<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
March 13, 2000
CDNOW, INC.
(Exact Name of Registrant Specified in Charter)
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Pennsylvania 0-25543 23-2979814
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(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
1005 Virginia Drive, Fort Washington, PA 19034
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(Address of Principal Executive Offices) (Zip Code)
(610) 619-9900
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(Registrant's telephone number)
Not applicable
--------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
Item 5. Other Events
On March 13, 2000, CDnow, Inc., Time Warner Inc. and Sony Corporation
announced the termination of the pending merger of CDnow with Time Warner's and
Sony's Columbia House. The parties entered into a Termination Agreement, an
Amendment to the Convertible Loan Agreement and Consent in respect of Guarantee.
We attached these agreements as exhibits to this Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
2.1 Termination Agreement, dated as of March 13, 2000, among Time Warner
Inc., Sony Corporation of America, CDnow, Inc., Delaware Holdco
Corporation, Pennsylvania Subsidiary, Inc., Delaware Sub I L.L.C. and
Delaware Sub II L.L.C.
10.1 Amendment dated as of March 13, 2000, to the Convertible Loan Agreement
dated as of July 12, 1999, among CDnow, Inc., Sony Music Entertainment
Inc. and Time Warner Inc.
10.2 Consent dated as of March 13, 2000, in respect of Guarantee and
Collateral Agreement dated as of January 21, 2000, made by CDnow, Inc.
and the other parties named therein, in favor of Time Warner Inc. and
Music Entertainment Inc.
99.1 Joint Press Release, dated March 13, 2000 issued by CDnow, Inc., Time
Warner Inc. and Sony Corporation
99.2 Press Release, dated March 13, 2000 issued by CDnow, Inc.
</TABLE>
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CDNOW, INC.
By: /s/ Jason Olim
-----------------------------
Jason Olim
President and Chief Executive
Officer
Dated: March 13, 2000
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
2.1 Termination Agreement, dated as of March 13, 2000, among Time Warner
Inc., Sony Corporation of America, CDnow, Inc., Delaware Holdco
Corporation, Pennsylvania Subsidiary, Inc., Delaware Sub I L.L.C. and
Delaware Sub II L.L.C.
10.1 Amendment dated as of March 13, 2000, to the Convertible Loan Agreement
dated as of July 12, 1999, among CDnow, Inc., Sony Music Entertainment
Inc. and Time Warner Inc.
10.2 Consent dated as of March 13, 2000, in respect of Guarantee and
Collateral Agreement dated as of January 21, 2000, made by CDnow, Inc.
and the other parties named therein, in favor of Time Warner Inc. and
Music Entertainment Inc.
99.1 Joint Press Release, dated March 13, 2000 issued by CDnow, Inc., Time
Warner Inc. and Sony Corporation
99.2 Press Release, dated March 13, 2000 issued by CDnow, Inc.
</TABLE>
<PAGE> 5
Exhibit: 2.1
EXECUTION COPY
TERMINATION AGREEMENT dated as of March 13, 2000, among TIME WARNER INC., a
Delaware corporation ("Time Warner"), SONY CORPORATION OF AMERICA, a New York
corporation ("Sony"), CDNOW, INC., a Pennsylvania corporation ("CDnow"),
DELAWARE HOLDCO CORPORATION, a Delaware corporation and a direct wholly owned
subsidiary of CDnow ("Holdco"), PENNSYLVANIA SUBSIDIARY, INC., a Pennsylvania
corporation and a direct wholly owned subsidiary of Holdco ("Pennsylvania Sub"),
DELAWARE SUB I L.L.C., a Delaware limited liability company and a direct wholly
owned subsidiary of Holdco ("Delaware Sub I"), DELAWARE SUB II L.L.C., a
Delaware limited liability company and a direct wholly owned subsidiary of
Holdco ("Delaware Sub II"), and the individuals party to this Termination
Agreement.
WHEREAS Time Warner, Sony, CDnow, Holdco, Pennsylvania Sub, Delaware Sub I
and Delaware Sub II have entered into an Agreement of Merger and Contribution
dated as of July 12, 1999 (the "Merger and Contribution Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Warner Music Canada Ltd., a corporation organized under
the laws of Ontario ("Time Warner Canada"), Sony Music Entertainment (Canada)
Inc., a corporation organized under the laws of Canada ("Sony Canada"), The
Columbia House Company (Canada), a general partnership organized under the laws
of Ontario ("Columbia House Canada"), the general partners of which are Time
Warner Canada and Sony Canada, 3030809 Nova Scotia ULC, an unlimited liability
company organized under the laws of Nova Scotia and a direct wholly owned
subsidiary of Columbia House Canada, and Holdco entered into a Master Canadian
Transaction Agreement dated as of July 12, 1999 (the "Master Canadian
Transaction Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony and the certain shareholders of CDnow
entered into the CDnow, Inc. Shareholders Agreement dated as of July 12, 1999
(the "CDnow Shareholder Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony and CDnow entered into a Stock Option
Agreement dated as of July 12, 1999 (the "Stock Option Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony, CDnow, Holdco, Pennsylvania
Subsidiary, Delaware Sub I and Delaware Sub II entered into a Letter Agreement
dated July 12, 1999 (together with the Merger and Contribution Agreement, the
Master Canadian Transaction Agreement, the CDnow Shareholder Agreement and the
Stock Option Agreement, the "Transaction Agreements");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony Music Entertainment Inc., a Delaware
corporation ("SMEI"), and CDnow entered into a Convertible Loan Agreement dated
as of July 12, 1999 (the "Convertible Loan Agreement);
WHEREAS, in connection with the Convertible Loan Agreement, CDnow and
certain related companies entered into a Guarantee and Collateral Agreement
dated as of January 21, 2000, in favor of Time Warner, as Security Agent for
Time Warner and SMEI as lenders under the Convertible Loan Agreement (the
"Security Agreement"); and
<PAGE> 6
WHEREAS, the parties hereto mutually desire to terminate the Transaction
Agreements on the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth in this Termination Agreement, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
Termination
SECTION 1.01. Termination. Time Warner, Sony and CDnow mutually consent to
terminate the Merger and Contribution Agreement pursuant to Section 10.01(a) of
the Merger and Contribution Agreement, which termination constitutes automatic
termination of (i) the Master Canadian Transaction Agreement pursuant to Section
4.4 thereof and (ii) the CDnow Shareholder Agreement pursuant to Section 4
thereof. Each of Time Warner, Sony and CDnow acknowledges and agrees that,
pursuant to Section 2 of the Stock Option Agreement, the termination of the
Merger and Contribution Agreement as provided in the preceding sentence shall
cause the Option (as defined in Section 1 of the Stock Option Agreement) granted
under the Stock Option Agreement to terminate and be of no further force and
effect.
