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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 00
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (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
Xxxxx Xxxxxxxxxx, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at such
time, date or place as the Company and Xxxxx & Company Incorporated ("Xxxxx"),
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,
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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
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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
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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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(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. Xxxxx Xxxxx and Xxxxx Xxxxxxx, on
behalf of the Company, have afforded him or it and his or its professional
advisors and his or its Purchaser Representative (if any), full and complete
access to all information with respect to the Company, its management and/or the
Company's proposed operations that he or it and such advisors and/or Purchaser
Representative (if any) have deemed necessary and material for an evaluation of
the merits and risks for him of making an investment in the Preferred Shares. He
or it, such advisors and/or Purchaser Representative (if any), have had adequate
opportunity to ask questions of, and receive answers from, persons acting on
behalf of the Company regarding the terms and conditions of the Offering and to
obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information provided to him or his advisors. All such
questions have been answered to the full satisfaction of the Purchasers and
their professional advisors and/or Purchaser Representatives (if any).
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(g) INDIVIDUAL MATTERS. In the case of those Purchasers who are
individuals, each of the Purchasers, severally and not jointly, represents and
warrants as follows:
(i) The Preferred Shares being acquired by him pursuant to
this Agreement are being acquired by such party for investment purposes only,
for such party's own account and not with a view to the offer, sale or
distribution thereof.
(ii) He has such knowledge and experience in financial and
business matters and, in particular, concerning investments, as is necessary to
enable him, alone or together with his advisors and/or Purchaser Representative
(as defined in Rule 501 of Regulation D under the 1933 Act), if any, to evaluate
the merits and risks of making an investment in the Preferred Shares.
(iii) He and/or his Purchaser Representative, if any, has
received, has read and understands this Agreement, and the documents, Financial
Statements and other material relating to the Company provided herewith. He
and/or his Purchaser Representative, if any, is familiar with and understands
the business and operations of the Company.
(iv) In evaluating the merits and risks of making an
investment in the Preferred Shares hereunder, he has relied on the advice of his
own personal legal, financial, tax and accounting advisors and/or Purchaser
Representative (if any).
(v) The address set forth below in the Schedule of
Purchasers, is his true residence, and he has no present intention of becoming a
resident of any other state or jurisdiction.
(vi) He understands that there are substantial risks
pertaining to the making of an investment in the Preferred Shares hereunder,
including but not limited to risks resulting from the fact that the Company: is
a small company in an emerging technology market; does business in foreign
markets; and is thinly capitalized and has a history of operating losses. The
likelihood of the Company's success must be considered in light of the problems,
expenses, difficulties and delays frequently encountered in connection with the
development of new technology, marketing that technology and the above-mentioned
risk factors and the competitive environment in which the Company operates. No
assurance can be given that the proceeds of the sale of Preferred Shares to the
Purchasers will be sufficient for the Company's purposes. Furthermore, there can
be no assurance that the Company will become profitable. He is fully able to
bear the economic risk of an investment in the Preferred Shares for an
indefinite period of time and could afford a complete loss of such investment.
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(vii) He is advised that there will be no public market for
the Preferred Shares or Common Stock. He has no need for liquidity in the
Preferred Shares and is able to bear the risk of making an investment in the
Preferred Shares for an indefinite period. His present financial condition is
such that he is under no present or contemplated future need to dispose of any
portion of the Preferred Shares to satisfy any existing or contemplated
undertaking, need or indebtedness. His overall commitment to investments which
are not readily marketable is not disproportionate to his net worth and the
making of an investment in the Preferred Shares will not cause such overall
commitment to become excessive.
5. CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING. The several
obligations of the Purchasers under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the conditions contained in
this Section 5, any of which may be waived by the subscribers for at least
seventy-five percent (75%) of the Preferred Shares to be issued hereunder:
(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of the Company contained in Section 2 shall be
true on and as of the Closing with the same force and effect as if they had been
made at the Closing (except to the extent that they expressly relate to an
earlier date).
(b) PERFORMANCE. The Company shall have performed and complied with
all agreements, conditions and covenants contained in this Agreement required to
be performed or complied with by it on or before the Closing.
(c) QUALIFICATIONS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
(d) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to Purchasers and their special counsel and Purchasers shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(e) FILING OF STATEMENT. The Statement shall have been filed with the
Secretary of State of the Commonwealth of Pennsylvania, and Purchasers shall
have received satisfactory evidence thereof.
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(f) OPINION OF COUNSEL. Purchaser shall have received from counsel
to the Company an opinion dated as of the Closing, substantially in the form
attached as Exhibit C.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to each Purchaser under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions,
any of which may be waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING. The
representations and warranties of such Purchasers contained in Sections 3 and 4
shall be true on and as of the Closing with the same force and effect as if they
had been made at the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
(c) PAYMENT FOR PREFERRED SHARES. The Company shall have received
payment for the Preferred Shares to be purchased hereunder.
7. COVENANTS OF THE COMPANY.
(a) DESIGNATION OF PREFERRED SHARES. As soon as practicable after
the execution of this Agreement, the Company shall adopt and file and keep in
force with the Secretary of State of the Commonwealth of Pennsylvania the
Statement, attached to this Agreement as Exhibit A, designating the Preferred
Shares.
(b) ANNUAL AND QUARTERLY FINANCIAL STATEMENTS. The Company shall
maintain a standard system of accounting in accordance with generally accepted
accounting principles applied on a consistent basis and shall make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions. Until such time as the Company is required to file
reports under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Company shall deliver to Purchasers:
(i) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company, a profit or loss statement for such fiscal year, a balance
sheet of the Company as of the end of such year, and a statement of cash flows
for such year, certified, without qualification as to scope of the
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examination, by independent public accountants of recognized national standing
selected by the Company; and
(ii) QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45)
days after the end of each of the first three (3) quarters of the fiscal year an
unaudited statement of income for such fiscal quarter and an unaudited balance
sheet as of the end of such fiscal quarter, setting forth in comparative form
the figures for the corresponding periods of the previous fiscal year.
(c) BUSINESS PLAN AND PROJECTIONS. As soon as available, but in
any event within forty-five (45) days after commencement of each new fiscal
year, a business plan and projected financial statements for such fiscal year.
(d) ADDITIONAL INFORMATION.
(i) Upon the written request of any Purchaser, the Company
shall also furnish to a representative designated by a majority of the
Purchasers, with reasonable promptness, such other information relating to the
financial affairs of the Company as is furnished or made available (or not so
furnished or made available but required by law to be furnished or made
available) to directors of the Company.
(ii) The representative so designated shall have the same
obligations with respect to protection and nondisclosure (other than to the
Purchaser) of any information so furnished as a director of the Company would
have with respect to such information.
(e) NONDISCLOSURE AND INVENTION ASSIGNMENTS. The Company will
continue to cause each officer, key employee and consultant of the Company to
enter into an agreement with the Company relating to the assignment of
inventions and nondisclosure of confidential information, in substantially the
form previously utilized by the Company.
(f) USE OF PROCEEDS. The proceeds from the sale of Preferred Shares
shall be used for working capital and capital expenditures.
(g) TAXES. The Company will promptly pay and discharge or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto; and provided
further, that the Company will pay all such taxes,
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assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor. The Company will
promptly pay or cause to be paid when due, or in conformance with customary
trade terms, all other indebtedness incident to the operations of the Company.
(h) MAINTENANCE OF PROPERTIES. The Company will keep its properties
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; the Company will at all times
comply with the provisions of all material leases to which it is a party or
under which it occupies property so as to prevent any loss or forfeiture thereof
or thereunder.
(i) INSURANCE. The Company will keep its assets that are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and explosion insurance in amounts
customary for companies in similar businesses similarly situated; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards, risks and liabilities to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated.
(j) GOVERNMENTAL REQUIREMENTS. The Company will duly observe and
conform to all valid requirements of governmental authorities relating to the
conduct of its businesses or to its property or assets.
(k) CORPORATE EXISTENCE, LICENSES, ETC. The Company shall maintain
in full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use patents, processes, licenses, trademarks, trade
names or copyrights owned by it and deemed by the Company to be significant to
the conduct of its business.
(l) REQUIRED FILINGS. The Company will cooperate in filing any
notices of sale required to be filed with the Securities and Exchange Commission
pursuant to Regulation D promulgated under the 1933 Act or any state securities
law authority pursuant to applicable blue sky laws.
(m) DIRECTOR NOMINEE. At all times prior to the completion of an
initial public offering of its shares, the Company covenants to take all actions
reasonably necessary to appoint a nominee of the Preferred Shares to the
Company's Board of Directors and to nominate such designee for election by
shareholders of the Company.
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(n) TERMINATION OF COVENANTS. The covenants set forth in this Section
7 shall terminate and be of no further force or effect after the date of the
closing of the Company's first public offering of its securities resulting in
proceeds to the Company of not less than $5,000,000.
8. REGISTRATION RIGHTS.
(A) DEFINITIONS. As used in this Section 8, the following terms
shall have the following respective meanings:
(i) "Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the Securities
Act.
(ii) "Person" shall mean and include an individual, a
corporation, a partnership, a trust, an unincorporated organization and a
government or any department, agency or political subdivision thereof.
(iii) "Restricted Securities" shall mean the Preferred Shares,
the Common Stock issuable upon conversion thereof and any shares of capital
stock received in respect of any thereof, evidenced by certificates bearing the
restrictive legend set forth in Section 8(b); provided, however, any securities
shall cease to be considered Restricted Securities for the purposes of this
Section 8 at such time that the holder thereof may sell or dispose of all such
securities held by such holder without limitation, without the need for
registration under the Securities Act.
(iv) "Restricted Shares" shall mean the Preferred
Shares constituting Restricted Securities.
(v) "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(vi) "Transfer" shall include any disposition of any shares
of Restricted Securities or of any interest therein which would constitute a
sale thereof within the meaning of the Securities Act.
(b) RESTRICTIVE LEGENDS. Each certificate for the Restricted
Securities and any shares of capital stock received in respect thereof, whether
by reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of this Agreement) be stamped or otherwise imprinted with
legends in substantially the following form:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED OR THE SECURITIES ACTS OF ANY STATE
HEREOF. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE UNITED
STATES OR TO A UNITED STATES CITIZEN IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO N2K INC. AND IN
ACCEPTABLE FORM AND SUBSTANCE THAT AN EXEMPTION THEREFROM IS AVAILABLE
UNDER SAID ACTS.
(c) NOTICE OF TRANSFER. The holder of any Restricted Securities, by
acceptance thereof, agrees, prior to any transfer of any Restricted Securities,
to give written notice to the Company of such holder's intention to effect such
transfer and to comply in all other respects with the provisions of this Section
8(c). Each such notice shall describe the manner and circumstances of the
proposed transfer and shall be accompanied by (a) the written opinion, addressed
to the Company, of counsel reasonably acceptable to the Company for the holder
of Restricted Securities, as to whether in the opinion of such counsel such
proposed transfer involves a transaction requiring registration of such
Restricted Securities under the Securities Act and state securities acts and, if
not, a description of the exemptions available, and (b) in the case of
Restricted Shares, if in the opinion of such counsel such registration is
required, a written request addressed to the Company by the holder of Restricted
Securities, describing in detail the proposed method of disposition and
requesting the Company to effect the registration of such Restricted Shares
pursuant to the terms and provisions of Section 8(d), 8(e) or 8(f) hereof, as
the case may be. If in the opinion of such counsel the proposed transfer of
Restricted Securities may be effected without registration under the Securities
Act and state securities acts, the holder of Restricted Securities shall
thereupon be entitled to transfer Restricted Securities in accordance with the
terms of the notice delivered by it to the Company. Each certificate or other
instrument evidencing the securities issued upon the transfer of any Restricted
Securities (and each certificate or other instrument evidencing any
untransferred balance of such securities) shall bear the legends set forth in
Section 8(b) unless (a) in the opinion of such counsel registration of future
transfer is not required by the applicable provisions of the Securities Act and
state securities acts or (b) the Company shall have waived the requirement of
such legends. Except as provided above, the holder of Restricted Securities
shall not transfer such Restricted Securities until such opinion of counsel has
been given to the Company (unless waived by the Company) or until registration
of the Restricted Shares involved in the above-mentioned request has become
effective under the Securities Act.
