CONFORMED COPY
TERMINATION AGREEMENT dated as of March 13, 2000, among
TIME WARNER INC., a Delaware corporation ("Time Warner"),
SONY CORPORATION OF AMERICA, a New York corporation
("Sony"), CDNOW, INC., a Pennsylvania corporation ("CDnow"),
DELAWARE HOLDCO CORPORATION, a Delaware corporation and a
direct wholly owned subsidiary of CDnow ("Holdco"),
PENNSYLVANIA SUBSIDIARY, INC., a Pennsylvania corporation
and a direct wholly owned subsidiary of Holdco
("Pennsylvania Sub"), DELAWARE SUB I L.L.C., a Delaware
limited liability company and a direct wholly owned
subsidiary of Holdco ("Delaware Sub I"), DELAWARE SUB II
L.L.C., a Delaware limited liability company and a direct
wholly owned subsidiary of Holdco ("Delaware Sub II"), and
the individuals party to this Termination Agreement.
WHEREAS Time Warner, Sony, CDnow, Holdco, Pennsylvania Sub, Delaware
Sub I and Delaware Sub II have entered into an Agreement of Merger and
Contribution dated as of July 12, 1999 (the "Merger and Contribution
Agreement");
WHEREAS, in connection with the execution and delivery of the Merger
and Contribution Agreement, Warner Music Canada Ltd., a corporation organized
under the laws of Ontario ("Time Warner Canada"), Sony Music Entertainment
(Canada) Inc., a corporation organized under the laws of Canada ("Sony Canada"),
The Columbia House Company (Canada), a general partnership organized under the
laws of Ontario ("Columbia House Canada"), the general partners of which are
Time Warner Canada and Sony Canada, 3030809 Nova Scotia ULC, an unlimited
liability company organized under the laws of Nova Scotia and a direct wholly
owned subsidiary of Columbia House Canada, and Holdco entered into a Master
Canadian Transaction Agreement dated as of July 12, 1999 (the "Master Canadian
Transaction Agreement");
WHEREAS, in connection with the execution and delivery of the Merger
and Contribution Agreement, Time Warner, Sony and the certain shareholders of
CDnow entered into the CDnow, Inc. Shareholders Agreement dated as of July 12,
1999 (the "CDnow Shareholder Agreement");
WHEREAS, in connection with the execution and delivery of the Merger
and Contribution Agreement, Time
2
Warner, Sony and CDnow entered into a Stock Option Agreement dated as of July
12, 1999 (the "Stock Option Agreement");
WHEREAS, in connection with the execution and delivery of the Merger
and Contribution Agreement, Time Warner, Sony, CDnow, Holdco, Pennsylvania
Subsidiary, Delaware Sub I and Delaware Sub II entered into a Letter Agreement
dated July 12, 1999 (together with the Merger and Contribution Agreement, the
Master Canadian Transaction Agreement, the CDnow Shareholder Agreement and the
Stock Option Agreement, the "Transaction Agreements");
WHEREAS, in connection with the execution and delivery of the Merger
and Contribution Agreement, Time Warner, Sony Music Entertainment Inc., a
Delaware corporation ("SMEI"), and CDnow entered into a Convertible Loan
Agreement dated as of July 12, 1999 (the "Convertible Loan Agreement);
WHEREAS, in connection with the Convertible Loan Agreement, CDnow and
certain related companies entered into a Guarantee and Collateral Agreement
dated as of January 21, 2000, in favor of Time Warner, as Security Agent for
Time Warner and SMEI as lenders under the Convertible Loan Agreement (the
"Security Agreement"); and
WHEREAS, the parties hereto mutually desire to terminate the
Transaction Agreements on the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth in this Termination Agreement, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
Termination
SECTION 1.01. Termination. Time Warner, Sony and CDnow mutually
consent to terminate the Merger and Contribution Agreement pursuant to Section
10.01(a) of the Merger and Contribution Agreement, which termination constitutes
automatic termination of (i) the Master Canadian Transaction Agreement pursuant
to Section 4.4 thereof and (ii) the CDnow Shareholder Agreement pursuant to
Section 4 thereof. Each of Time Warner, Sony and CDnow acknowledges and agrees
that, pursuant to Section 2 of the Stock Option Agreement, the termination of
the Merger and Contribution Agreement as provided in the preceding sentence
shall cause
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the Option (as defined in Section 1 of the Stock Option Agreement) granted
under the Stock Option Agreement to terminate and be of no further force and
effect.
SECTION 1.02. Effect of Termination. Notwithstanding anything to the
contrary contained in the Transaction Agreements, the Convertible Loan Agreement
or the Security Agreement, except with respect to (i) Section 3.14, Section
4.14, the last sentence of Section 8.02(a), Section 8.07(a), Section 10.02 and
Article XI of the Merger and Contribution Agreement and (ii) Article 4 of the
Master Canadian Transaction Agreement, which provisions shall survive the
termination of the Transaction Agreements (for the avoidance of doubt, Section
8.07(b) and Section 8.07(c) of the Merger and Contribution Agreement shall not
survive the termination of the Transaction Agreements), none of the parties to
this Termination Agreement nor any of their respective parents, subsidiaries or
affiliates, or any of their respective directors, officers, trustees,
representatives, employees, attorneys, advisors, investment bankers, agents,
stockholders, warrant holders, partners, associates, predecessors, heirs,
executors, administrators, legal representatives, successors or assigns shall
have any liability or obligation under the Transaction Agreements.
SECTION 1.03. Public Announcements. The press release announcing the
termination of the Transaction Agreements shall be in the form of Exhibit A to
this Termination Agreement.
ARTICLE II
Releases and Absence of Indemnification
SECTION 2.01. Releases. (a) Each of CDnow, Holdco, Pennsylvania Sub,
Delaware Sub I, Delaware Sub II, and each of the individuals who execute this
Termination Agreement, for such party and such party's successors and assigns,
hereby releases and forever discharges each of Time Warner and Sony, and any and
all of their respective present, former and future parents, subsidiaries and
affiliates, and any and all of their respective present, former and future
directors, officers, trustees, representatives, employees, attorneys, advisors,
investment bankers, agents, stockholders, warrant holders, partners, associates,
predecessors, heirs, executors, administrators, legal representatives,
successors and assigns, in any capacity whatsoever (the "Time Warner and Sony
Released Persons"), from all claims, actions, complaints, causes of
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action, judgments, liabilities, obligations, damages, debts, demands or suits
(each individually, a "Claim" and collectively, "Claims"), at law or in
equity, known or unknown, which CDnow or any other CDnow Released Person (as
hereinafter defined) claiming through, under or on behalf of CDnow or any
other CDnow Released Person or any of their successors or assigns ever had,
now has or hereafter can, shall or may have for, upon, or by reason of any
matter, cause or thing whatsoever from the beginning of the world to the date
of this Termination Agreement, which Claims relate to or result from or arise
out of any Transaction Agreement or any of the transactions contemplated by
any of the Transaction Agreements. For the avoidance of doubt, nothing in this
Termination Agreement shall constitute a release of any Claims under the
Convertible Loan Agreement or the Security Agreement or the notes and
documents issued thereunder.
(b) Each of Time Warner and Sony, for such party and such party's
successors and assigns, hereby releases and forever discharges each of CDnow,
Holdco, Pennsylvania Sub, Delaware Sub I, Delaware Sub II, and each of the
individuals who execute this Termination Agreement, and any and all of their
respective present, former and future parents, subsidiaries and affiliates, and
any and all of their respective present, former and future directors, officers,
trustees, representatives, employees, attorneys, advisors, investment bankers,
agents, stockholders, warrant holders, partners, associates, predecessors,
heirs, executors, administrators, legal representatives, successors and assigns,
in any capacity whatsoever (the "CDnow Released Persons"), from all Claims, at
law or in equity, known or unknown, which Time Warner, Sony or any other Time
Warner and Sony Released Person claiming through, under or on behalf of Time
Warner or Sony or any other Time Warner and Sony Released Person or any of their
successors or assigns ever had, now has or hereafter can, shall or may have for,
upon, or by reason of any matter, cause or thing whatsoever from the beginning
of the world to the date of this Termination Agreement, which Claims relate to
or result from or arise out of any Transaction Agreement or any of the
transactions contemplated by any of the Transaction Agreements. For the
avoidance of doubt, nothing in this Termination Agreement shall constitute a
release of any Claims under the Convertible Loan Agreement or the Security
Agreement or the notes and documents issued thereunder.
(c) Each of the parties to this Termination Agreement hereby
acknowledges and agrees that all claims under Section 1542 of the California
Civil Code and any other provision of law now or hereafter enacted, adjudicated
5
or sought to be adjudicated relating to the release or waiver of unknown or
unspecified claims are hereby specifically and expressly released and waived.
Each of the parties understands that Section 1542 of the California Civil Code
provides that "[a] general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor". For purposes of this Termination Agreement, each
of the parties acknowledges and agrees that it may be considered to be both a
"creditor" and a "debtor" for all purposes and with respect to all claims it
may now know or suspect to exist within the meaning of Section 1542 of the
California Civil Code and any other provision of law nor or hereafter enacted,
adjudicated or sought to be adjudicated relating to the release or waiver of
unknown or unspecified claims.
SECTION 2.02. No Indemnification. Nothing in this Article II shall in
any way constitute an agreement by any party to this Termination Agreement to
indemnify any other party hereto against any third party Claim or, except as
specifically set forth herein with respect to the Time Warner and Sony Released
Persons and the CDnow Released Persons, waive, release, limit or restrict any
Claim which any party may have against any person or entity not a party to this
Termination Agreement.
ARTICLE III
Financing Arrangements
SECTION 3.01. Amendment of Convertible Loan Agreement and Consent in
respect of Security Agreement. Time Warner and CDnow shall, and Sony shall cause
SMEI to, simultaneously with the execution and delivery of this Termination
Agreement, enter into an amendment to the Convertible Loan Agreement in the form
of Exhibit B to this Termination Agreement. Time Warner and CDnow shall, and
Sony shall cause SMEI to, simultaneously with the execution and delivery of this
Termination Agreement, enter into a consent in respect of the Security Agreement
in the form of Exhibit C to this Termination Agreement.
SECTION 3.02. Purchase of Common Stock. (a) Each of Time Warner and
Sony agrees to, or to cause one or more of its subsidiaries to, purchase from
CDnow, and CDnow agrees to sell to each of Time Warner and Sony, or one or more
subsidiaries of Time Warner or Sony, as the case may be, that number of shares
of common stock, without par
6
value, of CDnow (the "CDnow Common Stock"), determined by dividing $10,500,000
by the Market Value (as defined below) of shares of CDnow Common Stock,
rounded up to the nearest whole share (all such shares of CDnow Common Stock
purchased by Time Warner and Sony, and any of their respective subsidiaries,
the "Purchased Shares") for an aggregate purchase price of $21,000,000 (the
"Aggregate Purchase Price"). For purposes of this Section 3.02, the term
"Market Value" shall mean $8.73 per share of CDnow Common Stock, which is the
volume weighted average of the closing price of CDnow Common Stock as reported
on the Nasdaq National Market on each of the ten consecutive trading days
ending with the trading day immediately preceding the date of this Termination
Agreement. CDnow represents and warrants that, upon issuance of the Purchased
Shares and receipt of payment therefor, such shares will be validly issued,
fully paid and nonassessable.
(b) On or prior to March 16, 2000, each of Time Warner and Sony shall
pay to CDnow, in U.S. dollars by wire transfer in immediately available funds to
an account specified by the Chief Financial Officer of CDnow in a written notice
delivered to each of Time Warner and Sony on or prior to March 14, 2000, an
amount equal to one-half of the Aggregate Purchase Price. Not later than one
business day following receipt by CDnow of the Aggregate Purchase Price, CDnow
shall deliver to each of Time Warner and Sony certificates representing the
Purchased Shares.
(c) Each of Time Warner and Sony, and any of their respective
subsidiaries who hold Purchased Shares, shall have registration rights with
respect to the Purchased Shares that are identical to the registration rights
provided in Section 9 of the Convertible Loan Agreement in respect of any shares
of CDnow Common Stock issued upon conversion of any loans, or any interest
payable with respect thereto, made by Time Warner or SMEI to CDnow pursuant to
the Convertible Loan Agreement.
(d) Time Warner and Sony, and any of their respective subsidiaries who
hold shares of CDnow Common Stock, acting as one group, shall be entitled, but
shall not be required, at any time and from time to time, to designate one
individual (the "Designee") to serve as a member of the Board of Directors of
CDnow (the "Board of Directors"). In the event a Designee shall have been
designated, CDnow shall use all reasonable efforts to cause the Board of
Directors to effect the nomination of the Designee (i) in the case of any
Designee designated on or prior to December 31, 2001, as a Class I Director and
(ii) in the case of any Designee designated after December 31, 2001, for so long
as the Board
7
of Directors shall have more than one class, as a member of that class of
directors whose term expires at the annual meeting of shareholders of CDnow
occurring in the year that is three years after the year in which such
Designee is designated, and, in the event the Board of Directors shall have
only one class, as a member of the Board of Directors. If the Designee is a
director or holds a management level position in any entity whose primary
business (i) is engaged in selling pre-recorded music or videos through the
Internet or (ii) otherwise competes with the business of CDnow, then Time
Warner and Sony shall cause this Designee to immediately resign from the Board
of Directors. The right of Time Warner and Sony, and any of their respective
subsidiaries who hold shares of CDnow Common Stock, to designate the Designee
shall terminate whenever the total number of shares of CDnow Common Stock held
by Time Warner, Sony or any of their respective subsidiaries shall be less
than 50% of the number of shares constituting the Purchased Shares, in each
case appropriately adjusted in accordance with the provisions contained in
Exhibit D to the Convertible Loan Agreement.
ARTICLE IV
Strategic Relationships
Each of Time Warner, Sony and CDnow will work together to explore
strategic relationships into which they may enter for the benefit of the
businesses of CDnow and The Columbia House Company. Nothing contained in this
Termination Agreement, any of the Transaction Agreements, the Convertible Loan
Agreement or the Security Agreement shall in any way require or otherwise
obligate, or be deemed to require or otherwise obligate, any of the parties to
this Termination Agreement to enter into any relationship with, or to make any
commitment to, any of the other parties to this Termination Agreement, and any
and all decisions as to whether or not to enter into any such relationship or to
make any such commitment shall be made by each party in its sole discretion.
ARTICLE V
General Provisions
SECTION 5.01. Notices. All notices, requests, claims, demands and
other communications under this Termination Agreement shall be in writing and
shall be
8
deemed given upon receipt by the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Time Warner, to
Time Warner Inc.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
with a copy to:
Cravath, Swaine & Xxxxx
000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxx, Esq.
(b) if to Sony, to
Sony Corporation of America
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Executive Vice President and
Chief Financial Officer
with a copy to:
Sony Corporation of America
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Vice President,
Legal Department
and:
Rosenman & Colin
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: H. Xxxx Xxxxx, Esq.
9
(c) if to CDnow, Holdco, Pennsylvania Sub, Delaware Sub I, Delaware
Sub II or any individual who is a party to this Termination Agreement, to
CDnow, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: General Counsel
with a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: N. Xxxxxxx Xxxxxxx, Esq.
