EXECUTION COPY
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CONVERTIBLE LOAN AGREEMENT
between
CDnow, Inc.
as Borrower,
and
SONY MUSIC ENTERTAINMENT INC.
TIME WARNER INC.
as Lenders
Dated as of July 12, 1999
$30,000,000
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TABLE OF CONTENTS
Page
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SECTION 1
DEFINITIONS
Section 1.1 Definitions..................................................1
SECTION 2
AMOUNT AND TERMS OF CREDIT FACILITY
Section 2.1 Term Loans...................................................9
Section 2.2 Notice of Borrowing..........................................9
Section 2.3 Disbursement of Funds.......................................10
Section 2.4 The Notes...................................................10
Section 2.5 Interest....................................................10
Section 2.6 Voluntary Prepayments.......................................11
Section 2.7 Mandatory Prepayments.......................................11
Section 2.8 Repayment; Reduction in Loan Commitment.....................12
Section 2.9 Method and Place of Payment.................................13
Section 2.10 Taxes.......................................................14
SECTION 3
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent........................................14
Section 3.2 Conditions Precedent to All Loans...........................15
Section 3.3 Conditions Precedent to First Loan..........................16
SECTION 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Merger Agreement Representations............................17
Section 4.2 Authority Relative to this Agreement........................17
Section 4.3 Consents and Approvals; No Violation........................17
Section 4.4 Margin Regulations..........................................18
Section 4.5 Investment Company Act......................................18
Section 4.6 Absence of Indebtedness and Liens...........................18
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SECTION 5
AFFIRMATIVE COVENANTS
Section 5.1 Information Covenants.......................................18
Section 5.2 Officer's Certificate.......................................21
Section 5.3 Inspection..................................................21
Section 5.4 Conduct of Business.........................................21
Section 5.5 Maintenance of Property; Insurance..........................22
Section 5.6 Notice of Suit or Adverse Change in
Business.................................................22
Section 5.7 Books, Records, Inspections.................................23
SECTION 6
NEGATIVE COVENANTS
Section 6.1 Merger Agreement Covenants..................................23
Section 6.2 Changes in Business.........................................23
Section 6.3 Limitation on Indebtedness..................................23
Section 6.4 Limitation on Issuances of Guarantees by
Subsidiaries.............................................23
Section 6.5 Limitation on Liens.........................................24
Section 6.6 Limitation on Asset Sales...................................24
Section 6.7 Use of Proceeds.............................................24
Section 6.8 Limitation on Modifications of Certain
Indebtedness.............................................24
Section 6.9 Limitation on Negative Pledge Clauses.......................24
SECTION 7
EVENTS OF DEFAULT
Section 7.1 Events of Default...........................................25
Section 7.2 Rights and Remedies.........................................27
SECTION 8
CONVERSION
Section 8.1 Conversion Privilege and Conversion Price...................27
Section 8.2 Exercise of Conversion Privileges...........................28
Section 8.3 Fractions of Shares.........................................29
Section 8.4 Adjustment of Conversion Price..............................29
Section 8.5 Notice of Adjustments of Conversion Price...................29
Section 8.6 Company to Reserve CDnow Common Stock.......................29
Section 8.7 Taxes on Conversions........................................29
Section 8.8 Covenant as to CDnow Common Stock...........................30
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Section 8.9 Investment Intent; Private Placement........................30
SECTION 9
REGISTRATION RIGHTS............................31
SECTION 10
MISCELLANEOUS
Section 10.1 Payment of Expenses, Indemnity, etc.........................31
Section 10.2 Right of Setoff.............................................32
Section 10.3 Notices.....................................................32
Section 10.4 Successors and Assigns; Assignments.........................34
Section 10.5 Amendments and Waivers......................................34
Section 10.6 No Waiver; Remedies Cumulative..............................34
Section 10.7 Governing Law, Submission to Jurisdiction...................35
Section 10.8 Counterparts................................................36
Section 10.9 Headings Descriptive........................................36
Section 10.10 Marshalling; Recapture......................................36
Section 10.11 Severability................................................36
Section 10.12 Survival....................................................36
Section 10.13 Limitation of Liability.....................................36
Section 10.14 [Reserved.].................................................37
Section 10.15 Waiver of Trial by Jury.....................................37
Section 10.16 Interest Rate Limitation....................................37
Section 10.17 Senior Indebtedness.........................................37
Section 10.18 Adjustments; Set-Off........................................38
Section 10.19 Merger Agreement............................................38
Exhibit A - Form of Note
Exhibit B - Form of Guarantee and Collateral Agreement
Exhibit C - Form of Notice of Conversion Election
Exhibit D - Anti-dilution provisions
Schedules
1.1(a) Existing Debt Agreements
1.1(b) Permitted Liens
4.3 Consents and Approvals
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CONVERTIBLE LOAN AGREEMENT, dated as of July 12, 1999, between
CDnow, Inc., a Pennsylvania corporation (the "Borrower"), and SONY MUSIC
ENTERTAINMENT INC. and TIME WARNER INC. (each, a "Lender" and, together the
"Lenders").
WHEREAS, this Agreement is being executed and delivered in
connection with, and as a condition to closing under, that certain Agreement of
Merger and Contribution (the "Merger Agreement"), dated as of July 12, 1999,
among Time Warner Inc. ("Time Warner"), Sony Corporation of America ("Sony"),
CDnow, Inc., Holdco, Pennsylvania Sub, Delaware Sub I and Delaware Sub II, as
each such term is defined in the Merger Agreement;
WHEREAS, in connection with the Merger Agreement, the Borrower has
requested that the Lenders make available to it certain interim financing to
satisfy working capital needs of the Borrower; and
WHEREAS, the Lenders are willing to provide such financing to the
Borrower upon the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the Borrower and the Lenders hereby agree as follows:
SECTION 1. DEFINITIONS.
Section 1.1 Definitions. As used herein, the following terms shall
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural number the singular. Capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the Merger
Agreement.
"Affiliate" shall have the meaning ascribed thereto in the
Governance Agreement.
"Agreement" shall mean this Convertible Loan Agreement as in effect
from time to time.
"Assignee" shall have the meaning provided in Section 10.4(b).
"Attributable Indebtedness" shall mean, with respect to any Sale and
Leaseback Transaction of any Person, as at the time of determination, the
greater of (i) the capitalized amount in respect of such transaction that would
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appear on the balance sheet of such Person in accordance with GAAP and (ii) the
present value (discounted at a rate consistent with accounting guidelines, as
determined in good faith by such Person) of the payments during the remaining
term of the lease (including any period for which such lease has been extended
or may, at the option of the lessor, be extended) or until the earliest date on
which the lessee may terminate such lease without penalty or upon payment of a
penalty (in which case the rental payments shall include such penalty).
"Availability Date" shall mean, December 16, 1999.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy," as amended from time to time, and any successor statute
or statutes.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrowing" shall mean the incurrence of Loans from the Lenders on a
given date.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which shall be in New York City a legal holiday or a day on which banking
institutions are authorized or required by law or other government actions to
close.
"Capital Expenditures" shall mean all expenditures (including,
capitalized portions of Capitalized Lease Obligations) for any property, plant
or equipment (including replacements thereof, substitutions therefore and
additions thereto) that have a useful life of one year or more, where such
expenditures are or would be capitalized on the consolidated balance sheet of
the Borrower and its Subsidiaries during the relevant period in conformity with
GAAP.
"Capitalized Lease" shall mean (i) any lease of property, real or
personal, the obligations under which are capitalized on the consolidated
balance sheet of the Borrower and its Subsidiaries, and (ii) any other such
lease to the extent that the then present value of the minimum rental commitment
thereunder should, in accordance with GAAP, be capitalized on a balance sheet of
the lessee.
"Capitalized Lease Obligations" shall mean all obligations of the
Borrower and its Subsidiaries under or in respect of Capitalized Leases.
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"Closing Price" shall mean, with respect to any security, the
closing sale price of such security on the date of determination on the
principal U.S. or foreign securities exchange on which such securities are
listed or primarily traded or, if such securities are not listed or primarily
traded on any such exchange, the closing sale price of such securities on such
date of determination on NASDAQ or any comparable system then in use (or, in the
event no such sale price is reported on such day, the average of the reported
closing bid and asked prices for such day).
"Collateral" shall mean the property subject to the Lien of the
Security Agreement and all payments and proceeds thereof, as more particularly
defined in the Security Agreement.
"Conversion Price" shall mean an amount equal to the lesser of (a)
$14.3751 and (b) the Closing Price of CDnow Common Stock on the Trading Day
immediately preceding the relevant date on which a Notice of Conversion Election
is given.
"Default" shall mean any event, act or condition which, with notice
or lapse of time, or both, would constitute an Event of Default.
"Default Rate" shall have the meaning provided in Section 2.5(b).
"Disqualified Stock" shall mean any Equity Security which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, or otherwise, matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof or is
exchangeable for Indebtedness at any time, in whole or in part, on or prior to
the 366th day following the date on which the Loans mature.
"Equity Security" shall have the meaning ascribed thereto in the
Governance Agreement.
"Eurodollar Rate" with respect to any Loan shall mean an interest
rate per annum equal to the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page)
as the London interbank offered rate for deposits in the lawful money of the
United States at approximately 11:00 A.M. (London time) two Business Days prior
to the Borrowing of
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such Loan for a term of six months. If for any reason such rate is not
available, the term "Eurodollar Rate" shall mean, for any Loan, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
the lawful money of the United States at approximately 11:00 A.M. (London time)
two Business Days prior to the Borrowing of such Loan for a term of six months;
provided, however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).
"Event of Default" shall have the meaning provided in Section 7.
"Exchange Rate Obligations" means, with respect to any Person, any
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Existing Debt Agreements" shall mean the agreements listed on
Schedule 1.1(a).
"Final Maturity Date" shall mean the earlier of (a) such time as the
Loan Commitment is reduced to zero pursuant to the terms hereof, (b) January 15,
2001 or (c) the Effective Time.
"Governance Agreement" means the form of Governance Agreement
attached as Exhibit F to the Merger Agreement.
"Indebtedness" means at any time (without duplication), with respect
to any Person, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
money borrowed, (ii) any obligation of such Person evidenced by bonds,
debentures, notes, guarantees or other similar instruments, including, without
limitation, any such obligations incurred in connection with the acquisition of
Property, assets or businesses, excluding trade accounts payable made in the
ordinary course of business, (iii) any reimbursement obligation of such Person
with respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) any obligation of such Person issued
or assumed as the deferred purchase price of Property or services (but excluding
trade
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accounts payable or accrued liabilities arising in the ordinary course of
business, which in either case are not more than 60 days overdue or which are
being contested in good faith) (v) any Capitalized Lease Obligations of such
Person, (vi) the maximum fixed redemption or repurchase price of Disqualified
Stock of such Person and, to the extent held by other Persons, the maximum fixed
redemption or repurchase price of Disqualified Stock of such Person's
Subsidiaries, at the time of determination, (vii) the principal amount of any
Interest Hedging Obligations or Exchange Rate Obligations of such Person at the
time of determination, (viii) any Attributable Indebtedness with respect to any
Sale and Leaseback Transaction to which such Person is a party and (ix) any
obligation of the type referred to in clauses (i) through (viii) of this
definition of another Person and all dividends and distributions of another
Person the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise. For the purposes of the preceding sentence, the maximum fixed
repurchase price of any Disqualified Stock that does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Stock as if such Disqualified Stock were repurchased on any date on which
Indebtedness shall be required to be determined pursuant hereto. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any guarantees at such date.
"Interest" shall have the meaning provided in Section 2.5.
"Interest Hedging Obligation" means, with respect to any Person, an
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its Subsidiaries'
exposure to fluctuations in interest rates.
"Interest Rate" shall mean a rate per annum equal to the Eurodollar
Rate plus 3%, provided that, from and after the 180th day following termination
of the Merger Agreement, such Interest Rate shall be equal to twenty-five
percent (25%) per annum.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
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preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing).
"Loan Commitment" means the maximum aggregate amount of $30,000,000;
provided that in no event shall the Loan Commitment of either Lender exceed
$15,000,000, individually.
"Loan Documents" shall mean this Agreement, the Notes and the
Security Agreement as in effect from time to time.
"Loan Party" shall mean and include the Borrower and its
Subsidiaries.
"Loans" shall have the meaning provided in Section 2.1(a).
"Merger Agreement" shall have the meaning provided in the first
Whereas clause as in effect from time to time, and all references herein to the
Merger Agreement shall be references thereto regardless of whether or not such
agreement shall have been terminated.
"Net Debt Proceeds" shall mean, with respect to any incurrence of
Indebtedness for borrowed money, the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith)
received by the respective Person from the respective incurrence of such
Indebtedness for borrowed money.
"Net Sale Proceeds" shall mean, for any sale, lease, transfer or
disposition, the gross cash proceeds received from such transaction, net of the
reasonable costs of such transaction and the incremental taxes paid or payable
as a result of such transaction and any reasonable reserves established in
connection therewith as determined in good faith by the Borrower.
"Note" and "Notes" shall have the meanings provided in Section 2.4.
"Notice of Borrowing" shall have the meaning provided in Section
2.2.
"Notice of Conversion Election" shall have the meaning provided in
Section 8.2.
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"Obligations" shall mean all obligations, liabilities and
Indebtedness of every nature of the Borrower from time to time owing to the
Lenders under or in connection with this Agreement or any other Loan Document.
"Permitted Indebtedness" shall mean Permitted Interim Financing and
Purchase Money Indebtedness and Indebtedness outstanding on the date hereof
under Existing Debt Agreements.
"Permitted Interim Financing" shall mean Indebtedness for borrowed
money incurred by the Borrower provided that (i) the Net Debt Proceeds therefrom
shall be applied in accordance with Section 2.7, (ii) the maturity date thereof
extends to at least 366 days beyond the Final Maturity Date, (iii) such
Indebtedness is unsecured and is not guaranteed by any Subsidiary of the
Borrower, (iv) such Indebtedness contains representations, warranties, covenants
and agreements which are not more restrictive, individually or taken as a whole,
than those in effect hereunder, (v) such Indebtedness is subject to
subordination and intercreditor arrangements satisfactory to the Lenders (and
appropriate to reflect the senior, secured nature of the Obligations) and (vi)
such Indebtedness otherwise satisfies the requirements of Section
7.01(a)(x)(A)(II) of the Merger Agreement.
"Permitted Liens" shall mean (a) Liens for taxes, levies,
assessments or other governmental charges not yet due or which are being
contested in good faith by appropriate proceedings; (b) carriers',
warehousemen's, mechanics', materialmen's, repairman's or other like Liens
arising in the ordinary course of business in respect of actions permitted
hereunder which are not overdue for a period of more than 60 days or which are
being contested in good faith by appropriate proceedings; (c) easements,
rights-of-way, restrictions and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially interfere
with the ordinary conduct of the business of the Borrower or any Subsidiary; (d)
Liens in existence on the date hereof listed on Schedule 1.1(b), securing
Indebtedness arising under the Existing Debt Agreements, provided that no such
Lien is spread to cover any additional Property after the date hereof and that
the amount of Indebtedness secured thereby is not increased; and (e) Liens
securing Purchase Money Indebtedness of the Borrower and its Subsidiaries
incurred to finance the acquisition of fixed or capital assets; provided that no
such Lien is spread to cover any additional Property and that the amount of
Indebtedness secured thereby is not increased.
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"Pledged Shares" means the Equity Securities that are subject to the
Lien of the Security Agreement and any and all dividends, distributions,
payments and proceeds thereof, as more particularly defined in the Security
Agreement.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible.
"Purchase Money Indebtedness" shall mean Indebtedness of the
Borrower and its Subsidiaries incurred to finance the acquisition of fixed or
capital assets (including pursuant to any permitted Sale and Leaseback
Transaction under Section 6.6(iv)) so long as the principal amount thereof does
not exceed 100% of the fair market value of the asset so acquired at the time of
incurrence. Any asset acquired with proceeds of Purchase Money Indebtedness
shall be deemed to be a capital asset subject to restrictions in Section
7.01(a)(xi) of the Merger Agreement.
"Receivables" shall have the meaning provided in Section 4.11.
"Sale and Leaseback Transaction" means, with respect to any Person,
any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Security Agreement" means the Guarantee and Collateral Agreement,
dated the date hereof, to be executed by the Borrower, a form of which is
attached as Exhibit B hereto.
"Subsidiary" shall have the meaning ascribed thereto in the
Governance Agreement.
"Third Party Tender Offer" shall have the meaning ascribed thereto
in the Governance Agreement.
"Trading Day" means, with respect to a securities exchange or
automated quotation system, a day on which such exchange or system is open for a
full day of trading.
"Transactions" shall mean each of the transactions contemplated by
the Loan Documents.
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SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITY.
Section 2.1 Term Loans. (a) Subject to and upon the terms and
conditions herein set forth, each Lender severally agrees, at any time and from
time to time on and after the Availability Date and prior to the Final Maturity
Date, to make term loans (collectively, "Loans") to the Borrower, in the case of
each Borrowing, in an amount equal to one-half of the amount requested in the
relevant Notice of Borrowing, which Loans shall not at any time exceed in
aggregate principal amount at any time outstanding the Loan Commitment.
(b) Loans may be voluntarily prepaid pursuant to Section 2.6
and shall be mandatorily prepaid pursuant to Section 2.7. Any amounts so prepaid
may not be reborrowed. The Loan Commitment shall expire and the Loans shall
mature on the Final Maturity Date, without further action on the part of the
Lender.
(c) Each Borrowing under this Section 2.1 shall be in the
aggregate maximum amount of the lesser of (i) $5,000,000 or (ii) the remaining
unborrowed amount of the Loan Commitment.
Section 2.2 Notice of Borrowing. Whenever the Borrower desires to
borrow hereunder, the Borrower's Chief Financial Officer shall make a formal
request to each Lender for such Borrowing by giving each Lender prior written
notice thereof (each such notice, a "Notice of Borrowing") on or before 10:00
a.m., New York City time, at least two Business Days prior to the date requested
for such Borrowing. Each Notice of Borrowing shall specify (a) the aggregate
principal amount of the requested Borrowing, (b) the proposed date of the
Borrowing (which shall be a Business Day and which shall not be less than ten
Business Days from the last date of Borrowing), (c) the proposed use of the
proceeds of any such Borrowing, which use of proceeds shall be in compliance
with Section 6.7 and (d) that each of the conditions set forth in Section 3 has
been, and remains, satisfied as of the date of such Notice of Borrowing.
Section 2.3 Disbursement of Funds. Upon receipt of a Notice of
Borrowing delivered in accordance with and in compliance with Section 2.2 above,
on the date specified in such Notice of Borrowing, each Lender will make
available one-half of the aggregate principal amount of the Borrowing requested
to be made on such date, in U.S. dollars by wire transfer in immediately
available funds to an account specified in a written instrument signed by the
Chief Financial Officer of the Borrower and delivered to
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such Lender, together with any Notice of Borrowing. The failure of a Lender to
fund any Loan to be made by it shall not relieve the other Lender from its
obligation to fund any Loan to be made by it.
Section 2.4 The Notes. The Borrower's obligation to pay the
principal of, and Interest on, the Loans made by a Lender hereunder, shall be
evidenced by a promissory note (each a "Note," and collectively the "Notes"),
payable to such Lender duly executed and delivered by the Borrower,
substantially in the form of Exhibit A hereto. The Borrower hereby irrevocably
authorizes each of the Lenders to endorse the date and amount of each Loan made
by such Lender and any payment and repayment of the principal amount thereof or
Interest thereon, on the Schedule of Principal, Conversion and Repayment
attached to such Note and constituting a part thereof, which endorsement shall
constitute prima facie evidence of the information so endorsed; provided,
however, that any failure of a Lender to make such endorsement shall not affect
the obligation of the Borrower to make any payments hereunder.
Section 2.5 Interest. (a) The Borrower agrees to pay interest in
respect of the unpaid principal amount of each Loan ("Interest") at the Interest
Rate in effect from time to time, in respect of such Loan, from the date of the
making of such Loan until the earlier of (i) the date on which such Loan shall
be paid in full and (ii) the Final Maturity Date, such Interest to be computed
on the basis of a 360-day year and the actual number of days elapsed.
(b) Overdue principal and, to the extent permitted by law,
overdue Interest in respect of each Loan, and any other overdue amount payable
hereunder (including, without limitation, all amounts outstanding following an
Event of Default) shall bear interest at a rate per annum (the "Default Rate")
equal to the rate which is 2% in excess of the rate then borne by such Loans,
computed on the basis of a 360-day year and the actual number of days elapsed;
provided that nothing in any Loan Document shall permit the Lenders to receive
interest in excess of the maximum rate of interest permitted by law.
(c) Interest on each Loan shall accrue from and including the
date of the Borrowing thereof to but excluding the date of any repayment thereof
(provided that any Loan borrowed and repaid on the same day shall accrue one
day's interest) and shall be payable on the Final Maturity Date.
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(d) In the event that a Lender elects to convert any accrued
and unpaid amount of interest on any Loan into CDnow Common Stock in accordance
with the provisions of Section 8 hereof, the Borrower's obligation to pay
Interest on such Loan, pursuant to this Section 2.5, shall be deemed satisfied
by the delivery of the CDnow Common Stock upon conversion of such accrued and
unpaid interest as therein provided, to the extent of such conversion. Each
Lender agrees to give Borrower at least one Business Day's notice of its intent
to convert any Interest otherwise due and payable, or to become due and payable,
into CDnow Common Stock in accordance with this Agreement.
Section 2.6 Voluntary Prepayments. The Borrower shall have the right
to prepay in accordance with Section 2.9 the Loans in whole or in part from time
to time on the following terms and conditions: (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
two, or after the Merger Agreement has terminated, 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 (ii) each partial prepayment
shall be in an aggregate principal amount of $1,000,000 or integral multiples
thereof.
Section 2.7 Mandatory Prepayments. (a) 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 (other
than sales of inventory in the ordinary course of business and permitted Sale
and Leaseback Transactions) 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.
(b) If the Borrower or any of its Subsidiaries shall receive
any proceeds from any incurrence by the Borrower or any of its Subsidiaries of
Permitted Interim Financing, then the Borrower shall immediately upon receipt
thereof apply in accordance with Section 2.9 an amount equal to 100% of the Net
Debt Proceeds from the Permitted Interim Financing to the Lenders as a mandatory
repayment of outstanding Loans and reduction in the
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remaining Loan Commitment in accordance with the requirements of Section 2.8.
(c) If the Borrower enters into any Acquisition Agreement
relating to a CDnow Takeover Proposal or there is consummated a Third Party
Tender Offer or the Merger Agreement is terminated pursuant to Section 10.01 (c)
(to the extent that one or more of the breaches of the representations,
warranties, covenants and agreements of CDnow that formed the basis of such
termination could reasonably be expected to have been avoided had CDnow used its
reasonable best efforts to ensure the continued accuracy, compliance and
performance of its representations, warranties, covenants and agreements under
the Merger Agreement) or Section 10.01(d) thereof, then (i) the Loan Commitment
shall automatically and immediately terminate and the unpaid aggregate principal
amount of, and any and all accrued Interest on, the Loans and any and all other
Obligations shall automatically become immediately due and payable, with all
Interest from time to time accrued thereon and without presentation, demand or
protest or other requirements of any kind (including without limitation,
valuation and appraisement, due diligence, presentment, notice of intent to
demand or accelerate and notice of acceleration), all of which are hereby
expressly waived by the Borrower, and the obligation of the Lenders to make any
Loans hereunder shall thereupon terminate.
Section 2.8 Repayment; Reduction in Loan Commitment. Each amount
required or permitted to be applied to repay outstanding Loans under Section 2.6
or 2.7 shall be applied first, to prepay accrued but unpaid Interest on the
Loans and other Obligations (other than the principal on the Loans) hereunder
and second to prepay amounts in respect of principal outstanding under the
Loans. The excess of any Net Debt Proceeds or Net Sale Proceeds over amounts
required to repay principal and Interest shall reduce the remaining unused Loan
Commitment. Each reduction shall be allocated pro rata between the Lenders. By
three Business Days prior notice to the Lenders, the Borrower may at any time
reduce the amount of the Loan Commitment to an amount not less than the
outstanding principal amount of the Loans. By notice to the Lenders, the
Borrower may, at any time when no Loans are outstanding and no Obligations
remain unpaid, terminate the Loan Commitment.
Section 2.9 Method and Place of Payment. (a) All payments and
prepayments of principal and Interest under this Agreement and the Notes shall
be made in equal amounts to each Lender not later than 12:00 noon, New York City
time, on the date when due and shall be made in lawful money
13
of the United States of America by wire transfer in immediately available funds
to such account as shall be designated by each Lender.
Any funds received by the Lenders after such time shall, for all
purposes hereof, be deemed to have been paid on the next succeeding Business
Day.
(b) Whenever any payment to be made hereunder or under the
Notes shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, Interest shall be payable at the applicable
rate during such extension.
(c) All payments made by the Borrower hereunder and under any
Note shall be made irrespective of, and without any reduction for, any setoff or
counterclaims, including, without limitation, any setoff or counterclaims
arising due to a breach or alleged breach by a Lender or any of its Subsidiaries
or Affiliates of any other agreement to which a Lender or any of its
Subsidiaries or Affiliates and any of the Loan Parties are parties.
Section 2.10 Taxes. All payments made by the Borrower under this
Agreement shall be made free and clear of, and without reduction or withholding
for or on account of, any present or future Taxes. If any Taxes are required to
be withheld from any amounts payable to the Lender hereunder or under any Note,
the amounts so payable to the Lender shall be increased to the extent necessary
to yield to the Lender (after payment of all Taxes) Interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the specific Note. Whenever any Taxes are payable by the Borrower,
as promptly as possible thereafter, the Borrower shall send to the applicable
Lender a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to a Lender the required receipts
or other required documentary evidence, the Borrower shall indemnify such Lender
for any incremental taxes, interest or penalties that may become payable by such
Lender as a result of any such failure. The agreements in this Section 2.10
shall survive the termination of this Agreement and the payment of the Notes and
all other Obligations.
14
SECTION 3. CONDITIONS PRECEDENT.
Section 3.1 Conditions Precedent. This Agreement shall become
effective upon satisfaction of the following conditions precedent:
(a) Loan Documents.
(i) Convertible Loan Agreement. The Borrower shall have
executed and delivered this Agreement to the Lenders.
(ii) Security Agreement. Each Loan Party shall have
executed and delivered the Security Agreement to the Lenders.
(iii) Notes. The Borrower shall have executed and
delivered to each Lender a Note as provided herein.
(b) Corporate Documents. The Lenders shall have received the
Articles of Incorporation of each Loan Party as in effect on the effective date
of this Agreement, certified to be true, correct and complete by the Secretary
of State of the State of the jurisdiction of incorporation of such Loan Party.
(c) Certified Resolutions, etc. The Lenders shall have
received a certificate of the Secretary or Assistant Secretary of each Loan
Party dated the date hereof certifying (i) the names and true signatures of the
incumbent officers of such Person authorized to sign the Loan Documents to which
it is a party, (ii) the By-Laws of such Person as in effect on the date of the
adoption of the resolutions referred to in clause (iii), (iii) the resolutions
of such Person's Board of Directors approving and authorizing the execution,
delivery and performance of the Loan Documents to which it is a party, and (iv)
that there have been no changes in the Articles of Incorporation of such Person
since the date of the most recent certification thereof by the appropriate
Secretary of State.
(d) Delivery of Collateral and Pledged Shares. The Borrower
shall have delivered to the Lender stock certificates representing the Pledged
Shares, registered in the name of the Borrower, accompanied by undated stock
powers duly executed in blank.
(e) Actions to Perfect Liens. The Lenders shall have received
evidence in form and substance satisfactory to them that all filings,
recordings,
15
registrations and other actions, including, without limitation, the filing of
duly executed financing statements on form UCC-1, necessary or, in the opinion
of the Lenders, desirable to perfect the Liens created by the Security Agreement
shall have been completed.
(f) Lien Searches. The Lenders shall have received the results
of a recent search by a Person satisfactory to the Lenders, of the Uniform
Commercial Code, judgement and tax lien filings which may have been filed with
respect to personal property of the Loan Parties, and the results of such search
shall be satisfactory to the Lenders.
(g) Representations. The representations and warranties set
forth in Section 4 and in the Security Agreement shall be true and correct.
Section 3.2 Conditions Precedent to All Loans. In addition to the
provisions of Section 2.2, the obligation of the Lenders to make any Loan is
subject to the satisfaction on the date such Loan is made of the following
conditions precedent:
(a) No Event of Default. No Event of Default hereunder shall
have occurred and be continuing on such date either before or after giving
effect to the making of such Loans.
(b) No Injunction. No law or regulation shall have been
adopted, no order, judgment or decree of any Governmental Entity shall have been
issued, and no litigation shall be pending, that is seeking to enjoin, prohibit
or restrain, the making or repayment of the Loans.
(c) No Termination of Merger Agreement. The Merger Agreement
shall not have been terminated (i) by Sony or Time Warner pursuant to Section
10.01(c) (to the extent that one or more of the breaches of the representations,
warranties, covenants and agreements of CDnow that formed the basis of such
termination could reasonably be expected to have been avoided had CDnow used its
reasonable best efforts to ensure the continued accuracy, compliance and
performance of its representations, warranties, covenants and agreements under
the Merger Agreement) or Section 10.01(d) thereof; or (ii) by CDnow other than
pursuant to Sections 10.01(b)(i) or Section 10.01(e) thereof.
(d) No Third Party Tender Offer or Takeover Proposal. There
shall not have been commenced a Third Party
16
Tender Offer and CDnow shall not have entered into an Acquisition Agreement with
respect to a CDnow Takeover Proposal.
(e) Available Cash. The aggregate cash and cash equivalents of
the Borrower and its Subsidiaries shall be less than $7,500,000.
The acceptance of the proceeds of each Loan shall constitute a
representation and warranty by the Borrower to the Lenders that all of the
conditions required to be satisfied under this Section 3 in connection with the
making of such Loan have been satisfied.
Section 3.3 Conditions Precedent to First Loan. In addition to the
provisions of Section 3.2, the obligation of each Lender to make its first Loan
hereunder is subject to the receipt by the Lenders of a legal opinion, dated the
date of Borrowing of the first Loan, from counsel to the Loan Parties,
concerning due authorization, execution, delivery and the enforceability of this
Agreement, the Notes and the Security Agreement, absence of conflicts with laws,
articles, by-laws, agreements, absence of consents and approvals and the
perfection of the Lenders' security interest in the Collateral, all in form and
substance reasonably satisfactory to the Lenders.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement and to
make the Loans, the Borrower makes the following representations and warranties,
which shall survive the execution and delivery of this Agreement and the Notes
and the making of the Loans:
Section 4.1 Merger Agreement Representations. Each of the
representations and warranties of the Borrower set forth in Section 3 of the
Merger Agreement is incorporated herein by reference as if set forth by length
as the representations and warranties of the Borrower hereunder.
Section 4.2 Authority Relative to this Agreement. Each Loan Party
has full corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents to which it is a party and to consummate
the Transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Loan Documents to which it is a party and the
consummation of the Transactions contemplated hereby and thereby have been duly
and validly authorized by all corporate and shareholder
17
action, and no other corporate proceedings on the part of any Loan Party are
necessary to authorize the Loan Documents to which it is a party or to
consummate the Transactions contemplated hereby and thereby. The Loan Documents
to which it is a party have been duly and validly executed and delivered by each
Loan Party party thereto, and constitute valid and binding agreements of each
Loan Party party thereto, enforceable against such Loan Party in accordance with
their respective terms.
Section 4.3 Consents and Approvals; No Violation. (a) Except as set
forth in Schedule 4.3, the execution and delivery by each Loan Party of each
Loan Document to which it is a party will not (i) conflict with or result in any
breach of any provision of the Articles of Incorporation or Bylaws of such Loan
Party, (ii) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, (iii) result
in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which any Loan Party is a party or by which any Loan Party or any of its
assets may be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained, or (iv) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to any Loan Party or any of its assets.
(b) Except for any registration statement filed with the
United States Securities and Exchange Commission (the "SEC") pursuant to Section
9 hereof, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of any governmental or regulatory body or
authority is necessary for the consummation by the Borrower of the Transactions.
Section 4.4 Margin Regulations. No part of the proceeds of any Loan
will be used by the Borrower to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.
Neither the making of any Loan nor the use of the proceeds thereof will violate
or be inconsistent with the provisions of Regulations T, U or X of the Federal
Reserve Board.
Section 4.5 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment
18
company," within the meaning of the Investment Company Act of 1940, as amended.
Section 4.6 Absence of Indebtedness and Liens. Neither the Borrower
nor any Subsidiary has any liabilities or obligations, either accrued, absolute,
contingent, or otherwise, in respect of any Indebtedness or Liens, except (a)
under Existing Debt Agreements, (b) Permitted Indebtedness and (c) Permitted
Liens.
SECTION 5. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that from the Availability Date
and until the Loan Commitment has terminated and the Obligations are paid in
full:
Section 5.1 Information Covenants. The Borrower will furnish to each
Lender:
(a) Quarterly Statements -- within 45 days after the end of
each quarterly fiscal period in each fiscal year of the Borrower (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies of
(i) a consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statement of operations, shareholders'
equity and changes in financial position of the Borrower and its Subsidiaries
for such quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter, in each case setting forth
in comparative form the figures for the corresponding periods in the previous
fiscal year, prepared in accordance with GAAP applicable to quarterly financial
statements generally, and certified by the Chief Financial Officer of the
Borrower as fairly presenting, in all material respects, the financial position
of the companies being reported on and their results of operations and cash
flows, except for the absence of footnotes and changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
the Borrower's Quarterly Report on Form 10-Q prepared in compliance with the
requirements therefor and filed with the SEC shall be deemed to satisfy the
requirements of this Section 5.1;
(b) Annual Statements - within 90 days after the end of each
fiscal year of the Borrower, duplicate copies of
19
(i) a consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such year, and
(ii) consolidated statements of operations,
shareholders' equity and changes in financial position of the Borrower and its
Subsidiaries for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, provided that
the delivery within the time period specified above of the Borrower's Annual
Report on Form 10-K for such fiscal year (together with the Borrower's annual
report to shareholders, if any, prepared pursuant to Rule 14a-3 under the
Exchange Act) prepared in accordance with the requirements therefor and filed
with the SEC, shall be deemed to satisfy the requirements of this Section
5.1(b);
(c) Audit Reports, etc. -- promptly (and in any event within
five Business Days) after receipt thereof, copies of all management letters and
reports submitted to the Borrower or any of its Subsidiaries by independent
certified public accountants in connection with any annual, interim or special
audit of the Borrower or any Subsidiary made by such accountants;
(d) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or proxy
statement sent by the Borrower or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic reports, each registration
statement (without exhibits except as expressly requested by a Lender), and each
prospectus and all amendments thereto filed by the Borrower or any Subsidiary
with the SEC and of all press releases and other statements made available
generally by the Borrower or any Subsidiary to the public concerning
developments that are material;
(e) Notice of Default or Event of Default -- immediately (and
in any event within two Business Days) after the Borrower becomes aware of the
existence of any
20
Default or Event of Default, a written notice specifying the nature and period
of existence thereof and what action the Borrower is taking or proposes to take
with respect thereto;
(f) Notices from Governmental Authority -- promptly, and in
any event within five days of receipt thereof, copies of any notice to the
Borrower or any Subsidiary from any federal, state or foreign Governmental
Entity relating to any order, ruling, statute or other law or regulation that
could reasonably be expected to have a CDnow Material Adverse Effect or that
could reasonably be expected to impair the ability of the Borrower to perform
any of its obligations hereunder or under any of the Loan Documents;
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or property of the Borrower or any of its
Subsidiaries or relating to the ability of the Borrower to perform its
obligations hereunder, under the Notes and under the Security Agreement as from
time to time may be reasonably requested by the Lenders; and
(h) Notice of Prepayment Transaction -- two, or after the
Merger Agreement has terminated, 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) and (b), a written notice
specifying the nature thereof.
Section 5.2 Officer's Certificate. Each set of financial statements
delivered to a Lender pursuant to Section 5.l(a) or Section 5.l(b) hereof shall
be accompanied by a certificate of the Chief Financial Officer containing a
statement that such officer has reviewed the relevant terms hereof and has made,
or caused to be made, under his or her supervision, a review of the transactions
and conditions of the Borrower and its Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being furnished to the
date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Borrower or its Subsidiaries shall have taken or proposes to take with
respect thereto.
Section 5.3 Inspection. Each Lender, or any person designated from
time to time by such Lender, shall
21
have the right, from time to time hereafter, to call at the Borrower's or its
Subsidiaries' place or places of business during ordinary business hours, and,
without hindrance or delay, (a) to inspect, audit, check, and makes copies of
and extracts from the Borrower's and its Subsidiaries' books, records, journals,
orders, receipts, and any correspondence and other data relating to the business
of the Borrower or its Subsidiaries or to any transactions between the parties
hereto, and (b) to discuss the affairs, finances, and business of the Borrower
and its Subsidiaries with the officers of the Borrower and its Subsidiaries.
Section 5.4 Conduct of Business. (a) The Borrower shall, and shall
cause each Subsidiary to (i) maintain its existence and qualification to do
business in good standing in each jurisdiction where the failure to be so
qualified would have a material adverse effect on the financial condition of the
Borrower and its Subsidiaries taken as a whole, (ii) maintain in full force and
effect all licenses, bonds, franchises, leases, patents, contracts, and other
rights necessary to the conduct of its business, and (iii) comply in all
material respects with all applicable laws and regulations of any federal,
state, or local governmental authority, including those relating to
environmental matters, labor and employment laws and employee benefit matters.
(b) The Borrower shall, and shall cause its Subsidiaries to,
duly pay and discharge (i) all lawful claims, whether for labor, materials,
supplies, services, or anything else, which might or could, if unpaid, become a
lien or charge upon its property or assets, unless and to the extent only that
the validity thereof is being contested in good faith and by such appropriate
proceedings, (ii) all of its trade bills when due in accordance with customary
practice, and (iii) all taxes, unless and to the extent that the validity
thereof is being contested by the Borrower in good faith and by appropriate
proceedings.
Section 5.5 Maintenance of Property; Insurance. (a) The
Borrower shall keep and maintain, and shall cause its Subsidiaries to keep and
maintain, at their sole cost and expense, (i) all Property necessary to the
business of the Borrower and its Subsidiaries in reasonably good working order
and condition, ordinary wear and tear excepted, (ii) insurance on their assets
for the full replacement value (or the full insurable value) thereof against
loss or damage by fire, theft, explosion, and all other hazards and risks
ordinarily insured against by other owners or users of such properties in
similar businesses similarly situated; and (iii) public liability insurance
22
relating to the Borrower's and its Subsidiaries' ownership and use of their
assets.
(b) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Lenders of written notice
thereof, (ii) name the Security Agent (as such term is defined in the Security
Agreement) as insured party or loss payee, (iii) if reasonably requested by the
Lenders, include a breach of warranty clause and (iv) be reasonably satisfactory
in all other respects to the Lenders.
(c) All such policies of insurance shall be in such form and
in such amounts as is customary in the case of other owners or users of like
properties in similar businesses, with insurers as shall be reasonably
satisfactory to each Lender. Upon demand, the Borrower shall deliver to each
Lender the original (or certified) copy of each policy insurance, and evidence
of payment of all premiums for each such policy.
Section 5.6 Notice of Suit or Adverse Change in Business. The
Borrower shall give written notice to each Lender (a) as soon as possible, and
in any event within five business days after the Borrower receives actual notice
(written or oral) of any material proceeding(s) being instituted against the
Borrower or any Subsidiary in any federal, state, or local court or before any
commission or other regulatory body (federal, state, or local), and (b) as soon
as possible, and in any event within five business days after the Borrower
learns of any material adverse change in the financial condition, results of
operations, business, or assets of the Borrower and its Subsidiaries taken as a
whole.
Section 5.7 Books, Records, Inspections. The Borrower will, and will
cause each of its Subsidiaries to, keep proper books of record and accounts in
which full, true and correct entries in conformity with generally accepted
accounting principles and all requirements of law shall be made of all dealings
and transactions in relation to its business and activities.
SECTION 6. NEGATIVE COVENANTS.
The Borrower covenants and agrees that from the date hereof (except,
in the case of Sections 6.2 and 6.7, which shall be from the Availability Date)
until the Loan
23
Commitment has terminated, and the Obligations are paid in full, without the
prior written consent of Lenders:
Section 6.1 Merger Agreement Covenants. The covenants and agreements
of the Borrower set forth in the first sentence of Section 7.01(a) and Sections
7.01(a)(i), (iii), (iv) (other than acquisitions made solely for Equity
Securities of the Borrower), (vii), (viii), (x)(B), (xi), (xiii), (xiv) as it
relates to clause (ix) of Section 3.18 of the Merger Agreement (provided that
the Borrower may consummate transactions of the type described in clause (B) of
such Section 3.18(ix) without regard to the dollar limits referred to therein so
long as such transactions (I) are on market terms, (II) do not extend for a
period of greater than thirty-six months, (III) are only entered into after good
faith consultations by the Borrower with the Lenders and (IV) are consummated at
a cost per customer target not in excess of the amount previously disclosed to
the Lenders (or, if lower, the cost per customer target then in effect)), and
(xv) of the Merger Agreement are hereby incorporated herein by reference as of
set forth at length and shall be covenants and agreements of the Borrower
hereunder. To the extent there is a waiver under the Merger Agreement then there
shall be deemed to be a waiver under this Agreement and, to the extent that
matters are set forth in the CDnow Disclosure Letter, they shall be deemed to be
set forth herein. For the avoidance of doubt, nothing contained herein shall
derogate from the Borrower's obligations to comply with every covenant and
agreement contained in the Merger Agreement during the term thereof in
accordance with the terms thereof.
Section 6.2 Changes in Business. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any business which is
substantially different from that conducted by the Borrower, as the case may be,
on the date hereof.
Section 6.3 Limitation on Indebtedness. The Borrower will not, and
will not permit its Subsidiaries to, directly or indirectly, incur any
Indebtedness other than Permitted Indebtedness (so long as, in the case of
Permitted Interim Financing, the Net Debt Proceeds thereof are applied as
required by Section 2.7) and the Borrower will not issue any Disqualified Stock
or permit any of its Subsidiaries to issue any Disqualified Stock.
Section 6.4 Limitation on Issuances of Guarantees by Subsidiaries.
The Borrower will not permit any Subsidiary to guarantee, directly or
indirectly, any
24
Indebtedness of the Borrower, other than Permitted Indebtedness.
Section 6.5 Limitation on Liens. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into, create,
incur, assume or suffer to exist any Liens of any kind (other than Permitted
Liens) on or with respect to any of their Property or assets now owned or
hereafter acquired, or any interest therein or any income or profits therefrom.
Section 6.6 Limitation on Asset Sales. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, convey,
sell, lease, assign, transfer or otherwise dispose of any of its Property,
whether now on or hereafter acquired, except:
(i) obsolete Property disposed of in the ordinary course of
business;
(ii) the sale of inventory in ordinary course of business;
(iii) the sale or other disposition of any Property for fair
market value and for consideration consisting solely of cash and so long as the
Net Sale Proceeds thereof are applied as required by Section 2.8; and
(iv) (a) Sale and Leaseback Transactions in respect of capital
equipment acquired ninety days or less prior to consummation of such Sale and
Leaseback Transaction and (b) other Sale and Leaseback Transactions in respect
of which the Attributable Indebtedness does not exceed $1,000,000 in the
aggregate; provided that all of such Sale and Leaseback Transactions referred to
in both clauses (a) and (b) are for fair market value.
Section 6.7 Use of Proceeds. The Borrower will not use the proceeds
of any Loan for any purpose other than in the ordinary course of the Borrower's
business and to meet the ongoing working capital needs of the Borrower.
Section 6.8 Limitation on Modifications of Certain Indebtedness. The
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly amend or modify, or permit the amendment or modification of, any
Existing Debt Agreement.
Section 6.9 Limitation on Negative Pledge Clauses. The Borrower will
not, and will not permit its Subsidiaries to, directly or indirectly, enter into
with any
25
Person any agreement, other than (a) this Agreement and (b) any Purchase Money
Indebtedness permitted by this Agreement (in which case, any prohibition or
limitation shall only be effective against the assets financed thereby), which
prohibits or limits the ability of the Borrower or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of its Property or
revenues, whether now owned or hereafter acquired.
SECTION 7. EVENTS OF DEFAULT.
Section 7.1 Events of Default. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:
(a) Failure to Make Payments. The Borrower shall (i) default
in the payment when due of any principal of, or Interest on, the Loans or (ii)
default in the payment when due of any other amounts owing hereunder, and in the
case of the circumstances described in this clause (ii), such default shall
continue unremedied for three or more Business Days, provided, however, that in
the event that a Lender elects to convert any amount of principal or Interest
otherwise due under any of the Notes into CDnow Common Stock in accordance with
the provisions of Section 8 hereof, the amount so converted shall be deemed to
have been timely paid and the failure to make payment in respect thereof shall
not constitute a Default or Event of Default hereunder.
(b) Breach of Representations. The representations and
warranties of the Borrower set forth in Section 4 or in the Security Agreement
shall, individually or in the aggregate, have been untrue or inaccurate in any
material respect when made.
(c) Breach of Covenants.
(i) The Borrower shall fail to perform or observe any
agreement, covenant or obligation arising under Section 6 hereof or
Section 5 of the Security Agreement.
(ii) The Borrower shall fail to perform or observe any
agreement, covenant or obligation arising under this Agreement or other
Loan Agreement
26
Document (except those described in subsections (a) and (b)(i) above), and
such failure shall continue for 15 days after notice thereof to the
Borrower.
(d) Default Under Other Agreements. Any Loan Party shall
default in the payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) of any amount owing in respect of
any Indebtedness (including any Indebtedness under the Existing Debt Agreements)
individually or in the aggregate in excess of $250,000 other than the
Obligations; or any Loan Party shall default in the performance or observance of
any obligation or condition with respect to any such Indebtedness or any other
event shall occur or condition exist, if the effect of such default, event or
condition is to accelerate the maturity of any such Indebtedness or to permit
(without regard to any required notice or lapse of time) the holder or holders
thereof, or any trustee or agent for such holders, to accelerate the maturity of
any such Indebtedness, or any such Indebtedness shall become or be declared to
be due and payable prior to its stated maturity other than as a result of a
regularly scheduled payment.
(e) Loan Documents. Any Loan Document shall at any time and
for any reason not be or shall cease to be valid, binding and enforceable
against any Loan Party or any Loan Party or any other Person shall contest or
deny the validity and enforceability of any Loan Document or shall disaffirm or
repudiate any of its or any Loan Party's obligations thereunder, or the
Obligations (or any of them) shall fail to be secured by a first-priority
perfected security interest in the Collateral.
(f) Bankruptcy, etc. (i) Any Loan Party shall commence a
voluntary case concerning itself under the Bankruptcy Code; or (ii) an
involuntary case is commenced against any Loan Party and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or (iii) a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of any Loan Party or any Loan Party commences any other proceedings
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to any Loan Party or there is
commenced against any Loan Party any such proceeding which remains undismissed
for a period of 60 days; or (iv) any order of relief or other order approving
any such case or proceeding is entered; or (v) any Loan Party is adjudicated
insolvent or bankrupt; or (vi) any Loan Party makes a general
27
assignment for the benefit of creditors; or (vii) any Loan Party shall fail to
pay, or shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or (viii) any Loan Party shall cooperate
with its creditors with a view to arranging a composition or adjustment of its
debts; or (ix) any Loan Party shall by any act or failure to act consent to,
approve of or acquiesce in any of the foregoing; or (x) any corporate action is
taken by any Loan Party for the purpose of effecting any of the foregoing.
Section 7.2 Rights and Remedies. Upon the occurrence of any Event of
Default described in Section 7.1(f), the Loan Commitment shall automatically and
immediately terminate and the unpaid principal amount of, and any and all
accrued interest on, the Loans and any and all other Obligations shall
automatically become immediately due and payable, with all additional interest
from time to time accrued thereon and without presentation, demand, or protest
or other requirements of any kind (including, without limitation, valuation and
appraisement, due diligence, presentment, notice of intent to demand or
accelerate and notice of acceleration), all of which are hereby expressly waived
by the Borrower, and the obligation of the Lenders to make any Loan hereunder
shall thereupon terminate; and upon the occurrence and during the continuance of
any other Event of Default, without limiting the other provisions of this
Agreement (including Section 2.7), each Lender may, by written notice to the
Borrower, (i) declare that its Loan Commitment is terminated, whereupon such
Loan Commitment and the obligation of such Lender to make any Loan hereunder
shall immediately terminate, and (ii) declare the unpaid principal amount of and
any and all accrued and unpaid interest on the Loans of such Lender and any and
all other Obligations owed to such Lender to be, and the same shall thereupon
be, immediately due and payable with all additional Interest from time to time
accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by the
Borrower.
SECTION 8. CONVERSION.
Section 8.1 Conversion Privilege and Conversion Price. Subject to
and upon compliance with the provisions of this Section 8, each Lender, at its
sole option, may, at any time after termination of the Merger Agreement and from
time to time thereafter, convert (a) each Note or any
28
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.
Any certificates evidencing CDnow Common Stock issued upon the
conversion of the Note shall bear such legends, including legends reflecting
restrictions on transfer required in order to maintain compliance with the
provisions of the Securities Act, as the Borrower shall deem to be necessary or
appropriate.
Section 8.2 Exercise of Conversion Privileges. In order to exercise
the conversion privilege with respect to any amount of principal or Interest
(including any defaulted Interest) of any Note, a Lender shall, in the case of a
conversion with respect to all outstanding principal only, surrender such Note,
duly endorsed or assigned to the Borrower or in blank, at the principal
executive offices of the Borrower, and, in all cases, deliver a Notice of
Conversion Election (in the form attached hereto as Exhibit C, a "Notice of
Conversion Election") to the effect that such Lender elects to convert such Note
or, if less than the entire principal amount and Interest thereof is to be
converted, the portion thereof to be converted.
Any amount of principal and Interest of a Note shall be deemed to
have been converted immediately prior to the close of business on the day of
delivery of the relevant Notice of Conversion Election in accordance with the
foregoing provisions, and at such time the rights of such Lender as a holder of
the Note with respect to the principal amount to be so converted (or, in the
case of conversion of any Interest payable on the Note, the right of Lender to
be paid such Interest in cash) shall cease, and the Person or Persons entitled
to receive the CDnow Common Stock of the Borrower issuable upon conversion shall
be treated for all purposes as the record holder or holders of such CDnow Common
Stock as and after such time. As promptly as practicable on or after conversion
date, the Borrower shall issue and shall deliver to such Lender, at the address
specified by such Lender in writing, a certificate or certificates for the
number of full shares of CDnow Common
29
Stock of the Borrower issuable upon conversion, together with payment in lieu of
any fraction of a share, as provided in Section 8.3.
Section 8.3 Fractions of Shares. No fractional share of CDnow Common
Stock shall be issued upon conversion of a Note. Instead of any fractional share
of such CDnow Common Stock which would otherwise be issuable upon conversion of
such Note (or a portion thereof), or upon the conversion of any Interest
(including defaulted Interest) payable with respect to such Note, the Borrower
shall pay a cash adjustment in respect of such fractional share in an amount
equal to such fraction multiplied by the Closing Price of the CDnow Common Stock
at the close of business on the day of conversion (or, if such day is not a
Trading Day, on the Trading Date immediately preceding such day).
Section 8.4 Adjustment of Conversion Price. The Conversion Price
then applicable to any Note shall be appropriately adjusted in accordance with
the anti-dilution provisions attached hereto as Exhibit D.
Section 8.5 Notice of Adjustments of Conversion Price. Whenever the
Conversion Price of any Note is adjusted, the Borrower shall compute the
adjusted Conversion Price in accordance with Section 8.4 and shall prepare a
certificate signed by the Chief Financial Officer of the Borrower setting forth
the adjusted Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall be provided to the
Lenders.
Section 8.6 Company to Reserve CDnow Common Stock. The Borrower
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued CDnow Common Stock or out of its CDnow Common
Stock held in treasury, for the purpose of effecting the conversion of Notes and
any accrued and unpaid Interest thereon, the full number of shares of its CDnow
Common Stock then issuable upon the conversion of the entire principal amount of
the aggregate Loan Commitment and all Interest that would accrue on such
aggregate amount up to and including the Final Maturity Date.
Section 8.7 Taxes on Conversions. The Borrower will pay any and all
original issuance, transfer, stamp and other similar taxes that may be payable
in respect of the issue or delivery of shares of its Common Shock on conversion
of Notes and any accrued and unpaid Interest thereon pursuant hereto. The
Borrower shall not, however, be required to pay any tax which may be payable in
respect
30
of any transfer involved in the issue and delivery of shares of its CDnow Common
Stock in a name other than that of a Lender or other holder of the Note, portion
thereof or Interest thereon to be converted, and no such issue or delivery shall
be made unless and until the person requesting such issue has paid to the
Borrower the amount of any such tax, or has established to the satisfaction of
the Borrower that such tax has been paid.
Section 8.8 Covenant as to CDnow Common Stock.
(a) The Borrower covenants that all shares of its CDnow Common
Stock which may be issued upon conversion of Notes or any Interest payment in
respect thereof will upon issue be validly issued, fully paid and nonassessable.
(b) The Borrower shall from time to time take all action
necessary so that the CDnow Common Stock which may be issued upon conversion of
Notes or any Interest payment in respect thereof, immediately upon their
issuance (or, if such CDnow Common Stock is subject to restrictions on transfer
under the Securities Act, upon their resale pursuant to any effective
registration statement under the Securities Act), will be listed on the
principal securities exchanges, interdealer quotation systems and markets, if
any, on which shares of CDnow Common Stock are then listed or quoted.
Section 8.9 Investment Intent; Private Placement. Each Lender
represents and warrants to the Borrower that:
(a) The Lender is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to investments in
equity securities presenting an investment decision like that involved in the
acquisition of CDnow Common Stock upon the conversion of Notes and any accrued
and unpaid Interest thereon pursuant to this Section 8.
(b) Upon the conversion of any Notes or any Interest payment
in respect thereof, the Lender will be acquiring CDnow Common Stock issued upon
such conversion for investment for its own account only and not with a view to,
or for resale in connection with, any "distribution" thereof within the meaning
of the Securities Act. The Lender has no present intention of selling, granting
and participation in, or otherwise distributing the CDnow Common Stock, except
in compliance with the Securities Act or pursuant to an available exemption
thereunder.
31
(c) The Lender understands that the CDnow Common Stock has not
been registered under the Securities Act or registered or qualified under any
state securities law in reliance on specific exemptions therefrom, which
exemptions may depend upon, among other things, the bona fide nature of the
Lender's investment intent as expressed herein. The Lender is familiar with Rule
144 under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. The Lender further
understands that the certificate(s) representing the CDnow Common Stock shall
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM.
SECTION 9. REGISTRATION RIGHTS.
The Lenders and the Borrower agree that, with respect to any and all
shares of Common Stock of the Borrower issued upon conversion of any Note or any
portion thereof, or any Interest payable with respect thereto, the Lenders shall
have the registration rights provided for in the Stock Option Agreement
regardless of whether or not such agreement shall be in effect, and any and all
shares of Common Stock of the Borrower issued upon conversion of the Loans or
any portion thereof, or any Interest payable with respect thereto, shall
constitute shares of securities that have been acquired by or are issuable to
the Lenders upon exercise of the "Option" as defined therein.
SECTION 10. MISCELLANEOUS.
Section 10.1 Payment of Expenses, Indemnity, etc. The Borrower
shall:
(a) pay all reasonable out-of-pocket costs and expenses of
each Lender in connection with the preservation of rights under, and enforcement
of, the Loan Documents and the documents and instruments referred to therein or
in connection with any restructuring or rescheduling of the Obligations
(including, without limitation, the reasonable fees and disbursements of counsel
for each Lender);
32
(b) pay, and hold the Lenders harmless from and against, any
and all present and future stamp, excise and other similar taxes with respect to
the foregoing matters and hold the Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to the Lender) to pay such taxes; and
(c) indemnify each Lender, its officers, directors, employees,
representatives and agents (each an "Indemnitee") from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements of any
kind or nature whatsoever (including, without limitation, the fees and
disbursements of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, asserted against or incurred by any Indemnitee
as a result of, or arising out of, or in any way related to or by reason of, any
of the Transactions or the execution, delivery or performance of any Loan
Document except to the extent resulting from the gross negligence or willful
misconduct of the Indemnitee.
Section 10.2 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default each Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to any
Loan Party or any other Person, any such notice being hereby expressly waived,
to set off any other indebtedness or other obligation at any time held or owing
by such Lender to or for the credit or the account of any Loan Party against and
on account of the Obligations of the Loan Parties to such Lender under this
Agreement or under any of the other Loan Documents, and all other claims of any
nature or description arising out of or connected with this Agreement or any
other Loan Document, irrespective of whether or not the Lenders shall have made
any demand hereunder and although said Obligations, liabilities or claims, or
any of them, shall be contingent or unmatured.
Section 10.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed effectively given upon personal delivery
to the party to be notified; on the next Business Day after delivery to a
33
recognized overnight courier service; upon confirmation of receipt of a
facsimile transmission; or five days after deposit with the United States Post
Office, by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice; provided that notices of a change
of address shall be effective only upon receipt thereof):
If to the Borrower, to:
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., Esq.
If to Time Warner Inc., to:
Time Warner Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Financial Officer
with a copy to:
Time Warner Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
and
34
If to Sony Music Entertainment Inc., to:
Sony Music Entertainment Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to:
Rosenman & Colin LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, Esq.
Section 10.4 Successors and Assigns; Assignments.
(a) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Borrower, the Lenders, all future holders
of the Notes and their respective successors and assigns, except that the
Borrower may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the Lenders.
(b) Assignments. Either Lender may at any time assign to any
other Person (each an "Assignee") other than a competitor of the Borrower or any
of its Subsidiaries all but not in part of its rights and obligations under this
Agreement, the Notes and any other Loan Documents, and the Borrower and the
Lenders agree that to the extent of any assignment, the Assignee shall be deemed
to have the same rights and benefits under the Loan Documents as the Lenders
hereunder; provided that such assignment shall not relieve the Lenders of their
respective obligations hereunder. Any assignment by a Lender to any Person that
is not an Affiliate of such Lender shall require the prior written consent of
the non-assigning Lender.
Section 10.5 Amendments and Waivers. Neither this Agreement, any
other Loan Document to which the Borrower is a party, nor any terms hereof or
thereof may be amended, supplemented, modified or waived except in accordance
with the provisions of this Section. The Lenders acting jointly and the Borrower
may, from time to time, enter into written amendments, supplements,
modifications or waivers for the purpose of adding, deleting, changing or
waiving any provisions to this Agreement or any Note. Any such amendment,
supplement, modification or waiver shall
35
apply to and shall be binding upon the Borrower, the Lenders and all future
holders of such Notes or any portion thereof or participation therein. In the
case of any waiver, the Borrower and the Lenders shall be restored to their
former position and rights hereunder and under the outstanding Notes, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
Section 10.6 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Lenders or any subsequent holder of a Note in exercising any
right, power or privilege hereunder or under any other Loan Document and no
course of dealing between any Loan Party and the Lenders or the subsequent
holder of any Note shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other
Loan Document preclude any other or further exercise thereof of the exercise of
any other right, power or privilege hereunder or thereunder. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Lenders or the subsequent holder of any Note would
otherwise have. No notice to or demand on any Loan Party in any case shall
entitle any Loan Party to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Lenders or the
subsequent holder of any Note to any other or further action in any
circumstances without notice or demand.
Section 10.7 Governing Law, Submission to Jurisdiction. (a) THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER 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
Agreement or any other Loan Document and any action for enforcement of any
judgment in respect thereof 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 Agreement, 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
36
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, the Borrower at its address set forth in Section 10.3. 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 Agreement or any other Loan Document
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 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 10.8 Counterparts. This Agreement 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 10.9 Headings Descriptive. The headings of the several
Sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
Section 10.10 Marshalling; Recapture. The Lenders shall be under no
obligation to ▇▇▇▇▇▇▇▇ any assets in favor of any Loan Party or any other party
or against or in payment of any or all of the Obligations. To the extent the
Lenders receive any payment by or on behalf of any Loan Party, which payment or
any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to such Loan Party or its
estate, trustee, receiver, custodian or any other party under any bankruptcy
law, state or federal law, common law or equitable cause, then to the extent of
such payment or repayment, the obligation or part thereof which has been paid,
reduced or satisfied by the amount so repaid shall be reinstated by the amount
so repaid and shall be included within the liabilities of such Loan Party to the
Lenders as of the date such initial payment, reduction or satisfaction occurred.
Section 10.11 Severability. In case any provision in or obligation
under this Agreement or any Note shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of
37
the remaining provisions or obligations, or of such provision or obligation in
any other Jurisdiction, shall not in any way be affected or impaired thereby.
Section 10.12 Survival. All indemnities set forth herein shall
survive the execution and delivery of this Agreement and the Notes and the
making and repayment of the Loans hereunder.
Section 10.13 Limitation of Liability. No claim may be made by any
Loan Party or any other Person against any Lender or any of its Affiliates,
directors, officers, employees, attorneys or agents for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or any other theory of liability arising out of or related to the transactions
contemplated by this Agreement or any act, omission or event occurring in
connection herewith; and each Loan Party hereby waives, releases and agrees not
to ▇▇▇ upon any claim for any such damages, whether or not accrued and whether
or not known or suspected to exist in its favor. For the avoidance of doubt, the
parties expressly acknowledge and agree that each Lender's obligations under
this Agreement, including without limitation Section 2, are separate and
individual in nature and are not joint and several. In no event shall a Lender
be held responsible for a breach by the other Lender of this Agreement.
Section 10.14 [Reserved.]
Section 10.15 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 AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER
ARISING HEREUNDER OR THEREUNDER.
Section 10.16 Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the Interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
taken, received or reserved by the Lenders holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the Interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this
38
Section 10.16 shall be cumulated and the Interest and Charges payable to such
Lender in respect of other Loans or periods shall be increased (but not above
the Maximum Rate therefor) until such cumulated amount shall have been received
by Lenders.
Section 10.17 Senior Indebtedness. The Indebtedness created pursuant
to the Loan Documents shall be senior in right of payment, as to principal,
Interest and all other Obligations, to all other Indebtedness of the Borrower,
whether now existing, or hereafter created, except for Indebtedness under the
Existing Debt Agreements, Purchase Money Indebtedness and Sale and Leaseback
Transactions entered into in accordance with Section 6.6(iv).
Section 10.18 Adjustments; Set-Off. If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of its Loans, or
Interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 7, or otherwise), in a greater proportion than
any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans, or Interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
Section 10.19 Merger Agreement. Nothing in this Agreement shall
reduce or relieve any of the Loan Parties from any of their obligations under
the Merger Agreement.
39
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
CDnow, Inc.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
___________________________
Name: ▇▇▇▇▇ ▇▇▇▇
Title: President and Chief Executive Officer
SONY MUSIC ENTERTAINMENT INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
___________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Executive Vice President and
Chief Financial Officer
TIME WARNER INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
___________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President and
Chief Financial Officer
CDnow, Inc.
SCHEDULES TO
CONVERTIBLE LOAN AGREEMENT, DATED AS OF JULY 12, 1999
BETWEEN CDnow, Inc., SONY MUSIC ENTERTAINMENT INC.
and TIME WARNER INC.
Exhibit A
[Form of Promissory Note]
CDnow, Inc.
PROMISSORY NOTE
$15,000,000 New York, New York
[Date]
FOR VALUE RECEIVED, the undersigned, CDnow, Inc., a Pennsylvania
corporation (the "Borrower"), hereby unconditionally promises to pay to
__________ or registered assigns (the "Lender"), on the Final Maturity Date (as
defined in Credit Agreement referred to below), in lawful money of the United
States of America and in immediately available funds, the principal amount of
Fifteen Million Dollars ($15,000,000) or, if less, the aggregate amount
outstanding of the Loans made by the Lender (as defined in the Credit
Agreement). The Borrower hereby unconditionally further agrees to pay interest
in like money on the unpaid principal amount hereof from time to time from the
date hereof at the rates and on the dates specified in Section 2.5 of the
Convertible Loan Agreement dated as of July 12, 1999 between the Borrower and
the Lender and ___________ (as amended, modified or supplemented from time to
time, the "Credit Agreement").
This Note is one of the Notes referred to in Section 2.4 of the Credit Agreement
and is entitled to the benefits thereof. All of the terms, conditions, and
covenants of the Credit Agreement are expressly made a part of this Note by
reference in the same manner and with the same effect as if set forth herein.
Any transferee of this Note, by its acceptance hereof, agrees to be bound by all
the terms, conditions and covenants of the Credit Agreement applicable to the
holder of a Note.
The principal amount of this Note, together with all accrued and unpaid interest
thereon, is convertible into Common Stock of the Borrower at any time and from
time to time, as, and subject to the conditions and limitations, specified in
the Credit Agreement. The Conversion Price applicable to this Note and any
accrued and unpaid Interest hereon shall be specified in the Credit Agreement,
which Conversion Price
2
shall be subject to adjustment as set forth in the Credit Agreement.
As provided in the Credit Agreement, the Loans evidenced by this Note are
subject to optional and mandatory repayments, in whole and in part, all as
specified in the Credit Agreement.
If an Event of Default, as defined in the Credit Agreement, occurs and is
continuing, all amounts remaining unpaid on this Note shall become, or may be
declared to be, immediately due and payable, all as provided therein.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW).
CDnow, Inc.
By: ________________________
Name:
Title:
Schedule of Principal Advances, Conversions and Repayments
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Principal
Amount Interest
Amount of Amount of Amount of Converted Converted
Principal Interest Principal into Common into Common
Date Advance Payment Repayment Stock Stock
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EXHIBIT C
To: CDnow, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
NOTICE OF CONVERSION ELECTION
Reference is hereby made to that certain Convertible Loan Agreement,
dated as of July 12, 1998, by and between Sony Music Entertainment, Inc., Time
Warner Inc. and CDnow, Inc. ("CDnow").
The undersigned hereby exercises its rights to convert the Note, or
a portion thereof, or Interest payable with respect thereto, into Common Stock
of CDnow, as provided in the Convertible Loan Agreement, and requests that
certificates representing shares of CDnow Common Stock issuable upon such
conversion be issued in the name of, and delivered to:
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(Print Name, Address, and Social Security Number)
and, if conversion shall not be with respect to the entire principal amount of
the Note, that a new Note for the principal balance remaining of the Note issued
and registered in the name of, and delivered to, the undersigned at the address
stated below.
Principal Amount To Be Converted $
Interest Amount To Be Converted $
Date: Name _____________________
(Print)
Address:______________________________________________________
__________________
(Signature)