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(d) INCIDENTAL REGISTRATION. If the Company proposes for any reason
to register any of its securities under the Securities Act (other than in an
initial public offering or pursuant to a registration statement on Forms S-8 or
S-4 or similar or successor forms), it shall each such time promptly give
written notice to all holders of outstanding Restricted Securities of its
intention to do so, and, upon the written request, given within 30 days after
receipt of any such notice of the holder of any such Restricted Securities to
register any Restricted Shares (which request shall specify the Restricted
Shares intended to be sold or disposed of by such holders), the Company shall
use its best efforts to cause all such Restricted Shares to be included in such
registration under the Securities Act, all to the extent requisite to permit the
sale or other disposition (in accordance with the Company's intended methods
thereof, as aforesaid) by the prospective seller or sellers of the Restricted
Shares so registered. In the event that the proposed registration by the Company
is, in whole or in part, an underwritten public offering of securities of the
Company, if the managing underwriter determines and advises in writing that the
inclusion of all Restricted Shares proposed to be included in the underwritten
public offering and other issued and outstanding shares of Common Stock proposed
to be included therein by persons other than the holders of Restricted
Securities (the "Other Shares") would interfere with the successful marketing of
such securities, then (i) the number of Restricted Shares and Other Shares shall
be reduced, pro rata among the holders of Other Shares and the holders of
Restricted Shares (based upon the number of shares of Common Stock requested by
the holders thereof to be registered in such underwritten public offering), and
(ii) in each case those shares of Common Stock which are excluded from the
underwritten public offering shall be withheld from the market by the holders
thereof for a period, not to exceed 90 days, which the managing underwriter
reasonably determines as necessary in order to effect the underwritten public
offering.
(e) REGISTRATIONS ON FORM S-2 OR S-3. At such time as the Company
shall have qualified for the use of Form S-2 or S-3 (or any similar form or
forms promulgated by the Commission), the holders of Restricted Securities shall
have the right to request an unlimited number of registrations on Form S-2 or
S-3 (which request or requests shall be in writing, shall specify the Restricted
Shares intended to be sold or disposed of by the holders thereof, shall state
the intended method of disposition of such Restricted Shares by the holder(s)
requesting such registration and shall relate to Restricted Shares having a
proposed aggregate gross offering price (before deduction of underwriting
discounts and expenses of sale) of at least $500,000), and the Company shall be
obligated to effect such registration or registrations on Form
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S-2 or S-3 (as the case may be); provided, however, that the Company shall in no
event be obligated to cause the effectiveness of more than one such registration
statement in any calendar year. The Company shall not register securities for
sale for its own account in any registration requested pursuant to this Section
8(e) unless requested to do so by the holders of Restricted Securities who hold
at least 51% of the stock as to which registration has been requested. The
Company may not cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement an employee
benefit plan or to acquire another company) to become effective less than 90
days after the effective date of any registration requested pursuant to this
Section 8(e).
(f) DEMAND REGISTRATION. At any time prior to the time that the
Company shall have qualified for the use of Form S-2 or S-3 (or any similar form
or forms promulgated by the Commission) the holders of a majority in interest of
the then outstanding Restricted Securities shall have the one-time right to
request the Company to file a registration statement on any form which the
Company is then entitled to use. Such request shall be in writing, shall specify
the shares of Common Stock (into which the Preferred Stock shall have been
converted) intended to be sold or disposed of by the holders thereof, shall
state the intended method of disposition by the holder(s) requesting such
registration and shall relate to Common Stock having a proposed aggregate gross
offering price (before deduction of underwriting discounts and expenses of sale)
of at least $500,000, and the Company shall be obligated to effect such
registration as promptly as practical, subject in any event to all applicable
securities laws and, if such registration relates to an underwriting, all
requirements of the Company's investment banker; provided, however, that the
Company shall not be required to file such registration statement prior to the
expiration of 180 days from the effective date of the Company's registration
statement covering its initial public offering.
(g) DESIGNATION OF UNDERWRITER.
(i) In the case of any registration effected pursuant to
Section 8(e) or 8(f), a majority in interest of the requesting holders of
Restricted Securities or Common Stock (in the case of a registration effected
pursuant to Section 8(f)) shall have the right to designate the managing
underwriter (if any) in any such underwritten offering, subject in any event to
the proviso set forth in Section 8(j) hereof.
(ii) In the case of any registration initiated by the
Company, the Company shall have the right to designate the managing underwriter
in any underwritten offering.
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(h) GRANTING OF REGISTRATION RIGHTS. The Company shall not grant any
rights to any persons to register any shares of capital stock or other
securities of the Company if such rights would be superior to the rights of the
holders of Restricted Securities granted pursuant to this Agreement, unless the
Purchaser is given the same or comparable rights.
(i) PREPARATION AND FILING. (A) If and whenever the Company is under
an obligation pursuant to the provisions of this Section 8 to effect the
registration of any Restricted Shares, the Company shall, as expeditiously as
practicable:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and current for at least nine months and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
Restricted Shares covered by such registration statement;
(iii) furnish to each selling shareholder such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Restricted Shares;
(iv) use its best efforts to register or qualify the
Restricted Shares covered by such registration statement under the securities or
blue sky laws of such jurisdictions as each such seller shall reasonably request
(provided, however, the Company shall not be required to consent to general
service of process for all purposes in any jurisdiction where it is not then
qualified) and do any and all other acts or things which may be necessary or
advisable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of such securities;
(v) notify each seller of Restricted Shares covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Securities
Act within the appropriate period mentioned in clause (ii) of this Section 8(i),
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material
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fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and at the request of such seller, prepare and
furnish to such seller a reasonable number of copies of a Supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(vi) furnish, upon request, to each requesting seller a signed
counterpart, addressed to the requesting seller or sellers, of (i) an opinion of
counsel for the Company, dated the effective date of the registration statement,
and (ii) a "comfort" letter signed by the independent public accountants who
have certified the Company's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the "comfort" letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in opinions of issuer's counsel and in "comfort" letters delivered
to the underwriters in underwritten public offerings of securities.
(B) The Company shall maintain the effectiveness of any
registration statement filed pursuant to paragraphs 8(e) or 8(f) until such time
that all Restricted Securities included therein are sold or no longer constitute
Restricted Securities as defined in paragraph 8(a)(iii).
(j) EXPENSES. All expenses incurred by the Company in complying with
Section 8(i) shall be paid by the Company, including, without limitation, all
registration and filing fees, printing expenses, blue sky filing fees, fees and
disbursements of counsel for the Company, as well as the fees and disbursements
of counsel designated for the sellers of Restricted Securities, and expenses of
any required audits; provided, however, that (a) the Company shall not be
obligated for payment of the fees and disbursements of more than one counsel for
the holders of Restricted Securities in connection with registration under
Section 8(d), 8(e) or 8(f) hereof and (b) all underwriting discounts and selling
commissions and other similar fees and costs applicable to the Restricted Shares
covered by registrations effected pursuant to Section 8(d), 8(e) or 8(f) hereof
shall be borne by the seller or sellers thereof, in proportion to the number of
Restricted Shares sold by such seller or sellers.
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(k) INDEMNIFICATION.
(i) In the event of any registration of any Restricted
Shares under the Securities Act pursuant to this Section 8 or registration or
qualification of any Restricted Shares pursuant to Section 8(i)(iv), the Company
shall indemnify and hold harmless the seller of such shares, or any other person
acting on behalf of such seller and each other person, if any, who controls any
of the foregoing persons, within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which any of the
foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such Restricted Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any document prepared and/or furnished by the Company incident to
the registration or qualification of any Restricted Shares pursuant to Section
8(i)(iv), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, or any violation by the Company of the
Securities Act or state securities or blue sky laws applicable to the Company
and relating to action or inaction required of the Company in connection with
such registration or qualification under such state securities or blue sky laws,
and shall reimburse such seller, underwriter or other person acting on behalf of
such seller and each such controlling person for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus or said prospectus or said
amendment or supplement or any document incident to the registration or
qualification of any Restricted Shares pursuant to Section 8(i)(iv), in reliance
upon and in conformity with written information furnished to the Company by such
seller or such seller's agent or representative specifically for use in the
preparation thereof.
(ii) Before Restricted Shares held by any prospective seller
shall be included in any registration pursuant to Section 8, such prospective
seller and any
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underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section 8(k) or, if different, in the manner and to
the extent as is in accordance with standard industry practice at the time of
the proposed sale) the Company, each director of the Company, each officer of
the Company who shall sign such registration statement, and any person who
controls the Company within the meaning of the Securities Act, with respect to
any untrue statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or omission was made in reliance
upon and in conformity with written information furnished to the Company by such
seller or such seller's agent or representative specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus or amendment or supplement; provided, however, that the amount of
each such seller's indemnification obligation shall be limited to the net
proceeds received by such seller from the sale of such seller's Restricted
Shares pursuant to the registration statement.
(iii) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 8(k), such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 8(k), the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any counsel retained by the indemnified party which are
reasonably related to the
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matters covered by the indemnity agreement provided in this Section 8(k).
(iv) The failure to notify an indemnifying party promptly of
the commencement of any such action, if materially prejudicial to the ability of
the indemnifying party to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this paragraph, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party otherwise than
under this Section 8.
(v) The indemnifying party shall not make any settlement of
any claims indemnified against hereunder without the written consent of the
indemnified party or parties, which consent shall not be unreasonably withheld.
(l) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company or a seller on grounds of public policy
or otherwise, the Company and each seller shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending the same) to
which the Company and each seller or underwriter (and any person who controls
any of the foregoing persons, and any person acting on behalf of any of the
foregoing persons in connection with such registration), including, without
limitation, any officer, director, broker, employee, agent, attorney and
accountant, and in the case of a partnership, each of its partners), as the case
may be, in such proportion as is appropriate to reflect the relative fault of
the Company and such seller or underwriter (and any person who controls any of
the foregoing persons, and any person acting on behalf of any of the foregoing
in connection with such registration, including, without limitation, any
officer, director, broker, employee, agent, attorney or accountant, and in the
case of a partnership, each of its partners), as the case may be, in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as all other relevant equitable considerations;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation; and provided further, that in the case of each seller, the
maximum amount of such contribution shall be limited to an amount equal to the
net proceeds actually received by such seller from the sale of Restricted Shares
effected pursuant to such registration. Any
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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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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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(c) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit with the United States Postal Service, by registered or
certified mail, postage prepaid, addressed to the party as shown in the caption
to this Agreement or on the appropriate Schedule attached hereto or at such
other address as any party may designate by ten days' advance written notice to
the other party.
(f) FINDERS' FEES. Each Purchaser represents that it neither is, nor
will be, obligated for any finders' fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Purchasers or any of its partners, employees
or representatives is responsible. The Company agrees to indemnify and hold
harmless Purchasers from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
(g) RIGHTS OF PURCHASERS. Except as provided in another written
document executed by such holder, each holder of Preferred Shares (or Common
Stock issued upon conversion thereof) shall have the absolute right to exercise
or refrain from exercising any right or rights that such holder may have by
reason of this Agreement or ownership of any Preferred Shares, including without
limitation the right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an agreement with the Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Preferred Shares with respect to exercising or refraining from
exercising any such right or rights.
(h) AMENDMENT. Except as otherwise provided herein, this Agreement
may be modified or amended only by a writing signed by the Company and by the
holders of at least sixty-six
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and two-thirds percent (66-2/3%) of the Preferred Stock outstanding.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
N2K INC.
By:
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Xxxxx Xxxxxxx, Secretary and
Vice President
PURCHASERS:
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