EXECUTION 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
3
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
4
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.
12
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
DELAWARE SUB I L.L.C.,
by
/s/ Xxxxx Xxxx
--------------------------
Name: Xxxxx Xxxx
Title: President
13
DELAWARE SUB II L.L.C.,
by
/s/ Xxxxx Xxxx
--------------------------
Name: Xxxxx Xxxx
Title: President
XXXXX XXXX
/s/ Xxxxx Xxxx
-------------------------
XXXXXXX XXXX
/s/ Xxxxxxx Xxxx
-------------------------
XXXXXXXX X. XXXXXXX
-------------------------
XXXXXX XXXXX XXXXXX
-------------------------
XXXXX X. XXXXX
------------------------
14
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-
15
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:
