EXHIBIT (D)(3)
CONFORMED COPY
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CONVERTIBLE LOAN AGREEMENT
between
CDnow, Inc.
as Borrower,
and
Bertelsmann, Inc.
as Lender
Dated as of July 19, 2000
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TABLE OF CONTENTS
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PAGE
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ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions...................................................1
ARTICLE 2
AMOUNT AND TERMS OF CREDIT FACILITY
SECTION 2.01. Term Loans....................................................9
SECTION 2.02. Notice of Borrowing..........................................10
SECTION 2.03. Disbursement of Funds........................................10
SECTION 2.04. The Note.....................................................10
SECTION 2.05. Interest.....................................................11
SECTION 2.06. Voluntary Prepayments........................................11
SECTION 2.07. Mandatory Prepayments........................................11
SECTION 2.08. Repayment; Reduction in Loan Commitment......................12
SECTION 2.09. Method and Place of Payment..................................13
SECTION 2.10. Taxes........................................................13
SECTION 2.11. Changes to Schedule 2.01.....................................13
ARTICLE 3
CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent.........................................14
SECTION 3.02. Conditions Precedent to All Loans............................16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Merger Agreement Representations.............................17
SECTION 4.02. Authority Relative to this Agreement.........................17
SECTION 4.03. Consents and Approvals; No Violation.........................17
SECTION 4.04. Margin Regulations...........................................18
SECTION 4.05. Investment Company Act.......................................18
SECTION 4.06. Absence of Indebtedness and Liens............................18
PAGE
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ARTICLE 5
AFFIRMATIVE COVENANTS
SECTION 5.01. Information Covenants........................................18
SECTION 5.02. Officer's Certificate........................................21
SECTION 5.03. Inspection...................................................21
SECTION 5.04. Conduct of Business..........................................21
SECTION 5.05. Maintenance of Property; Insurance...........................22
SECTION 5.06. Notice of Suit or Adverse Change in Business.................22
SECTION 5.07. Books, Records, Inspections..................................23
ARTICLE 6
NEGATIVE COVENANTS
SECTION 6.01. Merger Agreement Covenants...................................23
SECTION 6.02. Changes in Business..........................................23
SECTION 6.03. Limitation on Indebtedness...................................23
SECTION 6.04. Limitation on Issuances of Guarantees by Subsidiaries........23
SECTION 6.05. Limitation on Liens..........................................24
SECTION 6.06. Limitation on Asset Sales....................................24
SECTION 6.07. Use of Proceeds..............................................24
SECTION 6.08. Limitation on Modifications of Certain Indebtedness..........24
SECTION 6.09. Limitation on Negative Pledge Clauses........................25
ARTICLE 7
EVENTS OF DEFAULT
SECTION 7.01. Events of Default............................................25
SECTION 7.02. Rights and Remedies..........................................27
ARTICLE 8
CONVERSION
SECTION 8.01. Conversion Privilege and Conversion Price....................27
SECTION 8.02. Exercise of Conversion Privileges............................28
SECTION 8.03. Fractions of Shares..........................................28
SECTION 8.04. Adjustment of Conversion Price...............................29
SECTION 8.05. Notice of Adjustments of Conversion Price....................29
SECTION 8.06. Company to Reserve CDNOW Common Stock........................29
SECTION 8.07. Taxes on Conversions.........................................29
SECTION 8.08. Covenant as to CDNOW Common Stock............................29
SECTION 8.09. Investment Intent; Private Placement.........................30
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ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Payment of Expenses, Indemnity, Etc..........................31
SECTION 9.02. Right of Setoff..............................................31
SECTION 9.03. Notices......................................................32
SECTION 9.04. Successors and Assigns; Assignments..........................33
SECTION 9.05. Amendments and Waivers.......................................33
SECTION 9.06. No Waiver; Remedies Cumulative...............................34
SECTION 9.07. Governing Law, Submission to Jurisdiction....................34
SECTION 9.08. Counterparts.................................................35
SECTION 9.09. Headings Descriptive.........................................35
SECTION 9.10. Marshaling; Recapture........................................35
SECTION 9.11. Severability.................................................35
SECTION 9.12. Survival.....................................................35
SECTION 9.13. Limitation of Liability......................................35
SECTION 9.14. [Reserved]....................................................36
SECTION 9.15. Waiver of Trial by Jury......................................36
SECTION 9.16. Interest Rate Limitation.....................................36
SECTION 9.17. Senior Indebtedness..........................................36
SECTION 9.18. Merger Agreement.............................................36
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
Exhibit E - Registration Rights Agreement
Schedules 1.1(a) Existing Debt Agreements
1.1(b) Permitted Liens
2.01 Drawdown Amounts
4.3 Consents and Approvals
CONVERTIBLE LOAN AGREEMENT, dated as of July 19, 2000, between CDnow,
Inc., a Pennsylvania corporation (the "Borrower"), and Bertelsmann, Inc., (the
"Lender").
