<PAGE>
As filed with the Securities and Exchange Commission on June 1, 1999
Registration No. 333-______
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
CDNOW, INC.
(Exact name of issuer as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 23-2979814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
</TABLE>
1005 Virginia Drive
Ft. Washington, Pennsylvania 19034
(Address of principal executive offices)
CDnow, Inc. 1999 Equity Compensation Plan
(Full title of the plans)
Jason Olim
President and Chief Executive Officer
CDnow, Inc.
1005 Virginia Drive
Ft. Washington, Pennsylvania 19034
(Name and address of agent for service)
(215) 619-6900
(Telephone number, including area code, of agent for service)
-----------------------
Copy to:
James W. McKenzie, Jr., Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
(215) 963-4852
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of securities Number of` Proposed maximum Proposed maximum
to be shares to be offering price aggregate Amount of
registered registered per share offering price (2) registration fee
=============================================================================================
<S> <C> <C> <C> <C>
common stock, 2,500,000 (1) $17.25 (2) $43,125,000 $11,989 (3)
no par value
=============================================================================================
</TABLE>
(1) This registration statement covers shares of common stock of CDnow, Inc.
which may be offered or sold pursuant to the CDnow, Inc. 1999 Equity
Compensation Plan. Pursuant to Rule 457(h)(2), no separate registration
fee is required with respect to the interests in the plans. This
registration statement also relates to an indeterminate number of shares of
common stock that may be issued upon stock splits, stock dividends or
similar transactions in accordance with Rule 416.
(2) Estimated pursuant to Rule 457(h) solely for the purpose of calculating the
registration fee, based on the average of the high and low sales prices of
shares of common stock May 27, 1999, as reported on the Nasdaq National
Market.
(3) Calculated pursuant to Section 6(b) as follows: proposed maximum aggregate
offering price multipied by .000278.
================================================================================
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents, as filed by CDnow, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission"), are incorporated by
reference in this Registration Statement and made a part hereof:
(a) The prospectus dated February 16, 1999, filed as part of the
Company's registration statement on Form S-4 (Registration No. 333-72463).
(b) The Company's Form 8-KA filed with the Commission on May 18, 1999.
The Company's Form 8-K filed with the Commission on March 19, 1999. The
Company's 10-Q for the quarter ending March 31, 1999, filed with the
Commission on May 17, 1999.
(c) The description of the Common Stock of the Company contained in a
registration statement filed on Form 8-A under the Securities and Exchange
Act (the "Exchange Act") filed on March 11, 1999, including any amendment
or report filed for the purpose of updating such description.
(d) CDnow, Inc.'s Form 10-K filed with the Commission on March 16, 1999.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference herein and to be part hereof from the
date of filing of such documents. Any statement contained in any document, all
or a portion of which is incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of this Registration Statement to the extent
that a statement contained or incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
II-1
<PAGE>
Item 6. Indemnification of Directors and Officers.
Sections 1741 one of the Pennsylvania Business Corporation Law permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations.
Article VIII of the Company's Amended and Restated Bylaws, requires the Company
to indemnify directors and officers of the Company or any other authorized
representative against expenses, judgments and any settlement amounts incurred
in a third party proceeding brought by reason of the fact that the person is an
authorized representative of the Company. The Bylaws also permit
indemnification of expenses incurred by an authorized representative in
connection with a proceeding brought in the name of the corporation. The Bylaws
further specify procedures for such indemnification. Section 1741 also empowers
the Company to purchase and maintain insurance that protects its officers,
directors, employees and agents against any liabilities incurred in connection
with their service in such positions.
Item 7. Exemption from Registration Claimed.
Not applicable.
Item 8. Exhibits.
The following is a list of exhibits filed as part of this Registration
Statement.
Exhibit
Number Exhibit
------ -------
5.1 Opinion of Morgan, Lewis & Bockius LLP.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Anderson LLP.
23.3 Consent of Morgan, Lewis & Bockius LLP (included within
Exhibit 5.1).
Item 9. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
II-2
<PAGE>
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by the Company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Ft. Washington, Pennsylvania on June 1, 1999.
CDNOW, INC.
By: /s/ Jason Olim
------------------------------
Jason Olim
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------- ----------------------------- ------------
<S> <C> <C>
/s/ Jason Olim
- --------------------- President and Chief June 1, 1999
Jason Olim Executive Officer (principal
executive officer)
/s/ Joel Sussman
- --------------------- Vice President and Chief June 1, 1999
Joel Sussman Financial Officer (principal
financial officer and
accounting officer)
/s/ Jonathan V. Diamond
- ----------------------- Chairman of the June 1, 1999
Jonathan V. Diamond Board of Directors
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ----------------- ------------
<S> <C> <C>
/s/ James Coane Director June 1, 1999
- -----------------------
James Coane
/s/ Robert David Grusin Director June 1, 1999
- -----------------------
Robert David Grusin
/s/ Patrick Kerins Director June 1, 1999
- -----------------------
Patrick Kerins
/s/ Matthew Olim Director June 1, 1999
- -----------------------
Matthew Olim
/s/ John Regan Director June 1, 1999
- -----------------------
John Regan
</TABLE>
S-2
<PAGE>
CDNOW, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Document
- -------------- --------
<C> <S>
4.1 CDnow, Inc. 1999 Equity Compensation Plan.
5.1 Opinion of Morgan, Lewis & Bockius LLP.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Morgan, Lewis & Bockius LLP. (included
with Exhibit 5.1).
</TABLE>
<PAGE>
Exhibit 4.1
CDNOW, INC.
1999 EQUITY COMPENSATION PLAN
-----------------------------
The purpose of the CDnow, Inc. 1999 Equity Compensation Plan (the "Plan")
is to provide (i) designated employees of CDnow, Inc. (the "Company") and its
subsidiaries, (ii) certain consultants and advisors who perform services for the
Company or its subsidiaries and (iii) non-employee members of the Board of
Directors of the Company (the "Board") with the opportunity to receive grants of
incentive stock options, nonqualified stock options and restricted stock. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
shareholders, and will align the economic interests of the participants with
those of the shareholders.
1. Administration
--------------
(a) Committee. The Plan shall be administered by a committee (the
---------
"Committee") appointed by the Board, which may consist of "outside directors" as
defined under section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and related Treasury regulations and "non-employee directors" as
defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). However, the Board may ratify or approve any grants as it
deems appropriate. If the Board administers the Plan, references in the Plan to
the "Committee" shall be deemed to refer to the Board.
(b) Committee Authority. The Committee shall have the sole authority to
-------------------
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
------------------------
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
<PAGE>
2. Grants
------
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options") (Incentive Stock
Options and Nonqualified Stock Options are collectively referred to as
"Options") and restricted stock as described in Section 6 ("Restricted Stock")
(hereinafter collectively referred to as "Grants"). All Grants shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the individual in a grant
instrument or an amendment to the grant instrument (the "Grant Instrument").
The Committee shall approve the form and provisions of each Grant Instrument.
Grants under a particular Section of the Plan need not be uniform as among the
grantees.
3. Shares Subject to the Plan
--------------------------
(a) Shares Authorized. Subject to adjustment as described below, the
-----------------
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 2,500,000 shares, subject to
adjustment as described below. The maximum aggregate number of shares of
Company Stock that may be subject to Grants made under the Plan to any
individual during any calendar year shall be 800,000 shares, subject to
adjustment as described below. The shares may be authorized but unissued shares
of Company Stock or reacquired shares of Company Stock, including shares
purchased by the Company on the open market for purposes of the Plan. If and to
the extent Options granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised or if any
shares of Restricted Stock are forfeited, the shares subject to such Grants
shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of shares of
-----------
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants may
be appropriately adjusted by the Committee to reflect any increase or decrease
in the number of, or change in the kind or value of, issued shares of Company
Stock to preclude, to the extent practicable, the enlargement or dilution of
rights and benefits under such Grants; provided, however, that any fractional
shares resulting from such
-2-
<PAGE>
adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
4. Eligibility for Participation
-----------------------------
(a) Eligible Persons. All employees of the Company and its subsidiaries
----------------
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Consultants and advisors who perform
services for the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees, Non-
---------------------
Employee Directors and Key Advisors to receive Grants and shall determine the
number of shares of Company Stock subject to a particular Grant in such manner
as the Committee determines. Employees, Key Advisors and Non-Employee Directors
who receive Grants under this Plan shall hereinafter be referred to as
"Grantees."
5. Granting of Options
-------------------
(a) Number of Shares. The Committee shall determine the number of shares
----------------
of Company Stock that will be subject to each Grant of Options to Employees,
Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
------------------------
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422 of the
Code or Nonqualified Stock Options that are not intended so to qualify or any
combination of Incentive Stock Options and Nonqualified Stock Options, all in
accordance with the terms and conditions set forth herein. Incentive Stock
Options may be granted only to Employees. Nonqualified Stock Options may be
granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal to,
greater than, or less than the Fair Market Value (as defined below) of a share
of Company Stock on the date the Option is granted; provided, however, that (x)
the Exercise Price of an Incentive Stock Option shall be equal to, or greater
than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary of the Company,
-3-
<PAGE>
unless the Exercise Price per share is not less than 110% of the Fair Market
Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal trading
market for the Company Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date or
(if there were no trades on that date) the latest preceding date upon which a
sale was reported, or (y) if the Company Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and "asked" prices
of Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not publicly traded or, if
publicly traded, is not subject to reported transactions or "bid" or "asked"
quotations as set forth above, the Fair Market Value per share shall be as
determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Option.
-----------
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any parent or subsidiary of the
Company, may not have a term that exceeds five years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
-------------------------
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding Options at
any time for any reason.
(e) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by, or providing service to, the Company as an Employee,
Key Advisor or member of the Board. In the event that a Grantee ceases to be
employed by, or provide service to, the Company for any reason other than a
Disability (as defined below), death, or termination for Cause (as defined
below), any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases to be
employed by, or provide service to, the Company (or within such other period of
time as may be specified by the Committee), but in any event no later than the
date of expiration of the Option term. Except as otherwise provided by the
Committee, any of the Grantee's Options that are not otherwise exercisable as of
the date on which the Grantee ceases to be employed by, or provide service to,
the Company shall terminate as of such date.
-4-
<PAGE>
(ii) In the event the Grantee ceases to be employed by, or provide
service to, the Company on account of a termination for Cause by the Company,
any Option held by the Grantee shall terminate as of the date the Grantee ceases
to be employed by, or provide service to, the Company. In addition,
notwithstanding any other provisions of this Section 5, if the Committee
determines that the Grantee has engaged in conduct that constitutes Cause at any
time while the Grantee is employed by, or providing service to, the Company or
after the Grantee's termination of employment or service, any Option held by the
Grantee shall immediately terminate and the Grantee shall automatically forfeit
all shares underlying any exercised portion of an Option for which the Company
has not yet delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares.
(iii) In the event the Grantee ceases to be employed by, or
provide service to, the Company because the Grantee is Disabled, any Option
which is otherwise exercisable by the Grantee shall terminate unless exercised
within one year after the date on which the Grantee ceases to be employed by, or
provide service to, the Company (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Except as otherwise provided by the Committee,
any of the Grantee's Options which are not otherwise exercisable as of the date
on which the Grantee ceases to be employed by, or provide service to, the
Company shall terminate as of such date.
(iv) If the Grantee dies while employed by, or providing service to,
the Company or within 90 days after the date on which the Grantee ceases to be
employed or provide service on account of a termination specified in Section
5(e)(i) above (or within such other period of time as may be specified by the
Committee), any Option that is otherwise exercisable by the Grantee shall
terminate unless exercised within one year after the date on which the Grantee
ceases to be employed by, or provide service to, the Company (or within such
other period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Except as otherwise
provided by the Committee, any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by, or
provide service to, the Company shall terminate as of such date.
(v) For purposes of this Section 5(e) and Section 6:
(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations.
(B) "Employed by, or provide service to, the Company" shall mean
employment or service as an Employee, Key Advisor or member of the Board
(so that, for purposes of exercising Options and satisfying conditions with
respect to Restricted Stock, a Grantee shall not be considered to have
terminated employment or service until the Grantee ceases to be an
Employee, Key Advisor and member of the Board), unless the Committee
determines otherwise.
-5-
<PAGE>
(C) "Disability" shall mean a Grantee's becoming disabled within the
meaning of section 22(e)(3) of the Code.
(D) "Cause" shall mean, except to the extent specified otherwise by
the Committee, a finding by the Committee that the Grantee (i) has breached
his or her employment or service contract with the Company, (ii) has been
engaged in disloyalty to the Company, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the
course of his or her employment or service, (iii) has disclosed trade
secrets or confidential information of the Company to persons not entitled
to receive such information or (iv) has engaged in such other behavior
detrimental to the interests of the Company as the Committee determines.
(f) Exercise of Options. A Grantee may exercise an Option that has become
-------------------
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or (z) by such other method as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Shares of Company Stock used to exercise an Option shall
have been held by the Grantee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option. The Grantee
shall pay the Exercise Price and the amount of any withholding tax due (pursuant
to Section 7) at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option shall
---------------------------------
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the Option, as to the excess, shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
section 424(f) of the Code).
6. Restricted Stock Grants
-----------------------
The Committee may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Grant of Restricted Stock, upon
such terms as the Committee deems appropriate. The following provisions are
applicable to Restricted Stock:
-6-
<PAGE>
(a) General Requirements. Shares of Company Stock issued or transferred
--------------------
pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, and may be subject to restrictions or no
restrictions, as determined by the Committee. The Committee may establish
conditions under which restrictions on shares of Restricted Stock shall lapse
over a period of time or according to such other criteria as the Committee deems
appropriate. The period of time during which the Restricted Stock will remain
subject to restrictions will be designated in the Grant Instrument as the
"Restriction Period."
(b) Number of Shares. The Committee shall determine the number of shares
----------------
of Company Stock to be issued or transferred pursuant to a Restricted Stock
Grant and the restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the Grantee ceases to be
------------------------------------
employed by, or provide service to, the Company (as defined in Section 5(e))
during a period designated in the Grant Instrument as the Restriction Period, or
if other specified conditions are not met, the Restricted Stock Grant shall
terminate as to all shares covered by the Grant as to which the restrictions
have not lapsed, and those shares of Company Stock must be immediately returned
to the Company. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
--------------------------------------------------------
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 8(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
--------------------------------------
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
---------------------
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
-7-
<PAGE>
7. Withholding of Taxes
--------------------
(a) Required Withholding. All Grants under the Plan shall be subject to
--------------------
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require that the Grantee or other person
receiving or exercising Grants pay to the Company the amount of any federal,
state or local taxes that the Company is required to withhold with respect to
such Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee
---------------------------
may elect to satisfy the Company's income tax withholding obligation with
respect to a Grant by having shares withheld up to an amount that does not
exceed the Grantee's minimum applicable withholding tax rate for federal
(including FICA), state and local tax liabilities. The election must be in a
form and manner prescribed by the Committee and shall be subject to the prior
approval of the Committee.
8. Transferability of Grants
-------------------------
(a) Nontransferability of Grants. Except as provided below, only the
----------------------------
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing,
--------------------------------------
the Committee may provide, in a Grant Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members, one or more trusts for the benefit
of family members, or one or more partnerships of which family members are the
only partners, according to such terms as the Committee may determine; provided
that the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
-8-
<PAGE>
9. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) Any person, entity or group, within the meaning of Section 13(d) or
14(d) of the Exchange Act (excluding for this purpose (A) the Company or its
subsidiaries and (B) any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities of the
Company) becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
30% or more of the voting power of the then outstanding securities of the
Company; provided that a Change of Control shall not be deemed to occur as a
result of a transaction in which the Company becomes a subsidiary of another
corporation and in which the shareholders of the Company, immediately prior to
the transaction, will beneficially own, immediately after the transaction,
shares entitling such shareholders to more than 50% of all votes to which all
shareholders of the parent corporation would be entitled in the election of
directors;
(b) The shareholders of the Company approve (or, if shareholder approval is
not required, the Board approves) an agreement providing for (i) the merger or
consolidation of the Company with another corporation where the shareholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors, (ii) the sale or other disposition of all or substantially all of the
assets of the Company, or (iii) a liquidation or dissolution of the Company; or
(c) Any person has commenced a tender offer or exchange offer for 30% or
more of the voting power of the then outstanding shares of the Company.
10. Consequences of a Change of Control
-----------------------------------
(a) Assumption of Grants. Upon a Change of Control where the Company is
--------------------
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
that are not exercised shall be assumed by, or replaced with comparable options
by the surviving corporation.
(b) Other Alternatives. Notwithstanding the foregoing, subject to
------------------
subsection (c) below, in the event of a Change of Control, the Committee may
take any of the following actions with respect to any or all of the outstanding
Grants: the Committee may (i) determine that outstanding Options shall
automatically accelerate and become fully exercisable and that the restrictions
and conditions on outstanding Restricted Stock shall immediately lapse, (ii)
require that Grantees surrender their outstanding Options in exchange for a
payment by the Company, in cash or Company Stock as determined by the Committee,
in an amount equal to the amount by which the then Fair Market Value of the
shares of Company Stock subject to the Grantee's
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<PAGE>
unexercised Options exceeds the Exercise Price of the Options or (iii) after
giving Grantees an opportunity to exercise their outstanding Options, terminate
any or all unexercised Options at such time as the Committee deems appropriate.
Such surrender or termination shall take place as of the date of the Change of
Control or such other date as the Committee may specify. The Committee shall
have no obligation to take any of the foregoing actions, and, in the absence of
any such actions, outstanding Options and Restricted Stock shall continue in
effect according to their terms (subject to any assumption pursuant to
Subsection (a)).
(c) Limitations. Notwithstanding anything in the Plan to the contrary, in
-----------
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (b) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
11. Requirements for Issuance or Transfer of Shares
-----------------------------------------------
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in writing
to comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof, and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued or
transferred under the Plan will be subject to such stop-transfer orders and
other restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.
12. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required in order for Incentive Stock Options
granted or to be granted under the Plan to meet the requirements of section 422
of the Code or such approval is required in order to exempt compensation under
the Plan from the deduction limit under section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the shareholders.
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<PAGE>
(c) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 18(b). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Grant. Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 18(b) or may be amended by agreement of the
Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
13. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
14. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.
15. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
16. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
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<PAGE>
17. Effective Date of the Plan.
--------------------------
(a) The Plan shall be effective as of the effective date of the mergers
contemplated by the Agreement and Plan of Merger dated as of October 22, 1998 by
and among N2K Inc., CDnow, Inc. and the Company, subject to approval by the
shareholders.
18. Miscellaneous
-------------
(a) Grants in Connection with Corporate Transactions and Otherwise.
--------------------------------------------------------------
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or Restricted Stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from
the terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the
substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and the
-------------------
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In addition,
it is the intent of the Company that the Plan and applicable Grants under the
Plan comply with the applicable provisions of section 162(m) of the Code and
section 422 of the Code. To the extent that any legal requirement of section 16
of the Exchange Act or section 162(m) or 422 of the Code as set forth in the
Plan ceases to be required under section 16 of the Exchange Act or section
162(m) or 422 of the Code, that Plan provision shall cease to apply. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation.
The Committee may also adopt rules regarding the withholding of taxes on
payments to Grantees. The Committee may, in its sole discretion, agree to limit
its authority under this Section.
(c) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Instruments issued under the Plan shall be governed and
construed by and determined in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to the conflict of laws provisions thereof.
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<PAGE>
EXHIBIT 5.1
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, PA 19103
June 1, 1999
CDnow
1005 Virginia Drive
Ft. Washington, Pennsylvania 19034
Re: CDnow, Inc.- Registration Statement on Form S-8
Ladies and Gentlemen:
We have acted as counsel to CDnow, Inc., a Pennsylvania corporation (the
"Company"), in connection with the preparation of a Registration Statement on
Form S-8 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating to
the registration of up to 2,500,000 shares of Common Stock, no par value (the
"Shares"), of the Company to be issued in connection with the Company's 1999
Equity Compensation Plan (the "Plan"). In rendering the opinion set forth
below, we have reviewed (a) the Registration Statement; (b) the Company's
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws;
(c) certain records of the Company's corporate proceedings as reflected in its
minute books; (d) the Plan; and (e) such records, documents, statutes and
decisions as we have deemed relevant. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the original of all documents submitted to
us as copies thereof.
Based upon the foregoing, we are of the opinion that the Shares will, when
issued in the manner and on the terms described in the Plan, be duly authorized,
validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration
Statement. In giving such opinion, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
Act or the rules or regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 17,
1999 included in CDnow, Inc.'s Form 10-K filed on March 16, 1999 and our report
dated January 14, 1998 included in the Company's Form S-4 filed on February 16,
1999.
Philadelphia, Pennsylvania
May 18, 1999
<PAGE>
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated March 17, 1999,
included in CDnow, Inc.'s Form 8-KA filed on May 18, 1999 and our report dated
February 12, 1998, included in the Company's Form S-4 filed on February 16,
1999.
Philadelphia, Pennsylvania
May 18, 1999