SECTION 5.02. Interpretation. When a reference is made in this
Termination Agreement to a Section, such reference shall be to a Section of this
Termination Agreement unless otherwise indicated. The headings contained in this
Termination Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Termination Agreement. Whenever
the words "include", "includes" or "including" are used in this Termination
Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 5.03 Severability. If any term or other provision of this
Termination Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of this
Termination Agreement shall nevertheless remain in full force and effect so long
as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Termination Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 5.04 Counterparts. This Termination Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement. This Termination Agreement shall become effective as of the date
first written above when each of Time Warner, Sony, CDnow, Holdco, Pennsylvania
Sub, Delaware Sub I and Delaware
10
Sub II shall have received counterparts of this Termination Agreement that,
when taken together, bear the signatures of all such parties to this
Termination Agreement, notwithstanding the absence of counterparts of this
Termination Agreement bearing the signature of any individual identified on
the signature pages to this Termination Agreement. Once effective, this
Termination Agreement shall be binding upon, and enforceable against, each of
Time Warner, Sony, CDnow, Holdco, Pennsylvania Sub, Delaware Sub I, Delaware
Sub II and each individual who executes this Termination Agreement,
notwithstanding the failure of any individual identified on the signature
pages to this Termination Agreement to execute this Termination Agreement. For
the avoidance of doubt, each of Time Warner, Sony, CDnow, Holdco, Pennsylvania
Sub, Delaware Sub I, Delaware Sub II and each individual who executes this
Termination Agreement, and no other entity or person, shall be a party to this
Termination Agreement.
SECTION 5.05. Entire Agreement; No Third-Party Beneficiaries. This
Termination Agreement and the Convertible Loan Agreement, as amended as provided
in this Termination Agreement, and Security Agreement, as modified as provided
in this Termination Agreement, and any notes and documents issued thereunder,
(a) constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Termination Agreement and (b) except as provided in
Section 2.01(a) and Section 2.01(b), are not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 5.06. Governing Law. This Termination Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
SECTION 5.07. Assignment. This Termination Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 5.08 Enforcement. The parties to this Termination Agreement
agree that irreparable damage would occur and that the parties would not have
any adequate remedy at law in the event that any of the provisions of this
Termination Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
11
Termination Agreement and to enforce specifically the terms and provisions of
this Termination Agreement in any New York state court or, any Federal court
located in the State of New York, this being in addition to any other remedy
to which they are entitled at law or in equity. Each of the parties hereto (i)
consents to submit itself to the personal jurisdiction of any New York state
court or any Federal court located in the State of New York in the event any
dispute arises out of this Termination Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that it will not bring any
action relating to this Termination Agreement in any court other than any New
York state court or any Federal court sitting in the State of New York and
(iv) waives any right to trial by jury with respect to any action related to
or arising out of this Termination Agreement.
SECTION 5.09. Acknowledgments. Each of the parties to this Termination
Agreement acknowledges and represents that this Termination Agreement, including
Article II hereof, is entered into freely and voluntarily by it, it is
represented by counsel and it has had an opportunity to review this Termination
Agreement, including Article II hereof, with counsel prior to affixing its
signature to this Termination Agreement.
SECTION 5.10. Fees and Expenses. All fees and expenses incurred in
connection with this Termination Agreement and the termination of the
Transaction Agreements shall be borne by the party incurring such fees and
expenses.
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IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Termination Agreement, all as of the date first written above.
TIME WARNER INC.,
by
/s/ Xxxxxxx X. Xxxx
--------------------------
Name: Xxxxxxx X. Xxxx
Title: Vice President and
Deputy General
Counsel
SONY CORPORATION OF AMERICA,
by
/s/ Xxxxxxx X. Xxxxx
--------------------------
Name: Xxxxxxx X. Xxxxx
Title: Executive
Vice President
CDNOW, INC.,
by
/s/ Xxxxx Xxxx
--------------------------
Name: Xxxxx Xxxx
Title: President and
Chief Executive Officer
DELAWARE HOLDCO CORPORATION,
by
/s/ Xxxxx X. Xxxxxxx
--------------------------
Name: Xxxxx X. Xxxxxxx
Title: Vice President and
Secretary
PENNSYLVANIA SUBSIDIARY, INC.,
by
/s/ Xxxxx X. Xxxxxxx
--------------------------
Name: Xxxxx X. Xxxxxxx
Title: Vice President and
Secretary
13
DELAWARE SUB I L.L.C.,
by
/s/ Xxxxx Xxxx
---------------------------
Name: Xxxxx Xxxx
Title: President
DELAWARE SUB II L.L.C.,
by
/s/ Xxxxx Xxxx
--------------------------
Name: Xxxxx Xxxx
Title: President
XXXXX XXXX
/s/ Xxxxx Xxxx
--------------------------
XXXXXXX XXXX
/s/ Xxxxxxx X. Xxxx
--------------------------
XXXXXXXX X. XXXXXXX
--------------------------
XXXXXX XXXXX XXXXXX
--------------------------
XXXXX X. XXXXX
--------------------------
EXHIBIT A
Press Release
CDNOW To Merge With Sony's and Time Warner's Columbia House, FOR IMMEDIATE
RELEASE:
CDNOW, TIME WARNER AND SONY CORPORATION ANNOUNCE STRATEGIC
RELATIONSHIP IN PLACE OF MERGER
Parties Agree Not to Proceed With Merger
Time Warner and Sony to Be Equity Investors in CDNOW
NEW YORK and FORT WASHINGTON, PA , March 13, 2000 - CDNOW (Nasdaq:CDNW), Time
Warner Inc. (NYSE:TWX) and Sony Corporation (NYSE: SNE) announced the
termination of the pending merger of CDNOW with Time Warner's and Sony's
Columbia House. The parties have reached a new arrangement with significant
investments and a commitment to explore strategic relationships with CDNOW.
With this arrangement, CDNOW remains an independent public company with
continued ties to Time Warner, Sony and Columbia House.
Time Warner and Sony have agreed to commit $51 million to CDNOW, by providing
an additional $21 million in cash as an equity investment and converting an
existing $30 million short-term loan commitment into long-term convertible
debt.