WHEREAS, this Agreement is being executed and delivered in connection
with, and as a condition to closing under, that certain Agreement and Plan of
Merger (as amended from time to time the "Merger Agreement"), dated as of July
19, 2000, among the Borrower, the Lender (the "Buyer") and BINC Acquisitions
Inc. (the "Merger Sub");
WHEREAS, in connection with the Merger Agreement, the Borrower has
requested that the Lender make available to it certain interim financing to
discharge its current indebtedness to Time Warner, Inc. and Sony Corporation of
America and to satisfy working capital needs of the Borrower; and
WHEREAS, the Lender is 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 Lender hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. 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.
"Agreement" shall mean this Convertible Loan Agreement as in effect from
time to time.
"Assignee" shall have the meaning provided in Section 9.04(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
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).
"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 Lender 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.
"Business Plan" shall have the meaning provided in Section 6.07.
"Buyer" shall have the meaning provided in the first paragraph of this
Agreement.
"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 $1.50.
"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 2.05(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.
"Effective Date" shall mean the date on which this Agreement becomes
effective in accordance with Section 3.01.
"Equity Security" has the meaning ascribed to such term in Rule 405
promulgated under the Securities Act as in effect on the date hereof, and in
any event includes any interest or security having the attendant right to vote
for directors or similar representatives and any interest or security
convertible into or exchangeable for any of the foregoing.
"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 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
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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 Article 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 (i) October 31, 2000 and
(ii) the consummation of the Merger, subject to the proviso in Section 2.07(b).
"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 accounts payable or accrued liabilities arising in the ordinary
course of business), (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
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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 2.05.
"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%.
"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
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" shall mean $12,000,000.
"Loan Documents" shall mean this Agreement, the Note, the Security
Agreement and the Registration Rights Agreement as in effect from time to time.
"Loan Party" shall mean and include the Borrower and its Subsidiaries.
"Loans" shall mean the TW/S Loan and the Working Capital Loans.
"Material Adverse Effect" shall have the meaning ascribed thereto in the
Merger Agreement.
"Merger Agreement" shall have the meaning provided in the first Recital to
this Agreement as in effect from time to time, and all references herein to the
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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 2.04.
"Notice of Borrowing" shall have the meaning provided in Section 2.02.
"Notice of Conversion Election" shall have the meaning provided in Section
8.02.
"Obligations" shall mean all obligations, liabilities and Indebtedness of
every nature of the Borrower from time to time owing to the Lender 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 maturity date thereof extends to
at least 366 days beyond the Final Maturity Date, (ii) such Indebtedness is
unsecured and is not guaranteed by any Subsidiary of the Borrower, (iii) such
Indebtedness contains representations, warranties, covenants and agreements
which are not more restrictive, individually or taken as a whole, than those in
effect hereunder, and (iv) such Indebtedness is subject to subordination and
intercreditor arrangements satisfactory to the Lenders (and appropriate to
reflect the senior, secured nature of the Obligations).
"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',
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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.
"Person" shall have the meaning ascribed thereto in the Merger Agreement.
"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.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated the date hereof, to be executed by the Borrower, a form of
which is attached as Exhibit E hereto.
"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
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back from the purchaser or transferee thereof by such Person or one of its
Subsidiaries.
"Schedule 2.01" shall mean Schedule 2.01 attached to this Agreement, as
such Schedule may be amended (or deemed amended) from time to time (including
pursuant to Section 2.11).
"Security Agreement" shall mean 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 Merger
Agreement.
"Third Party Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D when first commenced (within the
meaning of Rule 14d-2(a) of the rules and regulations under the Exchange Act),
by a Person or 13D Group (which is not made by and does not include any of the
Lender, Merger Sub or any Affiliate of any of such Persons) to purchase or
exchange for cash or marketable securities any CDnow Common Stock and which
consists of an offer to acquire 50% or more of the then Total Current Voting
Power of the Company.
"Total Current Voting Power" shall mean, with respect to any corporation,
partnership, limited liability company or other business entity, the total
number of votes which may be cast in an election of members of the board of
directors or comparable representatives of such corporation, partnership,
limited liability company or other business entity in which all classes of
every Equity Security ordinarily entitled to vote in any election of members of
the board of directors or other comparable representatives of such entity are
entitled to vote in such election.
"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.
"TW/S Loan Agreement" means the $30,000,000 Convertible Loan Agreement
dated as of July 12, 1999 between the Borrower, Sony Music Entertainment Inc.
and Time Warner Inc., as in effect on the Effective Date.
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"TW/S Loan" shall have the meaning set forth in Section 2.01(i).
"Working Capital Loans" shall have the meaning set forth in Section
2.01(ii).
ARTICLE 2
AMOUNT AND TERMS OF CREDIT FACILITY
SECTION 2.01. Term Loans. (a) Subject to and upon the terms and conditions
herein set forth, the Lender agrees:
(i) to make one term loan to the Borrower on the Effective Date equal
to the aggregate principal amount of the loans outstanding under the TW/S
Loan Agreement plus accrued and unpaid interest thereon (the "TW/S Loan");
and
(ii) to make term loans (the "Working Capital Loans") to the Borrower
from time to time after July 31, 2000 and prior to the Final Maturity
Date, which Working Capital Loans shall not exceed in aggregate principal
amount the Loan Commitment. In addition, the aggregate principal amount of
the Working Capital Loans made by the Lender in any calendar week,
beginning with the calendar week ended September 1, 2000, plus the
aggregate principal amount of the Working Capital Loans made by the Lender
in each of the three immediately preceding calendar weeks does not exceed
the sum of the amounts set forth on Schedule 2.01 under the column
"Drawdown Amount" opposite each such calendar week.
(b) The Loan Commitment shall be reduced by the amount of marketing
expenses made by the Lender for the benefit of the Borrower, to the extent that
such marketing expenses result in a reduction of cash disbursements that
Borrower would otherwise be required to pay prior to the Final Maturity Date.
The Drawdown Amount shall also be reduced for the calendar week in which such
cash disbursement would have been paid, as reflected in the cash forecast
provided by Borrower to Lender prior to the date hereof, by an amount equal to
the amount of such cash disbursement. Borrower and Lender shall reasonably
agree in advance on any such marketing expenses by Lender.
(c) Loans may be voluntarily prepaid pursuant to Section 2.06 and shall be
mandatorily prepaid pursuant to Section 2.07. Any amounts so prepaid may
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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.
SECTION 2.02. Notice of Borrowing. Whenever the Borrower desires to borrow
hereunder, the Borrower's Chief Financial Officer, Chief Operating Officer or
Chief Executive Officer shall make a formal request to the Lender for such
Borrowing by giving the 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, in the case of a Borrowing consisting of the TW/S Loan, shall be
the Effective Date), (c) the proposed use of the proceeds of any such
Borrowing, which use of proceeds shall be in compliance with Section 6.07 and
(d) that each of the conditions set forth in Article 3 has been, and remains,
satisfied as of the date of such Notice of Borrowing. The Borrower shall not
have the right to request, and the Lender shall have no obligation to make,
more than one Borrowing in any calendar week
SECTION 2.03. Disbursement of Funds. Upon receipt of a Notice of Borrowing
delivered in accordance with and in compliance with Section 2.02 above, on the
date specified in such Notice of Borrowing, the Lender will make available 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 such Lender, together with any Notice of Borrowing.