SECTION 1.02. Effect of Termination. Notwithstanding anything to the
contrary contained in the Transaction Agreements, the Convertible Loan Agreement
or the Security Agreement, except with respect to (i) Section 3.14, Section
4.14, the last sentence of Section 8.02(a), Section 8.07(a), Section 10.02 and
Article XI of the Merger and Contribution Agreement and (ii) Article 4 of the
Master Canadian Transaction Agreement, which provisions shall survive the
termination of the Transaction Agreements (for the avoidance of doubt, Section
8.07(b) and Section 8.07(c) of the Merger and Contribution Agreement shall not
survive the termination of the Transaction Agreements), none of the parties to
this Agreement nor any of their respective parents, subsidiaries or affiliates,
or any of their respective directors, officers, trustees, representatives,
employees, attorneys, advisors, investment bankers, agents, stockholders,
warrant holders, partners, associates, predecessors, heirs, executors,
administrators, legal representatives, successors or assigns shall have any
liability or obligation under the Transaction Agreements.
SECTION 1.03. Public Announcements. The press release announcing the
termination of the Transaction Agreements shall be in the form of Exhibit A to
this Termination Agreement.
ARTICLE II
Releases and Absence of Indemnification
SECTION 2.01. Releases. (a) Each of CDnow, Holdco, Pennsylvania Sub,
Delaware Sub I, Delaware Sub II, and each of the individuals who execute this
Termination Agreement, for such party and such party's successors and assigns,
hereby releases and forever discharges each of Time Warner and Sony, and any and
all of their respective present, former and future parents, subsidiaries and
affiliates, and any and all of their respective present, former and future
directors, officers, trustees, representatives, employees, attorneys, advisors,
investment bankers, agents, stockholders, warrant holders, partners, associates,
<PAGE> 7
predecessors, heirs, executors, administrators, legal representatives,
successors and assigns, in any capacity whatsoever (the "Time Warner and Sony
Released Persons"), from all claims, actions, complaints, causes of action,
judgments, liabilities, obligations, damages, debts, demands or suits (each
individually, a "Claim" and collectively, "Claims"), at law or in equity, known
or unknown, which CDnow or any other CDnow Released Person (as hereinafter
defined) claiming through, under or on behalf of CDnow or any other CDnow
Released Person or any of their successors or assigns ever had, now has or
hereafter can, shall or may have for, upon, or by reason of any matter, cause or
thing whatsoever from the beginning of the world to the date of this Termination
Agreement, which Claims relate to or result from or arise out of any Transaction
Agreement or any of the transactions contemplated by any of the Transaction
Agreements. For the avoidance of doubt, nothing in this Termination Agreement
shall constitute a release of any Claims under the Convertible Loan Agreement or
the Security Agreement or the notes and documents issued thereunder.
(b) Each of Time Warner and Sony, for such party and such party's
successors and assigns, hereby releases and forever discharges each of CDnow,
Holdco, Pennsylvania Sub, Delaware Sub I, Delaware Sub II, and each of the
individuals who execute this Termination Agreement, and any and all of their
respective present, former and future parents, subsidiaries and affiliates, and
any and all of their respective present, former and future directors, officers,
trustees, representatives, employees, attorneys, advisors, investment bankers,
agents, stockholders, warrant holders, partners, associates, predecessors,
heirs, executors, administrators, legal representatives, successors and assigns,
in any capacity whatsoever (the "CDnow Released Persons"), from all Claims, at
law or in equity, known or unknown, which Time Warner, Sony or any other Time
Warner and Sony Released Person claiming through, under or on behalf of Time
Warner or Sony or any other Time Warner and Sony Released Person or any of their
successors or assigns ever had, now has or hereafter can, shall or may have for,
upon, or by reason of any matter, cause or thing whatsoever from the beginning
of the world to the date of this Termination Agreement, which Claims relate to
or result from or arise out of any Transaction Agreement or any of the
transactions contemplated by any of the Transaction Agreements. For the
avoidance of doubt, nothing in this Termination Agreement shall constitute a
release of any Claims under the Convertible Loan Agreement or the Security
Agreement or the notes and documents issued thereunder.
(c) Each of the parties to this Termination Agreement hereby acknowledges
and agrees that all claims under Section 1542 of the California Civil Code and
any other provision of law now or hereafter enacted, adjudicated or sought to be
adjudicated relating to the release or waiver of unknown or unspecified claims
are hereby specifically and expressly released and waived. Each of the parties
understands that Section 1542 of the California Civil Code provides that "[a]
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor". For
purposes of this Termination Agreement, each of the parties acknowledges and
agrees that it may be considered to be both a "creditor" and a "debtor" for all
purposes and with respect to all claims it may now know or suspect to exist
within the meaning of Section 1542 of the California Civil Code and any other
provision of law nor or hereafter enacted, adjudicated or sought to be
adjudicated relating to the release or waiver of unknown or unspecified claims.
SECTION 2.02. No Indemnification. Nothing in this Article II shall in any
way constitute an agreement by any party to this Termination Agreement to
indemnify any other party hereto against any third party Claim or, except as
specifically set forth herein with respect to the Time Warner and Sony Released
Persons and the CDnow Released Persons, waive, release, limit or restrict any
Claim which any party may have against any person or entity not a party to this
Termination Agreement.
<PAGE> 8
ARTICLE III
Financing Arrangements
SECTION 3.01. Amendment of Convertible Loan Agreement and Consent in
respect of Security Agreement. Time Warner and CDnow shall, and Sony shall cause
SMEI to, simultaneously with the execution and delivery of this Termination
Agreement, enter into an amendment to the Convertible Loan Agreement in the form
of Exhibit B to this Termination Agreement. Time Warner and CDnow shall, and
Sony shall cause SMEI to, simultaneously with the execution and delivery of this
Termination Agreement, enter into a consent in respect of the Security Agreement
in the form of Exhibit C to this Termination Agreement.
SECTION 3.02. Purchase of Common Stock. (a) Each of Time Warner and Sony
agrees to, or to cause one or more of its subsidiaries to, purchase from CDnow,
and CDnow agrees to sell to each of Time Warner and Sony, or one or more
subsidiaries of Time Warner or Sony, as the case may be, that number of shares
of common stock, without par value, of CDnow (the "CDnow Common Stock"),
determined by dividing $10,500,000 by the Market Value (as defined below) of
shares of CDnow Common Stock, rounded up to the nearest whole share (all such
shares of CDnow Common Stock purchased by Time Warner and Sony, and any of their
respective subsidiaries, the "Purchased Shares") for an aggregate purchase price
of $21,000,000 (the "Aggregate Purchase Price"). For purposes of this Section
3.02, the term "Market Value" shall mean $8.73 per share of CDnow Common Stock,
which is the volume weighted average of the closing price of CDnow Common Stock
as reported on the Nasdaq National Market on each of the ten consecutive trading
days ending with the trading day immediately preceding the date of this
Termination Agreement. CDnow represents and warrants that, upon issuance of the
Purchased Shares and receipt of payment therefor, such shares will be validly
issued, fully paid and nonassessable.
(b) On or prior to March 16, 2000, each of Time Warner and Sony shall pay
to CDnow, in U.S. dollars by wire transfer in immediately available funds to an
account specified by the Chief Financial Officer of CDnow in a written notice
delivered to each of Time Warner and Sony on or prior to March 14, 2000, an
amount equal to one-half of the Aggregate Purchase Price. Not later than one
business day following receipt by CDnow of the Aggregate Purchase Price, CDnow
shall deliver to each of Time Warner and Sony certificates representing the
Purchased Shares.
(c) Each of Time Warner and Sony, and any of their respective subsidiaries
who hold Purchased Shares, shall have registration rights with respect to the
Purchased Shares that are identical to the registration rights provided in
Section 9 of the Convertible Loan Agreement in respect of any shares of CDnow
Common Stock issued upon conversion of any loans, or any interest payable with
respect thereto, made by Time Warner or SMEI to CDnow pursuant to the
Convertible Loan Agreement.
(d) Time Warner and Sony, and any of their respective subsidiaries who hold
shares of CDnow Common Stock, acting as one group, shall be entitled, but shall
not be required, at any time and from time to time, to designate one individual
(the "Designee") to serve as a member of the Board of Directors of CDnow (the
"Board of Directors"). In the event a Designee shall have been designated, CDnow
shall use all reasonable efforts to cause the Board of Directors to effect the
nomination of the Designee (i) in the case of any Designee designated on or
<PAGE> 9
prior to December 31, 2001, as a Class I Director and (ii) in the case of any
Designee designated after December 31, 2001, for so long as the Board of
Directors shall have more than one class, as a member of that class of directors
whose term expires at the annual meeting of shareholders of CDnow occurring in
the year that is three years after the year in which such Designee is
designated, and, in the event the Board of Directors shall have only one class,
as a member of the Board of Directors. If the Designee is a director or holds a
management level position in any entity whose primary business (i) is engaged in
selling pre-recorded music or videos through the Internet or (ii) otherwise
competes with the business of CDnow, then Time Warner and Sony shall cause this
Designee to immediately resign from the Board of Directors. The right of Time
Warner and Sony, and any of their respective subsidiaries who hold shares of
CDnow Common Stock, to designate the Designee shall terminate whenever the total
number of shares of CDnow Common Stock held by Time Warner, Sony or any of their
respective subsidiaries shall be less than 50% of the number of shares
constituting the Purchased Shares, in each case appropriately adjusted in
accordance with the provisions contained in Exhibit D to the Convertible Loan
Agreement.
ARTICLE IV
Strategic Relationships
Each of Time Warner, Sony and CDnow will work together to explore strategic
relationships into which they may enter for the benefit of the businesses of
CDnow and The Columbia House Company. Nothing contained in this Termination
Agreement, any of the Transaction Agreements, the Convertible Loan Agreement or
the Security Agreement shall in any way require or otherwise obligate, or be
deemed to require or otherwise obligate, any of the parties to this Termination
Agreement to enter into any relationship with, or to make any commitment to, any
of the other parties to this Termination Agreement, and any and all decisions as
to whether or not to enter into any such relationship or to make any such
commitment shall be made by each party in its sole discretion.
<PAGE> 10
ARTICLE V
General Provisions
SECTION 5.01. Notices. All notices, requests, claims, demands and other
communications under this Termination Agreement shall be in writing and shall be
deemed given upon receipt by the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Time Warner, to
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: Faiza J. Saeed, Esq.
(b) if to Sony, to
Sony Corporation of America
550 Madison Avenue
New York, New York 10022
Attention: Executive Vice President and Chief Financial Officer
with a copy to:
Sony Corporation of America
550 Madison Avenue
New York, New York 10019
Attention: Vice President, Legal Department
and:
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Attention: H. Paul Burak, Esq.
(c) if to CDnow, Holdco, Pennsylvania Sub, Delaware Sub I, Delaware Sub II
or any individual who is a party to this Termination Agreement, to
CDnow, Inc.
1005 Virginia Drive
Ft. Washington, Pennsylvania 19034
Attention: General Counsel
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Square
Philadelphia, Pennsylvania 19103
Attention: N. Jeffrey Klauder, Esq.
<PAGE> 11
SECTION 5.02. Interpretation. When a reference is made in this Termination
Agreement to a Section, such reference shall be to a Section of this Termination
Agreement unless otherwise indicated. The headings contained in this Termination
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Termination Agreement. Whenever the words
"include", "includes" or "including" are used in this Termination Agreement,
they shall be deemed to be followed by the words "without limitation".
SECTION 5.03 Severability. If any term or other provision of this
Termination Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of this
Termination Agreement shall nevertheless remain in full force and effect so long
as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Termination Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 5.04 Counterparts. This Termination Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement. This Termination Agreement shall become effective as of the date
first written above when each of Time Warner, Sony, CDnow, Holdco, Pennsylvania
Sub, Delaware Sub I and Delaware Sub II shall have received counterparts of this
Termination Agreement that, when taken together, bear the signatures of all such
parties to this Termination Agreement, notwithstanding the absence of
counterparts of this Termination Agreement bearing the signature of any
individual identified on the signature pages to this Termination Agreement. Once
effective, this Termination Agreement shall be binding upon, and enforceable
against, each of Time Warner, Sony, CDnow, Holdco, Pennsylvania Sub, Delaware
Sub I, Delaware Sub II and each individual who executes this Termination
Agreement, notwithstanding the failure of any individual identified on the
signature pages to this Termination Agreement to execute this Termination
Agreement. For the avoidance of doubt, each of Time Warner, Sony, CDnow, Holdco,
Pennsylvania Sub, Delaware Sub I, Delaware Sub II and each individual who
executes this Termination Agreement, and no other entity or person, shall be a
party to this Termination Agreement.
SECTION 5.05. Entire Agreement; No Third-Party Beneficiaries. This
Termination Agreement and the Convertible Loan Agreement, as amended as provided
in this Termination Agreement, and Security Agreement, as modified as provided
in this Termination Agreement, and any notes and documents issued thereunder,
(a) constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Termination Agreement and (b) except as provided in
Section 2.01(a) and Section 2.01(b), are not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 5.06. Governing Law. This Termination Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 5.07. Assignment. This Termination Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
<PAGE> 12
SECTION 5.08 Enforcement. The parties to this Termination Agreement agree
that irreparable damage would occur and that the parties would not have any
adequate remedy at law in the event that any of the provisions of this
Termination Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Termination
Agreement and to enforce specifically the terms and provisions of this
Termination Agreement in any New York state court or, any Federal court located
in the State of New York, this being in addition to any other remedy to which
they are entitled at law or in equity. Each of the parties hereto (i) consents
to submit itself to the personal jurisdiction of any New York state court or any
Federal court located in the State of New York in the event any dispute arises
out of this Termination Agreement, (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court, (iii) agrees that it will not bring any action relating to this
Termination Agreement in any court other than any New York state court or any
Federal court sitting in the State of New York and (iv) waives any right to
trial by jury with respect to any action related to or arising out of this
Termination Agreement.
SECTION 5.09. Acknowledgments. Each of the parties to this Termination
Agreement acknowledges and represents that this Termination Agreement, including
Article II hereof, is entered into freely and voluntarily by it, it is
represented by counsel and it has had an opportunity to review this Termination
Agreement, including Article II hereof, with counsel prior to affixing its
signature to this Termination Agreement.
SECTION 5.10. Fees and Expenses. All fees and expenses incurred in
connection with this Termination Agreement and the termination of the
Transaction Agreements shall be borne by the party incurring such fees and
expenses.
<PAGE> 13
IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Termination Agreement, all as of the date first written above.
TIME WARNER INC.,
by /s/ Spencer B. Hayes
---------------------------------
Name: Spencer B. Hayes
Title: Vice President and
Deputy General Counsel
SONY CORPORATION OF AMERICA,
by /s/ Marinus N. Henny
---------------------------------
Name: Marinus N. Henny
Title: Executive Vice President
CDNOW, INC.,
by /s/ Jason Olim
---------------------------------
Name: Jason Olim
Title: President & CEO
DELAWARE HOLDCO CORPORATION,
by /s/ David A. Capozzi
---------------------------------
Name: David A. Capozzi
Title: Vice President & Secretary
PENNSYLVANIA SUBSIDIARY, INC.,
by /s/ David A. Capozzi
---------------------------------
Name: David A. Capozzi
Title: Vice President & Secretary
DELAWARE SUB I L.L.C.,
by /s/ Jason Olim
---------------------------------
Name: Jason Olim
Title: President
DELAWARE SUB II L.L.C.,
by /s/ Jason Olim
---------------------------------
Name: Jason Olim
Title: President
/s/ Jason Olim
---------------------------------
JASON OLIM
/s/ Matthew Olim
---------------------------------
MATTHEW OLIM
<PAGE> 14
Press Release
(See Exhibit: 99.1)
Exhibit: 10.1
AMENDMENT dated as of March 13, 2000 (this "Amendment"), to the Convertible
Loan Agreement dated as of July 12, 1999 (the "Convertible Loan Agreement"),
among CDNOW, INC., a Pennsylvania corporation (the "Borrower"), SONY MUSIC
ENTERTAINMENT INC. ("Sony Music") and TIME WARNER INC. ("Time Warner", and
together with Sony Music, the "Lenders").
WHEREAS the Borrower and the Lenders have entered into the Convertible Loan
Agreement;
WHEREAS the Borrower and the Lenders desire to amend the Convertible Loan
Agreement to make certain modifications and clarifications to the provisions
contained therein;
NOW, THEREFORE, in consideration of the premises, mutual promises,
representations, warranties and covenants contained in this Amendment, the
parties hereto hereby agree:
SECTION 1. Amendment of Section 1. (a) The definition of the term
"Conversion Price" in Section 1 of the Convertible Loan Agreement is hereby
deleted in its entirety and such definition is hereby replaced with the
following definition:
"'Conversion Price' shall mean $10.00.".
(b) The definition of the term "Final Maturity Date" in Section 1 of the
Convertible Loan Agreement is hereby deleted in its entirety and such definition
is hereby replaced with the following definition:
"'Final Maturity Date' shall mean the earlier of (a) such time as the Loan
Commitment is reduced to zero pursuant to the terms hereof and (b) January 15,
2003.".
(c) The definition of the term "Indebtedness" in Section 1 of the
Convertible Loan Agreement is hereby amended to delete clause (iv) thereof in
its entirety and such clause is hereby replaced with the following clause:
"(iv) any obligation of such Person issued or assumed as the deferred
purchase price of Property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business, which in either
case are not more than 120 days overdue, or alternative terms of which have been
agreed to by the parties (so long as such terms do not provide for any amounts
to be more than 366 days overdue) or which are being contested in good faith)".
<PAGE> 15
(d) The definition of the term "Interest Rate" in Section 1 of the
Convertible Loan Agreement is hereby deleted in its entirety and such definition
is hereby replaced with the following definition:
"'Interest Rate' shall mean a rate per annum equal to the Eurodollar Rate
plus 3%.".
(e) The definition of the term "Net Debt Proceeds" in Section 1 of the
Convertible Loan Agreement is hereby deleted in its entirety.
(f) The definition of the term "Permitted Interim Financing" in Section 1
of the Convertible Loan Agreement is hereby deleted in its entirety and such
definition is hereby replaced with the following definition:
"'Permitted Interim Financing' shall mean Indebtedness for borrowed money
incurred by the Borrower provided that (i) the maturity date thereof extends to
at least 366 days beyond the Final Maturity Date, (ii) such Indebtedness (A) is
unsecured or is secured by a Lien that is junior to any Lien securing any
amounts outstanding under this Agreement and (B) is not guaranteed by any
Subsidiary of the Borrower, (iii) such Indebtedness contains representations,
warranties, covenants and agreements which are not more restrictive,
individually or taken as a whole, than those in effect hereunder and (iv) such
Indebtedness is subject to subordination and intercreditor arrangements
satisfactory to the Lenders (and appropriate to reflect the senior, secured
nature of the Obligations).".
(g) The definition of the term "Third Party Tender Offer" in Section 1 of
the Convertible Loan Agreement is hereby amended to add to the end thereof the
phrase "(and replacing every reference to "Company" therein with "Borrower", the
reference to "Purchaser" therein with "Lender" and the reference to "Common
Stock" therein with "common stock, without par value, of the Borrower")".
SECTION 2. Amendment of Section 2.6. Section 2.6 of the Convertible Loan
Agreement is hereby amended to delete clause (i) thereof in its entirety and
such clause is hereby replaced with the following clause:
(i) the Borrower shall give the Lenders written notice (or telephonic
notice promptly confirmed in writing), which notice shall be irrevocable, of its
intent to prepay the Loans, at least five Business Days prior to a prepayment,
which notice shall specify the date (which shall be a Business Day), the Loans
and the amount of such prepayment and".
SECTION 3. Amendment of Section 2.7. Section 2.7(a) of the Convertible Loan
Agreement is hereby deleted in its entirety and such section is hereby replaced
with the following two sentences:
"If the Borrower or any of its Subsidiaries shall receive any proceeds from
any sale, lease, transfer or disposition to any Person of any of its Property or
Equity Securities then the Borrower shall immediately upon receipt thereof apply
in accordance with Section 2.9 an amount in cash equal to 100% of the Net Sale
Proceeds from such sale, lease, transfer or disposition to the Lenders as a
mandatory repayment of outstanding Loans and reduction in the remaining Loan
Commitment in accordance with the requirements of Section 2.8; provided,
however, that this Section 2.7(a) shall not apply to (i) sales of inventory in
the ordinary course of business, (ii) permitted Sale and Leaseback Transactions,
(iii) sales of shares of CDnow Common Stock to Time Warner and Sony Corporation
of America ("Sony"), or any of their respective Subsidiaries, pursuant to the
<PAGE> 16
Termination Agreement dated as of the date hereof among Time Warner, Sony, the
Borrower, Delaware Holdco Corporation, Pennsylvania Subsidiary, Inc., Delaware
Sub I L.L.C., Delaware Sub II L.L.C., (iv) sales of shares of Liquid Audio, Inc.
held by the Borrower or any of its subsidiaries in accordance with the terms of
the Consent dated as of the date hereof among the Borrower, Time Warner and SMEI
or (v) the issuance of Equity Securities for fair market value representing up
to 19.9% of the then outstanding shares of CDnow Common Stock in connection with
any Permitted Interim Financing. For the avoidance of doubt, if the Borrower or
any of its Subsidiaries shall receive any proceeds from any Permitted Interim
Financing, such proceeds shall not be applied as a mandatory repayment of
outstanding Loans or a reduction in the remaining Loan Commitment."
Section 2.7(b) of the Convertible Loan Agreement is hereby deleted in its
entirety and Section 2.7(c) of the Convertible Loan Agreement is hereby denoted
Section 2.7(b).
SECTION 4. Amendment of Section 2.8. Section 2.8 of the Convertible Loan
Agreement is hereby amended to delete the second sentence of such section in its
entirety and such sentence is hereby replaced with the following sentence:
"The excess of any Net Sale Proceeds over amounts required to repay
principal and Interest shall reduce the remaining unused Loan Commitment.".
SECTION 5. Amendment of Section 5.1. Section 5.1(h) of the Convertible Loan
Agreement is hereby deleted in its entirety and such section is hereby replaced
with the following:
" - five Business Days prior to the Borrower or any Subsidiary entering
into any transaction or taking any action which would result in a mandatory
prepayment under Section 2.7, a written notice specifying the nature thereof.".
SECTION 6. Amendment of Section 6.3. Section 6.3 of the Convertible Loan
Agreement is hereby deleted in its entirety and such section is hereby replaced
with the following sentence:
"The Borrower will not, and will not permit its Subsidiaries to, directly
or indirectly, incur any Indebtedness other than Permitted Indebtedness, and the
Borrower will not issue any Disqualified Stock or permit any of its Subsidiaries
to issue any Disqualified Stock.".
SECTION 7. Amendment of Section 8.1 Section 8.1 of the Convertible Loan
Agreement is hereby deleted in its entirety and such section is hereby replaced
with the following sentence:
"Subject to and upon compliance with the provisions of this Section 8, each
Lender, at its sole option, may, at any time and from time to time, irrespective
of whether the Borrower shall have delivered any notice pursuant to Section 2.6
or Section 5.1, convert (a) each Note or any portion of the principal amount
thereof which equals $500,000 or any integral multiple thereof, and (b) the
amount of accrued and unpaid Interest on the Loan represented by such Note
(including without limitation any overdue Interest accruing at the Default
Rate), into a number of fully paid and nonassessable shares (calculated as to
each conversion to the nearest 1/100 of a share) of CDnow Common Stock equal to
the quotient obtained by dividing (i) the aggregate of such principal amount and
accrued and unpaid interest to be so converted by (ii) the Conversion Price,
determined as hereinafter provided, in effect at the time of conversion.
<PAGE> 17
SECTION 8. Representations and Warranties. (a) The Borrower represents and
warrants to each of the Lenders that (i) the Borrower has all requisite power
and authority to execute and deliver this Amendment, (ii) the execution and
delivery by the Borrower of this Amendment have been duly authorized by all
necessary action on the part of the Borrower, (iii) the Borrower has duly
executed and delivered this Amendment, and, assuming the due authorization,
execution and delivery by each person other than the Borrower party hereto, this
Amendment constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms and (iv) the representations and
warranties set forth in the Section 4 of the Convertible Loan Agreement are true
and correct in all material respects on and as of the date of this Amendment
with the same effect as though made on and as of the date hereof, except to the
extent such representations and warranties expressly relate to an earlier date.
(b) Time Warner represents and warrants to the Borrower and Sony Music that
(i) Time Warner has all requisite power and authority to execute and deliver
this Amendment, (ii) the execution and delivery by Time Warner of this Amendment
have been duly authorized by all necessary action on the part of Time Warner and
(iii) Time Warner has duly executed and delivered this Amendment, and, assuming
the due authorization, execution and delivery by each person other than Time
Warner party hereto, this Amendment constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
(c) Sony Music represents and warrants to the Borrower and Time Warner that
(i) Sony Music has all requisite power and authority to execute and deliver this
Amendment, (ii) the execution and delivery by Sony Music of this Amendment has
been duly authorized by all necessary action on the part of Sony Music and (iii)
Sony Music has duly executed and delivered this Amendment, and, assuming the due
authorization, execution and delivery by each person other than Sony Music party
hereto, this Amendment constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
SECTION 9. Governing Law, Submission to Jurisdiction.
(a) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to this Amendment and any
action for enforcement of any judgment in respect hereof may be brought in the
courts of the State of New York in New York County or of the United States of
America for the Southern District of New York, and, by execution and delivery of
this Amendment, the Borrower hereby accepts for itself and in respect of its
property, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts and appellate courts from any thereof. The Borrower irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Borrower at its address set forth in
Section 10.3 of the Convertible Loan Agreement. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Amendment brought in the courts referred to above and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Lenders or any
holder of a Note (as defined in the Convertible Loan Agreement) to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction.
<PAGE> 18
SECTION 10. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
SECTION 11. Headings Descriptive. The headings of the several Sections of
this Amendment are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Amendment.
SECTION 12. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE BORROWER AND EACH LENDER HEREBY IRREVOCABLY WAIVES ALL RIGHT OF
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AMENDMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING
HEREUNDER OR THEREUNDER.
SECTION 13. Full Force and Effect. Except as expressly set forth in this
Amendment, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders or the Borrower under the Convertible Loan Agreement or any other Loan
Document (as defined in the Convertible Loan Agreement), and shall not alter,
modify, amend or in any way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Convertible Loan Agreement or any other
Loan Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing contained in this Amendment shall be
deemed to entitle the Borrower to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Convertible Loan Agreement or any other
Loan Document in similar or different circumstances. This Amendment shall
constitute a "Loan Document" for all purposes of the Convertible Loan Agreement
and the other Loan Documents. As used in the Convertible Loan Agreement, the
terms "hereof" and "hereto", and words of similar import, shall, unless the
context otherwise requires, refer to the Convertible Loan Agreement as amended
by this Amendment. Any reference in any document to the Convertible Loan
Agreement shall be deemed to be a reference to the Convertible Loan Agreement as
amended by this Amendment.
SECTION 14. Fees and Expenses. All fees and expenses incurred in connection
with this Amendment shall be borne by the party incurring such fees and
expenses.
<PAGE> 19
IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Amendment, all as of the date first written above.
CDNOW, INC.,
by /s/ Jason Olim
----------------------------
Name: Jason Olim
Title: President & CEO
SONY MUSIC ENTERTAINMENT INC.,
by /s/ Thomas C. Tyrrel
----------------------------
Name: Thomas C. Tyrrel
Title: Senior Vice President
and General Counsel
TIME WARNER INC.,
by /s/ Spencer B. Hayes
----------------------------
Name: Spencer B. Hayes
Title: Vice President and
Deputy General Counsel
<PAGE> 20
The undersigned guarantors under the Guarantee and Collateral Agreement
entered into in connection with the Convertible Loan Agreement hereby consent to
the Amendment and acknowledge and agree that the Guarantee and Collateral
Agreement (including the guarantee provided by such guarantor thereunder)
remains in full force and effect.
CDNOW ONLINE, INC.,
by /s/ David A. Capozzi
-----------------------
Name: David A. Capozzi
Title: President
N2K INC.,
by /s/ David A. Capozzi
-----------------------
Name: David A. Capozzi
Title: President
CDNOW INVESTMENTS, INC.,
by /s/ David A. Capozzi
-----------------------
Name: David A. Capozzi
Title: President
CDNOW TRADEMARKS, INC.,
by /s/ David A. Capozzi
-----------------------
Name: David A. Capozzi
Title: President
SUPERSONIC BOOM, INC.,
by /s/ David A. Capozzi
-----------------------
Name: David A. Capozzi
Title: President
TSI LICENSING, INC.,
by /s/ David A. Capozzi
-----------------------
Name: David A. Capozzi
Title: President
<PAGE> 21
Exhibit: 10.2
CONSENT dated as of March 13, 2000 (this "Consent"), in respect of the
Guarantee and Collateral Agreement (the "Security Agreement") dated as of
January 21, 2000, made by CDnow, Inc. (the "Borrower") and the other parties
identified therein, in favor of Time Warner Inc., as Security Agent (in such
capacity, the "Security Agent") for Time Warner Inc. ("Time Warner") and Sony
Music Entertainment Inc. (together with "Time Warner", the "Lenders") under the
Convertible Loan Agreement dated as of July 12, 1999, among the Borrower and the
Lenders (the "Convertible Loan Agreement").
WHEREAS the Borrower and the Lenders have entered into the Convertible Loan
Agreement;
WHEREAS, in connection with the Convertible Loan Agreement the Borrower and
the other parties identified therein have made the Security Agreement in favor
of the Security Agent;
WHEREAS the Borrower has requested that the Lenders and the Security Agent
(i) consent to the sale of all shares of common stock of, and all warrants to
acquire shares of common stock of, Liquid Audio, Inc. (the "Shares") to a third
party that is not a subsidiary of, or in any way affiliated with, the Borrower
(the "Sale") for a purchase price that is equal to the fair market value of such
shares or warrants, as the case may be, and (ii) release from the lien created
pursuant to the Security Agreement all of the Shares that are sold in a Sale;
WHEREAS the Lenders and the Security Agent are willing to grant such
consent on the terms, and subject to the conditions, and to the extent set forth
in, this Consent.
NOW, THEREFORE, in consideration of the premises, mutual promises,
representations, warranties and covenants contained in this Consent, the parties
hereto hereby agree:
SECTION 1. Consent and Release. (a) Each of the Lenders and the Security
Agent hereby consents to the Sale of the Shares on the terms, and subject to the
conditions, set forth in this Consent.
(b) Each of the Lenders hereby releases, and hereby authorizes the Security
Agent to execute any and all further documents necessary or desirable to
evidence the release, from the lien created pursuant to the Security Agreement
any and all Shares that are sold in a Sale, effective upon consummation of such
Sale.
SECTION 2. Representations and Warranties. To induce the other parties to
this Consent to enter into this Consent, the Borrower hereby represents and
warrants to each of the Lenders and the Security Agent that (i) the Borrower has
all requisite power and authority to execute and deliver this Consent, (ii) the
execution and delivery by the Borrower of this Consent have been duly authorized
by all necessary action on the part of the Borrower, (iii) the Borrower has duly
<PAGE> 22
executed and delivered this Consent, and, assuming the due authorization,
execution and delivery by each person other than the Borrower party hereto, this
Consent constitutes its legal, valid and binding obligation, enforceable against
it in accordance with its terms and (iv) the representations and warranties set
forth in the Section 4 of the Convertible Loan Agreement are true and correct in
all material respects on and as of the date of this Consent with the same effect
as though made on and as of the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
SECTION 3. Conditions. On the date on which any Sale of Shares is
consummated,
(i) the representations and warranties set forth in the Section 4 of the
Convertible Loan Agreement shall be true and correct in all material respects on
and as of such date with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly relate to an
earlier date and (ii) no Default (as defined in the Convertible Loan Agreement)
or Event of Default (as defined in the Convertible Loan Agreement) shall have
occurred or be continuing.
SECTION 4. Effectiveness of Consent. This Consent shall become effective as
of the date first written above when the Security Agent shall have received
counterparts of this Consent that, when taken together, bear the signatures of
the Borrower, the Security Agent and the Lenders.
SECTION 5. Governing Law, Submission to Jurisdiction. (a) THIS CONSENT AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to this Consent and any
action for enforcement of any judgment in respect hereof may be brought in the
courts of the State of New York in New York County or of the United States of
America for the Southern District of New York, and, by execution and delivery of
this Consent, the Borrower hereby accepts for itself and in respect of its
property, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts and appellate courts from any thereof. The Borrower irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Borrower at its address set forth in
Section 10.3 of the Convertible Loan Agreement. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Consent brought in the courts referred to above and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Lenders or any
holder of a Note (as defined in the Convertible Loan Agreement) or the Security
Agent to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrower in any other jurisdiction.
SECTION 6. Counterparts. This Consent may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
<PAGE> 23
SECTION 7. Headings Descriptive. The headings of the several Sections of
this Consent are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Consent.
SECTION 8. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE BORROWER, EACH LENDER AND THE SECURITY AGENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN CONNECTION WITH THIS CONSENT OR ANY OTHER LOAN DOCUMENT OR
ANY MATTER ARISING HEREUNDER OR THEREUNDER.
SECTION 9. Full Force and Effect. Except as expressly set forth in this
Consent, this Consent shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Security Agent or the Borrower under the Convertible Loan
Agreement, the Security Agreement or any other Loan Document (as defined in the
Convertible Loan Agreement), and shall not alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Convertible Loan Agreement, the Security Agreement or any other
Loan Document, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. Nothing contained in this Consent shall be
deemed to entitle the Borrower to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Convertible Loan Agreement, the
Security Agreement or any other Loan Document in similar or different
circumstances. This Consent shall constitute a "Loan Document" for all purposes
of the Convertible Loan Agreement and the other Loan Documents.
<PAGE> 24
IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Consent, all as of the date first written above.
CDNOW, INC.,
by /s/ Jason Olim
----------------------------
Name: Jason Olim
Title: President & CEO
SONY MUSIC ENTERTAINMENT INC.,
by /s/ Thomas C. Tyrrel
----------------------------
Name: Thomas C. Tyrrel
Title: Senior Vice President
and General Counsel
TIME WARNER INC., as Lender and Security Agent,
by /s/ Spencer B. Hayes
----------------------------
Name: Spencer B. Hayes
Title: Vice President and
Deputy General Counsel
<PAGE> 25
Exhibit: 99.1
CDNOW, TIME WARNER AND SONY CORPORATION ANNOUNCE STRATEGIC
RELATIONSHIP IN PLACE OF MERGER
Parties Agree Not to Proceed With Merger
Time Warner and Sony to Be Equity Investors in CDNOW
NEW YORK and FORT WASHINGTON, PA , March 13, 2000 - CDNOW (Nasdaq:CDNW), Time
Warner Inc. (NYSE:TWX) and Sony Corporation (NYSE: SNE) announced the
termination of the pending merger of CDNOW with Time Warner's and Sony's
Columbia House. The parties have reached a new arrangement with significant
investments and a commitment to explore strategic relationships with CDNOW. With
this arrangement, CDNOW remains an independent public company with continued
ties to Time Warner, Sony and Columbia House.
Time Warner and Sony have agreed to commit $51 million to CDNOW, by providing an
additional $21 million in cash as an equity investment and converting an
existing $30 million short-term loan commitment into long-term convertible debt.
Jason Olim, CDNOW's President and CEO said, "We are obviously disappointed that
the merger originally envisioned last July will not be completed. However, we
feel the termination of the merger is the best move for CDNOW and its
shareholders. This new relationship with Time Warner and Sony, including their
significant commitment to purchase 2,405,500 shares of CDNOW common stock for
$21 million in cash coupled with the conversion of existing and future
borrowings under a $30 million short-term loan commitment to long-term
convertible debt, allows us to focus on our primary business: building one of
the world's great music brands. We plan to immediately begin considering other
strategic opportunities for the company."
Scott Flanders, Chairman and CEO of Columbia House, said, "I am pleased with
this commitment to CDNOW and am excited about this alliance with Jason and his
colleagues. It's unfortunate that we could not proceed with our merger as
originally planned, but we expect our ongoing relationship to provide many
benefits to both CDNOW and to Columbia House and its parents."
About CDNOW
- -----------
CDNOW, Inc. (Nasdaq: CDNW) is the online music destination that offers the most
comprehensive, personalized connection to the world of music. CDNOW's offerings
consist of more than 500,000 music and entertainment-related items, including
CDs, music downloads, DVDs, videotapes, cassettes, vinyl albums and Custom CDs,
as well as music samples and intelligent album recommendations. CDNOW Media, the
Company's newly formed interactive division, develops CDNOW's interactive
content, including allstar(TM) News, artist interviews and reviews, Cosmic Music
Network-an innovative community for unsigned bands-and the Company's
cybercasting and entertainment initiatives.
<PAGE> 26
About Time Warner Inc.
- ----------------------
Time Warner Inc. (NYSE: TWX, www.timewarner.com) is the world's leading media
company. Its businesses: cable networks, publishing, music, filmed
entertainment, cable and digital media.
About Sony
- ----------
Sony Corporation is a leading manufacturer of audio, video, communications and
information technology products for the consumer and professional markets. Its
music, pictures and computer entertainment operations make Sony one of the most
comprehensive entertainment companies in the world. Sony recorded consolidated
annual sales of over $56 billion for the fiscal year ended March 31, 1999.
Sony's Home Page URL: http://www.sony.co.jp/
Caution Concerning Forward-Looking Statements
- ---------------------------------------------
This information contains statements relating to future results of the Company
(including certain projections and business trends) that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties, including but not limited to, changes in political and
economic conditions, demand for and market acceptance of new and existing
products, as well as other risks and uncertainties detailed from time to time in
the filings of the Company with the Securities and Exchange Commission.
Contacts:
CDNOW, Inc. CDNOW, Inc. Sony Corporation of America
Debbie Vondran Marlo Zoda Ann Morfogen
215-619-9366 215-619-9432 212-833-6873
Patricia Kiel Time Warner Inc.
Sony Music Entertaiment Edward Adler
212-833-4647 212-484-6630
<PAGE> 27
Exhibit: 99.2
CDNOW.com
Contacts:
Press: Marlo Zoda Investor Relations: Deborah Vondran
215-619-9432 215-619-9366
[email protected] [email protected]
CDNOW RETAINS ALLEN & COMPANY TO EXPLORE
STRATEGIC OPTIONS
Leading Online Music Company Takes Steps to Reduce Losses
and Maximize Shareholder Value
Fort Washington, PA, March 13, 2000 - CDNOW (Nasdaq:CDNW), the leading online
music destination, said today that it has retained Allen & Company to explore
its strategic options following the termination of its proposed merger with
Columbia House, which is owned jointly by Time Warner Inc. (NYSE:TWX) and Sony
Corporation (NYSE:SNE).
As announced previously, Time Warner and Sony will explore a broader strategic
relationship with the company and commit $51 million to CDNOW by providing an
additional $21 million in cash as an equity investment and converting an
existing $30 million short-term loan commitment into long-term convertible debt.
Through Allen & Company, CDNOW will review the complete range of strategic
opportunities available to it in order to build on its industry-leading position
and maximize shareholder value.
Jason Olim, CDNOW's President and CEO said: "CDNOW has greater product and
advertising revenues, a larger customer base, a higher number of visitors per
day and greater brand awareness than when it entered the merger agreement with
Columbia House last July. We are one of the best-known Internet brands, with
over 3.2 million customers and an audience of over 800,000 visitors a day who
depend on CDNOW for a superior music experience. CDNOW's audience is an
attractive demographic for major advertisers and we have consistently
experienced strong growth in advertising sales as we have expanded content
offerings and increased brand awareness.
"CDNOW has a unique and powerful position in the online music space and we
fully intend to use all of our built-in advantage to remain at the cutting edge,
while substantially reducing our operating losses and actively exploring
strategic opportunities. Through these initiatives, I am confident that CDNOW
will fulfill its goal of becoming one of the world's great music brands," said
Olim.
Nancy Peretsman, Managing Director and Executive Vice President at Allen &
Company, who has a long history with CDNOW and will be working on this
transaction, said, "CDNOW is one of the leading companies on the Internet. Based
on CDNOW's position in the marketplace, Allen & Company is very optimistic about
finding interest in attractive strategic transactions."
<PAGE> 28
During the fourth quarter CDNOW's revenues increased 154% from a year ago to a
record $53.1 million, while traffic increased 181%. Also during the quarter,
revenues from high-margin onsite advertising continued to increase to a new high
of $3.4 million.
CDNOW remains at the cutting edge of online music delivery. It was one of the
first companies to offer sales of secure music downloads and now has more than
60,000 downloadable tracks available for sale. It is also a leader in the area
of customized CDs.
CDNOW to Reduce Expenses
Over the next quarter, CDNOW will reduce costs almost one-third by lowering
marketing expenses and implementing other belt-tightening efforts. The company
will focus on its successful affiliate marketing programs, co-marketing programs
with other advertisers, and other marketing initiatives that provide the company
with an immediate return on investment. Additionally, the company will reduce
advertising and couponing efforts as quickly and efficiently as possible. The
company views its employees as one its key assets and does not currently plan
any layoffs as part of the cost reductions.
"CDNOW is taking this opportunity to recalibrate its business to a lower expense
level, with reduced operating losses and capital requirements," said Mike
Krupit, CDNOW's Chief Operating Officer. "We anticipate that the reduction in
marketing expenditures will result in lower revenues and gross profits in the
second quarter from the first quarter. However, our cost reduction program is
expected to result in a reduction in quarterly operating expenses of $10-12
million and a lower ongoing quarterly cash burn rate of less than $15 million
per quarter."
About CDNOW
- -----------
CDNOW, Inc. (Nasdaq: CDNW) is the online music destination that offers the most
comprehensive, personalized connection to the world of music. CDNOW's offerings
consist of more than 500,000 music and entertainment-related items, including
CDs, music downloads, DVDs, videotapes, cassettes, vinyl albums and Custom CDs,
as well as music samples and intelligent album recommendations. CDNOW Media, the
Company's newly formed interactive division, develops CDNOW's interactive
content, including allstar(TM) News, artist interviews and reviews, Cosmic Music
Network-an innovative community for unsigned bands-and the Company's
cybercasting and entertainment initiatives.
Caution Concerning Forward-Looking Statements
- ---------------------------------------------
This information contains statements relating to future results of the Company
(including certain projections and business trends) that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties, including but not limited to, changes in political and
economic conditions, demand for and market acceptance of new and existing
products, as well as other risks and uncertainties detailed from time to time in
the filings of the Company with the Securities and Exchange Commission.
