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): November 24, 1999
(November 12, 1999)
Rare Medium Group, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 000-13865 23-2368845
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(State or Other (Commission File No.) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
565 Fifth Avenue, 29th Floor, New York, New York 10017
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(Address of Principal Executive Offices, including Zip Code)
(212) 883-6940
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(Registrant's telephone number, including area code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets.
On November 12, 1999 (the "Closing Date"), pursuant to the terms
of a Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of
the 12th day of November, 1999, by and among Rare Medium Group Inc., a
Delaware corporation ("RMG") and College Media, Inc., a New York
corporation ("CMJ"), Robert Haber, Joanne Haber, Lee Haber and Diane
Turofsky (collectively, the "CMJ Stockholders"), RMG acquired from the CMJ
Stockholders 30.3025 shares of common stock, no par value per share, of CMJ
(the "CMJ Common Stock"), representing twenty-five percent (25%) of the
then outstanding shares of CMJ Common Stock on a fully diluted basis
(assuming exercise of options to purchase CMJ Common Stock outstanding
immediately prior to the Closing Date).
CMJ is a multi-platform media company providing both music
consumers and music industry professionals with music news, commentary,
market data and industry analysis focusing on the college and emerging
music markets.
The purchase price for the CMJ Common Stock was $4,000,000,
consisting of an aggregate of $1,000,000 in cash from funds on hand and an
aggregate of 180,860 shares of common stock, par value $0.01 per share, of
RMG (the "RMG Common Stock") (valuing the RMG Common Stock at $16.5874 per
share, the average of the closing bid prices per share for the ten trading
days immediately prior to the Closing Date).
On the Closing Date, CMJ, Changemusic.com, Inc., a Delaware
corporation and an approximately ninety-six percent (96%) owned subsidiary
of RMG ("Changemusic.com"), and CMJ.com, Inc., a newly formed Delaware
corporation ("CMJ.com"), entered into an Agreement and Plan of Merger,
dated as of the 12th day of November, 1999 (the "Merger Agreement"),
pursuant to which each of Changemusic.com and CMJ merged with and into
CMJ.com (the "Merger") on November 15, 1999 (the "Effective Time"), with
CMJ.com as the surviving corporation in the Merger.
Each share of common stock, par value $0.01 per share, of
Changemusic.com (the "Changemusic.com Common Stock") outstanding
immediately prior to the Merger was converted into and became 4,931.109794
shares of common stock, par value $0.01 per share, of CMJ.com (the "CMJ.com
Common Stock"), such that the former holders of Changemusic.com Common
Stock collectively received an aggregate of 511,508.95 shares of CMJ.com
Common Stock, representing 55.932322% of the CMJ.com Common Stock
outstanding immediately following the Effective Time (or 51.150895%
assuming exercise of options to purchase CMJ.com Common Stock outstanding
immediately following the Effective Time).
Each share of CMJ Common Stock outstanding immediately prior to
the Merger was converted into and became 4,030.05116 shares of CMJ.com
Common Stock, such that the former holders of CMJ Common Stock (including
RMG) collectively received an aggregate of 403,005.12 shares of CMJ.com
Common Stock, representing 44.0676785% of the CMJ.com Common Stock
outstanding immediately following the Effective Time (or 48.849105%
assuming exercise of options to purchase CMJ.com Common Stock outstanding
immediately following the Effective Time).
Immediately following the Effective Time, RMG collectively
received an aggregate of 615,231.6047 shares of CMJ.com Common Stock,
representing 67.2741544% of the CMJ.com Common Stock outstanding
immediately following the Effective Time (or 61.5231605% assuming exercise
of options to purchase CMJ.com Common Stock outstanding immediately
following the Effective Time).
The exchange ratios referred to above were arrived at through
arms-length negotiation.
Immediately following the Effective Time, the Board of Directors
of CMJ.com consisted of (i) two directors designated by the former holders
of a majority of the Changemusic.com Common Stock outstanding immediately
prior to the Effective Time, (ii) two directors designated by the former
holders of a majority of the CMJ Common Stock outstanding immediately prior
to the Effective Time (assuming exercise of options to purchase CMJ Common
Stock outstanding immediately prior to the Effective Time) and (iii) one
director designated by the holders of a majority of the Series A Preferred
Stock (as hereinafter defined) outstanding immediately following the
Effective Time, such that designees of RMG constituted three of the five
directors of CMJ.com immediately following the Effective Time.
Additionally, on the Closing Date, pursuant to the terms of a
Securities Purchase Agreement (the "Securities Purchase Agreement"), dated
as of the 12th day of November, 1999, between RMG and CMJ.com, RMG acquired
1,000 shares of Series A Convertible Preferred Stock, par value $0.01 per
share, of CMJ.com (the "Series A Preferred Stock") and a warrant (the
"Warrant") to purchase up to 1,000 additional shares of Series A Preferred
Stock. The Series A Preferred Stock purchased by RMG on the Closing Date
is initially convertible into 179,028 shares of CMJ.com Common Stock, or
15.1843722% of the CMJ.com Common Stock outstanding on a fully diluted
basis assuming exercise of options to purchase CMJ.com Common Stock
outstanding immediately following the Effective Time and conversion of such
shares of Series A Preferred Stock.
The purchase price for the Series A Preferred Stock and the
Warrant was $7,000,000 in cash. In the event RMG elects to exercise the
Warrant (which may be exercised in whole or in part at any time prior to
the earlier of (i) 5:00 p.m. New York time on November 12, 2001 and (ii)
ninety (90) days subsequent to the closing of a Qualifying Initial Public
Offering (as such term is defined in the Securities Purchase Agreement)),
the exercise price is $8,400 per share in cash. The consideration for the
Series A Preferred Stock and the Warrant was arrived at through arms-length
negotiation. The source of funds for RMG's purchase price for the Series A
Preferred Stock and the Warrant was from funds on hand.
The foregoing description of each of the Stock Purchase
Agreement, the Merger Agreement and the Securities Purchase Agreement
contained in this Form 8-K is a brief summary of the provisions thereof but
does not purport to be complete. This summary is qualified in its entirety
by reference to the Stock Purchase Agreement, the Merger Agreement and the
Securities Purchase Agreement, a copy of each of which is attached hereto
as an exhibit and incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Businesses Acquired.
The financial statements specified in Item 7(a) of Form 8-K
will be filed by amendment to this report not later than 60 days after
the date of this report.
(b) Pro Forma Financial Information.
The pro forma financial information specified in Item 7(b)
of Form 8-K will be filed by amendment to this report not later than
60 days after the date of this report.
(c) Exhibits.
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated as of the
12th day of November, 1999, by and among
Changemusic.com, Inc., a Delaware corporation,
College Media, Inc., a New York corporation,
and CMJ.com, Inc., a Delaware corporation.
2.2 Stock Purchase Agreement dated as of the 12th
day of November, 1999, by and among College
Media, Inc., a New York corporation, Robert
Haber, Joanne Haber, Lee Haber, Diane Turofsky
and Rare Medium Group, Inc., a Delaware
corporation.
2.3 Securities Purchase Agreement, dated as of
the 12th day of November, 1999, between Rare
Medium Group, Inc., a Delaware corporation,
and CMJ.com, Inc., a Delaware corporation.
SIGNATURES
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 hereto duly authorized.
RARE MEDIUM GROUP, INC.
(Registrant)
DATE: November 24, 1999 By: /s/ Jeffrey J. Kaplan
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Name: Jeffrey J. Kaplan
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
dated as of
November 12, 1999
among
CHANGEMUSIC.COM, INC.,
COLLEGE MEDIA, INC.
and
CMJ.COM, INC.
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
SECTION 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.2 Conversion Of Shares . . . . . . . . . . . . . . . . . 3
SECTION 1.3 Surrender And Payment . . . . . . . . . . . . . . . . 4
SECTION 1.4 Stock Options and Equity Awards . . . . . . . . . . . 6
SECTION 1.5 Adjustments to Merger Consideration . . . . . . . . . 7
SECTION 1.6 Fractional Shares . . . . . . . . . . . . . . . . . 11
SECTION 1.7 Withholding Rights . . . . . . . . . . . . . . . . . 11
SECTION 1.8 Appraisal Rights . . . . . . . . . . . . . . . . . . 11
ARTICLE II
CERTAIN GOVERNANCE MATTERS
SECTION 2.1 Certificate of Incorporation and Bylaws of CMJ.com . 12
SECTION 2.2 CMJ.com Board of Directors; Officers . . . . . . . . 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CMJ
SECTION 3.1 Corporate Existence and Power . . . . . . . . . . . 13
SECTION 3.2 Corporate Authorization . . . . . . . . . . . . . . 13
SECTION 3.3 Governmental Authorization . . . . . . . . . . . . . 14
SECTION 3.4 Non-Contravention . . . . . . . . . . . . . . . . . 14
SECTION 3.5 Capitalization . . . . . . . . . . . . . . . . . . . 15
SECTION 3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.7 Financial Statements . . . . . . . . . . . . . . . . 17
SECTION 3.8 Absence of Certain Changes . . . . . . . . . . . . . 17
SECTION 3.9 No Undisclosed Material Liabilities . . . . . . . . 18
SECTION 3.10 Litigation . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.12 Employee Benefit Plans . . . . . . . . . . . . . . 22
SECTION 3.13 Compliance with Laws . . . . . . . . . . . . . . . 24
SECTION 3.14 Finders' or Advisors' Fees . . . . . . . . . . . . 24
SECTION 3.15 Environmental Matters . . . . . . . . . . . . . . . 25
SECTION 3.16 Intellectual Property Matters . . . . . . . . . . . 25
SECTION 3.17 Year 2000 Compliance Matters . . . . . . . . . . . 28
SECTION 3.18 Related-Party Transactions . . . . . . . . . . . . 29
SECTION 3.19 Title to Property and Assets . . . . . . . . . . . 29
SECTION 3.20 Insurance . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHANGEMUSIC.COM
SECTION 4.1 Corporate Existence and Power . . . . . . . . . . . 30
SECTION 4.2 Corporate Authorization . . . . . . . . . . . . . . 31
SECTION 4.3 Governmental Authorization . . . . . . . . . . . . . 31
SECTION 4.4 Non-Contravention . . . . . . . . . . . . . . . . . 32
SECTION 4.5 Capitalization . . . . . . . . . . . . . . . . . . . 33
SECTION 4.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.7 Financial Statements . . . . . . . . . . . . . . . . 34
SECTION 4.8 Absence of Certain Changes . . . . . . . . . . . . . 35
SECTION 4.9 No Undisclosed Material Liabilities . . . . . . . . 36
SECTION 4.10 Litigation . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.12 Employee Benefit Plans . . . . . . . . . . . . . . 39
SECTION 4.13 Compliance with Laws . . . . . . . . . . . . . . . 42
SECTION 4.14 Finders' or Advisors' Fees . . . . . . . . . . . . 42
SECTION 4.15 Environmental Matters . . . . . . . . . . . . . . . 42
SECTION 4.16 Intellectual Property Matters . . . . . . . . . . . 42
SECTION 4.17 Year 2000 Compliance Matters . . . . . . . . . . . 44
SECTION 4.18 Related-Party Transactions . . . . . . . . . . . . 45
SECTION 4.19 Title to Property and Assets . . . . . . . . . . . 45
SECTION 4.20 Insurance . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CMJ.COM
SECTION 5.1 Corporate Existence and Power . . . . . . . . . . . 46
SECTION 5.2 Corporate Authorization . . . . . . . . . . . . . . 47
SECTION 5.3 Governmental Authorization . . . . . . . . . . . . . 47
SECTION 5.4 Non-Contravention . . . . . . . . . . . . . . . . . 47
SECTION 5.5 Capitalization . . . . . . . . . . . . . . . . . . . 48
ARTICLE VI
COVENANTS OF CMJ
SECTION 6.1 Conduct of CMJ . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII
COVENANTS OF CHANGEMUSIC.COM
SECTION 7.1 Conduct of Changemusic.com . . . . . . . . . . . . . 51
ARTICLE VIII
COVENANTS OF CMJ.COM
SECTION 8.1 Conduct of CMJ.com . . . . . . . . . . . . . . . . . 53
SECTION 8.2 Director and Officer Liability . . . . . . . . . . . 54
SECTION 8.3 Establishment of Option Plan . . . . . . . . . . . . 54
SECTION 8.4 Employment Agreements . . . . . . . . . . . . . . . 54
ARTICLE IX
COVENANTS OF CMJ.COM, CMJ AND CHANGEMUSIC.COM
SECTION 9.1 Best Efforts . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.2 Access to Information . . . . . . . . . . . . . . . 55
SECTION 9.3 Public Announcements . . . . . . . . . . . . . . . . 55
SECTION 9.4 Further Assurances . . . . . . . . . . . . . . . . . 56
SECTION 9.5 Notices of Certain Events . . . . . . . . . . . . . 56
SECTION 9.6 No Solicitation . . . . . . . . . . . . . . . . . . 57
SECTION 9.7 Takeover Statutes . . . . . . . . . . . . . . . . . 57
SECTION 9.8 Headquarters . . . . . . . . . . . . . . . . . . . . 57
ARTICLE X
CONDITIONS TO THE MERGER
SECTION 10.1 Conditions to the Obligations of Each Party . . . . 58
SECTION 10.2 Conditions to the Obligations of Changemusic.com . 59
SECTION 10.3 Conditions to the Obligations of CMJ . . . . . . . 60
SECTION 10.4 Conditions to the Obligations of CMJ.com . . . . . 61
ARTICLE XI
TERMINATION
SECTION 11.1 Termination . . . . . . . . . . . . . . . . . . . . 61
SECTION 11.2 Survival . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.2 Survival of Representations and Warranties . . . . 64
SECTION 12.3 Amendments; No Waivers . . . . . . . . . . . . . . 65
SECTION 12.4 Expenses . . . . . . . . . . . . . . . . . . . . . 65
SECTION 12.5 Successors and Assigns . . . . . . . . . . . . . . 65
SECTION 12.6 Governing Law . . . . . . . . . . . . . . . . . . . 66
SECTION 12.7 Jurisdiction . . . . . . . . . . . . . . . . . . . 66
SECTION 12.8 Waiver of Jury Trial . . . . . . . . . . . . . . . 66
SECTION 12.9 Counterparts; Effectiveness . . . . . . . . . . . . 66
SECTION 12.10 Entire Agreement . . . . . . . . . . . . . . . . . 66
SECTION 12.11 Captions . . . . . . . . . . . . . . . . . . . . . 67
SECTION 12.12 Severability . . . . . . . . . . . . . . . . . . . 67
Exhibit A - Escrow Agreement
Exhibit B-1 - Employment Agreement of Robert Haber
Exhibit B-2 - Employment Agreement of Alex Ellerson
Exhibit C - Stockholders Agreement
Exhibit D - Investment Letter
Exhibit E - Registration Rights Agreement
DEFINITIONS
Section
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AAA SECTION 1.5(c)
Agreement Preamble
Arbitrator SECTION 1.5(c)
Audits SECTION 3.11(e)
Certificate SECTION 1.2(c)
Changemusic.com Preamble
Changemusic.com Balance Sheet SECTION 4.7
Changemusic.com Balance Sheet Date SECTION 4.7
Changemusic.com Closing Date Balance Sheet SECTION 1.5(c)
Changemusic.com Common Stock SECTION 1.2(a)(ii)
Changemusic.com Convertible Security SECTION 4.5
Changemusic.com Disclosure Schedules Introduction to
Article IV
Changemusic.com Employee Plans SECTION 4.12(a)
Changemusic.com Merger Consideration SECTION 1.2(b)
Changemusic.com Subsidiary Convertible Security SECTION 4.6(b)
Closing SECTION 1.1(d)
Closing Date SECTION 1.1(d)
Closing Date Balance Sheets SECTION 1.5(c)
Code Recitals
Common Stock Purchase Agreement Recitals
Content SECTION 3.16(a)
Copyrights SECTION 3.16(a)
CMJ Preamble
CMJ Balance Sheet SECTION 3.7
CMJ Balance Sheet Date SECTION 3.7
CMJ Closing Date Balance Sheet SECTION 1.5(c)
CMJ Common Stock Recitals
CMJ Content SECTION 3.16(a)
CMJ Convertible Security SECTION 3.5
CMJ Disclosure Schedules Introduction to
Article III
CMJ Employee Plans SECTION 3.12(a)
CMJ Exchange Ratio SECTION 1.2(a)(iii)
CMJ Intellectual Property SECTION 3.16(b)
CMJ License Agreements SECTION 3.16(b)
CMJ Merger Consideration SECTION 1.2(b)
CMJ Stock Option SECTION 1.4(a)
CMJ Stock Plans SECTION 1.4(a)
CMJ Subsidiary Convertible Security SECTION 3.6(b)
Date Data SECTION 3.17
Date Sensitive System SECTION 3.17
Delaware Law SECTION 1.1(a)
Disputed Item(s) SECTION 1.5(c)
Effective Time SECTION 1.1(a)
Ellerson Option SECTION 1.4(a)
End Date SECTION 11.1(b)
Environmental Laws SECTION 3.15(b)
ERISA SECTION 3.12(a)
Escrow Agent SECTION 1.3(b)
Escrow Agreement SECTION 1.3(b)
Escrow Fund SECTION 13(b)
Exchange Act SECTION 3.6(b)
GAAP SECTION 1.5(b)
Hazardous Materials SECTION 3.15(b)
Implied Value SECTION 1.5(b)
Intellectual Property SECTION 3.16(a)
Investment Letter SECTION 10.1(h)
Lien SECTION 3.4
LTC SECTION 3.14
Material Adverse Effect SECTION 3.1
Merger Recitals
Merger Consideration SECTION 1.2(b)
Net Liabilities SECTION 1.5(b)
Net Liability Adjustment SECTION 1.5(b)
CMJ.com Preamble
CMJ.com Common Stock SECTION 1.2(a)(i)
CMJ.com Convertible Security SECTION 5.5
New York Law SECTION 1.1(a)
Non-Disclosure Agreement SECTION 9.2
Notice of Dispute SECTION 1.5(c)
Patents SECTION 3.16(a)
Person SECTION 1.3(c)
Preferred Stock Purchase Agreement Recitals
Registration Rights Agreement SECTION 10.2(c)
RMG Recitals
Series A Preferred Stock Recitals
Significant Subsidiary SECTION 3.6(b)
Software SECTION 3.16(a)
Stockholders SECTION 10.1(g)
Stockholders Agreement SECTION 10.1(d)
Subsidiary SECTION 3.6(a)
Tax Indemnification Agreements SECTION 3.11(n)
Tax Law SECTION 3.11(s)
Tax Period SECTION 3.11(s)
Tax Return SECTION 3.11(s)
Taxes SECTION 3.11(s)
Trademarks SECTION 3.16(a)
Trade Secrets SECTION 3.16(a)
Year 2000 Compliant SECTION 3.17
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
November 12, 1999, by and among Changemusic.com, Inc., a Delaware
corporation originally incorporated under the name MP3Park, Inc.
("Changemusic.com"), College Media, Inc., a New York corporation ("CMJ"),
and CMJ.com, Inc., a Delaware corporation ("CMJ.com").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Changemusic.com, CMJ
and CMJ.com have approved this Agreement, and deem it advisable and in the
best interests of their respective stockholders to consummate the merger of
each of Changemusic.com and CMJ with and into CMJ.com on the terms and
conditions set forth in this Agreement (collectively, the "Merger");
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger qualify as a tax free "reorganization" within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder (the "Code") or as an exchange
under Section 351 of the Code; and
WHEREAS, as a condition and inducement to each of the parties'
willingness to enter into this Agreement, concurrently with the execution
and delivery of this Agreement, (i) Rare Medium Group, Inc., a Delaware
corporation and the 96% parent corporation of Changemusic.com ("RMG"), CMJ
and certain stockholders of CMJ are entering into a stock purchase
agreement dated as of the date of this Agreement (the "Common Stock
Purchase Agreement"), pursuant to which RMG will, immediately prior to the
Merger, acquire, under certain circumstances, from such stockholders an
aggregate number of shares of common stock, no par value per share, of CMJ
("CMJ Common Stock") that equals 25% of the outstanding CMJ Common Stock on
a fully diluted basis immediately prior to the Merger and (ii) RMG and
CMJ.com are entering into a securities purchase agreement dated as of the
date of this Agreement (the "Preferred Stock Purchase Agreement") pursuant
to which RMG will, contemporaneous with or immediately following the
Merger, acquire, under certain circumstances, shares of Series A
Convertible Preferred Stock, par value $.01 per share, of CMJ.com ("Series
A Preferred Stock") and warrants to acquire additional Series A Preferred
Stock for an aggregate purchase price of $7.0 million.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.
(a) On the Closing Date (as hereinafter defined), (i)
Changemusic.com, CMJ and CMJ.com will file a certificate of merger with the
Secretary of State of the State of Delaware and make all other filings or
recordings required by the General Corporation Law of the State of Delaware
("Delaware Law") to be made in connection with the Merger and (ii)
Changemusic.com, CMJ and CMJ.com will file a certificate of merger with the
Secretary of State of the State of New York and make all other filings or
recordings required by the Business Corporation Law of the State of New
York ("New York Law") to be made in connection with the Merger. The Merger
shall become effective at such time as is specified in such certificates of
merger (such effective time being the "Effective Time", which time shall be
identical in each of such certificates of merger and which shall not be
later than the close of business on the business day following the Closing
Date).
(b) At the Effective Time, each of Changemusic.com and CMJ shall be
merged with and into CMJ.com in accordance with the requirements of
Delaware Law and New York Law, whereupon the separate existence of each of
Changemusic.com and CMJ shall cease, and CMJ.com shall be the surviving
corporation in the Merger.
(c) From and after the Effective Time, CMJ.com shall possess all the
rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of each of Changemusic.com and CMJ
and all assets and property, real, personal and mixed, and all debts due on
whatever account, liabilities and all and every other interest of or
belonging to or due each of Changemusic.com and CMJ shall be deemed
transferred to CMJ.com, all as provided under Delaware Law and New York
Law.
(d) The closing of the Merger (the "Closing") shall take place
(i) at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York, as soon as practicable, but in any event within
three business days after the day on which the last to be fulfilled or
waived of the conditions set forth in Article 10 (other than those
conditions that by their nature are to be fulfilled at the Closing, but
subject to the fulfillment or waiver of such conditions) shall be fulfilled
or waived in accordance with this Agreement or (ii) at such other place and
time or on such other date as CMJ.com, Changemusic.com and CMJ may agree in
writing (the "Closing Date").
SECTION 1.2 Conversion Of Shares.
(a) At the Effective Time by virtue of the Merger and without any
action on the part of any stockholder of CMJ.com, Changemusic.com or CMJ:
(i) each share of the common stock, par value $.01 per share
("CMJ.com Common Stock"), of CMJ.com issued and outstanding
immediately prior to the Effective Time shall be canceled immediately
prior to the Effective Time, and no payment shall be made with respect
thereto;
(ii) each share of common stock, par value $.01 per share, of
Changemusic.com ("Changemusic.com Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted
into and become 4,931.109794 shares of CMJ.com Common Stock (the
"Changemusic.com Exchange Ratio"), such that the common stockholders
of Changemusic.com will collectively receive an aggregate of
511,508.95 shares of CMJ.com Common Stock, representing 55.932322% of
the CMJ.com Common Stock to be outstanding immediately following the
Effective Time (or 51.150895% assuming exercise of the Ellerson
Options) (subject to adjustment pursuant to Sections 1.5(b) and (d));
(iii) each share of CMJ Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and
become 4,030.05116 shares of CMJ.com Common Stock (the "CMJ Exchange
Ratio"), such that the common stockholders of CMJ will collectively
receive an aggregate of 403,005.12 shares of CMJ.com Common Stock,
representing 44.0676785% of the CMJ.com Common Stock to be outstanding
immediately following the Effective Time (or 48.849105% assuming
exercise of the Ellerson Options) (subject to adjustment pursuant to
Sections 1.5(b), (d) and (e)); and
(iv) the shares of CMJ.com Common Stock received by the
respective common stockholders of Changemusic.com and CMJ at the
Effective Time shall constitute the only outstanding shares of the
capital stock of CMJ.com (other than the Series A Preferred Stock to
be purchased by RMG pursuant to the Preferred Stock Purchase
Agreement).
(b) All CMJ.com Common Stock issued as provided in Sections
1.2(a)(ii) and (iii) shall be of the same class and shall have the same
terms as the currently outstanding CMJ.com Common Stock. The shares of
CMJ.com Common Stock to be received as consideration pursuant to the Merger
with respect to shares of Changemusic.com Common Stock are referred to
herein as the "Changemusic.com Merger Consideration." The shares of
CMJ.com Common Stock to be received as consideration pursuant to the Merger
with respect to shares of CMJ Common Stock, together with the Ellerson
Options at the Effective Time, are collectively referred to herein as the
"CMJ Merger Consideration" and, together with the Changemusic.com Merger
Consideration, the "Merger Consideration").
(c) From and after the Effective Time, all shares of each of
Changemusic.com Common Stock and CMJ Common Stock converted in accordance
with Sections 1.2(a)(ii) and (iii), respectively, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares (a
"Certificate") shall cease to have any rights with respect thereto, except
the right to receive the Changemusic.com Merger Consideration or the CMJ
Merger Consideration (as the case may be) and any dividends payable
pursuant to Section 1.3(e).
SECTION 1.3 Surrender And Payment.
(a) At the Effective Time, each holder of shares of Changemusic.com
Common Stock and CMJ Common Stock that have been converted into a right to
receive the Merger Consideration, upon surrender to CMJ.com of a
Certificate, shall be entitled to receive the Merger Consideration in
respect of the shares of common stock represented by such Certificate,
subject to the escrow arrangements described in Section 1.3(b) and in the
Escrow Agreement. Until so surrendered, each such Certificate shall, after
the Effective Time, represent for all purposes only the right to receive
such Merger Consideration. Notwithstanding the foregoing, no stockholder
of CMJ or Changemusic.com shall be entitled to receive any certificates
representing CMJ.com Common Stock unless and until such stockholders shall
have executed and delivered to CMJ.com the Stockholders Agreement (as
hereinafter defined).
(b) Notwithstanding the foregoing paragraph (a), a number of shares
of CMJ.com Common Stock (and, in the case of the Ellerson Options, option
certificates representing the right to acquire 30% of the underlying shares
of CMJ.com Common Stock) equal to 30% of each of the Changemusic.com Merger
Consideration and the CMJ Merger Consideration (without giving effect to
any potential adjustment to the Merger Consideration pursuant to Sections
1.5(b), (d) or (e) hereof) issued on the Closing Date (the "Escrow Fund")
in the name of the respective stockholders and optionholders of
Changemusic.com and CMJ entitled thereto, shall be delivered to The Chase
Manhattan Bank, a New York State Chartered Bank (the "Escrow Agent") on the
Closing Date, together with executed but undated stock powers and other
proper instruments of assignments signed by such stockholders and
optionholders transferring to CMJ.com all of such stockholders' and
optionholders' rights, title and interest in and to the subject shares of,
and options to purchase, CMJ.com Common Stock, to be held in accordance
with the terms of the escrow agreement (the "Escrow Agreement") attached
hereto as Exhibit A. The Escrow Fund shall be maintained as security for
the possible adjustments to the Merger Consideration pursuant to Sections
1.5(b), (d) and (e) hereof; provided, however, that notwithstanding
anything to the contrary herein, in the event that any adjustments to the
Changemusic.com Merger Consideration or the CMJ Merger Consideration
pursuant to Section 1.5(b) and (d) hereof exceed the amount of
Changemusic.com Merger Consideration or CMJ Merger Consideration (as the
case may be) being held in the Escrow Fund, such Merger Consideration
shall, nevertheless, be reduced by the amount of such excess; provided,
further, that the foregoing proviso shall not apply to any adjustment
required by Section 1.5(d) hereof to the extent that such adjustment
relates to or arises out of a breach of any of the representations or
warranties contained in Sections 3.15, 3.17, 3.18, 3.20, 4.15, 4.17, 4.18
or 4.20 hereof.
(c) If any portion of the Merger Consideration is to be registered
in the name of a Person other than the Person in whose name the applicable
surrendered Certificate is registered, it shall be a condition to the
registration of the Merger Consideration that the surrendered Certificate
shall be properly endorsed or otherwise be in proper form for transfer and
that the Person requesting such delivery of the Merger Consideration shall
pay to CMJ.com any transfer or other taxes required as a result of such
registration in the name of a Person other than the registered holder of
such Certificate or establish to the reasonable satisfaction of CMJ.com
that such tax has been paid or is not payable. The CMJ.com Common Stock
issued to the stockholders of Changemusic.com and CMJ entitled thereto, the
Ellerson Options and the shares of CMJ.com Common Stock issuable upon
exercise of the Ellerson Option shall be subject to the restrictions on
transfer set forth in the Investment Letter, and the certificates
evidencing such CMJ.com Common Stock and options shall bear the restrictive
legends set forth in the Investment Letter. For purposes of this
Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency
or instrumentality thereof.
(d) After the Effective Time, the stock transfer books of
Changemusic.com and CMJ shall be closed and there shall be no further
registration of transfers of shares of Changemusic.com Common Stock or CMJ
Common Stock. If, after the Effective Time, Certificates are presented to
CMJ.com, they shall be canceled and exchanged for the Merger Consideration
provided for, and in accordance with the procedures set forth, in this
Article 1.
(e) No dividends or other distributions declared or made with
respect to shares of CMJ.com Common Stock shall be paid to the holder of
any unsurrendered Certificates until such Certificates are surrendered as
provided in this Section 1.3.
(f) In the event any Certificates shall have been lost, stolen or
destroyed, CMJ.com shall issue in exchange for such lost, stolen or
destroyed certificates, upon delivery to CMJ.com of (i) an affidavit of
that fact by the holder thereof and (ii) such indemnity as may be required
by CMJ.com to hold CMJ.com and any agent of CMJ.com harmless, the Merger
Consideration in respect of the shares of common stock represented by such
Certificates.
SECTION 1.4 Stock Options and Equity Awards.
(a) At the Effective Time, the option held by Mr. Alex Ellerson to
purchase 21.21 shares of CMJ Common Stock (the "CMJ Stock Option"), which
CMJ represents will constitute all outstanding options, warrants or other
rights to purchase CMJ Common Stock immediately prior to the Effective
Time, shall be deemed cancelled and the holder thereof shall receive in
exchange therefor options to purchase 85,485.93375 shares of CMJ.com Common
Stock (the "Ellerson Options") (subject to adjustment pursuant to Sections
1.5(b), (d) and (e)) at an exercise price of $ 5.865 per share; provided
that such options to purchase CMJ.com Common Stock shall be granted
pursuant to an option agreement which shall provide that the right to
exercise such options shall be evidenced only by one or more option
certificates to be issued to Mr. Ellerson at the Effective Time.
(b) Notwithstanding the foregoing paragraph (a), one or more option
certificates representing the right to purchase 30% of the shares of
CMJ.com Common Stock underlying the Ellerson Options shall constitute part
of the Escrow Fund, shall be maintained as security for the possible
adjustments to the CMJ Merger Consideration pursuant to Sections 1.5(b),
(d) and (e) hereof and shall be delivered to the Escrow Agent at the
Effective Time to be held in accordance with the terms of the Escrow
Agreement.
(c) CMJ.com shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of CMJ.com Common Stock for delivery
upon exercise of the Ellerson Options.
SECTION 1.5 Adjustments to Merger Consideration.
(a) If at any time during the period between the date of this
Agreement and the Effective Time, any change in the outstanding shares of
capital stock of CMJ.com or Changemusic.com or CMJ shall occur by reason of
any reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, or any similar transaction, or any
stock dividend thereon with a record or effective date during such period,
the Merger Consideration shall be appropriately adjusted to provide the
holders of shares of each of Changemusic.com Common Stock and CMJ Common
Stock the same economic effect as contemplated by this Agreement prior to
such event.
(b) If the aggregate amount of Net Liabilities immediately prior to
the Closing exceeds $1,800,000 (subject to adjustment as set forth in the
proviso below) with respect to CMJ or $100,000 with respect to
Changemusic.com, the Changemusic.com Merger Consideration and/or the CMJ
Merger Consideration, as the case may be, shall be decreased, dollar for
dollar (utilizing an implied $39.1 million valuation for the CMJ.com Common
Stock to be issued as Merger Consideration before giving effect to the
adjustments contemplated by this Section 1.5 and before giving effect to
the Series A Preferred Stock investment under the Preferred Stock Purchase
Agreement (the "Implied Value")) by the amount of such excess; provided,
however, that in the event that the aggregate amount of Net Liabilities of
Changemusic.com immediately prior to the Closing exceeds $0, the foregoing
reference to $1,800,000 of Net Liabilities of CMJ immediately prior to the
Closing shall be increased, dollar for dollar, by the amount of such
excess, up to, but not exceeding, an increase of $100,000. If the
aggregate amount of Net Liabilities of CMJ immediately prior to Closing is
less than $1,800,000, the CMJ Merger Consideration shall be increased, by
$0.50 for each dollar (utilizing the Implied Value) by the amount of such
difference. Any adjustment required to be made pursuant to this Section
1.5(b), or as a result of any account receivable reflected on the CMJ
Closing Date Balance Sheet or Changemusic.com Closing Date Balance Sheet
proving to be a Disqualified Receivable, is referred to herein as a "Net
Liability Adjustment". "Net Liabilities" means the sum of (i) total
liabilities as they would appear on a consolidated balance sheet prepared
in accordance with U.S. generally accepted accounting principles ("GAAP"),
plus (ii) the amount of liabilities of any third person that are guaranteed
whether or not such liabilities would appear on a consolidated balance
sheet of the guarantor prepared in accordance with GAAP less cash and
accounts receivable (other than Disqualified Receivables) that would appear
(net of proper reserves and allowances) on a consolidated balance sheet
prepared in accordance with GAAP. "Disqualified Receivables" means any
account receivable reflected in the CMJ Closing Date Balance Sheet (in the
case of CMJ) or the Changemusic.com Closing Date Balance Sheet (in the case
of Changemusic.com) that shall not have been collected within 180 days
following the Closing Date.
(c) Promptly following the Closing, there shall be prepared and
delivered to CMJ.com a consolidated balance sheet reflecting the Net
Liabilities of each of CMJ (the "CMJ Closing Date Balance Sheet") and
Changemusic.com (the "Changemusic.com Closing Date Balance Sheet" and,
together with the CMJ Closing Date Balance Sheet, the "Closing Date Balance
Sheets") as of the Closing Date. Such Closing Date Balance Sheets shall
present fairly, in all material respects, the respective Net Liabilities of
CMJ and Changemusic.com and shall be prepared in accordance with GAAP and
shall be accompanied by a report of the parties' respective independent
auditors that they have performed such review procedures with respect to
such Closing Date Balance Sheet that have enabled them to state that based
on such procedures, nothing has come to their attention that has led them
to believe that any adjustments thereto are required in order for such
Closing Date Balance Sheet to be prepared in accordance with GAAP. The
Closing Date Balance Sheets shall be delivered to CMJ.com not later than 45
days after the Closing Date in order to determine what adjustments, if any,
must be made to the CMJ Merger Consideration and/or the Changemusic.com
Merger Consideration, as the case may be, pursuant to Section 1.5 (b)
hereof. CMJ.com shall have 30 days from the date that CMJ.com receives the
Closing Date Balance Sheets to notify the former stockholders of CMJ and/or
Changemusic.com in writing if CMJ.com objects to any item in either or
both of the CMJ Closing Date Balance Sheet or the Changemusic.com Closing
Date Balance Sheet. Any such notice (a "Notice of Dispute") shall specify
in detail the item or items in dispute (a "Disputed Item" or "Disputed
Items"). In the event that CMJ.com and the former stockholders of CMJ
and/or Changemusic.com are unable to resolve the Disputed Item(s) within 60
days after delivery of a Notice of Dispute, CMJ.com and either or both of
the former stockholders of CMJ and Changemusic.com shall together appoint a
representative from the New York office of an independent nationally
recognized accounting firm (the "Arbitrator") to arbitrate the dispute and,
if CMJ.com and either or both of CMJ and Changemusic.com are unable to
agree on an Arbitrator, at the request of either such party made within 10
days after the end of such 60-day period, the Arbitrator shall be chosen by
the American Arbitration Association (the "AAA") in New York City. CMJ.com
and the former stockholders of CMJ and/or Changemusic.com (as applicable)
shall present their positions with respect to the Disputed Item or Disputed
Items to the Arbitrator, together with such other materials as the
Arbitrator deems appropriate, within 20 days after the appointment of the
Arbitrator. CMJ.com and the former stockholders of CMJ and/or
Changemusic.com (as applicable) (or an attorney-in-fact acting on behalf of
such stockholders) shall provide written instructions to the Arbitrator to
submit a written decision on each Disputed Item to CMJ.com and the former
stockholders of CMJ and/or Changemusic.com as soon as practicable after its
receipt of such materials. Any determination with respect to any Disputed
Item shall be final and binding on all parties to this Agreement and shall
have the legal effect of an arbitral award. The Arbitrator shall comply
with, and the arbitration shall be conducted in New York City in accordance
with, the commercial arbitration rules of the AAA as in effect for
commercial arbitrations conducted in New York City by the AAA. The fees
and disbursements of the Arbitrator shall be paid 50% by the former
stockholders of CMJ and 50% by the former stockholders of Changemusic.com
or, at the election of such stockholders, in lieu of cash payment, shall be
applied to further reduce the Merger Consideration, in which case CMJ.com
shall make such cash payment. Notwithstanding anything to the contrary in
this Section 1.5(c), no objection need be made with respect to any account
receivable that ultimately proves to be a Disqualified Receivable.
(d) (i) In the event of any inaccuracy in or breach or
nonperformance of any of the representations, warranties, covenants or
agreements made by or of CMJ in this Agreement, the CMJ Merger
Consideration shall be reduced, dollar for dollar (utilizing the Implied
Value), by an amount equal to the lesser of (x) the objectively
determinable out-of-pocket cash amount (if any) that, if immediately
expended, would completely cure such inaccuracy, breach or non-performance
and its consequences as if such inaccuracy, breach or non-performance had
never occurred (a "Cash Cure Amount") and (y) the reduction in the Implied
Value attributable to CMJ after giving effect to such inaccuracy, breach
or non-performance; provided, however, that no adjustment with respect to
CMJ's Net Liabilities as of the Closing Date shall be made pursuant to
this section 1.5(d)(i) and, in lieu thereof, the Net Liability Adjustment
shall apply; and provided, further, that no claim for an adjustment to the
Merger Consideration under this Section 1.5(d)(i) shall be asserted unless
and until the cumulative total of the proposed adjustment exceeds $50,000.
(ii) In the event of any inaccuracy in or breach or
nonperformance of any of the representations, warranties, covenants or
agreements made by or of Changemusic.com in this Agreement, the
Changemusic.com Merger Consideration shall be reduced, dollar for dollar
(utilizing the Implied Value), by an amount equal to the lesser of (x) the
Cash Cure Amount (if any) with respect to such inaccuracy, breach or
non-performance and (y) the reduction in the Implied Value attributable to
Changemusic.com after giving effect to such inaccuracy, breach or
non-performance; provided, however, that no adjustment with respect to
Changemusic.com's Net Liabilities as of the Closing Date shall be made
pursuant to this Section 1.5(d)(ii) and, in lieu thereof, the Net
Liability Adjustment shall apply; and provided, further, that no claim for
an adjustment to the Merger Consideration under this Section 1.5(d)(ii)
shall be asserted unless and until the cumulative total of the proposed
adjustment exceeds $50,000.
(iii) The parties hereto acknowledge that the original Implied
Value of $39.1 million was arrived at assuming the accuracy of all
representations and warranties and due performance of all covenants and
agreements contained herein. The reduction in the Implied Value referred
to in the foregoing clauses (i) and (ii) shall be determined with reference
to the methodologies originally employed in arriving at such original
Implied Value of $39.1 million.
(iv) Notwithstanding anything to the contrary herein, CMJ.com
may seek damages from any of the former stockholders of CMJ or
Changemusic.com (as the case may be) in the event of any inaccuracy in or
breach or nonperformance of any of the representations, warranties,
covenants or agreements made by or of CMJ or Changemusic.com (as the case
may be) that would otherwise require an adjustment to the CMJ Merger
Consideration or the Changemusic.com Merger Consideration, respectively, if
such adjustment is impracticable because such stockholder shall have since
transferred all or a portion of the shares of CMJ.com Common Stock such
stockholder shall have received as Merger Consideration.
(e) In the event that CMJ.com is enjoined or restrained from
using CMJ Content by reason of any contract, agreement, understanding or
other arrangement (i) entered into by or on behalf of CMJ or (ii) binding
upon CMJ, in each case, prior to the Effective Time, the CMJ Merger
Consideration payable to the former stockholders and optionholders of CMJ
(other than RMG) will be subject to a liquidated adjustment as follows:
(i) if CMJ.com is enjoined or materially restrained from displaying or
otherwise using more than 1,000 CMJ Music Reviews (as hereinafter defined)
on or over the Internet either (A) on CMJ.com's own Internet sites or (B)
on other Internet sites so long as such other sites are not the sites of
online retail sellers of recorded music, the entire amount of the CMJ
Merger Consideration payable to such former CMJ stockholders and
optionholders which is being held in the Escrow Fund in accordance with the
terms of the Escrow Agreement; (ii) if CMJ.com is enjoined or materially
restrained from displaying or otherwise using more than 1,000 CMJ Music
Reviews in connection with the online retail sale of recorded music on or
over its own Internet sites, other than CMJ branded products, the entire
amount of the CMJ Merger Consideration payable to such former CMJ
stockholders and optionholders which is being held in the Escrow Fund in
accordance with the terms of the Escrow Agreement; and (iii) if CMJ is
enjoined or materially restrained from displaying or otherwise using the
CMJ Music Reviews or any other CMJ Content in any manner, other than as set
forth in subsection (i) and (ii) of this Section 1.5(e) or other than
pursuant to the CDnow Agreement Rights (as hereinafter defined), then
reasonable compensatory damages will be based on the nature of the
restraint or injunction and with reference to the amounts set forth in
subsections (i) and (ii) as baselines; provided, however, that
notwithstanding the foregoing, in the event that any such injunction or
restraint referred to in subsection (i), (ii) or (iii) above is cured
within 21 days after the date upon which CMJ.com initially became subject
to such injunction or restraint (the "Cure Period"), the CMJ Merger
Consideration payable to such former CMJ stockholders and optionholders
will not be subject to a liquidated adjustment, but in lieu thereof the CMJ
Merger Consideration payable to such former CMJ stockholders and
optionholders shall be reduced by the amount of any damages incurred by
CMJ.com (including all reasonable fees and expenses of counsel) by reason
of such injunction or restraint during the Cure Period. Notwithstanding
anything to the contrary herein, the cumulative amount of the liquidated
adjustment to the CMJ Merger Consideration payable to such former CMJ
stockholders and optionholders under this Section 1.5(e) shall not exceed
the entire amount of the CMJ Merger Consideration payable to such former
CMJ stockholders and optionholders which is being held in the Escrow Fund
in accordance with the terms of the Escrow Agreement.
(f) All references herein to adjustments to the Merger
Consideration utilizing, based on, or determined with reference to, the
Implied Value shall be calculated as if the exercise price of the Ellerson
Options was $0 and therefor has no effect on the Implied Value or the
value of the Merger Consideration consisting of the Ellerson Options.
SECTION 1.6 Fractional Shares.
Fractional shares of CMJ.com Common Stock may be issued in the Merger,
such fractions to be carried out to 6 decimal places.
SECTION 1.7 Withholding Rights.
CMJ.com shall be entitled to deduct and withhold from the
consideration otherwise payable to any Person pursuant to this Article 1
such amounts as it is required to deduct and withhold with respect to the
making of such payment under any provision of federal, state, local or
foreign tax law. To the extent that amounts are so withheld by CMJ.com,
such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holders of the shares of Changemusic.com Common
Stock and CMJ Common Stock in respect of which such deduction and
withholding was made by CMJ.com.
SECTION 1.8 Appraisal Rights.
In accordance with Section 262 of the Delaware Law, since each
stockholder of CMJ.com shall have voted in favor of the Merger or consented
thereto in writing, no appraisal rights shall be available to holders of
shares of CMJ.com Common Stock in connection with the Merger. In
accordance with Section 910 of New York Law, since each Stockholder of CMJ
shall have assented to the Merger, no appraisal rights shall be available
to holders of shares of CMJ Common Stock in connection with the Merger.
Notwithstanding anything in this Agreement to the contrary, the
stockholders of Changemusic.com who did not vote in favor of the Merger and
who comply with all of the relevant provisions of Section 262 of the
Delaware Law (the "Dissenting Stockholders") shall not receive the
Changemusic.com Merger Consideration, unless and until such holders shall
have failed to perfect or shall have effectively withdrawn or lost their
rights to appraisal under the Delaware Law. As a condition to closing
hereunder, RMG shall have agreed in its Investment Letter to reimburse
CMJ.com for all appraisal payments made and all expenses incurred in
connection with any Dissenting Stockholder's demand for appraisal, and the
Changemusic.com Merger Consideration that such Dissenting Stockholders
would have received in the absence of such demand for appraisal will be
paid to RMG in consideration thereof.
ARTICLE II
CERTAIN GOVERNANCE MATTERS
SECTION 2.1 Certificate of Incorporation and Bylaws of CMJ.com.
At the Effective Time, the certificate of incorporation and the bylaws
of CMJ.com, as in effect immediately prior to the Effective Time, shall be
the certificate of incorporation and the bylaws of CMJ.com, as the
surviving corporation.
SECTION 2.2 CMJ.com Board of Directors; Officers.
(a) At the Effective Time, the Board of Directors of CMJ.com shall
consist, as of the Effective Time, of 5 directors, (x) two of whom shall be
persons designated by the holders of a majority of the Changemusic.com
Common Stock outstanding immediately prior to the Effective Time, (y) two
of whom shall be persons designated by the holders of a majority of the CMJ
Common Stock (which shall for the purposes of this clause (y) assume
exercise of outstanding options to purchase shares of CMJ Common Stock held
by Alex Ellerson) outstanding immediately prior to the Effective Time, and
(z) one of whom shall be designated by the holders of a majority of the
Series A Preferred Stock outstanding at or immediately following the
Effective Time.
(b) CMJ.com shall take all action necessary to cause, as of the
Effective Time, Glenn S. Meyers to be appointed as Chairman of CMJ.com;
Robert Haber to be appointed as Chief Executive Officer, President,
Publisher and Founder of CMJ.com; Alexander Ellerson to be appointed as
Executive Vice President and Chief Operating Officer; Seth Tapper to be
appointed as Executive Vice President; Jeff Kaplan to be appointed as
Executive Vice President, Chief Financial Officer and Treasurer; and Robert
Lewis to be appointed as Vice President, General Counsel and Secretary,
respectively, of CMJ.com.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CMJ
CMJ represents and warrants to Changemusic.com and CMJ.com that
(except as set forth in the disclosure schedules delivered by CMJ to
Changemusic.com and CMJ.com simultaneously with the execution of this
Agreement and attached hereto (the "CMJ Disclosure Schedules")):
SECTION 3.1 Corporate Existence and Power.
CMJ is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of New York, and has all corporate
power and authority and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted,
except for those the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect on CMJ. CMJ is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on CMJ.
For purposes of this Agreement, a "Material Adverse Effect" with respect to
any Person means a material adverse effect on the financial condition,
business, liabilities, properties, assets or results of operations, taken
as a whole, of such Person and its Subsidiaries, taken as a whole. CMJ has
heretofore made available to Changemusic.com and CMJ.com true and complete
copies of the CMJ certificate of incorporation and by-laws as currently in
effect. As of the date hereof, neither CMJ nor any of its Subsidiaries
owns any shares of Changemusic.com Common Stock.
SECTION 3.2 Corporate Authorization.
(a) The execution, delivery and performance by CMJ of this Agreement
and the consummation by CMJ of the transactions contemplated hereby are
within CMJ's corporate powers and, have been duly authorized by all
necessary corporate action, including required approval by CMJ's
stockholders in accordance with New York Law. Assuming due authorization,
execution and delivery of this Agreement by Changemusic.com and CMJ.com,
this Agreement constitutes a valid and binding agreement of CMJ enforceable
against CMJ in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights,
and to general equity principles.
(b) CMJ's Board of Directors has (i) determined that this Agreement
and the transactions contemplated hereby (including the Merger) are fair to
and in the best interests of CMJ's stockholders, (ii) approved and adopted
this Agreement and the transactions contemplated hereby (including the
Merger), and (iii) resolved to recommend that CMJ stockholders vote for the
approval and adoption of this Agreement and the Merger and has submitted
this Agreement and the Merger to such stockholders for their approval and
adoption.
(c) The holders of all of the outstanding capital stock of CMJ have
voted for, or consented in writing to, the approval and adoption of this
Agreement and the Merger.
SECTION 3.3 Governmental Authorization.
The execution, delivery and performance by CMJ of this Agreement and
the consummation by CMJ of the transactions contemplated hereby require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than (a) the filing of certificates of merger
in connection with the Merger in accordance with Delaware Law and New York
Law, and (b) other actions or filings which if not taken or made would not,
individually or in the aggregate, have a Material Adverse Effect on CMJ or
prevent or materially delay CMJ's consummation of the Merger in accordance
with this agreement.
SECTION 3.4 Non-Contravention.
The execution, delivery and performance by CMJ of this Agreement and
the consummation by CMJ of the transactions contemplated hereby do not and
will not (a) contravene or conflict with the certificate of incorporation
or by-laws of CMJ, (b) assuming compliance with the matters referred to in
Section 3.3, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to CMJ or any of its Subsidiaries, (c)
constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of CMJ or any of
its Subsidiaries or a loss, in whole or in part, of any benefit or right to
which CMJ or any of its Subsidiaries is entitled under any provision of any
agreement, contract or other instrument binding upon CMJ or any of its
Subsidiaries or any license, franchise, permit or other similar
authorization held by CMJ or any of its Subsidiaries, or (d) result in the
creation or imposition of any Lien on any asset of CMJ or any of its
Subsidiaries, except, in the case of clauses (b), (c) and (d), for such
contraventions, conflicts, violations, defaults, rights of termination,
cancellation or acceleration, or losses or Liens that would not,
individually or in the aggregate, have a Material Adverse Effect on CMJ.
For purposes of this Agreement, "Lien" means, with respect to any
properties or assets, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset other than any such
mortgage, lien, pledge, charge, security interest or encumbrance (i) for
Taxes (as defined in Section 3.11) not yet due or being contested in good
faith and for which adequate provision has been made or (ii) which is a
carriers', warehousemen's, mechanics', materialmen's, repairmen's or other
like lien arising in the ordinary course of business. Except as set forth
on Schedule 3.4, neither CMJ nor any Subsidiary of CMJ is a party to any
agreement that expressly limits the ability of CMJ or any Subsidiary of CMJ
to compete in or conduct any line of business or compete with any Person or
in any geographic area or during any period of time except to the extent
that any such limitation, individually or in the aggregate, would not have
a Material Adverse Effect on CMJ or on CMJ.com immediately after the
Effective Time. Schedule 3.4 sets forth a true, accurate and complete list
of all material contracts, instruments, agreements, judgments, orders and
decrees to which CMJ or any of its Subsidiaries is a party or by which any
of them or their properties is bound or affected, copies of all of which
have been provided to Changemusic.com and CMJ.com. There has not occurred
any breach, violation or default or any event that, with the lapse of time,
the giving of notice or the election of any person, or any combination
thereof, would constitute a breach, violation or default by the CMJ under
any such contract or, to the knowledge of CMJ, by any other person to any
such contract nor has there occurred any event giving others (with notice
or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument to which CMJ is a party. CMJ has not been notified that any
party to any material contract intends to cancel, terminate, not renew or
exercise an option under any material contract, whether in connection with
the transactions contemplated hereby or otherwise.
SECTION 3.5 Capitalization.
The authorized capital stock of CMJ consists of two hundred (200)
shares of CMJ Common Stock without par value. As of the date hereof there
are outstanding one hundred (100) shares of CMJ Common Stock, and no other
shares of capital stock or other voting securities of CMJ are outstanding.
All outstanding shares of capital stock of CMJ have been duly authorized
and validly issued and are fully paid and nonassessable. Except for the
Common Stock Purchase Agreement and options to purchase 21.21 shares of CMJ
Common Stock held by Alex Ellerson, there are no outstanding options,
warrants or other rights to acquire from CMJ, and no preemptive or similar
rights, subscription or other rights, convertible or exchangeable
securities, agreements, arrangements or commitments of any character,
relating to the capital stock of CMJ, obligating CMJ to issue, transfer or
sell, any capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of CMJ or obligating
CMJ to grant, extend or enter into any such option, warrant, subscription
or other right, convertible or exchangeable security, agreement,
arrangement or commitment (each of the foregoing, a "CMJ Convertible
Security"). There are no outstanding obligations of CMJ or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of CMJ or any CMJ Convertible Securities.
SECTION 3.6 Subsidiaries.
(a) Each Subsidiary of CMJ is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has
all power and authority and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted,
except for those the absence of which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on CMJ.
For purposes of this Agreement, the word "Subsidiary" when used with
respect to any Person means any other Person, whether incorporated or
unincorporated, of which (i) more than fifty percent of the securities or
other ownership interests or (ii) securities or other interests having by
their terms ordinary voting power to elect more than fifty percent of the
board of directors or others performing similar functions with respect to
such corporation or other organization, is directly owned or controlled by
such Person or by any one or more of its Subsidiaries. Each Subsidiary of
CMJ is duly qualified to do business and is in good standing in each
jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on CMJ.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Significant Subsidiary (as such term is defined in rule
12b-2 under the Securities Exchange Act of 1934 ("Exchange Act")) of CMJ is
owned, directly or indirectly, by CMJ. All shares of capital stock of, or
other ownership interests in, Subsidiaries of CMJ, directly or indirectly,
owned by CMJ are owned free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership
interests), except as would not, individually or in the aggregate, have a
Material Adverse Effect on CMJ. There are no outstanding options, warrants
or other rights to acquire from CMJ or any of its Subsidiaries, and, except
as may be required by applicable foreign corporate laws, no preemptive or
similar rights, subscriptions or other rights, convertible or exchangeable
securities, agreements, arrangements or commitments of any character,
relating to the capital stock of any Subsidiary of CMJ, obligating CMJ or
any of its Subsidiaries to issue, transfer or sell, any capital stock,
voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities
or ownership interests in, any Subsidiary of CMJ or obligating CMJ or any
Subsidiary of CMJ to grant, extend or enter into any such option, warrant,
subscription or other right, convertible or exchangeable security,
agreement, arrangement or commitment (each of the foregoing, a "CMJ
Subsidiary Convertible Security"). There are no outstanding obligations of
CMJ or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any outstanding shares of capital stock of any Subsidiary of CMJ or any CMJ
Subsidiary Convertible Securities.
SECTION 3.7 Financial Statements.
The unaudited consolidated annual financial statements for 1998 and
1997 and unaudited consolidated interim financial statements for the first
nine months of 1999 of CMJ (including any related notes and schedules)
present fairly, in all material respects, the financial position of CMJ and
its Subsidiaries as of the dates thereof and their results of operations
and cash flows for the periods then ended (subject to normal year-end
adjustments and the absence of notes in the case of any unaudited interim
financial statements), in each case in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto). For
purposes of this Agreement, "CMJ Balance Sheet" means the consolidated
balance sheet of CMJ as of September 30, 1999 and "CMJ Balance Sheet Date"
means September 30, 1999.
SECTION 3.8 Absence of Certain Changes.
Since the CMJ Balance Sheet Date and, prior to the date hereof, CMJ
and its Subsidiaries have conducted their respective businesses in the
ordinary course, consistent with past practice, and there has not been:
(a) any event, occurrence or development which, individually or in
the aggregate, would have a Material Adverse Effect on CMJ;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of CMJ or
any repurchase, redemption or other acquisition by CMJ or any of its
Subsidiaries of any outstanding shares of their capital stock or any CMJ
Convertible Securities or CMJ Subsidiary Convertible Securities;
(c) any amendment of any term of any outstanding security of CMJ or
any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement
or settlement entered into, by (or judgment, order or decree affecting) CMJ
or any of its Subsidiaries relating to its assets or business (including
the acquisition or disposition of any material amount of assets) or any
relinquishment by CMJ or any of its Subsidiaries of any contract or other
right, other than transactions, commitments, contracts, agreements,
settlements or relinquishments in the ordinary course of business and those
contemplated by this Agreement;
(e) any change in any method of accounting or accounting practice by
CMJ or any of its Subsidiaries, except for any such change which is not
material or which is required by reason of a concurrent change in GAAP;
(f) except as set forth on Schedule 3.8, any (i) grant of any
severance or termination pay to (or amendment to any such existing
arrangement with) any director, officer or employee of CMJ or any of its
Subsidiaries, (ii) entering into of any employment, deferred compensation,
supplemental retirement or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of CMJ or
any of its Subsidiaries, (iii) increase in, or accelerated vesting and/or
payment of, benefits under any existing severance or termination pay
policies or employment agreements or (iv) increase in or enhancement of any
rights or features related to compensation, bonus or other benefits payable
to directors, officers or senior employees of CMJ or any of its
Subsidiaries, in each case, other than in the ordinary course of business
consistent with past practice; or
(g) any material Tax election made or changed, any material audit
settled or any material amended Tax Returns filed.
SECTION 3.9 No Undisclosed Material Liabilities.
There are no material liabilities of CMJ or any Subsidiary of CMJ,
whether accrued, contingent, absolute, determined, determinable or
otherwise, that would be required to be reflected in a consolidated balance
sheet of CMJ prepared in accordance with GAAP or required to be disclosed
on the face thereof or in the notes thereto in accordance with Statement of
Financial Accounting Standards No. 5 of the Financial Accounting Standards
Board, other than:
(a) liabilities disclosed or provided for in the CMJ Balance Sheet
or in the notes thereto;
(b) liabilities incurred since such date in the ordinary course of
business; and
(c) liabilities under this Agreement.
SECTION 3.10 Litigation.
There is no action, suit, investigation or proceeding pending against
or affecting, or to the knowledge of CMJ threatened against or affecting,
CMJ or any of its Subsidiaries or any of their respective properties or any
of their respective officers or directors before any court or arbitrator or
any governmental body, agency or official except as would not, individually
or in the aggregate, have a Material Adverse Effect on CMJ or prevent or
materially delay the consummation of the Merger.
SECTION 3.11 Taxes.
Except as set forth in Schedule 3.11 of the CMJ Disclosure Schedule:
(a) Each of CMJ and its Subsidiaries has (x) duly and timely filed
(or there has been filed on its behalf) with the appropriate governmental
authorities all Tax Returns required to be filed by it, and all such Tax
Returns are true, correct and complete except to the extent any failure to
file or any inaccuracies in any filed Tax Return would not be reasonably
likely to have a Material Adverse Effect on CMJ and (y) timely paid (or
properly accrued on CMJ's books) or there has been paid on its behalf all
Taxes due from it or claimed to be due from it by any tax authority
(whether or not set forth on any Tax Return) except to the extent that any
failure to pay would not be reasonably likely to have a Material Adverse
Effect on CMJ;
(b) CMJ and each of its Subsidiaries have complied in all material
respects with all applicable Tax Laws relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to sections 1441 and 1442 of the Code and employment withholding
Taxes) and have, within the time and manner prescribed by law, withheld and
paid over to the proper governmental entities all amounts required to be
withheld and paid over under all applicable Tax Laws except for amounts
that would not be reasonably likely to have a Material Adverse Effect on
CMJ;
(c) There are no material Liens for Taxes upon the assets or
properties of CMJ or any of its Subsidiaries except for statutory Liens for
current Taxes not yet due or that are being contested in good faith in
appropriate proceedings and for which adequate reserves have been
maintained in accordance with GAAP;
(d) None of CMJ or any of its Subsidiaries has requested any
extension of time within which to file any Tax Return in respect of any
taxable year which has not since been filed, and no outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns has been given by or on behalf of
CMJ or any of its Subsidiaries except for such waiver or consent that would
not be reasonably likely to have a Material Adverse Effect on CMJ;
(e) None of CMJ or any of its Subsidiaries has received any written
notice of any federal, state, local or foreign audits, review, suits,
investigations, actions, claims, or other administrative proceedings or
court proceedings ("Audits") with regard to any Taxes or Tax Returns of CMJ
or any of its Subsidiaries, and to CMJ's and its Subsidiaries' knowledge no
such Audits are currently being conducted;
(f) All Tax deficiencies which have been claimed, proposed or
asserted against CMJ or any of its Subsidiaries by any taxing authority
have been fully paid except for such deficiency that would not be
reasonably likely to have a Material Adverse Effect on CMJ. No issue has
been raised by any taxing authority in any current or prior examination
which, by application of the same principles, would reasonably be expected
to result in a proposed deficiency for any subsequent Taxable Period;
(g) None of CMJ or any of its Subsidiaries is required to include in
income any adjustment pursuant to Section 481(a) of the Code, by reason of
any voluntary or involuntary change in accounting method (nor has any tax
authority notified CMJ or any of its Subsidiaries in writing of any such
adjustment or change of accounting method);
(h) To the knowledge of CMJ and its Subsidiaries, no power of
attorney has been granted by or with respect to CMJ or any of its
Subsidiaries with respect to any matter relating to Taxes;
(i) None of CMJ or any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Code (or any predecessor provision) or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code);
(j) The reserves for Taxes (determined in accordance with generally
accepted accounting principles consistently applied) reflected in the CMJ
Balance Sheet are adequate for the payment of all Taxes payable by CMJ or
any of its Subsidiaries through the date of the CMJ Balance Sheet;
(k) None of CMJ or any of its Subsidiaries is a party to any
agreement, contract or arrangement that could result, separately or in the
aggregate, in the payment of any payments that will not be deductible by
operation of Section 162(m) of the Code;
(l) None of CMJ or any of its Subsidiaries has requested or received
a ruling or determination from any tax authority or signed a closing or
other agreement with any tax authority which would be reasonably likely to
have a Material Adverse Effect on CMJ;
(m) The Federal income Tax Returns of the Company and its
Subsidiaries for the Tax Periods ending before January 1, 1995 have been
examined by the appropriate Governmental authority (or the applicable
statue of limitations for the assessment of such taxes has expired);
(n) None of CMJ or any of its Subsidiaries is a party to, is bound
by, or has any obligation under, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement (collectively,
"Tax Indemnification Agreements"). Any such Tax Indemnification Agreement
set forth in the Disclosure Schedule will terminate as of the Closing Date
and be of no further force or effect for any Tax Period after the Closing
Date. As of the date of this Agreement, none of CMJ or any of its
Subsidiaries is aware of any potential liability or obligation to any
person as a result of, or pursuant to, any such Tax Indemnification
Agreement;
(o) CMJ and each of its Subsidiaries has previously delivered or made
available to Changemusic.com complete and accurate copies of each of (a)
all audit reports, letter rulings, technical advice memoranda and similar
documents issued by a Governmental authority relating to the United States
federal, state, local or foreign Taxes due from or with respect to CMJ and
its Subsidiaries, (b) the United States federal income Tax Returns, and
those state, local and foreign income Tax Returns filed by CMJ and its
Subsidiaries (or on their behalf) and (c) any closing agreements entered
into by CMJ or any of its Subsidiaries with any tax authority. CMJ will
deliver to Changemusic.com all materials with respect to the foregoing for
all matters arising after the date hereof;
(p) None of CMJ or any of its Subsidiaries has any or could have any
liability for Taxes of another person under Section 1.1502-6 of the
Treasury Regulations (or any similar provision under state, local or
foreign law), by contract or otherwise;
(q) None of CMJ or any of its Subsidiaries has any deferred
intercompany gain or loss arising as a result of a deferred intercompany
transaction within the meaning of Section 1.1502-13 of the Treasury
Regulations (or similar provision under state, local or foreign law);
(r) No written notice of a claim by a taxing authority in a
jurisdiction where either CMJ or any of its Subsidiaries does not file Tax
Returns has been received by CMJ or any of its Subsidiaries to the effect
that CMJ or any of such Subsidiaries is or may be subject to taxation by
that jurisdiction;
(s) None of CMJ or any of its Subsidiaries is a "United States real
property holding corporation" within the meaning of Section 897 of the
Code;
For the purposes of this Agreement, the following terms shall have the
meanings set forth below: "Taxes" means all federal, state, local and
foreign taxes, levies, deficiencies or other assessments and other charges
of whatever nature, whether or not disputed (including income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, back-up withholding, social
security, unemployment, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum and
other taxes or escheat liability), imposed by any taxing authority
including any interest, penalty (civil or criminal), or addition thereto.
"Tax Law" means the law (including any applicable regulations or any
administrative pronouncement) of any governmental authority relating to any
Tax. "Tax Period" means with respect to any Tax, the period for which the
Tax is reported as provided under the applicable Tax Law. "Tax Return"
means any federal, state, local or foreign return, declaration, report,
claim for refund, amended return, declaration of estimated Tax or
information return or statement relating to Taxes, and any schedule,
exhibit, attachment or other materials submitted with any of the foregoing,
and any amendment thereto.
SECTION 3.12 Employee Benefit Plans.
(a) For purposes of this Agreement, the term "CMJ Employee Plans"
shall mean and include: each management, consulting, non-compete,
employment, severance or similar contract, plan, including, without
limitation, all CMJ Stock Plans, arrangement or policy applicable to any
director, former director, employee or former employee of CMJ and each
plan, program, policy, agreement or arrangement (written or oral),
providing for compensation, bonuses, profit-sharing, stock option or other
stock related rights or other forms of incentive or deferred compensation,
vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, workers'
compensation, supplemental unemployment benefits, severance benefits and
post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance benefits) or other employee benefits of
any kind, whether funded or unfunded, which is maintained, administered or
contributed to by CMJ or any Subsidiary and covers any employee or director
or former employee or director of CMJ or any Subsidiary, or under which CMJ
has any liability contingent or otherwise (including but not limited to
each material "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but
excluding any such plan that is a "multiemployer plan," as defined in
Section 3(37) of ERISA). Neither CMJ nor any of its affiliates contributes
to, or is required to contribute to, any "multiemployer plan" as defined in
Section 3(37) of ERISA. Schedule 3.12 sets forth a true, accurate and
complete list of all CMJ Employee Plans.
(b) Each CMJ Employee Plan has been established and maintained in
compliance with its terms and with the requirements prescribed by any and
all statutes, orders, rules and regulations (including but not limited to
ERISA and the Code) which are applicable to such Plan, except where failure
to so comply would not, individually or in the aggregate, have a Material
Adverse Effect on CMJ.
(c) Neither CMJ nor any affiliate of CMJ has incurred a liability
under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to CMJ or any affiliate of
CMJ of incurring any such liability. All contributions required to be made
under the terms of any CMJ Employee Plan have been made, and, where
applicable to a CMJ Employee Plan, CMJ and its affiliates have complied
with the minimum funding requirements under Section 412 of the Code and
Section 302 of ERISA with respects to each such CMJ Employee Plan.
(d) Each CMJ Employee Plan which is intended to be qualified under
section 401(a) of the Code is so qualified and has been so qualified during
the period from its adoption to date, and each trust forming a part thereof
is exempt from federal income tax pursuant to section 501(a) of the Code
and, to CMJ's knowledge, no circumstances exist which will adversely affect
such qualification or exemption.
(e) No director or officer or other employee of CMJ or any of its
Subsidiaries will become entitled to any retirement, severance or similar
benefit or enhanced or accelerated benefit (including any acceleration of
vesting or lapse of repurchase rights or obligations with respect to any
CMJ Stock Plans or other benefit under any compensation plan or arrangement
of CMJ) solely as a result of the transactions contemplated hereby; and
(ii) no payment made or to be made to any current or former employee or
director of CMJ or any of its affiliates by reason of the transactions
contemplated hereby (whether alone or in connection with any other event,
including, but not limited to, a termination of employment) will constitute
an "excess parachute payment" within the meaning of Section 280G of the
Code.
(f) No CMJ Employee Plan provides material post-retirement health
and medical, life or other insurance benefits for retired employees of CMJ
or any of its Subsidiaries nor has CMJ or any Subsidiary represented or
promised to provide such benefits.
(g) There has been no amendment to, or change in employee
participation or coverage under, any CMJ Employee Plan which would increase
materially the expense of maintaining such CMJ Employee Plan above the
level of the expense incurred in respect thereof for the 12 months ended on
CMJ Balance Sheet Date.
(h) CMJ and its Subsidiaries are in compliance with all applicable
federal, state, local and foreign statutes, laws (including without
limitation, common law), judicial decisions, regulations, ordinances,
rules, judgments, orders and codes respecting employment, employment
practices, labor, terms and conditions of employment and wages and hours,
and no work stoppage or labor strike against CMJ and its Subsidiaries are
pending or threatened, nor are CMJ and its Subsidiaries involved in or
threatened with any labor dispute, grievance, or litigation relating to
labor matters involving any employees, in each case except as would not,
individually or in the aggregate, have a Material Adverse Effect on CMJ.
There are no suits, actions, disputes, claims (other than routine claims
for benefits), investigations or audits pending or, to the knowledge of
CMJ, threatened in connection with any CMJ Employee Plan, but excluding any
of the foregoing which would not have a Material Adverse Effect on CMJ.
SECTION 3.13 Compliance with Laws.
Neither CMJ nor any of its Subsidiaries has violated or is in
violation of any applicable provisions of any laws, statutes, ordinances or
regulations except for any violations that, individually or in the
aggregate, have not and would not have a Material Adverse Effect on CMJ.
SECTION 3.14 Finders' or Advisors' Fees.
Except for Ladenburg, Thalmann & Co. Inc. ("LTC"), a copy of whose
engagement agreement has been provided to Changemusic.com, there is no
investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of CMJ or any of its
Subsidiaries who might be entitled to any compensation, fee or commission
in connection with the transactions contemplated by this Agreement. CMJ or
its stockholders (excluding RMG) shall be responsible for the fees and
expenses of LTC in connection with such engagement letter; they shall
discharge any and all such obligations to LTC prior to the Effective Time,
and CMJ.com shall have no responsibility therefor.
SECTION 3.15 Environmental Matters.
(a) Except for matters which, individually or in the aggregate,
would not have a Material Adverse Effect on CMJ, (i) no written notice,
notification, demand, request for information, citation, summons, complaint
or order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of CMJ or any of its
Subsidiaries, threatened by any Person against, CMJ or any of its
Subsidiaries, and no penalty has been assessed against CMJ or any of its
Subsidiaries, in each case, with respect to any matters relating to or
arising out of any Environmental Law; (ii) CMJ and its Subsidiaries are in
compliance with all Environmental Laws; and (iii) to the knowledge of CMJ,
there are no liabilities of or relating to CMJ or any of its Subsidiaries
relating to or arising out of any Environmental Law and there is no
existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability.
(b) For purposes of this Agreement, the term "Environmental Laws"
means federal, state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions,
permits and governmental agreements relating to human health and the
environment, including, but not limited to, Hazardous Materials; and the
term "Hazardous Material" means all substances or materials regulated as
hazardous, toxic, explosive, dangerous, flammable or radioactive under any
Environmental Law including, but not limited to: (i) petroleum, asbestos,
or polychlorinated biphenyls and (ii) in the United States, all substances
defined as Hazardous Substances, Oils, Pollutants or Contaminants in the
National Oil and Hazardous Substances Pollution Contingency Plan.
SECTION 3.16 Intellectual Property Matters.
(a) For purposes of this Agreement, "Intellectual Property" means
any United States, foreign, international and state: patents and patent
applications, industrial design registrations, certificates of invention
and utility models (collectively, "Patents"); trademarks, service marks,
and trademark or service mark registrations and applications, trade names,
logos, designs, slogans, and general intangibles of like nature, together
with all goodwill related to the foregoing (collectively, "Trademarks");
Internet domain names; copyrights, copyright registrations, renewals and
applications for copyrights, including without limitation for the Content
and the Software (each as defined below in this Section 3.16)
(collectively, "Copyrights"); Content; Software, technology, trade secrets
and other confidential information, know-how, proprietary processes,
formulae, algorithms, models and methodologies (collectively, "Trade
Secrets"), rights of privacy and publicity, including but not limited to,
the names, likenesses, voices and biographical information of real persons,
and all license agreements and other agreements granting rights relating to
any of the foregoing. "Software" means any and all (i) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code form, (ii) databases,
compilations, and any other electronic data files, including any and all
collections of data, whether machine readable or otherwise, (iii)
descriptions, flow-charts, technical and functional specifications, and
other work product used to design, plan, organize, develop, test,
troubleshoot and maintain any of the foregoing, (iv) without limitation to
the foregoing, the software technology supporting any functionality
contained on Internet site(s), and (v) all documentation, including
technical, end-user, training and troubleshooting manuals and materials,
relating to any of the foregoing. "Content" means any and all information,
pictures, images, graphics, video, audio, text and any other content or
information, in whatever form and on any media. "CMJ Content" means any
and all Content published or displayed in any form, including
electronically, by or on behalf of CMJ, including but not limited to all
Content contained in CMJ publications and events (such as, but not limited
to, the CMJ New Music Monthly, the CMJ New Music Report and the CMJ Music
Marathon MusicFest and FilmFest).
(b) CMJ owns or has the valid right to use all material Intellectual
Property, as currently used in connection with the business of CMJ,
including without limitation all license agreements and other agreements
granting rights relating to any such Intellectual Property ("CMJ License
Agreements") to which CMJ is a party or is otherwise bound (such
Intellectual Property, together with the CMJ License Agreements the "CMJ
Intellectual Property").
(c) Schedule 3.16(c) sets forth, for the material Intellectual
Property owned by CMJ, a complete and accurate list of all United States,
foreign, international and state (i) patents and patent applications, (ii)
Trademark registrations and applications and material unregistered
Trademarks, (iii) Internet domain names, and (iv) Copyright registrations
and applications, and material unregistered Copyrights, including Content
and Software, indicating for each, the applicable jurisdiction,
registration number (or application number), and date issued (or date
filed).
(d) Except as set forth on Schedule 3.16(d), the CMJ Intellectual
Property owned by CMJ is solely and exclusively owned by CMJ free and clear
of all Liens, and CMJ is listed in the records of the appropriate United
States, state or foreign agency as the sole owner of record for each
registration and application for any Patent, Trademark, Internet domain
name and Copyright that it owns. Except as set forth on Schedule 3.16(d),
all of the items set forth on Schedule 3.16(c) are valid and subsisting, in
full force and effect, and have not been cancelled, expired, or abandoned.
There is no pending or, to CMJ's knowledge, threatened opposition,
interference or cancellation proceeding before any court or registration
authority in any jurisdiction against the items set forth on Schedule
3.16(c) or any other CMJ Intellectual Property owned by CMJ or, to CMJ's
knowledge, against any CMJ Intellectual Property not owned by CMJ.
(e) Except as set forth on Schedule 3.16(e), there are no
settlements, forebearances to sue, consents, judgments, or orders or
similar obligations to which CMJ is a party or is otherwise bound, which
(i) materially restrict CMJ's rights to use any CMJ Intellectual Property,
(ii) materially restrict CMJ's business in order to accommodate a third
party's Intellectual Property rights or (iii) permit third parties to use
any Intellectual Property which would otherwise materially infringe any CMJ
Intellectual Property. CMJ has not materially licensed or sublicensed its
rights in any CMJ Intellectual Property other than pursuant to the CMJ
License Agreements set forth on Schedule 3.16(e) and no royalties,
honoraria or other fees are payable by for the use of or right to use any
CMJ Intellectual Property in connection with CMJ's business as currently
conducted, except pursuant to the CMJ License Agreements set forth on
Schedule 3.16(e).
(f) The CMJ License Agreements are valid and binding obligations of
CMJ and, to CMJ's knowledge, any other parties thereto, enforceable in
accordance with their terms, and there exists no event or condition which
will result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default by CMJ under any such CMJ
License Agreement.
(g) To CMJ's knowledge, no Trade Secret material to the business of
CMJ as currently operated has been disclosed or authorized to be disclosed
to any third party, including any employee, agent, contractor or other
entity, other than pursuant to a non-disclosure agreement that adequately
protects CMJ's proprietary interests in and to such Trade Secrets. To
CMJ's knowledge, no party to any non-disclosure agreement relating to such
Trade Secrets is in breach thereof.
(h) To CMJ's knowledge, the conduct of CMJ's business as currently
conducted and the CMJ Content do not materially infringe upon any
Intellectual Property owned or controlled by any third party (either
directly or indirectly such as through contributory infringement or
inducement to infringe) and is not materially libelous, slanderous,
defamatory, violative in any way of publicity or privacy rights, or
obscene. Except as set forth on Schedule 3.16(h), there are no claims or
suits pending or, to CMJ's knowledge, threatened, and CMJ has not received
any notice of a third party claim or suit, (i) alleging that CMJ's
activities or the conduct of its businesses infringes upon or constitutes
the unauthorized use of the Intellectual Property rights of any third
party, nor alleging libel, slander, defamation, or other violation of a
personal right, or (ii) challenging the ownership, use, validity or
enforceability of any CMJ Intellectual Property.
(i) To CMJ's knowledge, no third party is materially
misappropriating, infringing, diluting, or otherwise violating any CMJ
Intellectual Property, and, except as set forth on Schedule 3.16(i), no
such claims are pending against a third party by CMJ.
(j) Without limitation to the representations and warranties set
forth above in this Section 3.16, CMJ represents and warrants that there
are no material restrictions on the CMJ Content owned by CMJ.
(k) CMJ represents and warrants that (i) CMJ has, and CMJ.com will
have as of the Effective Time, (other than as set forth in the following
clause (ii)) the unrestricted right to use, copy, distribute, create
derivative works from, perform, display, transmit and otherwise exploit the
CMJ Content, including, but not limited to, all past, current and future
music reviews published by or on behalf of CMJ on whatever media (the "CMJ
Music Reviews") and (ii) no other person or entity will have any rights
whatsoever in or to any CMJ Content, except for (A) any rights set forth in
the contracts (other than the Linking Agreement, dated as of April 20,
1998, between CMJ and CDnow, Inc., a Pennsylvania corporation (the "CDnow
Agreement")) listed on Schedule 3.16(k) and (B) the right of CDnow, Inc.,
pursuant to the CDnow Agreement, (x) to be the only online retail seller of
recorded music licensed to use, copy or display the CMJ Music Reviews over
the Internet and (y) to have the right of first refusal to license any
other CMJ Content appearing in either CMJ New Music Report or CMJ New Music
Monthly, except for any chart or chart related data appearing in either CMJ
New Music Report or CMJ New Music Monthly (the rights in the foregoing
clause (B) collectively referred to herein as the "CDnow Agreement
Rights"). Notwithstanding subsection (A) above and notwithstanding the
CDnow Agreement Rights, CMJ has, and as of the Effective Time CMJ.com will
have, the right to place any and all CMJ Content, including the CMJ Music
Reviews, on its Internet sites, including in connection with its online
retail sale of recorded music. None of the agreements listed on Schedule
3.16(e) hereto conflict with or violate any provisions of any of the other
agreements listed on Schedule 3.16(e).
SECTION 3.17 Year 2000 Compliance Matters.
Except as set forth on Schedule 3.17, to CMJ's knowledge after
reasonable investigation, all material Date Data and Date-Sensitive Systems
used by CMJ in connection with its business as currently conducted, or in
development or on order, are Year 2000 Compliant, or are reasonably
expected to be Year 2000 Compliant in a timely manner. "Date Data" means
any data of any type that includes date information or which is otherwise
derived from, dependent on or related to date information. "Date-Sensitive
System" means any Software, microcode or hardware system or component,
including any electronic or electronically controlled system or component,
that processes any Date Data (other than those licensed from third party
providers). "Year 2000 Compliant" means (i) with respect to Date Data,
that such data is in proper format and accurate for all dates in, or
spanning, the twentieth and twenty-first centuries, and (ii) with respect
to Date-Sensitive Systems, that each such system accurately processes all
Date Data, including for the twentieth and twenty-first centuries, without
loss of any functionality, interoperability or performance, including but
not limited to calculating, comparing, sequencing, storing and displaying
such Date Data (including all leap year considerations), when used as a
stand-alone system, or in combination with other Software, hardware, or
Content that is Year 2000 Compliant and properly interfaces with that Date-
Sensitive System.
SECTION 3.18 Related-Party Transactions.
Except as set forth on Schedule 3.18, no employee, officer, or
director of CMJ or any of its Subsidiaries or member of his or her
immediate family is currently indebted to CMJ or any of its Subsidiaries,
nor is CMJ or any of its Subsidiaries indebted (or committed to make loans
or extend or guarantee credit) to any of such individuals. Except as set
forth on Schedule 3.18, to CMJ's knowledge, as of the date hereof none of
such persons has any direct or indirect ownership interest in any firm or
corporation with which CMJ or any of its Subsidiaries is affiliated or any
firm or corporation that competes with CMJ or any of its Subsidiaries,
except that employees, officers, or directors of CMJ or any of its
Subsidiaries and members of their immediate families may own stock in an
amount not to exceed 5% of the outstanding capital stock of publicly traded
companies that may compete with CMJ or any of its Subsidiaries or CMJ.com.
As of the date hereof, except as set forth on Schedule 3.18, and other than
with respect to agreements for employment, copies of which have been
provided to Changemusic.com, no employee, director or officer of CMJ or any
of its Subsidiaries and no member of the immediate family of any employee,
officer, or director of CMJ or any of its Subsidiaries is directly or
indirectly interested in any material contract with CMJ or any of its
Subsidiaries.
SECTION 3.19 Title to Property and Assets.
As of the date hereof, CMJ and its Subsidiaries own their property and
assets free and clear of all Liens, except such Liens that arise in the
ordinary course of business and do not materially impair CMJ's or its
Subsidiaries' ownership or use of such property or assets. With respect to
the property and assets it leases, CMJ and each of its Subsidiaries
currently is in compliance with such leases and, to CMJ's knowledge, holds
a valid leasehold interest free of any Liens.
SECTION 3.20 Insurance.
CMJ has, and its Subsidiaries have, in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow CMJ and its Subsidiaries to
replace any material assets or properties of CMJ and its Subsidiaries that
might be damaged or destroyed. Set forth on Schedule 3.20 is a list of all
insurance policies maintained by or for the benefit of CMJ and its
Subsidiaries and their respective directors, officers, employees or agents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHANGEMUSIC.COM
Changemusic.com represents and warrants to CMJ and CMJ.com that
(except as set forth in the disclosure schedules delivered by
Changemusic.com to CMJ simultaneously with the execution of this Agreement
(the "Changemusic.com Disclosure Schedules"):
SECTION 4.1 Corporate Existence and Power.
Changemusic.com is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has all
corporate powers and all governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted, except
for those the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect on Changemusic.com. Changemusic.com is duly
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by
it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse Effect on
Changemusic.com. Changemusic.com has heretofore made available to CMJ and
CMJ.com true and complete copies of Changemusic.com's certificate of
incorporation and by-laws as currently in effect. As of the date hereof,
neither Changemusic.com nor any of its Subsidiaries owns any shares of CMJ
Common Stock (except pursuant to the Common Stock Purchase Agreement).
SECTION 4.2 Corporate Authorization.
(a) The execution, delivery and performance by Changemusic.com of
this Agreement, and the consummation by Changemusic.com of the transactions
contemplated hereby are within the corporate powers of Changemusic.com and
have been duly authorized by all necessary corporate action, including the
required approval of Changemusic.com's stockholders. Assuming due
authorization, execution and delivery of this Agreement by CMJ and CMJ.com,
this Agreement constitutes a valid and binding agreement of Changemusic.com
enforceable against Changemusic.com in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(b) Changemusic.com's Board of Directors has (i) determined that
this Agreement and the transactions contemplated hereby (including the
Merger) are fair to and in the best interests of its stockholders,
(ii) approved and adopted this Agreement and the transactions contemplated
hereby (including the Merger), and (iii) resolved to recommend that its
stockholders vote for the approval and adoption of this Agreement and the
Merger and has submitted this Agreement to such Stockholders for their
approval and adoption.
(c) The holders of a majority of the outstanding voting stock of
Changemusic.com have voted for the approval and adoption of this Agreement
and the Merger.
SECTION 4.3 Governmental Authorization.
(a) The execution, delivery and performance by Changemusic.com of
this Agreement, and the consummation by Changemusic.com of the transactions
contemplated hereby and thereby require no action by or in respect of, or
filing with, any governmental body, agency, official or authority other
than (a) the filing of a certificate of merger in connection with the
Merger in accordance with Delaware Law and (b) other actions or filings
which if not taken or made would not, individually or in the aggregate,
have a Material Adverse Effect on Changemusic.com or prevent or materially
delay Changemusic.com's consummation of the Merger.
SECTION 4.4 Non-Contravention.
The execution, delivery and performance by Changemusic.com of this
Agreement, and the consummation by Changemusic.com of the transactions
contemplated hereby and thereby do not and will not (a) contravene or
conflict with the certificate of incorporation or by-laws of
Changemusic.com, (b) assuming compliance with the matters referred to in
Section 4.3, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Changemusic.com or any of its Subsidiaries,
(c) constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Changemusic.com
or any of its Subsidiaries or to a loss, in whole or in part, of any
benefit or right to which Changemusic.com or any of its Subsidiaries is
entitled under any provision of any agreement, contract or other instrument
binding upon Changemusic.com or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by Changemusic.com or
any of its Subsidiaries or (d) result in the creation or imposition of any
Lien on any asset of Changemusic.com or any of its Subsidiaries, except in
the case of clauses (b), (c) and (d), for such contraventions, conflicts,
violations, defaults, rights of termination, cancellation or acceleration,
or losses or Liens that would not, individually or in the aggregate, have a
Material Adverse Effect on Changemusic.com. Neither Changemusic.com nor
any Subsidiary of Changemusic.com is a party to any agreement that
expressly limits the ability of Changemusic.com or any Subsidiary of
Changemusic.com to compete in or conduct any line of business or compete
with any Person or in any geographic area or during any period of time
except to the extent that any such limitation, individually or in the
aggregate, would not have a Material Adverse Effect on Changemusic.com or
on CMJ.com immediately after the Effective Time. Schedule 4.4 sets forth a
true, accurate and complete list of all material contracts, instruments,
agreements, judgements, orders and decrees to which Changemusic.com or any
of its Subsidiaries is a party or by which any of them or their properties
is bound or affected, copies of all of which have been provided to CMJ and
CMJ.com. There has not occurred any breach, violation or default or any
event that, with the lapse of time, the giving of notice or the election of
any person, or any combination thereof, would constitute a breach,
violation or default by the Changemusic.com under any such contract or, to
the knowledge of the Changemusic.com, by any other person to any such
contract nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration
or cancellation of, any material agreement, indenture or instrument to
which Changemusic.com is a party. Changemusic.com has not been notified
that any party to any material contract intends to cancel, terminate, not
renew or exercise an option under any material contract, whether in
connection with the transactions contemplated hereby or otherwise.
SECTION 4.5 Capitalization.
The authorized capital stock of Changemusic.com consists of 100,000
shares of Changemusic.com Common Stock, par value $.01 per share, and
100,000 shares of preferred stock, par value $.01 per share. As of the
date hereof there are outstanding 103.731 shares of Changemusic.com Common
Stock and no other shares of capital stock or voting securities of
Changemusic.com are outstanding. All outstanding shares of capital stock
of Changemusic.com have been duly authorized and validly issued and are
fully paid and nonassessable. As of the date hereof there are no
outstanding options, warrants or other rights to acquire from
Changemusic.com, and no preemptive or similar rights, subscription or other
rights, convertible or exchangeable securities, agreements, arrangements,
or commitments of any character, relating to the capital stock of
Changemusic.com obligating Changemusic.com to issue, transfer or sell any
capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Changemusic.com or
obligating Changemusic.com to grant, extend or enter into any such option,
warrant, subscription or other right, convertible or exchangeable security,
agreement, arrangement or commitment (each of the foregoing, a
"Changemusic.com Convertible Security"). There are no outstanding
obligations of Changemusic.com or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of Changemusic.com
or any Changemusic.com Convertible Securities.
SECTION 4.6 Subsidiaries.
(a) Each Subsidiary of Changemusic.com is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has all powers and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted, except for those the absence of which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect
on Changemusic.com. Each Subsidiary of Changemusic.com is duly qualified
to do business and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its
activities makes such qualifications necessary, except for those
jurisdictions where failure to be so qualified would not, individually or
in the aggregate, have a Material Adverse Effect on Changemusic.com.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Significant Subsidiary of Changemusic.com is owned,
directly or indirectly, by Changemusic.com. All shares of capital stock
of, or other ownership interests in, Subsidiaries of the Changemusic.com,
directly or indirectly, owned by the Changemusic.com are owned free and
clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other ownership interests), except as would not,
individually or in the aggregate, have a Material Adverse Effect on
Changemusic.com. There are no outstanding options, warrants or other
rights to acquire from Changemusic.com or any of its Subsidiaries, and no
preemptive or similar rights, subscriptions or other rights, convertible or
exchangeable securities, agreements, arrangements or commitments of any
character, relating to the capital stock of any Subsidiary of
Changemusic.com, obligating Changemusic.com or any of its Subsidiaries to
issue, transfer or sell, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable
for any capital stock, voting securities or ownership interests in, any
Subsidiary of Changemusic.com or obligating Changemusic.com or any
Subsidiary of Changemusic.com to grant, extend or enter into any such
option, warrant, subscription or other right, convertible or exchangeable
security, agreement, arrangement or commitment (each of the foregoing, a
"Changemusic.com Subsidiary Convertible Security"). There are no
outstanding obligations of Changemusic.com or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital
stock of any Subsidiary of Changemusic.com or any Changemusic.com
Subsidiary Convertible Securities.
SECTION 4.7 Financial Statements.
The unaudited consolidated interim financial statements of the first
nine months of 1999 of Changemusic.com (including any related notes and
schedules) present fairly, in all material respects, the financial position
of Changemusic.com and its Subsidiaries as of the dates thereof and their
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements) in each case in conformity with
GAAP applied on a consistent basis (except as may be indicated in the notes
thereto). For purposes of this Agreement, "Changemusic.com Balance Sheet"
means the consolidated balance sheet of Changemusic.com as of September 30,
1999 and "Changemusic.com Balance Sheet Date" means September 30, 1999.
SECTION 4.8 Absence of Certain Changes.
Since the Changemusic.com Balance Sheet Date, and, prior to the date
hereof, Changemusic.com and its Subsidiaries have conducted their
respective businesses in the ordinary course, consistent with past
practice, and there has not been:
(a) any event, occurrence or development which, individually or in
the aggregate, would have a Material Adverse Effect on Changemusic.com;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of
Changemusic.com or any repurchase, redemption or other acquisition by
Changemusic.com or any of its Subsidiaries of any outstanding shares of its
capital stock or any Changemusic.com Convertible Securities or
Changemusic.com Subsidiary Convertible Securities;
(c) any amendment of any term of any outstanding security of
Changemusic.com or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement
or settlement entered into, by (or judgment, order or decree affecting)
Changemusic.com or any of its Subsidiaries relating to its assets or
business (including the acquisition or disposition of any material amount
of assets) or any relinquishment by Changemusic.com or any of its
Subsidiaries of any contract or other right, other than transactions,
commitments, contracts, agreements or settlements (including without
limitation settlements of litigation and tax proceedings) in the ordinary
course of business and those contemplated by this Agreement;
(e) any change in any method of accounting or accounting practice by
Changemusic.com or any of its Subsidiaries, except for any such change
which is not material or which is required by reason of a concurrent change
in GAAP;
(f) except as set forth on Schedule 4.8 any (i) grant of any
severance or termination pay to (or amendment to any such existing
arrangement with) any director, officer or employee of Changemusic.com or
any of its Subsidiaries, (ii) entering into of any employment, deferred
compensation, supplemental retirement or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of Changemusic.com or any of its Subsidiaries, (iii) increase in,
or accelerated vesting and/or payment of, benefits under any existing
severance or termination pay policies or employment agreements or
(iv) increase in or enhancement of any rights or features related to
compensation, bonus or other benefits payable to directors, officers or
senior employees of Changemusic.com or any of its Subsidiaries, in each
case, other than in the ordinary course of business consistent with past
practice; or
(g) any material Tax election made or changed, any material audit
settled or any material amended Tax Returns filed.
SECTION 4.9 No Undisclosed Material Liabilities.
There are no material liabilities of Changemusic.com or any Subsidiary
of Changemusic.com, whether accrued, contingent, absolute, determined,
determinable or otherwise, that would be required to be reflected in a
consolidated balance sheet of Changemusic.com prepared in accordance with
GAAP or required to be disclosed on the face thereof or in the notes
thereto in accordance with Statement of Financial Accounting Standards No.
5 of the Financial Accounting Standards Board, other than:
(a) liabilities disclosed or provided for in the Changemusic.com
Balance Sheet or in the notes thereto;
(b) liabilities incurred since such date in the ordinary course of
business;
(c) liabilities under this Agreement.
SECTION 4.10 Litigation.
There is no action, suit, investigation or proceeding pending against,
or to the knowledge of Changemusic.com threatened against or affecting,
Changemusic.com or any of its Subsidiaries or any of their respective
properties or any of their respective officers or directors before any
court or arbitrator or any governmental body, agency or official except as
would not, individually or in the aggregate, have a Material Adverse Effect
on Changemusic.com or prevent or materially delay the consummation of the
Merger.
SECTION 4.11 Taxes.