SECTION 2.04. The Note. The Borrower's obligation to pay the principal of,
and Interest on, the Loans made by the Lender hereunder, shall be evidenced by
a single promissory note (the "Note"), payable to the Lender duly executed and
delivered by the Borrower, substantially in the form of Exhibit A hereto. The
Borrower hereby irrevocably authorizes the Lender 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 the Lender to make such
endorsement shall not affect the obligation of the Borrower to make any
payments hereunder.
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SECTION 2.05. 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 Lender 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.
(d) In the event that the Lender elects to convert any accrued and unpaid
amount of interest on any Loan into CDNOW Common Stock in accordance with the
provisions of Article 8 hereof, the Borrower's obligation to pay Interest on
such Loan, pursuant to this Section 2.05, 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. The Lender
agrees to give the 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 2.06. Voluntary Prepayments. The Borrower shall have the right to
prepay in accordance with Section 2.09 the Loans in whole or in part from time
to time on the following terms and conditions: (i) the Borrower shall give the
Lender 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 $250,000 or integral
multiples thereof.
SECTION 2.07. Mandatory Prepayments. (a) If the Borrower or any of its
Subsidiaries shall receive any proceeds from any sale, lease, transfer or
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disposition except for any transactions contemplated by Section 6.06(i) hereto
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 2.09 an amount in cash equal to 100% of the Net Sale
Proceeds from such sale, lease, transfer or disposition to the Lender as a
mandatory repayment of outstanding Loans and reduction in the remaining Loan
Commitment in accordance with the requirements of Section 2.08.
(b) If (v) the Borrower enters into any agreement with respect to a
Superior Proposal, (w) the Merger Agreement is terminated, (x) there is
consummated a Third Party Tender Offer, or (y) any Person or group of Persons
shall have acquired a majority of the equity interests in, or all or any
material portion of the assets of, the Borrower and its subsidiaries, then (i)
the Loan Commitment shall automatically and immediately terminate and (ii) 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, provided
that if the Merger Agreement is terminated by the Borrower in accordance with
Section 10.01(b) thereof as a result of a breach by the Buyer of its
obligations thereunder, then the unpaid aggregate principal amount of, and any
and all accrued Interest on, the Loans and any and all other Obligations shall
become due and payable, with all Interest from time to time accrued thereon, on
the sixtieth calendar day after such termination, 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 Lender to
make any Loans hereunder shall thereupon terminate.
SECTION 2.08. Repayment; Reduction in Loan Commitment. Each amount
required or permitted to be applied to repay outstanding Loans under Section
2.06 or 2.07 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. By three Business Days prior notice to the Lender, 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
Lender, the Borrower may, at any time when no Loans are outstanding and no
Obligations remain unpaid, terminate the Loan Commitment.
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SECTION 2.09. 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 the Lender not later than 12:00 noon, New York City
time, on the date when due and shall be made in lawful money of the United
States of America by wire transfer in immediately available funds to such
account as shall be designated by the Lender. Any funds received by the Lender
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 the Lender or any of its
Subsidiaries or Affiliates of any other agreement to which the 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
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 the 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, 2.11 shall survive the termination of this Agreement and
the payment of the Notes and all other Obligations.
SECTION 2.11. Changes to Schedule 2.01. The amounts set forth in Schedule
2.01 under the column "Drawdown Amount" shall be reduced as follows (in
addition to any reduction pursuant to Section 2.01(b)):
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(i) contemporaneously with any reduction of the Loan Commitment effected
pursuant to Section 2.08, such amounts shall be reduced in the aggregate by an
amount equal to the amount of such reduction, and such reduction shall be
effected by reducing the amounts set forth under such column in inverse order.
On any date on which any amount set forth in Schedule 2.01 shall be
reduced in accordance with this Section, Schedule 2.01 shall be deemed to have
been amended to reflect such amount as so reduced.
ARTICLE 3
CONDITIONS PRECEDENT
SECTION 3.01. 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 Lender.
(ii) Security Agreement. Each Loan Party shall have executed and
delivered the Security Agreement to the Lender.
(iii) Registration Rights Agreement. The Borrower shall have executed
and delivered the Registration Rights Agreement to the Lender.