Xxxxx Xxxx, CDNOW's President and CEO said, "We are obviously disappointed
that the merger originally envisioned last July will not be completed.
However, we feel the termination of the merger is the best move for CDNOW and
its shareholders. This new relationship with Time Warner and Sony, including
their significant commitment to purchase 2,405,500 shares of CDNOW common
stock for $21 million in cash coupled with the conversion of existing and
future borrowings under a $30 million short-term loan commitment to long-term
convertible debt, allows us to focus on our primary business: building one of
the world's great music brands. We plan to immediately begin considering other
strategic opportunities for the company."
Xxxxx Xxxxxxxx, Chairman and CEO of Columbia House, said, "I am pleased with
this commitment to CDNOW and am excited about this alliance with Xxxxx and his
colleagues. It's unfortunate that we could not proceed with our merger as
originally planned, but we expect our ongoing relationship to provide many
benefits to both CDNOW and to Columbia House and its parents."
-more-
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About CDNOW
CDNOW, Inc. (Nasdaq: CDNW) is the online music destination that offers the
most comprehensive, personalized connection to the world of music. CDNOW's
offerings consist of more than 500,000 music and entertainment-related items,
including CDs, music downloads, DVDs, videotapes, cassettes, vinyl albums and
Custom CDs, as well as music samples and intelligent album recommendations.
CDNOW Media, the Company's newly formed interactive division, develops CDNOW's
interactive content, including allstar(TM) News, artist interviews and
reviews, Cosmic Music Network-an innovative community for unsigned bands-and
the Company's cybercasting and entertainment initiatives.
About Time Warner Inc.
Time Warner Inc. (NYSE: TWX, xxx.xxxxxxxxxx.xxx) is the world's leading media
company. Its businesses: cable networks, publishing, music, filmed
entertainment, cable and digital media.
About Sony
Sony Corporation is a leading manufacturer of audio, video, communications and
information technology products for the consumer and professional markets. Its
music, pictures and computer entertainment operations make Sony one of the
most comprehensive entertainment companies in the world. Sony recorded
consolidated annual sales of over $56 billion for the fiscal year ended March
31, 1999. Sony's Home Page URL: xxxx://xxx.xxxx.xx.xx/
###
Contacts:
CDNOW, Inc. CDNOW, Inc. Sony Corporation of
America
Xxxxxx Xxxxxxx Xxxxx Xxxx Xxx Xxxxxxxx
000-000-0000 000-000-0000 000-000-0000
Xxxxxxxx Xxxx Time Warner Inc.
Sony Music Entertaiment Xxxxxx Xxxxx
000-000-0000 000-000-0000
EXHIBIT B
AMENDMENT dated as of March 13, 2000 (this
"Amendment"), to the Convertible Loan Agreement dated as of
July 12, 1999 (the "Convertible Loan Agreement"), among
CDNOW, INC., a Pennsylvania corporation (the "Borrower"),
SONY MUSIC ENTERTAINMENT INC. ("Sony Music") and TIME WARNER
INC. ("Time Warner", and together with Sony Music, the
"Lenders").
WHEREAS the Borrower and the Lenders have entered into the Convertible
Loan Agreement;
WHEREAS the Borrower and the Lenders desire to amend the Convertible
Loan Agreement to make certain modifications and clarifications to the
provisions contained therein;
NOW, THEREFORE, in consideration of the premises, mutual promises,
representations, warranties and covenants contained in this Amendment, the
parties hereto hereby agree:
SECTION 1. Amendment of Section 1. (a) The definition of the term
"Conversion Price" in Section 1 of the Convertible Loan Agreement is hereby
deleted in its entirety and such definition is hereby replaced with the
following definition:
"'Conversion Price' shall mean $10.00.".
(b) The definition of the term "Final Maturity Date" in Section 1 of
the Convertible Loan Agreement is hereby deleted in its entirety and such
definition is hereby replaced with the following definition:
"'Final Maturity Date' shall mean the earlier of (a) such time as the
Loan Commitment is reduced to zero pursuant to the terms hereof and
(b) January 15, 2003.".
(c) The definition of the term "Indebtedness" in Section 1 of the
Convertible Loan Agreement is hereby amended to delete clause (iv) thereof in
its entirety and such clause is hereby replaced with the following clause:
"(iv) any obligation of such Person issued or assumed as the deferred
purchase price of Property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business,
2
which in either case are not more than 120 days overdue, or
alternative terms of which have been agreed to by the parties (so long
as such terms do not provide for any amounts to be more than 366 days
overdue) or which are being contested in good faith)".
(d) The definition of the term "Interest Rate" in Section 1 of the
Convertible Loan Agreement is hereby deleted in its entirety and such definition
is hereby replaced with the following definition:
"'Interest Rate' shall mean a rate per annum equal to the Eurodollar
Rate plus 3%.".
(e) The definition of the term "Net Debt Proceeds" in Section 1 of the
Convertible Loan Agreement is hereby deleted in its entirety.
(f) The definition of the term "Permitted Interim Financing" in
Section 1 of the Convertible Loan Agreement is hereby deleted in its entirety
and such definition is hereby replaced with the following definition:
"'Permitted Interim Financing' shall mean Indebtedness for borrowed
money incurred by the Borrower provided that (i) the maturity date
thereof extends to at least 366 days beyond the Final Maturity Date,
(ii) such Indebtedness (A) is unsecured or is secured by a Lien that
is junior to any Lien securing any amounts outstanding under this
Agreement and (B) is not guaranteed by any Subsidiary of the Borrower,
(iii) such Indebtedness contains representations, warranties,
covenants and agreements which are not more restrictive, individually
or taken as a whole, than those in effect hereunder and (iv) such
Indebtedness is subject to subordination and intercreditor
arrangements satisfactory to the Lenders (and appropriate to reflect
the senior, secured nature of the Obligations).".