Except as set forth in Schedule 4.11 of the Changemusic.com Disclosure
Schedule
(a) Each of Changemusic.com and its Subsidiaries has (x) duly and
timely filed (or there has been filed on its behalf) with the appropriate
governmental authorities all Tax Returns required to be filed by it, and
all such Tax Returns are true, correct and complete except to the extent
any failure to file or any inaccuracies in any filed Tax Return would not
be reasonably likely to have a Material Adverse Effect on Changemusic.com
and (y) timely paid (or properly accrued on Changemusic.com's books) or
there has been paid on its behalf all Taxes due from it or claimed to be
due from it by any tax authority (whether or not set forth on any Tax
Return) except to the extent that any failure to pay would not be
reasonably likely to have a Material Adverse Effect on Changemusic.com;
(b) Changemusic.com and each of its Subsidiaries have complied in all
material respects with all applicable Tax Laws relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to sections 1441 and 1442 of the Code and employment withholding
Taxes) and have, within the time and manner prescribed by law, withheld and
paid over to the proper governmental entities all amounts required to be
withheld and paid over under all applicable Tax Laws except for amounts
that would not be reasonably likely to have a Material Adverse Effect on
Changemusic.com;
(c) There are no material Liens for Taxes upon the assets or
properties of Changemusic.com or any of its Subsidiaries except for
statutory Liens for current Taxes not yet due or that are being contested
in good faith in appropriate proceedings and for which adequate reserves
have been maintained in accordance with GAAP;
(d) None of Changemusic.com or any of its Subsidiaries has requested
any extension of time within which to file any Tax Return in respect of any
taxable year which has not since been filed, and no outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns has been given by or on behalf of
Changemusic.com or any of its Subsidiaries except for such waiver or
consent that would not be reasonably likely to have a Material Adverse
Effect on Changemusic.com;
(e) None of Changemusic.com or any of its Subsidiaries has received
any written notice of any Audits with regard to any Taxes or Tax Returns of
Changemusic.com or any of its Subsidiaries, and to Changemusic.com's and
its Subsidiaries' knowledge, no such Audits are currently being conducted;
(f) All Tax deficiencies which have been claimed, proposed or
asserted against Changemusic.com or any of its Subsidiaries by any taxing
authority have been fully paid, except for such deficiency that would not
be reasonably likely to have a Material Adverse Effect on Changemusic.com.
No issue has been raised by any taxing authority in any current or prior
examination which, by application of the same principles, would reasonably
be expected to result in a proposed deficiency for any subsequent Taxable
Period.
(g) None of Changemusic.com or any of its Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code, by
reason of any voluntary or involuntary change in accounting method (nor has
any tax authority notified Changemusic.com or any of its Subsidiaries in
writing of any such adjustment or change of accounting method);
(h) To the knowledge of Changemusic.com and its Subsidiaries, no
power of attorney has been granted by or with respect to Changemusic.com or
any of its Subsidiaries with respect to any matter relating to Taxes;
(i) None of Changemusic.com or any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor
provision) or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code);
(j) The reserves for Taxes (determined in accordance with generally
accepted accounting principles consistently applied) reflected in the
Changemusic.com Balance Sheet are adequate for the payment of all Taxes
payable by Changemusic.com or any of its Subsidiaries through the date of
the Changemusic.com Balance Sheet;
(k) None of Changemusic.com or any of its Subsidiaries is a party to
any agreement, contract or arrangement that could result, separately or in
the aggregate, in the payment of any payments that will not be deductible
by operation of Section 162(m) of the Code;
(l) None of Changemusic.com or any of its Subsidiaries has requested
or received a ruling or determination from any tax authority or signed a
closing or other agreement with any tax authority which would be reasonably
likely to have a Material Adverse Effect on Changemusic.com;
(m) The Federal income Tax Returns of the Company and its
Subsidiaries for the Tax Periods ending before January 1, 1995 have been
examined by the appropriate Governmental authority (or the applicable
statue of limitations for the assessment of such taxes has expired);
(n) None of Changemusic.com or any of its Subsidiaries is a party to,
is bound by, or has any obligation under, any Tax Indemnification
Agreements. Any such Tax Indemnification Agreement set forth in the
Disclosure Schedule will terminate as of the Closing Date and be of no
further force or effect for any Tax Period after the Closing Date. As of
the date of this Agreement, none of Changemusic.com or any of its
Subsidiaries is aware of any potential liability or obligation to any
person as a result of, or pursuant to, any such Tax Indemnification
Agreement;
(o) Changemusic.com and each of its Subsidiaries has previously
delivered or made available to CMJ complete and accurate copies of each of
(a) all audit reports, letter rulings, technical advice memoranda and
similar documents issued by a Governmental authority relating to the United
States federal, state, local or foreign Taxes due from or with respect to
Changemusic.com and its Subsidiaries, (b) the United States federal income
Tax Returns, and those state, local and foreign income Tax Returns filed by
Changemusic.com and its Subsidiaries (or on their behalf) and (c) any
closing agreements entered into by Changemusic.com or any of its
Subsidiaries with any tax authority. Changemusic.com will deliver to CMJ
all materials with respect to the foregoing for all matters arising after
the date hereof;
(p) None of Changemusic.com or any of its Subsidiaries has any or
could have any liability for Taxes of another person under Section 1.1502-6
of the Treasury Regulations (or any similar provision under state, local or
foreign law), by contract or otherwise;
(q) None of Changemusic.com or any of its Subsidiaries has any
deferred intercompany gain or loss arising as a result of a deferred
intercompany transaction within the meaning of Section 1.1502-13 of the
Treasury Regulations (or similar provision under state, local or foreign
law);
(r) No written notice of a claim has been made by a taxing authority
in a jurisdiction where either Changemusic.com or any of its Subsidiaries
does not file Tax Returns has been received by Changemusic.com or any of
its Subsidiaries to the effect that Changemusic.com or any of such
Subsidiaries is or may be subject to taxation by that jurisdiction;
(s) None of Changemusic.com or any of its Subsidiaries is a "United
States real property holding corporation" within the meaning of Section 897
of the Code;
SECTION 4.12 Employee Benefit Plans.
(a) For purposes of this Agreement, the term "Changemusic.com
Employee Plans" shall mean and include: each management, consulting, non-
compete, employment, severance or similar contract, plan, arrangement or
policy applicable to any director, former director, employee or former
employee of Changemusic.com and each plan, program, policy, agreement or
arrangement (written or oral), providing for compensation, bonuses, profit-
sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance
benefits) or other employee benefits of any kind, whether funded or
unfunded, which is maintained, administered or contributed to by
Changemusic.com or any Subsidiary and covers any employee or director or
former employee or director of Changemusic.com, or under which
Changemusic.com or any Subsidiary has any liability, contingent or
otherwise (including but not limited to each material "employee benefit
plan," as defined in Section 3(3) of ERISA, but excluding any such plan
that is a "multiemployer plan," as defined in Section 3(37) of ERISA).
Neither Changemusic.com nor any of its affiliates contributes to, or is
required to contribute to, any "multiemployer plan" as defined in Section
3(37) of ERISA. Schedule 4.12 sets forth a true, accurate and complete
list of all Changemusic.com Plans.
(b) Each Changemusic.com Employee Plan has been established and
maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations
(including but not limited to ERISA and the Code) which are applicable to
such Plan, except where failure to so comply would not, individually or in
the aggregate, have a Material Adverse Effect on Changemusic.com.
(c) Neither Changemusic.com nor any affiliate of Changemusic.com has
incurred a liability under Title IV of ERISA that has not been satisfied in
full, and no condition exists that presents a material risk to
Changemusic.com or any affiliate of Changemusic.com of incurring any such
liability. All contributions required to be made under the terms of any
Changemusic.com Employee Plan have been made, and, where applicable to a
Changemusic.com Employee Plan, Changemusic.com and its affiliates have
complied with the minimum funding requirements under Section 412 of the
Code and Section 302 of ERISA with respect to each such Changemusic.com
Employee Plan.
(d) Each Changemusic.com Employee Plan which is intended to be
qualified under section 401(a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, and each trust
forming a part thereof is exempt from federal income tax pursuant to
section 501(a) of the Code and, to Changemusic.com's knowledge, no
circumstances exist which will adversely affect such qualification or
exception.
(e) No director or officer or other employee of Changemusic.com or
any of its Subsidiaries will become entitled to any retirement, severance
or similar benefit or enhanced or accelerated benefit (including any
acceleration of vesting or lapse of repurchase rights or obligations with
respect to any Changemusic.com Stock Plans or other benefit under any
compensation plan or arrangement of Changemusic.com) solely as a result of
the transactions contemplated in this Agreement; and (ii) no payment made
or to be made to any current or former employee of director of
Changemusic.com or any of its affiliates by reason of the transactions
contemplated hereby (whether alone or in connection with any other event,
including, but not limited to, a termination of employment) will constitute
an "excess parachute payment" within the meaning of Section 280G of the
Code.
(f) No Changemusic.com Employee Plan provides material post-
retirement health and medical, life or other insurance benefits for retired
employees of Changemusic.com or any of its Subsidiaries nor has
Changemusic.com or any Subsidiary represented or promised to provide such
benefits.
(g) There has been no amendment to, or change in employee
participation or coverage under, any Changemusic.com Employee Plan which
would increase materially the expense of maintaining such Changemusic.com
Employee Plan above the level of the expense incurred in respect thereof
for the 12 months ended on the Changemusic.com Balance Sheet Date.
(h) Changemusic.com and its Subsidiaries are in compliance with all
applicable federal, state, local and foreign statutes, laws (including,
without limitation, common law), judicial decisions, regulations,
ordinances, rules, judgments, orders and codes respecting employment,
employment practices, labor, terms and conditions of employment and wages
and hours, and no work stoppage or labor strike against Changemusic.com and
its Subsidiaries is pending or threatened, nor is Changemusic.com or its
Subsidiaries involved in or threatened with any labor dispute, grievance or
litigation relating to labor matters involving any employees, in each case
except as would not, individually or in the aggregate, have a Material
Adverse Effect on Changemusic.com. There are no suits, actions, disputes,
claims (other than routine claims for benefits), investigations or audits
pending or, to the knowledge of Changemusic.com, threatened in connection
with any Changemusic.com Employee Plan, but excluding any of the foregoing
which would not have a Material Adverse Effect on Changemusic.com.
SECTION 4.13 Compliance with Laws.
Neither Changemusic.com nor any of its Subsidiaries has violated or is
in violation of any applicable provisions of any laws, statutes, ordinances
or regulations except for any violations that, individually or in the
aggregate, would not have a Material Adverse Effect on Changemusic.com.
SECTION 4.14 Finders' or Advisors' Fees.
There is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of
Changemusic.com or any of its Subsidiaries who might be entitled to any fee
or commission in connection with the transactions contemplated by this
Agreement.
SECTION 4.15 Environmental Matters.
Except for matters which, individually or in the aggregate, would not
have a Material Adverse Effect on Changemusic.com, (i) no written notice,
notification, demand, request for information, citation, summons, complaint
or order has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of Changemusic.com or
any of its Subsidiaries, threatened by any Person against, Changemusic.com
or any of its Subsidiaries, and no penalty has been assessed against
Changemusic.com or any of its Subsidiaries, in each case, with respect to
any matters relating to or arising out of any Environmental Law;
(ii) Changemusic.com and its Subsidiaries are in compliance with all
Environmental Laws; and (iii) to the knowledge of Changemusic.com, there
are no liabilities of or relating to Changemusic.com or any of its
Subsidiaries relating to or arising out of any Environmental Law, and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability.
SECTION 4.16 Intellectual Property Matters.
(a) Except as set forth in Schedule 4.16(a), Changemusic.com owns or
has the valid right to use all material Intellectual Property, as currently
used in connection with the business of Changemusic.com, including without
limitation all license agreements and other agreements granting rights
relating to any such Intellectual Property ("Changemusic.com License
Agreements") to which Changemusic.com is a party or is otherwise bound
(such Intellectual Property, together with the Changemusic.com License
Agreements the "Changemusic.com Intellectual Property").
(b) Schedule 4.16(b) sets forth, for the Changemusic.com
Intellectual Property owned by Changemusic.com a complete and accurate list
of all United States, foreign, international and state (i) patents and
patent applications, (ii) Trademark registrations and applications and
material unregistered Trademarks, (iii) Internet domain names, and (iv)
Copyright registrations and applications, and material unregistered
Copyrights including Content and Software, indicating for each, the
applicable jurisdiction, registration number (or application number), and
date issued (or date filed).
(c) Except as set forth on Schedule 4.16(c), the Changemusic.com
Intellectual Property owned by Changemusic.com is solely and exclusively
owned by Changemusic.com free and clear of all Liens, and Changemusic.com
is listed in the records of the appropriate United States, state or foreign
agency as the sole owner of record for each registration and application
for any Patent, Trademark, Internet domain name and Copyright that it owns.
Except as set forth on Schedule 4.16(c), all of the items set forth on
Schedule 4.16(b) are valid and subsisting, in full force and effect, and
have not been cancelled, expired, or abandoned. There is no pending or, to
Changemusic.com's knowledge, threatened opposition, interference or
cancellation proceeding before any court or registration authority in any
jurisdiction against the items set forth on Schedule 4.16(b) or any other
Changemusic.com Intellectual Property owned by Changemusic.com or, to
Changemusic.com's knowledge, against any Changemusic.com Intellectual
Property not owned by Changemusic.com.
(d) Except as set forth on Schedule 4.16(d), there are no
settlements, forebearances to sue, consents, judgments, or orders or
similar obligations to which Changemusic.com is a party or is otherwise
bound, which (i) materially restrict Changemusic.com's rights to use any
Changemusic.com Intellectual Property, (ii) materially restrict
Changemusic.com's business in order to accommodate a third party's
Intellectual Property rights or (iii) permit third parties to use any
Intellectual Property which would otherwise materially infringe any
Changemusic.com Intellectual Property. Changemusic.com has not materially
licensed or sublicensed its rights in any Changemusic.com Intellectual
Property other than pursuant to the Changemusic.com License Agreements set
forth on Schedule 4.16(d) and no royalties, honoraria or other fees are
payable by for the use of or right to use any Changemusic.com Intellectual
Property in connection with Changemusic.com's business as currently
conducted, except pursuant to the Changemusic.com License Agreements set
forth on Schedule 4.16(d).
(e) The Changemusic.com License Agreements are valid and binding
obligations of Changemusic.com and, to Changemusic.com's knowledge, any
other parties thereto, enforceable in accordance with their terms, and
there exists no event or condition which will result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default by Changemusic.com under any such Changemusic.com License
Agreement.
(f) To Changemusic.com's knowledge, no Trade Secret material to the
business of Changemusic.com as currently operated has been disclosed or
authorized to be disclosed to any third party, including any employee,
agent, contractor or other entity, other than pursuant to a non-disclosure
agreement that adequately protects Changemusic.com's proprietary interests
in and to such Trade Secrets. To Changemusic.com's knowledge, no party to
any non-disclosure agreement relating to such Trade Secrets is in breach
thereof.
(g) To Changemusic.com's knowledge, the conduct of Changemusic.com's
business as currently conducted and the Changemusic.com Content do not
materially infringe upon any Intellectual Property owned or controlled by
any third party (either directly or indirectly such as through contributory
infringement or inducement to infringe) and is not libelous, slanderous,
defamatory, violative in any way of publicity or privacy rights, or
obscene. For purposes of this agreement "Changemusic.com Content" means
any and all Content published or displayed in any form, including
electronically, by or on behalf of Changemusic.com. Except as set forth on
Schedule 4.16(g), there are no claims or suits pending or, to
Changemusic.com's knowledge, threatened, and Changemusic.com has not
received any notice of a third party claim or suit, (i) alleging that
Changemusic.com's activities or the conduct of its businesses infringes
upon or constitutes the unauthorized use of the Intellectual Property
rights of any third party, nor alleging libel, slander, defamation, or
other violation of a personal right, or (ii) challenging the ownership,
use, validity or enforceability of any Changemusic.com Intellectual
Property.
(h) To Changemusic.com's knowledge, no third party is materially
misappropriating, infringing, diluting, or otherwise violating any
Changemusic.com Intellectual Property, and, except as set forth on Schedule
4.16(h), no such claims are pending against a third party by
Changemusic.com.
(i) Without limitation to the representations and warranties set
forth above in this Section 4.16, Changemusic.com represents and warrants
that there are no material restrictions on the Changemusic.com Content
owned by Changemusic.com.
SECTION 4.17 Year 2000 Compliance Matters.
Except as set forth on Schedule 4.17, to Changemusic.com's knowledge
after reasonable investigation, all material Date Data and Date-Sensitive
Systems used by Changemusic.com in connection with its business as
currently conducted, or in development or on order, are Year 2000
Compliant, or are reasonably expected to be Year 2000 Compliant in a timely
manner;
SECTION 4.18 Related-Party Transactions.
Except as set forth on Schedule 4.18, no employee, officer, or
director of Changemusic.com or member of his or her immediate family is
currently indebted to Changemusic.com or any of its Subsidiaries, nor are
Changemusic.com or any of its Subsidiaries indebted (or committed to make
loans or extend or guarantee credit) to any of such individuals. Except as
set forth on Schedule 4.18, to Changemusic.com's knowledge, as of the date
hereof none of such persons has any direct or indirect ownership interest
in any firm or corporation with which Changemusic.com or any of its
Subsidiaries are affiliated or any firm or corporation that competes with
Changemusic.com, except that employees, officers, or directors of
Changemusic.com or any of its Subsidiaries and members of their immediate
families may own stock in an amount not to exceed 5% of the outstanding
capital stock of publicly traded companies that may compete with
Changemusic.com or CMJ.com. As of the date hereof, except as set forth on
Schedule 4.18, and other than with respect to agreements for employment,
copies of which have been provided to CMJ, no employee, director, or
officer of Changemusic.com or any of its Subsidiaries and no member of the
immediate family of any employee, officer, or director of Changemusic.com
or any of its Subsidiaries is directly or indirectly interested in any
material contract with Changemusic.com. or any of its Subsidiaries.
SECTION 4.19 Title to Property and Assets.
As of the date hereof, Changemusic.com and its Subsidiaries own their
property and assets free and clear of all Liens, except such Liens that
arise in the ordinary course of business and do not materially impair
Changemusic.com's or its Subsidiaries' ownership or use of such property or
assets. With respect to the property and assets it leases,
Changemusic.com and each of its Subsidiaries currently is in compliance
with such leases and, to Changemusic.com's knowledge, holds a valid
leasehold interest free of any Liens.
SECTION 4.20 Insurance.
Changemusic.com has, and its Subsidiaries have, in full force and
effect fire and casualty insurance policies, with extended coverage,
sufficient in amount (subject to reasonable deductibles) to allow
Changemusic.com and its Subsidiaries to replace any material assets or
properties of Changemusic.com and its Subsidiaries that might be damaged or
destroyed. Set forth on Schedule 4.20 is a list of all insurance policies
maintained by or for the benefit of Changemusic.com and its Subsidiaries
and their respective directors, officers, employees or agents.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CMJ.COM
CMJ.com represents and warrants to Changemusic.com and CMJ that:
SECTION 5.1 Corporate Existence and Power.
CMJ.com is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all corporate
powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except for
those the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect on CMJ.com. Since the date of its
incorporation, CMJ.com has not engaged in any activities other than in
connection with or incidental to its formation and this Agreement or as
contemplated by this Agreement. CMJ.com has heretofore made available to
each of Changemusic.com and CMJ true and complete copies of CMJ.com's
certificate of incorporation and by-laws as currently in effect.
SECTION 5.2 Corporate Authorization.
(a) The execution, delivery and performance by CMJ.com of this
Agreement, and the consummation by CMJ.com of the transactions contemplated
hereby are within the corporate powers of CMJ.com and have been duly
authorized by all necessary corporate action, including the required
approval of CMJ.com's stockholders. Assuming due authorization, execution
and delivery of this Agreement by each of Changemusic.com and CMJ, this
Agreement constitutes a valid and binding agreement of CMJ.com, enforceable
against CMJ.com in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles. The shares of CMJ.com Common Stock
issued pursuant to the Merger, when issued in accordance with the terms
hereof, will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(b) CMJ.com's Board of Directors has (i) determined that this
Agreement and the transactions contemplated hereby (including the Merger)
are fair to and in the best interests of its stockholders, (ii) approved
this Agreement and the transactions contemplated hereby (including the
Merger), and (iii) resolved to recommend that its stockholders vote for the
approval and adoption of this Agreement and the Merger and has submitted
this Agreement to such Stockholders for their approval and adoption.
(c) All of CMJ.com's stockholders have voted for the approval and
adoption of this Agreement and the Merger.
SECTION 5.3 Governmental Authorization.
(a) The execution, delivery and performance by CMJ.com of this
Agreement, and the consummation by CMJ.com of the transactions contemplated
hereby and thereby require no action by or in respect of, or filing with,
any governmental body, agency, official or authority other than (a) the
filing of a certificate of merger in connection with the Merger in
accordance with Delaware Law and (b) other actions or filings which if not
taken or made would not, individually or in the aggregate, have a Material
Adverse Effect on CMJ.com or prevent or materially delay CMJ.com's
consummation of the Merger.
SECTION 5.4 Non-Contravention.
The execution, delivery and performance by CMJ.com of this Agreement,
and the consummation by CMJ.com of the transactions contemplated hereby do
not and will not (a) contravene or conflict with the certificate of
incorporation or by-laws of CMJ.com, or (b) assuming compliance with the
matters referred to in Section 3.3 and 4.3, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to CMJ.com.
SECTION 5.5 Capitalization.
The authorized capital stock of CMJ.com consists of 3,000,000 shares
of CMJ.com Common Stock, par value $.01 per share and 500,000 shares of
preferred stock, par value $.01 per share (of which 2,600 shares are
designated Series A Preferred Stock). As of the date hereof there are
outstanding 100 shares of CMJ.com Common Stock and no shares of Series A
Preferred and no other shares of capital stock or other voting securities
of CMJ.com were outstanding. Each of Changemusic.com and CMJ owns 50 of
such outstanding shares of CMJ.com Common Stock. All outstanding shares of
capital stock of CMJ.com have been duly authorized and validly issued and
are fully paid and nonassessable. Except as contemplated by Section 8.3
hereof and except for shares of CMJ.com Common Stock to be issued in
connection with the Merger, the Ellerson Options to be issued in connection
with the Merger, and the shares of Series A Preferred to be issued pursuant
to the Preferred Stock Purchase Agreement, as of the date hereof, there are
no outstanding options, warrants or other rights to acquire from CMJ.com,
and no preemptive or similar rights, subscription or other rights,
convertible or exchangeable securities, agreements, arrangements, or
commitments of any character, relating to the capital stock of CMJ.com,
obligating CMJ.com to issue, transfer or sell any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or voting securities of CMJ.com or obligating CMJ.com to grant, extend or
enter into any such option, warrant, subscription or other right,
convertible or exchangeable security, agreement, arrangement or commitment
(each of the foregoing, a "CMJ.com Convertible Security"). There are no
outstanding obligations of CMJ.com or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
CMJ.com and of any CMJ.com Convertible Securities, except as contemplated
by Section 1.5 hereof and the Escrow Agreement.
ARTICLE VI
COVENANTS OF CMJ
CMJ agrees that:
SECTION 6.1 Conduct of CMJ.
From the date of this Agreement until the Effective Time, CMJ and its
Subsidiaries shall, subject to the last sentence of this Section 6.1,
conduct their business in the ordinary course consistent with past practice
and shall use their commercially reasonable best efforts to preserve intact
their business organizations and relationships with third parties. Without
limiting the generality of the foregoing and subject to the last sentence
of this Section 6.1, without the prior written consent of Changemusic.com
(which consent shall not be unreasonably withheld), from the date of this
Agreement until the Effective Time:
(a) CMJ will not, and will not permit any of its Subsidiaries to,
adopt or propose any change in its certificate of incorporation or by-laws;
(b) CMJ will not, and will not permit any Subsidiary of CMJ to,
adopt a plan or agreement of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of CMJ or any of its Subsidiaries;
(c) CMJ will not, and will not permit any of its Subsidiaries to,
issue, sell, transfer, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class or series of CMJ or its any of its Subsidiaries other
than issuances of CMJ Common Stock to RMG pursuant to the Stock Purchase
Agreement;
(d) CMJ will not (i) split, combine, subdivide or reclassify its
outstanding shares of capital stock, or (ii) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property with
respect to its capital stock;
(e) CMJ will not, and will not permit any of its Subsidiaries to,
redeem, purchase or otherwise acquire directly or indirectly any shares of
capital stock of CMJ or any subsidiaries of CMJ (other than a wholly-owned
subsidiary);
(f) CMJ will not amend the terms (including the terms relating to
accelerating the vesting or lapse of repurchase rights or obligations) of
any employee or director stock options or other stock based awards;
(g) CMJ will not, and will not permit any of its Subsidiaries to,
(i) grant any severance or termination pay to (or amend any such existing
arrangement with) any director, officer or employee of CMJ or any of its
Subsidiaries, (ii) enter into any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement)
with any director, officer or employee of CMJ or any of its Subsidiaries,
(iii) increase any benefits payable under any existing severance or
termination pay policies or employment agreements, (iv) increase (or amend
the terms of) any compensation, bonus or other benefits payable to
directors, officers or employees of CMJ or any of its Subsidiaries or (v)
permit any director, officer or employee who is not already a party to an
agreement or a participant in a plan providing benefits upon or following a
"change in control" to become a party to any such agreement or a
participant in any such plan;
(h) CMJ will not, and will not permit any of its Subsidiaries to,
acquire any assets or property of any other Person except in the ordinary
course of business consistent with past practice;
(i) CMJ will not, and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise dispose of any assets or property except
pursuant to existing contracts or commitments and except in the ordinary
course of business consistent with past practice;
(j) Except for any such change which is required by reason of a
concurrent change in GAAP, CMJ will not, and will not permit any of its
Subsidiaries to, change any method of accounting or accounting practice
used by it;
(k) CMJ will not, and will not permit any of its Subsidiaries to,
enter into any joint venture, partnership or other similar arrangement;
(l) CMJ will not, and will not permit any of its Subsidiaries to,
take any action that would make any representation or warranty of CMJ
hereunder inaccurate in any material respect at, or as of any time prior
to, the Effective Time;
(m) CMJ will not make or change any material Tax election, settle
any material audit or file any material amended Tax Returns, except in the
ordinary course of business consistent with past practice;
(n) CMJ will not enter into, amend or waive any provisions of any
standstill agreement; and
(o) CMJ will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
Notwithstanding the foregoing, from the date hereof until the Effective
Time, CMJ and its Subsidiaries may (x) make acquisitions of property,
assets or any business, (y) sell, transfer or otherwise dispose of assets
or property of CMJ or any of its Subsidiaries or (z) enter into any joint
venture, partnership or other similar arrangements so long as CMJ has
obtained the prior written consent of Changemusic.com prior to the
consummation of any transaction referred to in the foregoing clauses (x),
(y) or (z).
ARTICLE VII
COVENANTS OF CHANGEMUSIC.COM
Changemusic.com agrees that:
SECTION 7.1 Conduct of Changemusic.com.
From the date of this Agreement until the Effective Time,
Changemusic.com and its Subsidiaries shall, subject to the last sentence of
this Section 7.1, conduct their business in the ordinary course consistent
with past practice and shall use their commercially reasonable best efforts
to preserve intact their business organizations and relationships with
third parties. Without limiting the generality of the foregoing and
subject to the last sentence of this Section 7.1, without the prior written
consent of CMJ (which consent shall not be unreasonably withheld) from the
date of this Agreement until the Effective Time:
(a) Changemusic.com will not, and will not permit any of its
Subsidiaries to, adopt or propose any change in its certificate of
incorporation or by-laws;
(b) Changemusic.com will not, and will not permit any of its
Subsidiaries to, adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Changemusic.com or any of its
Subsidiaries;
(c) Changemusic.com will not, and will not permit any of its
Subsidiaries to, issue, sell, transfer, pledge, dispose of or encumber any
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class or series of Changemusic.com or any of its
Subsidiaries;
(d) Changemusic.com will not (i) split, combine, subdivide or
reclassify its outstanding shares of capital stock or (ii) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to its capital stock;
(e) Changemusic.com will not, and will not permit any of its
Subsidiaries to, redeem, purchase or otherwise acquire directly or
indirectly any shares of Changemusic.com's capital stock of Changemusic.com
or any subsidiary of Changemusic.com (other than a wholly-owned subsidiary);
(f) Changemusic.com will not amend the terms (including the terms
relating to accelerating the vesting or lapse of repurchase rights or
obligations) of any employee or director stock options or other stock based
awards;
(g) Changemusic.com will not, and will not permit any of its
Subsidiaries to, (i) grant any severance or termination pay to (or amend
any such existing arrangement with) any director, officer or employee of
Changemusic.com or any of its Subsidiaries, (ii) enter into any employment,
deferred compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of
Changemusic.com or any of its Subsidiaries, (iii) increase any benefits
payable under any existing severance or termination pay policies or
employment agreements, (iv) increase (or amend the terms of) any
compensation, bonus or other benefits payable to directors, officers or
employees of Changemusic.com or any of its Subsidiaries or (v) permit any
director, officer or employee who is not already a party to an agreement or
a participant in a plan providing benefits upon or following a "change in
control" to become a party to any such agreement or a participant in any
such plan;
(h) Changemusic.com will not, and will not permit any of its
Subsidiaries to, acquire a material amount of assets or property of any
other Person except in the ordinary course of business consistent with past
practice;
(i) Changemusic.com will not, and will not permit any of its
Subsidiaries to, sell, lease, license or otherwise dispose of any material
amount of assets or property except pursuant to existing contracts or
commitments and except in the ordinary course of business consistent with
past practice;
(j) Except for any such change which is not material or which is
required by reason of a concurrent change in GAAP, Changemusic.com will
not, and will not permit any Subsidiary of Changemusic.com to, change any
method of accounting or accounting practice used by it;
(k) Changemusic.com will not, and will not permit any of its
Subsidiaries to, enter into any material joint venture, partnership or
other similar arrangement;
(l) Changemusic.com will not, and will not permit any of its
Subsidiaries to, take any action that would make any representation or
warranty of Changemusic.com hereunder inaccurate in any material respect
at, or as of any time prior to, the Effective Time;
(m) Changemusic.com will not make or change any material Tax
election, settle any material audit or file any material amended Tax
Returns, except in the ordinary course of business, consistent with past
practices;
(n) Changemusic.com will not enter into, amend or waive any
provisions of any standstill agreement; and
(o) Changemusic.com will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
Notwithstanding the foregoing, from the date hereof until the Effective
Time, Changemusic.com and its Subsidiaries may (x) make acquisitions of
property, assets or any business, (y) sell, transfer or otherwise dispose
of assets or property of Changemusic.com or any of its Subsidiaries or (z)
enter into any joint venture, partnership or other similar arrangement so
long as Changemusic.com has obtained the prior written consent of CMJ prior
to the consummation of any transaction referred to in the foregoing clauses
(x), (y) or (z).
ARTICLE VIII
COVENANTS OF CMJ.COM
SECTION 8.1 Conduct of CMJ.com.
From the date of this Agreement until the Effective Time, CMJ.com
shall not (i) conduct any business or engage in any activities, (ii) enter
into any contract or agreement, or (iii) consummate any transaction, except
that from the date hereof until the Effective Time, CMJ.com may (i) conduct
any business or engage in any activity incidental to its incorporation or
contemplated or required under this Agreement, (ii) enter into this
Agreement or any other contract or agreement contemplated by this
Agreement, (iii) consummate any transaction contemplated or required under
this Agreement, including, but not limited to, the Merger and the issuance
and sale of the Series A Preferred Stock. Notwithstanding anything to the
contrary contained herein, CMJ.com may (x) make acquisitions of property,
assets or any business, (y) sell, transfer or otherwise dispose of assets
or property of CMJ.com or any of its Subsidiaries or (z) enter into any
joint venture, partnership or other similar arrangement so long as CMJ.com
has obtained the prior written consent of each of Changemusic.com and CMJ
prior to the consummation of any transaction referred to in the foregoing
clauses (x), (y) or (z).
SECTION 8.2 Director and Officer Liability.
(a) CMJ.com shall indemnify and hold harmless, to the fullest extent
permitted under applicable law, the individuals who on or prior to the
Effective Time were officers, directors and employees of CMJ.com with
respect to all acts or omissions by them in their capacities as such or
taken at the request of CMJ.com, CMJ or Changemusic.com at any time on or
prior to the Effective Time. Following the Effective Time, CMJ.com shall
indemnify its directors and officers to the fullest extent permitted by
Delaware Law.
(b) As soon as practicable following the Effective Time, CMJ.com
shall procure an officers' and directors' liability insurance policy on
customary terms with respect to coverage and amounts.
SECTION 8.3 Establishment of Option Plan.
(a) Subject to compliance with all applicable securities laws, as
soon as practicable following the Effective Time, CMJ.com will establish an
employee stock option plan, providing for the vesting of options over a
four-year period following the date of grant.
(b) A number of shares of CMJ.com Common Stock equal to 13% of the
outstanding shares of CMJ.com Common Stock on a fully diluted basis
immediately following the Closing shall be reserved for issuance upon
exercise of stock options that may be granted solely to employees and
directors of CMJ.com.
SECTION 8.4 Employment Agreements.
At the Effective Time, CMJ.com shall enter into employment agreements
with Robert Haber and Alex Ellerson substantially in the form of the
agreements attached hereto as Exhibit B-1 and B-2, respectively.
ARTICLE IX
COVENANTS OF CMJ.COM, CMJ AND CHANGEMUSIC.COM
The parties hereto agree that:
SECTION 9.1 Best Efforts.
(a) CMJ.com, CMJ and Changemusic.com shall each cooperate with the
others and use (and shall cause their respective Subsidiaries to use) their
respective commercially reasonable best efforts to promptly (i) take or
cause to be taken all necessary actions, and do or cause to be done all
things, necessary, proper or advisable under this Agreement and applicable
laws to consummate and make effective the Merger and the other transactions
contemplated by this Agreement as soon as practicable, including, without
limitation, preparing and filing promptly and fully all documentation to
effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents
and (ii) obtain all approvals, consents, registrations, permits,
authorizations and other confirmations required to be obtained from any
third party necessary, proper or advisable to consummate the Merger and the
other transactions contemplated by this Agreement.
SECTION 9.2 Access to Information.
Subject to the terms set forth in that certain Non-Disclosure
Agreement among RMG, Changemusic.com, CMJ and certain stockholders of CMJ,
dated September 10, 1999 (the "Non-Disclosure Agreement"), which is
incorporated by reference herein, respecting confidentiality and certain
other matters, each of Changemusic.com and CMJ shall upon reasonable notice
afford each other's employees, auditors, legal counsel and other authorized
representatives, all reasonable opportunity and access during normal
business hours to inspect, investigate, audit and interview the respective
assets, liabilities, contracts, each of the other's operations, business,
employees and officers before the Closing. These activities shall be
conducted in a reasonable manner during regular business hours using
reasonable efforts to minimize interference with each party's respective
business operations. Changemusic.com and CMJ shall promptly and completely
provide all disclosures requested by the other parties or their agents.
SECTION 9.3 Public Announcements.
At the proper time, as determined by the parties hereto in good faith
consultation with each other, the parties hereto shall issue a press
release or make a public statement concerning the Merger and the related
transactions containing disclosure which is mutually agreeable to the
parties; provided, that prior to the issuance of a press release, none of
the parties hereto shall make any announcement of such transaction or
disclose the existence of and/or particulars of any negotiations related
thereto, including, but not limited to, the terms, conditions,
consideration to be paid or other facts related to the Merger and the
related transactions, except to the extent permitted by the Non-Disclosure
Agreement. Notwithstanding the foregoing, RMG may make such disclosures as
may be required (based on the advice of counsel) due to its status as a
public company, after good faith consultation with the other parties
hereto.
SECTION 9.4 Further Assurances.
At and after the Effective Time, the officers and directors of CMJ.com
will be authorized to execute and deliver, in the name and on behalf of
Changemusic.com or CMJ, any deeds, bills of sale, assignments or assurances
and to take any other actions and do any other things, in the name and on
behalf of Changemusic.com or CMJ, reasonably necessary to vest, perfect or
confirm of record or otherwise in CMJ.com any and all right, title and
interest in, to and under any of the rights, properties or assets of
Changemusic.com or CMJ acquired or to be acquired by CMJ.com as a result
of, or in connection with, the Merger.
SECTION 9.5 Notices of Certain Events.
(a) Each of CMJ and Changemusic.com shall promptly notify the other
party of:
(i) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement if the failure of
CMJ or Changemusic.com, as the case may be, to obtain such consent
would result in a Material Adverse Effect on CMJ or Changemusic.com,
as applicable; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
(b) CMJ and Changemusic.com shall promptly notify the other party of
any actions, suits, claims, investigations or proceedings commenced or, to
the best of its knowledge threatened against, relating to or involving or
otherwise affecting such party or any of its Subsidiaries which relate to
the consummation of the transactions contemplated by this Agreement.
SECTION 9.6 No Solicitation.
Each of Changemusic.com and CMJ shall not, and shall cause its
respective Subsidiaries, officers, directors, employees, investment
bankers, attorneys, accountants or other agents or affiliates not to,
directly or indirectly, initiate, solicit, encourage, negotiate, have
discussions regarding or otherwise facilitate the submission by a third
party of, or negotiate or enter into any agreement with a third party with
respect to, (i) a proposal to acquire, directly or indirectly, any of the
capital stock of Changemusic.com or CMJ or substantially all of the assets
of Changemusic.com or CMJ or the business of Changemusic.com or CMJ (other
than as contemplated hereby) or (ii) any financing transaction involving or
for the benefit of Changemusic.com or CMJ (other than (x) as contemplated
by the Preferred Stock Purchase Agreement or (y) any financing provided by
RMG or any affiliate of RMG). Each of Changemusic.com and CMJ shall notify
in writing each of the other parties hereto if any such inquiries or
proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought with, either of Changemusic.com
or CMJ. Such written notice shall include the identity of the party
making, and the terms of (including delivery of copies thereof), any
inquiry or proposal relating to any matter set forth in this paragraph.
The parties shall develop a mutually acceptable response to any such
inquiry, proposal or request.
SECTION 9.7 Takeover Statutes.
If any anti-takeover or similar statute or regulation is or may become
applicable to the transactions contemplated hereby, each of the parties and
its Board of Directors shall grant such approvals and take all such actions
as are legally permissible so that the transactions contemplated hereby may
be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of any such statute
or regulation on the transactions contemplated hereby.
SECTION 9.8 Headquarters.
After the Effective Time, the headquarters of CMJ.com shall be located
at 565 Fifth Avenue, 29th Floor, in New York, New York.
ARTICLE X
CONDITIONS TO THE MERGER
SECTION 10.1 Conditions to the Obligations of Each Party.
The obligations of CMJ.com, Changemusic.com and CMJ to consummate the
Merger are subject to the satisfaction (or, to the extent legally
permissible, waiver) of the following conditions:
(a) this Agreement and the Merger shall have been approved and
adopted by the respective stockholders of CMJ.com, Changemusic.com and CMJ
in accordance with Delaware Law and New York Law;
(b) all governmental approvals or notifications required to
consummate the transactions contemplated hereby shall have been obtained;
(c) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit or enjoin the
consummation of the Merger;
(d) CMJ.com and each of the stockholders of Changemusic.com and CMJ
immediately prior to the Merger shall enter into a stockholders agreement
(the "Stockholders Agreement") dated as of the Effective Time, in the form
attached hereto as Exhibit C;
(e) the closing of the purchase of CMJ Common Stock by RMG pursuant
to the Common Stock Purchase Agreement shall have occurred immediately
prior to the Effective Time;
(f) the closing of the purchase of $7 million aggregate liquidation
preference of Series A Preferred Stock by RMG pursuant to the Preferred
Stock Purchase Agreement shall have occurred contemporaneous with or is to
occur immediately following the Effective Time;
(g) the Escrow Agreement shall have been duly executed and
delivered by the Escrow Agent and all of the stockholders of each of CMJ
and Changemusic.com immediately prior to the Effective Time (the
"Stockholders") and the Stockholders shall have delivered to the Escrow
Agent executed and undated stock powers transferring to CMJ.com all of such
Stockholders' rights, title and interest in and to the subject shares of
CMJ.com Common Stock and Alex Ellerson shall have delivered to the Escrow
Agent an option certificate evidencing the Ellerson Options, together with
an appropriate instrument of assignment transferring to CMJ.com all of Alex
Ellerson's rights, title and interest in and to the options to purchase
CMJ.com Common Stock, collectively representing 30% of the aggregate Merger
Consideration, as set forth in the Escrow Agreement;
(h) all of the Stockholders and Alex Ellerson shall have delivered
to CMJ.com an Investment Letter in the form attached hereto as Exhibit D
("Investment Letter"); and
(i) neither CMJ nor Changemusic.com shall have any reason to believe
that any conditions exist that could reasonably be expected to prevent the
Merger from qualifying as a tax-free reorganization (under Section 368 of
the Code) or exchange (under Section 351 of the Code).
SECTION 10.2 Conditions to the Obligations of Changemusic.com.
The obligations of Changemusic.com to consummate the Merger are
subject to the satisfaction (or, to the extent legally permissible, waiver)
of the following further conditions:
(a) (i) CMJ shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of CMJ contained in
this Agreement shall be true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth
therein) at and as of the Effective Time as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case
as of such earlier date), except where the failure of such representations
and warranties to be true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth
therein) would not, individually or in the aggregate, have a Material
Adverse Effect on CMJ, and (iii) Changemusic.com shall have received a
certificate signed by an executive officer of CMJ to the foregoing effect;
(b) there shall not be any statute, rule, regulation, injunction,
order or decree, enacted, enforced, promulgated, entered, issued or deemed
applicable to the Merger and the other transactions contemplated hereby (or
in the case of any statute, rule or regulation, awaiting signature or
reasonably expected to become law), by any court, government or
governmental authority or agency or legislative body, domestic, foreign or
supranational, that would, or would reasonably be expected to, have a
Material Adverse Effect on Changemusic.com at or after the Effective Time;
(c) CMJ.com shall have executed and delivered to the
Changemusic.com Stockholders a Registration Rights Agreement in the form
attached hereto as Exhibit E (the "Registration Rights Agreement");
(d) The financial information with respect to CMJ shall have been
sufficiently reviewed and/or audited by CMJ's independent auditors such
that it will enable CMJ.com to timely provide RMG with audited financial
statements for the applicable periods (assuming such availability with
respect to the Changemusic.com financial information) in order for RMG to
comply with its reporting obligations under the federal securities laws and
the rules and regulations promulgated thereunder; and
(e) LTC shall have executed and delivered to CMJ.com an agreement,
in form and substance satisfactory to Changemusic.com, whereby LTC
acknowledges and agrees that the engagement letter, dated as of January 8,
1998, shall automatically terminate and be discharged promptly following
the Effective Time and shall not be binding on and shall have no force or
effect on CMJ.com, except to the limited extent set forth in such
agreement.
SECTION 10.3 Conditions to the Obligations of CMJ
The obligations of CMJ to consummate the Merger is subject to the
satisfaction (or, to the extent legally permissible, waiver) of the
following further conditions:
(a) (i) Changemusic.com shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Effective Time, (ii) the representations and warranties of
Changemusic.com contained in this Agreement shall be true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth herein) at and as of the Effective Time as if
made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such earlier date, except where the
failure of such representations to be true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect"
set forth herein) would not, individually as in the aggregate, have a
Material Adverse Effect on Changemusic.com and (iii) CMJ shall have
received a certificate signed by an executive officer of Changemusic.com to
the foregoing effect;
(b) there shall not be any statute, rule, regulation, injunction,
order or decree, enacted, enforced, promulgated, entered, issued or deemed
applicable to the Merger and the other transactions contemplated hereby (or
in the case of any statute, rule or regulation, awaiting signature or
reasonably expected to become law), by any court, government or
governmental authority or agency or legislative body, domestic, foreign or
supranational, that would, or would reasonably be expected to, have a
Material Adverse Effect on CMJ at or after the Effective Time; and
(c) CMJ.com shall have executed and delivered to the CMJ
Stockholders the Registration Rights Agreement.
SECTION 10.4 Conditions to the Obligations of CMJ.com.
The obligations of CMJ.com to consummate the Merger is subject to the
satisfaction (or, to the extent legally permissible, waiver) of the
following further conditions:
(a) (i) each of CMJ and Changemusic.com shall have performed in all
material respects all of its obligations hereunder required to be performed
by it at or prior to the Effective Time, (ii) the representations and
warranties of CMJ and Changemusic.com contained in this Agreement shall be
true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth herein) at and as of
the Effective Time as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such earlier
date, except where the failure of such representations to be true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth herein) would not, individually as in
the aggregate, have a Material Adverse Effect on CMJ and Changemusic.com
and (iii) CMJ.com shall have received a certificate signed by an executive
officer of CMJ and Changemusic.com to the foregoing effect; and
(b) there shall not be any statute, rule, regulation, injunction,
order or decree, enacted, enforced, promulgated, entered, issued or deemed
applicable to the Merger and the other transactions contemplated hereby (or
in the case of any statute, rule or regulation, awaiting signature or
reasonably expected to become law), by any court, government or
governmental authority or agency or legislative body, domestic, foreign or
supranational, that would, or would reasonably be expected to, have a
Material Adverse Effect on CMJ and Changemusic.com at or after the
Effective Time.
ARTICLE XI
TERMINATION
SECTION 11.1 Termination.
This Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time:
(a) by mutual written consent of CMJ.com, CMJ and Changemusic.com;
(b) by either CMJ or Changemusic.com, if the Merger has not been
consummated as of the three-month anniversary hereof (the "End Date");
provided, however, that if (x) the Effective Time has not occurred by such
date by reason of nonsatisfaction of any of the conditions set forth in
Section 10.1(b), 10.1(c), 10.2(b), 10.3(b) and 10.4(b) and (y) all other
conditions set forth in Article 10 have heretofore been satisfied or waived
or are then capable of being satisfied, 60 days after such three- month
anniversary (which shall then be the "End Date"); provided, further that at
the End Date the right to terminate this Agreement under this Section
11.1(b) shall not be available to any party whose failure to fulfill in any
material respect any obligation under this Agreement has caused or resulted
in the failure of the Effective Time to occur on or before the End Date;
(c) by either CMJ or Changemusic.com, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining CMJ,
CMJ.com or Changemusic.com from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and nonappealable;
provided that the terminating party has fulfilled its obligations under
Section 9.1; or
(d) by either CMJ or Changemusic.com, if there shall have been a
breach by the other or of CMJ.com of any of its representations,
warranties, covenants or obligations contained in this Agreement, which
breach would result in the failure to satisfy one or more of the conditions
set forth in Section 10.2(a) (in the case of a breach by CMJ) or Section
10.3(a) (in the case of a breach by Changemusic.com), and in any such case
such breach shall be incapable of being cured or, if capable of being
cured, shall not have been cured within 30 days after written notice
thereof shall have been received by the party alleged to be in breach.
The party desiring to terminate this Agreement pursuant to clause (b),
(c) or (d) of this Section 11.1 shall give written notice of such
termination to the other parties in accordance with Section 12.1,
specifying the provision hereof pursuant to which such termination is
effected.
SECTION 11.2 Survival.
If this Agreement is terminated pursuant to Section 11.1, this
Agreement shall become void and of no effect with no liability on the part
of any party hereto, except that (a) the agreements contained in this
Section 11.2, and in Sections 9.2 and 12.4, shall survive the termination
hereof and (b) no such termination shall relieve any party of any liability
or damages resulting from any willful breach by that party of this
Agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices.
All notices, requests and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be
given,
if to CMJ, to:
College Media, Inc.
11 Middle Neck Road
Suite 400
Great Neck, New York 11021-2301
Attention: Alex Ellerson, Esq., General Counsel
Facsimile No.: (516) 466-7471
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: David H. Landau, Esq.
Facsimile No.: (212) 940-8776
if to Changemusic.com, to:
Changemusic.com, Inc.
565 Fifth Avenue, 29th Floor
New York, New York 10017
Attention: Robert C. Lewis, General Counsel
Facsimile No.: (212) 856-9122
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Gregory A. Fernicola, Esq.
Facsimile No.: (212) 735-2000
if to CMJ.com, to:
CMJ.com, Inc.
565 Fifth Avenue, 29th Floor
New York, New York 10017
Attention: Seth Tapper
Facsimile No.: (212) 856-9081
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Gregory A. Fernicola, Esq.
Facsimile No.: (212) 735-2000
and
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: David H. Landau, Esq.
Facsimile No.: (212) 940-8776
or such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the other parties. Each such notice,
request or other communication shall be effective (a) if given by
facsimile, when such facsimile is transmitted to the facsimile number
specified in this Section and the appropriate facsimile confirmation is
received or (b) if given by any other means, when delivered at the address
specified in this Section.
SECTION 12.2 Survival of Representations and Warranties.
The representations and warranties contained (i) in Sections 3.1
through 3.5, 3.16(k), 4.1 through 4.5 and 5.1 through 5.5 hereof shall
survive the Effective Time for the period of the statute of limitations
applicable to a claim for breach of such representations and warranties,
(ii) in Sections 3.8, 3.10, 3.13, 3.15, 3.17, 3.18, 3.20, 4.8, 4.10, 4.13,
4.15, 4.17, 4.18 and 4.20 hereof shall survive through the first
anniversary of the Effective Time and (iii) in all other sections of this
Agreement shall survive through the second anniversary of the Effective
Time.
At the end of the applicable survival period set forth above, CMJ.com
and the former stockholders of Changemusic.com and CMJ shall, without
further action as to such representations and warranties, be deemed to have
fully released each other from any and all responsibilities arising
thereunder unless during such period a party shall have notified another
party in writing of the nature and particulars of any claimed
misrepresentation or breach by the other party and that party's assertion
of an adjustment to the Merger Consideration.
SECTION 12.3 Amendments; No Waivers.
(a) Any provision of this Agreement (including the Exhibits and
Schedules hereto) may be amended or waived prior to the Effective Time, if,
and only if, such amendment or waiver is in writing and signed by all of
the parties hereto; provided that after the receipt of any such approval,
if any such amendment or waiver shall by law require further approval of
stockholders, the effectiveness of such amendment or waiver shall be
subject to the necessary stockholder approval.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 12.4 Expenses.
(a) Except as otherwise provided for herein or otherwise agreed to
in writing by the parties, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated by this Agreement
shall be paid by the party incurring such cost or expense, except that
CMJ.com shall reimburse RMG, Changemusic.com and CMJ for their reasonable
out-of-pocket expenses (including counsel fees and expenses) in connection
with this Agreement and the transactions contemplated by this Agreement.
SECTION 12.5 Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns; provided that no party may assign, delegate or otherwise transfer
any of its rights or obligations under this Agreement without the consent
of the other parties hereto.
SECTION 12.6 Governing Law.
This Agreement shall be construed in accordance with and governed by
the law of the State of Delaware, without regard to principles of conflicts
of law.
SECTION 12.7 Jurisdiction.
Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby may be brought in any federal or state
court located in the State of New York, and each of the parties hereby
consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 12.1
shall be deemed effective service of process on such party.
SECTION 12.8 Waiver of Jury Trial.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 12.9 Counterparts; Effectiveness.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
SECTION 12.10 Entire Agreement.
This Agreement (including the Exhibits and Schedules) and the Non-
Disclosure Agreement constitute the entire agreement between the parties
with respect to the subject matter of this Agreement and supersede all
prior agreements and understandings, both oral and written, between the
parties with respect to the Merger. No provision of this Agreement or any
other agreement contemplated hereby is intended to confer on any Person
other than the parties hereto any rights or remedies.
SECTION 12.11 Captions.
The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof.
SECTION 12.12 Severability.
If any term, provision, covenant or restriction of this Agreement or
the application thereof becomes or is held by a court of competent
jurisdiction or arbitrator having jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated 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 a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the
fullest extent possible.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
CHANGEMUSIC.COM, INC.
By: /s/ Seth Tapper
--------------------------------
Name: Seth Tapper
Title: President
COLLEGE MEDIA, INC.
By: /s/ Robert Haber
--------------------------------
Name: Robert Haber
Title: President
CMJ.COM, INC.
By: /s/ Robert Haber
-------------------------------
Name: Robert Haber
Title: Chief Executive Officer
and President
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
by and between
COLLEGE MEDIA, INC.,
ROBERT HABER, JOANNE HABER,
LEE HABER, DIANE TUROFSKY,
and
RARE MEDIUM GROUP, INC.
Dated as of November 12, 1999
TABLE OF CONTENTS
Page
SECTION 1. Sale and Purchase of Company Common Stock . . . . . . . . 1
SECTION 2. Payment of Purchase Price; Adjustments . . . . . . . . . . 1
2.1 Cash and Stock Consideration. . . . . . . . . . . . . 1
2.2 Adjustments to Consideration . . . . . . . . . . . . . 2
2.3 Closing Date Balance Sheet . . . . . . . . . . . . . . 2
2.4 Attorney-In-Fact; Return of Consideration. . . . . . . 4
2.5 Fractional Shares. . . . . . . . . . . . . . . . . . . 4
SECTION 3. Closing; Payment of Consideration . . . . . . . . . . . . . 4
3.1 Closing Date . . . . . . . . . . . . . . . . . . . . . 4
3.2 Deliveries at Closing; Stockholders' Obligations. . . 4
3.3 Deliveries at Closing; Purchaser's Obligations;
Post-Closing Delivery. . . . . . . . . . . . . . . . . 5
SECTION 4. Conditions to Obligations of Purchaser and the Stockholders 6
4.1 Conditions to the Obligations of the Purchaser . . . . 6
4.2 Conditions to Obligations of the Stockholders . . . . 7
SECTION 5. Representations and Warranties of the Company and the
Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Corporate Existence and Power . . . . . . . . . . . . 8
5.2 Corporate Authorization . . . . . . . . . . . . . . . 9
5.3 Governmental Authorization . . . . . . . . . . . . . . 9
5.4 Non-Contravention . . . . . . . . . . . . . . . . . . 9
5.5 Capitalization . . . . . . . . . . . . . . . . . . . . 10
5.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . 11
5.7 Financial Statements . . . . . . . . . . . . . . . . . 12
5.8 Absence of Certain Changes . . . . . . . . . . . . . . 12
5.9 No Undisclosed Material Liabilities . . . . . . . . . 13
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . 14
5.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 14
5.12 Employee Benefit Plans . . . . . . . . . . . . . . . . 17
5.13 Compliance with Laws . . . . . . . . . . . . . . . . . 20
5.14 Finders' or Advisors' Fees . . . . . . . . . . . . . . 20
5.15 Environmental Matters . . . . . . . . . . . . . . . . 20
5.16 Intellectual Property Matters . . . . . . . . . . . . 21
5.17 Year 2000 Compliance Matters . . . . . . . . . . . . . 24
5.18 Related-Party Transactions . . . . . . . . . . . . . . 24
5.19 Title to Property and Assets . . . . . . . . . . . . . 25
5.20 Insurance . . . . . . . . . . . . . . . . . . . . . . 25
5.21 Ownership of Company Common Stock. . . . . . . . . . 25
SECTION 6. Several Representations and Warranties of the Stockholders 26
6.1 Validity, Power and Authority . . . . . . . . . . . . 26
6.2 Absence of Conflicts . . . . . . . . . . . . . . . . . 26
6.3 Valid Title . . . . . . . . . . . . . . . . . . . . . 27
6.4 Investment Representations . . . . . . . . . . . . . . 27
6.5 Acquisition for Own Account . . . . . . . . . . . . . 27
6.6 Ability to Protect Its Own Interests and Bear
Economic Risks . . . . . . . . . . . . . . . . . . . . 27
6.7 Access to Information . . . . . . . . . . . . . . . . 28
6.8 Expenses; No Brokers . . . . . . . . . . . . . . . . . 28
6.9 Offering of Securities. . . . . . . . . . . . . . . 28
SECTION 7. Representations and Warranties of the Purchaser ... . . . . 28
7.1 Power and Authority . . . . . . . . . . . . . . . . . 29
7.2 Organization and Standing . . . . . . . . . . . . . . 29
7.3 Authorization and Binding Obligation . . . . . . . . . 29
7.4 SEC Documents; Undisclosed Liabilities . . . . . . . . 29
7.5 Investment Representations . . . . . . . . . . . . . . 30
7.6 Acquisition for Own Account . . . . . . . . . . . . . 30
7.7 Ability to Protect Its Own Interests and Bear
Economic Risks . . . . . . . . . . . . . . . . . . . . 30
7.8 Accredited Investor . . . . . . . . . . . . . . . . . 31
7.9 Access to Information . . . . . . . . . . . . . . . . 31
SECTION 8. Covenants of The Company, The Stockholders and The
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Best Efforts . . . . . . . . . . . . . . . . . . . . . 31
8.2 Access to Information . . . . . . . . . . . . . . . . 32
8.3 Public Announcements . . . . . . . . . . . . . . . . . 32
8.4 Notices of Certain Events . . . . . . . . . . . . . . 33
SECTION 9. Covenants of the Company. . . . . . . . . . . . . . . . . . 33
9.1 Conduct of the Company . . . . . . . . . . . . . . . . 33
SECTION 10. Covenants of the Stockholders . . . . . . . . . . . . . . . 36
10.1 Compliance with Laws . . . . . . . . . . . . . . . . . 36
10.2 Third Party Transfers; Restrictive Legends . . . . . . 36
10.3 Blackout Period . . . . . . . . . . . . . . . . . . . 36
10.4 Conduct of Company. . . . . . . . . . . . . . . . . 36
SECTION 11. Covenants of the Purchaser. . . . . . . . . . . . . . . . . 37
11.1 Compliance with Laws . . . . . . . . . . . . . . . . . 37
11.2 Third Party Transfers; Restrictive Legends . . . . . . 37
11.3 Reports Under Securities Exchange Act of 1934. . . . . 37
SECTION 12. Registration, Transfer and Substitution of Certificates
for Shares. . . . . . . . . . . . . . . . . . . . . . . . . 38
12.1 Stock Register; Ownership of Shares . . . . . . . . . 38
12.2 Replacement of Certificates . . . . . . . . . . . . . 38
12.3 Notice of Proposed Transfer; Opinions of Counsel . . . 38
SECTION 13. Registration, Transfer and Substitution of Certificates
for Stock Consideration. . . . . . . . . . . . . . . . . . 39
13.1 Stock Register; Ownership of Stock Consideration . . . 39
13.2 Replacement of Certificates . . . . . . . . . . . . . 39
13.3 Notice of Proposed Transfer; Opinions of Counsel . . . 39
SECTION 14. Indemnification . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 15. Termination . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 16. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 42
16.1 Notices . . . . . . . . . . . . . . . . . . . . . . . 42
16.2 Survival of Representations and Warranties . . . . . . 44
16.3 Amendments; No Waivers . . . . . . . . . . . . . . . . 44
16.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . 45
16.5 Successors and Assigns . . . . . . . . . . . . . . . . 45
16.6 Governing Law . . . . . . . . . . . . . . . . . . . . 45
16.7 Jurisdiction . . . . . . . . . . . . . . . . . . . . . 45
16.8 Waiver of Jury Trial . . . . . . . . . . . . . . . . . 46
16.9 Counterparts; Effectiveness . . . . . . . . . . . . . 46
16.10 Entire Agreement. . . . . . . . . . . . . . . . . . . 46
16.11 Captions. . . . . . . . . . . . . . . . . . . . . . . 46
16.12 Severability. . . . . . . . . . . . . . . . . . . . . 46
DEFINITIONS
Section
-------
AAA Section 2.3
Affiliate Section 5.11(t)
Agreement Recitals
Arbitrator Section 2.3
Attorney-in-Fact Section 2.4
Average Purchaser Stock Price Section 2.1(a)
Audits Section 5.11(e)
Blackout Period Section 10.3
Cash Consideration Section 2.1(b)
Cash Consideration Reduction Section 2.2
Changemusic.com Section 4.1(d)
Closing Section 2.2
Closing Date Section 3.1
Closing Date Balance Sheet Section 2.3
CMJ.com Section 4.1(d)
Company Preamble
Company Balance sheet Section 5.7
Company Common Stock Recitals
Company Content Section 5.16(a)
Company Convertible Security Section 5.5
Company Employee Plans Section 5.12(a)
Company Intellectual Property Section 5.16(b)
Company License Agreements Section 5.16(b)
Company Net Liabilities Section 2.2
Company Subsidiary Convertible Security Section 5.6(b)
Consideration Section 2.1(b)
Consideration Reduction Section 2.2
Content Section 5.16(a)
Copyrights Section 5.16(a)
Date Data Section 5.17(a)
Date Sensitive System Section 5.17(a)
Disclosure Schedules Section 5 Preamble
Disputed Item Section 2.3
Disputed Items Section 2.3
Environmental Laws Section 5.15(b)
ERISA Section 5.12(a)
Exchange Act Section 5.6(b)
GAAP Section 2.2
Hazardous Material Section 5.15(b)
Intellectual Property Section 5.16(a)
Lien Section 5.4
Loss Section 14(a)
LTC Section 5.14
Material Adverse Effect Section 5.1
Material Company Marks Section 5.16(m)
Merger Section 4.1(d)
Merger Agreement Section 4.1(d)
Notice of Dispute Section 2.3
Non-Transferable Stock Consideration Section 10.3
Patents Section 5.16(a)
Person Section 5.4
Press Release Section 7.4(b)
Power of Attorney Section 2.4
Preferred Stock Purchase Section 4.1(e)
Preferred Stock Purchase Agreement Section 4.1(e)
Purchase Price Section 1
Purchaser Preamble
Purchaser Common Stock Section 2.1
Requirements of Law Section 10.1
SEC Section 7.4
SEC Reports Section 7.4
Securities Purchase Agreement Section 4.1(g)
Series A Preferred Stock Section 4.1(g)
Shares Section 1
Software Section 5.16(a)
Stock Consideration Reduction Section 2.2
Stockholder Preamble
Stockholders Preamble
Stock Consideration Section 2.1(a)
Stock Purchase Section 1
Subsidiary Section 5.6(a)
Tax Indemnification Agreements Section 5.11(n)
Taxes Section 5.11(s)
Tax Law Section 5.11(s)
Tax Period Section 5.11(s)
Tax Return Section 5.11(s)
Trade Secrets Section 5.16(a)
Trademarks Section 5.16(a)
Year 2000 Compliant Section 5.17(a)
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into this 12th day of November, 1999 by and between COLLEGE MEDIA, INC., a
New York corporation (the "Company"), ROBERT HABER, JOANNE HABER, LEE HABER
and DIANE TUROFSKY, stockholders (each a "Stockholder" and together the
"Stockholders") of the Company and RARE MEDIUM GROUP, INC., a Delaware
corporation (the "Purchaser").
W I T N E S S E T H
WHEREAS, the Stockholders desire to sell to the Purchaser, and the
Purchaser desires to purchase from the Stockholders, shares of common
stock, no par value per share of the Company ("Company Common Stock"), all
in accordance with the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Agreement and intending to be legally bound,
the Company and the Stockholders hereby agree with the Purchaser, as
follows:
SECTION 1. Sale and Purchase of Company Common Stock.
On the basis of the representations and warranties and subject to
the terms and conditions set forth herein the Purchaser agrees to purchase
from the Stockholders and the Stockholders severally agree to sell to the
Purchaser (according to the allocation schedule set forth in Annex A
hereto), an aggregate of 30.3025 shares (the "Shares") of Company Common
Stock, representing 25% of the outstanding Company Common Stock on a fully
diluted basis, assuming the exercise of all outstanding options to purchase
Company Common Stock (the "Stock Purchase"), for a purchase price of
$132,002.31 per share, or an aggregate purchase price of $4 million (the
"Purchase Price").
SECTION 2. Payment of Purchase Price; Adjustments.
2.1 Cash and Stock Consideration. In consideration of the sale of
the Shares, the Stockholders shall be entitled to receive, for each share
sold hereunder:
(a) a number of shares of common stock, par value $0.01 per share,
of the Purchaser ("Purchaser Common Stock"), equal to the quotient obtained
by dividing $99,001.7325 by the average of the closing bid prices per share
(the "Average Purchaser Stock Price") of Purchaser Common Stock for the ten
(10) trading days prior to the Closing Date (as defined below) (the "Stock
Consideration"), representing an aggregate of $3 million of Stock
Consideration for all of the Shares (the Average Purchaser Stock Price
shall be appropriately adjusted in the event of any stock dividend,
subdivision, stock split or combination of the Purchaser Common Stock
during such ten trading day period); and
(b) $33,000.5775 in cash (the "Cash Consideration", and, together
with the Stock Consideration, the "Consideration"), representing an
aggregate of $1 million of Cash Consideration for all of the Shares.
2.2 Adjustments to Consideration. If the aggregate amount of
Company Net Liabilities (as defined below) immediately prior to the closing
of the Stock Purchase (the "Closing") exceeds $1,800,000, the Stock
Consideration shall be reduced by an amount equal to twenty-five percent
(25%) of such excess (utilizing the Average Purchaser Stock Price) (the
"Stock Consideration Reduction"); provided, however, that if the amount of
such excess exceeds $3 million, the Cash Consideration shall then be
reduced by the remaining amount of such excess (the "Cash Consideration
Reduction" and together with the Stock Consideration Reduction, the
"Consideration Reduction"). "Company Net Liabilities" means the sum of (a)
total liabilities of the Company as they would appear on a consolidated
balance sheet prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") plus (b) the amount of liabilities of any
third person that are guaranteed by the Company or any of its subsidiaries
whether or not such liabilities would appear on a consolidated balance
sheet of the Company prepared in accordance with GAAP less cash and
accounts receivable (other than Disqualified Receivables) of the Company
that would appear (net of proper reserves and allowances) on a consolidated
balance sheet prepared in accordance with GAAP. "Disqualified Receivables"
means any accounts receivable reflected in the Company Closing Date Balance
Sheet that shall not have been collected within 180 days following the
Closing Date.
2.3 Closing Date Balance Sheet. Promptly following the Closing,
there shall be prepared and delivered to the Purchaser a consolidated
balance sheet reflecting the Company's Net Liabilities (the "Closing Date
Balance Sheet") as of the Closing Date. Such Closing Date Balance Sheet
shall present fairly, in all material respects, the Net Liabilities of the
Company and its Subsidiaries and shall be prepared in accordance with GAAP
and shall be accompanied by a report of the Company's independent auditors
that it has performed such review procedures with respect to such Closing
Date Balance Sheet that has enabled it to state that based on such
procedures, nothing has come to their attention that has led them to
believe that any adjustments thereto are required in order for such Closing
Date Balance Sheet to be prepared in accordance with GAAP. The Closing
Date Balance Sheet shall be delivered to the Purchaser not later than 45
days after the Closing Date in order to determine what adjustments, if any,
must be made to the Consideration pursuant to Section 2.2 hereof. The
Purchaser shall have 30 days from the date that the Purchaser receives the
Closing Date Balance Sheet to notify the Stockholders in writing if the
Purchaser objects to any item in the Closing Date Balance Sheet. Any such
notice (a "Notice of Dispute") shall specify in detail the item or items in
dispute (a "Disputed Item" or "Disputed Items"). In the event that the
Purchaser and the Stockholders are unable to resolve the Disputed Item or
Disputed Items within 60 days after delivery of a Notice of Dispute, the
Purchaser and the Stockholders shall together appoint a representative from
the New York office of an independent nationally recognized accounting firm
(the "Arbitrator") to arbitrate the dispute and, if the Purchaser and the
Stockholders are unable to agree on an Arbitrator, at the request of either
such party made within 10 days after the end of such 60-day period, the
Arbitrator shall be chosen by the American Arbitration Association (the
"AAA") in New York City. The Purchaser and the Stockholders shall present
their positions with respect to the Disputed Item or Disputed Items to the
Arbitrator, together with such other materials as the Arbitrator deems
appropriate, within 20 days after the appointment of the Arbitrator. The
Purchaser and the Stockholders shall provide written instructions to the
Arbitrator to submit a written decision on each Disputed Item to the
Purchaser and the Stockholders as soon as practicable after its receipt of
such materials. Any determination with respect to any Disputed Item shall
be final and binding on all parties to this Agreement and shall have the
legal effect of an arbitral award. The Arbitrator shall comply with, and
the arbitration shall be conducted in New York City in accordance with, the
commercial arbitration rules of the AAA as in effect for commercial
arbitrations conducted in New York City by the AAA. The fees and
disbursements of the Arbitrator shall be paid 50% by the Stockholders and
50% by the Purchaser. Notwithstanding anything to the contrary in this
Section 2.3, no objection need be made with respect to any amount
receivable that ultimately proves to be a Disqualified Receivable.
2.4 Attorney-In-Fact; Return of Consideration. The Stockholders
have duly executed and delivered a Power of Attorney, in the form
heretofore furnished to the Purchaser (the "Power of Attorney"), appointing
the person indicated in Annex A hereto as the Stockholders' attorney-in-
fact (the "Attorney-in-Fact"), with authority to execute and deliver this
Agreement, to authorize the delivery of the Shares to be sold by the
Stockholders hereunder and otherwise to act on behalf of the Stockholders
in connection with the transactions contemplated by this Agreement and the
Merger Agreement, including the resolution of all disputes, including any
Notice of Dispute, and the performance of all determinations to be made in
connection with this Agreement. The Stockholders hereby agree to return to
the Purchaser the Stock Consideration Reduction and/or the Cash
Consideration Reduction, as may be required by the provisions of Section
2.2 above, and the Stockholders grant to the Attorney-in-Fact full power
and authority to deliver to the Purchaser such Consideration Reduction as
may be required pursuant to the terms of this Agreement.
2.5 Fractional Shares. No fractional shares of Stock
Consideration shall be issued in the Stock Purchase, but in lieu thereof,
each Stockholder otherwise entitled to a fractional share of Purchaser
Common Stock will be entitled to receive, from the Purchaser, in accordance
with the provisions of this Section 2.5, an amount of cash, without
interest thereon (rounded to the nearest whole cent), equal to the product
of (i) such number of fractional shares, and (ii) the Average Purchaser
Stock Price. Fractional Shares of Company Common Stock may be transferred
to the Purchaser hereunder, such fraction (if any) to be carried out to six
decimal places.
SECTION 3. Closing; Payment of Consideration.
3.1 Closing Date. The Closing of the Stock Purchase shall take
place (i) at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919
Third Avenue, New York, New York, as soon as practicable, but in any event
within three business days after the day on which the last to be fulfilled
or waived of the conditions set forth in Sections 4 and 5 (other than those
conditions that by their nature are to be fulfilled at the Closing, but
subject to the fulfillment or waiver of such conditions) shall be fulfilled
or waived in accordance with this Agreement or (ii) at such other place and
time or on such other date as the parties may agree in writing (the
"Closing Date").
3.2 Deliveries at Closing; Stockholders' Obligations. At the
Closing, each of the Stockholders shall deliver to the Purchaser
certificates evidencing the Shares being sold by such Stockholder duly
endorsed for transfer to the Purchaser and/or accompanied by such
instruments of assignment reasonably requested by the Purchaser necessary
to vest in the Purchaser all right, title and interest in and to the
Shares. At or following the Closing, at the election of the Purchaser, the
Company shall reissue such certificates in the form of a single certificate
(or such greater number of certificates representing such Shares as the
Purchaser may reasonably request) dated the date of the Closing Date and
registered in the name of the Purchaser. If at the Closing any of the
Stockholders shall fail to tender to the Purchaser duly executed
certificates evidencing the Shares (accompanied by any such requested
instruments of assignment), as provided in this Section 3.2, or any of the
conditions specified in Section 4.1 shall not have been fulfilled to the
Purchaser's reasonable satisfaction, the Purchaser shall, at its election,
be relieved of all further obligations under this Agreement, without
thereby waiving any other rights the Purchaser may have by reason of such
failure or such nonfulfillment.
3.3 Deliveries at Closing; Purchaser's Obligations; Post-Closing
Delivery.
(a) At the Closing, the Purchaser shall deliver to the
Stockholders the Consideration as follows:
(i) The Cash Consideration to which such Stockholder is
entitled, by wire transfer of immediately available funds, to the accounts
so designated in writing by the Stockholders;
(ii) Certificates, dated as of the Closing Date,
representing the Stock Consideration payable to each of Lee Haber and Diane
Turofsky, registered in the respective names of such Stockholders; and
(iii) Certificates, dated as of the Closing Date,
representing 50% of the Stock Consideration payable to each of Robert Haber
and Joanne Haber pursuant to Section 2.1 of the Agreement, registered in
the respective names of such Stockholders.
(b) On January 3, 2000, the Purchaser shall deliver to Robert
Haber and Joanne Haber certificates, dated as of the Closing Date,
representing the remaining 50% of the Stock Consideration payable to each
Robert Haber and Joanne Haber pursuant to Section 2.1 of this Agreement
("the Remaining Consideration"), registered in the respective names of such
Stockholders. The number of shares represented by the Remaining
Consideration shall be appropriately adjusted to reflect any stock
dividend, subdivision, stock split or combination of the Purchaser Common
Stock after the Closing Date.
If on the Closing Date or on January 3, 2000, the Purchaser shall fail to
deliver to the Stockholders the Consideration, as provided above in this
Section 3.3, or any of the conditions specified in Section 4.2 shall not
have been fulfilled to the Stockholders' reasonable satisfaction, the
Stockholders' shall, at their election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights
the Stockholders may have by reason of such failure. If the Closing
occurs, the obligation of the Purchaser to deliver the Remaining
Consideration shall be unconditional and not subject to any set-off or
counterclaim; provided, however, that nothing set forth in this sentence
will limit or preclude the right of the Purchaser to claim and enforce any
of its rights to a Consideration Reduction pursuant to Section 2.2 or any
of its rights to indemnification pursuant to Section 14.
SECTION 4. Conditions to Obligations of Purchaser and the
Stockholders.
4.1 Conditions to the Obligations of the Purchaser.
The obligations of the Purchaser to consummate the Stock Purchase
at the Closing are subject to the satisfaction (or, to the extent legally
permissible, waiver), of the following conditions:
(a) (i) The Company and the Stockholders shall have performed in
all material respects all of the obligations hereunder required to be
performed by them at or prior to the Closing Date, (ii) the representations
and warranties made by the Company and the Stockholders in this Agreement
shall be true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth herein) at and as of
the Closing Date as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such earlier
date), except where the failure of such representations to be true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth herein) would not, individually or in
the aggregate, have a Material Adverse Effect on the Company and (iii) the
Purchaser shall have received a certificate signed by an executive officer
of the Company (with respect to the obligations, representations and
warranties of the Company) and a certificate signed by each of the
Stockholders (with respect to the obligations, representations and
warranties of such Stockholder) to the foregoing effect;
(b) There shall not be any statute, rule, regulation, injunction,
order or decree, enacted, enforced, promulgated, entered, issued or deemed
applicable to the Stock Purchase and the other transactions contemplated
hereby (or in the case of any statute, rule or regulation, awaiting
signature or reasonably expected to become law), by any court, government
or governmental authority or agency or legislative body, domestic, foreign
or supranational, that would, or would reasonably be expected to, have a
Material Adverse Effect on the Company at or after the Closing Date;
(c) The offering and sale by the Stockholders of the Shares
pursuant to this Agreement shall have been made in compliance with all
applicable requirements of federal and state securities laws;
(d) The consummation of the merger (the "Merger") of the Company
and Changemusic.com, Inc., a Delaware corporation ("Changemusic.com"), with
and into CMJ.com, Inc., a Delaware corporation ("CMJ.com"), as contemplated
by the Agreement and Plan of Merger dated as of November 12, 1999 among
Changemusic.com, the Company and CMJ.com (the "Merger Agreement") is to
occur immediately following the Closing;
(e) The closing of the purchase of $7 million aggregate
liquidation preference of shares of Series A convertible preferred stock,
par value $.01 per share, of CMJ.com ("Series A Preferred Stock") by the
Purchaser (the "Preferred Stock Purchase") pursuant to the Securities
Purchase Agreement dated as of November 12, 1999 among the Purchaser and
CMJ.com (the "Preferred Stock Purchase Agreement") is to occur immediately
following the Closing.
4.2 Conditions to Obligations of the Stockholders.
The obligations of the Stockholders to consummate the Stock
Purchase are subject to the satisfaction (or, to the extent legally
permissible, waiver) of the following conditions:
(a) (i) The Purchaser shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Closing Date, (ii) the representations and warranties of
the Purchaser contained in this Agreement shall be true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth herein) at and as of the Closing Date as if made
at and as of such time (except to the extent expressly made as of an
earlier date), in which case as of such earlier date, except where the
failure of such representations to be true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect"
set forth herein) would not, individually as in the aggregate, have a
Material Adverse Effect on the Purchaser and (iii) the Company and the
Stockholders shall have received a certificate signed by an executive
officer of the Purchaser to the foregoing effect;
(b) There shall not be any statute, rule, regulation, injunction,
order or decree, enacted, enforced, promulgated, entered, issued or deemed
applicable to the Stock Purchase or the other transactions contemplated
hereby (or in the case of any statute, rule or regulation, awaiting
signature or reasonably expected to become law), by any court, government
or governmental authority or agency or legislative body, domestic, foreign
or supranational, that would, or would reasonably be expected to, have a
Material Adverse Effect on the Purchaser at or after the Closing Date;
(c) The Offering and sale by the Purchaser of the Purchaser Common
Stock pursuant to this Agreement shall have been made in compliance with
all applicable requirements of federal and state securities laws;
(d) The consummation of the Merger of the Company and
Changemusic.com with and into CMJ.com, as contemplated by Merger Agreement
is to occur immediately following the Closing;
(e) The closing of the Preferred Stock Purchase pursuant to the
Preferred Stock Purchase Agreement is to occur immediately following the
consummation of the Merger.
SECTION 5. Representations and Warranties of the Company and
the Stockholders.
The Company, Robert Haber and Joanne Haber jointly and severally
represent and warrant to the Purchaser that (except as set forth in the
disclosure schedules delivered to the Purchaser simultaneously with the
execution of this Agreement and attached hereto (the "Disclosure
Schedules")):
5.1 Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of New York, and has all corporate power and authority and all
governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted, except for those the absence of
which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on the Company. For
purposes of this Agreement, a "Material Adverse Effect" means a material
adverse effect on the financial condition, business, liabilities,
properties, assets or results of operations, taken as a whole, of the
Company and its Subsidiaries, taken as a whole. The Company has heretofore
made available to the Purchaser true and complete copies of the Company's
certificate of incorporation and by-laws as currently in effect.
5.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Company's
corporate powers and, have been duly authorized by all necessary corporate
action. Assuming due authorization, execution and delivery of this
Agreement by the Purchaser, this Agreement constitutes a valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms.
5.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority other than actions or filings which if not taken or made would
not, individually or in the aggregate have a Material Adverse Effect on the
Company or prevent or materially delay the consummation of the Stock
Purchase in accordance with this agreement.
5.4 Non-Contravention. The execution, delivery and performance by
the Company and the Stockholders of this Agreement and the consummation by
the Company and the Stockholders of the transactions contemplated hereby do
not and will not (a) contravene or conflict with the certificate of
incorporation or by-laws of the Company, (b) assuming compliance with the
matters referred to in Section 5.3, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or
any of its Subsidiaries, (c) constitute a default under or give rise to any
right of termination, cancellation or acceleration of any right or
obligation of the Company or any of its Subsidiaries or a loss, in whole or
in part, of any benefit or right to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement, contract or
other instrument binding upon the Company or any of its Subsidiaries or any
license, franchise, permit or other similar authorization held by the
Company or any of its Subsidiaries, or (d) result in the creation or
imposition of any Lien on any asset of the Company or any of its
Subsidiaries, except, in the case of clauses (b), (c) and (d), for such
contraventions, conflicts, violations, defaults, rights of termination,
cancellation or acceleration, or losses or Liens that would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company. For purposes of this Agreement, "Lien" means, with respect to any
properties or assets, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset other than any such
mortgage, lien, pledge, charge, security interest or encumbrance (i) for
Taxes not yet due or being contested in good faith and for which adequate
provision has been made or (ii) which is a carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like lien arising in the
ordinary course of business. Except as set forth on Schedule 5.4, neither
the Company nor any Subsidiary of the Company is a party to any agreement
that expressly limits the ability of the Company or any Subsidiary of the
Company to compete in or conduct any line of business or compete with any
Person or in any geographic area or during any period of time except to the
extent that any such limitation, individually or in the aggregate, would
not have a Material Adverse Effect on the Company or on CMJ.com immediately
after the Closing. Schedule 5.4 sets forth a true, accurate and complete
list of all material contracts, instruments, agreements, judgments, orders
and decrees to which the Company or any of its Subsidiaries is a party or
by which any of them or their properties is bound or affected, copies of
all of which have been provided to the Purchaser. There has not occurred
any breach, violation or default or any event that, with the lapse of time,
the giving of notice or the election of any person, or any combination
thereof, would constitute a breach, violation or default by the Company
under any such contract or, to the knowledge of the Company, by any other
person to any such contract nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company is a party. The Company has
not been notified that any party to any material contract intends to
cancel, terminate, not renew or exercise an option under any material
contract, whether in connection with the transactions contemplated hereby
or otherwise. For purposes of this Agreement, "Person" means an
individual, a corporation, a limited liability company, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof.
5.5 Capitalization. The authorized capital stock of the Company
consists of two hundred (200) shares of Company Common Stock without par
value. As of the date hereof there are outstanding one hundred (100)
shares of Company Common Stock, and no other shares of capital stock or
other voting securities of the Company are outstanding. All outstanding
shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth
in Schedule 5.5, there are no outstanding options, warrants or other rights
to acquire from the Company, and no preemptive or similar rights,
subscription or other rights, convertible or exchangeable securities,
agreements, arrangements or commitments of any character, relating to the
capital stock of the Company, obligating the Company to issue, transfer or
sell, any capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of the Company or
obligating the Company to grant, extend or enter into any such option,
warrant, subscription or other right, convertible or exchangeable security,
agreement, arrangement or commitment (each of the foregoing, a "Company
Convertible Security"). There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any Company
Convertible Securities.
5.6 Subsidiaries. (a) Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all power and authority and all
governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted, except for those the absence of
which would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the Company. For purposes of this
Agreement, the word "Subsidiary" when used with respect to any Person means
any other Person, whether incorporated or unincorporated, of which (i) more
than fifty percent of the securities or other ownership interests or
(ii) securities or other interests having by their terms ordinary voting
power to elect more than fifty percent of the board of directors or others
performing similar functions with respect to such corporation or other
organization, is directly owned or controlled by such Person or by any one
or more of its Subsidiaries. Each Subsidiary of the Company is duly
qualified to do business and is in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those
jurisdictions where failure to be so qualified would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
(b) Except as set forth in Schedule 5.6(b), all of the outstanding
capital stock of, or other ownership interests in, each Significant
Subsidiary (as such term is defined in rule 12b-2 under the Securities
Exchange Act of 1934 ("Exchange Act")) of the Company is owned, directly or
indirectly, by the Company. All shares of capital stock of, or other
ownership interests in, Subsidiaries of the Company, directly or
indirectly, owned by the Company are owned free and clear of any Lien and
free of any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests), except as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. There are no
outstanding options, warrants or other rights to acquire from the Company
or any of its Subsidiaries, and, except as may be required by applicable
foreign corporate laws, no preemptive or similar rights, subscriptions or
other rights, convertible or exchangeable securities, agreements,
arrangements or commitments of any character, relating to the capital stock
of any Subsidiary of the Company, obligating the Company or any of its
Subsidiaries to issue, transfer or sell, any capital stock, voting
securities or other ownership interests in, or any securities convertible
into or exchangeable for any capital stock, voting securities or ownership
interests in, any Subsidiary of the Company or obligating the Company or
any Subsidiary of the Company to grant, extend or enter into any such
option, warrant, subscription or other right, convertible or exchangeable
security, agreement, arrangement or commitment (each of the foregoing, a
"Company Subsidiary Convertible Security"). There are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any outstanding shares of capital stock of any
Subsidiary of the Company or any Company Subsidiary Convertible Securities.
5.7 Financial Statements. The unaudited consolidated annual
financial statements for 1998 and 1997 and unaudited consolidated interim
financial statements for the first nine months of 1999 of the Company
(including any related notes and schedules) delivered to the Purchaser
present fairly, in all material respects, the financial position of the
Company and its Subsidiaries as of the dates thereof and their results of
operations and cash flows for the periods then ended (subject to normal
year-end adjustments and the absence of notes in the case of any unaudited
interim financial statements), in each case in conformity with GAAP applied
on a consistent basis (except as may be indicated in the notes thereto).
For purposes of this Agreement, "Company Balance Sheet" means the
consolidated balance sheet of the Company as of September 30, 1999 and
"Company Balance Sheet Date" means September 30, 1999.
5.8 Absence of Certain Changes. Since the Company Balance Sheet
Date and, prior to the date hereof, the Company and its Subsidiaries have
conducted their respective businesses in the ordinary course, consistent
with past practice, and there has not been:
(a) any event, occurrence or development which, individually or in
the aggregate, would have a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company or any repurchase, redemption or other acquisition by the Company
or any of its Subsidiaries of any outstanding shares of their capital stock
or any Company Convertible Securities or Company Subsidiary Convertible
Securities;
(c) any amendment of any term of any outstanding security of the
Company or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement
or settlement entered into, by (or judgment, order or decree affecting) the
Company or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any material amount of assets)
or any relinquishment by the Company or any of its Subsidiaries of any
contract or other right, other than transactions, commitments, contracts,
agreements, settlements or relinquishments in the ordinary course of
business and those contemplated by this Agreement;
(e) any change in any method of accounting or accounting practice
by the Company or any of its Subsidiaries, except for any such change which
is not material or which is required by reason of a concurrent change in
GAAP;
(f) any (i) grant of any severance or termination pay to (or
amendment to any such existing arrangement with) any director, officer or
employee of the Company or any of its Subsidiaries, (ii) entering into of
any employment, deferred compensation, supplemental retirement or other
similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of the Company or any of its
Subsidiaries, (iii) increase in, or accelerated vesting and/or payment of,
benefits under any existing severance or termination pay policies or
employment agreements or (iv) increase in or enhancement of any rights or
features related to compensation, bonus or other benefits payable to
directors, officers or senior employees of the Company or any of its
Subsidiaries, in each case, other than in the ordinary course of business
consistent with past practice; or
(g) any material Tax election made or changed, any material audit
settled or any material amended Tax Returns filed.
5.9 No Undisclosed Material Liabilities. There are no material
liabilities of the Company or any Subsidiary of the Company, whether
accrued, contingent, absolute, determined, determinable or otherwise, that
are required to be reflected in a consolidated balance sheet of the Company
prepared in accordance with GAAP or required to be disclosed on the face
thereof or in the notes thereto in accordance with Statement of Financial
Accounting Standards No. 5 of the Financial Accounting Standards Board,
other than:
(a) liabilities disclosed or provided for in the Company Balance
Sheet or in the notes thereto;
(b) liabilities incurred since such date in the ordinary course of
business; and
(c) liabilities under this Agreement.
5.10 Litigation. There is no action, suit, investigation or
proceeding pending against or affecting, or to the knowledge of the Company
threatened against or affecting, the Company or any of its Subsidiaries or
any of their respective properties or any of their respective officers or
directors before any court or arbitrator or any governmental body, agency
or official except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company or prevent or materially delay the
consummation of the Stock Purchase.
5.11 Taxes. Except as set forth in Schedule 5.11 of the Disclosure
Schedules:
(a) Each of the Company and its Subsidiaries has (x) duly and
timely filed (or there has been filed on its behalf) with the appropriate
governmental authorities all Tax Returns required to be filed by it, and
all such Tax Returns are true, correct and complete except to the extent
any failure to file or any inaccuracies in any filed Tax Return would not
be reasonably likely to have a Material Adverse Effect on the Company and
(y) timely paid (or properly accrued on the Company's books) or there has
been paid on its behalf all Taxes due from it or claimed to be due from it
by any tax authority (whether or not set forth on any Tax Return) except to
the extent that any failure to pay would not be reasonably likely to have a
Material Adverse Effect on the Company;
(b) The Company and each of its Subsidiaries have complied in all
material respects with all applicable Tax Laws relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to sections 1441 and 1442 of the Code and employment withholding
Taxes) and have, within the time and manner prescribed by law, withheld and
paid over to the proper governmental entities all amounts required to be
withheld and paid over under all applicable Tax Laws except for amounts
that would not be reasonably likely to have a Material Adverse Effect on
the Company;
(c) There are no material Liens for Taxes upon the assets or
properties of the Company or any of its Subsidiaries except for statutory
Liens for current Taxes not yet due or that are being contested in good
faith in appropriate proceedings and for which adequate reserves have been
maintained in accordance with GAAP;
(d) None of the Company or any of its Subsidiaries has requested
any extension of time within which to file any Tax Return in respect of any
taxable year which has not since been filed, and no outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns has been given by or on behalf of
the Company or any of its Subsidiaries except for such waiver or consent
that would not be reasonably likely to have a Material Adverse Effect on
the Company;
(e) None of the Company or any of its Subsidiaries has received
any written notice of any federal, state, local or foreign audits, review,
suits, investigations, actions, claims, or other administrative proceedings
or court proceedings ("Audits") with regard to any Taxes or Tax Returns of
the Company or any of its Subsidiaries and to the Company's and its
Subsidiaries' knowledge no such Audits are currently being conducted;
(f) All Tax deficiencies which have been claimed, proposed or
asserted against the Company or any of its Subsidiaries by any taxing
authority have been fully paid except for such deficiency that would not be
reasonably likely to have a Material Adverse Effect on the Company. No
issue has been raised by any taxing authority in any current or prior
examination which, by application of the same principles, would reasonably
be expected to result in a proposed deficiency for any subsequent Taxable
Period;
(g) None of the Company or any of its Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code, by
reason of any voluntary or involuntary change in accounting method (nor has
any tax authority notified the Company or any of its Subsidiaries in
writing of any such adjustment or change of accounting method);
(h) No power of attorney has been granted by or with respect to
the Company or any of its Subsidiaries with respect to any matter relating
to Taxes;
(i) None of the Company or any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor
provision) or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code);
(j) The reserves for Taxes (determined in accordance with
generally accepted accounting principles consistently applied) reflected in
the Company Balance Sheet are adequate for the payment of all Taxes payable
by the Company or any of its Subsidiaries through the date of the Company
Balance Sheet;
(k) None of the Company or any of its Subsidiaries is a party to
any agreement, contract or arrangement that could result, separately or in
the aggregate, in the payment of any payments that will not be deductible
by operation of Section 162(m) of the Code;
(l) None of the Company or any of its Subsidiaries has requested
or received a ruling or determination from any tax authority or signed a
closing or other agreement with any tax authority which would be reasonably
likely to have a Material Adverse Effect on the Company;
(m) The Federal income Tax Returns of the Company and its
Subsidiaries for the Tax Periods ending before January 1, 1995 have been
examined by the appropriate Governmental authority (or the applicable
statue of limitations for the assessment of such taxes has expired);
(n) None of the Company or any of its Subsidiaries is a party to,
is bound by, or has any obligation under, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement (collectively,
"Tax Indemnification Agreements"). Any such Tax Indemnification Agreement
set forth in the Disclosure Schedule will terminate as of the Closing Date
and be of no further force or effect for any Tax Period after the Closing
Date. As of the date of this Agreement, none of the Company or any of its
Subsidiaries is aware of any potential liability or obligation to any
person as a result of, or pursuant to, any such Tax Indemnification
Agreement;
(o) The Company and each of its Subsidiaries has previously
delivered or made available to the Purchaser complete and accurate copies
of each of (a) all audit reports, letter rulings, technical advice
memoranda and similar documents issued by a Governmental authority relating
to the United States federal, state, local or foreign Taxes due from or
with respect to the Company and its Subsidiaries, (b) the United States
federal income Tax Returns, and those state, local and foreign income Tax
Returns filed by the Company and its Subsidiaries (or on their behalf) and
(c) any closing agreements entered into by the Company or any of its
Subsidiaries with any tax authority. The Company will deliver to the
Purchaser all materials with respect to the foregoing for all matters
arising after the date hereof;
(p) None of the Company or any of its Subsidiaries has any or
could have any liability for Taxes of another person under Section 1.1502-6
of the Treasury Regulations (or any similar provision under state, local or
foreign law), by contract or otherwise;
(q) None of the Company or any of its Subsidiaries has any
deferred intercompany gain or loss arising as a result of a deferred
intercompany transaction within the meaning of Section 1.1502-13 of the
Treasury Regulations (or similar provision under state, local or foreign
law);
(r) No claim has been made by a taxing authority in a jurisdiction
where either the Company or any of its Subsidiaries does not file Tax
Returns to the effect that the Company or any of such Subsidiaries is or
may be subject to taxation by that jurisdiction;
(s) None of the Company or any of its Subsidiaries is a "United
States real property holding corporation" within the meaning of Section 897
of the Code;
For the purposes of this Agreement, the following terms shall have
the meanings set forth below: "Taxes" means all federal, state, local and
foreign taxes, levies, deficiencies or other assessments and other charges
of whatever nature, whether or not disputed (including income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, back-up withholding, social
security, unemployment, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum and
other taxes or escheat liability), imposed by any taxing authority,
including any interest, penalty (civil or criminal), or addition thereto.
"Tax Law" means the law (including any applicable regulations or any
administrative pronouncement) of any governmental authority relating to any
Tax. "Tax Period" means with respect to any Tax, the period for which the
Tax is reported as provided under the applicable Tax Law. "Tax Return"
means any federal, state, local or foreign return, declaration, report,
claim for refund, amended return, declaration of estimated Tax or
information return or statement relating to Taxes, and any schedule,
exhibit, attachment or other materials submitted with any of the foregoing,
and any amendment thereto.
5.12 Employee Benefit Plans. (a) For purposes of this Agreement,
the term "Company Employee Plans" shall mean and include: each management,
consulting, non-compete, employment, severance or similar contract, plan,
including, without limitation, all Company Stock Plans, arrangement or
policy applicable to any director, former director, employee or former
employee of the Company and each plan, program, policy, agreement or
arrangement (written or oral), providing for compensation, bonuses, profit-
sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance
benefits) or other employee benefits of any kind, whether funded or
unfunded, which is maintained, administered or contributed to by the
Company or any Subsidiary and covers any employee or director or former
employee or director of the Company or any Subsidiary, or under which the
Company has any liability contingent or otherwise (including but not
limited to each material "employee benefit plan," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), but excluding any such plan that is a "multiemployer plan," as
defined in Section 3(37) of ERISA). Neither the Company nor any of its
affiliates contributes to, or is required to contribute to, any
"multiemployer plan" as defined in Section 3(37) of ERISA. The Disclosure
Schedules set forth a true, accurate and complete list of all Company
Employee Plans.
(b) Each Company Employee Plan has been established and maintained
in compliance with its terms and with the requirements prescribed by any
and all statutes, orders, rules and regulations (including but not limited
to ERISA and the Code) which are applicable to such Plan, except where
failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(c) Neither the Company nor any affiliate of the Company has
incurred a liability under Title IV of ERISA that has not been satisfied in
full, and no condition exists that presents a material risk to the Company
or any affiliate of the Company of incurring any such liability. All
contributions required to be made under the terms of any Company Employee
Plan have been made, and, where applicable to a Company Employee Plan, the
Company and its affiliates have complied with the minimum funding
requirements under Section 412 of the Code and Section 302 of ERISA with
respect to each such Company Employee Plan.
(d) Each Company Employee Plan which is intended to be qualified
under section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust forming a part
thereof is exempt from federal income tax pursuant to section 501(a) of the
Code and, to the Company's knowledge, no circumstances exist which will
adversely affect such qualification or exemption.
(e) No director or officer or other employee of the Company or any
of its Subsidiaries will become entitled to any retirement, severance or
similar benefit or enhanced or accelerated benefit (including any
acceleration of vesting or lapse of repurchase rights or obligations with
respect to any Company Stock Plans or other benefit under any compensation
plan or arrangement of the Company) solely as a result of the transactions
contemplated hereby; and (ii) no payment made or to be made to any current
or former employee or director of the Company or any of its affiliates by
reason of the transactions contemplated hereby (whether alone or in
connection with any other event, including, but not limited to, a
termination of employment) will constitute an "excess parachute payment"
within the meaning of Section 280G of the Code.
(f) No Company Employee Plan provides material post-retirement
health and medical, life or other insurance benefits for retired employees
of the Company or any of its Subsidiaries nor has the Company or any
Subsidiary represented or promised to provide such benefits.
(g) There has been no amendment to, or change in employee
participation or coverage under, any Company Employee Plan which would
increase materially the expense of maintaining such Company Employee Plan
above the level of the expense incurred in respect thereof for the 12
months ended on the Company Balance Sheet Date.
(h) The Company and its Subsidiaries are in compliance with all
applicable federal, state, local and foreign statutes, laws (including
without limitation, common law), judicial decisions, regulations,
ordinances, rules, judgments, orders and codes respecting employment,
employment practices, labor, terms and conditions of employment and wages
and hours, and no work stoppage or labor strike against the Company and its
Subsidiaries are pending or threatened, nor are the Company and its
Subsidiaries involved in or threatened with any labor dispute, grievance,
or litigation relating to labor matters involving any employees, in each
case except as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. There are no suits, actions, disputes,
claims (other than routine claims for benefits), investigations or audits
pending or, to the knowledge of the Company, threatened in connection with
any Company Employee Plan, but excluding any of the foregoing which would
not have a Material Adverse Effect on the Company.
5.13 Compliance with Laws. Neither the Company nor any of its
Subsidiaries has violated or is in violation of any applicable provisions
of any laws, statutes, ordinances or regulations except for any violations
that, individually or in the aggregate, have not and would not have a
Material Adverse Effect on the Company.
5.14 Finders' or Advisors' Fees. Except for Ladenburg, Thalmann &
Co. Inc. ("LTC") a copy of whose engagement agreement has been provided to
the Purchaser, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf
of the Company or any of its Subsidiaries or the Stockholders who might be
entitled to any compensation, fee or commission in connection with the
transactions contemplated by this Agreement. The Company or the
Stockholders shall be responsible for the compensation, fees and expenses
of LTC in connection with such engagement letter; they shall discharge any
and all such obligations to LTC prior to the Stock Purchase, and neither
CMJ.com or the Purchaser shall have any responsibility therefor.
5.15 Environmental Matters. (a) Except for matters which,
individually or in the aggregate, would not have a Material Adverse Effect
on the Company, (i) no written notice, notification, demand, request for
information, citation, summons, complaint or order has been received by,
and no investigation, action, claim, suit, proceeding or review is pending
or, to the knowledge of the Company or any of its Subsidiaries, threatened
by any Person against, the Company or any of its Subsidiaries, and no
penalty has been assessed against the Company or any of its Subsidiaries,
in each case, with respect to any matters relating to or arising out of any
Environmental Law; (ii) the Company and its Subsidiaries are in compliance
with all Environmental Laws; and (iii) to the knowledge of the Company,
there are no liabilities of or relating to the Company or any of its
Subsidiaries relating to or arising out of any Environmental Law and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability.
(b) For purposes of this Agreement, the term "Environmental Laws"
means federal, state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions,
permits and governmental agreements relating to human health and the
environment, including, but not limited to, Hazardous Materials; and the
term "Hazardous Material" means all substances or materials regulated as
hazardous, toxic, explosive, dangerous, flammable or radioactive under any
Environmental Law including, but not limited to: (i) petroleum, asbestos,
or polychlorinated biphenyls and (ii) in the United States, all substances
defined as Hazardous Substances, Oils, Pollutants or Contaminants in the
National Oil and Hazardous Substances Pollution Contingency Plan.
5.16 Intellectual Property Matters. (a) For purposes of this
Agreement, "Intellectual Property" means any United States, foreign,
international and state: patents and patent applications, industrial design
registrations, certificates of invention and utility models (collectively,
"Patents"); trademarks, service marks, and trademark or service mark
registrations and applications, trade names, logos, designs, slogans, and
general intangibles of like nature, together with all goodwill related to
the foregoing (collectively, "Trademarks"); Internet domain names;
copyrights, copyright registrations, renewals and applications for
copyrights, including without limitation for the Content and the Software
(each as defined below in this Section 5.16) (collectively, "Copyrights");
Content; Software, technology, trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models
and methodologies (collectively, "Trade Secrets"), rights of privacy and
publicity, including but not limited to, the names, likenesses, voices and
biographical information of real persons, and all license agreements and
other agreements granting rights relating to any of the foregoing.
"Software" means any and all (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether
in source code or object code form, (ii) databases, compilations, and any
other electronic data files, including any and all collections of data,
whether machine readable or otherwise, (iii) descriptions, flow-charts,
technical and functional specifications, and other work product used to
design, plan, organize, develop, test, troubleshoot and maintain any of the
foregoing, (iv) without limitation to the foregoing, the software
technology supporting any functionality contained on Internet site(s), and
(v) all documentation, including technical, end-user, training and
troubleshooting manuals and materials, relating to any of the foregoing.
"Content" means any and all information, pictures, images, graphics, video,
audio, text and any other content or information, in whatever form and on
any media. "Company Content" means any and all Content published or
displayed in any form, including electronically, by or on behalf of the
Company, including but not limited to all Content contained in the
Company's publications and events (such as, but not limited to, the CMJ New
Music Monthly, the CMJ New Music Report and the CMJ Music Marathon
MusicFest and FilmFest).
(b) The Company owns or has the valid right to use all material
Intellectual Property, as currently used in connection with the business of
the Company, including without limitation all license agreements and other
agreements granting rights relating to any such Intellectual Property
("Company License Agreements") to which the Company is a party or is
otherwise bound (such Intellectual Property, together with the Company
License Agreements the "Company Intellectual Property").
(c) Schedule 5.16(c) sets forth, for the material Intellectual
Property owned by the Company, a complete and accurate list of all United
States, foreign, international and state (i) patents and patent
applications, (ii) Trademark registrations and applications and material
unregistered Trademarks, (iii) Internet domain names, and (iv) Copyright
registrations and applications and material unregistered Copyrights,
including Content and Software, indicating for each, the applicable
jurisdiction, registration number (or application number), and date issued
(or date filed).
(d) Except as set forth on Schedule 5.16(d), the Company
Intellectual Property owned by the Company is solely and exclusively owned
by the Company free and clear of all Liens, and the Company is listed in
the records of the appropriate United States, state or foreign agency as
the sole owner of record for each registration and application for any
Patent, Trademark, Internet domain name and Copyright that it owns. Except
as set forth on Schedule 5.16(d), all of the items set forth on Schedule
5.16(c) are valid and subsisting, in full force and effect, and have not
been cancelled, expired, or abandoned. There is no pending or, to the
Company's knowledge, threatened opposition, interference or cancellation
proceeding before any court or registration authority in any jurisdiction
against the items set forth on Schedule 5.16(c) or any other Company
Intellectual Property owned by the Company or, to the Company's knowledge,
against any Company Intellectual Property not owned by the Company.
(e) Except as set forth on Schedule 5.16(e), there are no
settlements, forebearances to sue, consents, judgments, or orders or
similar obligations to which the Company is a party or is otherwise bound,
which (i) materially restrict the Company's rights to use any Company
Intellectual Property, (ii) materially restrict the Company's business in
order to accommodate a third party's Intellectual Property rights or
(iii) permit third parties to use any Intellectual Property which would
otherwise materially infringe any Company Intellectual Property. The
Company has not materially licensed or sublicensed its rights in any
Intellectual Property other than pursuant to the Company License Agreements
set forth on Schedule 5.16(e) and no royalties, honoraria or other fees are
payable by for the use of or right to use any Company Intellectual Property
in connection with the Company's business as currently conducted except
pursuant to the Company License Agreements set forth on Schedule 5.16(e).
(f) The Company License Agreements are valid and binding
obligations of the Company and, to the Company's knowledge, any other
parties thereto, enforceable in accordance with their terms, and there
exists no event or condition which will result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a
default by the Company under any such Company License Agreement.
(g) To the Company's knowledge, no Trade Secret material to the
business of the Company as currently operated has been disclosed or
authorized to be disclosed to any third party, including any employee,
agent, contractor or other entity, other than pursuant to a non-disclosure
agreement that adequately protects the Company's proprietary interests in
and to such Trade Secrets. To the Company's knowledge, no party to any
non-disclosure agreement relating to such Trade Secrets is in breach
thereof.
(h) To the Company's knowledge, the conduct of the Company's
business as currently conducted and the Company Content do not materially
infringe upon any Intellectual Property owned or controlled by any third
party (either directly or indirectly such as through contributory
infringement or inducement to infringe) and is not materially libelous,
slanderous, defamatory, violative in any way of publicity or privacy
rights, or obscene. Except as set forth on Schedule 5.16(h), there are no
claims or suits pending or, to the Company's knowledge, threatened, and the
Company has not received any notice of a third party claim or suit, (i)
alleging that the Company's activities or the conduct of its businesses
infringes upon or constitutes the unauthorized use of the Intellectual
Property rights of any third party, nor alleging libel, slander,
defamation, or other violation of a personal right, or (ii) challenging the
ownership, use, validity or enforceability of any Company Intellectual
Property.
(i) To the Company's knowledge, no third party is materially
misappropriating, infringing, diluting, or otherwise violating any Company
Intellectual Property, and, except as set forth on Schedule 5.16(i), no
such claims are pending against a third party by the Company.
(j) Without limitation to the representations and warranties set
forth above in this Section 5.16, the Company represents and warrants that
there are no material restrictions on the Company Content owned by the
Company.
(k) The Company represents and warrants that (i) the Company has,
and CMJ.com will have as of the Effective Time (as defined in the Merger
Agreement), (other than as set forth in the following clause (ii)) the
unrestricted right to use, copy, distribute, create derivative works from,
perform, display, transmit and otherwise exploit the Company Content,
including, but not limited to, all past, current and future music reviews
published by or on behalf of the Company on whatever media (the "CMJ Music
Reviews") and (ii) no other person or entity will have any rights
whatsoever in or to any Company Content, except for (A) rights set forth in
the contracts (other than the Linking Agreement, dated as of April 20,
1998, between the Company and CDnow, Inc., a Pennsylvania corporation (the
"CDnow Agreement")) listed on Schedule 5.16(k) and (B) the right of CDnow,
Inc., pursuant to the CDnow Agreement, (x) to be the only online retail
seller of recorded music licensed to use, copy or display the CMJ Music
Reviews over the Internet and (y) to have the right of first refusal to
license any other CMJ Content appearing in either CMJ New Music Report or
CMJ New Music Monthly, except for any chart or chart related data appearing
in either CMJ New Music Report or CMJ New Music Monthly (the rights in the
foregoing clause (B) collectively referred to herein as the "CDnow
Agreement Rights"). Notwithstanding subsection (A) above and
notwithstanding the CDnow Agreement Rights, CMJ has, and as of the
Effective Time CMJ.com will have, the right to place any and all CMJ
Content, including the CMJ Music Reviews, on its Internet sites, including
in connection with its online retail sale of recorded music. None of the
agreements listed on Schedule 5.16(e) hereto conflict with or violate any
provisions of any of the other agreements listed on Schedule 5.16(e).
5.17 Year 2000 Compliance Matters. (a) Except as set forth on
Schedule 5.17, to the Company's knowledge after reasonable investigation,
all material Date Data and Date-Sensitive Systems used by the Company in
connection with its business as currently conducted , or in development or
on order, are Year 2000 Compliant, or are reasonably expected to be Year
2000 Compliant in a timely manner. "Date Data" means any data of any type
that includes date information or which is otherwise derived from,
dependent on or related to date information. "Date-Sensitive System" means
any Software, microcode or hardware system or component, including any
electronic or electronically controlled system or component, that processes
any Date Data (other than those licensed from third party providers).
"Year 2000 Compliant" means (i) with respect to Date Data, that such data
is in proper format and accurate for all dates in, or spanning, the
twentieth and twenty-first centuries, and (ii) with respect to Date-
Sensitive Systems, that each such system accurately processes all Date
Data, including for the twentieth and twenty-first centuries, without loss
of any functionality, interoperability or performance, including but not
limited to calculating, comparing, sequencing, storing and displaying such
Date Data (including all leap year considerations), when used as a
stand-alone system, or in combination with other Software, hardware, or
Content that is Year 2000 Compliant and properly interfaces with that Date-
Sensitive System.
5.18 Related-Party Transactions. Except as set forth on Schedule
5.18, no employee, officer, or director of the Company or any of its
Subsidiaries or member of his or her immediate family is currently indebted
to the Company or any of its Subsidiaries, nor is the Company or any of its
Subsidiaries indebted (or committed to make loans or extend or guarantee
credit) to any of such individuals. Except as set forth on Schedule 5.18,
to the Company's knowledge, as of the date hereof none of such persons has
any direct or indirect ownership interest in any firm or corporation with
which the Company or any of its Subsidiaries is affiliated or any firm or
corporation that competes with the Company or any of its Subsidiaries,
except that employees, officers, or directors of the Company or any of its
Subsidiaries and members of their immediate families may own stock in an
amount not to exceed 5% of the outstanding capital stock of publicly traded
companies that may compete with the Company or any of its Subsidiaries or
the Purchaser. As of the date hereof, except as set forth on Schedule
5.18, and other than with respect to agreements for employment, copies of
which have been provided to the Purchaser, no employee, director, or
officer of the Company or any of its Subsidiaries and no member of the
immediate family of any employee, officer, or director of the Company or
any of its Subsidiaries is directly or indirectly interested in any
material contract with the Company or any of its Subsidiaries.
5.19 Title to Property and Assets. As of the date hereof, the
Company and its Subsidiaries own their property and assets free and clear
of all Liens, except such Liens that arise in the ordinary course of
business and do not materially impair the Company's or its Subsidiaries'
ownership or use of such property or assets. With respect to the property
and assets it leases, the Company and each of its Subsidiaries currently is
in compliance with such leases and, to the Company's knowledge, holds a
valid leasehold interest free of any Liens.
5.20 Insurance. The Company has, and its Subsidiaries have, in
full force and effect fire and casualty insurance policies, with extended
coverage, sufficient in amount (subject to reasonable deductibles) to allow
the Company and its Subsidiaries to replace any material assets or
properties of the Company and its Subsidiaries that might be damaged or
destroyed. Set forth on Schedule 5.20 is a list of all insurance policies
maintained by or for the benefit of the Company and its Subsidiaries and
their respective directors, officers, employees or agents.
5.21 Ownership of Company Common Stock. Robert Haber and Joanne
Haber beneficially own 45 shares and 45 shares of Company Common Stock,
respectively, representing 37.126% and 37.126%, respectively, of the
outstanding Company Common Stock on a fully diluted basis (assuming
exercise of all outstanding rights to acquire Company Common Stock)
immediately prior to the Closing.
SECTION 6. Several Representations and Warranties of the
Stockholders.
Each of the Stockholders, severally as to such Stockholder itself
and not jointly, represents and warrants to, and agrees with, the Purchaser
that:
6.1 Validity, Power and Authority. All consents, approvals,
authorizations and orders necessary for the execution and delivery by such
Stockholder of this Agreement and the Power of Attorney and for the sale
and delivery of the Shares to be sold by such Stockholder hereunder, have
been obtained; and such Stockholder has the capacity to enter into this
Agreement and the Power of Attorney and to sell, assign, transfer and
deliver the Shares to be sold by such Stockholder hereunder. Assuming due
authorization, execution and delivery of this Agreement by the Purchaser,
this Agreement constitutes a valid and binding agreement of such
Stockholder enforceable against such Stockholder in accordance with its
terms. The execution, delivery and performance by such Stockholder of this
Agreement and the consummation by such Stockholder of the transactions
contemplated hereby require no action by or in respect of, or filing with,
any governmental body, agency, official or authority other than such
actions or filings which if not taken or made would not, individually or in
the aggregate have a Material Adverse Effect on such Stockholder or prevent
or materially delay the consummation of the Stock Purchase in accordance
with this agreement.
6.2 Absence of Conflicts. The sale of the Shares to be sold by
such Stockholder hereunder and the compliance by such Stockholder with all
of the provisions of this Agreement and the Power of Attorney and the
consummation by such Stockholder of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Stockholder is a party or by which
such Stockholder is bound or to which any of the property or assets of such
Stockholder is subject, nor will such action result in any violation of the
provisions of or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over such Stockholder or
the property of such Stockholder.
6.3 Valid Title. Such Stockholder has, and immediately prior to
the Closing such Stockholder will have, good and valid title to the Shares
to be sold by such Stockholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares, free
and clear of all liens, encumbrances, equities or claims, will pass to the
Purchaser.
6.4 Investment Representations. Such Stockholder acknowledges and
agrees with the Purchaser that the Stock Consideration has not been
registered under the Securities Act and may not be offered or sold except
pursuant to registration or an exemption from the registration requirements
of the Securities Act. Such Stockholder further agrees that he has not
entered and will not enter into any transaction or arrangement with respect
to the sale, transfer or delivery of the Stock Consideration, other than
pursuant to any transaction that does not require registration under the
Securities Act.
6.5 Acquisition for Own Account. Such Stockholder is acquiring
the Stock Consideration for his own account for investment and not with a
view toward distribution in a manner which would violate the Securities
Act.
6.6 Ability to Protect Its Own Interests and Bear Economic Risks.
Such Stockholder represents that by reason of his business and financial
experience he has the capacity to protect his own interests in connection
with the transactions contemplated by this Agreement. Such Stockholder
further represents that he is able to bear the economic risk of an
investment in the Stock Consideration and has an adequate income
independent of any income produced from an investment in the Stock
Consideration, sufficient net worth to sustain a loss of all of his
investment in the Stock Consideration without economic hardship if such a
loss should occur.
6.7 Access to Information. Such Stockholder has been given access
to all Purchaser documents, records, and other information of the
Purchaser, has received physical delivery of all such documents, records
and information which such Stockholder has requested, and has had adequate
opportunity to ask questions of, and receive answers from, the Purchaser as
well as the Purchaser's officers, employees, agents, accountants, and
representatives concerning the Purchaser's business, operations, financial
condition, assets, liabilities, and all other matters relevant to his
investment in the Stock Consideration.
6.8 Expenses; No Brokers. Except as otherwise provided for herein
or otherwise agreed to in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
cost or expense, no broker's or finder's fees or commissions will be
payable by such Stockholder with respect to the transactions contemplated
by this Agreement, and such Stockholder hereby indemnifies and holds the
Purchaser harmless from any claim, demand or liability for broker's or
finder's fees alleged to have been incurred at the instance of such
Stockholder, its Affiliates or agents or any Person acting on behalf of or
at the request of such Stockholder, its Affiliates or agents.
6.9 Offering of Securities. Neither the Company, such Stockholder
nor any Person acting on their behalf has offered the Shares or any similar
securities of the Company to, or solicited any offers to buy any thereof
from, or otherwise approached or negotiated with respect thereto with, any
person or persons by any form of general solicitation or general
advertising or in any other manner as would subject the sale of any of the
Shares to the provisions of Section 5 of the Securities Act. Neither the
Company, such Stockholder nor any Person acting on their behalf has taken
or will take any action which would subject the sale of any of the Shares
to the provisions of Section 5 of the Securities Act. Neither the Company,
such Stockholder nor any of their Affiliates has, directly or through any
agent, sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any security (as defined in the Securities Act)
which is or will be integrated with the sale of the Shares in a manner that
would require the registration of the Shares under the Securities Act.
As used in this Agreement with reference to any Stockholder, any
gender word (such as "he" or "his") includes both the male and female
genders.
SECTION 7. Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Stockholders as
follows:
7.1 Power and Authority. The Purchaser has all necessary
corporate power and authority to execute and deliver this Agreement and the
documents contemplated hereby, to issue and deliver the Stock Consideration
to which the Stockholders are entitled pursuant to this Agreement and to
perform its other obligations in accordance with the terms of this
Agreement.
7.2 Organization and Standing. The Purchaser has delivered to the
Company and the Stockholders true and complete copies of the certificate of
incorporation and by-laws of the Purchaser. The Purchaser is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Delaware. The Purchaser has all necessary corporate power and
authority to own, hold or lease its properties and to carry on its business
as now conducted.
7.3 Authorization and Binding Obligation. The execution,
delivery, and performance of this Agreement by the Purchaser have been duly
authorized by all necessary corporate action on the part of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser and
constitutes the legal, valid, and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms. All of the
shares of Purchaser Common Stock will be, when issued, validly issued,
fully paid and nonassessable, free of any Liens arising out of any act of
the Purchaser, except for restrictions under applicable federal and state
securities laws.
7.4 SEC Documents; Undisclosed Liabilities. (a) The Purchaser has
filed all required registration statements, prospectuses, reports,
schedules, forms, statements and other documents (including exhibits and
all other information incorporated therein) with the Securities and
Exchange Commission (the "SEC") since December 31, 1997 (the "SEC
Reports"). As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act or the 1934
Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Reports, and none of the SEC
Reports when filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
the Purchaser included in the SEC Reports comply as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
the consolidated financial position of the Purchaser and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments)
(b) There are no material liabilities of the Purchaser of a type
required to be reflected on a balance sheet of the Purchaser prepared in
accordance with GAAP, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than:
(i) liabilities disclosed or provided for in the SEC Reports;
(ii) liabilities incurred since the date of the most recent
SEC Reports in the ordinary course of business or
publicly announced by the Purchaser through press
releases (the "Press Releases"); and
(iii) liabilities under this Agreement.
7.5 Investment Representations. The Purchaser hereby acknowledges
and agrees with the Stockholder that the Shares have not been registered
under the Securities Act and may not be offered or sold except pursuant to
registration or an exemption from the registration requirements of the
Securities Act. The Purchaser further agrees that it has not entered and
will not enter into any transaction or arrangement with respect to the sale
and transfer or delivery of the Shares, other than pursuant to any
transaction that does not require registration under the Securities Act.
7.6 Acquisition for Own Account. The Purchaser is acquiring the
Shares for its own account for investment and not with a view toward
distribution in a manner which would violate the Securities Act.
7.7 Ability to Protect Its Own Interests and Bear Economic Risks.
The Purchaser represents that by reason of its business and financial
experience, and the business and financial experience of its management,
the Purchaser has the capacity to protect its own interests in connection
with the transactions contemplated by this Agreement. The Purchaser
further represents that the Purchaser is able to bear the economic risk of
an investment in the Shares and has an adequate income independent of any
income produced from an investment in the Shares and has sufficient net
worth to sustain a loss of all of its investment in the Shares without
economic hardship if such a loss should occur.
7.8 Accredited Investor. The Purchaser represents that it is an
"accredited investor" as that term is defined in Regulation D promulgated
under the Securities Act.
7.9 Access to Information. The Purchaser has been given access to
all Company documents, records, and other information, has received
physical delivery of all such documents, records and information which the
Purchaser has requested, and has had adequate opportunity to ask questions
of, and receive answers from, the Company and the Stockholders as well as
the Company's officers, employees, agents, accountants, and representatives
concerning the Company's business, operations, financial condition, assets,
liabilities, and all other matters relevant to its investment in the
Shares.
7.10 Expenses; No Brokers. Except as otherwise provided for herein
or otherwise agreed to in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
cost or expense, no broker's or finder's fees or commissions will be
payable by the Purchaser with respect to the transactions contemplated by
this Agreement, and the Purchaser hereby indemnifies and holds the Company
and the Stockholders harmless from any claim, demand or liability for
broker's or finder's fees alleged to have been incurred at the instance of
the Purchaser, its Affiliates or agents or any Person acting on behalf of
or at the request of the Purchasers, its Affiliates or agents.
7.11 Absence of Certain Changes. Since December 31, 1998 and,
prior to the date hereof, the Purchaser has conducted its business in the
ordinary course and there has not been any event, the occurrence or
development of which, individually or in the aggregate, would have a
Material Adverse Effect on the Purchaser that have not been disclosed in
the SEC Reports or the Press Releases.
SECTION 8. Covenants of The Company, The Stockholders and The
Purchaser.
The parties hereto agree that:
8.1 Best Efforts.
(a) The Company, the Stockholders and the Purchaser shall each
cooperate with the others and use (and shall cause their respective
Subsidiaries to use) their respective commercially reasonable best efforts
to promptly (i) take or cause to be taken all necessary actions, and do or
cause to be done all things, necessary, proper or advisable under this
Agreement and applicable laws to consummate and make effective the Stock
Purchase and the other transactions contemplated by this Agreement as soon
as practicable, including, without limitation, preparing and filing
promptly and fully all documentation to effect all necessary filings,
notices, petitions, statements, registrations, submissions of information,
applications and other documents and (ii) obtain all approvals, consents,
registrations, permits, authorizations and other confirmations required to
be obtained from any third party necessary, proper or advisable to
consummate the Stock Purchase and the other transactions contemplated by
this Agreement.
8.2 Access to Information.
Subject to the terms set forth in that certain Letter of Intent among
the Company, the Stockholders and the Purchaser, dated September 13, 1999
(the "Letter of Intent"), which is incorporated by reference herein,
respecting confidentiality and certain other matters, each of the parties
hereto shall afford each other's employees, auditors, legal counsel and
other authorized representatives, all reasonable opportunity and access
during normal business hours to inspect, investigate, audit and interview
the respective assets, liabilities, contracts, each of the other's
operations, business, employees and officers before the Closing. These
activities shall be conducted in a reasonable manner during regular
business hours using reasonable efforts to minimize interference with each
party's respective business operations. Each of the parties hereto shall
promptly and completely provide all disclosures requested by the other
parties or their agents.
8.3 Public Announcements.
At the proper time, as determined by the parties hereto in good faith
consultation with each other, the parties hereto shall issue a press
release or make a public statement concerning the Stock Purchase and the
related transactions containing disclosure which is mutually agreeable to
the parties; provided, that prior to the issuance of a press release, none
of the parties hereto shall make any announcement of such transaction or
disclose the existence of and/or particulars of any negotiations related
thereto, including, but not limited to, the terms, conditions,
consideration to be paid or other facts related to the Stock Purchase and
the related transactions, except to the extent permitted by the Letter of
Intent. Notwithstanding the foregoing, the Purchaser may make such
disclosures as may be required (based on the advice of counsel) due to its
status as a public company, after good faith consultation with the other
parties hereto.
8.4 Notices of Certain Events.
(a) Each of the parties hereto shall promptly notify the other
party of: (i) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement if the failure of any of
the parties hereto, as the case may be, to obtain such consent would result
in a Material Adverse Effect on any of the parties hereto, as applicable;
and (ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
(b) The parties hereto shall promptly notify the other party of
any actions, suits, claims, investigations or proceedings commenced or, to
the best of its knowledge threatened against, relating to or involving or
otherwise affecting such party or any of its Subsidiaries which relate to
the consummation of the transactions contemplated by this Agreement.
SECTION 9. Covenants of the Company.
The Company covenants that:
9.1 Conduct of the Company. From the date of this Agreement until
the Closing, the Company shall, and shall cause its Subsidiaries to,
subject to the last sentence of this Section 9, conduct their business in
the ordinary course consistent with past practice and shall use their
commercially reasonable best efforts to preserve intact their business
organizations and relationships with third parties. Without limiting the
generality of the foregoing and subject to the last sentence of this
Section 9, without the prior written consent of the Purchaser (which
consent shall not be unreasonably withheld), from the date of this
Agreement until the Closing:
(a) The Company will not, and will not permit any of its
Subsidiaries to, adopt or propose any change in its certificate of
incorporation or by-laws;
(b) The Company will not, and will not permit any Subsidiary of
the Company to, adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
Subsidiaries;
(c) The Company will not, and will not permit any of its
Subsidiaries to, issue, sell, transfer, pledge, dispose of or encumber any
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class or series of the Company or its any of its
Subsidiaries;
(d) The Company will not (i) split, combine, subdivide or
reclassify its outstanding shares of capital stock, or (ii) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to its capital stock;
(e) The Company will not, and will not permit any of its
Subsidiaries to, redeem, purchase or otherwise acquire directly or
indirectly any shares of capital stock of the Company or any Subsidiaries
of the Company (other than a wholly-owned Subsidiary);
(f) The Company will not amend the terms (including the terms
relating to accelerating the vesting or lapse of repurchase rights or
obligations) of any employee or director stock options or other stock based
awards;
(g) The Company will not, and will not permit any of its
Subsidiaries to, (i) grant any severance or termination pay to (or amend
any such existing arrangement with) any director, officer or employee of
the Company or any of its Subsidiaries, (ii) enter into any employment,
deferred compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of the
Company or any of its Subsidiaries, (iii) increase any benefits payable
under any existing severance or termination pay policies or employment
agreements, (iv) increase (or amend the terms of) any compensation, bonus
or other benefits payable to directors, officers or employees of the
Company or any of its Subsidiaries or (v) permit any director, officer or
employee who is not already a party to an agreement or a participant in a
plan providing benefits upon or following a "change in control" to become a
party to any such agreement or a participant in any such plan;
(h) The Company will not, and will not permit any of its
Subsidiaries to, acquire any assets or property of any other Person except
in the ordinary course of business consistent with past practice;
(i) The Company will not, and will not permit any of its
Subsidiaries to, sell, lease, license or otherwise dispose of any assets or
property except pursuant to existing contracts or commitments and except in
the ordinary course of business consistent with past practice;
(j) except for any such change which is required by reason of a
concurrent change in GAAP, the Company will not, and will not permit any of
its Subsidiaries to, change any method of accounting or accounting practice
used by it;
(k) The Company will not, and will not permit any of its
Subsidiaries to, enter into any joint venture, partnership or other similar
arrangement;
(l) The Company will not, and will not permit any of its
Subsidiaries to, take any action that would make any representation or
warranty of the Company hereunder inaccurate in any material respect at, or
as of any time prior to, the Closing Date;
(m) The Company will not make or change any material Tax election,
settle any material audit or file any material amended Tax Returns, except
in the ordinary course of business consistent with past practice;
(n) The Company will not enter into, amend or waive any provisions
of any standstill agreement; and
(o) The Company will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
Notwithstanding the foregoing, from the date hereof until the
Closing Date, the Company and its Subsidiaries may (x) make acquisitions of
property, assets or any business, (y) sell, transfer or otherwise dispose
of assets or property of the Company or any of its Subsidiaries or (z)
enter into any joint venture, partnership or other similar arrangements so
long as the Company has obtained the prior written consent of the Purchaser
prior to the consummation of any transaction referred to in the foregoing
clauses (x), (y) or (z).
SECTION 10. Covenants of the Stockholders.
Each of the Stockholders severally as to such Stockholder, and not
jointly, covenants that:
10.1 Compliance with Laws. Such Stockholder and his or her
transferees shall comply with all filing and other reporting obligations
under all laws, rules and regulations ("Requirements of Law") which may be
applicable to such Stockholder with respect to the transactions
contemplated hereby.
10.2 Third Party Transfers; Restrictive Legends. Such Stockholder
acknowledges that each certificate evidencing the Purchaser Common Stock
delivered as Stock Consideration shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under such
Act. The shares represented by this certificate are subject to the
limitations and may be transferred only in compliance with the
conditions contained in Sections 10 and 13 of the Stock Purchase
Agreement, dated as of November __, 1999, between College Media, Inc.,
Robert Haber, Joanne Haber, Lee Haber, Diane Turofsky and Rare Medium
Group, Inc."