(iv) Note. The Borrower shall have executed and delivered to the
Lender a Note as provided herein.
(b) Corporate Documents. The Lender shall have received the Articles of
Incorporation of each Loan Party as in effect on the Effective Date, 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 Lender shall have received a
certificate of the Secretary or Assistant Secretary of each Loan Party dated
the Effective Date 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
14
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 Lender shall have received evidence in
form and substance satisfactory to it that all filings, recordings,
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 Lender, desirable to perfect the Liens created by the Security Agreement
shall have been completed.
(f) Lien Searches. The Lender shall have received the results of a recent
search by a Person satisfactory to the Lender, 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 Lender.
(g) Representations. The representations and warranties set forth in
Article 4 and in the Security Agreement shall be true and correct.
(h) Termination of TW/S Loan Agreement. The Lender shall have received
evidence in form and substance satisfactory to it that (i) all Indebtedness
outstanding under the TW/S Loan Agreement (together with accrued and unpaid
interest thereon) and all other amounts due thereunder shall have been repaid
in full, (ii) all Guarantees of any Indebtedness or other amounts due under the
TW/S Loan Agreement shall have been terminated, and all other obligations of
the Borrower and each other Loan Party under the TW/S Loan Agreement or under
any other Loan Document (as defined in the TW/S Loan Agreement) shall have been
terminated, (iii) all commitments to extend credit under the TW/S Loan
Agreement shall have been terminated and (iv) all rights of Sony Music
Entertainment Inc. or Time Warner Inc. to convert any amount payable to them
under the TW/S Loan Agreement into equity securities of the Borrower shall have
been terminated.
(i) Cancelled Notes. The Lender shall have received each original
promissory note issued by the Borrower under the TW/S Loan Agreement, marked
"canceled".
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(j) Termination of TW/S Liens. The Lender shall have received evidence in
form and substance satisfactory to it that the Liens created under the Security
Agreement (as defined in the TW/S Loan Agreement) shall have been terminated
and all collateral in pledge thereunder shall have been released (which
evidence shall include in any event UCC-3 termination statements duly executed
by the relevant debtor and the relevant secured party with respect to each
UCC-1 financing statement filed with respect to such Liens).
(k) Opinion of Counsel. The Lender shall have received a legal opinion,
dated the Effective Date, from counsel to the Loan Parties, concerning due
authorization, execution, delivery and the enforceability of this Agreement,
the Note and the Security Agreement, absence of conflicts with laws, articles,
by-laws, agreements, absence of consents and approvals and the perfection of
the Lender' security interest in the Collateral, all in form and substance
reasonably satisfactory to the Lender.
SECTION 3.02. Conditions Precedent to All Loans. In addition to the
provisions of Section 2.02, the obligation of the Lender 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.
(d) No Third Party Tender Offer or Takeover Proposal. There shall not have
been commenced a Third Party Tender Offer, the Borrower shall not have entered
into an agreement with respect to a Superior Proposal and any Person or group
of Persons shall not have acquired a majority of the equity interests in, or
all or any material portion of the assets of, the Borrower.
(e) Available Cash. The aggregate cash and cash equivalents of the
Borrower and its Subsidiaries shall be less than $3,000,000.
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(f) Representations. The representations and warranties set forth in
Article 4 and in the Security Agreement shall be true and correct on and as of
such date.
The acceptance of the proceeds of each Loan shall constitute a
representation and warranty by the Borrower to the Lender that all of the
conditions required to be satisfied under this Article 3 in connection with the
making of such Loan have been satisfied.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender 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 4.01. Merger Agreement Representations. Each of the
representations and warranties of the Borrower set forth in Article 4 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 4.02. 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 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 thereto, and
constitute valid and binding agreements of each Loan Party thereto, enforceable
against such Loan Party in accordance with their respective terms.
SECTION 4.03. Consents and Approvals; No Violation. (a) Except as set
forth in Schedule 4.03, 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
17
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 the Registration
Rights Agreement, 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 4.04. 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 or U of the Federal
Reserve Board.
SECTION 4.05. Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.06. 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.
ARTICLE 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 5.01. Information Covenants. The Borrower will furnish to the
Lender:
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(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 5.01;
(b) Annual Statements - within 90 days after the end of each fiscal year
of the Borrower, duplicate copies of
(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
19
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 5.01(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 the 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 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 Material Adverse Effect on the Borrower 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 Note and under the Security Agreement as from time to time may be
reasonably requested by the Lender;
(h) Notice of Prepayment Transaction - two Business Days prior to the
Borrower or any Subsidiary entering into any transaction or taking any action
20
which would result in a mandatory prepayment under Section 2.07(a) and (b), a
written notice specifying the nature thereof; and
(i) Weekly Reports - on each Monday of each calendar week (i) a weekly
report of cash receipts and cash disbursements for the calendar week most
recently ended and (ii) a projected weekly report of cash receipts and cash
disbursements for the then current calendar week, in each case substantially in
the form agreed to between the Borrower and the Lender prior to the Effective
Date.
SECTION 5.02. Officer's Certificate. Each set of financial statements
delivered to the Lender pursuant to Section 5.01(a) or Section 5.01(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 5.03. Inspection. The Lender, or any person designated from time
to time by such Lender, shall 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 5.04. 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.
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(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 5.05. 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 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 Lender 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
Lender, include a breach of warranty clause and (iv) be reasonably satisfactory
in all other respects to the Lender.
(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 the
Lender. Upon demand, the Borrower shall deliver to the Lender the original (or
certified) copy of each policy insurance, and evidence of payment of all
premiums for each such policy.
SECTION 5.06. Notice of Suit or Adverse Change in Business. The Borrower
shall give written notice to the 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
22
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 5.07. 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.
ARTICLE 6
NEGATIVE COVENANTS
The Borrower covenants and agrees that from the Effective Date until the
Loan Commitment has terminated, and the Obligations are paid in full, without
the prior written consent of the Lender:
SECTION 6.01. Merger Agreement Covenants. The covenants and agreements of
the Borrower set forth in Section 6.01 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. 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 6.02. 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 6.03. 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
2.07) and the Borrower will not issue any Disqualified Stock or permit any of
its Subsidiaries to issue any Disqualified Stock.
SECTION 6.04. Limitation on Issuances of Guarantees by Subsidiaries. The
Borrower will not permit any Subsidiary to guarantee, directly or indirectly,
any Indebtedness of the Borrower, other than Permitted Indebtedness.
23
SECTION 6.05. 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 6.06. 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 2.08; 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 6.07. Use of Proceeds. The Borrower will not use the proceeds of
the TW/S Loan for any purpose other than to repay in full Indebtedness
outstanding under the TW/S Loan Agreement (together with accrued and unpaid
interest thereon). The Borrower will not use the proceeds of any Working
Capital 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 as contemplated by the business plan delivered by the Borrower to the
Lender prior to the Effective Date (the "Business Plan").
SECTION 6.08. 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.
24
SECTION 6.09. Limitation on Negative Pledge Clauses. The Borrower will
not, and will not permit its Subsidiaries to, directly or indirectly, enter
into with any 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 6.10. Best Efforts. The Borrower will use its best efforts to
obtain a waiver from NASDAQ with respect to the issuance by the Borrower of
shares of CDNOW Common Stock representing in excess of 19.9% of the outstanding
CDNOW Common Stock pursuant to the conversion rights set forth in Section 8
hereof.
ARTICLE 7
EVENTS OF DEFAULT
SECTION 7.01. 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 the 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 Article 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 Article 4 or in the Security Agreement shall,
individually or in the aggregate, have been untrue or inaccurate in any
material respect when made.
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(c) Breach of Covenants.
(i) The Borrower shall fail to perform or observe any agreement,
covenant or obligation arising under Article 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 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
26
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 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 7.02. Rights and Remedies. Upon the occurrence of any Event of
Default described in Section 7.01(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 Lender 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 2.07), the 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.
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ARTICLE 8
CONVERSION
SECTION 8.01. Conversion Privilege and Conversion Price. Subject to and
upon compliance with the provisions of this Article 8, the Lender, at its sole
option, may, at any time, on or after the date that is ten (10) days after the
date of dissemination by the Borrower of the Schedule 14D-9 to the holders of
its Common Stock, and from time to time, on or after such date, convert (a)
each Note or any portion of the principal amount thereof which equals $500,000
or any integral multiple thereof, and (b) the amount of accrued and unpaid
Interest on any 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; provided that in no event shall the Lender be
entitled to receive more than 49% of the CDNOW Common Stock on a fully diluted
basis pursuant to the exercise of the conversion rights set forth in this
Section, either in whole or in part. In addition, any exercise of such
conversion rights shall be subject to compliance by the Lender with the
provisions of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, if
applicable.
The Lender agrees that, with respect to any vote to be taken by the
shareholders of the Borrower to adopt or reject a Superior Proposal, the Lender
shall vote all of the shares of CDNOW Common Stock obtained by the Lender
pursuant to the exercise of the conversion rights set forth in this Section in
the same proportion as the shares of CDNOW Common Stock held by shareholders
other than the Lender are voted in such vote.
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 8.02. 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
28
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 the 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 Stock of the
Borrower issuable upon conversion, together with payment in lieu of any
fraction of a share, as provided in Section 8.03.
SECTION 8.03. 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 8.04. 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 8.05. 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 8.04 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
Lender.
SECTION 8.06. 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
29
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 8.07. 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 of any transfer involved in the issue and delivery of shares of its
CDNOW Common Stock in a name other than that of the 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 8.08. 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 8.09. Investment Intent; Private Placement. The 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 the Note and CDNOW Common Stock upon the conversion of Notes and
any accrued and unpaid Interest thereon pursuant to this Article 8.
30
(b) The Lender is acquiring the Note and, 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 Note or the CDNOW Common Stock, except in compliance with the
Securities Act or pursuant to an available exemption thereunder.
(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 Note and the CDNOW Common
Stock shall bear the following legend:
THE SECURITIES 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.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Payment of Expenses, Indemnity, Etc. The Borrower shall:
(a) pay all reasonable out-of-pocket costs and expenses of the 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 the Lender);
(b) pay, and hold the Lender harmless from and against, any and all
present and future stamp, excise and other similar taxes with respect to the
31
foregoing matters and hold the Lender 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 the 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 9.02. 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 the 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 Lender shall have made
any demand hereunder and although said Obligations, liabilities or claims, or
any of them, shall be contingent or unmatured.
SECTION 9.03. 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 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):
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If to the Borrower, to:
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
If to the Lender to:
Bertelsmann, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
SECTION 9.04. Successors and Assigns; Assignments.
(a) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Lender, 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 Lender.
33
(b) Assignments. The 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
Lender 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 Lender
hereunder; provided that such assignment shall not relieve the Lender of its
obligations hereunder.
SECTION 9.05. 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, subject to the provisions of Section 2.11. The
Lender 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 apply to and shall be
binding upon the Borrower, the Lender and all future holders of such Notes or
any portion thereof or participation therein. In the case of any waiver, the
Borrower and the Lender 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 9.06. No Waiver; Remedies Cumulative. No failure or delay on the
part of the Lender 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 Lender 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 Lender 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 Lender or the
subsequent holder of any Note to any other or further action in any
circumstances without notice or demand.
SECTION 9.07. Governing Law, Submission to Jurisdiction. (a) THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER
34
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 proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, the Borrower at its address set forth in Section 9.03. 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 Lender 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 9.08. 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 9.09. 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 9.10. Marshaling; Recapture. The Lender shall be under no
obligation to marshal 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
Lender 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,
35
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 Lender as of the date
such initial payment, reduction or satisfaction occurred.
SECTION 9.11. 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 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 9.12. 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 9.13. 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.
SECTION 9.14. [Reserved].
SECTION 9.15. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE BORROWER AND THE 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 9.16. 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 Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such
36
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 Section 9.16 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 Lender.
SECTION 9.17. 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 9.18. Merger Agreement. Nothing in this Agreement shall reduce or
relieve any of the Loan Parties from any of their obligations under the Merger
Agreement.
37
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/ ▇▇▇▇▇ ▇▇▇▇
-----------------------------------
Title: President and Chief Executive
Officer
BERTELSMANN, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Title: President and Chief Executive
Officer
38