(g) The definition of the term "Third Party Tender Offer" in Section 1
of the Convertible Loan Agreement is hereby amended to add to the end thereof
the phrase "(and replacing every reference to "Company" therein with "Borrower",
the reference to "Purchaser" therein with "Lender" and the reference to "Common
Stock" therein with "common stock, without par value, of the Borrower")".
3
SECTION 2. Amendment of Section 2.6. Section 2.6 of the Convertible
Loan Agreement is hereby amended to delete clause (i) thereof in its entirety
and such clause is hereby replaced with the following clause:
(i) the Borrower shall give the Lenders written notice (or telephonic
notice promptly confirmed in writing), which notice shall be
irrevocable, of its intent to prepay the Loans, at least five Business
Days prior to a prepayment, which notice shall specify the date (which
shall be a Business Day), the Loans and the amount of such prepayment
and".
SECTION 3. Amendment of Section 2.7. Section 2.7(a) of the Convertible
Loan Agreement is hereby deleted in its entirety and such section is hereby
replaced with the following two sentences:
"If the Borrower or any of its Subsidiaries shall receive any proceeds
from any sale, lease, transfer or disposition to any Person of any of
its Property or Equity Securities then the Borrower shall immediately
upon receipt thereof apply in accordance with Section 2.9 an amount in
cash equal to 100% of the Net Sale Proceeds from such sale, lease,
transfer or disposition to the Lenders as a mandatory repayment of
outstanding Loans and reduction in the remaining Loan Commitment in
accordance with the requirements of Section 2.8; provided, however,
that this Section 2.7(a) shall not apply to (i) sales of inventory in
the ordinary course of business, (ii) permitted Sale and Leaseback
Transactions, (iii) sales of shares of CDnow Common Stock to Time
Warner and Sony Corporation of America ("Sony"), or any of their
respective Subsidiaries, pursuant to the Termination Agreement dated
as of the date hereof among Time Warner, Sony, the Borrower, Delaware
Holdco Corporation, Pennsylvania Subsidiary, Inc., Delaware Sub I
L.L.C., Delaware Sub II L.L.C., (iv) sales of shares of Liquid Audio,
Inc. held by the Borrower or any of its subsidiaries in accordance
with the terms of the Consent dated as of the date hereof among the
Borrower, Time Warner and SMEI or (v) the issuance of Equity
Securities for fair market value representing up to 19.9% of the then
4
outstanding shares of CDnow Common Stock in connection with any
Permitted Interim Financing. For the avoidance of doubt, if the
Borrower or any of its Subsidiaries shall receive any proceeds from
any Permitted Interim Financing, such proceeds shall not be applied as
a mandatory repayment of outstanding Loans or a reduction in the
remaining Loan Commitment."
Section 2.7(b) of the Convertible Loan Agreement is hereby deleted in
its entirety and Section 2.7(c) of the Convertible Loan Agreement is hereby
denoted Section 2.7(b).
SECTION 4. Amendment of Section 2.8. Section 2.8 of the Convertible
Loan Agreement is hereby amended to delete the second sentence of such section
in its entirety and such sentence is hereby replaced with the following
sentence:
"The excess of any Net Sale Proceeds over amounts required to repay
principal and Interest shall reduce the remaining unused Loan
Commitment.".
SECTION 5. Amendment of Section 5.1. Section 5.1(h) of the Convertible
Loan Agreement is hereby deleted in its entirety and such section is hereby
replaced
with the following:
" - five Business Days prior to the Borrower or any Subsidiary
entering into any transaction or taking any action which would result
in a mandatory prepayment under Section 2.7, a written notice
specifying the nature thereof.".
SECTION 6. Amendment of Section 6.3. Section 6.3 of the Convertible
Loan Agreement is hereby deleted in its entirety and such section is hereby
replaced with the following sentence:
"The Borrower will not, and will not permit its Subsidiaries to,
directly or indirectly, incur any Indebtedness other than Permitted
Indebtedness, and the Borrower will not issue any Disqualified Stock
or permit any of its Subsidiaries to issue any Disqualified Stock.".
5
SECTION 7. Amendment of Section 8.1 Section 8.1 of the Convertible
Loan Agreement is hereby deleted in its entirety and such section is hereby
replaced with the following sentence:
"Subject to and upon compliance with the provisions of this Section 8,
each Lender, at its sole option, may, at any time and from time to
time, irrespective of whether the Borrower shall have delivered any
notice pursuant to Section 2.6 or Section 5.1, convert (a) each Note
or any portion of the principal amount thereof which equals $500,000
or any integral multiple thereof, and (b) the amount of accrued and
unpaid Interest on the Loan represented by such Note (including
without limitation any overdue Interest accruing at the Default Rate),
into a number of fully paid and nonassessable shares (calculated as to
each conversion to the nearest 1/100 of a share) of CDnow Common Stock
equal to the quotient obtained by dividing (i) the aggregate of such
principal amount and accrued and unpaid interest to be so converted by
(ii) the Conversion Price, determined as hereinafter provided, in
effect at the time of conversion.
SECTION 8. Representations and Warranties. (a) The Borrower represents
and warrants to each of the Lenders that (i) the Borrower has all requisite
power and authority to execute and deliver this Amendment, (ii) the execution
and delivery by the Borrower of this Amendment have been duly authorized by all
necessary action on the part of the Borrower, (iii) the Borrower has duly
executed and delivered this Amendment, and, assuming the due authorization,
execution and delivery by each person other than the Borrower party hereto, this
Amendment constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms and (iv) the representations and
warranties set forth in the Section 4 of the Convertible Loan Agreement are true
and correct in all material respects on and as of the date of this Amendment
with the same effect as though made on and as of the date hereof, except to the
extent such representations and warranties expressly relate to an earlier date.
(b) Time Warner represents and warrants to the Borrower and Sony Music
that (i) Time Warner has all requisite power and authority to execute and
deliver this Amendment, (ii) the execution and delivery by Time Warner of
6
this Amendment have been duly authorized by all necessary action on the part
of Time Warner and (iii) Time Warner has duly executed and delivered this
Amendment, and, assuming the due authorization, execution and delivery by each
person other than Time Warner party hereto, this Amendment constitutes its
legal, valid and binding obligation, enforceable against it in accordance with
its terms.
(c) Sony Music represents and warrants to the Borrower and Time Warner
that (i) Sony Music has all requisite power and authority to execute and deliver
this Amendment, (ii) the execution and delivery by Sony Music of this Amendment
has been duly authorized by all necessary action on the part of Sony Music and
(iii) Sony Music has duly executed and delivered this Amendment, and, assuming
the due authorization, execution and delivery by each person other than Sony
Music party hereto, this Amendment constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 9. Governing Law, Submission to Jurisdiction. (a) THIS
AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF
LAW).
(b) Any legal action or proceeding with respect to this Amendment and
any action for enforcement of any judgment in respect hereof may be brought in
the courts of the State of New York in New York County or of the United States
of America for the Southern District of New York, and, by execution and delivery
of this Amendment, the Borrower hereby accepts for itself and in respect of its
property, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts and appellate courts from any thereof. The Borrower irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Borrower at its address set forth in
Section 10.3 of the Convertible Loan Agreement. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Amendment brought in the courts referred to above and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Lenders or any
holder of a Note (as defined in the Convertible Loan
7
Agreement) to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Borrower in any
other jurisdiction.
SECTION 10. Counterparts. This Amendment may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
SECTION 11. Headings Descriptive. The headings of the several Sections
of this Amendment are inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Amendment.
SECTION 12. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE BORROWER AND EACH LENDER HEREBY IRREVOCABLY WAIVES
ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR IN CONNECTION WITH THIS AMENDMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER
ARISING HEREUNDER OR THEREUNDER.
SECTION 13. Full Force and Effect. Except as expressly set forth in
this Amendment, this Amendment shall not by implication or otherwise limit,
impair, constitute a waiver of, or otherwise affect the rights and remedies of
the Lenders or the Borrower under the Convertible Loan Agreement or any other
Loan Document (as defined in the Convertible Loan Agreement), and shall not
alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Convertible Loan Agreement
or any other Loan Document, all of which are ratified and affirmed in all
respects and shall continue in full force and effect. Nothing contained in this
Amendment shall be deemed to entitle the Borrower to a consent to, or a waiver,
amendment, modification or other change of, any of the terms, conditions,
obligations, covenants or agreements contained in the Convertible Loan Agreement
or any other Loan Document in similar or different circumstances. This Amendment
shall constitute a "Loan Document" for all purposes of the Convertible Loan
Agreement and the other Loan Documents. As used in the Convertible Loan
Agreement, the terms "hereof" and "hereto", and words of similar import, shall,
unless the context otherwise requires, refer to the Convertible Loan Agreement
as amended by this Amendment. Any reference in any document to the Convertible
Loan Agreement shall be deemed to be a reference to the Convertible Loan
Agreement as amended by this Amendment.
8
SECTION 14. Fees and Expenses. All fees and expenses incurred in
connection with this Amendment shall be borne by the party incurring such fees
and expenses.
IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Amendment, all as of the date first written above.
CDNOW, INC.,
by
--------------------------
Name:
Title:
SONY MUSIC ENTERTAINMENT INC.,
by
--------------------------
Name:
Title:
TIME WARNER INC.,
by
--------------------------
Name:
Title:
9
The undersigned guarantors
under the Guarantee and
Collateral Agreement
entered into in connection
with the Convertible Loan
Agreement hereby consent to
the Amendment and acknowledge
and agree that the Guarantee
and Collateral Agreement
(including the guarantee
provided by such guarantor
thereunder) remains in full
force and effect.
CDNOW ONLINE, INC.,
by
--------------------------
Name:
Title:
N2K INC.,
by
--------------------------
Name:
Title:
CDNOW INVESTMENTS, INC.,
by
--------------------------
Name:
Title:
CDNOW TRADEMARKS, INC.,
by
--------------------------
Name:
Title:
10
SUPERSONIC BOOM, INC.,
by
--------------------------
Name:
Title:
TSI LICENSING, INC.,
by
--------------------------
Name:
Title:
EXHIBIT C
CONSENT dated as of March 13, 2000 (this "Consent"), in
respect of the Guarantee and Collateral Agreement (the
"Security Agreement") dated as of January 21, 2000, made by
CDnow, Inc. (the "Borrower") and the other parties
identified therein, in favor of Time Warner Inc., as
Security Agent (in such capacity, the "Security Agent") for
Time Warner Inc. ("Time Warner") and Sony Music
Entertainment Inc. (together with "Time Warner", the
"Lenders") under the Convertible Loan Agreement dated as of
July 12, 1999, among the Borrower and the Lenders (the
"Convertible Loan Agreement").
WHEREAS the Borrower and the Lenders have entered into the Convertible
Loan Agreement;
WHEREAS, in connection with the Convertible Loan Agreement the
Borrower and the other parties identified therein have made the Security
Agreement in favor of the Security Agent;
WHEREAS the Borrower has requested that the Lenders and the Security
Agent (i) consent to the sale of all shares of common stock of, and all warrants
to acquire shares of common stock of, Liquid Audio, Inc. (the "Shares") to a
third party that is not a subsidiary of, or in any way affiliated with, the
Borrower (the "Sale") for a purchase price that is equal to the fair market
value of such shares or warrants, as the case may be, and (ii) release from the
lien created pursuant to the Security Agreement all of the Shares that are sold
in a Sale;
WHEREAS the Lenders and the Security Agent are willing to grant such
consent on the terms, and subject to the conditions, and to the extent set forth
in, this Consent.
NOW, THEREFORE, in consideration of the premises, mutual promises,
representations, warranties and covenants contained in this Consent, the parties
hereto hereby agree:
SECTION 1. Consent and Release. (a) Each of the Lenders and the
Security Agent hereby consents to the Sale of the Shares on the terms, and
subject to the conditions, set forth in this Consent.
(b) Each of the Lenders hereby releases, and hereby authorizes the
Security Agent to execute any and all further documents necessary or desirable
to evidence the
2
release, from the lien created pursuant to the Security Agreement any and all
Shares that are sold in a Sale, effective upon consummation of such Sale.
SECTION 2. Representations and Warranties. To induce the other parties
to this Consent to enter into this Consent, the Borrower hereby represents and
warrants to each of the Lenders and the Security Agent that (i) the Borrower has
all requisite power and authority to execute and deliver this Consent, (ii) the
execution and delivery by the Borrower of this Consent have been duly authorized
by all necessary action on the part of the Borrower, (iii) the Borrower has duly
executed and delivered this Consent, and, assuming the due authorization,
execution and delivery by each person other than the Borrower party hereto, this
Consent constitutes its legal, valid and binding obligation, enforceable against
it in accordance with its terms and (iv) the representations and warranties set
forth in the Section 4 of the Convertible Loan Agreement are true and correct in
all material respects on and as of the date of this Consent with the same effect
as though made on and as of the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
SECTION 3. Conditions. On the date on which any Sale of Shares is
consummated, (i) the representations and warranties set forth in the Section 4
of the Convertible Loan Agreement shall be true and correct in all material
respects on and as of such date with the same effect as though made on and as of
such date, except to the extent such representations and warranties expressly
relate to an earlier date and (ii) no Default (as defined in the Convertible
Loan Agreement) or Event of Default (as defined in the Convertible Loan
Agreement) shall have occurred or be continuing.
SECTION 4. Effectiveness of Consent. This Consent shall become
effective as of the date first written above when the Security Agent shall have
received counterparts of this Consent that, when taken together, bear the
signatures of the Borrower, the Security Agent and the Lenders.
SECTION 5. Governing Law, Submission to Jurisdiction. (a) THIS CONSENT
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
3
(b) Any legal action or proceeding with respect to this Consent and
any action for enforcement of any judgment in respect hereof may be brought in
the courts of the State of New York in New York County or of the United States
of America for the Southern District of New York, and, by execution and delivery
of this Consent, the Borrower hereby accepts for itself and in respect of its
property, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts and appellate courts from any thereof. The Borrower irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Borrower at its address set forth in
Section 10.3 of the Convertible Loan Agreement. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Consent brought in the courts referred to above and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Lenders or any
holder of a Note (as defined in the Convertible Loan Agreement) or the Security
Agent to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrower in any other jurisdiction.
SECTION 6. Counterparts. This Consent may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
SECTION 7. Headings Descriptive. The headings of the several Sections
of this Consent are inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Consent.
SECTION 8. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE BORROWER, EACH LENDER AND THE SECURITY AGENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS CONSENT OR ANY OTHER LOAN
DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
SECTION 8. Full Force and Effect. Except as expressly set forth in
this Consent, this Consent shall not by implication or otherwise limit, impair,
constitute a
4
waiver of, or otherwise affect the rights and remedies of the Lenders, the
Security Agent or the Borrower under the Convertible Loan Agreement, the
Security Agreement or any other Loan Document (as defined in the Convertible
Loan Agreement), and shall not alter, modify, amend or in any way affect any
of the terms, conditions, obligations, covenants or agreements contained in
the Convertible Loan Agreement, the Security Agreement or any other Loan
Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing contained in this Consent shall be
deemed to entitle the Borrower to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Convertible Loan Agreement, the
Security Agreement or any other Loan Document in similar or different
circumstances. This Consent shall constitute a "Loan Document" for all
purposes of the Convertible Loan Agreement and the other Loan Documents.
IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Consent, all as of the date first written above.
CDNOW, INC.,
by
---------------------------
Name:
Title:
SONY MUSIC ENTERTAINMENT INC.,
by
--------------------------
Name:
Title:
TIME WARNER INC., as Lender
and Security Agent,
by
--------------------------
Name:
Title:
