank's "national
commercial rate," as defined, for borrowings which did not exceed $500,000 and
at the bank's "national commercial rate," as defined, plus 1% for borrowings
which exceeded $500,000 and was secured by a $500,000 certificate of deposit and
a security interest in substantially all corporate assets. The $500,000 was
shown as restricted cash in current assets in the accompanying consolidated
balance sheets. Maximum borrowings were limited to certain percentages of
eligible accounts receivable (as defined), plus the $500,000 certificate of
deposit. During 1994, 1995, 1996 and the three months ended March 31, 1996 and
1997, the maximum amount outstanding was $500,000, $400,000, $600,000, $600,000
and $850,000, respectively. For the years ended December 31, 1994, 1995, 1996
and the three months ended March 31, 1996 and 1997, the weighted average
interest rate was 7.5%, 8.7%, 8.7%, 8.5% and 8.4%, respectively. In addition,
the line of credit requires the Company to meet certain financial covenants. As
of March 31, 1997, the Company was not in compliance with certain of these
financial covenants; however, the Company has obtained a waiver from the bank
relating to such noncompliance. Interest expense for the years ended December
31, 1994, 1995, 1996 and the three months ended March 31, 1996 and 1997, was
$21,236, $7,360, $14,992, $4,992 and $8,341, respectively.
In January 1989, the Company entered into a $300,000 subordinated note
agreement with the Philadelphia Industrial Development Corporation. 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 $9,750 in
1994.
7. PREFERRED STOCK:
Preferred stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
------------------- 31,
1995 1996 1997
------ -------- --------
<S> <C> <C> <C>
Preferred stock, $.001 par value, 40,000,000 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, 6,007,060 shares authorized,
issued and outstanding.......................... -- 6,007 6,007
Series F, 5,333,333 shares authorized,
issued and outstanding.......................... -- 5,333 5,333
Series G, 15,000,000 shares authorized,
none issued or outstanding...................... -- -- --
------ ------- -------
$4,057 $ 15,397 $15,397
====== ======= =======
</TABLE>
F-16
<PAGE> 82
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 685,107 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 certain officers
of the Company. The Series B and Series C Preferred shares are convertible into
714,286 and 2,400,000 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 2,461,539 shares of Common stock, subject
to adjustment (as defined).
On February 13, 1996, the Company issued 1,347,860 shares of Series E
Preferred Stock in connection with the acquisition of New York 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 proceeds of $3,000,000. In April
and May 1996, the Company sold 909,200 shares of Series E Preferred stock at
$.80 per share and received proceeds of $727,360. The Series E Preferred shares
are convertible into 6,007,060 shares of Common stock, subject to adjustment (as
defined). In May and June 1996, the Company sold 5,333,333 shares of Series F
Preferred stock at $3 per share and received net proceeds of $15,268,284. The
Series F Preferred shares are convertible into 5,333,333 shares of Common stock,
subject to adjustment (as defined).
Subsequent to March 31, 1997, the Company sold 2,480,329 shares of Series G
Preferred stock at $3 per share, including 17,000 shares issued as a finder's
fee, and received gross proceeds of approximately $7,390,000. The Series G
Preferred shares are convertible into 2,480,329 shares of Common stock, subject
to adjustment (as defined). Although the Company did not have executed Series G
Preferred stock agreements as of March 31, 1997, the Company had received
$1,597,983 relating to the sale of the Series G Preferred stock. Accordingly,
this amount is shown as a long-term liability in the accompanying consolidated
balance sheets as of March 31, 1997. In addition, see Note 1 for further
description of the Series G Preferred stock.
The Company has reserved 20,081,654 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.
8. STOCKHOLDERS' EQUITY:
Common Stock Options
Under the Company's 1987 Incentive Stock Option Plan, options to purchase
3,100,000 shares of Common stock could have been 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,
1997, there are 1,792,625 options outstanding and no additional grants will be
made under this plan.
Additionally, the Company has 301,534 nonqualified stock options
outstanding as of March 31, 1997, with expiration dates ranging from May 1998 to
January 2004. These options vested immediately upon grant.
In February 1996, the Company established the 1996 Stock Option Plan, which
authorized options to purchase 6,600,000 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 equals at
least 100% of the fair market value of the Common stock on the date of grant. As
of March 31, 1997, there are 3,708,768 options outstanding and 2,891,232 options
available for grant under the 1996 Stock Option Plan.
F-17
<PAGE> 83
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1996, the Company granted 16,200 nonqualified stock options to
individuals who were neither employees or directors of the Company. The options
expire ten years from the date of grant and vest over four years. The exercise
price is equal to 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>
WEIGHTED
AVERAGE
EXERCISE PRICE EXERCISE PRICE AGGREGATE
OPTIONS (PER SHARE) (PER SHARE) PROCEEDS
--------- --------------- -------------- ----------
<S> <C> <C> <C> <C>
Balance as of December 31, 1993..... 1,274,563 $0.63 - $ 1.25 $ 0.94 $1,193,484
Granted........................... 319,000 0.65 - 0.80 0.66 210,200
Exercised......................... (100) 0.80 0.80 (80)
Terminated........................ (5,900) 0.80 0.80 (4,720)
--------- -------------- ----- ----------
Balance as of December 31, 1994..... 1,587,563 0.63 - 1.25 0.88 1,398,884
Granted........................... 925,500 0.65 - 0.80 0.66 608,325
Exercised......................... (100) 0.80 0.80 (80)
Terminated........................ (23,400) 0.80 0.80 (18,720)
--------- -------------- ----- ----------
Balance as of December 31, 1995..... 2,489,563 0.63 - 1.25 0.80 1,988,409
Granted........................... 3,785,968 0.80 - 3.00 1.07 4,038,359
Exercised......................... (8,579) 0.65 - 0.80 0.70 (6,006)
Terminated........................ (409,450) 0.63 - 1.25 0.76 (311,994)
--------- -------------- ----- ----------
Balance as of December 31, 1996..... 5,857,502 0.63 - 3.00 0.97 5,708,768
Granted........................... -- -- -- --
Exercised......................... -- -- -- --
Terminated........................ (38,375) 0.65 - 0.80 0.77 (29,613)
--------- -------------- ----- ----------
Balance as of March 31, 1997........ 5,819,127 $0.63 - $ 3.00 $ 0.98 $5,679,155
========= ============== ===== ==========
Options exercisable as of
March 31, 1997.................... 2,263,764 $ 0.83
========= =====
</TABLE>
The weighted average remaining contractual life of all options outstanding
at December 31, 1996 is 7.7 years.
On July 30, 1997, the Company granted options to purchase 1,300,000 shares
of Common stock. These options were granted pursuant to the 1996 Stock Option
Plan. These options have an exercise price of $3 per share and vest over four
years.
Under the 1996 Stock Option Plan, the Company's Board of Directors has
approved the authorization of the issuance of options to purchase 1,250,000
shares of Common stock. These options will be granted at the time of the
Offering and at an exercise price equal to the initial public offering price for
shares sold in the Offering. Additionally, the Company's Board of Directors has
approved the issuance of options to purchase 60,000 shares of Common stock,
which are not pursuant to any of the Company's option plans. These options will
be granted at the time of the Offering and at an exercise price equal to the
initial public offering price for shares sold in the Offering. See Note 11 for
an additional authorization of the issuance of options.
In April 1997, the Board of Directors adopted and the stockholders of the
Company approved, the 1997 Directors' Stock Option Plan (the Directors' Plan)
pursuant to which each member of the Board of Directors,
F-18
<PAGE> 84
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
who is not an employee of the Company, who is elected or continues as a member
of the Board of Directors is entitled to receive annually, options to purchase
50,000 shares of Common stock at an exercise price equal to fair market value;
provided, however, that no director may receive under the Directors' Plan,
options to purchase an aggregate of more than 500,000 shares of Common stock.
Each option grant under the Directors' Plan vests after the first anniversary of
the date of grant and expires three years thereafter. The maximum number of
shares of Common stock reserved for issuance under the Directors' Plan is
2,000,000 shares (subject to adjustment for certain events such as stock splits
and stock dividends). In April 1997, the Board of Directors granted a total of
100,000 options under the Directors' Plan at an exercise price per share equal
to the initial public offering price of the Common stock.
The Company accounts for all of its option plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation cost has
been recognized. In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 establishes a fair value based method of
accounting for stock-based compensation plans. This statement also applies to
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. SFAS 123 requires that an employer's financial
statements include certain disclosures about stock-based employee compensation
arrangements regardless of the method used to account for the plan. Had the
Company recognized compensation cost for its stock option plans consistent with
the provisions of SFAS 123, the Company's net loss in 1995 and 1996 and the pro
forma net loss per Common share in 1996 would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996
----------- ------------
<S> <C> <C>
Net Loss:
As reported............................................ $(1,594,800) $(18,907,909)
=========== ============
Pro forma.............................................. $(2,246,800) $(21,623,909)
=========== ============
Pro Forma Net Loss per Common share:
As reported (unaudited)................................ $
============
SFAS 123............................................... $
============
</TABLE>
Since the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the pro forma compensation cost disclosed
above may not be representative of that to be expected in future years.
The weighted average fair value of the stock options granted during 1995
and 1996 was $2.59 and $2.48, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Risk-free interest rate.......................................... 6.5% 5.5%
Expected divided yield........................................... 0.0% 0.0%
Expected life.................................................... 6 Years 6 Years
Expected volatility.............................................. 65.0% 65.0%
</TABLE>
Common Stock Warrants
In February 1996, the Company issued warrants to purchase 150,000 shares of
Common stock at an exercise price of $0.80 per share. These warrants expire in
February 2001. In May and June 1996, the Company issued warrants to purchase
267,998 shares of Common stock at an exercise price of $3 per share.
F-19
<PAGE> 85
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These warrants expire in 2003. Additionally, subsequent to March 31, 1997, the
Company issued warrants in connection with the issuance of the Management Notes
and Senior Notes (see Note 1).
Employee Stock Purchase Plan
In June 1996, the Company established the 1996 Employee Stock Purchase Plan
(the ESP Plan). The number of shares available to purchase under the ESP Plan is
1,500,000 shares of Common stock. As of March 31, 1997, 1,500,000 shares are
available for purchase under the ESP Plan. The employee's 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 the Purchase period (as defined) and (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).
9. 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, 1996, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $25,100,000, which begin to
expire in 2001. Significant components of deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforwards........................ $ 2,584,000 $ 8,534,000
Depreciation and amortization........................... 38,000 13,000
Accruals not currently deductible....................... 152,500 413,000
----------- -----------
2,774,500 8,960,000
Gross deferred tax liabilities............................ -- (17,000)
Less -- Valuation allowance............................... (2,774,500) (8,943,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The Company has recorded a valuation allowance for the net deferred tax
asset as the Company concluded that the net deferred tax asset did not meet the
recognition criteria under SFAS 109. The valuation allowance increased
$6,168,500 during 1996 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.
10. RELATED-PARTY TRANSACTIONS:
For the years ended December 31, 1994, 1995, 1996 and the three months
ended March 31, 1996 and 1997, the Company incurred fees of $30,000, $30,000,
$130,000, $79,000 and $0, respectively, to a law firm in which certain of its
partners are Series A Preferred stockholders.
11. 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 $498,802, $868,436 and $1,076,663 less
F-20
<PAGE> 86
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accumulated amortization of $290,799, $477,535 and $527,567, are included in
property and equipment in the accompanying consolidated balance sheets as of
December 31, 1995, 1996, and March 31, 1997, respectively. Certain capital
leases are secured by certificates of deposit totaling $167,000, which are shown
as restricted cash in other assets in the accompanying consolidated balance
sheets. Interest rates on these capital leases range from 6.0% to 19.0%. Future
minimum lease payments under operating and capital leases as of December 31,
1996, are as follows:
<TABLE>
<CAPTION>
OPERATING
------------------------------------------
DISCONTINUED CONTINUING TOTAL CAPITAL
------------ ---------- ---------- --------
<S> <C> <C> <C> <C>
1997............................... $ 74,501 $ 928,551 $1,003,052 $204,001
1998............................... 94,507 1,233,022 1,327,529 196,987
1999............................... 94,607 1,307,851 1,402,458 63,632
2000............................... 94,607 1,293,241 1,387,848 --
2001............................... 63,071 574,021 637,092 --
-------- ---------- ---------- --------
Total minimum lease payments....... $421,293 $5,336,686 $5,757,979 464,620
======== ========== ==========
Less -- Amount representing
interest......................... (46,599)
--------
Present value of minimum capital
lease payments................... $418,021
========
</TABLE>
Rent expense under the operating leases for continuing operations for the
years ended December 31, 1994, 1995, 1996 and the three months ended March 31,
1996 and 1997 was $43,594, $100,870, $529,186, $92,141 and $226,341,
respectively.
The Company has employment agreements with certain officers that provide
for, among other things, salary, bonus, severance and change in control
provisions.
On October 11, 1996, the Company entered into a letter agreement with Phil
Ramone, a noted independent record producer, to become, subject to execution of
a formal employment agreement, the President of the Company's N2K Encoded Music
label. In such capacity, Mr. Ramone will be responsible for managing, conducting
and developing the business of N2K Encoded Music, including signing recording
artists to perform for the N2K Encoded Music label. Mr. Ramone may also serve as
Producer or Executive Producer for one or more of N2K Encoded Music's albums.
The initial term of Mr. Ramone's employment with the Company will be three years
(the Initial Term), with an option at the Company's discretion to continue said
employment for an additional two-year period (the Option Period). In addition to
a salary and performance bonus, Mr. Ramone will be entitled to 10% of the
after-tax net profit attributable to N2K Encoded Music's operations and will be
entitled to participate in the business of N2K Encoded Music if it is sold as if
he were a 5% (during the Initial Term) or a 7.5% (during the Option Period and
thereafter) equity owner of N2K Encoded Music. If such a sale has not occurred
by the time Mr. Ramone leaves the employment of the Company, the Company at its
option shall have the right for a three-year period to repurchase this right for
a payment equal to the applicable percentage set forth above times a number
equal to the gross revenues for N2K Encoded Music for the prior four fiscal
quarters, payable in quarterly installments over a three-year period. Mr. Ramone
will also receive options to purchase 294,708 shares of the Company's Common
stock at an exercise price equal to the initial public offering price for shares
sold in the Offering. These options will be issued under the 1996 Stock Option
Plan. Of said amount, one-quarter of the shares issuable pursuant to said
options will vest at the beginning of his employment with the balance vesting
ratably on the first, second and third anniversaries of his date of employment.
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.
F-21
<PAGE> 87
N2K INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to the fact that materials may be downloaded from websites and may be
subsequently distributed to others, there is 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. Although the Company carries general liability insurance, the
Company's insurance may not cover 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. The Company is
currently not aware of any such claims.
12. 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 ended December 31, 1994, 1995,
1996 and the three months ended March 31, 1996, and 1997, the Company
contributed $14,400, $18,200, $53,100, $7,900 and $24,000, respectively, to the
Plan for continuing operations and $18,100, $20,700, $12,000, $3,800 and $4,000,
respectively, for discontinued operations.
F-22
<PAGE> 88
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-23
<PAGE> 89
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-24
<PAGE> 90
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-25
<PAGE> 91
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-26
<PAGE> 92
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-27
<PAGE> 93
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 on-line 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 on-line 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-28
<PAGE> 94
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-29
<PAGE> 95
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
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
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 42
Certain Transactions.................. 53
Principal Stockholders................ 56
Description of Capital Stock.......... 58
Shares Eligible for Future Sale....... 61
Underwriting.......................... 62
Legal Matters......................... 63
Experts............................... 63
Additional Information................ 64
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 1997, 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.
======================================================
======================================================
SHARES
N2K INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS
------------------------
, 1997
======================================================
<PAGE> 96
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 filing fee............................. $ 13,152
Nasdaq National Market listing fee........................................ *
NASD filing fee........................................................... 4,840
Blue Sky fees and expenses (including attorneys' fees).................... 12,500
Accounting fees and expenses.............................................. 300,000
Legal fees and expenses................................................... 750,000
Printing and engraving expenses........................................... 350,000
Transfer agent and registrar fees......................................... 15,000
Miscellaneous............................................................. 100,000
--------
Total........................................................... $ *
========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Certificate of Incorporation of the Registrant provides for, and
the Bylaws of the Registrant require, indemnification of directors, officers,
employees and agents to the full extent permitted by law.
(b) Pursuant to the provisions of Section 145 of the Delaware GCL, every
Delaware corporation has the power to indemnify any person who was or is or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) 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 corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense or settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply. 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.
(c) Section 102(b)(7) of the Delaware GCL currently provides that a
director's liability for breach of fiduciary duty to a corporation may be
eliminated except for liability (i) for any breach of the director's duty of
loyalty to the corporation or 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 Delaware GCL, for unlawful dividends or
unlawful stock repurchases or redemptions, and (iv) for any transaction from
which the director derives an improper personal benefit.
(d) 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.
II-1
<PAGE> 97
(e) See the Form of Indemnification Agreement (to be entered into
simultaneously with the completion of this offering between the Registrant and
each of its directors and executive officers and which is included as Exhibit
10.15 to this Registration Statement) for provisions regarding the
indemnification under certain circumstances of the directors and executive
officers of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The securities issued in the transactions described below were offered and
sold in reliance upon the exemption from registration under Section 4(2) of the
Securities Act, relating to transactions by an issuer not involving any public
offering. None of these sales involved any form of general advertising or
general solicitation.
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.
In December 1995, the Company issued 450,000 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 5,391,437 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 150,000 shares of Common Stock at an exercise price of $.80 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.
In May and June 1996, the Company issued 5,333,333 shares of Series F
Preferred Stock to a class of accredited investors for the aggregate offering
price of $16,000,000 resulting in net proceeds of $15,268,284.
In May and June 1996, the Company issued warrants to Allen & Company
Incorporated to purchase 256,665 shares of Common Stock at an exercise price of
$3.00 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 25,000 shares of Common Stock in payment to
a vendor for services rendered.
In June 1996, the Company issued warrants to purchase 11,333 shares of
Common Stock at an exercise price of $3.00 per share to an unaffiliated
individual, in payment for services rendered.
In April 1997, the Company issued 2,480,329 shares of Series G Preferred
Stock (including 17,000 shares representing a finder's fee) to a class of
accredited investors for the aggregate offering price of $7,390,000 resulting in
net proceeds of $7,215,545. In connection with the issuance of the Series G
Preferred Stock in April 1997, the Company issued warrants to Allen & Company
Incorporated to purchase 93,333 shares of Common Stock at an exercise price of
$3.00 per share as a placement fee.
In July 1997, the Company issued Management Notes to three members of the
Company's management in the aggregate principal amount of $1,750,000, along with
warrants to purchase 194,445 shares of Common Stock at an exercise price of
$3.00 per share.
In August 1997, the Company issued Senior Notes to a group of accredited
institutional investors in the aggregate principal amount of $6,000,000, along
with warrants to purchase 666,666 shares of Common Stock at an exercise price of
$3.00 per share. In connection with the issuance of the Senior Notes in August
1997, the Company issued warrants to Allen & Company Incorporated to purchase
160,000 shares of Common Stock at an exercise price of $3.00 per share as a
placement fee.
II-2
<PAGE> 98
Since August 1994, the Company has issued an aggregate of stock options
at a weighted average exercise price of $ per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
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 -- 1997 Directors' Stock Option Plan.*
4.6 -- Note Purchase Agreement dated October 30, 1987 between the Company
and Gary M. Lauder.
4.7 -- Form of Series A Preferred Stock Purchase Agreement.
4.8 -- Form of Series C Preferred Stock Purchase Agreement.
4.9 -- Form of Series D Preferred Stock Purchase Agreement.
4.10 -- Form of Series E Preferred Stock Purchase Agreement.
4.11 -- Form of Series F Preferred Stock Purchase Agreement.
4.12 -- Form of Series G Preferred Stock Purchase Agreement.
4.13 -- Registration Rights Agreement dated as of February 13, 1996 among the
Company and the Shareholders of New York N2K.
4.14 -- Warrant Agreement dated as of February 13, 1996 between the Company
and Unterberg Harris.
4.15 -- Form of Warrant Certificate of the Company.
4.16 -- Form of 14% Management Note of the Company.*
4.17 -- Form of 14% Senior Note of the Company.*
4.18 -- Form of Warrant Certificate of the Company, issued in connection with
the 14% Senior Notes.*
5.1 -- Opinion of Dewey Ballantine.*
9.1 -- Stockholders' Agreement dated February 13, 1996, by and among James
E. Coane, Charles Wilson III, Poly Ventures II, Limited Partnership,
AT&T Corporation, Gary Lauder, Unterberg Harris Interactive Media
Limited Partnership, C.V., Lawrence L. Rosen, Jonathan V. Diamond,
Robert David Grusin and the Company.
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.
</TABLE>
II-3
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
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 supplemented by the First, Second, Third and
Fourth Additional Space Agreements dated April 1, April 2, April 3
and October 15, 1996 between the Company and 55 Broad Street Company.
10.10 -- Small Order Fulfillment Agreement between the Company and Valley
Record Distributors.+
10.11 -- Indemnification Agreement dated as of February 13, 1996 among the
Company and the shareholders of New York N2K.
10.12 -- Form of Director Indemnification Agreement.
10.13 -- Sales Data Agreement dated June 5, 1996 between the Company and
SoundScan, Inc.
10.14 -- Distribution Agreement dated October 16, 1996 between the Company and
RED Distribution, Inc.+
10.15 -- Employment Agreement dated October 11, 1996 between the Company and
Phil Ramone.
10.16 -- Letter Agreement dated as of May 27, 1997 between Excite Inc. and the
Company.+
10.17 -- Letter Agreement dated October 28, 1996 between the Company and
Virgin Records America Inc.+
10.18 -- Web Site Development Agreement dated as of November 1, 1996 between
the Company and Interstate Broadcasting Company, Inc.+
10.19 -- Agreement dated as of December 6, 1996 between Grolier Interactive
Europe Online and the Company.+
10.20 -- Content and Services Agreement dated as of May 21, 1997 between WebTV
Networks, Inc. and the Company.+
10.21 -- Letter of Intent dated December 18, 1996 between the Company and MTV
Networks.+
10.22 -- Web Site Development Agreement dated as of June 18, 1997 between WBGO
and the Company.+
10.23 -- @Home Shopping Tenant Agreement dated June 5, 1997 between At Home
Corporation and the Company.+
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 requested.
II-4
<PAGE> 100
(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 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-5
<PAGE> 101
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 ,
1997.
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 "Signatures" 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 day of , 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ LAWRENCE L. ROSEN Chairman of the Board, Chief Executive Officer
- --------------------------------------------- and Director (Principal Executive Officer)
Lawrence L. Rosen
/s/ JONATHAN V. DIAMOND Vice Chairman and Director
- ---------------------------------------------
Jonathan V. Diamond
/s/ ROBERT DAVID GRUSIN Vice Chairman and Director
- ---------------------------------------------
Robert David Grusin
/s/ JAMES E. COANE President, Chief Operating Officer and
- --------------------------------------------- Director
James E. Coane
/s/ BRUCE JOHNSON Vice President, Secretary, Chief Financial
- --------------------------------------------- Officer (Principal Accounting Officer and
Bruce Johnson Principal Financial Officer) and Director
/s/ ROBERT C. HARRIS, JR. Director
- ---------------------------------------------
Robert C. Harris, Jr.
/s/ SUSANNE HARRISON Director
- ---------------------------------------------
Susanne Harrison
</TABLE>
II-6
<PAGE> 102
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------------------- -------------------------------------------------------------- ------------
<C> <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 -- 1997 Directors' Stock Option Plan.*
4.6 -- Note Purchase Agreement dated October 30, 1987 between the
Company and Gary M. Lauder.
4.7 -- Form of Series A Preferred Stock Purchase Agreement.
4.8 -- Form of Series C Preferred Stock Purchase Agreement.
4.9 -- Form of Series D Preferred Stock Purchase Agreement.
4.10 -- Form of Series E Preferred Stock Purchase Agreement.
4.11 -- Form of Series F Preferred Stock Purchase Agreement.
4.12 -- Form of Series G Preferred Stock Purchase Agreement.
4.13 -- Registration Rights Agreement dated as of February 13, 1996
among the Company and the Shareholders of New York N2K.
4.14 -- Warrant Agreement dated as of February 13, 1996 between the
Company and Unterberg Harris.
4.15 -- Form of Warrant Certificate of the Company.
4.16 -- Form of 14% Management Note of the Company.*
4.17 -- Form of 14% Senior Note of the Company.*
4.18 -- Form of Warrant Certificate of the Company, issued in
connection with the 14% Senior Notes.*
5.1 -- Opinion of Dewey Ballantine.*
9.1 -- Stockholders' Agreement dated February 13, 1996, by and
among James E. Coane, Charles Wilson III, Poly Ventures II,
Limited Partnership, AT&T Corporation, Gary Lauder,
Unterberg Harris Interactive Media Limited Partnership,
C.V., Lawrence L. Rosen, Jonathan V. Diamond, Robert David
Grusin and the Company.
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).*
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------------------- -------------------------------------------------------------- ------------
<C> <S> <C>
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 supplemented by the
First, Second, Third and Fourth Additional Space Agreements
dated April 1, April 2, April 3 and October 15, 1996
between the Company and 55 Broad Street Company.
10.10 -- Small Order Fulfillment Agreement between the Company and
Valley Record Distributors.+
10.11 -- Indemnification Agreement dated as of February 13, 1996
among the Company and the shareholders of New York N2K.
10.12 -- Form of Director Indemnification Agreement.
10.13 -- Sales Data Agreement dated June 5, 1996 between the Company
and SoundScan, Inc.
10.14 -- Distribution Agreement dated October 16, 1996 between the
Company and RED Distribution, Inc.+
10.15 -- Employment Agreement dated October 11, 1996 between the
Company and Phil Ramone.
10.16 -- Letter Agreement dated as of May 27, 1997 between Excite
Inc. and the Company.+
10.17 -- Letter Agreement dated October 28, 1996 between the Company
and Virgin Records America Inc.+
10.18 -- Web Site Development Agreement dated as of November 1, 1996
between the Company and Interstate Broadcasting Company,
Inc.+
10.19 -- Agreement dated as of December 6, 1996 between Grolier
Interactive Europe Online and the Company.+
10.20 -- Content and Services Agreement dated as of May 21, 1997
between WebTV Networks, Inc. and the Company.+
10.21 -- Letter of Intent dated December 18, 1996 between the
Company and MTV Networks.+
10.22 -- Web Site Development Agreement dated as of June 18, 1997
between WBGO and the Company.+
10.23 -- @Home Shopping Tenant Agreement dated June 5, 1997 between
At Home Corporation and the Company.+
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 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 April 4, 1997, 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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<PAGE> 3
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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<PAGE> 4
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_________________, 1997, 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 , 1997 by Lawrence L. Rosen, its Chairman, and Bruce Johnson, its
Secretary.
N2K INC.
By________________________________
Lawrence L. Rosen
Chairman
ATTEST:
___________________________
Bruce Johnson
Secretary
4
<PAGE> 1
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.
<PAGE> 2
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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<PAGE> 3
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
3
<PAGE> 4
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.
4
<PAGE> 5
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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<PAGE> 6
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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<PAGE> 7
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.
7
<PAGE> 8
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
8
<PAGE> 9
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.
9
<PAGE> 10
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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<PAGE> 11
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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<PAGE> 12
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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<PAGE> 13
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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<PAGE> 14
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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<PAGE> 15
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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<PAGE> 16
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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(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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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 4.3
N2K INC.
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
The N2K Inc. Amended and Restated 1996 Stock Option Plan (the "Plan")
is adopted by the Board of Directors and stockholders of N2K Inc., a
Pennsylvania corporation (the "Company") effective as of July 15, 1996. The Plan
is intended to advance the best interests of the Company by providing directors,
executives and other key employees of the Company or any Subsidiary who have
substantial responsibility for the management and growth of the Company or any
Subsidiary with additional incentives by allowing such directors, executives and
other key employees to acquire an ownership interest in the Company. The Plan
represents a continuation of the 1996 Stock Option Plan of Telebase Systems,
Inc., a predecessor of the Company. All stock options granted under the Plan
prior to July 15, 1996 shall remain subject to the terms and conditions of the
Plan as in effect on the date of grant of such options.
ARTICLE II
DEFINITIONS
For purposes of the Plan, except as otherwise provided in the
applicable Option Agreement, the following terms have the indicated meanings:
"BOARD" means the Board of Directors of the Company.
"CAUSE," unless otherwise determined by the Committee, means (i) a
Participant's action or failure to act which (a) would materially adversely
affect the reputation, operations or financial condition of the Company or any
of its Subsidiaries; (ii) a willful failure by the Participant to perform such
Participant's duties, except as a result of the Disability or death of the
Participant; or (iii) a Participant's theft, embezzlement, perpetration of
fraud, or misappropriation of any tangible or intangible assets or property of
the Company or any of its Subsidiaries or attempted theft, embezzlement,
perpetration of fraud, or misappropriation of any tangible or intangible assets
or property of the Company or any of its Subsidiaries.
"CHANGE OF CONTROL" of the Company shall mean the occurrence of one of
the following events: (i) an event of a nature that 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; (ii) 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
<PAGE> 2
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board shall be, for purposes of this clause (ii), considered as though
he were a member of the Incumbent Board; (iii) 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;
(iv) 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; (v) a tender offer is made for 20% or more of the
voting securities of the Company then outstanding; or (vi) a sale of all or
substantially all (more than 50%) of the assets of the Company in a single
transaction or a series of related transactions.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee or such other committee of
the Board as the Board may designate to administer the Plan or, if for any
reason the Board has not designated such a committee or acts in place of such a
Committee, the Board. The Committee, if other than the Board, shall be comprised
of three or more directors as appointed from time to time by the Board.
"COMMON STOCK" means the authorized but unissued Common Stock, par
value $.001 per share, of the Company.
"COMPANY" has the meaning ascribed thereto in the first paragraph
hereof.
"DISABILITY" shall mean permanent and total disability, as defined in
Section 22(e) of the Code.
"FAIR MARKET VALUE" per share on any given date means the last reported
sales price of the Common Stock on the NASDAQ National Market on the date as of
which fair market value is to be determined or, in the absence of any reported
sales of Common Stock on such date, on the first preceding date on which any
such sale shall have been reported. If at any time the Common Stock is not
listed on the NASDAQ National Market, the Fair Market Value per share shall be
determined by the Committee in good faith based on such factors as the members
thereof, in the exercise of their business judgment, consider relevant.
"INCENTIVE STOCK OPTION" shall mean any Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code or any
successor provision.
"OPTION AGREEMENT" has the meaning ascribed thereto in Section 5.1.
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"OPTIONS" has the meaning ascribed thereto in Article IV.
"PARTICIPANT" means any director (including any non-employee director),
executive or other key employee of the Company or any Subsidiary who has been
selected to participate in the Plan by the Committee.
"PLAN" has the meaning ascribed thereto in the first paragraph hereof.
"SUBSIDIARY" means any subsidiary corporation (as such term is defined
in Section 424(f) of the Code) of the Company, whether now existing or hereafter
created.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee shall have the sole and complete
authority to: (i) select Participants, (ii) grant Options to Participants in
such forms and amounts as it shall determine, (iii) impose such limitations,
restrictions and conditions upon each Option as it shall deem appropriate (which
need not be identical), including but not limited to the vesting schedule for
each Option granted, and modify or amend the terms of each outstanding Option
(subject to the provisions of Section 6.6 hereof), (iv) interpret the Plan and
adopt, amend and rescind administrative guidelines and other rules and
regulations relating to the Plan, (v) correct any defect or omission or
reconcile any inconsistency in the Plan or in any Options granted under the
Plan, (vi) reduce the exercise price per share of outstanding and unexercised
Options, (vii) accelerate or defer the exercise price per share of any
outstanding Option, (viii) authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted by the Committee, and (ix) make all other determinations and take all
other actions necessary or advisable for the implementation and administration
of the Plan. The Committee's determinations on matters within its authority
shall be final, conclusive and binding upon the Participants, the Company and
all other persons. All expenses associated with the administration of the Plan
shall be borne by the Company. The Committee may, as approved by the Board and
to the extent permissible by law, delegate any of its authority hereunder to
such persons or entities as it deems appropriate.
ARTICLE IV
LIMITATION ON AGGREGATE SHARES
The number of shares of Common Stock with respect to which stock
purchase options ("Options") may be granted under the Plan shall not exceed, in
the aggregate, 6,600,000, subject to adjustment in accordance with Section 6.3.
To the extent any Options expire unexercised or are cancelled, terminated or
forfeited in any manner without the issuance
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of Common Stock thereunder, such shares shall again be available under the Plan.
The shares of Common Stock available under the Plan may consist of authorized
and unissued shares, treasury shares or a combination thereof, as the Committee
shall determine.
ARTICLE V
AWARDS
5.1 GRANT OF OPTIONS. The Committee may grant Options to Participants
from time to time in accordance with this Article V. Each Option granted
hereunder to a Participant shall be embodied in a written Option Agreement (the
"OPTION AGREEMENT") which shall be signed by the Participant and by a duly
authorized officer of the Company for and in the name and on behalf of the
Company and shall be subject to the terms and conditions prescribed herein and
to any other terms and conditions which the Committee shall deem necessary and
desirable in its sole discretion. Options granted under the Plan may be
nonqualified stock options or Incentive Stock Options as specified by the
Committee. The exercise price per share of Common Stock under each Option shall
be fixed by the Committee at the time of grant of the Option and shall equal at
least 100% of the Fair Market Value of a share of Common Stock on the date of
grant. Options shall be exercisable at such time or times as the Committee shall
determine; provided, however, that to the extent that the aggregate Fair Market
Value of the Common Stock (determined as of the date of Option grant) with
respect to which Incentive Stock Options (but not nonqualified options) are
exercisable for the first time by a Participant during any calendar year (under
all stock option plans of the Company, any Subsidiary or any parent corporation)
shall exceed $100,000 or such higher amount as may be permitted from time to
time under the Code, such Options shall be treated as nonqualified stock
options. The Committee shall determine the exercise period for each Option,
which period shall not exceed ten years from the date of grant of the Option. In
addition, no Options shall be granted hereunder after the tenth anniversary of
the adoption of the Plan.
5.2 EXERCISE PROCEDURE. Options shall be exercisable to the Company (to
the attention of the Company's Secretary) accompanied by payment in full of the
applicable exercise price in cash, certified check, bank draft or money order or
such other method as the Committee may agree. The Committee, in its sole
discretion, and subject to such conditioning as the Committee may determine, may
permit the exercise of an Option by delivery of a promissory note.
5.3 EXCHANGE OF PREVIOUSLY ACQUIRED STOCK. The Committee, in its sole
discretion and subject to such conditions as the Committee may determine, may
permit the exercise price for the shares being acquired upon the exercise of an
Option to be paid, in full or in part, by the delivery to the Company of a
number of shares of Common Stock bearing an aggregate Fair Market Value as of
the date of exercise equal to part or all of such exercise period.
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5.4 WITHHOLDING TAX REQUIREMENTS. It shall be a condition of the
exercise of any Option that the Participant exercising the Option make
appropriate payment or other provision acceptable to the Company with respect to
any withholding tax requirement arising from such exercise. The amount of
withholding tax required, if any, with respect to any Option exercise (the
"WITHHOLDING AMOUNT") shall be determined by the Treasurer or other appropriate
officer of the Company, and the Participant shall furnish such information and
make such representations as such officer requires to make such determination.
If the Company determines that withholding tax is required with respect to any
Option exercise, the Company shall notify the Participant of the Withholding
Amount, and the Participant shall pay to the Company an amount not less than the
Withholding Amount. In lieu of making such payment, the Participant may elect to
pay the Withholding Amount by either (i) surrendering to the Company a number of
shares of Common Stock having an aggregate Fair Market Value as of the
"measurement date" (as defined below) not less than the Withholding Amount or
(ii) directing the Company to withhold (and not to deliver or issue to the
Participant) a number of shares of Common Stock otherwise issuable upon the
exercise of the Option having an aggregate Fair Market Value as of the
measurement date not less than the Withholding Amount. In addition, if the
Committee approves, a Participant may elect, pursuant to the immediately
preceding sentence, to deliver or direct the withholding of shares of Common
Stock having an aggregate Fair Market Value in excess of the minimum Withholding
Amount but not in excess of the Participant's tax liability in connection with
the Option exercised based on the highest applicable marginal combined federal
income and state income tax rate, as estimated in good faith by such
Participant. Any fractional share interests resulting from the delivery or
withholding of shares of Common Stock to meet withholding tax requirements shall
be settled in cash. All amounts paid to or withheld by the Company and the value
of all shares of Common Stock delivered to or withheld by the Company pursuant
to this Section 5.4 shall be deposited in accordance with applicable law by the
Company as withholding tax for the Participant's account. If the Treasurer or
other appropriate officer of the Company determines that no withholding tax is
required with respect to the exercise of any Option (because such Option is an
Incentive Stock Option or otherwise), but subsequently it is determined that the
exercise resulted in taxable income as to which withholding is required (as a
result of a disposition of shares or otherwise), the Participant shall promptly,
upon being notified of the withholding requirement, pay to the Company by means
acceptable to the Company the amount required to be withheld; and at its
election the Company may condition any transfer of shares issued upon exercise
of an Incentive Stock Option upon receipt of such payment. The term "MEASUREMENT
DATE" as used in this Section 5.4 shall mean the date on which any taxable
income resulting from the exercise of an Option is determined under applicable
federal income tax law.
5.5 CONDITIONS AND LIMITATIONS ON EXERCISE. At the sole discretion of
the Committee, Options may be made exercisable, in one or more installments,
upon (i) the happening of certain events, (ii) the passage of a specified period
of time, (iii) the fulfillment of certain conditions and/or (iv) the achievement
by the Company or a Subsidiary, as the case may be, of certain performance
goals. Unless the Committee specifies otherwise in the Option Agreement, every
Option granted pursuant to this Plan will vest and become exercisable with
respect to 25% of the Common Stock issuable upon exercise thereof (rounded to
the nearest
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whole share) on each of the first, second and third anniversaries of the date of
grant and the remainder shall vest on the fourth anniversary of the date of
grant. In the event of a Change of Control the Company or in the event of
termination of a Participant's employment other than for Cause, death,
Disability or voluntary quitting, the Committee may provide, in its sole
discretion, that the outstanding Options under the Plan, which have not yet
vested, shall become immediately exercisable and that any outstanding Options
which are immediately exercisable shall terminate, if not exercised as of the
date of the Change of Control of the Company or any other designated date, or
that such Options shall thereafter represent only the right to receive the
excess of the consideration per share of Common Stock offered in such Change of
Control of the Company over the exercise price of such Options.
5.6 EXPIRATION OF OPTIONS.
(a) NORMAL EXPIRATION. In no event shall any part of any Option be
exercisable after the stated date of expiration thereof.
(b) EARLY EXPIRATION UPON TERMINATION OF EMPLOYMENT. Except as
otherwise provided in the applicable Option Agreement, upon termination for any
reason of a Participant's employment with the Company and its Subsidiaries, all
Options or portions thereof held by such Participant that are not vested and
exercisable on the date of such termination shall expire and be forfeited as of
such date and all vested Options held by such Participant shall expire to the
extent not theretofore exercised on the ninetieth (90th) day (one year if
termination is caused by the Participant's death or Disability) following the
date of such termination.
ARTICLE VI
GENERAL PROVISIONS
6.1 LISTING, REGISTRATION AND LEGAL COMPLIANCE. If at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of the shares subject to Options upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the Company
with such certificates, representations and information as the Company shall
request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. If the Company, as
part of an offering of securities or otherwise, finds it desirable because of
federal or state regulatory requirements to reduce the period during which any
Options may be exercised, the Committee may, in its discretion and without the
Participant's consent, so reduce such period on not less than 15 days' written
notice to the holders thereof.
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6.2 OPTIONS NOT TRANSFERABLE. Options may not be transferred other than
by will or the laws of descent and distribution and, during the lifetime of the
Participant to whom they were granted, may be exercised only by such Participant
(or his or her legal guardian or legal representative). In the event of the
death of a Participant, exercise of Options granted hereunder to such
Participant which are vested as of the date of death may be made only by the
executor or administrator of such Participant's estate or the person or persons
to whom such Participant's rights under the Options pass by will or the laws of
descent and distribution.
6.3 ADJUSTMENTS. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the shares of
Common Stock, the Board or the Committee shall, in order to prevent the dilution
or enlargement of rights under the Plan or outstanding Options, adjust the
number and type of shares as to which options may be granted under the Plan, the
number and type of shares covered by outstanding Options, the exercise prices
specified therein and other provisions of this Plan which specify a number of
shares, all as such Board or Committee determines to be appropriate and
equitable.
6.4 RIGHTS OF PARTICIPANTS. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without Cause), or confer upon any
Participant any right to continue in the employ of the Company or any Subsidiary
for any period of time or to continue to receive such Participant's current (or
other) rate of compensation. No employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a Participant.
6.5 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board or the
Committee may suspend or terminate the Plan or any portion thereof at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without stockholder approval to the extent such approval is required by
law, agreement or the rules of any exchange upon which the Common Stock is
listed, and no such amendment, suspension or termination shall impair the rights
of Participants under outstanding Options without the consent of the
Participants affected thereby, except as otherwise provided herein. No Options
shall be granted hereunder after the tenth anniversary of the approval of the
Plan by the stockholders of the company.
6.6 AMENDMENT OF OUTSTANDING OPTIONS. The Committee may amend or modify
the terms of any Option Agreement in any manner to the extent that the Committee
would have the authority under the Plan initially to grant an option with such
amended terms; provided that, except as expressly contemplated elsewhere herein
or in the Option Agreement, no such amendment or modification shall impair the
rights of any Participant under any outstanding Option without the consent of
such Participant.
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6.7 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or the Committee, the
members of the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted under the Plan, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding; provided, however, that any such Committee
member shall be entitled to the indemnification rights set forth in this Section
6.7 only if such member has acted in good faith and in a manner that such member
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that such conduct was unlawful, and further provided that, upon the
institution of any such action, suit or proceeding, a Committee member shall
give the Company written notice thereof and an opportunity to handle and defend
the same before such Committee member undertakes to handle and defend it on his
own behalf.
* * *
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Exhibit 4.4
N2K INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE AND COMMENCEMENT
1.01 PURPOSE. The purpose of the Plan is to provide the employees of
N2K Inc., a Delaware corporation (the "Company") and its Subsidiaries with added
incentive to continue in their employment and to encourage increased efforts to
promote the best interests of the Company by permitting eligible employees to
purchase shares of Common Stock of the Company at prices less than the current
market price thereof. The Plan is intended to qualify as an employee stock
purchase plan under Section 423 of the Code and shall be interpreted and
construed in accordance with such purpose.
1.02 COMMENCEMENT. The Plan shall become effective on such date as may
be specified by the Board of Directors, which, absent a resolution of the Board
of Directors to the contrary, shall be as set forth in Section 2.01(o) hereof;
provided, however, that, in no event, shall the Plan become effective unless
within twelve months of the date of its adoption by the Board of Directors it
has been approved by the affirmative vote of a majority of the issued and
outstanding shares of the Company's securities entitled to vote on such matters
at a duly called meeting of the shareholders of the Company.
ARTICLE II
DEFINITIONS
2.01 DEFINITIONS. As used in the Plan, the following terms and phrases
shall have the following meanings:
(a) "Board of Directors" shall mean the Board of Directors of the
Company.
(b) "Closing Market Price" shall mean (i) if the Common Stock is traded
on a national securities exchange, the Closing Market Price shall be the closing
price reported by the applicable composite transactions report on the date of
any determination or, if the Common Stock is not traded on such date, the
closing price so reported on the next following date on which the Common Stock
is traded on such
<PAGE> 2
exchange, or (ii) if the foregoing provision is inapplicable, the Closing Market
Price shall be determined by the Committee in good faith on such basis as it
deems appropriate.
(c) "Code" shall mean the Internal Revenue Code as of 1986, as amended.
(d) "Commencement Date" shall mean the first day of a Plan Quarter.
(e) "Committee" shall mean the Compensation Committee of the Board of
Directors, or such other committee of the Board of Directors designated by it
for purposes of administering the Plan.
(f) "Common Stock" means the common stock of the Company, par value
$0.001 per share.
(g) "Company" shall mean N2K Inc., a Delaware corporation. (h)
"Contribution Account" shall mean the account established on behalf of a
Participant pursuant to Article IV hereof to which shall be credited his or her
Participant Contributions.
(i) "Contribution Rate" shall be a percentage of a Participant's
Covered Compensation during each payroll period designated by each Participant
to be contributed by regular payroll deductions to his or her Contribution
Account as set forth in Section 3.03 hereof.
(j) "Covered Compensation" shall mean the total cash compensation
received by an Employee from a Sponsoring Employer, before tax withholdings and
other deductions, including base compensation, overtime, shift or other
compensatory premiums, payments in substitution of base compensation such as
vacation, holiday and sick pay, and including all cash bonus compensation, but
not including short or long-term disability payments.
(k) "Employee" shall mean each employee of a Sponsoring Employer whose
customary employment is at least twenty (20) hours a week and more than five
months in a calendar year. For purposes of the Plan, "employment" shall be
determined in accordance with the provisions of Section 1.421-7(h) of the
Treasury Regulations (or any successor regulations).
(l) "Participant" shall mean any Employee of a Sponsoring Employer who
has met the conditions and provisions for becoming a Participant set forth in
Article III hereof.
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(m) "Participant Contributions" shall be the aggregate dollars actually
contributed by each Participant to his or her Contribution Account.
(n) "Permanent Disability" shall mean an illness, injury or other
physical or mental condition continuing for at least 180 consecutive days which
results in an Employee's inability to provide in all material respects the
duties theretofore performed in his or her capacity as an Employee of a
Sponsoring Employer.
(o) "Plan" shall mean the N2K Inc. 1996 Employee Stock Purchase Plan as
set forth herein, as it may be amended from time to time.
(p) "Plan Quarter" shall mean each calendar quarter. The first Plan
Quarter shall be the Plan Quarter commencing on October 1, 1996 and ending on
December 31, 1996, or such later Plan Quarter as may be determined by the
Committee.
(q) "Purchase Date" shall mean the last business day of a Plan Quarter
on which the Common Stock publicly trades.
(r) "Purchase Price" shall mean the purchase price for a share of
Common Stock to be paid by a Participant on a Purchase Date, as determined under
Section 4.02 hereof.
(s) "Request for Participation" shall mean such form as shall be
approved by the Committee for distribution to Employees in connection with
participation in the Plan.
(t) "Sponsoring Employers" shall mean the Company and each Subsidiary
that has been designated by the Committee as a Sponsoring Employer under the
Plan.
(u) "Subsidiary" shall mean a subsidiary of the Company which is
treated as a subsidiary corporation under Section 424(f) of the Code.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY. Each Employee shall become eligible to be a
Participant of the Plan and may participate therein as of the Commencement Date
of a Plan Quarter if such Employee has been an Employee for at least six months
prior to such Commencement Date.
3.02 LIMITATIONS. Notwithstanding anything to the contrary contained in
the Plan, no right to purchase Common Stock shall accrue under the Plan in favor
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<PAGE> 4
of any person who is not an Employee eligible to participate in the Plan under
Section 3.01 hereof, and no Employee shall acquire the right to purchase shares
of Common Stock if (i) immediately after receiving such right to purchase Common
Stock, such Employee would own 5% or more of the total combined voting power or
value of all classes of stock of the Company or any Subsidiary, taking into
account in determining stock ownership any stock attributable to such Employee
under Section 424(d) of the Code, or (ii) which would permit such Employee's
right to purchase stock under all employee stock purchase plans (to which
Section 423 of the Code applies) of the Company and its Subsidiaries, as those
plans are in effect from time to time, to accrue at a rate which exceeds $25,000
of fair market value of such stock (as determined as each Commencement Date) for
each calendar year, all as specified in the manner provided by Section 423(b)(8)
of the Code, or (iii) which would permit such Employee the right to purchase
more than 10,000 shares (or such other number as may be determined in advance
for any Plan Quarter by the Committee) of Common Stock in any Plan Quarter.
3.03 PARTICIPATION.
(a) Each Employee eligible to be a Participant and participate
in the Plan shall be furnished a summary of the Plan and a Request for
Participation by such Employee's Sponsoring Employer. If an Employee elects to
participate hereunder, such Employee shall complete such form and file it with
his or her Sponsoring Employer not later than 15 days prior to a Commencement
Date of a Plan Quarter. The completed Request for Participation shall indicate
the Participant Contribution Rate authorized by the Participant. If any Employee
does not elect to participate in the Plan during any given Plan Quarter, such
Employee may elect to participate on any future Commencement Date so long as he
or she continues to be an eligible Employee.
(b) On his or her Request for Participation, an Employee must
authorize his or her Sponsoring Employer to deduct through a payroll deduction
the amount of such Employee's Participant Contribution. The payroll deduction
specified in a Request for Participation for each payroll period shall be at a
Participant Contribution Rate no less than 1% and no more than 10% of such
Employee's Covered Compensation during such payroll period paid to him or her by
his or her Sponsoring Employer. Such deductions shall begin as of the first pay
period occurring after the Commencement Date of a Plan Quarter. Participant
Contributions will not be permitted to begin at any time other than on the first
payroll date occurring immediately after the Commencement Date of a Plan
Quarter. No interest shall accrue to Participants on any amounts withheld under
the Plan, unless and until the Committee shall approve such accrual of interest
on terms that it shall specify and apply on a uniform basis as to all
Participants.
(c) The Participant's Contribution Rate, once established,
shall remain in effect for all Plan Quarters unless changed by the Participant
in writing delivered to such Participant's Sponsoring Employer and filed with
such Sponsoring Employer at least 15 days prior to the Commencement Date of the
next Plan Quarter.
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A Participant's Contribution Rate for a Plan Quarter may not be increased,
decreased or otherwise modified at any time during the 15-day period prior to
the Commencement Date of such Plan Quarter.
(d) A Participant may notify his or her Sponsoring Employer of
such Participant's desire to discontinue his or her Participant Contributions by
delivering to his or her Sponsoring Employer written notice on such forms as may
be provided by the Company or such Participant's Sponsoring Employer at least 15
days prior to the Purchase Date of the relevant Plan Quarter. Upon such request,
there shall be promptly refunded to such Participant as soon as practicable the
entire cash balance in his or her Contribution Account. If a Participant
determines to discontinue his or her Participant Contributions pursuant to this
Section 3.05(d), (i) such Participant shall be terminated from the Plan
effective upon the date of receipt of such Participant's notice to his or her
Sponsoring Employer and (ii) such Participant shall not be permitted to be a
Participant in the Plan for the remainder of the calendar year of the Company in
which such notice is received. In the event that a Participant's payroll
deductions are prevented by legal process, the Participant will be deemed to
have terminated from the Plan.
(e) By enrolling in the Plan, each Participant will be deemed
to have authorized the establishment of a brokerage account in his or her name
at a securities brokerage firm or other financial institution, if approved by
the Committee in its discretion.
3.04 TERMINATION OF EMPLOYMENT. Any Participant (i) whose
employment by a Sponsoring Employer is terminated for any reason (except death,
retirement or Permanent Disability) or (ii) who shall cease to be an Employee
under the Plan, in either case during a Plan Quarter, shall cease being a
Participant as of the date of such termination of employment. Upon such
termination of employment, there shall be refunded to such Participant as soon
as practicable the entire cash balance in such Participant's Contribution
Account. Section 4.03(b) hereof shall apply to the issuance of certificates to a
Participant following termination of employment.
3.05 DEATH, RETIREMENT OR PERMANENT DISABILITY
(a) If a Participant shall die during a Plan Quarter, no
further Participant Contributions on behalf of the deceased Participant shall be
made. The executor or administrator of the deceased Participant's estate may
elect to withdraw the balance in said Participant's Contribution Account by
notifying the deceased Participant's Sponsoring Employer in writing at least 15
days prior to the Purchase Date in respect of such Plan Quarter. In the event no
election to withdraw has been made, the balance accumulated in the deceased
Participant's Contribution Account shall be used to purchase shares of Common
Stock in accordance with Article IV hereof.
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<PAGE> 6
(b) If, during a Plan Quarter, a Participant shall (i) retire
or (ii) incur a Permanent Disability, no further contributions on behalf of the
retired or disabled Participant shall be made. A retired or disabled Participant
may elect to withdraw the balance in his or her Contribution Account by
notifying the Sponsoring Employer in writing at least 15 days prior to the last
day of the Plan Quarter. In the event no election to withdraw has been made, the
balance accumulated in the retired or disabled Participant's Contribution
Account shall be used to purchase shares of Common Stock in accordance with
Article IV hereof. In the event a retired or disabled Participant shall die
during the Plan Quarter of such Participant's retirement or disability and such
Participant shall not have notified his or her Sponsoring Employer of his or her
desire to withdraw his or her Contribution Account, the executor or
administrator of such Participant's estate shall have all the rights provided
pursuant to Section 3.05(a) hereof.
ARTICLE IV
PURCHASE OF COMMON STOCK
4.01 PURCHASE OF COMMON STOCK.
(a) On each Purchase Date, each Participant's Contribution
Account shall be used to purchase the maximum number of whole shares of Common
Stock determined by dividing (i) the Participant's Contribution Account as of
such Purchase Date by (ii) the Purchase Price in respect of such Plan Quarter.
Any amounts remaining in a Participant's Contribution Account after such
Participant's purchase of Common Stock in respect of a Plan Quarter may be
returned to such Participant if requested in writing. If such return is not
requested, the balance (representing amounts which would purchase only
fractional shares) will remain in such Participant's Contribution Account to be
used in the next Plan Quarter along with new Participant Contributions in such
succeeding Plan Quarter.
(b) If, in any Plan Quarter, the total number of shares of
Common Stock to be purchased pursuant to the Plan by all Participants exceeds
the number of shares authorized under the Plan, then each Participant shall
purchase his or her pro rata portion of the shares of Common Stock remaining
available under the Plan based on the balances in each Participant's
Contribution Account as of the Purchase Date in respect of such Plan Quarter;
provided, however, that, in no event, shall any fractional shares of Common
Stock be issued pursuant to the Plan or this Section 4.01(b) hereof.
(c) Any cash dividends paid with respect to shares of Common
Stock held for the account of a Participant shall be, as determined by the
Committee on a uniform basis as to all Participants, either (i) distributed to
the Participant or (ii) credited to the Participant's Contribution Account and
used, in the same manner as payroll deductions, to purchase additional shares of
Common Stock under the Plan on the next Purchase Date (subject to the
limitations of Section 3.02 hereof).
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4.02 PURCHASE PRICE. For each Plan Quarter, the Purchase Price
per share of Common Stock purchased pursuant to the Plan shall be the lesser of
(a) 85% of the Closing Market Price on the Commencement Date of such Plan
Quarter, and (b) 85% of the Closing Market Price on the Purchase Date of such
Plan Quarter.
4.03 NOTICE OF PURCHASE, STOCK CERTIFICATES, VOTING RIGHTS.
(a) After the Purchase Date in respect of each Plan Quarter, a
report will be made by the Company or its agent to each Participant stating the
entries made to his or her Contribution Account, the number of shares of Common
Stock purchased and the applicable Purchase Price.
(b) Evidence of shares of Common Stock purchased under the
Plan shall be maintained under the Plan for the account of each Participant and
registered in the manner determined by the Committee. Certificates for the
number of whole shares credited to a Participant's account under the Plan will
be issued to a Participant at any time promptly upon written request to the
Company or its agent; provided, however, that the Company may, at its election,
issue such certificates at such time or times as the Committee deems
appropriate, including, without limitation, following an Employee's termination
of employment with a Sponsoring Employer.
(c) Shares of Common Stock held under the Plan for the account
of each Participant shall be voted by the holder of record of such shares in
accordance with the Participant's instructions.
4.04 NOTIFICATION OF DISPOSITION OF STOCK. If a Participant or
former Participant disposes of a share of Common Stock purchased under the Plan
prior to two (2) years after the Commencement Date of the Plan Quarter during
which such share was purchased, then such Participant or former Participant
shall notify his or her Sponsoring Employer immediately of such disposition in
writing.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.01 SHARES SUBJECT TO PLAN; ADJUSTMENTS.
(a) The maximum number of shares of Common Stock which may be
purchased under the Plan is 1,500,000 subject, however, to adjustment as
hereinafter set forth. The shares of Common Stock to be purchased under the Plan
will be made available, at the discretion of the Board of Directors or the
Committee, either from authorized but unissued shares of Common Stock or from
previously issued shares of Common Stock reacquired by the Company, including
shares purchased on the open market.
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<PAGE> 8
(b) If the outstanding shares of Common Stock of the Company
are increased, decreased, or exchanged for a different number or kind of shares
or other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, spin off, sale of all or
substantially all the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock, or other securities,
an appropriate and proportionate adjustment may be made in the maximum number
and kind of shares provided in Section 5.01(a) hereof, subject in the case of
certain corporate reorganizations to the requirements of Section 424(a) of the
Code.
5.02 ADMINISTRATION OF THE PLAN.
(a) Pursuant to the direction of the Board of Directors, the
Committee shall be responsible for the administration of the Plan. The Committee
shall have the discretionary authority to interpret the Plan and determine all
questions arising in the administration, application and operation of the Plan,
including all questions of fact and all questions of interpretation of the
provisions of the Plan. All such determinations by the Committee shall be
conclusive and binding on all persons. The Committee, from time to time, may
adopt, amend and rescind rules and regulations not inconsistent with the Plan
for carrying out the Plan, and may approve the forms of any documents or
writings provided for in the Plan. The Committee shall have full discretionary
authority to delegate ministerial functions of the Plan to employees of the
Company. No member of the Board of Directors or the Committee shall be liable
for any action, determination or omission taken or made in good faith with
respect to the Plan or any right granted hereunder.
(b) The Committee may in its discretion engage a bank trust
department, securities brokerage firm or other financial institution as agent to
perform custodial and record-keeping functions for the Plan, such as holding
record title to the Participants' stock certificates, maintaining an individual
investment account for each Participant and providing periodic account status
reports to Participants.
(c) The Committee shall have the authority to adopt and
enforce such special rules and restrictions under the Plan to be applicable to
Participants who are subject to Section 16 of the Securities Exchange Act of
1934, as amended, as the Committee shall deem are necessary or appropriate to
exempt certain Plan transactions from the requirements of such Section 16.
(d) The Company shall bear the cost of administering the Plan,
including any fees, costs and expenses relating to the purchase of shares of
Common Stock under the Plan. Notwithstanding the foregoing, Participants will be
responsible for all fees, costs and expenses incurred in connection with the
disposition of shares of Common Stock purchased under the Plan.
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5.03 TERMINATION AND AMENDMENT OF THE PLAN.
(a) The Company may, by action of the Board of Directors,
terminate the Plan at any time and for any reason. The Plan shall automatically
terminate upon the purchase by Participants of all shares of Common Stock
subject to the Plan under Section 5.01 hereof, unless such number of shares
shall be increased by the Board of Directors and such increase shall be approved
by the shareholders of the Company. Upon termination of the Plan, as soon as
practicable, there shall be refunded to each Participant the entire cash balance
in his or her Contribution Account, and there shall be forwarded to each
Participant certificates for all whole shares of Common Stock held under the
Plan for the account of such Participant.
(b) The Board of Directors reserves the right to modify, alter
or amend the Plan at any time and from time to time to any extent that it may
deem advisable, including, without limiting the generality of the foregoing, any
amendment deemed necessary to ensure compliance of the Plan with Section 423 of
the Code. Notwithstanding the foregoing, no amendment of the Plan shall operate
to reduce any amounts previously allocated to a Participant's Contribution
Account nor to reduce a Participant's rights with respect to shares of Common
Stock previously purchased and held on his or behalf under the Plan. The Board
of Directors may suspend operation of the Plan for any period as it may deem
advisable.
5.04 GOVERNING LAW; COMPLIANCE WITH LAW. The Plan shall be
construed in accordance with the laws of the State of New York. The Company's
obligation to sell and deliver shares of Common Stock hereunder shall be subject
to all applicable federal and state laws, rules and regulations and to such
approvals by any regulatory or governmental agency as may, in the opinion of
counsel for the Company, be required. The Company may make such provisions as it
may deem appropriate for the withholding of any taxes or payment of any taxes
which it determines it may be required to withhold or pay in connection with a
Participant's participation in the Plan.
5.05 NO ASSIGNMENT. The purchase rights granted hereunder are
not assignable or transferable by the Participants, other than by will or the
laws of descent and distribution, and are exercisable during the Participant's
lifetime only by the Participant. Any attempted assignment, transfer or
alienation not in compliance with the terms of the Plan shall be null and void
for all purposes and respects.
5.06 NO CONTRACT OF EMPLOYMENT. The Plan will not be deemed to
constitute a contract between a Sponsoring Employer and any Participant or to be
a consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in the Plan shall be deemed to give any Participant
or Employee the right to be retained in the service of a Sponsoring Employer or
to interfere with the right of a Sponsoring Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him or her as a Participant of the Plan.
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5.07 NO RIGHTS AS STOCKHOLDER. No eligible Employee or
Participant shall by reason of participation in the Plan have any rights of a
stockholder of the Company until he or she acquires shares of Common Stock as
herein provided.
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Exhibit 4.6
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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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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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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<PAGE> 6
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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<PAGE> 7
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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<PAGE> 14
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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<PAGE> 15
(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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<PAGE> 16
(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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<PAGE> 17
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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"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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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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<PAGE> 27
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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<PAGE> 28
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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<PAGE> 29
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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<PAGE> 30
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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<PAGE> 31
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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<PAGE> 32
(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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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
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<PAGE> 1
Exhibit 4.7
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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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.
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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:______________________________________
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Exhibit 4.8
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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(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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<PAGE> 14
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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<PAGE> 15
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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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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"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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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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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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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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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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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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<PAGE> 27
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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<PAGE> 28
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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<PAGE> 29
[SEAL] TELEBASE SYSTEMS, INC.
Attest:_____________________________ By:___________________________________
James E. Shea, Secretary James E. Coane, President
OTC INTERNATIONAL LIMITED
By:___________________________________
Leonard Peter Shore, Executive Director
29
<PAGE> 1
EXHIBIT 4.9
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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<PAGE> 4
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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<PAGE> 9
(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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<PAGE> 10
(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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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
17
<PAGE> 18
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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<PAGE> 19
(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.
21
<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 4.10
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 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
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
(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
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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
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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
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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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(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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(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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<PAGE> 20
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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<PAGE> 21
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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<PAGE> 22
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
22
<PAGE> 23
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
23
<PAGE> 24
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
24
<PAGE> 25
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:
28
<PAGE> 1
Exhibit 4.11
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
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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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(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
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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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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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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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<PAGE> 20
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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<PAGE> 21
(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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<PAGE> 22
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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<PAGE> 23
(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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<PAGE> 24
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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<PAGE> 25
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
25
<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
28
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and two-thirds percent (66-2/3%) of the Preferred Stock outstanding.
29
<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 4.12
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered
into as of the ___ day of May, 1997, 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 G 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, as soon as
reasonably practicable after all of the conditions to the parties' obligations
under Section 5 and 6 hereof have been satisfied or waived or at such time, date
or place as the parties 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 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, of
which 6,007,060 shares shall have been issued.
(F) 6,000,000 shares of Series F Convertible Preferred Stock, of
which 5,333,333 shares shall have been issued.
(G) 15,000,000 shares of Series G Convertible Preferred Stock,
of which 2,463,329 shares shall have been issued.
2
<PAGE> 3
(H) 8,004,797 shares of Undesignated Preferred Stock.
(I) 100,000,000 shares of Common Stock, par value $.001 per
share (the "Common Stock") of which 11,872,139 shares shall have been validly
issued and outstanding fully paid and nonassessable, 8,431,000 shares reserved
for issuance upon exercise of options under the Company's Incentive Stock Option
Plan and 1996 Employee Stock Option Plan (of which 7,084,476 are reserved for
outstanding options), 865,732 shares reserved for issuance upon exercise of
other options and warrants, 685,107 shares reserved for issuance upon conversion
of the Company's Series A Preferred Stock, 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, 5,333,333
shares reserved for issuance upon conversion of the company's Series F
Convertible Preferred Stock and up to 15,000,000 shares of Common Stock reserved
for issuance upon conversion of the Company's Series G Convertible Preferred
Stock.
The rights, privileges and preferences of the Preferred Shares will be as
stated in the Statement, which shall be included in Article 4 of the Company's
Articles of Incorporation.
(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)(I). 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 each of (i) TSI Licensing, Inc., a Delaware corporation, (ii) N2K Inc., a
Delaware corporation and (iii) N2K Japan Inc., a Japanese corporation
(collectively, the "Subsidiaries"), 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
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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's consolidated balance
sheet as of December 31, 1996 (the "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, 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 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 Balance
Sheet, without setoff, third party collection efforts or suit (but net of
reserves for doubtful accounts, if any, set forth in the Balance Sheet), and the
subsequently created accounts and notes receivable of the Company from January
1, 1997 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
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the amounts thereof without setoff, third party collection efforts or suit (but
net of reserves for doubtful accounts, if any, set forth in the Balance Sheet).
(h) CHANGES. Since the date of the 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) 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.
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(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 draft Form S-1 Registration
Statement dated October 1996 (as of the date it was prepared), 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 (or its
Subsidiaries), 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 Schedule 2(p),
(i) All patents owned by the Company (or its Subsidiaries) are
owned free and clear of all mortgages,
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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) The copyright registrations owned by the Company (or its
Subsidiaries) are owned 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
Subsidiaries) 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
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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 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) 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.
(s) 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.
(t) INSURANCE. The Company has fire and casualty insurance policies, with
extended coverage, sufficient in amount (subject to reasonable deductibles) to
allow it to
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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.
(u) 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,
Series E and Series F Preferred Stock, and certain warrants 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.
(v) 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.
(w) 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.
(x) 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.
(y) 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 (the "1934 Act")) 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, other than in the case of Philip Ramone (with respect to the
provision of music production services) and Robert C. Harris, Jr. (with respect
to the provision of investment banking services).
(z) 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
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copies of such assignments and agreements (or a representative sample thereof)
have been supplied to any counsel for any of the Purchasers requesting same.
(aa) 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 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 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.
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(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. The Company has 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) PRIVATE PLACEMENT. He or it understands the following:
(i) The offering and sale of the Preferred Shares being acquired hereunder
have been conducted as an unregistered private placement.
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(ii) The draft Form S-1 Registration Statement dated October 1996 (the
"Offering Memorandum") which was provided for informational purposes is
neither a statutory prospectus nor part of an effective registration
statement under the 1933 Act.
(iii) The information provided in the Offering Memorandum is only current
as of the date of the Offering Memorandum, except (A) where an earlier date
is indicated therein and (B) as amended by the revised section thereof
entitled "Business" which is attached hereto as Exhibit C.
(iv) 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.
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(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 respective 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, substantially in the form attached
hereto 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:
(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) CONTINGENT PRICE ADJUSTMENT. Subject to market conditions, the Company
intends to engage one or more
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underwriters to assist it in an initial public offering ("IPO") of its shares in
1997. If said IPO is successfully accomplished (whether in 1997 or thereafter)
at a price per share (the "IPO Price") that is less than $14.00 (assuming a
1-for-4 reverse stock split), the following price adjustments (each, a "Price
Adjustment") will apply to the Preferred Shares:
(i) If the IPO Price is less than $10.00, then the Price
Adjustment per share shall equal $4.00 per share.
(ii) If the IPO Price is equal to or greater than $10.00 but less
than $14.00 per share, then the Price Adjustment per share shall equal the
difference between $14.00 and the IPO Price.
(iii) If the IPO Price is $14.00 or more per share, no Price
Adjustment will be made.
If a Price Adjustment is to be made pursuant to the terms of this Section 7(b),
the Company shall pay to the undersigned, in cash or in additional shares of
Common Stock of the Company at the IPO Price, at the Company's option, an amount
equal to the Price Adjustment multiplied by that number of Preferred Shares
purchased by the undersigned pursuant to this Agreement.
(c) 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 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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(d) 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.
(e) 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.
(f) 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.
(g) USE OF PROCEEDS. The proceeds from the sale of Preferred Shares shall
be used for working capital and capital expenditures.
(h) 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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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.
(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.
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(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:
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
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<PAGE> 18
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.
(d) INCIDENTAL REGISTRATION. If the Company proposes for any reason to
register, including pursuant to Section 8(e) or 8(f) hereof, 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
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<PAGE> 19
registered. In the event that the proposed registration by the Company is, in
whole or in part, an underwritten public offering of securities by 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
by the Company, 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 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
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<PAGE> 20
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 Shares 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.
(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;
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<PAGE> 21
(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 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
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<PAGE> 22
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 Section 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 Section 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.
(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
22
<PAGE> 23
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 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
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<PAGE> 24
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 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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<PAGE> 25
(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) is subject, 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 other party or parties from whom contribution may be sought, but the
omission to so notify such other party or parties shall not relieve the party or
parties from whom contribution may be sought from any other contribution
obligation it or they may have under this paragraph or otherwise.
(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:
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(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 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
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<PAGE> 27
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 Shares 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.
(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
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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 and two-thirds percent (66-2/3%) of the Preferred Shares
outstanding.
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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:
By: _____________________________
Name:
Title:
Address:
_____________________________
_____________________________
_____________________________
_____________________________
<PAGE> 1
EXHIBIT 4.13
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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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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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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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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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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(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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(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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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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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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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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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 Indemnifying
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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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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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
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<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 4.14
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
2
<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
3
<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
4
<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
5
<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
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<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 4.15
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE LAWS OF ANY STATE. THEY MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
_______ Warrants
N2K INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received _______ or its registered assigns (the "Holder") is the
owner of the number of warrants ("Warrants") specified above, each of which
entitles the Holder thereof to purchase, at any time on or before the
Expiration Date (hereinafter defined), one fully paid and non-assessable share
of Common Stock, $.001 par value ("Common Stock"), of N2K Inc. a Pennsylvania
corporation (the "Company"), at a purchase price of $3.00 per share of Common
Stock in lawful money of the United States of America in cash or by certified
or cashier's check or a combination of cash and certified or cashier's check
(subject to adjustment as hereinafter provided).
1. Warrant; Purchase Price
Each Warrant shall entitle the Holder initially to purchase
one share of Common Stock of the Company and the purchase price payable upon
exercise of the Warrants (the "Purchase Price") shall initially be $3.00 per
share of Common Stock. The Purchase Price and number of shares of Common Stock
issuable upon exercise of each Warrant are subject to adjustment as provided in
Article 6. The shares of Common Stock issuable upon exercise of the Warrants
(and/or other shares of Common Stock so issuable by reason of any adjustments
pursuant to Article 6) are sometimes referred to herein as the "Warrant Shares."
2. Exercise; Expiration Date
2.1 The Warrants are exercisable, at the option of the Holder,
in whole or in part at any time and from time to time after issuance and on or
before the Expiration Date, upon surrender of this Warrant Certificate to the
Company
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<PAGE> 2
together with a duly completed Notice of Exercise, in the form attached hereto
as Exhibit A, and payment of an amount equal to the Purchase Price times the
number of Warrants to be exercised. In the case of exercise of less than all the
Warrants represented by this Warrant Certificate, the Company shall cancel the
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate for the balance of such Warrants.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New
York time on _______, 2003 or if such day shall in the State of New York be a
holiday or a day on which banks are authorized to close, then 5:00 p.m. New York
time the next following day which in the State of New York is not a holiday or a
day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration
and transfer of the Warrants and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer
of this Warrant Certificate, or the Warrant Shares, the Company may deem and
treat the registered Holder as the absolute owner thereof.
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of the Warrants, such number of shares of capital stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of capital stock which shall be issuable upon
exercise of the Warrants shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof, and that upon issuance such shares shall be listed on each
national securities exchange, if any, on which the other shares of such
outstanding capital stock of the Company are then listed.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu
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<PAGE> 3
thereof a new Warrant Certificate representing an equal number of Warrants.
6. Adjustment of Purchase Price and Number of
Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the
exercise of each Warrant and the Purchase Price with respect to the Warrant
Shares shall be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, the number and/or nature of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be adjusted so
that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which he would have
owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this paragraph (a) shall
become effective retroactively as of the record date of such event.
(b) In case the Company shall issue rights, options or
warrants or securities convertible into Common Stock to the holders of
its shares of Common Stock generally, entitling them (for a period
expiring within 45 days after the record date for such issuance) to
subscribe for or purchase shares of Common Stock at a price per share
which (together with the value of the consideration, if any, payable
for such rights, options, warrants or convertible securities) is lower
on the record date referred to below than the then Market Price Per
Share of such Common Stock (as determined pursuant to Section 9.2) the
number of Warrant Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Warrant
Shares immediately theretofore purchasable upon exercise of each
Warrant by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock
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<PAGE> 4
offered for subscription or purchase, and of which the denominator
shall be the number of shares of Common Stock outstanding on such
record date plus the number of shares which the aggregate offering
price of the total number of shares of Common Stock so offered would
purchase at the then Market Price Per Share of such Common Stock. Such
adjustment shall be made whenever such rights, options, warrants or
convertible securities are issued, and shall become effective
retroactively as of the record date for the determination of
shareholders entitled to receive such rights, options, warrants or
convertible securities. In the case such subscription price may be paid
in consideration, part of which or all of which is in a form other than
cash, the value of such consideration shall be determined in good faith
by the Board of Directors of the Company.
(c) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (a) above), evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness (other than any rights, options, warrants
or convertible securities referred to in paragraph (b) above), then in
each case the number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying the number
of Warrant Shares theretofore purchasable upon the exercise of each
Warrant, by a fraction, of which the numerator shall be the then Market
Price Per Share of the Warrant Shares (as determined pursuant to
Section 9.2) on the record date mentioned below in this paragraph (c),
and of which the denominator shall be the then Market Price Per Share
of the Warrant Shares on such record date, less the then fair value (as
determined by the Board of Directors of the Company, in good faith) of
the portion of the shares of the Company's capital stock other than
Common Stock, evidences of indebtedness, or of such rights, options,
warrants or convertible securities, distributable with respect to each
Warrant Share. Such adjustment shall be made whenever any such
distribution is made, and shall become effective retroactively as of
the record date for the determination of shareholders entitled to
receive such distribution.
(d) In the event of any capital reorganization or
any reclassification of the capital stock of the
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<PAGE> 5
Company or in case of the consolidation or merger of the Company with
another corporation (other than a consolidation or merger in which the
outstanding shares of the Company's Common Stock are not converted into
or exchanged for other rights or interests), or in the case of any
sale, transfer or other disposition to another corporation of all or
substantially all the properties and assets of the Company, the Holder
of each Warrant shall thereafter be entitled to purchase (and it shall
be a condition to the consummation of any such reorganization,
reclassification, consolidation, merger, sale, transfer or other
disposition that appropriate provisions shall be made so that such
Holder shall thereafter be entitled to purchase) the kind and amount of
shares of stock and other securities and property (including cash)
which the Holder would have been entitled to receive had such Warrants
been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition; and in any such case appropriate adjustments
shall be made in the application of the provisions of this Article 6
with respect to rights and interest thereafter of the Holder of the
Warrants to the end that the provisions of this Article 6 shall
thereafter be applicable, as near as reasonably may be, in relation to
any shares or other property thereafter purchasable upon the exercise
of the Warrants. The provisions of this Section 6.1(d) shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, sales, transfers or other dispositions.
(e) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1,
the Purchase Price with respect to the Warrant Shares shall be
accordingly adjusted in order to reflect the number of Warrant Shares
then and thereafter issuable.
6.2 In the event the Company shall declare an
extraordinary dividend, or make an extraordinary distribution to the holders of
its Common Stock generally, whether in cash, property or assets of any kind,
including any dividend payable in stock or securities of any other issuer owned
by the Company (excluding regularly payable cash dividends declared from time to
time by the Company's Board of Directors or any dividend or distribution
referred to in Section 6.1(a) or (c) above), the Purchase Price of each Warrant
shall be reduced, without any further action by the parties hereto, by the Per
Share Value (as hereinafter defined) of the dividend. For purposes of this
Section 6.2, the "Per Share Value" of a cash dividend or other distribution
shall be the dollar amount of the distribution
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<PAGE> 6
on each share of Common Stock and the "Per Share Value" of any dividend or
distribution other than cash shall be equal to the fair market value of such
non-cash distribution on each share of Common Stock as determined in good faith
by the Board of Directors of the Company.
6.3 In case the Company shall at any time, or from time
to time, until such time that the Company consummates an initial public offering
registered under the Securities Act of 1933, as amended, issue any shares of
Common Stock or rights to acquire Common Stock (other than shares issued in any
transactions covered by paragraph (a) of Section 6.1 hereof), for a
consideration per share less than the Purchase Price with respect to the Warrant
Shares in effect on the date of such issue, then, forthwith upon such issue, the
Purchase Price with respect to the Warrant Shares shall be reduced to a price
determined by dividing (a) the sum of (i) the number of shares of Common Stock
of the Company outstanding immediately prior to such issue multiplied by the
Purchase Price of the Warrant Shares in effect immediately prior to such issue,
plus (ii) the consideration, if any, received by the Company upon such issue, by
(b) the number of shares of Common Stock of the Company outstanding immediately
after such issue. In order to reflect such adjustment to the Purchase Price, the
number of Warrant Shares then purchasable under each Warrant shall be
appropriately increased. For the purpose of the above determination, the
following provisions shall be applicable:
(a) In case the Company shall in any manner issue any options,
warrants or other rights to subscribe for or to purchase shares of
Common Stock, then, for the purposes of this Section 6.3, (i) all
shares which the holders of such rights shall be entitled thereby to
subscribe for or purchase shall be deemed to be issued as of the date
of issue of such rights, and (ii) the minimum aggregate consideration
payable pursuant to such rights for the shares covered thereby, plus
the consideration, if any, received by the Company for such rights,
shall be deemed to be the consideration actually received by the
Company (as of the date of the issue of such rights) for the issue of
the total number of shares underlying such rights.
(b) In case the Company shall in any manner issue any
securities or obligations directly or indirectly convertible into or
exchangeable for shares of Common Stock, then, for the purposes of this
Section 6.3, (i) all shares to which holders of such securities or
obligations shall thereby be entitled upon conversion or exchange shall
be deemed to be issued as of the date of issue of such securities or
obligations, and (ii) the aggregate amount received or receivable by
the
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<PAGE> 7
Company in consideration for the issue of such securities or
obligations, plus the minimum aggregate amount of additional
consideration, if any, payable upon conversion or exchange of such
securities or obligations, shall be deemed to be the consideration
actually received (as of the date of the issue of such securities or
obligations) for the issue of the total number of shares issuable upon
conversion or exchange of such securities or obligations.
(c) The consideration received by the Company for any shares
of Common Stock, or rights to acquire Common Stock, shall be deemed to
be the proceeds received for such shares or rights, excluding cash
received on account of accrued interest or accrued dividends and after
deducting therefrom any and all commissions and expenses paid or
incurred by the Company for any underwriting of, or otherwise in
connection with, the issue of such shares or rights.
(d) No adjustment of the Purchase Price of the Warrants Shares
shall be made as a result of or in connection with the issuance of any
shares of Common Stock, warrants, rights or options to purchase Common
Stock or securities convertible into or exchangeable for Common Stock
issued in connection with any duly authorized employee stock option
plan, stock purchase plan, restricted stock award plan of the Company
or similar compensatory plan.
(e) For the purposes of this Section 6.3, (i) the term "issue"
of shares or securities by the Company shall be deemed to include any
issuance, sale or other disposition of shares or securities of the
Company, including shares held in the treasury of the Company, (ii) the
term "Common Stock" shall include any capital stock of the Company
other than preferred stock with a fixed limit on dividends and a fixed
amount payable in the event of any liquidation and (iii) in no event
shall the Purchase Price with respect to the Warrant Shares be
increased, or the number of Warrant Shares purchasable under any
Warrant be decreased, as a result of the provisions of this Section
6.3.
6.4 No adjustment in the number of Warrant Shares
purchasable under the Warrants, or in the Purchase Price with respect to the
Warrant Shares, shall be required unless such adjustment would require an
increase or decrease of at least 1% in the number of Warrant Shares issuable
upon the exercise of such Warrant, or in the Purchase Price thereof; provided,
however, that any adjustments which by reason of this Section 6.4 are not
required to be made shall be carried forward and taken into account in any
subsequent
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<PAGE> 8
adjustment. All final results of adjustments to the number of Warrant Shares and
the Purchase Price thereof shall be rounded to the nearest one thousandth of a
share or the nearest cent, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the number of Warrant Shares purchasable upon
the exercise of each Warrant, or in the Purchase Price thereof, in addition to
those required by such Section, as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights, warrants or options to purchase Common Stock, or distribution of
shares of stock other than Common Stock, evidences of indebtedness or assets
(other than distributions of cash out of retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
6.5 Whenever the number of Warrant Shares purchasable
upon the exercise of each Warrant or the Purchase Price of such Warrant Shares
is adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Purchase Price of such
Warrant Shares after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
6.6 In the event that at any time prior to the expiration
of the Warrants and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to the holders of
the Common Stock any additional shares of stock of any class or any
other securities convertible into Common Stock or any rights to
subscribe thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock, regardless of the effect of any such event on the
outstanding number of shares of Common Stock; or
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<PAGE> 9
(d) the Company shall declare a dividend, other than a
dividend payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(d); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, or if 20 days prior notice is
impracticable, as soon as practicable) written notice specifying the nature of
such event and the effective date of, or the date on which the books of the
Company shall close or a record shall be taken with respect to, such event. Such
notice shall also set forth facts indicating the effect of such action (to the
extent such effect may be known at the date of such notice) on the Purchase
Price and the kind and amount of the shares of stock or other securities or
property deliverable upon exercise of the Warrants.
6.7 The form of Warrant Certificate need not be changed
because of any change in the Purchase Price, the number of Warrant Shares
issuable upon the exercise of a Warrant or the number of Warrants outstanding
pursuant to this Section 6, and Warrant Certificates issued before or after such
change may state the same Purchase Price, the same number of Warrants, and the
same number of Warrant Shares issuable upon exercise of Warrants as are stated
in the Warrant Certificates theretofore issued pursuant to this Agreement. The
Company may, however, at any time, in its sole discretion, make any change in
the form of Warrant Certificate that it may deem appropriate and that does not
affect the substance thereof, and any Warrant Certificates thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
7. Conversion Rights
7.1 In lieu of exercise of any portion of the Warrants as
provided in Section 2.1 hereof, the Warrants represented by this Warrant
Certificate (or any portion thereof) may, at the election of the Holder, be
converted into the nearest whole number of shares of Common Stock
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<PAGE> 10
equal to: (1) the product of (a) the number of shares of Common Stock then
issuable upon the exercise of each Warrant and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
to the date of conversion over (ii) the Purchase Price in effect on the business
day next preceding the date of conversion, divided by (2) the Market Price Per
Share with respect to the date of conversion.
7.2 The conversion rights provided under this Section 7
may be exercised in whole or in part and at any time and from time to time while
any Warrants remain outstanding. In order to exercise the conversion privilege,
the Holder shall surrender to the Company, at its offices, this Warrant
Certificate accompanied by a duly completed Notice of Conversion in the form
attached hereto as Exhibit B. The Warrants (or so much thereof as shall have
been surrendered for conversion) shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
Warrant Certificate for conversion in accordance with the foregoing provisions.
As promptly as practicable on or after the conversion date, the Company shall
issue and shall deliver to the Holder (i) a certificate or certificates
representing the number of shares of Common Stock to which the Holder shall be
entitled as a result of the conversion, and (ii) if the Warrant Certificate is
being converted in part only, a new certificate of like tenor and date for the
balance of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
the Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board of Directors of the Company and/or extend the date of
the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of
Market Price Per Share
9.1 Anything contained herein to the contrary
notwithstanding, the Company shall not be required to issue any fraction of a
share of Common Stock in connection with the exercise of Warrants. Warrants may
not be exercised in such number as would result (except for the provisions of
this paragraph) in the issuance of a fraction of a share of Common Stock unless
the Holder is exercising all Warrants then owned by the Holder. In such event,
the Company shall, upon the exercise of all of such Warrants, issue to the
Holder the largest aggregate whole number of shares of Common Stock called for
thereby upon receipt of the Purchase Price for all of such Warrants and pay a
sum in cash equal
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to the remaining fraction of a share of Common Stock, multiplied by its Market
Price Per Share (as determined pursuant to Section 9.2 below) as of the last
business day preceding the date on which the Warrants are presented for
exercise.
9.2 As used herein, the "Market Price Per Share" with
respect to any class or series of Common Stock on any date shall mean the
closing price per share of the Company's Common Stock for the trading day
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company are listed or admitted to trading or, if applicable, the last sale
price, or in case no sale takes place on such day, the average of the closing
bid and asked prices of such Common Stock on NASDAQ or any comparable system, or
if such Common Stock is not reported on NASDAQ, or a comparable system, the
average of the closing bid and asked prices as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. If such bid and asked prices are not available,
then "Market Price Per Share" shall be equal to the fair market value of such
Common Stock as determined in good faith by the Board of Directors of the
Company.
10. Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of the Warrant Shares shall be made unless any such transfer,
assignment or other disposition will comply with the rules and statutes
administered by the Securities and Exchange Commission and (i) a registration
statement under the Securities Act of 1933, as amended (the "Act"), including
such shares is currently in effect, or (ii) in the opinion of counsel a current
registration statement is not required for such disposition of the shares.
10.2 The Company agrees that the Holder shall have the
one-time right, exercisable from six months after the effective date of a
registration statement covering the Company's Common Stock in its initial public
offering (the "IPO Effective Date") until the earlier to occur of (i) the second
anniversary of the Expiration Date and (ii) such time that all Warrant Shares
may be sold without limitation pursuant to Rule 144 of the Act, upon written
notice to the Company, to require that the Company prepare and promptly file a
registration statement, as may be required under the Act, in connection with the
public offering of not less than 75% of the then outstanding Warrants and/or
Warrant Shares.
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In connection therewith, the Company shall be obligated to prepare and file such
registration statement within 45 days of receipt of any such initial notice and
shall be further obligated to use its best efforts, including the filing of any
amendments or supplements thereto, to have any such registration statement
declared effective under the Act and the rules and regulations promulgated
thereunder as soon as practicable after the filing date thereof; provided,
however that, to the extent requested by a representative of the underwriters in
the Company's initial public offering, the Company shall not be obligated to
declare any registration statement filed pursuant to this Section 10.2 to be
declared effective prior to nine months following the IPO Effective Date. The
Company shall also use its best efforts to keep any such registration statement,
and the accompanying prospectus, effective and current under the Act at its
expense for such period of time that is not otherwise burdensome to the Company
not to exceed nine months; provided, however, if such registration statement is
on Form S-2 or S-3 or any equivalent subsequent form, such obligation shall
extend until the earlier of such time that all Warrant Shares included in such
registration statement are sold and such time that the Warrant Shares may be
sold without limitation pursuant to Rule 144 of the Act.
10.3 In addition to the rights of the Holder pursuant to
Section 10.2, the Company agrees that, at any time or times hereafter, until the
second anniversary of the Expiration Date of the Warrants, as and when it
intends to register any of its securities under the Act other than pursuant to a
registration requested pursuant to Section 10.2 hereof, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees or on Form S-8 or any subsequent similar form
or an offering solely related to an acquisition on a Form S-4 or any subsequent
similar form) the Company will notify the Holder of such intention and, upon
request from the Holder, will use its best efforts to cause the Warrant Shares
designated by the Holder to be registered under the Securities Act. The number
of Warrant Shares to be included in such offering may be reduced if and to the
extent that the underwriter of securities included in the registration statement
and offered by the Company shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the percentage of the reduction of such Warrant
Shares shall be no greater than the percentage reduction of securities of other
selling stockholders, as such percentage reductions are determined in the good
faith judgment of the Company. The Company will use its best efforts to keep
each such registration statement current for such period of time that is not
otherwise burdensome to the Company not to exceed nine
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months; provided, however, if such registration statement is on Form S-2 or S-3
or any equivalent subsequent form, such obligation shall extend until the
earlier of such time that all Warrant Shares included in such registration
statement are sold and such time that the Warrant Shares may be sold without
limitation pursuant to Rule 144 of the Act.
10.4 Any registration statement referred to in subsection
10.2 or 10.3 hereof shall be prepared and processed in accordance with the
following terms and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) To the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period of one
hundred and eighty (180) days after the effective date of the
registration statement, provided that any principal shareholders of the
Company who also have shares included in the registration statement
will also defer their sales for a similar period.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of any material
facts contained in any registration statement filed pursuant hereto, or
any document relating thereto, including all amendments and
supplements, or arising out of or 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 contained not misleading,
and will reimburse the Holder (or such other aforementioned parties) or
such underwriters for any legal and all other expenses reasonably
incurred in accordance with investigating or defending any such
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<PAGE> 14
claim, loss, damage, liability or action; provided, however, that the
Company will not be liable where the untrue or alleged untrue statement
or omission or alleged omission is based upon information furnished in
writing to the Company by the Holder or any underwriter obtained by the
Holder expressly for use therein, or as a result of the Holder's or any
such underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein. This indemnity agreement shall be in addition to any other
liability the Company may have. The indemnity agreement of the Company
contained in this paragraph (iv) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf
of any indemnified party and shall survive the delivery of and payment
for the Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or 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 contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the
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commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party, promptly
notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
under this subsection 10.4. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party of its election so
to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this subsection 10.4 for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof, other than reasonable costs of
investigation or out-of-pocket expenses or losses or cost incurred in
collaborating in the defense.
(vii) Except as set forth in subsection 10.4(viii), the
Company shall bear all costs and expenses incident to any registration
pursuant to this Section 10.
(viii) The Holder shall pay any and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of
any securities sold by such Holder pursuant to this Section 10, and
shall pay the fees and expenses of any special attorneys or accountants
retained by it.
11. Governing Law
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this ____ day of ________, 1996.
N2K Inc.
By:___________________________________________
Name: Bruce Johnson
Title: Vice President and
Secretary
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EXHIBIT A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise,
pursuant to Section 2 of the Warrant Certificate accompanying this Notice of
Exercise, _______ Warrants of the total number of Warrants owned by the
undersigned pursuant to the accompanying Warrant Certificate, and herewith makes
payment of the Purchase Price of such shares in full.
Name of Holder_______________________
Signature____________________________
Address:_____________________________
_____________________________
_____________________________
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EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to Section 7 of
the Warrant Certificate accompanying this Notice of Conversion, _________
Warrants of the total number of Warrants owned by the undersigned pursuant to
the accompanying Warrant Certificate into shares of the Common Stock of the
Company (the "Shares").
The number of Shares to be received by the undersigned shall be calculated in
accordance with the provisions of Section 7.1 of the accompanying Warrant
Certificate.
Name of Holder_____________________
Signature__________________________
Address:___________________________
___________________________
___________________________
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Exhibit 9.1
STOCKHOLDERS' AGREEMENT
Stockholders' Agreement dated this 13th day of February, by
and among JAMES E. COANE, CHARLES WILSON III, POLY VENTURE II, L. P., AT&T
CORPORATION, GARY LAUDER, and UNTERBERG HARRIS INTERACTIVE MEDIA LIMITED
PARTNERSHIP C.V. (collectively, the "Telebase Group"); and LAWRENCE L. ROSEN
("Rosen"), JONATHAN V. DIAMOND ("Diamond") and ROBERT DAVID GRUSIN ("Grusin")
and N2K Inc., a Pennsylvania corporation (the "Corporation"). The Telebase
Group, Rosen, Diamond and Grusin are herein collectively called the
"Stockholders".
BACKGROUND
Stockholders are the owners, respectively, of the number of
shares of capital stock ("Stock") of the Corporation, set forth after the name
of each on Exhibit A attached hereto and made a part hereof. The Stock set forth
on Exhibit A, represents sixty-three and six-tenths per cent (63.6%) of the
outstanding Stock of the Corporation. The parties have concluded that the
success of the Corporation depends in large measure on the concerted action of
the Stockholders represented herein. Accordingly, the parties have entered into
this Agreement.
AGREEMENT
1. Election of Directors.
(a) With respect to all actions by the
stockholders of the Corporation for the election of members
<PAGE> 2
to its Board of Directors, all Stock from time to time held by the Stockholders
shall be voted for (i) two members of the Board of Directors designated by the
Telebase Group, (ii) one member of the Board of Directors designated by Rosen,
(iii) one member of the Board of Directors designated by Diamond, (iv) one
member of the Board of Directors designated by Grusin, and (v) for Robert Harris
("Harris") as a member of the Board of Directors;
(b) The Stockholder entitled to nominate and
elect a director shall be entitled to remove any such director by notice to such
director and to the Corporation. Any vacancy occurring on the Board by reason of
the death, disqualification, incapacity, inability to act, resignation or
removal of any director shall be filled only by the Stockholder whose nominee
was so affected in the case of Grusin, Diamond and Rosen and by the Telebase
Group in the case of a nominee of the Telebase Group, so as to maintain a Board
of Directors consisting of the numbers of nominees specified in Section 1(a)
hereof; provided; however, that in the event of the death, disqualification,
incapacity, inability to or unwillingness to act, resignation or removal of
Harris, a replacement for Harris on the Board shall be nominated and elected by
a majority vote of the remaining Directors;
(c) Each of the Shareholders agrees to vote
their Shares to accomplish the intent of Section 1(b) above.
2
<PAGE> 3
2. Decisions by Telebase Group. For all purposes of this
Agreement, the Telebase Group shall act either (a) by unanimous consent in
writing without a meeting, or (b) by affirmative vote of the majority in
interest of the entire Group taken at a meeting for which five days prior
written notice shall have been mailed to each Stockholder of the Telebase Group.
3. Term. The term of this Stockholders' Agreement shall
commence on the date hereof, and shall continue until the consummation of an
Initial Public Offering by the Corporation. The term "Initial Public Offering"
means an initial public offering of Common Stock of the Corporation or options,
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
Corporation under the Securities Act of 1933, as amended, which offering
generates net proceeds to the Corporation 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.
4. Initial Directors. At the first meeting of stockholders of
the Corporation held after the date of this Agreement, the Stock covered by this
Agreement shall be
3
<PAGE> 4
voted for the election to the Board of Directors of the hereinafter-named
persons:
James E. Coane
Susanne Harrison
Lawrence L. Rosen
Jonathan V. Diamond
Robert David Grusin
Robert Harris
Pursuant to its rights under the existing Stockholder's
Agreement, Sanoma, Inc. will designate a nominee for the seventh seat on the
Board of Directors and the shareholders bound by such existing Stockholder's
Agreement will vote for such nominee.
5. Legend. The certificates for all Stock held by the
Stockholders and all of the Stock transferred or sold by the Stockholders shall
be conspicuously endorsed with the following legend:
"The transfer, voting, and other rights, of the shares of
stock represented by the within certificate are restricted
under the terms of a Stockholder's Agreement dated February
13, 1996, a copy of which is on file at the office of the
Corporation".
Within ten (10) days of the execution of this Agreement, each Stockholder shall
deliver the certificates representing the Stock owned by such Stockholder to the
Corporation for the placement on each certificate of the above legend. The
Corporation shall deliver the endorsed certificates to the Stockholders no later
than five (5) days after the receipt thereof from the Stockholder.
4
<PAGE> 5
6. Transferees Bound; Right to Designate Nominee Assigned. (a)
Each Stockholder agrees that (i) no transfer of the Stock owned by him or it
shall be made unless the transferee agrees in writing to join in and be bound by
all of the terms of this Agreement, and any transferee of Stock held by a member
of the Telebase Group must also agree to be a member of such group for purposes
of this Agreement, and (ii) each of the other Stockholders shall be entitled to
instruct the Corporation not to issue any stock certificate to a transferee who
has not so agreed in writing,
(b) Each of Rosen, Diamond and Grusin shall
retain the right to designate a nominee to the Board of Directors under
subsections (1)(a)(ii), (iii), and (iv), respectively hereof, as long as each
owns at least 20% of the Stock owned by each as of the date of this Agreement.
Any transferee of any of Rosen, Diamond or Grusin, respectively, shall have no
such right to designate a nominee to the Board of Directors, unless Rosen,
Diamond or Grusin, respectively, sells any of his Stock to such transferee in a
single transaction or a series of transactions and such Stock represents more
than 80% of the Stock owned by Rosen, Diamond or Grusin, respectively, as of the
date of this Agreement.
7. Notices. Any notice or other communication under or in
connection with this Stockholders' Agreement shall be effective if in writing
and mailed by nationally recognized overnight delivery service, registered or
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<PAGE> 6
certified mail, postage prepaid, addressed to a Stockholder, at the latest
address furnished by him or it to the Corporation for Stock record purposes.
Copies of all notices delivered to Rosen, Diamond or Grusin shall also be
forwarded to Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New York, New
York, 10002, Attention: Eric B.
Woldenberg.
8. Interpretation. The construction, validity and enforcement
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
9. Counterpart Signatures. This Agreement may be executed in
one or more counterparts, and each such counterpart taken together shall
constitute one agreement binding on all parties hereto.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have executed and delivered this Stockholders' Agreement
the day and year first above written.
_______________________________ _______________________________
James E. Coane Lawrence L. Rosen
_______________________________ _______________________________
Charles Wilson Jonathan V. Diamond
_______________________________ _______________________________
Gary Lauder Robert David Grusin
Poly Ventures II, L.P.
BY:_____________________________ N2K Inc.
Title:
BY:_____________________________
Title:
Unterberg Harris Interactive Media Limited Partnership C.V.
BY:_____________________________
Title:
7
<PAGE> 8
Schedule A
<TABLE>
<CAPTION>
Preferred Total
Name Common (A) Vote
<S> <C> <C> <C>
James E. Coane 16,000 67,200 83,200
Charles Wilson III 638,328 666,667 1,304,995
Poly Ventures II, L.P. -- 1,837,271 1,837,271
AT&T Corporation 966,000 -- 966,000
Gary A Lauder 5,000 484,406 489,406
Unterberg Harris Interactive -- 1,538,462 1,538,462
Lawrence Rosen 1,563,517 467,802 2,031,319
Jonathan V. Diamond 1,563,517 589,525 2,153,042
David Grusin 1,563,517 390,879 1,954,396
</TABLE>
(A) Upon conversion to Common Stock
8
<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.
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<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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<PAGE> 1
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.
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<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
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<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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(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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<PAGE> 79
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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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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[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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(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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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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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> 121
FOURTH ADDITIONAL SPACE AGREEMENT
AGREEMENT made as of the 15th day of October, 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 authorized to transact business in the State of New York, having an
office at 55 Broad Street, Borough of Manhattan, City, County and State of New
York, as tenant (referred to herein as "Tenant").
W I T N E S S E T H:
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"), April 2, 1996 (said agreement
dated April 2, 1996 is referred to as the "Second Additional Space Agreement")
and April 3, 1996 (said agreement dated April 3, 1996 is referred to as the
"Third 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 and/or Third Additional
Space Agreements 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 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
the entire twenty-fifth (25th) and twenty-sixth (26th) floors of the Building
and Owner is willing to lease said entire twenty-fifth (25th) and twenty-sixth
<PAGE> 122
(26th) floors to Tenant, subject to the provisions of this Agreement (said
entire twenty-fifth (25th) and twenty-sixth (26) 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 "Fourth Additional Space"); and
5. The Demised Term of the Lease applicable to the Fourth
Additional Space shall commence on a date (referred to as the "Fourth 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 Fourth Additional Space Commencement
Date will have, substantially completed Owner's Fourth Additional Construction
(as more fully described in Addendum A, which is annexed hereto and made part
hereof); 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:
A. Owner hereby leases to Tenant and Tenant hereby hires from
Owner the Fourth Additional Space for a term to commence upon the Fourth
Additional Space Commencement Date and to end on the Expiration Date (as it may
have been extended pursuant to the First and/or Second and Third Additional
Space Agreements or the Lease or pursuant to the provisions of this agreement),
unless the Demised Term shall sooner terminate pursuant to any of the terms,
covenants or conditions of the Lease or pursuant to law.
B. (1) Owner agrees to perform work and make installations in
the Fourth Additional Space as set forth in Addendum A. Such work and
installations are referred to as "Owner's Fourth 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.
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(2) Owner agrees, upon request from Tenant on or prior to
November 15, 1996, at Owner's expense, to seal the opening between the 25th and
26th floors in a building standard and workmanlike manner in the location where
the stairwell between such floors had previously been located and Tenant,
subject to the provisions of the Lease and Addendum A which is annexed hereto
and made a part hereof, shall have the right to create an opening between such
floors in a location reasonably acceptable to Owner for the purpose of
installing a stairwell.
C. From and after the Fourth Additional Space Commencement
Date, the Lease shall be deemed modified, as follows:
(1) The Demised Premises shall include the Fourth
Additional Space for all purposes of the Lease;
(2) a. The Fixed Rent reserved in the Lease shall be
increased by TWO HUNDRED EIGHTY THOUSAND and 00/100 ($280,000.00) DOLLARS per
annum with respect to the first year of the Demised Term applicable to the
Fourth Additional Space (i.e., from the Fourth Additional Space Commencement
Date to the last day of the calendar month in which occurs the first (1st)
anniversary of the Fourth Additional Space Commencement Date), FOUR HUNDRED
EIGHTY and 00/100 ($480,000.00) DOLLARS per annum with respect to the next year
of the Demised Term applicable to the Fourth Additional Space, and FIVE HUNDRED
TWENTY THOUSAND and 00/100 ($520,000.00) DOLLARS per annum with respect to the
remainder of the Demised Term applicable to the Fourth Additional Space and the
monthly installments of Fixed Rent shall be increased accordingly.
b. In the event that the Fourth 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
Fourth 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 20,000 square feet.
(4) With respect to the Fourth Additional Space only, the
following new Section 29.09 entitled "Electricity: Fourth Additional Space"
shall be deemed added to the Lease as of the date hereof, and Section 29.05
shall continue to apply to the previously leased portions of the Building by
Tenant:
"A. Owner shall redistribute or furnish electrical energy to
or for the use of Tenant in the Fourth
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Additional Space for the operation of the lighting fixtures and the electrical
receptacles installed in the Fourth Additional Space on the Commencement Date
and the operation of the Building heating, ventilating and air conditioning
system unit serving the floors of the Building on which the Fourth Additional
Space is located. If either the quantity or character of electrical service is
changed by the corporation(s) and/or other entity(ies) selected by Owner to
supply electrical service to the Building or is no longer available or suitable
for Tenant's requirements, or, if any equipment supplementing or ancillary to
such electrical service which is installed in the Building by or on behalf of
said corporation(s) and/or other entity(ies) malfunctions or fails to operate
for any reason while Tenant has made any connections to said equipment, no such
change, unavailability, unsuitability, malfunction or failure to operate 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. In
the event the corporation(s) and/or other entity(ies) selected by Owner shall be
different from such corporation(s) and or other entity(ies) presently providing
electrical service to the Building as of the date hereof, any such new or
replacement corporation(s) and/or other entity(ies) selected by Owner shall be
reputable and provide competitive rates.
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 Conservation 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 purposes of
this section, the Fourth Additional Space shall be deemed to contain 13,252
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,
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such additional feeders or risers are necessary and are permissible under
applicable laws and insurance regulations and the installation of such feeders
or riders will not cause permanent damage or injury to the Building or the
Fourth Additional Space 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 Fourth Additional Space exceed
the capacity of the existing feeders or risers or wiring installations then
servicing the Fourth Additional Space.
C. Prior to the Commencement Date Owner, at Owner's expense,
shall have installed a submeter or submeters in the Fourth Additional Space to
measure Tenant's actual consumption of electricity in the entire Fourth
Additional Space, including, but not limited to, all electricity required for
the operation of the Building heating, ventilating and air conditioning system
unit serving the floor of the Building on which the Fourth Additional Space are
located. Tenant shall pay to Owner, from time to time, upon demand, for the
electricity consumed in the Fourth Additional Space, as determined by such
submeter or submeters, the actual cost to Owner of purchasing electricity for
the Fourth Additional Space (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 from the corporation(s) and/or other entity(ies) selected by Owner to
supply electrical service to the Building 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 Fourth Additional Space
served by such submeter at the rate paid by Tenant to Owner during the most
recent comparable period when such 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 Period"), if any, from the Fourth
Additional Space 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 Fourth
Additional Space, a sum equal to one-twelfth (1/12th) of the product of (x)
$1.50 multiplied by (y) 20,000. With respect to any period during the Interim
Period constituting less than a
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full calendar month, the monthly payment referred to in the preceding sentence
shall be 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 corporation(s) and/or other entity(ies)
selected by Owner to supply electrical service to the Building and to permit the
existing feeders, risers, wiring and other electrical facilities serving the
Fourth Additional Space 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 corporation(s) and/or other entity(ies) may impose in
connection with the installation of Tenant's meters, (iv) the provisions of
Subsection C of this Section 29.09 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 29.09, 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 Fourth Additional Space immediately prior to such discontinuance and
the public utility corporation(s) and/or other entity(ies) 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(s) and/or other entity(ies).
Unless a shorter time is required by the public utility corporation(s) and/or
other entity(ies) 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 corporation(s) and/or other
entity(ies) selected by Owner to supply electricity to the Building resulting
from the installation in the Fourth Additional Space of energy efficient
lighting fixtures, lamps, special supplemental
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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 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 comprising part of Owner's Fourth Additional
Construction shall be deemed installed solely at Tenant's expense. Nothing
contained in the foregoing sentence, however, shall be deemed to obligate Owner
to supply or install in the Fourth Additional Space any such lighting fixtures,
lamps, supplemental heating, ventilation and air conditioning systems or other
Alterations.
SECOND: a. From and after the Fourth Additional Space
Commencement Date, the Demised Term shall be automatically extended to 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 of the Fourth
Additional Space Commencement Date shall occur so that the Lease and the First,
Second, Third and Fourth Additional Space Agreements shall be co-terminous,
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).
b. Supplementing the provisions of subsection D of
Section 1.02, after the determination of the Fourth Additional Space
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 Fourth Additional Space Commencement
Date and the Expiration Date, which instrument shall include the amounts of the
annual and monthly Fixed Rent for the remainder of the Demised Term.
THIRD: Owner and Tenant each represent and warrant to the
other that Schlesinger & Company, L.L.C. is the sole broker with whom either
party has negotiated or otherwise dealt with in connection with the Fourth
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
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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.
FOURTH: As of the date hereof, each floor of the
Fourth Additional Space contains an Americans with Disabilities Act-compliant
core toilet.
FIFTH: 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:[illegible on original]
-----------------------
N2K Inc., Tenant
By:/s/ Jonathan V. Diamond
-----------------------
Vice Chairman
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STATE OF NEW YORK )
ss:
COUNTY OF NEW YORK )
On the 10th day of October, 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
, 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
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ADDENDUM A
OWNER'S FOURTH ADDITIONAL CONSTRUCTION
I. Owner agrees to supply and install in the Fourth Additional
Space all of the items set forth on Tenant's Fourth 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 Fourth Additional Space Commencement Date shall
have occurred, a sum (referred to as "Tenant's Fourth 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 Fourth 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 Fourth 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 Fourth 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 SEVEN HUNDRED FORTY THOUSAND and 00/100
($740,000.00) DOLLARS. In the event that said sum of SEVEN HUNDRED FORTY
THOUSAND and 00/100 ($740,000.00) 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 Fourth
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 Fourth
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 Fourth Additional Construction Sum within
five (5) days after demand by Owner therefor. In the event Owner's estimate of
the amount of Tenant's Fourth
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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 Fourth Additional Construction Sum, within five (5) days after
demand therefor by Owner. In connection with Owner's Fourth 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 Fourth
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
Fourth 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 Fourth Additional Construction shall be substantially
completed prior to the Fourth Additional Space Commencement Date. At any time
after such substantial completion, Owner may enter the Demised Premises to
complete unfinished details of Owner's Fourth 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 November 1, 1996 with respect to either
the twenty-fifth (25th) floor or the twenty-sixth (26th) floor and November 15,
1996 with respect to the other floor, 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 Fourth Additional Plan") for those
Alterations to the Fourth Additional Space which Tenant desires Owner to perform
as Owner's Fourth Additional Construction. Tenant shall have the right to
designate which floor it elects to submit plans to Owner on or by November 1,
1996 and November 15, 1996. Tenant's Fourth Additional Plan shall include, but
shall not
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be limited to, engineering plans and specifications and Tenant's Fourth
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 Fourth 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 Fourth Additional
Plan shall not designate any area which shall have an electrical load in of
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 Fourth 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 provision of Section
29.09. Tenant agrees that Tenant's Fourth 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 Fourth
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 Fourth 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 Fourth Additional
Plan also shall designate all work in the Fourth Additional Space which is
required so that the Fourth Additional Space shall comply with all applicable
provisions of the Americans With Disabilities Act and Local Law #58. Owner's
Fourth 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 Fourth Additional Plan shall be subject to
Owner's approval, which Owner agrees not
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unreasonably to withhold or delay. Owner's approval of Tenant's Fourth
Additional Plan shall not, unless expressly set forth in such approval, be
deemed to authorize Tenant to make any Alterations in or about the Fourth
Additional Space.
(3) In the event (i) on or prior to November 1, 1996 with
respect to the twenty-fifth (25th) or twenty-sixth (26th) floor and November 15,
1996 with respect to the other floor as designated by Tenant, Tenant shall fail
to submit to Owner a Tenant's Fourth Additional Plan which shall meet with
Owner's approval, or (ii) substantial completion of Owner's Fourth 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 Fourth 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 Fourth 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 Fourth 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 29.09; (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 Fourth 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 Fourth Additional
Construction; and (viii) shall not designate any area which shall have an
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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 Fourth 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 Fourth 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 Fourth Additional Construction has been
substantially completed and for the purpose of fixing the Fourth Additional
Space Commencement Date, such items of Change Work and all other related work
and installations shall be deemed unfinished details of Owner's Fourth
Additional Construction which may be performed after the Fourth Additional Space
Commencement Date in accordance with the provisions of Paragraph III of this
Schedule and, accordingly, shall not affect the Fourth Additional Space
Commencement Date.
V. INTENTIONALLY DELETED
VI. At or about the time that Owner shall notify Tenant of the
approval of Tenant's Fourth Additional Plan, such notice of approval shall state
which items contained in Tenant's Fourth 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 Fourth 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 Fourth Additional Construction shall have
been substantially completed and for the purpose of
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fixing the Fourth 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 Fourth Additional Construction which may be performed by
Owner after the substantial completion of Owner's Fourth Additional Construction
in accordance with the provisions of Paragraph III of this Schedule and,
accordingly, shall not affect the Fourth Additional Space Commencement Date.
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<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.
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.
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<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
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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.
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<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 [* * * *]. 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> 1
Exhibit 10.11
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
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<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.
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<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
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<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.
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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
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<PAGE> 1
Exhibit 10.12
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of ___________, 1996 ("this
Agreement"), by and between N2K Inc., a Delaware corporation (the "Company"),
and ______________ ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to
serve publicly-held corporations as directors, executive officers, or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the Shareholders of the Company have adopted the Amended
and Restated Certificate of Incorporation of the Company (the "Certificate") and
the Amended and Restated Bylaws of the Company (the "Bylaws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the full extent permitted by the Delaware General Corporation Law (the
"DGCL"). The Certificate, the Bylaws and DGCL specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers: and
WHEREAS, this Agreement is being entered into as part of
Indemnitee's total compensation for serving as a director and/or an executive
officer, as the case may be;
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or
executive officer of the Company if so designated by the Company and appointed
by the Board of Directors, and agrees to the indemnification provisions provided
for herein. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or
<PAGE> 2
other obligation imposed by operation of law), in which event the Company shall
have no obligation under this Agreement to continue Indemnitee in any such
position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent
permitted by applicable law in effect on the date hereof, notwithstanding that
such indemnification is not specifically authorized by this Agreement, the
Certificate, the Bylaws, the DGCL or otherwise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule
regarding the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, such changes, to the extent that they would expand
Indemnitee's rights hereunder, shall be within the scope of Indemnitee's rights
and the Company's obligations hereunder, and, to the extent that they would
narrow Indemnitee's rights hereunder, shall be excluded from this Agreement;
provided, however, that any change that is required by applicable laws, statutes
or rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such change is to narrow Indemnitee's rights hereunder.
Without diminishing the scope of the indemnification provided by this Section 2,
the rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of the Company's proposed initial public offering of
Common Stock pursuant to its Registration Statement on Form S-1 (File No.
333-06603) and shall further include any other public offerings of securities by
the Company, and shall not be limited to those rights set forth hereinafter,
except to the extent expressly prohibited by applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or
in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided
in this Section 3 if he is or was a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, other than an action by or
in the right of the Company, by reason of the fact that he is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, agent, partner, trustee
or fiduciary of any other entity (a "Related Company") or by reason of anything
done or not done by him in any such capacity. Pursuant to this Section 3,
Indemnitee shall be indemnified against reasonable costs and expenses
(including, but not limited to, counsel fees, costs, judgments, penalties,
fines, ERISA excise taxes, and amounts paid in settlement) (collectively,
"Damages") actually and reasonably incurred by him in connection with such
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if, in the case of conduct in his official capacity
with the corporation, he acted in good faith and in the Company's best
interests, and in all other cases, he acted in good faith and was at least not
opposed to the Company's best interests, and with respect to any criminal action
or proceeding had no reasonable cause to believe his conduct was unlawful,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which Indemnitee shall have been finally adjudged to be liable for
(i) negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action or suit was
brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such expenses as such court shall deem proper or (ii) the
indemnification does not relate to any liability arising under Section 16(b) of
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<PAGE> 3
the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. Notwithstanding the foregoing, the Company
shall be required to indemnify an officer or director in connection with an
action, suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized by the Board or a committee thereof. No indemnity
pursuant to this Agreement shall be provided by the Company for Damages that
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided
in this Section 4 if he is or was made a party or is threatened to be made a
party to any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative brought by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee, agent or fiduciary of the
Company or is or was serving at the request of the Company as a director,
officer, employee, agent, partner, trustee or fiduciary of any other entity by
reason of anything done or not done by him in any such capacity. Pursuant to
this Section 4, Indemnitee shall be indemnified against Damages (as defined in
Section 3 of Agreement) actually and reasonably incurred by him in connection
with such action or suit (including, but not limited to the investigation,
defense, settlement or appeal thereof) if, in the case of conduct in his
official capacity with the corporation, he acted in good faith and in the
Company's best interests, and in all other cases, he acted in good faith and was
at least not opposed to the Company's best interests, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudged to be liable for (i)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action or suit was brought,
or any other court of competent jurisdiction, shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, Indemnitee is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper or (ii) the indemnification does not
relate to any liability arising under Section 16(b) of the Securities Exchange
Act of 1934, as amended, or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in connection with an action, suit or
proceeding initiated by such person only if such action, suit or proceeding was
authorized by the Board or a committee thereof. No indemnity pursuant to this
Agreement shall be provided by the Company for Damages that have been paid
directly to Indemnitee by an insurance carrier under a policy of directors' and
officers' liability insurance maintained by the Company.
SECTION 5. Indemnification for Costs, Charges and Expenses
of Successful Party.
Notwithstanding the other provisions of this Agreement, to the
extent that Indemnitee has served as a witness on behalf of the Company or has
been successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 and Section 4 hereof, or in defense of any
claim, issue or matter therein, shall be indemnified against all reasonable
costs, charges, and expenses (including counsel fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
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<PAGE> 4
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4 hereof, and as a result is not
entitled under Section 5 hereof to indemnification by the Company for the total
amount of reasonable Damages actually and reasonably incurred by him, the
Company shall nevertheless indemnify Indemnitee, as a matter of right pursuant
to Section 5 hereof, to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 hereof, the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the stockholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select such
Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by any state or federal court situated in
the State of New York. Such determination of entitlement to indemnification
shall be made no later than sixty (60) days after receipt by the Company of a
written request for indemnification. Such request shall include documentation or
information which is necessary for such determination and which is reasonably
available to Indemnitee. Any Damages incurred by Indemnitee in connection with
his request for indemnification hereunder shall be borne by the Company. The
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom
irrespective of the outcome of the determination of Indemnitee's entitlement to
indemnification. If the person making such determination shall determine that
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person shall reasonably prorate such
partial indemnification among such claims, issues or matters.
SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination as
provided in Section 7 that Indemnitee has made such request for indemnification.
Indemnitee shall be presumed to be entitled to indemnification hereunder and the
Company shall have the burden of proof in the making of any determination
contrary to such presumption. If the person or persons so empowered to make such
determination shall have failed to make the requested indemnification within 60
days after receipt by the Company of such request, the requisite determination
of entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be absolutely entitled to such indemnification, absent actual
and material fraud in the request for indemnification. The termination of any
action, suit, investigation or proceeding described in
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<PAGE> 5
Section 3 or Section 4 hereof by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself (a)
create a presumption that Indemnitee did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that his conduct was unlawful or (b)
otherwise adversely affect the rights of Indemnitee to indemnification except as
may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is
party to a proceeding (including counsel fees, retainers and advances of
disbursements required of Indemnitee) (collectively, the "Expense Advance")
shall be paid by the Company in advance of the final disposition of such action,
suit or proceeding at the request of Indemnitee within twenty (20) days after
the receipt by the Company of a statement or statements from Indemnitee
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith. The Company's obligation to provide an Expense Advance is
subject to the following conditions: (i) If the proceeding arose in connection
with Indemnitee's service as a director and/or executive officer of the Company
(and not in any other capacity in which Indemnitee rendered service, including
service to any related company), then the Indemnitee or his representative shall
have executed and delivered to the Company an undertaking, which need not be
secured and shall be accepted without reference to Indemnitee's financial
ability to make repayment, by or on behalf of Indemnitee to repay all Expense
Advance if and to the extent that it shall ultimately be determined by a final,
unappealable decision rendered by a court having jurisdiction over the parties
and the question that Indemnitee is not entitled to be indemnified for such
Expense Advance under this Agreement or otherwise; (ii) Indemnitee shall give
the Company such information and cooperation as it may reasonably request and as
shall be within Indemnitee's power; and (iii) Indemnitee shall furnish, upon
request by the Company and if required under applicable law, a written
affirmation of Indemnitee's good faith belief that any applicable standards of
conduct have been met by Indemnitee. Indemnitee's entitlement to such Expense
Advance shall include those incurred in connection with any proceeding by
Indemnitee seeking an adjudication pursuant to this Agreement. In the event that
a claim for an Expense Advance is made hereunder and is not paid in full within
twenty (20) days after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim.
SECTION 10. Remedies of Indemnitee in Cases of
Determination not to Indemnify or to Advance
Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Sections
7 and 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Delaware or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall be
made de novo and Indemnitee shall not be prejudiced by reason of a determination
(if so made) that he is not
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<PAGE> 6
entitled to indemnification. If a determination is made or deemed to have been
made pursuant to the terms of Section 7 or Section 8 hereof that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination
and is precluded from asserting that such determination has not been made or
that the procedure by which such determination was made is not valid, binding
and enforceable. The Company further agrees to stipulate in any such court that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary. If the court shall determine that
Indemnitee is entitled to any indemnification hereunder, the Company shall pay
all reasonable Damages actually incurred by Indemnitee in connection with such
adjudication (including, but not limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws, provisions of the Certificate, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce
Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall be indemnified by the Company against, any reasonable expenses for
counsel fees and disbursements actually and reasonably incurred by him.
SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Section 3 or Section 4 of this Agreement
or (b) the final termination of all pending or threatened actions, suits,
proceedings or investigations with respect to Indemnitee. This Agreement shall
be binding upon the Company and its successors and assigns and shall inure to
the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors,
administrators or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not
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<PAGE> 7
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company
who is not or was not a party to the action, suit, investigation or proceeding
in respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit, investigation or proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's right to indemnification under this
Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
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<PAGE> 8
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any matter which may be subject to
indemnification covered hereunder, whether civil, criminal or investigative.
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or if (ii) mailed by certified or
registered mail with postage prepaid on the third business day after the date on
which it is so mailed, to the following addresses:
(a) to Indemnitee:
_______________________________
_______________________________
_______________________________
_______________________________
(b) to the Company:
N2K Inc.
55 Broad Street
New York, NY 10004
Attention: Jonathan V. Diamond,
Vice Chairman
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or
negate, any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
N2K INC.
By:_____________________________________
Name:
Title:
INDEMNITEE:
________________________________________
Name:
9
<PAGE> 1
Exhibit 10.13
Sales Data Agreement
This agreement is between SoundScan, Inc. (hereinafter
referred to as the "Company") and N2K, Inc. (hereinafter
referred to as the "Supplier").
W I T N E S S E T H :
WHEREAS, Supplier is an on-line service of home entertainment
related products which sell prerecorded music, and sell and/or rent prerecorded
videos and other home entertainment related products; and
WHEREAS, the Company is in the business of gathering, compiling
and evaluating sales data with respect to prerecorded music, video tapes, blank
tapes and other home entertainment related items sold on on-line services
similar to those owned by Supplier and selling such information as compiled to
record companies, publications, radio stations and other customers; and
WHEREAS, the Company is desirous of obtaining such sales
information from Supplier and Supplier is desirous of furnishing such sales
information to the Company.
NOW, THEREFORE, in consideration of the premises, and the
promises, covenants and agreements herein made, the mutual benefits to be
derived from this Agreement, and other good and valuable consideration including
the mutual covenants and obligations hereinafter set forth, receipt and
sufficiency of which is hereby acknowledged, the Parties agree and understand as
follows:
1. Providing Data. For the Term of this Agreement (as such term
is hereinafter defined), Supplier agrees to provide the Company, on a sole and
exclusive basis, with all sales information regarding the sales of prerecorded
music (including, but nor limited to records, tapes, compact discs and any other
medium), prerecorded video (including but not limited to tapes, laser discs and
any other medium), blank video and audio tapes, posters and all other items
regularly sold by Supplier at its on-line location (the "Data"). (For purposes
of this Agreement, the term "Data" shall also include the Selected Data, as such
term is hereinafter defined.) The term Data shall not include any information
regarding the specific price of which the Supplier sells any product normally
sold by the Supplier. Supplier shall provide the Company with the data on an
individual zip code basis and such
<PAGE> 2
data shall be compiled by Supplier, provided to the Company on a calendar weekly
basis, such that the Data for the week ending on Sunday is provided to the
Company no rarer than the following Monday.
In addition, an audit file must be transmitted by the Supplier to
the Company when requested by the Company. Incorporated in the audit file should
be the following: full name, address, city, state, phone number, zip code, and
product purchased by UPC Code along with the quantity. If the audit file is not
transmitted to the Company, the Company has the right nor to accept the "Data"
from the Supplier for that particular week.
2. Responsibilities for costs. (a) Supplier shall, at its sole
cost and expense, be responsible for all costs associated with obtaining and
providing the data to the Company.
(b) The Company shall, at its sole cost and expense, (i) be
responsible for all costs normally associated with receiving and interpreting
the Data, (ii) provide the Supplier with a local telephone number to be used by
the supplier solely for the transmission of the Data to the Company.
3. Data transmittal. Either the Supplier or the Company can
initiate the transmitting of the Data between the Supplier and the Company. The
choice as to who initiates the call will be left to the Company.
4. Delay in Data Transmittal. In the event that the Supplier
shall fail to provide the Company with the Data when due, then the Supplier
shall be required to make all reasonable efforts to transmit the Data to the
Company at the earliest time at which such information becomes available.
5. Reports to Data Suppliers. The Company shall provide the
Supplier with summary reports as to the Data as soon as practical after the
information is available, provided that the content of such reports are not
violative of any confidentiality agreement entered into by and between the
Company and any third party
6. Confidentiality of Data. The Company shall treat the Data as
confidential and shall not utilize the Data for any purpose other than as
envisioned by this Agreement. The Company shall instruct ins employees to keep
such Data confidential by using the same care and discretion that the Company
uses with respect to its own confidential information. The Company shall keep
the specific sales information obtained from the Supplier confidential and shall
not disseminate or make available such information to any of its customers, it
being understood that all Data provided hereunder is to be
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<PAGE> 3
combined together with the Data received from other Data Suppliers, as such term
is hereinafter defined, in such a manner as to render the source of the Data
untraceable.
7. Term. (a) The initial term of this Agreement shall commence on
the first day of the calendar month following the date with respect to which the
Supplier begins to regularly provide the Sales Information to SSI, and expire on
the fifth anniversary thereafter ("Initial Term").
(b) This Agreement shall be automatically extended for additional
successive one year terms ("Additional Terms") unless no later than 45 days
prior to the end of the then current term either party notifies the other that
there will be no such extension.
8. Representations and Warranties. The Supplier represents and
warrants that the Data is true, complete and accurate.
9. Notices. Any notices, direction or instrument required or
permitted to be given under the terms and conditions of this Agreement shall be
in writing and shall be sent to the following addresses:
(i) With regard to the Company:
SoundScan, Inc.
220 North Central Park Avenue
Hartsdale, Hew York 10530
(ii) With regard to Supplier:
N2K, Inc.
55 Broad Street 10th Fl.
New York, NY 10004
Attn: Scott Spielberger
The parties may, at any time with prior written notice to the
other parties, designate such other address for purposes of notification. All
notices and other communications given hereunder by any party shall be in
writing and shall be deemed given upon receipt if delivered personally or by
overnight courier service or three (3) days after mailing by registered or
certified mail (return receipt requested) to the other parties hereto at the
addresses set forth above postage prepaid, in properly addressed and stamped
envelopes or packages (or at such other address for either party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof).
10. Successors. This Agreement and every term, covenant and
condition herein contained shall inure to the benefit of
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and be binding upon the parties hereto and their respective
successors and assigns.
11. Assignment. This Agreement shall not be assignable by
Supplier without the prior written consent of the Company and the Agreement
shall not be assignable by Company without the prior written consent of the
Supplier.
12. Invalidity. The invalidity in whole or in part of any article
or articles, paragraph or paragraphs, or clause in this Agreement shall not
affect the validity of the remaining portions or such article or articles,
paragraph or paragraphs, or clause or clauses of this Agreement.
13. Interpretation. In this Agreement, unless the context
otherwise requires, words imparting the singular number only shall include the
plural and vice-versa; words imparting the masculine gender shall include the
feminine and neuter gender; and words imparting persons shall include companies,
corporations, partnerships and any number of aggregate or persons.
14. Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof,
superseding any and all prior agreements between them, whether written or oral.
It may not be amended or supplemented except by a written instrument executed by
the parties. No waiver of any provision shall be effective unless in writing
signed by the party charged. No waiver of a provision hereof shall constitute a
waiver of any other provision.
15. Governing Law. The terms and conditions of this Agreement
shall be governed by, construed and interpreted according to the laws of the
State of New York.
16. Counterparts. This agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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Exhibit 10.14
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.
[Letterhead of RED Distribution, Inc.]
October 16, 1996
VIA FAX (212) 742-1778
Mr. Larry Rosen
N2K Encoded Music
55 Broad Street, 10th Floor
New York, New York 10004
Re: RED Distribution, Inc. ("RED") with N2K Encoded Music
Dear Larry:
Set forth below are the revised material terms on which RED proposes
to enter into an exclusive distribution agency agreement with N2K Encoded Music
(the "Label"):
Term. Three years.
Payments. Net Proceeds (i.e., Net Sales plus liquidating reserves
(if any) less RED's Distribution Fee, cooperative advertising and other
charge-backs (see attached schedule)) will be paid 90 days end of month, except
the Label will have the right to select two months of the first year of the Term
on which to be paid 60 days end of month and two other months of the first year
of the Term on which to be paid 30 days end of month.
Distribution Fee. Calculated as a percentage of Net Sales (i.e.,
gross sales less discounts and returns).
NET SALES (on a year-by-year basis) FEE
$[****] - $[****] million [****]%
$[****] million - $[****] million [****]%
$[****] million - $[****] million [****]%
$[****] million - $[****] million [****]%
$[****] million - + [****]%
<PAGE> 2
The Distribution Fee applicable to year #2 will be the Distribution
Fee in effect at the end of year #1 and will be subject to the same reductions
that are applicable to the Distribution Fee for year #1 as set forth above,
provided, however, that the Distribution Fee for year #2 will commence at
[****]% only if Net Sales in year #1 exceed $[****]. That is, if Net Sales in
year #1 are greater than $[****] but less than $[****] the starting Distribution
Fee for year #2 will be [****]%.
Similarly, the Distribution Fee applicable to year #3 will be that
which is in effect at the end of year #2 and will be subject to the same
reductions that are applicable to the Distribution Fee for year #2. However (i)
the Distribution Fee for year #3 will commence at [****]% only if Net Sales in
year #2 exceed $[****] and (ii) if the year #2 Distribution Fee commenced at
lower than [****]% and Net Sales in year #2 are less than $[****] then the
Distribution Fee for year #3 will be the same as that set forth above applicable
to year #1.
Reserves. Provided the Label timely fulfills its Delivery
Commitment, RED will hold no reserves until year #3. With respect to each month
comprising the third year of the Term, RED will maintain a reserve equal to a
percentage of Net Sales accruing during each such month. The percentage referred
to in the preceding sentence will be computed by dividing (i) two times the
aggregate amount credited to customers for returns received during months
#12-#24 of the term by (ii) aggregate gross sales accruing during months #7-#18
of the Term. Promptly following the end of the Term, RED will perform an
exposure analysis (i.e., compare shipments to SoundScan) to determine if the
reserves it has established are excessive. If RED determines that the reserves
are excessive, it will promptly liquidate any such excess. If, prior to its
expiration, the Term is extended for 12 months or longer, RED will liquidate any
reserves it has established during the third year.
Reserve Liquidation. Reserves established during the third year of
the Term will be liquidated 9 months following the end of the Term in order that
they may be used as an offset against post-Term returns ("Post Term Returns
Period").
Delivery Commitment. The Label will deliver no less than 12
previously unreleased, newly compiled or recorded, studio albums during each
year of the Term and no less than 4 such albums during each 6 months of each
year of the Term.
Protections. RED will require, and the Label will provide, a
guaranty that the Label's next distributor will accept all post-Term returns. If
at anytime during the Term or the Post Term Returns Period the Label's account
is in a negative Net Proceeds position, the Label will promptly remit payment to
RED in the amount of such negative balance. N2K, Inc. will provide RED with a
guarantee for any monies owing to RED by the Label. If the Label's account is in
a negative Net Proceeds position for a period of 60 days or more, RED will have
the right to sell all or a portion of the Label's inventory under RED's control
at a price determined by RED, in its good faith discretion, and apply the Net
Proceeds from such sale to recoup the negative Net Proceeds. Any Net Proceeds
resulting from such sale in excess of the negative Net Proceeds balance will
accrue to the Label's account.
Miscellaneous.
1. retail display in store contests - provided the Label, at its expense,
supplies RED with the necessary materials, RED's ASR staff will implement
on the Label's behalf up to four retail display/in store contests per year
during the Term. The Label will be solely responsible for the prizes
associated with those contests.
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<PAGE> 3
2. inventory and customer order information - RED will provide the Label with
computerized reports regarding the Label's inventory and customer orders.
The Label will be responsible for maintaining at its own cost a modem
should it wish to have such reports transmitted via computer.
3. retail inventory reports - If, from time to time, RED elects to monitor
the retail inventory of any of the Label's records, then RED will make
such reports available to the Label.
4. designated product manager - RED will designate a "product manager" who
will serve as the Label's liaison with RED.
5. office space - space permitting, the Label will be permitted to place one
or more employees in RED's offices located outside New York. As we
discussed, RED's offices in Los Angeles, Chicago and Atlanta are the most
likely offices to have available space. The cost to the Label for placing
its employees in RED's offices will be $[****] per month per employee, and
the Label will be responsible for setting up and paying for its own phone
and fax lines.
6. semi-monthly solicitation materials - provided the Label timely furnishes
RED with the necessary materials, the Label's new release information will
be included in RED's new release book. The cost to the Label will be
approximately $[****] - $[****] per book.
7. inventory - RED will maintain, on a title-by-title and
configuration-by-configuration basis, up to 3 month's of Label inventory
at all times.
8. ASR's - there is no separate charge for the services provided by RED's
ASR's.
Customer base. Notwithstanding the fact that RED will serve as the
Label's exclusive distribution agent in the Territory, the Label will have the
right to sell the Label's records to those computer stores, so-called
"audiophile stores" and college bookstores with whom RED is not doing business,
provided, however, that if RED commences during business with any particular
store, then the Label will be precluded from selling directly to such store. The
Label will be responsible for accepting returns of product originally shipped by
the Label to such stores and reimbursing such stores for any amounts that may be
due as a result of such returns. To the extent RED accepts any such returns, any
amounts credited by RED to such stores will not serve to reduce gross sales
solely for purposes of calculating the Distribution Fee.
Purchase of a Label or Catalog. If, during the Term, the Label or
its affiliate, parent or subsidiary acquires an existing label and/or catalog,
records derived from such label or catalog will not necessarily be subject to
the Label-RED agreement, however, the Label will promptly notify RED of its
purchase of such label or catalog.
(a) If such label or catalog remains subject to a pre-existing
distribution agreement during the remainder of the Term, RED will have no rights
with respect thereto.
(b) If such label or catalog at the time it is acquired by the Label
is either (i) not subject to a pre-existing distribution agreement or (ii)
subject to a pre-existing distribution agreement pursuant to which such label or
catalog has been distributed by a distributor other than a so-called "major
distributor" but at any time thereafter it ceases to be governed by such
pre-existing distribution agreement, then RED will have the right to require the
Label to negotiate in good faith on an exclusive basis with RED for not less
than thirty days in an attempt to consummate an agreement for the distribution
of records derived from such label or catalog. If RED and the Label are unable
to consummate such an agreement, then the Label will have the
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<PAGE> 4
right to enter into an agreement with a third party distributor on terms no less
favorable to the Label than those proposed by RED.
(c) If, at the time it is acquired by the Label, the label or
catalog is subject to a pre-existing distribution agreement with a so-called
"major distributor" which ends during the Term of the Label-RED agreement and
the Label wishes to enter into a distribution agreement with another "major
distributor" therefor, the Label must notify RED thereof and RED will have the
right to require the Label to negotiate in good faith on an exclusive basis with
RED for not less than thirty days in an attempt to consummate an agreement for
the distribution of records from such label or catalog. If RED and the Label are
unable to consummate such an agreement, then the label will have the right to
enter into an agreement with a third party distributor with respect thereto.
(d) If, at the time it is acquired by the Label, the label or
catalog is subject to a pre-existing distribution agreement with a so-called
"major distributor" which agreement ends during the Term, and the Label
negotiates a new agreement (or an extension to the existing agreement) with such
major distributor, then RED will have no distribution rights with respect
thereto.
(e) If an acquired label, prior to its acquisition by the Label, is
primarily "self- distributing" in that it does not rely on the services of a
distributor for the distribution of a substantial percentage of its records,
then so long as such label continues to be "self-distributing" RED will have no
distribution rights with respect thereto. However, if at any time the Label
decides to cause such label's records to be distributed by a distributor, then
the relevant provisions of subparagraph (b) applicable to a label not subject to
a pre-existing distribution agreement will apply to such previously
self-distributed label.
The Label will not transfer, assign, etc., any recordings or artists
from the Label to another label in an attempt to frustrate or derogate from
RED's rights under the Label-RED agreement. If the Label acquires recordings
embodying primarily the performances of an artist whose records have been
released (or are scheduled for release) by the Label, then such recordings will
automatically be governed by the terms of the Label-RED agreement, and RED will
not be obligated to provide any additional consideration therefor.
Internet Sales Fulfillment. The Label will have the right to cause a
subdistributor to fulfill orders received by the Label via the Internet,
however, to the extent such subdistributor may also sell the Label's records to
retail customers, then the Label will implement the following safeguards to
ensure that such subdistributor will purchase from RED those quantities of the
Label's records that are intended for resale to retail customers:
(a) notify the subdistributor in writing that those qualities of the
Label's records with which it has been provided by the Label are to be used
solely to fulfill Internet orders received by the Label and, in that regard, the
Label will not sell any records to the subdistributor; and
(b) no less frequently than twice every calendar year, the Label
will analyze the Label's inventory maintained by the subdistributor to determine
whether the Label has been accounted to for all of the Label's records no longer
maintained in inventory by the subdistributor.
If RED reasonably believes that, notwithstanding the foregoing, such
subdistributor is selling quantities of the Label's records supplied to it by
the Label to customers to whom RED has the right to distribute the Label's
records, and RED notifies the Label thereof, then the Label will notify the
subdistributor that it should purchase from RED any records it intends for sale
to
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<PAGE> 5
retail customers. If, after such notice, the subdistributor continues to engage
in such activity, then RED will have the right to terminate the Label-RED
agreement.
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<PAGE> 6
The Label and RED hereby acknowledge the Label and RED's intent to
enter into a formal agreement. Unless and until the Label and RED do so, this
agreement shall set forth the entire understanding between the Label and RED
with respect to the subject matter hereof an no amendment to or modification,
waiver, termination or discharge of this agreement or any provision hereof shall
be binding upon the Label and RED unless confirmed by a written instrument
signed by the Label's and RED's authorized signatory.
Very truly yours,
RED DISTRIBUTION, INC.
By:___________________________________
ACCEPTED AND AGREED TO:
N2K ENCODED MUSIC
By:___________________________________
ACCEPTED AND AGREED TO AS THE
FOREGOING PERTAINS TO ITS INTERESTS:
N2K, INC.
By:___________________________________
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<PAGE> 7
Service Price Per Unit
- ------- --------------
Returns handling $[****]
Product stickering (label supplied) on
outside of shrinkwrap (all configurations) [****]
Deface cutouts:
Cassette [****]
CD [****]
Product scrapping:
Cassette [****]
CD [****]
Refurbish returns:
Cassette [****]
CD [****]
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<PAGE> 8
October 16, 1996
N2K Encoded Music
55 Broad Street, 10th Floor
New York, New York 10004
Gentlemen:
When signed by RED Distribution, Inc. ("RED") and you, the following
shall constitute an amendment to that certain agreement between you and RED
dated October 16, 1996 as in force immediately prior to the execution of this
amendment (the "Agreement").
1. All expressions used herein, unless herein separately defined,
shall have the same meaning herein as in the Agreement.
2. The Agreement is hereby amended to include the following:
"Territory. The United States (including its territories,
possessions and military bases)."
Except as expressly or by necessary implication modified hereby, all
provisions of the Agreement shall remain in full force and effect in accordance
with their terms but in the event of any inconsistency(ies) between the
provisions of the Agreement and the provisions hereof, the latter shall control.
Very truly yours,
RED DISTRIBUTION, INC.
By:___________________________________
ACCEPTED AND AGREED TO:
N2K ENCODED MUSIC
By:____________________________
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<PAGE> 1
Exhibit 10.15
N2K INC.
55 BROAD STREET, 10TH FLOOR
NEW YORK, NEW YORK 10004
October 10, 1996
Mr. Phil Ramone
449 Guard Hill Road
Bedford, NY 10508
Re: N2K Encoded Music
Dear Phil:
I am delighted that, subject to final contract, you have agreed to
join us as President of the N2K Encoded Music Division of N2K Inc. The attached
term sheet reflects the principal terms of your employment, although your
commitment is conditioned upon your and our agreement to all other terms.
We have instructed our lawyers to prepare a formal employment
agreement setting forth in detail the agreed upon terms, which we shall shortly
be forwarding to Don Passman for his review. It is understood and agreed that
your employment will be subject to satisfactory completion of said agreement. In
the meantime, in order that we can include your appointment in our Registration
Statement for the initial public offering and other appropriate disclosures,
would you please sign and return a copy of this letter, which will serve as your
acknowledgment of the foregoing.
Again, we are delighted to have you lead us in this exciting new
venture for N2K. We look forward to a long and successful association as we
build this new business.
Best regards,
/s/ Larry Rosen
-----------------
Larry Rosen
Chairman & CEO
Accepted and agreed to as of this 11 day of October, 1996:
/s/ Phil Ramone
- --------------------------------
Phil Ramone
<PAGE> 2
PHIL RAMONE DEAL MEMO
(as of 10/10/96)
1. Terms: 3 Years with a 2 year option (subject to
agreement on salary) on the N2K Inc. side.
2. Salary: 1st Year $450,000
2nd Year $550,000
3rd year $650,000
Note 1: Salary for 4th and 5th years, if applicable,
to be negotiated in good faith.
3. Outside Projects:
a. No more than 4 weeks in total in any year.
b. When Phil reaches a salary level of $750,000, all
outside projects end, except with Company's
permission.
4. Bonus:
a. Based on gross revenues of record company.
1. Gross $8,000,000 - Bonus of $50,000
2. Gross $10,00,000 - Bonus of $100,000
Note 1: Total bonus on revenues not to exceed
$100,000 in any year.
Note 2: Acquisition of other record companies: N2K will establish a
base for the acquired company's revenues at the time of
acquisition. Revenues that exceed the established base will be
counted toward gross revenue thresholds as they apply to the
above bonus concept.
5. Profits:
a. 10% on profit of record company.
b. 5% phantom equity in the record company if N2K or the record company
is sold to a third party (during or at any time following Phil's
employment).
- 1 -
<PAGE> 3
c. The 5% will escalate to 7-1/2% phantom equity if N2K or the record
company is sold to a third party (during or at any time following
Phil's employment) and the option under Phil's employment agreement
has been exercised.
Note 1: N2K to have the right, exercisable at any time within 6
months after the end of the employment term, to purchase
Phil's phantom equity at FMV (as determined by a mutually
acceptable independent investment banking firm or appraiser
having expertise in the recorded music industry). Payout to be
on a quarterly basis over 3 years (with interest at prime),
subject to acceleration if the record company is sold.
6. Producing Artists for N2K's Record Label:
a. 4% First 250,000 Units.
b. 4.5% 250,001 to 500,000 Units.
c. 5% 500,001 to 1,000,000 Units.
d. 5.5% Over 1,000,000 Units.
7. Equity in N2K Inc.:
Receive options at the IPO price to purchase 1% of N2K
Inc. common stock.
a. Vesting - First 25% vests immediately.
b. 75% vests equally over 3 years.
8. Assistant and Engineer Employment:
N2K to engage an assistant and an engineer on mutually agreeable terms and
conditions.
9. Executive Perks:
Phil will receive normal executive perks for label heads, including dental
and health insurance, car allowance, first-class travel and entertainment.
Phil will also be reimbursed for hotel accommodations in Manhattan on rare
occasions when he has to stay overnight.
10. Ed Net Board:
- 2 -
<PAGE> 4
So long as there is no conflict, Phil may continue to serve on the ED Net
board of directors.
- 3 -
<PAGE> 1
Exhibit 10.16
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.
Letter of Agreement
[CITE L O G O]
May 27, 1997
Mr. Dave Packman,
SR Director of Business Development
Ms. Samantha Saturn,
Manager of Advertising and Promotions
N2K Inc.
55 Broad Street, 10th floor
New York, NY 10004
Via Fax 212-742-1755
Re: N2K Inc.-w-Excite/Letter of Agreement
Dear Dave and Samantha:
This letter when signed by both of us below shall confirm the agreement between
N2K Inc., 55 Broad Street, 10th floor, New York, NY 10004 ("N2K") and Excite
Inc., 555 Broadway, Redwood City, CA 94063 ("Excite") regarding linking of and
sharing of content between the www.webcrawler.com site ("Webcrawler") with
N2K's online music retail store, www.musicblvd.com, Music Boulevard ("Music
Boulevard").
1. Description of project:
a. N2K and Excite are creating a Co-branded 150,000-plus title online
music store. Any and all customers that enter this music store by
way of a link from our site will shop in a Co-branded store for
music and music-related merchandise, including CDs, tee-shirts,
music videos, etc. These users are identified by your system as
users who were directed to the Co-branded store from our site,
and purchases are tracked, accounted, and reported to us. On every
page throughout the Co-branded site, a link directing the users
back to our referring exists.
b. We are cross-linking sites in an effort to share traffic and allow
N2K to offer musical titles and other merchandise for sale to our
customers. We participate in the revenues of these sales.
c. The Co-branded Webcrawler/Music Boulevard store would be made
available throughout the Webcrawler site, when appropriate. For
example, users searching for "music" or "U2" would always find
links to the front page of the store or the artist discography page
respectively. Sections 3 and 4 specifically detail how this will
work.
d. We continue to operate our site and decide on placement of
appropriate "buy" links for the titles of the artists we are
featuring within the Webcrawler site itself. Those links generally
should point to the Co-branded artist discography ("Discography")
or album description
Letter of Agreement 5/20/97
<PAGE> 2
Letter of Agreement
("Album Desc.") pages driven from your Music Boulevard database.
From there, customers can purchase music items. N2K continues to
own and operate the Co-branded music store and takes and fulfills
orders.
e. Optionally, N2K could deliver more content to the Wedcrawler site
based on the genre of the music topic searched, with links into the
Co-branded music store to encourage purchase. Such content may
include articles from your other publications and archives. The use
of this content is out of the scope of this agreement and requires
further discussion on the part of both parties.
2. Business Model:
a. Product Sales: N2K will pay to Excite a royalty of between [****]
and [****] of the Music Boulevard item selling price on sales of all
products sold by N2K to customers who have linked from Webcrawler
prior to making a purchase (excluding shipping, handling, database
processing fees, credit card validation fees or other charges
incurred by the customer.)
b. Sliding Royalty Scale: At such time when the total royalty paid to
Excite in a one (1) calendar month period exceeds [****], the
following scale will be used to determine the royalty paid by N2K to
Excite (percentage of the Music Boulevard item selling price
(excluding shipping, handling, or other charges incurred by the
customer) on sales of all products sold by N2K to customers who have
linked from the Webcrawler site prior to making a purchase):
When royalty accrued in a 1 month Royalty for subsequent
period exceeds: months will be:
up to $[****] %[****]
$[****] %[****]
$[****] %[****]
$[****] %[****]
c. Term: the term of this agreement shall commence upon the launch of
Music Blvd presence on Webcrawler and continue for a period
extending six (6) months from this date. Both parties may decide to
renew or cancel at the end of this contract. However, N2K will have
first right of refusal on the program.
d. Advertising Sales: N2K will be responsible for selling and managing
the advertising inventory on the Co-branded Music
Boulevard/Wedcrawler site. For all advertising appearing on the
Co-branded music store pages on the Music Boulevard site, the
advertising revenues split will be as follows:
* The total number of impressions of each Co-branded page will be
determined ("Total Impressions").
* N2K will break down the Total Impressions by advertising
property ("Creative").
* The Total Impressions delivered to each Creative will be
determined ("Impressions per Creative").
* N2K will total the sum of the Impressions per Creative
multiplies by the Net CPM sold for that Creative across all
Creatives' delivered on that page ("Advertising Sum").
* At the end of each quarter, N2K will pay to Excite [****] of the
Net Advertising Sum during that quarter.
Letter of Agreement 5/20/97
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Letter of Agreement
e. Advertising Restrictions: Advertisers on all Co-branded Music
------------------------- ----------------
Boulevard/Webcrawler pages are prohibited from including non-Excite
--------------------------
and non-Webcrawler search, directory, or navigation products. Nor
any music related competitor of N2K.
f. Exclusivity: Music Boulevard shall be the exclusive online music
------------
product fulfillment source for the Webcrawler site.
3. Responsibilities of Excite:
a. Excite may also link to the home page of the Co-branded site.
b. The Webcrawler site will reference a keyword list and display
appropriate "by-Discography" or "related articles" buttons which
link to the N2K specified URL's.
c. For any additionally placed buttons, Excite will code the Album
Identification numbers numbers from the Music Boulevard site, which
will correspond to the buttons or links located in the Webcrawler
site, that will connect the user to the specific Album Description
Page or the Discography Page. Excite will handle the ongoing
maintenance of these buttons or links on the Webcrawler site. N2K
will maintain an online help area on Music Boulevard with full
instructions for this procedure.
d. Whenever online shopping or music is promoted on the Webcrawler
site, Excite will place a link to the Co-branded music store where
applicable.
e. In the event that Excite Inc. offers on-line fulfillment of music
items on its Excite service (www.excite.com), N2K retains the right
of first refusal for on-line fulfillment on the Excite service.
4. Responsibilities of N2K:
a. N2K shall receive and process all orders on Music Boulevard.
b. N2K shall create the N2K or Music Boulevard-branded "Artist
Discography", "Album Description", and "Related Articles" buttons
for mutual approval by Excite.
c. All order processing, credit card verification, EDI and fulfillment
services will be the responsibility of N2K.
d. N2K shall track each individual Webcrawler user by passing a
Session ID back and forth between the Co-branded site and
Webcrawler on every transmission. N2K does this by driving the
Session ID into every URL that you transmit to the Webcrawler user
when the user clicks on any item on the screen.
e. For all new users who purchase in the Co-branded music store, N2K
will make user registration data available to Excite on a monthly
basis, provided the user has not opted out of allowing N2K to share
user data with third parties.
f. N2K will provide accounting to Excite on a monthly basis.
Accounting statements will include artist, album, number of units
sold, and total income earned. Such statements for the previous
month's accounting shall be delivered to Excite by the fifteenth
(15th) day of the following month. N2K shall pay Excite the accrued
royalties for both product sales or advertising on a quarterly
basis, and will include quarterly accounting statements with a
Letter of Agreement 5/20/97
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Letter of Agreement
breakdown of the items as outlined in this paragraph. N2K shall pay
Excite for accrued royalties pursuant to paragraphs 2a, and 2b once
the payments to Excite exceed $[****].
g. N2K will provide an online tracking system which may be accessed by
Excite. This tracking system will contain reports, updated daily, of
the number of units sold in the Co-branded store, the number of
orders placed, and the total royalty amount accrued.
h. Excite may at its own expense, examine and make extracts of those
books and records related to this agreement solely for the purpose
of verifying the accuracy of the monthly accountings rendered by N2K
hereunder, one (1) time per six (6) month period during the term of
the agreement during N2K's normal business hours and upon five (5)
business days' written notice.
5. Responsibilities of Excite and N2K:
a. Both parties agree to exchange server traffic information and all
other information of the users of this select area of both our
sites which can be determined by server log reports.
b. Both companies will exchange demographic information if both
companies can provide such information on mutual basis.
ACCEPTED AND AGREED TO:
By: By:
_____________________________ ______________________________
Mr. John Dawson, Mr. J. J. Rosen
East Coast Director of Advertising Sales Sr. VP and General Manager
Excite Inc. N2K Entertainment
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Exhibit 10.17
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.
[N2K LOGO]
October 28, 1996
Cynthia Sexton
Virgin Records America. Inc.
338 North Foothill Road
Beverly Hills, CA 90210
Re: Virgin Records America, Inc. -w- N2K Inc./Letter of Agreement
Dear Cynthia:
This letter when signed by both of us below shall confirm the agreement between
Virgin Records America, Inc., 338 North Foothill Road, Beverly Hills, CA 90210
("Virgin") and N2K Inc., 55 Broad Street, New York, NY 10004 ("N2K") regarding
linking the Virgin Records site ("Virgin Site") with N2K's online music retail
store, Music Boulevard ("Music Boulevard").
1. Description of Project:
a. N2K and Virgin are entering into an agreement to link together
portions of web sites separately owned and operated by N2K and
Virgin. These sites are Music Boulevard, the site currently
located on the world wide web at http://www.musicblvd.com, and
the Virgin Site, currently located on the world wide web at
http//www.virginrecords.com.
b. For any Virgin artist page on the Virgin Site where album
artwork is displayed, the 'Order Info' button (or such other
button as determined by Virgin) would be placed near each
album cover and would seamlessly connect the user to a
transition page ("Transition Page") containing the album
information corresponding to that particular artist album.
c. The Transition Page will reside on the N2K server and contain
the following items: album cover artwork, album pricing, the
ordering link to Music Boulevard, an option to return to the
Virgin Site, and a statement that orders from non-U.S.
residents cannot be fulfilled for customers linking from the
Virgin Site. The Transition Page will be created by N2K for
mutual approval by Virgin, not to be unreasonably withheld.
N E E D T O K N O W
<PAGE> 2
2. Business Model:
a. Product Sales: N2K will pay to Virgin a royalty of [****] of
the Music Boulevard item selling price (excluding shipping,
handling or other charges incurred by the customer) on sales
of all products sold by N2K to customers who have linked from
the Virgin Site prior to making a purchase. The royalty on
Sale items, which are items listed below the Music Boulevard
selling price, is [****] of the item sales price (excluding
shipping, handling or other charges incurred by the customer).
No more than [****] of the catalog of items on Music Boulevard
can be considered a sale item at any given time. N2K and
Virgin shall mutually agree prior to the listing of any Virgin
albums as 'sale items' on the Virgin Site, since pricing will
be dynamically driven from the Music Boulevard database to the
Transition Page. Pricing will reside on the Transition Page
and not on the Virgin Site to avoid any inaccuracies.
Therefore, any revision to the pricing would need to be
implemented by N2K in the Music Boulevard database.
b. Term: the term of this agreement shall commence upon the
execution of this Agreement by both parties and continue for a
period extending one (1) year from the date written above.
This Agreement shall automatically renew for an indefinite
period. Either party may terminate the term thereafter by
giving the other party written notice that the term will
expire thirty (30) days after date of such notice.
c. Exclusivity: Music Boulevard shall be the exclusive online
product fulfillment source for the Virgin Site. The exclusive
nature of this agreement prohibits any and all other online
retail stores from being promoted on the Virgin Site. However,
this exclusivity provision does not prevent other web sites or
online service sites from stocking and/or selling Virgin
product nor does it prevent Virgin's site on America Online
from linking with another online product fulfillment source.
In addition, Virgin retains the right to sell Virgin product
via "800" numbers and/or direct mail orders which are promoted
from the Virgin Site.
3. Responsibilities of Virgin:
a. Virgin shall place all 'Order Info' buttons within its site
where the artist album artwork is positioned, which will
link to the Transition Page during the term of the agreement.
The 'Order Info' button will be designed and created by
Virgin, for mutual approval by N2K not to be unreasonably
withheld.
b. Virgin will code in the Album Identification numbers from the
Music Boulevard site which will correspond to the buttons or
links located on the Virgin Site that will connect the user to
the Transition Page. Virgin will handle the ongoing
maintenance of these buttons or links on the Virgin Site.
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<PAGE> 3
N2K will maintain an online help area on Music Boulevard with
full instructions for this procedure.
4. Responsibilities of N2K:
a. N2K shall receive and process all orders on Music Boulevard.
N2K will sort orders for non-U.S. residents to assure that
customers that link from the Virgin Site are unable to have
product shipped outside the U.S. This process will be handled
manually by Music Boulevard until such time that Music
Boulevard can implement the technology online.
b. All order processing, credit card verification, EDI and
fulfillment services will take place on the Music Boulevard
site.
c. N2K will provide accounting to Virgin on a monthly basis.
Accounting statements will include artist, album, number of
units sold, and total income earned. In addition, N2K shall
provide Virgin along with the monthly accounting a list of
purchasers including name, address and the specific product
ordered for those purchasers who have linked from the Virgin
Site to Music Boulevard.
d. N2K shall inform Virgin of any changes in the relationship
with its one-stop distributor, for approval of the one-stop
distributor by Virgin. For the purposes of this agreement, N2K
has informed Virgin that its current one-stop distributor is
Valley and Virgin has confirmed acceptance of Valley as the
one-stop distributor.
e. N2K shall maintain books and records concerning the sale of
Virgin products. Virgin may, at its own expense, examine and
make extracts of those books and records solely for the
purpose of verifying the accuracy of the monthly accountings
rendered by N2K hereunder, one (1) time per year during the
term of the agreement during N2K's normal business hours and
upon five (5) business days written notice.
5. Responsibilities of Virgin and N2K:
a. Virgin and N2K shall both provide language on its own site to
explain to customers linking from the Virgin Site that orders
from non-U.S. residents cannot be fulfilled. N2K shall place
this information on the Transition Page for Virgin Site
customers. Virgin shall place this information near the 'Order
Info' button or near any ordering areas on the Virgin Site.
b. Both parties agree to exchange server traffic information and
all other
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<PAGE> 4
information of the users of this select area of both our sites
which can be determined by server log reports.
c. Both companies will exchange demographic information if both
companies can provide such information on a mutual basis.
d. All notices hereunder shall be in writing and shall either be
served by certified or registered mail (return receipt
requested), facsimile or telegraph, all charges prepaid.
Except as otherwise provided herein, such notices shall be
deemed given when telecopied, mailed or delivered to a
telegraph office, all charges prepaid, except that notices of
change of address shall be effective only after the actual
receipt thereof. Notices to be given to Virgin hereunder and
all accountings and payments to be sent to Virgin hereunder
shall be addressed to Virgin at the address set forth on page
1 hereof or at such other address as Virgin shall designate in
writing from time to time. Notices to be given to N2K
hereunder shall be addressed to N2K at the address set forth
on page 1 hereof or at such other address as N2K shall
designate from time to time.
If the foregoing conforms with your understanding of the terms, please
acknowledge your acceptance of such terms by signing below.
Very truly yours,
N2K INC.
By: /s/ J. J. Rosen
--------------------------------
J. J. Rosen
Sr. VP & General Manager
N2K Entertainment
ACCEPTED AND AGREED TO:
VIRGIN RECORDS AMERICA, INC.
By: /s/ Cynthia Sexton
--------------------------------
Cynthia Sexton
4
<PAGE> 1
Exhibit 10.18
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.
WEB SITE DEVELOPMENT AGREEMENT
Agreement made as of the 1st day of November, 1996, by and between
Interstate Broadcasting Company, Inc., licensee of WQXR, 122 Fifth Avenue, New
York, New York 10011 ("WQXR") and N2K Inc., a Delaware corporation, with offices
located at 55 Broad Street, New York, N.Y. 10004 ("N2K")
WHEREAS, WQXR is a radio station broadcasting a classical
music format within the metropolitan New York area, currently 163.5 hours per
week (the "Programming Service").
WHEREAS, N2K is the designer and operator of Internet-based
information and transaction services, and engaged in providing content via its
online service, Classical Insites "CI" which is available free to the public
through the Internet (the "Internet") and commercial online services ("On-Line
Services").
WHEREAS, WQXR and N2K desire to establish and maintain a WEB
site within N2K's CI, (hereafter the "WEB SITE,") as further defined in section
l(e) below) including, but not limited to, the retransmission of WQXR's over the
air programming to such Internet users; and
WHEREAS, WQXR desires to grant to N2K, rights to use of
WQXR's name and logo (the "Marks") and "Materials" (as hereafter defined) for
use on the WEB SITE, subject to the terms and conditions herein,
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for good and other valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. RIGHTS GRANTED
(a) WQXR grants to N2K the exclusive license to (i) load and store the
computer files constituting the WEB SITE, on N2K's World Wide Web server, (ii)
make the computer files constituting the WEB SITE readily available for
transmission and, where applicable, downloading on demand to computers connected
to the Internet, (iii) effectuate secure commercial transactions on the WEB
SITE, and (iv) display advertisement and/or sponsor messages on the WEB SITE.
With respect to the preceding I(a)(ii) and (iv), it is agreed that the parties
will negotiate in good faith with respect to the allocation of any revenues
derived from advertising, sponsorships or the sale of merchandise on or through
the WEB SITE, provided that no such advertising, sponsorships or merchandise
will be displayed on the WEB SITE until the parties, following such negotiation,
have agreed in writing upon the terms with respect thereto. For avoidance of
doubt, the preceding sentence shall not be construed as to prevent WQXR from
identifying any entity as the sponsor of a WQXR program when such entity is the
regular sponsor
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<PAGE> 2
of such programming.
(b) WQXR grants to N2K the right to use the Marks within the WEB SITE,
and in any media for advertising and publicity and in connection with WEB SITE
and in promotional materials prepared in connection with the WEB SITE (the
"Promotional Materials"). N2K will first obtain WQXR's reasonable approval with
respect to such advertising, publicity and promotional materials, which approval
shall be deemed granted if not received within five (5) business days of N2K's
request therefor. WQXR grants N2K the exclusive right to use of the domain name
WQXR.com or similar identifier and agrees that the WEB SITE will be the only
official WQXR WEB site and agrees to refer to the WEB SITE as such, or in a
similar fashion, on its marketing materials and relevant formal public
communications
(c) WQXR grants N2K the exclusive right and license to retransmit
on-line (e.g., via commercial on-line services and the Internet) WQXR's complete
Programming Service, to provide said Programming Service (through "Streaming
Audio" or equivalent technology) free to the public via its online service, CI
(the "Retransmission"), it being understood that the Retransmission will not be
mechanically fixed in synchronization with particular visual images.
Notwithstanding the preceding sentence, the Retransmission will not include any
elements of the Program Service for which WQXR is prohibited from granting such
retransmission rights pursuant to the restrictions of its contract with a third
party providing such programming. WQXR will provide N2K with appropriate advance
notice when such programming elements will not be available for retransmission.
In consideration of WQXR's agreement not to grant the same or similar rights for
the retransmission of any or all of WQXR's Programming Service to any on-line
service, N2K agrees that it will not contract with another classical radio
station to carry such station's program service within N2K's CI. For avoidance
of doubt, the preceding sentence shall not be construed as to prohibit or in any
way limit N2K from providing using classical music in conjunction with other
multimedia and interactive content, through CI or its other on-line services.
(d) WQXR grants to N2K a non-exclusive license, with respect to use on
the Internet, to use on the WEB SITE any photographs, memorabilia, written
materials, logos, artwork, data, and other content related to WQXR and/or the
world of classical music, which is owned or controlled by WQXR (the
"Materials"). Said license shall include the right to: (i) reproduce the
Materials in digital form within, in combination with other works, such as
audio, video, animation or graphics; (ii) transmit the Materials, including
their digital representation, on a worldwide basis through CI; (iii) advertise,
publicize and promote the Materials using references to and excerpts from the
Materials through any and all media; (iv) to edit, adapt, modify or alter the
Materials, in Company's discretion, for either technical or editorial purposes
related to use on the WEB SITE or CI, except that N2K will first obtain WQXR's
reasonable approval with respect to such editing, adaptation or modification of
publicity and promotional material or WQXR's logo, which shall be deemed granted
if not received within five (5) business days of N2K's request therefor.
Notwithstanding anything to the contrary in the foregoing provisions of this
paragraph I (d), WQXR agrees that its right to provide or license Materials to
third party Web sites, shall be conditioned upon such Materials being offered at
the same time to N2K for its use;
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<PAGE> 3
(e) For purposes of this agreement the "WEB SITE" shall refer to the
World Wide Web site created pursuant to this Agreement and its constituting data
and program files, including without limitation, the User interface (as
hereafter defined) and the Materials formatted in HTML or any other programming
language, and produced for transmission over the Internet, as such site may be
updated from time to time.
2. Development
(a) Artistic Conception: The design of the WEB SITE's end-user screens,
including layout, coloration and typeset shall be produced by designers of N2K
subject to the creative direction of WQXR and mutual approval of WQXR and N2K.
(b) Content Plan and Technical Specifications: WQXR and N2K will be
jointly responsible for selecting the content made accessible on the WEB SITE.
WQXR will collaborate with N2K's producer to develop a content plan and
functional specifications for the WQXR site.
(c) WQXR Content: WQXR will provide the Materials and other content
necessary for the design of the WEB SITE, including all material images and
appropriate sound and/or video files. WQXR warrants that all such Materials and
other content, including the Retransmission, which is provided to N2K will be
owned or controlled by WQXR and there will be no restriction on its use by N2K
as provided herein, unless otherwise advised by WQXR in writing (hereafter
"Materials" shall be deemed to include the Retransmissions).
(d) Performance Licensing: N2K will notify ASCAP and BMI of its
intention to carry WQXR's Programming Service, and will be responsible for any
and all fees and other responsibilities required in connection with the
Retransmission on CI.
3. ENGINEERING AND MAINTENANCE:
N2K shall format the WEB SITE content in hypertext markup language,
HTML or other language ("HTML pages") (the HTML pages of the WEB SITE
hereinafter, the "Web Pages") and develop and/or license the software necessary
to (i) link the WEB SITE's Web Pages to N2K's databases and related services,
(ii) effectuate secure commercial transactions on the WEB SITE, and (iii) store
and display advertisement and/or sponsor messages on the WEB SITE. N2K shall
store the WEB SITE on its servers, and provide and maintain the technical
systems through which the WEB SITE shall be accessed via the Internet.
4. UPDATES AND TECHNICAL MAINTENANCE
(a) During the term of this agreement, N2K agrees to perform the
functions described in Section 2 above to the extent necessary to update the
content appearing on the WEB SITE from time to time as it deems necessary and to
maintain the WEB SITE in proper working order. Such
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<PAGE> 4
tasks include providing any additional software and/or hardware to run the site,
reporting of traffic to the WEB SITE, and limited updates to code and content
(as detailed in Schedule B). N2K shall bear the cost of the aforementioned HTML
formatting, software development and software licensing, and such cost shall be
included in the Budget as set forth in Schedule B hereto.
5. Budget
(a) N2K agrees to pay for all costs necessary to design and produce the
WEB SITE and the monthly cost necessary to maintain the WEB SITE (such amounts
collectively referred to as the "Budget," the breakdown of which is set forth in
the Budget estimates attached hereto as Schedule A). Should the scope of work
change from that as currently defined in Schedule A, an additional fee will be
negotiated in good faith by both parties.
(b) WQXR agrees to reimburse N2K for [****] of the costs described in
4(a) and 5(a) above, as detailed in Schedule A hereto, in the form of on air
commercial spots (the "Barter Commercials"). WQXR will make such inventory of
Barter Commercials available to N2K over the term of this agreement, according
to a schedule mutually agreed upon by N2K and WQXR, subject to the monetary
value attributed to the Barter Commercials and the conditions set forth in
Schedule B hereto and otherwise in accordance with WQXR's standard practices
with respect to booking barter spots.
6. COPYRIGHTS, OWNERSHIP OF CONTENT AND LISTS
(a) N2K agrees that all the following are and shall remain the sole and
exclusive property of WQXR: (i) the Materials, and the Marks licensed to N2K
hereunder; and (ii) the domain name or names assigned to the WEB SITE.
(b) WQXR agrees that all of the following are and shall remain the sole
and exclusive property of N2K: (i) all the software code, created by N2K or
licensed by it, and used in the operation of the WEB SITE, including but not
limited to the User Interface of the WEB SITE, any works derived therefrom and
the copyrights therein; (ii) all content developed or produced by N2K and used
in the WEB SITE (including any content licensed by N2K from third parties),
including but not limited to the copyright in any such original content, and any
works derived therefrom, subject to the prior rights of third party licensers.
Notwithstanding anything to the contrary contained in the preceding 6(b)(ii),
following the Term of this Agreement, WQXR shall be entitled to the
non-exclusive use of any content which had been used on the WEB SITE which
resulted from ideas or concepts provided or developed by WQXR which would
otherwise be subject to copyright protection prior to such ideas or concepts
being incorporated or further developed by N2K for incorporation in the WEB SITE
and provided that such use is limited to another WQXR WEB SITE and does not
utilize any software code owned or controlled by N2K, as set forth in 6(b)(i)
above.
7. OWNERSHIP OF TRADEMARKS
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<PAGE> 5
(a) N2K hereby acknowledges that WQXR is the sole owner of the Marks
and of the respective goodwill and reputation symbolized thereby, and that
nothing contained herein shall constitute an assignment of the Marks or grant to
N2K any right, title or interest therein, except the right to use the Marks in
accordance with the terms of this Agreement.
8. TERM
The term of the agreement shall be effective upon the execution of the
agreement and continue for a period extending one (1) year from the launch date
of the WEB SITE which the parties agree shall be November 14, 1996. The
agreement shall automatically renew for an additional one (1) year term unless
either party gives written notice of termination no less than ninety (90) days
prior to the expiration of the current term or any subsequent renewal term.
Notwithstanding the foregoing, N2K'S right to use any of the Marks, and the
Materials, as provided for herein, shall not be for a period of less than four
(4) months Tom the date on which the particular Marks, and/or Materials are
first exhibited on CI.
9. FORCE MAJEURE
Neither party shall be liable to the other or deemed to be in breach
hereunder for nonperformance or delays due to fire, boycott, lock-out, war,
labor or civil disturbance, riots, acts of God, insurrection, government orders
or regulations, or any other cause beyond the reasonable control of the party
delayed or prevented from performing.
10. RELATIONSHIP OF THE PARTIES
This agreement does not constitute a partnership, joint venture,
agency, employee/employer, or any other similar relationship between the parties
hereto. Further, neither party is authorized to waive any right, 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.
11. WARRANTY AND INDEMNITY
(a) WQXR warrants and represents that the Retransmissions and the
Materials will in no way violate any existing copyright, either in whole or in
part, that use by N2K, as provided herein, will not infringe upon the rights of
any third party and that the Materials contain no matter which will be libelous.
WQXR shall defend and indemnify N2K from all damages, costs and expenses
including attorney's fees, as well as any claim, suit, loss or damage as a
result of a breach of the above warranties and representations or as a result of
its failure to perform its obligations hereunder.
(b) N2K warrants and represents that the content provided by it for the
WEB SITE will in no way violate any existing copyright, either in whole or in
part, that the use of such
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content, as provided herein, will not infringe upon the rights of any third
party and that the Materials contain no matter which will be libelous. N2K shall
defend and indemnify WQXR from all damages, costs and expenses including
attorney's fees, as well as any claim, suit, loss or damage as a result of a
breach of the above warranties and representations or as a result of its failure
to perform its obligations hereunder.
12. NOTICES
All notices, approvals, or documents which either party hereto is
required to deliver to the other party shall be in writing and shall be
personally delivered or telegraphed or faxed (with telephonic confirmation of
receipt) or mailed by Express Mail or comparable overnight courier, to such
party at the address set forth at the top of this agreement (or such other
address as may later be designated in writing by either party). A courtesy copy
of notices to N2K shall simultaneously be sent to Arthur S. Weiner, Esq., 250
West 57th Street, Suite 1508, New York, N.Y. 10019 (or such other address as may
later be designated in writing); A courtesy copy of notices to WQXR shall
simultaneously be sent to: General Counsel, New York Times, 229 West 43rd
Street, N.Y., N.Y. 10036 (or such other address as may later be designated in
writing); it being understood that inadvertent failure to send such courtesy
copy shall not be deemed a breach of this agreement.
13. MISCELLANEOUS
(a) This agreement constitutes and contains the entire agreement
between the parties with respect to the subject matter hereof and supersede any
prior contemporaneous agreements, oral or in writing. The paragraph headings
used in this Agreement are for convenience only and shall have no legal effect
whatsoever.
(b) This agreement may not be changed, modified, amended or
supplemented, except in writing signed by a duly authorized representative of
each party.
(c) No waiver by either party of any term or condition of this
agreement, whether by conduct or otherwise, in any one or more instance, shall
be deemed a further or continuing waiver of any such term or condition, or a
waiver of any other term or condition, or a waiver of any other term or
condition in this agreement.
(d) if any provision of this agreement is found to be invalid by any
court, (pursuant to Section 20(h) below) having competent jurisdiction, the
invalidity of such provision shall not effect the validity of the remaining
provisions hereof.
(e) Each party represents that all necessary approvals and consents
have been obtained for entry into this agreement. Each of the parties
acknowledges and agrees that the other has not made any representations,
warranties or agreements of any kind, except as may be expressly set forth
herein.
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(f) This agreement is binding upon and shall inure to, the benefit of
the parties' respective successors, trustees and permitted assigns. Except as
otherwise expressly provided herein neither party shall be permitted to assign
its rights hereunder without the express written consent of the other, which
consent shall not be unreasonably withheld, provided, however, N2K may assign
any of its rights and obligations hereunder without prior written consent to any
parent, subsidiary, or related company, or affiliate of N2K, or in connection
with the sale of all or substantially all of N2K's assets.
(g) Regardless of the place of physical execution, this agreement shall
be governed by and construed in accordance with the laws of the State of New
York, as applicable to agreements executed and performed within that state, and
any disputes or controversies arising hereunder shall be subject to the
jurisdiction of Courts of the State of New York or of the U.S. Federal District
Court for the Southern District of New York. Any process in any action or
proceeding arising under or relating to this Agreement may, among other methods,
be served by delivering or mailing the same by registered or certified mail,
directed to either party at the address first written above or such other
address as you designate by notice to the other party as provided herein. Any
such delivery or mail service shall be deemed to have the same force and effect
as personal service within the State of New York.
(h) This agreement may be executed in any number of separate
counterparts, each of which shall be deemed to be an original, but which
together shall continue one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this agreement on the day and year
first above written.
INTERSTATE BROADCASTING
COMPANY, INC. N2K INC.
By /s/ Stephanie Feuer By /s/ J.J. Rosen
----------------------------- --------------------------------
Stephanie Feuer J.J. Rosen
7
<PAGE> 8
SCHEDULE A
(BUDGET)
PHASE I - BASIC WEB SITE DESIGN AND PROGRAMMING
<TABLE>
<CAPTION>
<S> <C>
Site Director [****]
Producer [****]
Interface Designer [****]
Lead Designer [****]
Content Coordinator [****]
Production [****]
Programming [****]
- -------------------------------------------
SUB TOTAL [****]
Administrative Fee [****]
- -------------------------------------------
TOTAL [****]
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
MAINTENANCE BUDGET [****]
MONTHLY AMOUNT [****]
- -------------------------------------------
Design: [****]
Production: [****]
Site Director: [****]
Producer: [****]
Interface Designer: [****]
Content Coordinator [****]
Programming: [****]
Scanning: 3 hrs [****]
- -------------------------------------------
SUB TOTAL: [****]
Administrative Fee: [****]
Req'd Hardware & Software fee: [****]
- -------------------------------------------
TOTAL: [****]
</TABLE>
8
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SCHEDULE B
(BARTER COMMERCIALS)
The value attributed to the Barter Commercials will be at the spot rate of
[****] per sixty-second announcement on an ROS (run of station) basis on WQXR or
at the rate of [****] per sixty-second announcement on WQEW, the allocation of
which will be at N2K's discretion. Barter Commercials will be used within one
year from the time when the corresponding N2K expense is incurred. The foregoing
rates will be in effect through October 31, 1997.
[/R]
9
<PAGE> 1
EXHIBIT 10.19
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.
TERM SHEET
MUSIC BOULEVARD/GROLIER INTERACTIVE/ONLINE, GROUPE
Purpose:
Incorpoate a customized Music Boulevard storefront in the Club
Internet service.
Launch Date:
To be determined.
* FUNCTION: GIE/OG will be considered as a broker of Music Boulevard
Site in French, by being in charge of the promotion of the French
site on the Internet.
* GIE/OG will create the French interface (translation's costs on its
account) and inform French speaking customers about the selling
conditions of the service.
* GIE/OG, being the only broker and not the direct seller, will limit
its responsibility. Consequently, N2K standard terms and conditions
of sale will apply to all transactions.
* HOSTING: it is understood that GIE/OG will develop and host the
introductory pages on their site, linking to MB as per the agreement
of the parties. A mirror of the French pages will be created on the
Music Boulevard servers for the North American visitors.
Term of Agreement:
1 Year from launch date.
Renewal:
No later than 90 days prior to the expiration of the term, the parties
will enter into good faith negotiations to renew the agreement on
mutually acceptable terms. Failure to reach an agreement will cause
the Agreement to lapse automatically.
Exclusivity Agreement:
During the term of this agreement:
* Music Boulevard will be designated as the official music store of
GIE/OG.
* N2K will not enter into a similar agreement with another French
online service.
* GIE/OG will not enter into a similar agreement with a merchant of
musical recordings; provided that (I) GIE/OG may continue to broker
the sale of French musical recordings sold in France that are not
available through Music Boulevard, and (II) if a merchant of locally
produced French musical recordings shall seek to have GIE/OG broker
the sale of such recordings, and the price at which such merchant
proposes to sell such recordings is materially lower than the price
at which such recordings are offered on
<PAGE> 2
Music Boulevard, then N2K and GIE/OG will discuss a modification to
their business arrangement.
* In the event GIE/OG shall desire to enter the online music and
merchandising business (by establishing an online store or
otherwise), whether under its own brand or another brand, it will
first offer N2K the opportunity to propose a new business
arrangement whereby N2K and GIE/OG will jointly develop such online
business.
Promotion:
GIE/OG agrees to promote the French version of Music Boulevard on
the following channels:
* on Club Internet
* on any kind of advertising medium used by Club Internet in
connection with its regular promotions, such as brochures.
* on Club Music, which is the editorial music magazine on Club
Internet, by creating, for example, promotional packages of
several products.
* in PLANETE INTERNET (the leading French speaking Internet magazine
in print) distributed in FRANCE, BENELUX, QUEBEC.
* in major directories of French newsgroups.
Further, GIE/OG will add links to the Music Boulevard database
whenever references are made to recording artists on Club Internet.
GIE/OG will also use its best efforts to promote the French Music
Boulevard site on the Lagardere radio network.
GIE/OG will establish a promotion schedule for 1997 within 45 days
of the execution of the final agreement between them.
N2K will regularly promote the French Music Boulevard site, and will
clearly identify the French language option on its home page (e.g.,
with a French flag).
Sales Commission:
During the term of this agreement, N2K will pay GIE/OG the following
royalty for every transaction completed on the Music Boulevard web
store by a Covered Person. A Covered Person is a person who entered
the Music Boulevard store and whose Bill to/Ship to address is in
France or the Benelux countries. Covered Persons may also include
persons located in Quebec, but GIE/OG's
2
<PAGE> 3
compensation with respect to such persons will be determined after
GIE/OG shall have presented to N2K a marketing plan for Quebec that
is satisfactory to N2K.
* [xxxx] of the actual selling price on Music Boulevard, less credit
card charges, shipping and handling, for CD's and cassettes.
* [****] of the actual selling price on Music Boulevard, less credit
card charges, shipping and handling, for CD's and cassettes on sale
("en solde"). Typically, at any time, approximately 150 items are on
the sale out of the 150,000 items offered for sale. French Special
Deals will be treated as "on sale" if discounts are offered for
purchase.
* Other merchandise [****] of selling price, less credit card,
packaging, shipping and handling.
Payment of Commissions:
GIE/OG will receive its sales commissions every four months.
Order Fulfillment:
N2K will be responsible for all order processing as well as for the
after sales service. However, GIE/OG will make its best efforts to
create a mailing box, as well as provide e-mail for any possible
customer complaints.
Web Site Advertising:
In the event that GIE/OG shall seek to sell advertising on the
French customized web pages of Music Boulevard, N2K and GIE/OG shall
split the ad revenues equally among them, after payment of sales
commissions (limited to [****]% unless a higher percentage has been
mutually agreed upon). N2K shall retain all advertising revenues
from non-French web pages on its U.S. sites.
Design:
All design work will be performed by N2K, other than GIE/OG artwork,
which will be made available by GIE/OG.
Design Fee:
None.
Engineering:
All programming and engineering within the Music Boulevard
environment will be performed by N2K. Code that needs to reside on
GIE/OG server will be developed by GIE/OG, with sample code and
assistance from N2K, as needed.
Engineering Fee:
None.
3
<PAGE> 4
Intellectual Property:
N2k shall retain the ownership of all content and code developed by N2K
for use on GIE/OG.
Music Wire:
N2K and GIE/OG will consider the opportunity to create a French
localized version of Music Wire, Music Boulevard's exclusive online
music news feature. This new partnership will be subject to a separate
agreement between the parties.
Spain:
N2K and GIE/OG will enter into discussions to evaluate the possibility
of extending this agreement to the Spanish market.
ACCEPTED BY:
N2K INC.
____________________________
James E. Coane
President
Date: 12/6/96
GROLIER INTERACTIVE EUROPE ONLINE
By: Fabrice Sergent
Title: Chairman and CEO
Date: 12/6/96
4
<PAGE> 1
Exhibit 10.20
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.
N2K, Inc. Content and Services Agreement
Effective As of May 21, 1997 Page 1
WEBTV NETWORKS, INC.
CONTENT AND SERVICES AGREEMENT
This Content and Services Agreement (the "Agreement") is between WebTV
Networks, Inc., with offices at 305 Lytton Avenue, Palo Alto, CA 94301
("WNI") and N2K Inc., with offices at 55 Broad Street, 10th Floor, New
York, New York 10004, ("Partner") and sets forth the principal terms and
objectives of the parties with respect to their agreement to feature
Partner's content within WNI's WebTV Network(TM) Internet service,
effective as of May 21, 1997.
THE OBJECTIVES
WNI and Partner agree that their mutual goal is to work in partnership to
integrate Partner's content into WNI's Internet service, such that both
parties realize benefits from such presentation and utilization of
Partner's content by WebTV Network users. It is agreed that by presenting
Partner's content in a uniquely useful and appealing way to WNI's
increasingly broad subscriber base, that Partner will incur increased
network traffic, presence and market appeal for its content and service
offerings. It is further agreed that Partner's content will augment both
the desirability and utility of the WebTV Network to its subscribers and
further broaden the appeal of WNI's WebTV(TM) product and services.
The parties, therefore, agree to the following terms, which support their
mutual goals and agreements, though it is recognized that due to the
newness of such endeavors and the evolving and increasingly competitive
nature of the Internet that, in the enactment of this partnership, both
parties will need to exert their best efforts in unanticipated ways to
bring about the success of this Agreement, such as being prepared to engage
in further discussion and negotiation of various emerging issues or
unexpected conditions that need to be resolved between the parties as time
passes and market assumptions are tested.
BASIC TERMS OF AGREEMENT
1. DEFINITIONS. All terms shall have the meanings normally associated with
such terms unless otherwise defined in Exhibit A. Partner's content
(hereinafter called "Partner Content") shall be described in detail within
this Exhibit.
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2. OBLIGATIONS OF THE PARTIES. The parties shall perform the following to
fulfill the terms and intent of this Agreement:
WNI shall
a. Provide development guidance to Partner, commencing with a
project manager to interface between WNI's various departmental
teams and Partner, including as needed technical support,
engineering contacts and information, marketing and product
planning information and other support necessary to enable
Partner to work and interface effectively with WNI.
b. Feature Partner Content on the WebTV Network in a position of
prominence based upon the mutual understandings described in
Exhibit B.
c. Provide information and feedback to Partner on its editorial
needs and requirements, including, when available, user testing
and/or survey results on the use of Partner Content by WNI
subscribers, user complaints or problems (if any), and
statistical information on usage and satisfaction levels of WNI
subscribers, when available.
d. Advance information on new tool features, capabilities or
technical developments that would have an impact on Partner
Content or on the format, structure, style or maintenance of
Partner Content on or for the WebTV Network.
Partner will
e. Create a customized, appealing Web page for the initial
presentation of the Partner Content within the WebTV Network
(called the "Entrance Page") which shall be specifically tailored
to the look and feel of the WebTV Network (using WNI's Style
Guidelines) so as to be easily interpreted by WNI subscribers and
identifiable as a WebTV Network feature.
f. Maintain its own standards of creative and editorial control over
Partner Content featured on the WebTV Network including the text
and/or graphic used to link from WebTV Network to Partner
Content.
g. Make Partner Content (including the Entrance Page) available to
WebTV Network subscribers and provide sufficient computing
performance to service the demand placed upon the Partner Content
by WNI subscribers at the same or greater levels of performance
provided by the WebTV Network as a whole.
3. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement,
Partner grants to WNI a nonexclusive worldwide right and license to (i)
copy, use, and distribute excerpts of the Partner Content excluding sound
recordings, sound samples, video samples, or other live or prerecorded
audio, video, or music programming for the purpose of marketing, promoting
and advertising the WebTV Network and (ii) distribute, display and perform
the Partner Content only on the WebTV Network. Other than as specifically
described in this Agreement, nothing else herein grants or shall be
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construed as granting to either party any licenses or other rights in, to
or under the Partner Content, the WebTV Network or WNI Software, or any
Intellectual Property Rights embodied therein.
4. REVENUE SHARING. WNI and Partner shall share revenue generated as a result
of WebTV Network traffic on Partner Content pages (as determined by usage
originating from the webtv.net domain). Revenue sharing shall be conducted
according to Exhibit C.
5. PROMOTIONS AND CO-MARKETING. The parties agree to the types of marketing
promotions and co-marketing opportunities as described in Exhibit D, as
well as the distribution, ownership and sharing of subscriber information
and statistical data described in Exhibit D.
6. UI OWNERSHIP AND EDITORIAL CONTROL. The parties will cooperate to insure
that the user interface will be of the highest quality in terms of style,
graphics and functionality. Both parties shall retain ownership, and
control use of their respective marks, copyrights logos, look-and-feel, and
any other proprietary materials and content, except that the parties agree
that any unique look-and-feel developed for use with the WebTV Network, as
identified and agreed by the parties, and therefore identifiable with the
WebTV Network shall be used exclusively for WNI. In addition, the parties
agree that Partner shall maintain creative and editorial control over
Partner Content featured on the WebTV Network and shall use its best
efforts to ensure that all Content is of the highest quality and
appropriateness for the WebTV Network, except that WNI shall have the right
to object to materials which it deems inappropriate or objectionable (see
"Objectionable Material" in the Definitions (Exhibit A) and in Featuring of
Content (Exhibit B)), whereupon Partner agrees that such materials may be
blocked, at WNI's expense, from viewing over the WebTV Network (if another
solution cannot be agreed to).
7. CUSTOMER SUPPORT. Partner shall provide WNI with the following support
services (the "Primary Support") within thirty (30) days after the
execution of this Agreement, so that WNI may provide WebTV users with the
necessary customer support (the "Secondary Support") for Partner Content:
i.) Answers to the most frequently asked questions (FAQs) and periodic
updates as necessary; ii.) Direct basic training of WNI customer support
personnel with respect to the Partner Content; iii). A 24-hour,
7-day-a-week live Partner support contact who shall be available to answer
all reasonable questions and address problems regarding the operation of
the Partner Content and iv.) Forward to a URL specified by WNI on an
ongoing basis all specific support and feedback-related e-mails from WebTV
users to Partner. In the event that the Partner Content exceeds WNI's
service capacity (approximately 25 calls per day or calls exceeding 20
minutes), WNI shall provide written notice to Partner of this problem and
the two parties shall work together to resolve the problem within 48 hours.
If the problem cannot be resolved within 48 hours, WNI reserves the right
to remove Partner Content from the WebTV Network until the problem has been
fixed.
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8. TECHNICAL STANDARDS. The parties shall abide by the technical standards for
response-time service, downtime, redundancy and failure procedures as
enumerated in Exhibit E.
9. CONFIDENTIALITY. The parties shall abide by the terms of the Non-Disclosure
Agreement previously entered into between the parties on January 10, 1997.
10. INDEMNIFICATION AND LIMITS ON LIABILITY.
a. DISCLAIMER OF WARRANTIES. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH
IN THIS AGREEMENT WNI MAKES NO WARRANTIES, WHETHER EXPRESS OR
IMPLIED, WITH RESPECT TO THE WNI SOFTWARE OR WEBTV NETWORK,
INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS.
b. INDEMNIFICATION. Partner agrees to hold harmless, indemnify and
defend WNI, its officers, directors and employees, and its OEM's
from and against any losses, damages, fines, product liability,
transactions by Partner over WebTV Network including, but not
limited to, sales of products or services by Partner or third
parties for Partner, and expenses (including attorneys fees and
costs) arising out of or relating to any claims that the Partner
Content is false, libelous, defamatory, obscene, invades privacy,
or infringes any third party Intellectual Property Rights.
c. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER PARTY FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL
OR PUNITIVE DAMAGES OF ANY KIND OR NATURE, INCLUDING WITHOUT
LIMITATION LOST REVENUES OR PROFITS, WHETHER SUCH LIABILITY IS
ASSERTED ON THE BASIS OF CONTRACT (INCLUDING, WITHOUT LIMITATION,
THE BREACH OF THIS AGREEMENT OR ANY TERMINATION OF THIS
AGREEMENT, TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY), OR
OTHERWISE, EVEN IF THE OTHER PARTY HAS BEEN WARNED OF THE
POSSIBILITY OF ANY SUCH LOSS OR DAMAGE IN ADVANCE.
11. TERM. The term of the Agreement will be for 12 months from the date Partner
Content is featured on the WebTV Network, which term shall be subject to
termination if either party fails to perform its obligations under this
Agreement or fails to cooperate to mutually accomplish the goals of this
Agreement. Such right to terminate this Agreement may be effected by either
party with written notice to the other, providing a description of the
failure to perform with a request for a cure within thirty (30) days, if
such failure is of a material obligation, or with a request for a cure
within sixty (60) days, if such failure is of a non-material obligation.
The failure to remedy the default within the specified period will result
in the termination of this Agreement.
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12. GENERAL PROVISIONS.
a. NOTICES. Unless otherwise provided in this Agreement, all
notices, required under this Agreement shall be in writing and
shall be effective for all purposes upon receipt. Notices shall
be sent to:
WebTV Networks, Inc. N2K, Inc.
305 Lytton Avenue 55 Broad Street, 10th Floor
Palo Alto, CA 94301 New York, New York 10004
Att: Legal Department Att: J.J. Rosen
b. INDEPENDENT CONTRACTORS. In the course of performing under this
Agreement, each of the parties will operate as, and have the
status of, an independent contractor and will not act as or be an
agent, co-venturer, employee or fiduciary of the other party.
c. ASSIGNMENT. Partner shall not transfer or assign any rights or
delegate any obligations under this Agreement (whether
voluntarily or by operation of law) without the prior written
consent of WNI. WNI shall have the right to transfer this
Agreement, and assign all of its rights and delegate all of its
obligations hereunder, to any Affiliate, and to any successor.
d. SEVERABILITY. If any provision of this Agreement or portion
thereof is determined by a court of competent jurisdiction to be
invalid, illegal or otherwise unenforceable, then such provision
will, to the extent permitted by the court not be voided but will
instead be construed to give effect to its intent to the maximum
extent permissible under applicable law and the remainder of this
Agreement will remain in full force and effect according to its
terms.
e. EXPORT CONTROL. Each party shall be responsible for insuring that
it complies with all laws and regulations of the United States
government relating to the export from the United States of
content, technical information or technical data or products made
using technical information or technical data or products
received from the other party under this Agreement.
f. GOVERNING LAW. This Agreement shall be governed by and construed
under, and in accordance with, the laws of the State of
California. The parties hereby submit to the personal
jurisdiction of, and agree that any legal proceeding with respect
to or arising under this Agreement shall be brought in, the
United States District Court for the Northern District of
California or the state courts of the State of California for the
County of Santa Clara.
g. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement (including
exhibits and schedules and the referenced Non-Disclosure
Agreement) constitutes the entire Agreement of the parties
concerning its subject matter and supersedes any
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and all prior or contemporaneous, written or oral negotiations,
correspondence, understandings and Agreements respecting the
subject matter of this Agreement.
h. FORCE MAJEURE. Neither party shall be liable to fulfill its
obligations under this Agreement, or for delays in performance,
due to causes beyond its reasonable control including but not
limited to acts of God, acts of omissions of civil or military
authority, fires, strikes, floods, epidemics, riots, acts of war.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date last written below:
On behalf of On behalf of
WebTV Networks, Inc. Partner
By: /s/ Zara Haimo By: /s/ JJ Rosen
------------------------------ -------------------------
Name: Zara Haimo Name:JJ Rosen
-------------------------
Title: VP Content & Service Title:SUP/GM
WebTV Networks, Inc. -------------------------
Date:5/21/97 Date:5/21/97
------------------------------ -------------------------
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WEBTV NETWORKS, INC.
CONTENT AND SERVICES AGREEMENT
EXHIBIT A
DEFINITIONS
Except as defined below or as defined above within the body of the Agreement,
all terms have their ordinary and regular meanings within the context of
this Agreement.
PARTNER CONTENT. The content provided by Partner shall be its own proprietary
content as is specifically described and delineated below:
Partner's Music Boulevard online music store, Rocktropolis, Jazz Central
Station, Classical Insites, Stones World, The Official David Bowie Web
Site, and other content created by Partner.
OBJECTIONABLE MATERIALS. Objectionable materials will include any Partner
Content that is: a) factually inaccurate, misleading, deceptive, not
containing the most up-to-date version of such content which is available
from the Partner, or is otherwise inappropriate for WNI's target market as
determined exclusively by WNI; b) which infringes or may be perceived as
infringing any intellectual property rights; c) which may be deemed to be
libelous, defamatory, obscene or pornographic or which may violate other
civil or criminal laws; including those regulating the use and distribution
of content on the Internet and protection of personal privacy; d) which, if
deemed objectionable for any reason for children by WNI and cannot be
presented or utilized in such a way which allows access to such materials
strictly to adult users of the WebTV Network; or e) which, upon
presentation, generates complaints from WebTV Network subscribers such that
WNI regards the continuing presentation of such content to be contrary to
the overall goals of the WebTV Network.
OTHER TERMS. Not Applicable
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WEBTV NETWORKS, INC.
CONTENT AND SERVICES AGREEMENT
EXHIBIT B
FEATURING OF CONTENT
1. FEATURING OF PARTNER CONTENT ON THE WEBTV NETWORK. WNI shall feature the
Partner Content within the WebTV Network in such a way as to provide ready
access to such content by WebTV Network subscribers. Such access (which
shall be initiated through the Partner's Entrance Page) shall point to
Partner's Content for Term of the Agreement.
2. CO-BRANDING. Any co-branded pages as defined pursuant to paragraph 2 e. of
this Agreement, including Partner's Entrance Page, shall have the WebTV
logo according to WNI's branding guidelines.
3. FEATURED POSITION. WNI shall provide a link to the Partner's Entrance Page
within the WebTV Network which puts Partner Content in a position of
prominence. Access to Partner Content, however, shall remain within WNI's
sole discretion. In the event of substantive changes in the character,
quality or partnership performance of Partner, WNI may remove the link to
Partner Content based on the notification period agreed to in this
Agreement for removal of the Partner Content, should the issues remain
unresolved by the parties. Further, WNI will explore additional
opportunities to feature Partner Content on the WebTV Network.
4. OBJECTIONABLE MATERIAL. Partner shall ensure that Partner Content is
accurate to reasonable standards, does not infringe third party
Intellectual Property Rights, and is of high quality. At WNI's request,
Partner shall provide support for one or more "KidSafe" access technologies
selected and used by WNI. In addition, if WNI finds Partner Content
objectionable, WNI shall forward a written explanation of its objection(s)
to Partner. Partner shall review the objection(s) within 24 hours and work
with WNI to determine a mutually agreeable solution to resolve the
objection(s). WNI reserves the right, to be exercised in its sole
discretion, to disconnect the Partner Content if, after 48 hours the
parties do not reach a mutually agreeable solution. In all cases, Partner
shall comply with all applicable laws and regulations governing the use and
distribution of content on the Internet or World Wide Web.
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WEBTV NETWORKS, INC.
CONTENT AND SERVICES AGREEMENT
EXHIBIT C
REVENUE SHARING TERMS
Revenue sharing between the parties will be provided as follows:
1. TYPES OF REVENUE INCLUDED. The categories of revenue generated by this
Agreement to be included for revenue sharing shall include:
Advertising revenue, premium service revenue (including but not
limited to periodic pay-per-view, pay-per-play, or loyalty type
programs), and transaction revenue (including but not limited to
revenues from merchandising products/services, other promotions, and
follow-on transactions)
2. PERCENTAGE SPLITS. The parties shall receive the following percentages of
the Partner realized revenue generated as a result of WebTV Network
subscribers visiting Partner Content, calculated after the deduction of the
costs (listed in part 3 of this Exhibit C) on a monthly basis as follows:
Type of Revenue Stream Partner % Share WNI % Share
Advertising revenue [****] [****]
During the first ninety (90) days, following execution of this Agreement,
Partner shall receive all advertising revenue generated as a result of
WebTV Network subscribers visiting Partner Content. Thereafter, the revenue
generated shall be split as described in Section 2 of Exhibit C.
The percentage splits for premium service revenue and transaction revenue
shall be adhere the following schedule:
(a) Partner will pay to WNI a royalty of [****] of the selling price
of Music Boulevard music products, such as, but not limited to, CDs,
tapes, and records, sold by Partner to WebTV Network subscribers who
have linked from the WebTV Network prior to making a purchase
(excluding shipping, handling, database processing fees, and credit
card validation fees). In the event Partner offers WebTV Network
subscribers multiple payment methods for purchases of
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Partner products, Partner agrees to evaluate ways to differentiate
purchases made by WebTV Network subscribers from all other purchases.
(b) For all other items sold by Partner in Music Boulevard through the
WebTV Network and not covered in paragraph (a) above such as but not
limited to videos, apparel, memorabilia, and event tickets, Partner
will pay to WNI [****] of the net profits of these items. For purposes
of this agreement, net profit is defined as the selling price of the
item (excluding charges to customers such as shipping, handling,
database processing fees, credit card validation fees, pick and
packaging fees, and database and music licensing fees) minus the
wholesale cost Partner paid for the item. In the event Partner offers
WebTV Network subscribers multiple payment methods for purchases of
Partner products, Partner agrees to evaluate ways to differentiate
purchases made by WebTV Network subscribers from all other purchases.
WNI and Partner shall each receive an annual statement of revenues, the
calculation of the percentages, payments made and a verification of
accuracy from an officer of the other party regarding the revenue share
payments and report. Either party may elect to perform an audit of such
revenue sharing calculations at its own expense, which audit costs shall be
borne by the other party, should the originating party's payments differ by
more than [****] of the audited result.
3. DEDUCTIBLE COSTS. The following costs shall be netted out of the gross
advertising revenues received by either party for Partner Content revenue
sharing purposes:
Any applicable sales, use value-added or withholding taxes, export
duties or similar charges to be paid or withheld by Partner. In
addition, and in no event to exceed [****], advertisement barter
revenues and amounts allocable to any credits or refunds, (including
but not limited to amounts credited for bad debts or fraud), any
direct cost of collection, any internal or external sales commissions,
any third-party agency fees, and any license fees or royalties paid by
Partner in connection with delivering advertising.
4. PAYMENTS. Partner shall provide WNI with a written statement setting forth
the gross advertising revenue received during each calendar quarter within
thirty (30) days of the last day of such quarter, and shall pay WNI its
share of the gross advertising revenue at such time. All payments shall be
mailed to WNI at the address set forth above, attention Finance Department.
Collection of advertising receivables shall remain the sole responsibility
of Partner. Late payments shall be charged interest at a rate of [****] per
month, or the maximum rate allowed by law, whichever is less.
WebTV Networks, Inc. Confidential
Version of 5/9/97
<PAGE> 11
N2K, Inc. Content and Services Agreement
Effective As of May 21, 1997 Page 11
5. SALE OF ADVERTISING INVENTORY. Partner will use the same reasonable
commercial efforts to sell advertising on Partner Content web sites that
are accessed through the WebTV Network that Partner uses to sell
advertising on Partner's web sites not on the WebTV Network.
6. TRANSACTIONS. Partner will be solely responsible for all aspects of
transactions made by WebTV Network users including, but not limited to,
merchandising, fulfillment, warranties, and customer service.
WebTV Networks, Inc. Confidential
Version of 5/9/97
<PAGE> 12
N2K, Inc. Content and Services Agreement
Effective As of May 21, 1997 Page 12
WEBTV NETWORKS, INC.
CONTENT AND SERVICES AGREEMENT
EXHIBIT D
PROMOTIONS AND USE OF DATA
1. PROMOTIONS/CO-MARKETING. The parties agree to the following types and
schedules of marketing promotions and co-marketing opportunities:
a. On-line promotions of Partner Content on the WebTV Network.
b. On-line promotions of the WebTV Network on Partner Content.
c. A public announcement by the parties regarding the establishment of
this relationship, subject to the approval of the respective parties.
d. Both parties agree to make reasonable commercial efforts to include
the other party in promotions. Promotions may include without
limitation demonstrations of the Partner Content and the WebTV Network
at trade shows, in marketing brochures, on television and in print
advertising campaigns. Such promotions may include without limitation
screen shots displaying WNI or Partner logo, and/or screen shots of
Partner Content displayed on the WebTV Network.
2. INDIVIDUAL USER DATA AND USAGE.
a. OWNERSHIP. Any individual user data previously owned by WNI or Partner
will remain the property of that party. No rights or interests of any
nature in or to such data are transferred or granted hereunder,
however, any information directly gathered by Partner on WebTV Network
users shall be co-owned by WNI. Partner shall share any and all
information gathered on WebTV Network users to WNI upon WNI's request.
b. STATISTICAL INFORMATION. WNI and Partner agree to share, via secure
electronic transfer, (i) from WNI, such aggregated statistical
information, taking into account privacy issues, regarding the
breakdown of WebTV Network users who access the Partner Content web
site and (ii) from Partner such information regarding traffic and
usage patterns of the Partner Content Web site. Partner shall provide
information to WNI regarding WebTV Network subscriber usage
statistically as well as specific subscriber feedback of the Partner
Content when available.
c. DISTRIBUTION. In order to ensure the high-quality delivery of the
Partner Content, Partner further agrees that WNI and its network
service providers may cache the Partner Content on WNI's servers and
consents to such caching. WNI will either provide Partner with
information regarding the number of ad impressions and click-throughs
or WNI will allow Partner to gather this information directly.
WebTV Networks, Inc. Confidential
Version of 5/9/97
<PAGE> 13
N2K, Inc. Content and Services Agreement
Effective As of May 21, 1997 Page 13
d. PROHIBITED USAGE. Partner may not use, sell nor distribute to any
third party any specific information about WebTV Network users without
the express prior written consent of WNI. WNI may not use, sell nor
distribute to any third party any specific information collected and
provided by Partner to WNI about WebTV Network users' interaction with
Partner Content without the express written consent of Partner.
Partner may not directly solicit individual WebTV Network users
without the express written consent of the WebTV Network user.
Aggregated statistical information about WebTV Network users is to be
considered Confidential Information of WNI under the Non-Disclosure
Agreement previously signed by the parties and as such may not be
used, sold or distributed to other parties by Partner, except as an
indistinguishable part of aggregated statistical information about the
Partner Web site's overall user base. Partner may not direct market
products or services or allow any third party to direct market
products or services to WebTV Network users without the express
written consent of WNI which shall not be unreasonably withheld. WNI
maintains the right to change its policies regarding privacy issues
for its users and the sharing of WebTV Network user information with
Partner. Any such changes shall remain in conformance with industry
standards for privacy on the Internet.
WebTV Networks, Inc. Confidential
Version of 5/9/97
<PAGE> 14
N2K, Inc. Content and Services Agreement
Effective As of May 21, 1997 Page 14
WEBTV NETWORKS, INC.
CONTENT AND SERVICES AGREEMENT
EXHIBIT E
TECHNICAL PERFORMANCE STANDARDS
The following performance standards will be upheld for the term of the
Agreement.
1. EQUIPMENT. Partner will host the Partner Content on the Partner Web site.
The Partner Web site, and the software, hardware, server IP address(es),
domain name(s), communications links and all other equipment used in
connection with the Partner Web site, shall be operated, maintained,
provided, obtained and supported, as the case may be, by Partner, with the
possible exception of an Entrance Page that, at WNI's discretion, would be
hosted on the WebTV Network.
2. ESCALATION PROCEDURES. The parties mutually agree to meet the highest level
of technical performance standards. The parties shall provide each other
with a technical contact person including name and telephone number for 24
hours a day, seven days a week availability. In addition, if WNI finds
Partner Content is not meeting the appropriate level of technical
performance, WNI shall forward a written explanation of the technical
performance issue(s) to Partner. Partner shall review the technical
performance issue(s) within 24 hours and work with WNI to determine a
mutually agreeable solution to resolve the technical performance issue(s).
WNI reserves the right, to be exercised in its sole discretion, to
disconnect Partner Content if, after 48 hours the parties do not reach a
mutually agreeable solution.
3. NOTIFICATION OF MODIFICATIONS.
a. PARTNER MODIFICATIONS. If Partner desires to modify the general
subject matter or the technical specifications of the Partner Content
in any material respect, Partner shall notify WNI at least thirty (30)
days prior to implementing such a modification. If, after the
modification of the Partner Content, the original description or the
technical characteristics of the Partner Content is no longer accurate
or does not meet the Technical Performance Standards, WNI may
thereafter, at its option (i) remove the Partner Content from the
WebTV Network until the Partner Content conforms to such description;
or (ii) terminate this Agreement upon notice to Partner.
b. WNI MODIFICATIONS. If WNI intends to modify the technical
characteristics of the WebTV Network, WNI shall notify Partner at
least thirty (30) days prior to such modification of the Partner
Content, if feasible under the circumstances. Partner shall use
commercially reasonable efforts to conform the Partner Content to such
modified technical characteristics within thirty (30) days from its
receipt of such notice.
<PAGE> 1
Exhibit 10.21
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.
LETTER OF INTENT
This letter sets forth in summary form the terms and conditions of the agreement
reached by and between MTV Networks ("MTVN"), a division of Viacom International
Inc. with its principle place of business located at 1515 Broadway, New York,
New York 10036, on behalf of MTV: Music Television ("MTV") and VH1 ("VH1") and
collectively ("MTV/VH1"), and N2K Entertainment, a division of N2K Inc.
("Music Boulevard" or "N2K"), with its principle place of business located at 55
Broad Street, New York, New York 10004, relating to the relationship set forth
below. The terms of our agreement are as follows:
CONCEPT:
Music Boulevard will become the music store for MTV/VH1 Online in exchange for
MTV/VH1 "owning" the Pop & Rock section of Music Boulevard (including its
subpages), which will be renamed the MTV/VH1 section (the "MTV/VH1 Section").
The MTV/VH1 Section shall be deemed to include all genres excluding jazz,
classical, country and eclectic. It is understood and agreed that MTV/VH1 Online
will provide Music Boulevard with content and present Music Boulevard as the
exclusive partner for MTV/VH1's online music sales both on-air and online in
exchange for MTV/VH1 Online receiving promotion, the right to sell advertising
and profit sharing from Music Boulevard.
TERM:
The term of the Agreement shall be for a two (2) year period commencing on the
Launch Date, provided that either party may terminate the Agreement with respect
to the second twelve (12) month period upon written notice not later than ninety
days (90) prior to the expiration of the first twelve (12) month period.
Thereafter the term shall renew automatically for one (1) year periods, unless
either party provides written notice of its election to terminate not later than
ninety (90) days prior to the expiration of the then-current term. The Launch
Date will be defined as the date when the MTV music navigation bar is linked to
Music Boulevard in accordance with this agreement ("Launch Date"). The
additional links required pursuant to this agreement will be phased in pursuant
to a mutually agreed upon schedule.
TERRITORY:
U.S., international, to be discussed.
<PAGE> 2
MTV/VH1 OFFER:
1) Exclusivity: MTV/VH1 agrees to partner with no other music retailer for
online music fulfillment services.
2) Promotion/Content:
a) VH1-On-air promotion on VH1 promoting Music Boulevard as the
partner in "VHl's Personal Music Store" online as more
specifically set forth on Exhibit B attached hereto.
b) MTV-On-air promotion on MTV promoting Music Boulevard as the
partner selling MTV music collections online as more
specifically set forth on Exhibit A attached hereto.
c) Online links to the MTV/VH1 Section throughout MTV/VH1 Online
(i.e., whenever an album is being presented, a link will be
provided to allow the user to purchase.) Whenever an artist is
being presented, a link to the artists discography will be
presented (see Exhibit #10). Each album of an artist's
discography that is available for sale will be linked to Music
Boulevard. In addition, a link to the MTV/VH1 Section will be
included in the MTV Online Navigation Bar utilized in its
music area.
d) Front screen headlines for MTV/VH1 Music News Stories on
MTV/VH1 Section as set forth on Exhibit 3. MTV/VH1 will make
available to N2K its news headlines for storage in the Music
Boulevard database during the term of this agreement. MTV will
assist N2K in the technical implementation of mirroring such
data from the MTV/VH1 servers to N2K servers. These headlines
will be sent to Music Boulevard to be used and stored in the
database as source material during the term of the agreement.
N2K will link from such headlines to the full stories on MTV
and VH1 sites. Spin will no longer appear on the Music
Boulevard site. Music Wire may continue to appear, but will
only cover country, jazz, classical, and "eclectic" genres.
e) Creation and maintenance of "MTV Collections" pages on the
MTVN server with links to Music Boulevard for purchasing. MTV
Collections shall include Top 20, Buzz Clips, Sonic Stew, MTV
Branded audio product (e.g. Compilation and Unplugged) and any
artists featured in MTV Online special programming (e.g. live
event).
f) Creation and maintenance of VH1 personal music shopper pages
on MTVN servers with links to Music Boulevard.
2
<PAGE> 3
N2K WILL PROVIDE:
1) Exclusivity: No other "Competitive" Brands (other than MTV, VH1 and Music
Boulevard) will appear on the MTV/VH1 Section, and no other source will
provide music news on those pages, or anywhere else on the Music
Boulevard site where pop/rock music news not relating to country, jazz,
classical or eclectic genres appears. "Competitive Brands" shall
include Sonic Net, Spin, E Entertainment, Rolling Stone, Addicted to
Noise, The Box, Mr. Showbiz, Much Music, Details and any other webzine
covering the MTV/VH1 genres, and Rocktropolis. It is acknowledged that
N2K has a commitment to link to the Enhanced CD database called Music
Fan from the pop/rock store. N2K may continue to link to such database
as long as it continues to contain no editorial content. This paragraph
does not preclude N2K from selling advertising to such Competitive
Brands outside of the MTV/VH1 Section which link to the respective
"Competitive Brands" sites.
2) Services:
Provide MTV/VH1 site with music fulfillment services. These services
will include:
a) Competitive pricing - Maximum non-sale of [****] (single CD),
[****] (single cassette) on all "New Releases" of Pop/Rock
titles. New Releases are defined as a release which have been
commercially available for one year or less. "Sale/Special
Price" of [****] (single CD), [****] (single cassette) or less
in MTV Collections, chat specials, VH1/MTV sales items. The
"Sale/Special Price" will be applicable to a total of 25
titles per MTV, 25 titles per VH1, and 25 titles per M2 at any
one time. The Sale/Special Price shall be applicable only to
CDs with a [****] (single CD), [****] (single cassette) or
less list price.
Competitive shipping/handling - N2K will make no margin on
shipping/ handling. If MTVN can secure a better deal and such
deal is implemented by N2K, then the current shipping/handling
will be reduced accordingly.
b) Excellent customer service.
FedEx shipping on most orders.
Open return policy to Music Boulevard.
3) Advertising Sales/Share of Revenue:
a) Right for MTV/VH1 Online to sell advertising and retain [****]
of the advertising revenue on following pages:
3
<PAGE> 4
i) MTV/VH1 Section, including all MTV/VH1 sub/pages
(e.g. New Releases, On Sale, Listening Post, Charts.)
It is understood that sub/pages are defined as pages
accessible through links from the MTV/VH1 Section of
Music Boulevard. Due to the agreement currently in
place between N2K and Billboard, for any pages
utilizing the Billboard Charts (e.g. charts subpage),
MTV will pay [****] of the net revenue from such page
to N2K, for accounting directly to Billboard.
b) MTV/VH1 has the right to sell advertising on the Store
Directory home page, Find Music home page, Browse home page
(Exhibit #4) and the subdirectory sections of Browse which
include the MTV/VH1 subgenres. (Examples include: Blues,
Christian Rock/Rap, Industrial, Techno, Pop Vocal, Pop/Rock,
R&B, Rap, and Reggae, or any pages that are substituted for
the above mentioned pages.) MTVN and N2K will split the net
advertising revenue [****] to MTV/VH1, and [****] to Music
Boulevard. In the event there is a redesign of the Music
Boulevard site, and Music Boulevard desires to remove any of
the above mentioned pages, Music Boulevard will grant to MTVN
the right to sell advertising on the same basis on other Music
Boulevard pages with similar functionality and similar levels
of traffic.
c) [****] of net profits on any sales coming from MTV/VH1 links.
d) Each party will provide the other party with a statement of
net revenues and pay the other party any amounts due within
sixty (60) days following the close of the preceding calendar
quarter. Additionally, N2K's statement will include actual
sales and expenditures. MTV/VH1 will have the ability to
access the advertising usage reports and traffic the ads
remotely.
4) Promotion:
a) All Pop/Rock pages and any references to Pop/Rock pages will
be branded with MTV/VH1, e.g., see Store Directory (Exhibit
#2), Pop/Rock Page (Exhibit #3), Browse (Exhibit #4), Pop/Rock
On Sale (Exhibit #5), Pop/Rock New Releases (Exhibit #6).
b) Links on non-artist specific pages from MTV/VH1 Section (#3),
Store Directory Page (#2), News & Views (#7), Newsstand (#8),
Related Articles (#9), to MTV Music News (replacing Music Wire
(except as set forth on #3)/Spin/Puncture). MTV and VH1 Online
will provide daily headlines.
c) Links from Pop/Rock page (#3), to MTV Collections page
featuring MTV categories (e.g. Top 20, Buzz Clips, etc.) and
links from the Browse home page (#4) directly to MTV specific
categories.
4
<PAGE> 5
d) Links from Pop/Rock page (#3) to VH1 Personal Music Store.
e) Links on all appropriate artist specific pages, e.g.
Discography, Album Description, Recent Releases, Articles,
etc.
i) Links to MTV relevant content, e.g. Biorhythms,
reviews, editorials, etc.
ii) Link to VH1 Personal Music Store
f) Link to MTV Music News from headlines on Music Boulevard home
page.
5) Advertising Commitment:
Music Boulevard will commit to purchase a total of [****] in advertising online
in year one. In each successive year, if any, the parties will negotiate in good
faith for the advertising commitment for such year. [****] will be spent on
MTV Online and VH1 Online advertising in areas where there are no Music
Boulevard links, pursuant to this proposal (e.g. MTV/Yahoo! Guide). Music
Boulevard will be charged the lowest rate paid by any advertiser on the MTV
Online site and VH1 Online site during the initial term of the agreement. The
remaining [****] will be spent by advertising the MTV/VH1 section of Music
Boulevard on third party sites, with a direct link to the MTV/VH1 area on Music
Boulevard (e.g., Infoseek, Lycos, Netscape.)
6) Other
a) MTV/VH1 has the right of prior approval over all uses by Music
Boulevard of the MTV/VH1 logos and trademarks. N2K has the
right of prior approval over all uses by MTV/VH1 of N2K
trademarks and logos including the Music Boulevard logo. The
approval process will be mutually determined. MTV/VH1 has the
right to approve a substantial redesign of the MTV/VH1 Section
including its subpages.
b) Music Boulevard will provide a [****] discount on all CD and
cassette sales to MTV/VH1 employees. N2K will be obligated to
pay MTVN any bounty commission on those discounted sales to
MTV/VH1 employees.
c) Music Boulevard and MTV/VH1 will issue a joint press release
announcing the relationship.
d) Music Boulevard will include mention of MTV and VH1 in all
Music Boulevard inserts if included with its product. In
addition, upon MTV/VH1's request, Music Boulevard agrees to
include MTV/VH1 created inserts in its packaging, provided MTV
pays for all associated costs including
5
<PAGE> 6
manufacturing and insertion costs. N2K shall have approval
over the inserts and will not make any profit on MTV/VH1
created inserts.
This Agreement shall be binding on the parties immediately upon execution of
this Agreement by MTV Networks, a division of Viacom International Inc. and N2K.
The parties hereto contemplate entering into a long form agreement with respect
to the matters set forth herein. Until such time as this Agreement is superseded
by a more formal agreement, this Agreement shall be binding, effective and
enforceable.
If the above terms and conditions accurately reflect your understanding of our
agreement, please sign where indicated.
Sincerely, Agreed to and Accepted:
MTV Networks, a division N2K Entertainment, a division
of Viacom International Inc. of N2K Inc.
By: /s/ Matthew Farber By: /s/ J. J. Rosen
---------------------------- ---------------------------------------
Name: Matthew Farber Name: J.J. Rosen
-------------------------- -------------------------------------
Title: Sr. Vice President Title: Sr. Vice President & General Manager
------------------------- ------------------------------------
Dated: 12/18/96 Dated: December 17, 1996
-------------------------- ------------------------------------
6
<PAGE> 7
EXHIBIT A
MTV/MUSIC BOULEVARD ON-AIR PROMOTION
DIRECT PROMOTION
<TABLE>
<CAPTION>
Type of Promotion Runs/Year Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1) Incorporation in :30 Online image promo 252 (21 times a month) [****]
2) Incorporation in Soundscan show 192 (4 times a week/ [****]
16 times a month) [****]
Total Value
</TABLE>
7
<PAGE> 8
EXHIBIT B
VH1/MUSIC BOULEVARD ON-AIR PROMOTION
DIRECT PROMOTION
<TABLE>
<CAPTION>
Type of Promotion Runs/Year Value
- --------------------------------------------------------------------------------
<S> <C> <C>
1) Incorporation in :30 Online promo 520 [****]
2) Incorporation in Dayparts, i.e. House Blend 260 [****]
3) Incorporation in The Number Ones show 156 [****]
Total 1997 Promotion 936 [****]
Total 1998 Promotion* 936 [****]
TOTAL VALUE (OVER TERM OF DEAL)
</TABLE>
ADDITIONAL VALUE
Music Boulevard will also benefit from the general VH1 Online web site on-air
promotion valued at over [****] during 1997, and at least [****] during 1998.
Total additional value over the term of the deal is OVER [****].
* Note: 1998 figures are estimated to be the same or higher than 1997 estimates.
8
<PAGE> 9
= Boulevard - Store
http://www.musicblvd.com/egi-bin/t_ixi'S&TEMPLATE_PATH=/mb2/live/main
2
[LOGO]
MTV/VH1 Jazz Classical Country Eclectic
Prince | Bush | Barbra Streisand
Emancipation | Razorblade Suitcase | Mirror Has Two Faces
[ART] | [ART] | [ART]
| |
[****] | [****] | [****]
| |
----------------------------------------------------------------------------
| STORE PRICE Barry Manilow Summer Of '78 |
----------------------------------------------------------------------------
Music Boulevard: The Ultimate Online Music Store!
MTV/VH1 Music Wire Frequent Buyers
Jazz Browse the Store Club
Classical Search for Music Store Directory
Country On Sale Music Charts
Eclectic New Releases Help & E-Mail
Newsstand Store Board
Sign in
-------------------------
| |
-------------------------
[CLICK ICON] [CLICK ICON] [CLICK ICON]
click here
- --------------------------------------------------------------------------------
Frequent Buyers Club
click here
9
<PAGE> 10
[LOGO]
<TABLE>
<S> <C> <C>
Prince Madonna Rod Stewart
Emancipation Evita If We Fall In Love
[illustration] [illustration] [illustration]
[****] [****] [****]
</TABLE>
link link
- ------------ ------------
MTV VH1 Personal
Collections Music Store
Page
- -------------------------------------------------------------------------------
Replace with MTV and VH1 Music News daily headlines
Music Wire
Covers only nonMTV/VH1 genres
- -------------------------------------------------------------------------------
CLICK HERE FOR
THE CITY
that cannot sleep
- --------------------------------------------------------------------------------
[illustration]
Enhanced CD Database
10
<PAGE> 11
Music Boulevard: Browsing Genres http://mbl.musicblvd.com/cgi-bin/t...42900
[LOGO]
MTV/VH1
Blues Christian Rock/Rap Industrial Pop Vocal Pop/Rock R & B
- ----- ------------------ ---------- --------- -------- -----
Bozz Clps MTV Top 20 MTV Heavy Rotation MTV Sonic Stew VH1 Personal Music Store
MTV Acid Jazz Big Band Jazz Jazz Vocal Latin Jazz Ragtime
--------- -------- ---- ---------- ---------- -------
branded Audio Product
Bluegrass Country Folk Western
------------------------------
Classical Opera
--------- -----
Cajun/Zydeco Children's Instrumental Irish/Celtic Miscellaneous New Age
- ------------ ---------- ------------ ------------ ------------- -------
Religious Shows/Movies World Music
--------- ------------ -----------
JAZZ CLASSICAL POP & ROCK COUNTRY ECLECTIC
faster text mode
----------------
N2K N2K [email protected]
---------------------
11
<PAGE> 12
MTV/VH1 Branded
[Music Boulevard Logo]
Back to MTV/VH1 New Releases On Sale Listening Post Charts
here
Next Page
- -----------------------------------------------------------------------------
Car Button Cloth MTV VH1
Lemonheads links
[****] to
- ----------------------------------------------------------- content
Worm's Life (feature,
Crash Test Dummies stories,
[****] reviews,
- ----------------------------------------------------------- etc.)
Factory Showroom if
They Might Be Giants available
[****]
- -----------------------------------------------------------
Life Is Peachy
Korn
[****]
- -----------------------------------------------------------
Picture This
Do Or Die
[****]
- -----------------------------------------------------------
Load
Metallica
[****]
- -----------------------------------------------------------
e. 1999 Eternal
Bone Thugs-N-Harmony
[****]
12
<PAGE> 13
[LOGO]
BACK TO MTV/VH1 NEW RELEASES ON SALE LISTENING POST CHARTS
--------------- ------------ ------- -------------- ------
HERE
Next page Same as
--------- "On Sale"
- ------------------------------------------------------------------------
Emancipation
- -----------
Prince
- ------
[****]
------
- ------------------------------------------------
Razorblade Suitcase
- -------------------
Bush
- ----
[****]
------
Dru Hill
- --------
Dru Hill
- --------
[****]
------
- ------------------------------------------------
Hell On Earth
- -------------
Mobb Deep
- ---------
[****]
------
- ------------------------------------------------
House Of Music
- --------------
Tony!Toni!Tone!
- ---------------
[****]
------
- ------------------------------------------------
You Can't Stop The Reign
- ------------------------
Shaquille O'Neal
- ----------------
[****]
------
- ------------------------------------------------------
Rock Spectacle
- --------------
Barenaked Ladies
- ----------------
[****]
------
- ------------------------------------------------
T.H.U.G.S.
- ----------
Flesh N' Bone
- -------------
[****]
------
- ------------------------------------------------
13
<PAGE> 14
MUSIC BOULEVARD NEWS & VIEWS
[LOGO]
MTV MUSIC VH1 MUSIC MUSIC WIRE @COUNTRY
--------- --------- ---------- --------
NEWS NEWS
Newsstand
- --------
What's New
- ----------
Web Site Seeing
- ---------------
JAZZ CLASSICAL POP&ROCK COUNTRY ECLECTIC
Click Here
----------
faster text mode
----------------
N2K [email protected]
--- ---------------------
14
<PAGE> 15
[LOGO]
MTV Music News
VH1 Music News
Music Wire
@Country
JazzTimes (hosted by Jazz Central Station)
SPIN
Puncture
15
<PAGE> 16
[LOGO]
Afrika Bambaataa, Aphex Twin, Chemical Brothers, Electric Skychurch,
Loop Guru, Meat Beat Manifesto, Moby, My Bloody Valentine, Ninja Tune, Orb,
Orbital, Porno for Pyros, Presidents of the United States of America, Sonic
Boom, Spacemen 3, Underworld
MTV/VH1
____JAZZ ____CLASSICAL ____POP&ROCK ____COUNTRY ____ELECTRIC
faster text mode
N2K [email protected]
16
<PAGE> 17
[PHOTO OF MELISSA ETHERIDGE] [ILLUSTRATION]
link to Melissa Etheridge
Music Blvd
Discography Page
[ILLUSTRATION]
[PHOTO OF (b. May 29, 1961, Leavenworth, Kansas)
MELISSA ETHERIDGE] Melissa Etheridge received her first guitar at the age of
eight, and began writing songs of personal experience at
the age of ten. During her teens she fronted local cover
bands, and at 18 Melissa left home to attend Berklee
College of Music in Boston to study guitar. While at
Berklee, she supplemented her studies by playing
coffeehouses throughout the Boston area.
Soon after, Melissa moved to Los Angeles to make music her career. She paid her
dues playing solo gigs, performing in bars in L.A., and continued to hone her
writing skills. It was about this time that Island Records founder Chris
Blackwell heard of her and, upon seeing her unique emotional set, signed her
"on the spot."
Etheridge's Island debut went platinum; the follow-up, Brave and Crazy, went
platinum as well, and 1992's Never Enough bore "Ain't it Heavy", the track
which earned the singer a Grammy for Best Female Rock Performance. Still, it
was album number four, 1993's Yes I Am that cemented both Etheridge's celebrity
and her status as one of America's premiere performers. Etheridge's
breakthrough set boasted three top 10 hits; "I'm The Only One," "Come To My
Window," and "If I Wanted To." Five albums later, Melissa Etheridge remains one
of the most compelling songwriters in music. Her most recent release, Your
Little Secret, continues in the tradition of her previous albums, searching for
the perfect context for her heartfelt, intensely emotional songs.
17
<PAGE> 1
EXHIBIT 10.22
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked [****], have been
separately filed with the commission.
WEB SITE DEVELOPMENT AGREEMENT
Agreement made as of the 18th day of June, 1997, by and between WBGO,
54 Park Place, Newark, N.J. 07102 ("WBGO") and N2K INC., 55 Broad Street, New
York, N.Y. 10004 ("N2K")
WHEREAS, WBGO is a radio station broadcasting a jazz format
within the Metropolitan New York/New Jersey vicinity, (the "Programming
Service"); and
WHEREAS, N2K is the designer and operator of Internet-based
information and transaction services, and engaged in providing content via its
online service, Jazz Central Station ("JCS"), which is available free to the
public through the Internet and commercial online services; and
WHEREAS, WBGO and N2K desire to establish and maintain a WEB
site within N2K's JCS (hereafter the "WEB SITE," as further defined in section
1(d) below), through which WBGO and N2K will provide to users of the Internet
and commercial on-line services (hereafter the "Internet" shall refer to the
Internet and commercial on-line services collectively), the retransmission of
certain portions of WBGO's over the air programming to such Internet users; and
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for good and other valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. RIGHTS GRANTED
(a) WBGO grants to N2K an exclusive license to (i) load and
store the computer files constituting the WEB SITE, on N2K's World Wide Web
server, (ii) make the computer files constituting the WEB SITE readily available
for transmission and, where applicable, downloading on demand to computers
connected to the Internet;
(b) WBGO grants to N2K a license to use its trademarks (the
"Marks") within the WEB SITE, and in any media for advertising and publicity and
in connection with WEB SITE and in promotional materials prepared in connection
with the WEB SITE (the "Promotional Materials"). WBGO agrees that the WEB SITE
will be the only web site through which the Programming Service will be
available and agrees to so indicate on its marketing materials and relevant
formal public communications
(c) WBGO grants N2K the exclusive right and license to
retransmit on-line those portions of WBGO's complete Programming Service which
is owned and/or controlled by WBGO (the "WBGO Programming Service"), to provide
said WBGO Programming Service
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(through "Streaming Audio" or equivalent technology) free to the public via its
online service, (the "Retransmission"). WBGO agrees that it will not make the
Programming Service available to any other Web site or on-line service. N2K
agrees that the Retransmission will be on a "live" or "real time" basis. For
avoidance of doubt, the WBGO Programming Service will not include certain
programs provided and controlled by third parties, such as National Public
Radio, where WBGO does not have authority to retransmit such programming and so
notifies N2K reasonably in advance. In each such instance where such programming
is not available for retransmission by N2K, WBGO agrees to cooperate with N2K in
obtaining suitable substitute programming material. In consideration of WBGO's
agreement not to grant a similar license for the retransmission of any or all of
WBGO's Programming Service, N2K agrees that it will not, during the term hereof,
contract with any other third party, operating a traditional jazz radio station,
to carry such station's program service within N2K's JCS. For avoidance of
doubt, the foregoing shall not be construed as prohibiting or in any way
limiting N2K from transmitting performances of jazz music in conjunction with or
without other multimedia and interactive content, through JCS or its other
on-line services.
(d) For purposes of this agreement the "WEB SITE" shall refer
to the World Wide Web site created pursuant to this Agreement and its
constituting data and program files, including without limitation, the User
Interface (as hereafter defined) formatted in HTML or any other programming
language, and produced for transmission over the Internet, as such site may be
updated from time to time. It is agreed that the WEB SITE shall constitute a
single "page" within JCS, containing the Retransmission and related text and/or
graphics, provided that at such time as the content on the WEB SITE reaches the
capacity of the single page, the WEB SITE shall be enlarged, subject to the
mutual approval of the parties hereto.
2. PERFORMANCE LICENSING:
N2K will notify ASCAP and BMI and any other necessary licensing
authority of its intention to carry WBGO's broadcast signal, will obtain any and
all licenses from these or other entities and will be responsible for any and
all fees and other responsibilities required for the Retransmission on JCS and
hereby indemnifies WBGO with respect to any claims arising from N2K's breach of
this warranty.
3. ENGINEERING AND MAINTENANCE:
N2K shall (i) link the WEBSITE to N2K's databases and related services,
and (ii) operate the WEB SITE as heretofore described above. N2K shall store the
WEB SITE on its servers, and provide and maintain the technical systems through
which the WEB SITE shall be accessed via the Internet. N2K shall be solely
responsible for the operation of the WEB SITE and will bear the cost of the
aforementioned WEB SITE design and development, including, without limitation,
HTML formatting, software development and software licensing, subject to the
provisions of section 5(b) below.
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4. UPDATES AND TECHNICAL MAINTENANCE
During the term of this agreement, N2K agrees to perform the functions
described in Section 3 above, from time to time as it deems necessary, to update
and to maintain the WEB SITE in proper working order and to use the same or
substantially equivalent methods for delivery of Retransmission as the most
widely recognized and technically advanced. N2K will bear the costs incurred in
performing the aforementioned tasks subject to the provisions of section 5(b)
below.
5. BUDGET
(a) N2K agrees to allocate and spend approximately [****]
Dollars in one time costs (the "Development Expense") to design, produce and
provide initial maintenance to establish the WEB SITE and approximately [****]
Dollars during the term to maintain the WEB SITE (the "Maintenance Expense").
(b) In consideration for the costs to be incurred by N2K as
set forth in 5(a) above, the benefits to WBGO of the WEB SITE'S presence on JCS
and the other forms of promotion for WBGO to be provided by N2K, WBGO agrees to
provide, at no cost to N2K, a minimum of three hundred fifty (350) thirty second
(0:30) "Underwriting Announcements" during each year of the term hereof. (the
"Barter").
(c) Subject to any FCC or other applicable restrictions or
guidelines, WBGO will make such inventory of Barter (as set forth in 5(b) above)
available to N2K over the Term of this agreement, according to a schedule
mutually agreed upon by N2K and WBGO.
6. COPYRIGHTS, OWNERSHIP OF CONTENT
(a) N2K represents that it has or will have the rights to and WBGO
agrees that all of the following are and shall remain the sole and exclusive
property of N2K: (i) all the software code, created by N2K or licensed by it,
and used in the operation of the WEB SITE, including but not limited to the User
Interface of the WEB SITE, any works derived therefrom and the copyrights
therein; (ii) all content developed or produced by N2K and used in the WEB SITE
(including any content licensed by N2K from third parties), including but not
limited to the copyright in any such original content, and any works derived
therefrom, subject to the prior rights of third party licensors.
(b) N2K agrees that the Programming Service shall remain the sole and
exclusive property of WBGO.
7. OWNERSHIP OF TRADEMARKS
N2K hereby acknowledges that WBGO is the sole owner of the
Marks and of the
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respective goodwill and reputation symbolized thereby, and that nothing
contained herein shall constitute an assignment of the Marks or grant to N2K any
right, title or interest therein, except the right to use the Marks in
accordance with the terms of this Agreement.
8. TERM
(a) The term of the agreement shall be effective upon the execution of
the agreement and continue for a period extending two (2) years from the launch
date of the WEB SITE. The agreement shall automatically renew for additional one
(1) year terms unless either party gives written notice of termination no less
than sixty (60) days prior to the expiration of the current term or any
subsequent renewal term.
(b) Either party may terminate this Agreement at any time upon sixty
(60) days written notice of material breach of the other party, unless the
breaching party remedies the breach within such notice period.
(c) This agreement shall terminate automatically in the event that (i)
WBGO no longer offers its Programming Service or (ii) N2K no longer operates JCS
or an comparable on-line program service.
9. MARKETING & RELATED REQUIREMENTS
a) WBGO agrees that during the Term hereof, it will:
(i) provide and maintain, at WBGO's sole expense, a hyperlink
between WBGO's own web site (the "WBGO site") and the WEB SITE in order to
enable N2K to retransmit the Programming Service with such link, prominently
displayed on the home page and/or each section featured on the WBGO site.
(ii) provide, at no cost to N2K, editorial and/or advertising
space in WBGO's monthly program guide for the promotion of Jazz Central Station.
N2K will create the text and/or artwork associated with such space each month,
at its sole expense.
(iii) use its best efforts to provide N2K with the opportunity
to insert promotional materials, such as flyers or cards, in WBGO's regular
mailer. N2K will bear the expense of such inserts or, if applicable, reimburse
WBGO its actual expense in providing this service to N2K. All inserts must
contain the WBGO logo or written reference to WBGO.
(b) N2K agrees that during the Term hereof it will:
(i) provide marketing and promotion of the WBGO Retransmission
through its various music related web sites and third party media, including
such publications as JazzTimes and Jazz Educators Journal and through on-line
advertising opportunities.
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(ii) prominently display the WBGO logo on the splash page
and/or home page of JCS.
(iii) maintain JCS as a site on the World Wide Web that offers
a comparable level of performance and functionality as offered on the date of
execution of this Agreement and, to the extent commercially reasonable, will
continue to integrate common features of functionality as comparable websites
and will provide the appropriate facilities to reasonably accommodate the then
current user demand for the Retransmissions.
10. ADVERTISING
(a) N2K shall own all right, title and interest in and to the
advertising and promotion spaces within the WEB SITE and shall have the
exclusive right to sell promotions, advertisements, links, pointers or similar
services or rights on or through the WEB SITE (the "Advertising Inventory"),
subject to the approval of WBGO.
(b) N2K shall pay WBGO [****] percent of all Net Advertising
Revenues. "Net Advertising Revenues" shall mean the Advertising Revenues
remaining, after first deducting any applicable sales and/or agency fees.
"Advertising Revenues" shall mean the amounts collected by N2K derived from the
purchase of Advertising Inventory, less N2K's administration fee of [****]
percent of gross advertising revenues.
(c) WBGO shall have the right to use up to [****] percent of
the total advertising inventory of the WEB SITE, at their sole discretion and at
no cost for uses related to the promotion of WBGO, provided that suitable
artwork is supplied to N2K for appropriate placement.
(d) WBGO and N2K shall each have the right to use up to [****]
percent of the unsold and otherwise unallocated Advertising Inventory, at no
cost and at their sole discretion, respectively. Prior to any such use by WBGO,
WBGO shall confirm with N2K that the particular WEB SITE advertising space has
not already been sold for the time period in question. N2K will use its best
efforts to notify WBGO in a reasonable and timely manner, of the unallocated
Advertising Inventory.
11. USAGE DATA
(a) N2K will own any and all of its user information and usage
data, including but not limited to specific user information obtained by N2K
from computer system servers operated by or for N2K by third parties or
otherwise from the operation of JCS (collectively, the "N2K Usage Data").
(b) N2K agrees to pursue reasonable efforts to collect and
provide WBGO on a reasonable frequency, subject to N2K's technical
capabilities, N2K Usage Data in the
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following forms: (i) the number of user requests for the Retransmission; (ii)
the number of "clicks" on the WBGO logo on the JCS "splash" page; and (iii) the
number of clicks on the link to wbgo.com from the JCS/WBGO (WEB SITE) page.
12. FORCE MAJEURE
Neither party shall be liable to the other or deemed to be in breach
hereunder for non-performance or delays due to fire, boycott, lock-out, war,
labor or civil disturbance, riots, acts of God, insurrection, government orders
or regulations, or any other cause beyond the reasonable control of the party
delayed or prevented from performing.
13. RELATIONSHIP OF THE PARTIES
This agreement does not constitute a partnership, joint venture,
agency, employee/employer, or any other similar relationship between the parties
hereto. Further, neither party is authorized to waive any right, 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.
14. WARRANTY AND INDEMNITY
(a) Subject to N2K obtaining licenses required pursuant to
Section 2 above, WBGO warrants and represents that the Retransmission will in no
way violate any existing copyright, either in whole or in part, that use by N2K,
as provided herein, will not infringe upon the rights of any third party and
that the WBGO Programming Service contains no matter which will be libelous.
(b) Each party represents and warrants to the other that : (i)
such party has the full corporate right, power and authority to enter into this
Agreement, to grant the licenses granted hereunder and to perform the acts
required of it hereunder; (ii) the execution of this Agreement by such party ,
and the performance by such party of its obligations and duties hereunder, do
not and will not violate any agreement to which such party is a party or by
which it is otherwise bound; (iii) when executed and delivered by such party,
this Agreement will constitute the legal, valid and binding obligation of such
party, enforceable against such party in accordance with its terms; and (iv)
such party acknowledges that the other party makes no representations,
warranties or agreements related to the subject matter hereof which are not
expressly provided for in this Agreement.
(c) Any and all other representations and warranties of any
kind whatsoever, express or implied, regarding the operation of the WEB SITE, or
either party's performance under the Agreement, including representations and
warranties as to the operation, functionality, lack of interruption or resources
of the WEB SITE, are expressly excluded. Without limiting the foregoing, each
party disclaims any implied warranties of merchantability and fitness for a
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particular purpose. Except for the indemnification obligations established by
Sections 14(a) and (b), neither party shall be liable for any consequential,
incidental, indirect, economic, special, exemplary or punitive damages incurred
by the other party, such as, but not limited to, loss of revenue or anticipated
profits or lost business, even if the other party has advised that such damages
are possible as a result of any breach of warranty.
(d) Subject to the limitations set forth in 14(c) above, each
party hereto shall defend and indemnify the other from all damages, costs and
expenses including attorney's fees, as well as any claim, suit, loss or damage
as a result of a breach of the above warranties and representations.
15. NOTICES
All notices, approvals, or documents which either party hereto is
required to deliver to the other party shall be in writing and shall be
personally delivered or telegraphed or faxed (with telephonic confirmation of
receipt) or mailed by Express Mail or comparable overnight courier, to such
party at the address set forth at the top of this agreement. A copy of notices
to N2K shall simultaneously be sent to Arthur S. Weiner, Esq., 250 West 57th
Street, Suite 1508, New York, N.Y. 10019.
16. MISCELLANEOUS
(a) This agreement constitutes and contains the entire
agreement between the parties with respect to the subject matter hereof and
supersede any prior contemporaneous agreements, oral or in writing. The
paragraph headings used in this Agreement are for convenience only and shall
have no legal effect whatsoever.
(b) This agreement may not be changed, modified, amended or
supplemented, except in writing signed by a duly authorized representative of
each party.
(c) No waiver by either party of any term or condition of this
agreement, whether by conduct or otherwise, in any one or more instance, shall
be deemed a further or continuing waiver of any such term or condition, or a
waiver of any other term or condition, or a waiver of any other term or
condition in this agreement.
(d) If any provision of this agreement is found to be invalid
by any court, (pursuant to Section 16(g) below) having competent jurisdiction,
the invalidity of such provision shall not effect the validity of the remaining
provisions hereof.
(e) Each party represents that all necessary approvals and
consents have been obtained for entry into this agreement. Each of the parties
acknowledges and agrees that the other has not made any representations,
warranties or agreements of any kind, except as may be expressly set forth
herein.
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(f) This agreement is binding upon and shall inure to the
benefit of the parties, their successors, trustees and assigns.
(g) Regardless of the place of physical execution, this
agreement shall be governed by and construed in accordance with the laws of the
State of New York, as applicable to agreements executed and performed within
that state, and any disputes or controversies arising hereunder shall be subject
to the jurisdiction of Courts of the State of New York or of the U.S. Federal
District Court for the Southern District of New York. Any process in any action
or proceeding arising under or relating to this Agreement may, among other
methods, be served by delivering or mailing the same by registered or certified
mail, directed to either party at the address first written above or such other
address as you designate by notice to the other party as provided herein. Any
such delivery or mail service shall be deemed to have the same force and effect
as personal service within the State of New York.
(h) This agreement may be executed in any number of separate
counterparts, each of which shall be deemed to be an original, but which
together shall continue one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this agreement on the day and year
first above written.
WBGO N2K Inc.
By /s/Cephas Bowles 6/18/97 By /s/ J.J. Rosen
----------------- -----------------------
Cephas Bowles J.J. Rosen
General Manager Sr. VP & General Manager
N2K Entertainment
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<PAGE> 1
Exhibit 10.23
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.
@HOME NETWORK
@HOME SHOPPING TENANT AGREEMENT
THIS @HOME SHOPPING GUIDE AGREEMENT (this "AGREEMENT") is made between At
Home Corporation ("@HOME") and N2K, Inc. ("TENANT") effective as of the date of
signature by @Home below ("EFFECTIVE DATE") regarding linking the @Home site
with N2K's online music retail store, Music Boulevard ("MUSIC BOULEVARD") and
other N2K music genre sites.
1. @Home Shopping Guide. @Home agrees to include Tenant in its Shopping
interface ( THE "@HOME SHOPPING GUIDE" or its functional equivalent), a service
of the @HOME NETWORK, and in any other section on the @Home site where Music
Products are sold, "Music Products" means pre-recorded music distributed in a
tangible medium, e.g. physical tapes and CDs, and, by way of example, does not
include digital distribution of music, under the terms set out on ATTACHMENT I
hereto.
2. Tenant Services. Without limiting any rights @Home may have under applicable
laws, Tenant agrees that @Home may promote, transport (i.e. transmit and serve),
cache on proxy servers, replicate on replication servers and reproduce on
related storage devices operated by @Home and its cable affiliates Tenant
content and services offered by Tenant (the "CONTENT") that is made available to
@Home under this Agreement or otherwise made generally available by Tenant or
third parties for transport over the Internet (including modifications made
solely for the purposes listed above), and Tenant agrees to permit the @Home
guidebar (as created by @Home, and modified from time to time, which is
currently an index to different parts of the @Home site and appears on the left
side of the screen) to appear during shopping sessions by @Home subscriber.
Tenant will retain complete discretion to set "TTL" (time to live) variables for
the Content. Tenant warrants to @Home that Tenant has all right and authority
necessary in order to make the Content available in compliance with applicable
laws. Tenant and @Home will promote the Content within the @Home Shopping Guide
and @Home site in accordance with the @Home Shopping Guide Content Guidelines
set out on ATTACHMENT II hereto (as amended from time to time). In addition,
Tenant agrees to adapt (or permit the adaptation by @Home of) the Content for
compatibility with reasonable technology solutions adopted by @Home.
3. Business Marks. @Home and Tenant each will have the right, without separate
charge, to use in promoting the Content and the @Home Shopping Guide the other's
business name and any tradenames, trademarks and service marks (collectively,
"MARKS") that @Home may adopt for use with the @Home Shopping Guide and @Home
site and that Tenant may adopt for use with the Content. However, any such use
must be identical to use by the party that owns the Mark, or as approved by the
owner in writing in advance, or otherwise in accordance with any Mark usage
guidelines communicated by the owner. The owner retains all goodwill and all
other rights thereto, and the other party obtains no goodwill or any other
rights thereto as a result of the use of the owner's Marks.
4. Revenue Sharing. Tenant agrees to make revenue sharing payments to @Home
solely with respect to Music Products (e.g. excluding clothing, videotapes, or
other non-pre-recorded music products) as a percentage of Net Revenue as set
forth in table below:
<TABLE>
<CAPTION>
Total @Home Payments Accrued Percentage of Net Revenue for all subsequent months
---------------------------- ---------------------------------------------------
in a Calendar Month
-------------------
<S> <C>
$[****] [****]%
$[****] [****]%
$[****] [****]%
</TABLE>
Tenant agrees to make revenue sharing payments with respect to Net Revenue
received from non Music Products including (by means of example only) clothing,
videotapes, or computer accessories sold by Tenant to @Home subscribers that
equal [****]% of Net Profits received by Tenant for these items. "NET PROFITS"
is defined as the selling price of the item (excluding shipping, handling,
database processing fees, credit card validation fees, and, if applicable, pick
and packing fees, warehousing fees, and database and music licensing fees) minus
the wholesale
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cost N2K paid for the item. In the event N2K does not pay for the item, @Home
shall receive [****]% of Net Revenue received by N2K for these items.
For these purposes, "NET REVENUE" means actual revenues received by Tenant
(excluding shipping, handling, database processing fees, taxes, and credit card
validation fees) from @Home subscribers as a result of @Home subscribers
entering Content directly from any link in the @Home site or entry via direct
typing or bookmarking of the Tenant Content URL, www.musicboulevard.com, but
excluding access to Tenant site via third party promotional links (e.g. @Home
user links from MTV promotion on MTV site or from other web site promotions to
Music Boulevard) during the term of the Agreement. In the event Tenant develops
the technical capability to identify @Home customers when they purchase from any
of the Tenant's music genre sites (e.g. Classical Insites, Rocktropolis, etc.),
N2K will immediately notify @Home that it has such technical capability.
Thereafter, N2K will include this form of access in this revenue sharing
arrangement.
In the event that Tenant enters into an agreement with a third party to make
payments with respect to product transactions greater than the above terms,
Partner agrees to promptly advise @Home and to enter into good faith
negotiations with @Home regarding an appropriate adjustment to compensation set
out in this SECTION 4. In the event that the parties are unable to negotiate in
good faith a mutually agreed upon adjustment, @Home may, at its discretion,
terminate the Agreement.
5. Revenue Sharing Payments and Reports; Auditing.
5.1 Payments and Reports. Within fifteen (15) days following the end of each
calendar month during the term of this Agreement, Tenant shall provide to @Home
a written statement, in such detail specifying:
(a) with respect to each product sold to @Home subscribers: the number of
units of each product sold to @Home subscribers during the preceding
quarter, the product names of each product sold (e.g. artist & album
name) the actual revenues (including shipping and handling) received with
respect to such product, and the deductions from actual revenues received
which determine the Net Revenue (or Net profit if applicable) with
respect to such product for the quarter, and
(b) with respect to all products sold to @Home subscribers: the
aggregate Net Revenue for all products for such quarter and
calculation of the amount due to @Home in accordance with Section 4
above.
Tenant shall make payments to @Home with respect to Net Revenue received in the
quarter immediately preceding such payment on a quarterly basis, to be delivered
to @Home by the fifteenth (15) day of the month following the close of the
quarter, provided that, for any quarter, payments may be accrued until such time
as total royalties equal or exceed [****].
5.2 Tenant agrees that @Home may have its auditors reasonably acceptable to
Tenant audit Tenant's books and records related to payments under this Agreement
only with respect to the proceeding twenty four (24) month period not more than
once per year, during business hours and upon ten (10) business days written
notice. Tenant agrees to reimburse @Home for the reasonable costs of the audit
if the audit discloses an underpayment of ten percent (10%) or more.
6. Term and Termination. This Agreement will begin on the Effective Date and
continue for a period of one year from the Effective Date, unless otherwise
terminated by the parties pursuant to this Section 6. The agreement shall
automatically renew for an additional one (1) year term unless either party
gives notice of termination no less than thirty (30) days prior to the
expiration of the current term.
6.1 Termination for Breach. Either party may terminate this Agreement at any
time upon thirty (30) days written notice of material breach by the other party,
unless the breaching party remedies the breach within such notice period. For
these purposes, Tenant's failure to maintain an Active Web Presence (as defined
in ATTACHMENT I hereof) shall be treated as a material breach.
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<PAGE> 3
6.2 Automatic Termination. This Agreement will terminate automatically in the
event (a) @Home no longer offers shopping services in the Tenant's specific
Category or Categories (as set out on ATTACHMENT I hereof) within the @Home site
to @Home subscribers or (b) Tenant no longer makes its Content available to
Internet users.
Other than for compensation due, neither @Home nor Tenant will have any
liability to the other merely as a result of termination of this Agreement in
accordance with this SECTION 6. However, upon termination or expiration, both
parties rights to use Usage Data internally or otherwise pursuant to SECTION 10
hereof, will be limited to use in a form aggregated with other Usage Data in
such a way that such Usage Data cannot be distinguished or separated.
7. LIMITATION OF LIABILITY. @HOME, @HOME'S CABLE OPERATOR AFFILIATES ("CABLE
AFFILIATES") AND TENANT WILL NOT BE LIABLE TO ONE ANOTHER OR ANY THIRD PARTY,
UNDER ANY LEGAL OR EQUITABLE THEORY, FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL
OR INDIRECT DAMAGES OF ANY KIND, SUFFERED BY OR OTHERWISE COMPENSABLE TO THE
OTHER, ARISING OUT OF, UNDER OR RELATING TO THIS AGREEMENT, WHETHER OR NOT
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WILL ANY PARTY HAVE ANY
LIABILITY OF ANY NATURE OR AMOUNT WHATSOEVER TO THE OTHER OR ANY THIRD PARTY
ARISING OUT OF, UNDER OR RELATING TO ANY FAILURE OF THE DISTRIBUTION OF THE
CONTENT OR ANY PART THEREOF OR ANY SOFTWARE PROGRAM, SOFTWARE OR WEB SITE LINK
OR LINK MECHANISM, OR OTHER MATERIAL OR ITEMS THROUGH THE @HOME NETWORK OR
OTHERWISE (INCLUDING BUT NOT LIMITED TO ANY SUCH FAILURE OF DISTRIBUTION
RESULTING FROM CABLE AFFILIATES' ELECTION NOT TO DISTRIBUTE MATERIAL OR ITEMS OR
DUE TO TECHNICAL DIFFICULTIES). The limitations in this SECTION 7 shall not
apply to compensation due or obligations set out in SECTIONS 8 AND 9.
8. Proprietary Rights Generally. @Home and Tenant each retain any and all right,
title and interest in and to all intellectual property of any nature (including
patents, rights under patent applications and patents issuing on such
applications, trade secrets, copyrights, trademarks and other business names
(including goodwill in such marks), among others), subject to the rights granted
by the parties in SECTION 3 (concerning rights with respect to business marks)
and SECTION 10 (concerning rights with respect to usage information) of this
Agreement or as may be provided in the Attachments to this Agreement. @Home and
Tenant each agree to reproduce, and agree not to remove or obscure proprietary
rights legends (such as copyright notices, among others) or license terms and
conditions included with any intellectual property deliverable provided in
connection with this Agreement. Tenant agrees to ensure that the Content and its
Marks and their use, reproduction and distribution (alone and not in combination
with other material or items) do not infringe the intellectual property rights
of any third party. If, as a result of any collaboration by @Home or Tenant
under this Agreement, they become joint owners of intellectual property by
operation of law, then they will cooperate, subject to prudent business
judgment, to establish, register, maintain and protect such intellectual
property.
9. Indemnification. Each party will indemnify the other party and its customers
and affiliates for, and hold them harmless from, any loss, expense (including
reasonable attorney's fees and court costs), damage or liability arising out of
any claim, demand or suit resulting from a breach of any of the warranties of
the indemnifying party in SECTION 8. As a condition to indemnification (a) the
indemnified party will promptly inform the indemnifying party in writing of any
such claim, demand or suit and the indemnifying party will fully cooperate in
the defense thereof; and (b) the indemnified party will not agree to the
settlement of any such claim, demand or suit prior to a final judgment thereon
without the consent of the indemnifying party, which consent shall not be
unreasonably withheld.
10. Usage Data.
10.1 @Home will own any and all of its user information and usage data,
including but not limited to, specific user information, obtained by @Home from
computer system servers operated by or for @Home by third parties or otherwise
from the operation of the @Home Network (collectively, the "@HOME USAGE DATA").
@Home Usage Data includes, but is not limited to, Tenant's Web server page
delivery data captured and maintained by @Home on its @Home Network proxy server
usage logs ("PAGE DELIVERY DATA"). Tenant will own any and all specific user and
other usage information obtained by Tenant from computer system servers operated
by or for Tenant by third parties or otherwise from Tenant's operation of Web
sites (collectively, the "TENANT USAGE DATA"). Tenant Usage Data includes, but
is not limited to, Tenant Usage Data obtained from subscribers obtaining access
to Tenant's Web site via the @Home Network ("SUBSCRIBER USAGE DATA").
-3-
<PAGE> 4
10.2 @Home agrees to pursue reasonable efforts to collect and provide Tenant
on a reasonable frequency but not less often than quarterly, subject to @Home's
technical capabilities, @Home Usage Data in the following forms:
(a) Aggregate usage data on the Tenant's Category (as set out on
Attachment I hereof) as compared to aggregate usage data in all
Categories offered by the @Home Shopping Guide.
(b) Number of clicks-through to Tenant's site from @Home Shopping Guide
links.
(c) Absolute number of page impressions of all cached, replicated or
multicasted Tenant pages and events. In the event @Home does not
provide absolute number of page impressions on a reasonable
frequency, but no less than quarterly, Tenant can cease all caching,
replication, and multicasting of content until such time @Home
provides this data.
@Home agrees that Tenant may use data provided to it by @Home under this
Section 10 for internal purposes as long as @Home Usage Data is not sold to any
third party, and that such data may be distributed by Tenant for advertising and
merchandising purposes only if it is aggregated together with other data in such
a way that Subscriber Usage Data or Page Delivery Data (including but not
limited to individual @Home Network subscribers), as the case may be, cannot be
distinguished or segregated. Tenant agrees, in all events, not to distribute or
make available @Home Network Subscriber Usage Data and Page Delivery Data or
subscriber IP addresses for any purpose.
10.3 Tenant agrees to pursue reasonable efforts to collect and provide @Home
on a reasonable frequency but not less often than quarterly, subject to Tenant's
technical capabilities, Subscriber Usage Data to @Home in the following forms:
a) Aggregate usage data on the most popular pages and products
clicked-through by @Home subscribers on Tenant's website(s) and most
popular categories of products viewed and most popular categories
purchased by @Home subscribers.
(b) Identification of products purchased by @Home subscribers and
amounts paid for such products accounting for shipping and handling
(in accordance with SECTION 5).
(c) Tenant will make user registration data available to @Home for all
new users who purchase in the Tenant site, provided the user has not
opted out of allowing Tenant to share user data with third parties.
Tenant agrees that @Home may use Subscriber Usage Data provided by Tenant for
any internal purpose as long as Subscriber Usage Data is not sold to any third
party, and that @Home may distribute Subscriber Usage Data provided by Tenant
for advertising and merchandising purposes only if it is aggregated together
with other @Home Usage Data in a way that Subscriber Usage Data (including but
not limited to individual Content users) cannot be distinguished or segregated.
-4-
<PAGE> 5
11.1 Confidential Information. "Confidential Information" will mean all
confidential and proprietary information, other than commercially available
content provided electronically or by some other means by one party to the other
party, which the disclosing party identifies in writing as confidential before
or within thirty (30) days after disclosure to the receiving party
("Confidential Information"), but specifically excluding Subscriber Usage Data
and Page Delivery Data in a form permitted for distribution in accordance with
SECTION 10.2 AND 10.3 above.
11.2 Nondisclosure. Each party agrees (a) to hold the other party's
Confidential Information in strict confidence, (b) not to disclose such
Confidential Information to any third party, and (c) not to use the other
party's Confidential Information for any purpose other than to further this
Agreement. Each party may disclose the other party's Confidential Information to
its responsible employees with a bona fide need to know such information, but
only to the extent necessary to carry out this Agreement. Each party agrees to
instruct all such employees not to disclose such Confidential Information to
third parties, including consultants, without the prior written permission of
the disclosing party.
11.3 Exceptions. Notwithstanding the foregoing, Confidential Information will
not include information which:
(a) Is now, or hereafter becomes, through no act or failure to act on
the part of the receiving party, generally known or available to the public;
(b) Was acquired by the receiving party before receiving such
information from the disclosing party and without restriction as to use or
disclosure;
(c) Is hereafter rightfully furnished to the receiving party by a third
party, without restriction as to use or disclosure;
(d) Is information which the receiving party can document was
independently developed by the receiving party without use of the disclosing
party's Confidential Information;
(e) Is required to be disclosed by law, provided that the receiving
party uses reasonable efforts to give the disclosing party reasonable notice of
such required disclosure; or
(f) Is disclosed with the prior written consent of the disclosing party.
11.4 Return. Upon the disclosing party's request, the receiving party will
promptly return to the disclosing party all tangible items containing or
consisting of the disclosing party's Confidential Information and all copies
thereof.
11.5 Injunctive Relief. Each party acknowledges that all of the disclosing
party's Confidential Information is owned solely by the disclosing party (or its
licensors) and that the unauthorized disclosure or use of such Confidential
Information would cause irreparable harm and significant injury to the
disclosing party, the degree of which may be difficult to ascertain.
Accordingly, each party agrees that the disclosing party will have the right to
obtain an immediate injunction enjoining any breach of this Agreement, as well
as the right to pursue any and all other rights and remedies available at law or
in equity in the event of such a breach.
12. Warranties and Disclaimers. @Home will not remove or obscure any warranties
and disclaimers from the Content. @HOME DOES NOT MAKE ANY WARRANTIES CONCERNING
THE @HOME NETWORK OR THE @HOME SHOPPING GUIDE, EXPRESS, IMPLIED OR OTHERWISE.
@HOME SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT WITH RESPECT TO THE @HOME NETWORK,
THE @HOME SHOPPING GUIDE, RELATED SERVICES, AND ANY AND ALL CONTENT AND TOOLS
AND RELATED DELIVERABLES PROVIDED BY @HOME IN CONNECTION WITH THIS AGREEMENT,
ALL OF WHICH ARE PROVIDED BY @HOME "AS IS". SIMILARLY, TENANT SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT WITH RESPECT TO TOOLS
-5-
<PAGE> 6
AND RELATED DELIVERABLES PROVIDED BY TENANT TO @HOME IN CONNECTION WITH THIS
AGREEMENT, ALL OF WHICH ARE PROVIDED BY TENANT "AS IS".
13. General Provisions
13.1 Governing Law and Venue. This Agreement and any disputes arising under,
in connection with, or relating to this Agreement will be governed by the laws
of the State of California, excluding its conflicts of law rules. The state and
federal courts in Santa Clara County, California will have exclusive venue and
jurisdiction for such disputes, and the parties hereby submit to personal
jurisdiction in such courts. The prevailing party in any such dispute will be
entitled to recover costs of suit (including the reasonable fees of attorneys
and other professionals).
13.2 Compliance with Laws. Subject to the express provisions of this
paragraph, each party agrees to comply with applicable laws in connection with
this Agreement, including but not limited to the development and publication of
the Content. Tenant agrees, in particular, to comply with all laws concerning
obscenity, defamation, infringement, rights of privacy, harassment and export
controls, among others, and to ensure that the use, reproduction and
distribution of the Content in and of itself, does not violate such laws or
related legal rights of third parties.
13.3 Customer Service Calls. Tenant and @Home acknowledge that each of them
may receive customer service telephone calls directed to the other. @Home agrees
to forward to Tenant such calls directed to the Content. Tenant agrees to
forward to @Home such calls directed to @Home Network services generally.
13.4 Assignment. Neither party may assign this Agreement or any rights or
obligations hereunder to any third party without the other party's prior written
consent, which consent shall not be withheld unreasonably; provided, however,
that either party may assign its rights and obligations hereunder to a third
party without the other party's consent in connection with: (a) such party's
equity financing, (b) such party's public offering of its securities, (c) the
sale of all or substantially all of such party's business (whether by asset
sale, stock sale or merger), or (d) the assignment of such rights and
obligations to a majority-owned subsidiary of such party or such party's parent
corporation. Any assignment without consent attempted by either party
notwithstanding the foregoing prohibition will be deemed to be a material breach
of this Agreement.
13.5 Relationship of Parties. Neither this Agreement nor the parties'
business relationship established hereunder will be construed as a partnership,
joint venture or agency relationship or as granting a franchise. The parties
warrant to one another that they have consulted legal counsel in reviewing
and/or negotiating this Agreement and have concluded that no business plan or
franchise fee is conveyed or provided for in this Agreement or otherwise by the
relationship established by this Agreement or by its performance.
13.6 Public Announcement. Neither party will disclose, or release any public
announcement about, the parties' Content relationship under this Agreement
without the mutual consent of both parties.
13.7 Waiver. No waiver of any breach of any provision of this Agreement will
be considered to be a waiver of any prior, concurrent or later breach of the
same provisions or different provisions, and will not be effective unless made
in writing and signed by an officer of the waiving party.
13.8 Amendments. This Agreement may only be amended by a written agreement
signed by officers of both parties, except than any authorized representatives
of the parties, who may or may not be officers, may amend by signed written
agreement the Addenda to this Agreement.
13.9 Survival. SECTIONS 5, 7, 9 AND 11 of this Agreement, along with any
other provisions which by their nature extend beyond termination of this
Agreement shall survive termination.
-6-
<PAGE> 7
13.10 Force Majeure. Neither party will have liability to other party in
connection with or for any reason relating to this Agreement as a result of any
failure of performance by or on behalf of either party as a result of an event
of "force majeure". For purposes of this Agreement, "force majeure" means an
event beyond either party's reasonable control whether or not foreseeable and
includes, in any case, the following events that may prevent or significantly
hinder either party from performing this Agreement or acting in connection with
this Agreement: armed conflicts, famine, floods, Acts of God, labor strikes or
shortages, governmental decree or regulation, court order, severe weather, fire,
earthquake, failure of suppliers, unavailability of communications transport
facilities and breakdowns in communications transport facilities.
13.11 @Home Cable Operator Affiliates. Tenant acknowledges and agrees that
Cable Affiliates will have the right under certain circumstances to elect not to
distribute the Content and promotional material and that, pursuant to its
agreement with such Cable Affiliates, @Home may be subject to restrictions
regarding the promotion or distribution of such Content and promotional
materials. Tenant agrees not to bring any action or threaten to bring any action
against the Cable Affiliates or @Home in connection with any such election,
restriction or failure to distribute.
13.12 Entire Agreement. This Agreement, including its Attachments,
constitutes the entire understanding of @Home and Tenant with respect to its
subject matter and supersedes all prior agreements between @Home and Tenant.
Accepted for At Home Corporation by: Accepted for N2K, Inc. by:
Name Charles Moldow Name James E. Conne
------------------------- ------------------------
Signature /s/ Charles Moldow Signature /s/ James E. Conne
---------------------- ----------------------
Title Vice President, Media Div. Title Pres. & CEO
-------------------------- -------------------------
Date June 5, 1997 Date June 5, 1997
--------------------------- --------------------------
-7-
<PAGE> 8
ATTACHMENT I
TERMS OF @HOME SHOPPING TENANCY WITH MUSIC BOULEVARD
1. @Home Shopping Guide. The @Home Shopping Guide is a shopping service
provided by @Home to its subscribers. The Shopping Guide will feature a
general Shopping Page, as well as shopping interfaces in particular
categories ("ANCHOR TENANT CATEGORIES") established from time to time by
@Home.
2. Anchor Tenants. "ANCHOR TENANTS" will be featured in Anchor Tenant
Categories. As of the Effective Date, Music Boulevard will be an Anchor
Tenant in the "Music and Event Tickets" or "Music" Category (whichever one
is used by @Home). @Home agrees that during the term of this agreement it
will not enter into any other agreement establishing any other Anchor
Tenant in the "Music and Event Tickets" or "Music" Category that is
primarily engaged in the online sale of Music Products other than Music
Boulevard (by way of example only, this does not preclude @Home from
entering into an Anchor Tenant agreement in the "Music" Category with
another party to sell downloaded digital music.)
3. Responsibilities of @Home. @Home is responsible for the following
activities for the duration of this agreement to its Anchor Tenant.
a) @Home will promote Music Boulevard within its Anchor Tenant Category
at a level greater than other third party tenants that are primarily
engaged in the sale of Music Products within the Anchor Tenant
Category (this Anchor Tenancy does not include the digital
distribution of music at this time). This promotion will follow the
guidelines in Attachment II. The Music Boulevard promotion will be
displayed when an @Home user enters its Anchor Tenant Category.
b) @Home will create a promotion such that when a user passes their
cursor over the Music button on the general Shopping page, a
mutually agreed upon promotional message from Music Boulevard shall
display on the interface. Tenant acknowledges and agrees that this
is subject to change if and when @Home re-designs the Shopping
service.
c) @Home will link to the appropriate Music Boulevard Album Description
Page or Discography Page when @Home displays a "Buy" link for Music
Products in @Home-controlled pages if Music Boulevard carries the
Music Product featured on the page. In the event Music Boulevard
does not carry this Music Product, @Home may link to another music
store and notify Music Boulevard in a reasonable time frame. If any
items from the @Home-controlled pages are archived, they shall be
archived with the functional "Buy" link. @Home reserves the right to
create editorial content that may or may not include reference to
Music Boulevard.
d) @Home and Music Boulevard will use a mutually agreed upon process to
identify @Home users for the Music Boulevard pages and link them to
the appropriate product pages.
e) @Home will use Music Boulevard as the exclusive online Music
Products retailer on @Home-controlled areas of the TuneIn
application (by way of contrasting example only, the DJ "Buy This
CD" button is controlled by the DJ, and not by @Home and therefore
would not be covered by this exclusivity clause).
f) @Home has the ability to link to and promote mutually agreed upon
content features and events from the Classical Insites, Jazz Central
Station, and Rocktropolis N2K genre sites. @Home may also include
N2K content directly in the @Home site in accordance with N2K's
ability to provide such content. @Home will include the N2K content
site brand and link back to the site when it directly includes
content in the @Home site. Each party will keep its respective
advertising revenues associated with the non-exclusive features and
events described in this Section 3F. Notwithstanding the previous
sentence, beginning six months after the Effective Date, either
party may choose to re-negotiate this advertising revenue sharing
arrangement and/or @Home may choose, in its discretion, not to
feature or link to non-exclusive N2K content features or events.
-8-
<PAGE> 9
4. Responsibilities of Music Boulevard. N2K is responsible for the following
activities for the duration of this agreement to its Anchor Tenant.
a) Music Boulevard will co-brand every page in the Music Boulevard
store with a mutually agreed upon design. This design shall include
a link back to the @Home site. The co-branded site will appear
whenever an @Home user types in the Music Boulevard URL (e.g.
www.musicboulevard.com) or if they enter via any link from the @Home
site.
b) For all featured end-cap titles in the Music Boulevard store, N2K
will create 80 kbps RealAudio (or other mutually agreed upon
high-quality streaming format) sample files for at least 3 tracks on
each of these titles. N2K will also create 80 kbps RealAudio (or
other mutually agreed upon high-quality streaming format) sample
files for all tracks and titles for which it creates low bandwidth
samples beginning 30 days after the Effective Date. All
high-bandwidth audio files will be available to all @Home users and
shall be labeled, "@Home Broadband Clip" or similar mutually agreed
upon text.
c) N2K will create and make available 80 kbps RealAudio (or other
mutually agreed upon high-quality streaming format) files for all
featured titles with audio clips for its Classical Insites, Jazz
Central Station, & Rocktropolis sites provided @Home links directly
to the feature titles. These clips will be labeled as in Section 4B
above.
d) N2K will inform @Home of live and pre-recorded music events that it
would like to promote to @Home customers. In the event @Home decides
to promote any of these events, N2K will create and make available
an 80 kbps RealAudio (or other mutually agreed upon high-quality
streaming format) audio stream of the event for @Home customers. In
the event N2K believes that the number of simultaneous @Home
listeners will be greater than 50 for a particular event, N2K shall
notify @Home and , at @Home's discretion, @Home may permit N2K to
provide the event to a maximum of 50 simultaneous @Home customers or
@Home may choose to use its own RealAudio servers to multicast or
unicast the event to all @Home users (in this case, N2K will provide
a single encoded source stream to the @Home server(s) which will
then replicate the stream to @Home customers).
e) For every year of the Agreement, N2K will create 5 exclusive
mutually agreed upon online music events for @Home customers only.
At each event, @Home customers will have near-CD quality (80 kbps or
better) audio available and the event will not be available to
non-@Home internet users or online service users. N2K and @Home will
mutually agree upon the event and the media and technology used.
@Home will market each event to its subscribers. In the event N2K
believes that the number of simultaneous @Home listeners will be
greater than 50 for a particular event, N2K shall notify @Home and,
at @Home's discretion, @Home may permit N2K to provide the event to
a maximum of 50 simultaneous @Home customers or @Home may choose to
use its own RealAudio servers to multicast or unicast the event to
all @Home users (in this case, N2K will provide a single encoded
source stream to the @Home server(s) which will then replicate the
stream to @Home customers). In the event either party charges fees
or generates ad revenue from these events, such party will pay the
other [****]% of the net fees and [****]% of the net advertising
revenues (i.e., advertising revenues net of advertising sales
commissions, fees net of transaction processing, etc.).
5. Active Web Presence Music Boulevard agrees to maintain an Active Web Presence
during the term of this Agreement. "Active Web Presence" means the maintenance
of a site on the World Wide Web that offers at least the level of performance
and functionality offered on the Effective Date (including breadth and depth of
product offerings) and that, to the extent commercially reasonable, continues to
integrate the latest and most common features of functionality as comparable
websites, including (without limitation and by way of example only): back-end
security, appropriate transactional mechanisms, customer service, user interface
enhancements, and navigation tools.
-9-
<PAGE> 10
ATTACHMENT II
@HOME SHOPPING GUIDE GUIDELINES
[@HOME NETWORK LOGO]
Anchor Tenant Shopping Space Specs
(last revised 5/6/97 - RK)
Please Note: These Specifications and any screen shots are subject to change at
@Home's discretion.
Overview
GENERAL DESCRIPTION: Anchor tenants in the @Home Shopping Guide will be
promoted via a large ANCHOR AREA on the category page.
In addition, the Anchor Tenant will receive a short text
description, the TEXT PROMO, that will appear on the
bottom of the main Shopping screen when a user passes
the cursor over the Anchor Tenant Category.
The mock-up screen shot below points out the TEXT PROMO
on the main Shopping screen and the one below is the
Anchor tenant Category page which shows the ANCHOR AREA
promotion mechanism.
(NOT shown to scale)
-10-
<PAGE> 11
[INTERNET HOME PAGE]
TEXT PROMO
[INTERNET HOME PAGE]
ANCHOR AREA
-11-
<PAGE> 12
The ANCHOR AREA is designed and created by the anchor
tenant under the following specifications.
ANCHOR AREA Specifications
CONTENT GUIDELINES: The Anchor Tenant may create and brand this area however
they like as long as the following content is included:
-- Anchor Tenant Logo (hot-linked to your site)
-- Direct link to a multimedia feature if agreed
upon (e.g. near-CD quality featured samples)
-- Brief description of your store or products
If possible, please include some navigational links to
areas within the Anchor Tenant site.
The general purpose of this area is to act as a
promotion tool for your site. It is in the best
interests of @Home and the Anchor Tenant that it does
not look like a simple banner advertisement. Please call
Steven Baldridge (415-569-5120) if you desire further
input.
FORMAT: Standard JPEG & possibly text links.
One or more GIFs - optimized to Macintosh system
palette.
SIZE: Total Area: 345 pixels width x 90 pixels height
(height may be doubled for a limited time period at the
discretion of @Home)
IMAGE MAP AREA Top left x - 239, y - 6
Bottom right x - 324, y - 81
Rect. size 85w x 75h
-12-
<PAGE> 13
STYLE: White background only requirement
TEXT: Any text, any font, any size incorporated into the
image that fits into the above size requirements.
FILE WEIGHT: 50K maximum file weight
REFRESH SCHEDULE: TBD with Steven Baldridge.
FILE TRANSFER (FTP): ftp.home.net/incoming/.dropcontent
Use the "Put" command to place the files into this
directory. Please include the name of your site in the
file names.
Once the files are sent, please notify Steven Baldridge
at [email protected] or (415) 569-5120. Please include the
exact name of each file, including case sensitivity,
with your message.
@Home will review each document and respond with any
changes that may be required to meet design
specifications.
TEXT PROMO Specifications
CONTENT GUIDELINES: This is a short text phrase which should include the
Anchor Tenant name and is used to entice people into
the category. (e.g. "Check out the best home products
here at XYZ")
Please call Steven Baldridge (415-569-5120) if you
desire further input.
FORMAT: Standard Text
SIZE: 50 characters maximum.
STYLE: @Home will use its font and appropriate font size
REFRESH SCHEDULE: Once per week maximum, e-mailed on a business day
(Monday through Friday) to Steven Baldridge.
-13-
<PAGE> 14
FILE TRANSFER: Please e-mail Steven Baldridge at [email protected] with
the Text Promo in quotes. Please include the contact
person for questions and the time period you would like
it displayed (in accordance to the refresh schedule
above). Please call Steven to verify the file has been
received and meets specifications.
@Home will review each document and respond with any
changes that may be required to meet design
specifications.
-14-
<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, 1996 MARCH 31, 1997
----------------- ------------------
<S> <C> <C>
Pro forma net loss per common share:
Net loss................................................ $(18,907,909) $ (4,518,333)
============= ===============
Weighted average number of shares issued and
outstanding..........................................
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....................................
- Common stock.......................................
- Common stock options and warrants..................
Preferred stock converted into common stock upon
consummation of the initial public offering..........
------------- ---------------
Adjusted weighted average number of shares
outstanding..........................................
============= ===============
Pro forma net loss per common share..................... $ $
============= ===============
</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 $ 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, Series D, Series E and
Series F Preferred stock which will convert into 685,107, 714,285,
2,400,000, 2,461,539, 6,007,060 and 5,333,333 shares, respectively, of
Common stock upon the consummation of the Offering contemplated in this
Prospectus as if they were converted to Common stock on their original date
of issuance. The Series G Preferred stock which will convert into 2,480,329
shares 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.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
The Company has the following wholly-owned subsidiaries:
1. TSI Licensing, Inc.
State of Incorporation: Delaware
Date of Incorporation: May 24, 1994
2. N2K Japan Inc.
Jurisdiction of Organization: Japan
Date of Organization: August 5, 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
August 7, 1997
<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".
/s/ Richard A. Eisner & Company, LLP
New York, New York
August 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,118,662
<SECURITIES> 0
<RECEIVABLES> 283,382
<ALLOWANCES> 0
<INVENTORY> 64,590
<CURRENT-ASSETS> 2,794,569
<PP&E> 5,243,236
<DEPRECIATION> (1,224,557)
<TOTAL-ASSETS> 7,821,846
<CURRENT-LIABILITIES> 4,620,937
<BONDS> 0
0
15,397
<COMMON> 11,693
<OTHER-SE> 362,956
<TOTAL-LIABILITY-AND-EQUITY> 7,821,846
<SALES> 1,115,897
<TOTAL-REVENUES> 1,115,897
<CGS> 969,884
<TOTAL-COSTS> 969,884
<OTHER-EXPENSES> 4,533,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,942
<INCOME-PRETAX> (4,518,333)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,358,390)
<DISCONTINUED> (159,943)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,518,333)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,483,450
<SECURITIES> 0
<RECEIVABLES> 63,549
<ALLOWANCES> 0
<INVENTORY> 113,824
<CURRENT-ASSETS> 5,451,005
<PP&E> 4,137,199
<DEPRECIATION> (1,002,435)
<TOTAL-ASSETS> 9,386,470
<CURRENT-LIABILITIES> 3,396,340
<BONDS> 0
0
15,397
<COMMON> 11,693
<OTHER-SE> 4,881,289
<TOTAL-LIABILITY-AND-EQUITY> 9,386,470
<SALES> 1,655,704
<TOTAL-REVENUES> 1,655,704
<CGS> 1,637,319
<TOTAL-COSTS> 1,637,319
<OTHER-EXPENSES> 18,257,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,281
<INCOME-PRETAX> (18,907,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,939,235)
<DISCONTINUED> (968,674)
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