10.3 Blackout Period. Such Stockholder hereby agrees with the
Purchaser that from the date hereof and prior to the six month anniversary
of the Closing Date (the "Blackout Period"), he shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose of (A) fifty percent (50%) of the shares of Purchaser Common Stock
received by such Stockholders at the Closing as Stock Consideration (the
"Non-Transferable Stock Consideration") or (B) any interest (including,
without limitation, an option to buy or sell) in such Non-Transferable
Stock Consideration.
10.4 Conduct of Company. Robert Haber will not permit the Company
to breach any of its obligations set forth in Section 9.1 hereof.
SECTION 11. Covenants of the Purchaser.
The Purchaser covenants that:
11.1 Compliance with Laws. The Purchaser and its transferees
shall comply with all filing and other reporting obligations under all
Requirements of Law which may be applicable to the Purchaser with respect
to the transactions contemplated hereby.
11.2 Third Party Transfers; Restrictive Legends. The Purchaser
acknowledges that each certificate evidencing the Shares shall be stamped
or otherwise imprinted with a legend in substantially the following form:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933 and may not be
transferred in the absence of such registration or an exemption
therefrom under such Act. The shares represented by this
Certificate are subject to the limitations and may be transferred
only in compliance with the conditions contained in Sections 11 and
12 of the Stock Purchase Agreement, dated as of November 12, 1999,
between College Media, Inc., certain Stockholders of College Media,
Inc., Robert Haber, Joanne Haber, Lee Haber, Diane Turofsky and
Rare Medium Group, Inc."
11.3 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Stockholders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the SEC that
may at any time permit a Stockholder to sell the Purchaser Common Stock to
the public without registration, for a period not to exceed two years from
the Closing Date, the Purchaser agrees to use its commercially reasonable
best efforts to:
(a) make and keep available public information, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Purchaser under the 1934 Act; and
(c) upon the request of a Stockholder, deliver to such Stockholder
a written statement as to whether it has complied with such
information and requirements.
11.4 Approval of Merger. In the event that any vote by
stockholders of the Company in connection with the Merger occurs after the
consummation of the Stock Purchase, the Purchaser agrees to vote the Shares
in favor of the Merger or consent thereto in writing (as applicable).
SECTION 12. Registration, Transfer and Substitution of
Certificates for Shares.
12.1 Stock Register; Ownership of Shares. (a) The Company will
keep at its principal office a register in which the Company will provide
for the registration of transfers of the Shares. The Company may treat the
Person in whose name any of the Shares are registered on such register as
the owner thereof and the Company shall not be affected by any notice to
the contrary. All references in this Agreement to a "holder" of any Shares
shall mean the Person in whose name such Shares are at the time registered
on such register.
12.2 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificate representing Shares, and, in the case of any
such loss, theft or destruction, upon delivery of indemnity reasonably
satisfactory to the Company in form and amount or, in the case of any such
mutilation, upon surrender of such certificate for cancellation at the
office of the Company maintained pursuant to subdivision (a) of Section
13.1 hereof, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate representing Shares of like tenor.
12.3 Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Shares, the holder thereof will give written notice to
the Company of such holder's intention to effect such transfer and to
comply in all other respects with this Section 12.3 and Section 11 hereof.
Each such notice shall describe the manner and circumstances of the
proposed transfer. If within 5 Business Days after receipt by the Company
of such notice, the Company requests an opinion of counsel for such holder
that the proposed transfer may be effected without registration of such
shares under the Securities Act, then the Company shall not be required to
register such transfer, and the holder thereof shall not be entitled to
effect such transfer, unless and until the Company receives such an opinion
(which counsel and opinion shall each be reasonably satisfactory to the
Company). Such holder shall thereupon be entitled to transfer such shares
in accordance with the terms of the notice delivered by such holder to the
Company. Each certificate representing such shares issued upon or in
connection with such transfer shall bear the restrictive legends required
by Section 11.2.
SECTION 13. Registration, Transfer and Substitution of
Certificates for Stock Consideration.
13.1 Stock Register; Ownership of Stock Consideration. (a) The
Purchaser will keep at its principal office a register in which the
Purchaser will provide for the registration of transfers of the Stock
Consideration. The Purchaser may treat the Person in whose name any of the
Stock Consideration is registered on such register as the owner thereof and
the Purchaser shall not be affected by any notice to the contrary. All
references in this Agreement to a "holder" of any Stock Consideration shall
mean the Person in whose name such Stock Consideration is at the time
registered on such register.
13.2 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Purchaser of the loss, theft, destruction or
mutilation of any certificate representing Stock Consideration, and, in the
case of any such loss, theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Purchaser in form and amount or, in the case
of any such mutilation, upon surrender of such certificate for cancellation
at the office of the Purchaser maintained pursuant to Section 13.1 hereof,
the Purchaser at its expense will execute and deliver, in lieu thereof, a
new certificate representing shares of Purchaser Common Stock of like
tenor.
13.3 Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any shares of Purchaser Common Stock representing Stock
Consideration, the holder thereof will give written notice to the Purchaser
of such holder's intention to effect such transfer and to comply in all
other respects with this Section 13.3 and Section 10 hereof. Each such
notice shall describe the manner and circumstances of the proposed
transfer. If within 5 Business Days after receipt by the Purchaser of such
notice, the Purchaser requests an opinion of counsel for such holder that
the proposed transfer may be effected without registration of such Stock
Consideration under the Securities Act, then the Purchaser shall not be
required to register such transfer, and the Purchaser shall not be entitled
to effect such transfer, unless and until the Purchaser receives such an
opinion (which counsel and opinion shall each be reasonably satisfactory to
the Purchaser). Subject to complying with Section 10.3 hereof, such holder
shall thereupon be entitled to transfer such shares in accordance with the
terms of the notice delivered by such holder to the Purchaser.
Each certificate representing such shares issued upon or in connection with
such transfer shall bear the restrictive legends required by Section 10.2.
SECTION 14. Indemnification.
(a) Robert Haber and Joanne Haber hereby jointly and severally agree to
indemnify the Purchaser against and agree to hold the Purchaser harmless
from any and all damage, loss, liability and expense (including, without
limitation, reasonable expenses of investigation and reasonable attorneys'
fees and expenses in connection with any action, suit or proceeding)
(collectively, "Loss") incurred or suffered by the Purchaser arising out of
any misrepresentation or breach of warranty, covenant or agreement made or
to be performed by the Company pursuant to this Agreement; provided that no
claim for indemnification against any Loss under this Section 14(a) shall
be asserted unless and until the cumulative total of the asserted Losses
under this Section 14(a) and Section 14(b) hereof exceeds $25,000; and
provided further, that the foregoing proviso shall not apply to any Loss
arising out of, resulting from or relating to any claim, action, suit or
proceeding by any person, entity or group which is not a party to this
Agreement or which is not an Indemnified Party (as hereinafter defined)
hereunder.
(b) Each Stockholder severally as to such Stockholder and not jointly
agrees to indemnify the Purchaser against and agrees to hold the Purchaser
harmless from any and all Loss incurred or suffered by the Purchaser
arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by such Stockholder pursuant to this
Agreement; provided that no claim for indemnification against any Loss
under this Section 14(b) shall be asserted unless and until the cumulative
total of the asserted Losses under this Section 14(b) and Section 14(a)
exceeds $25,000, other than a claim for the failure by any Stockholder to
deliver the Shares as provided for under Section 3.2; and provided further,
that the foregoing proviso shall not apply to any Loss arising out of,
resulting from or relating to any claim, action, suit or proceeding by any
person, entity or group which is not a party to this Agreement or which is
not an Indemnified Party (as hereinafter defined) hereunder.
(c) The Purchaser agrees to indemnify the Stockholders against and
agrees to hold the Stockholders harmless from any and all Loss incurred or
suffered by the Stockholders arising out of any misrepresentation or breach
of warranty, covenant or agreement made or to be performed by the Purchaser
pursuant to this Agreement; provided, however, that no claim for
indemnification against any Losses under this Section 14(c) shall be
asserted unless and until the cumulative total of the asserted Losses under
this Section 14(c) exceeds $25,000, other than a claim for the failure by
the Purchaser to deliver the Consideration as provided for under Section
3.3; and provided further, that the foregoing proviso shall not apply to
any Loss arising out of, resulting from or relating to any claim, action,
suit or proceeding by any person, entity or group which is not a party to
this Agreement or which is not an Indemnified Party (as hereinafter
defined) hereunder.
(d) The party seeking indemnification under this Section 14 (the
"Indemnified Party") agrees to give prompt notice to the party against whom
indemnity is sought (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of
which indemnity may be sought under such Section. The Indemnifying Party
may, and at the request of the Indemnified Party shall, participate in and
control the defense of any such suit, action or proceeding at its own
expense. The Indemnifying Party shall not be liable under Section 14 for
any settlement effected without its consent of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder; provided
that such consent is not unreasonably withheld.
(e) The Indemnified Party shall cooperate fully in all aspects of any
matter for which indemnity is sought pursuant to this Section 14 with
respect to an action brought by a third party, including, in such case, by
providing reasonable access to employees and officers (as witnesses or
otherwise) and other information.
(f) Notwithstanding anything to the contrary above, the liability of
(i) the Stockholders in the aggregate or (ii) the Purchaser pursuant to
this Section 14 shall not exceed $4 million.
SECTION 15. Termination.
This Agreement may be terminated and the Stock Purchase may be abandoned
at any time prior to the Closing Date:
(a) by mutual written consent of the parties hereto;
(b) by the Purchaser or the Stockholders, if the Merger has not
been consummated prior to February 12, 2000; or
(c) upon termination of the Merger Agreement pursuant to Section
11.1 thereof.
If the Agreement is terminated pursuant to this Section 15, the
Agreement shall become void and of no effect with no liability on the part
of any party hereto, except that the agreements contained in this Section
15, and in Section 16.4, shall survive the termination hereof.
SECTION 16. Miscellaneous
16.1 Notices.
All notices, requests and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be
given,
if to the Company, to:
College Media, Inc.
11 Middle Neck Road
Suite 400
Great Neck, New York 11021-2301
Attention: Robert Haber
Facsimile No.: (516) 466-7471
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: David H. Landau, Esq.
Facsimile No.: (212) 940-8776
if to the Stockholders, to:
Mr. Robert Haber
183 Old Westbury Road
Old Westbury, New York 11568
Ms. Joanne Haber
183 Old Westbury Road
Old Westbury, New York 11568
Mr. Lee Haber
47 Reed Drive
Roslyn, New York 11576
Ms. Diane Turofsky
6 Bly Court
Great Neck, New York 11023
if to the Purchaser, to:
Rare Medium Group, Inc.
565 Fifth Avenue, 29th Floor
New York, New York 10017
Attention: Robert C. Lewis, General Counsel
Facsimile: (212) 856-9122
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Gregory A. Fernicola, Esq.
Facsimile No.: (212) 735-2000
if to CMJ.com, to:
CMJ.com, Inc.
565 Fifth Avenue, 29th Floor
New York, New York 10017
Attention: Seth Tapper
Facsimile No.: (212) 856-9081
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Gregory A. Fernicola, Esq.
Facsimile No.: (212) 735-2000
and
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: David H. Landau, Esq.
Facsimile No.: (212) 940-8776
or such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the other parties. Each such notice,
request or other communication shall be effective (a) if given by
facsimile, when such facsimile is transmitted to the facsimile number
specified in this Section and the appropriate facsimile confirmation is
received or (b) if given by any other means, when delivered at the address
specified in this Section.
16.2 Survival of Representations and Warranties.
The representations and warranties contained (i) in Sections 5.1 through
5.5, 5.16(k), 6.1 through 6.8, 6.10, 6.11, 7.1 through 7.3 and 7.5 through
7.9 hereof shall survive the execution and delivery of this Agreement for
the period of the statute of limitations applicable to a claim for breach
of such representations and warranties (ii) in Sections 5.8, 5.10, 5.13,
5.15, 5.17, 5.18, 5.20 shall survive through the first anniversary of the
execution and delivery of this Agreement and (iii) all other Sections of
this Agreement shall survive through the second anniversary of the
execution and delivery of this Agreement.
At the end of the applicable survival period set forth above, the
Purchaser, the Company and the Stockholders shall, without further action
as to such representations and warranties, be deemed to have fully released
each other from any and all responsibilities arising thereunder unless
during such period a party shall have notified another party in writing of
the nature and particulars of any claimed misrepresentation or breach by
the other party or that party's assertion of a Consideration Reduction.
16.3 Amendments; No Waivers.
(a) Any provision of this Agreement (including the annex and
Schedules hereto) may be amended or waived prior to the Closing Date, if,
and only if, such amendment or waiver is in writing and signed by all of
the parties hereto.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
16.4 Expenses.
Except as otherwise provided for herein or otherwise agreed to in
writing by the parties, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be
paid by the party incurring such cost or expense.
16.5 Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
None of the parties hereto may assign any of their rights or obligations
hereunder without the consent of all of the other parties hereto except
that the Purchaser, without the consent of the other parties hereto, may
assign its rights to purchase the Shares under this Agreement to any
Affiliate of the Purchaser.
16.6 Governing Law.
This Agreement shall be construed in accordance with and governed by the
law of the State of New York, without regard to principles of conflicts of
law.
16.7 Jurisdiction.
Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby may be brought in any federal or state
court located in the State of New York, and each of the parties hereby
consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 16.1
shall be deemed effective service of process on such party.
16.8 Waiver of Jury Trial.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
16.9 Counterparts; Effectiveness.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
16.10 Entire Agreement.
This Agreement (including the Annexes and Schedules) constitutes the
entire agreement between the parties with respect to the subject matter of
this Agreement and supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the Stock Purchase.
No provision of this Agreement or any other agreement contemplated hereby
is intended to confer on any Person other than the parties hereto any
rights or remedies.
16.11 Captions.
The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof.
16.12 Severability.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or arbitrator having jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated 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 a determination, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated
to the fullest extent possible.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed as of the day and year first above written.
RARE MEDIUM GROUP, INC.
By:/s/ Robert Lewis
----------------------------------
Name: Robert Lewis
Title: Vice President, Secretary
and General Counsel
COLLEGE MEDIA, INC.
By: /s/ Robert Haber
---------------------------------
Name: Robert Haber
Title: President
STOCKHOLDERS
/s/ Robert Haber
-------------------------------------
Robert Haber
/s/ Robert Haber
-------------------------------------
Joanne Haber
By: Robert Haber, Attorney-in-Fact
/s/ Robert Haber
-------------------------------------
Lee Haber
By: Robert Haber, Attorney-in-Fact
/s/ Robert Haber
-------------------------------------
Diane Turofsky
By: Robert Haber, Attorney-in-Fact
ANNEX A
STOCK PURCHASE ALLOCATION SCHEDULE
Total Number of
Shares to be Sold
-----------------
Stockholders: 13.636125
Joanne Haber 13.636125
Lee Haber 1.515125
Diane Turofsky 1.515125
Total . . . . . . . . . . . . . 30.3025
Each of the Stockholders (other than Robert Haber) has appointed
Robert Haber as the Attorney-in-Fact.
EXHIBIT 2.3
SECURITIES PURCHASE AGREEMENT
BETWEEN
CMJ.COM, INC.
AND
RARE MEDIUM GROUP, INC.
Dated as of November 12, 1999
TABLE OF CONTENTS
Page
----
1. Authorization of Securities . . . . . . . . . . . . . . . . . . 1
2. Sale and Purchase of the Securities; Allocation of Purchase
Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Representations and Warranties of the Purchaser; Register of
Securities; Restrictions on Transfer . . . . . . . . . . . . . 2
4.1 Organization . . . . . . . . . . . . . . . . . . . . 2
4.2 Validity . . . . . . . . . . . . . . . . . . . . . . 2
4.3 No Consents . . . . . . . . . . . . . . . . . . . . . 3
4.4 No Conflicts . . . . . . . . . . . . . . . . . . . . 3
4.5 Litigation . . . . . . . . . . . . . . . . . . . . . 3
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . 3
4.7 Investment Representations and Warranties . . . . . . 3
4.8 Acquisition for Own Account . . . . . . . . . . . . . 3
4.9 Ability to Protect Its Own Interests and Bear
Economic Risks . . . . . . . . . . . . . . . . . . . 3
4.10 Accredited Investor . . . . . . . . . . . . . . . . . 4
4.11 Access to Information . . . . . . . . . . . . . . . . 4
5. Representations and Warranties by the Company . . . . . . . . . 4
5.1 Capitalization . . . . . . . . . . . . . . . . . . . 4
5.2 Due Issuance and Authorization of Capital Stock . . . 5
5.3 Organization . . . . . . . . . . . . . . . . . . . . 6
5.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . 6
5.5 No Consents . . . . . . . . . . . . . . . . . . . . . 6
5.6 Authorization; Enforcement . . . . . . . . . . . . . 6
5.7 Issuance of Shares . . . . . . . . . . . . . . . . . 7
5.8 No Conflicts . . . . . . . . . . . . . . . . . . . . 7
5.9 Material Contracts . . . . . . . . . . . . . . . . . 8
5.10 Right of First Refusal; Stockholders' Agreement;
Voting and Registration Rights . . . . . . . . . . . 8
5.11 Previous Issuances Exempt . . . . . . . . . . . . . . 9
5.12 No Integrated Offering . . . . . . . . . . . . . . . 9
5.13 Financial Statements . . . . . . . . . . . . . . . . 9
5.14 No Prior Activities; Absence of Certain Changes . . . 9
5.15 No Undisclosed Material Liabilities . . . . . . . . 10
5.16 Litigation . . . . . . . . . . . . . . . . . . . . 10
5.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . 10
5.18 Employee Benefit Plans . . . . . . . . . . . . . . 14
5.19 Compliance with Laws . . . . . . . . . . . . . . . 16
5.20 Finders' or Advisors' Fees . . . . . . . . . . . . 16
5.21 Environmental Matters . . . . . . . . . . . . . . . 16
5.22 Intellectual Property Matters . . . . . . . . . . . 17
5.23 Year 2000 Compliance Matters . . . . . . . . . . . 20
5.24 Related-Party Transactions . . . . . . . . . . . . 21
5.25 Title to Property and Assets . . . . . . . . . . . 21
5.26 Insurance . . . . . . . . . . . . . . . . . . . . . 21
5.27 Receivables . . . . . . . . . . . . . . . . . . . . 21
6. Conditions of Parties' Obligations . . . . . . . . . . . . . 22
6.1 Conditions of the Purchaser's Obligations . . . . . 22
6.2 Conditions of Company's Obligations . . . . . . . . 24
6.3 Conditions of Each Party's Obligations . . . . . . 25
7. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Maintain Corporate Rights and Facilities . . . . . 25
7.2 Maintain Insurance . . . . . . . . . . . . . . . . 26
7.3 Information Rights . . . . . . . . . . . . . . . . 26
7.4 Notice of Litigation, Disputes and Adverse
Changes; Other Information . . . . . . . . . . . . 27
7.5 Conduct of Business . . . . . . . . . . . . . . . . 28
7.6 Compliance with Certificate of Incorporation and
Bylaws . . . . . . . . . . . . . . . . . . . . . . 28
7.7 Internal Accounting Controls . . . . . . . . . . . 28
7.8 Indemnification of the Board of Directors;
Directors and Officers Insurance Policy . . . . . . 28
7.9 Use of Proceeds . . . . . . . . . . . . . . . . . . 29
7.10 Reservation of Capital Stock . . . . . . . . . . . 29
7.11 Advice of Changes . . . . . . . . . . . . . . . . . 29
7.12 Protective Provisions . . . . . . . . . . . . . . . 29
8. Registration Rights . . . . . . . . . . . . . . . . . . . . . 31
9. Third Party Transfers . . . . . . . . . . . . . . . . . . . . 31
10. Registration, Transfer and Substitution of Certificates for
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.1 Stock Register; Ownership of Securities . . . . . . 31
10.2 Replacement of Certificates . . . . . . . . . . . . 31
10.3 Restrictive Legends . . . . . . . . . . . . . . . . 32
10.4 Notice of Proposed Transfer; Opinions of Counsel . 32
11. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 32
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 36
12.1 Waivers and Amendments . . . . . . . . . . . . . . 36
12.2 Notices . . . . . . . . . . . . . . . . . . . . . . 36
12.3 Termination of Agreement . . . . . . . . . . . . . 38
12.4 Indemnification . . . . . . . . . . . . . . . . . . 38
12.5 Indemnification Procedures. . . . . . . . . . . . . 39
12.6 Survival of Representations and Warranties, etc . . 39
12.7 Amendments; No Waivers . . . . . . . . . . . . . . 40
12.8 Successors and Assigns . . . . . . . . . . . . . . 40
12.9 Headings . . . . . . . . . . . . . . . . . . . . . 41
12.10 Governing Law . . . . . . . . . . . . . . . . . . 41
12.11 Expenses . . . . . . . . . . . . . . . . . . . . . 41
12.12 Jurisdiction . . . . . . . . . . . . . . . . . . . 42
12.13 Waiver of Jury Trial . . . . . . . . . . . . . . . 42
12.14 Counterparts; Effectiveness . . . . . . . . . . . 42
12.15 Entire Agreement . . . . . . . . . . . . . . . . . 42
12.16 Severability . . . . . . . . . . . . . . . . . . . 43
LIST OF EXHIBITS
EXHIBIT A Certificate of Designations of Series A Convertible Preferred
Stock
EXHIBIT B Form of Series A Warrant
EXHIBIT C Registration Rights Agreement
EXHIBIT D Stockholders Agreement
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into this 12th day of November, 1999 by and between CMJ.COM, INC.,
a Delaware corporation (the "Company"), and RARE MEDIUM GROUP, INC., a
Delaware corporation (the "Purchaser"). Certain terms used and not
otherwise defined in the text of this Agreement are defined in Section 11
of this Agreement.
W I T N E S S E T H
WHEREAS, the Company desires to issue and to sell to the Purchaser,
and the Purchaser desires to purchase from the Company, the Series A
Preferred Shares and the Warrant (each as hereinafter defined) in
connection with the transactions contemplated by the Merger (as hereinafter
defined), all in accordance with the terms and provisions of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties
hereto hereby agree as follows:
1. Authorization of Securities. The Company has authorized (i) the
issuance and sale of 1,000 shares (the "Series A Preferred Shares") of its
Series A Convertible Preferred Stock , par value $0.01 per share ("Series A
Preferred Stock"), which are convertible into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"); (ii) the
issuance with the Series A Preferred Shares of a detachable two-year
warrant (the "Warrant"), which shall entitle its holder to purchase from
the Company 1,000 additional shares of the Series A Preferred Stock. The
Series A Preferred Stock will have the rights, preferences and privileges
set forth in the form of Certificate of Designations attached hereto as
Exhibit A (the "Certificate of Designations"). The Warrant will have the
rights, preferences and privileges set forth in the form of Warrant
attached hereto as Exhibit B. The Common Stock into which the Series A
Preferred Stock is convertible is sometimes referred to herein as the
"Conversion Shares"; the shares of Series A Preferred Stock that may be
purchased upon exercise of the Warrant are sometimes referred to herein as
the "Warrant Preferred Shares"; the shares of Common Stock issuable upon
conversion of the Warrant Preferred Shares are sometimes referred to herein
as the "Warrant Shares"; and the Series A Preferred Shares, the Conversion
Shares, the Warrant, the Warrant Preferred Shares and the Warrant Shares
are sometimes referred to herein collectively as the "Securities".
2. Sale and Purchase of the Securities; Allocation of Purchase
Price. Upon the terms and subject to the conditions herein contained, the
Company agrees to sell to the Purchaser, and the Purchaser agrees to
purchase from the Company, at the Closing, on the Closing Date (as
hereinafter defined), 1,000 Series A Preferred Shares and the Warrant, for
an aggregate purchase price of $7,000,000 (the "Purchase Price").
3. Closing. The closing of the sale to, and purchase by, the
Purchaser of the Series A Preferred Shares and the Warrant referred to in
Section 2 hereof (the "Closing") shall occur at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022-3897, on the third business day after the satisfaction or waiver of
all of the conditions set forth in Section 6 hereof (the "Closing Date").
At the Closing, the Company shall deliver to the Purchaser certificates
evidencing the Series A Preferred Shares and the Warrant (in such
denominations as shall be specified in writing by the Purchaser), each of
which shall be registered in the Purchaser's name, against delivery to the
Company by the Purchaser of the Purchase Price payable by wire transfer of
immediately available funds to an account that the Company will designate
in writing to the Purchaser at least two business days prior to the Closing
Date.
4. Representations and Warranties of the Purchaser; Register of
Securities; Restrictions on Transfer. The Purchaser represents and
warrants to the Company as follows:
4.1 Organization. The Purchaser is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and
has all corporate power and authority to enter into this Agreement and
consummate the transactions contemplated hereby.
4.2 Validity. The execution, delivery and performance of this
Agreement, and the other documents and instruments referred to herein, in
each case to which the Purchaser is a party, and the consummation of the
transactions contemplated hereby, have been duly authorized by all
necessary action on the part of the Purchaser. This Agreement has been
duly executed and delivered by the Purchaser and each such document
constitutes a valid and binding obligation of the Purchaser enforceable
against it in accordance with its terms.
4.3 No Consents. Neither the execution, delivery or performance
of this Agreement by the Purchaser, nor the consummation by it of the
obligations and transactions contemplated hereby requires any consent of,
authorization by, exemption from, filing with or notice to any governmental
authority or any other Person other than such as have been obtained, made
or given prior to the date hereof.
4.4 No Conflicts. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not result in a violation of the Certificate of Incorporation or By-
laws of the Purchaser.
4.5 Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Purchaser threatened
against or affecting, the Purchaser before any court or arbitrator or any
governmental body, agency or official that could prevent or materially
delay the consummation of the transactions contemplated hereby.
4.6 Brokers. The Purchaser has not engaged a broker, investment
banker, financial advisor, finder or other person entitled to any
brokerage, investment banker's, financial advisor's, finder's or other fee
or commission for which the Company will be liable in connection with the
execution of this Agreement by the Purchaser or the performance by the
Purchaser of its obligations hereunder.
4.7 Investment Representations and Warranties. The Purchaser
understands that the Securities have not been registered under the
Securities Act of 1933 (the "Securities Act") and that the certificates
evidencing the Securities shall bear a legend to that effect, unless prior
to conversion of any shares of Series A Preferred Stock or Warrant
Preferred Shares, the Common Stock issuable upon conversion thereof shall
have been so registered.
4.8 Acquisition for Own Account. The Purchaser is acquiring the
Securities for its own account for investment and not with a view toward
distribution in a manner which would violate the Securities Act.
4.9 Ability to Protect Its Own Interests and Bear Economic
Risks. The Purchaser represents that by reason of its business and
financial experience, and the business and financial experience of its
management, the Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated by this Agreement. The
Purchaser is not an entity formed for the specific purpose of consummating
the transactions contemplated hereby. The Purchaser further represents
that the Purchaser is able to bear the economic risk of an investment in
the Securities, and has an adequate income independent of any income
produced from an investment in the Securities and has sufficient net worth
to sustain a loss of all of its investment in the Securities without
economic hardship if such a loss should occur.
4.10 Accredited Investor. The Purchaser represents that it is an
"accredited investor" as that term is defined in Regulation D promulgated
under the Securities Act.
4.11 Access to Information. The Purchaser has been given access
to all Company documents, records, and other information, has received
physical delivery of all such documents, records and information which the
Purchaser has requested, and has had adequate opportunity to ask questions
of, and receive answers from, the Company's officers, employees, agents,
accountants, and representatives concerning the Company's business,
operations, financial concerning the Company's business, operations,
financial condition, assets, liabilities, and all other matters relevant to
its investment in the Securities.
5. Representations and Warranties by the Company. The Company
(which term as used in this Section 5 shall, except as used in
Sections 5.1, 5.2, 5.3 (excluding the last sentence thereof), 5.4,
5.5, 5.6, 5.12 and 5.14 and unless the context otherwise requires, be
deemed to include (i) Changemusic.com, Inc. ("Changemusic.com") and
College Media, Inc. ("CMJ") prior to the proposed merger of
Changemusic.com and CMJ with and into the Company to be effective
immediately prior to the Closing (the "Merger") and (ii) any
Subsidiary of the Company) represents and warrants to the Purchaser
(except as set forth in the disclosure schedules delivered to the
Purchaser simultaneously with the execution of this Agreement and
attached hereto (the "Disclosure Schedules")) as follows:
5.1 Capitalization. (a) The authorized capital stock of the
Company consists of 3,000,000 shares of Common Stock, par value $.01 per
share, and 500,000 shares of preferred stock, par value $.01 per share (of
which 2,600 shares will be designated Series A Preferred Stock). As of the
date hereof there are outstanding 100 shares of Common Stock and no
preferred stock and the Company has no other shares of capital stock
authorized, issued or outstanding. Each of Changemusic.com and CMJ owns of
record 50 shares of Common Stock. All issued and outstanding shares of
capital stock of Changemusic.com and CMJ will be canceled in the Merger.
The Company will succeed to all the rights, permits and franchises and
licenses and is subject to all of the restrictions, disabilities and duties
of each of Changemusic.com and CMJ as a result of the Merger. The
capitalization of the Company as of the date hereof, including, without
limitation, the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans, the number of shares issuable
and reserved for issuance pursuant to securities (other than the Series A
Preferred Stock and the Warrant) exercisable for, or convertible into or
exchangeable for any shares of capital stock of the Company and the number
of shares to be reserved for issuance upon conversion of the Series A
Preferred Shares, exercise of the Warrant and Conversion of the Warrant
Preferred Shares is set forth on Schedule 5.1 of the Disclosure Schedules.
(b) Except as set forth on Schedule 5.1, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into or exercisable or exchangeable
for, any shares of capital stock of the Company, or arrangements by which
the Company is or may become bound to issue additional shares of capital
stock, nor are any such issuances or arrangements contemplated, (ii) there
are no agreements or arrangements under which the Company is obligated to
register the sale of any of its securities under the Securities Act (except
as provided hereunder), (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 5.1(b) also includes complete
and accurate copies of all stock option or stock purchase plans, including,
without limitation, a list of all outstanding options, warrants or other
rights to acquire shares of the Company's stock and a description of the
material terms of such outstanding options, warrants or other rights.
There are no securities or instruments containing antidilution or similar
provisions that will be triggered by the issuance of the Securities in
accordance with the terms of this Agreement, the Certificate of
Designations or the Warrant.
(c) The Company has furnished to the Purchaser true and correct
copies of the Company's certificate of incorporation (the "Certificate of
Incorporation") as in effect on the date hereof, and the Company's by-laws
(the "By-laws") as in effect on the date hereof.
5.2 Due Issuance and Authorization of Capital Stock. All of the
outstanding shares of capital stock of the Company have been validly issued
and are fully paid and nonassessable. No shares of capital stock of the
Company are subject to (a) preemptive rights or any other similar rights of
the stockholders of the Company or (b) any mortgage, lien, claim, judgment,
pledge, charge, security interest, escrow equity, or other encumbrance of
any kind and the sale and delivery of the Securities to the Purchaser
pursuant to the terms hereof will vest in the Purchaser legal and valid
title to the Securities, free and clear of all mortgages, liens, claims,
judgments, pledges, charges, security interests, escrow equity, or other
encumbrances of any kind.
5.3 Organization. The Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, (b) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the nature
of the property owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect on the
Company, (c) has its principal place of business and chief executive office
in New York, New York and (d) has all requisite corporate power and
authority to own or lease and operate its assets and carry on its business
as presently being conducted. For purposes of this Agreement, "Material
Adverse Effect" shall mean any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations
under this Agreement, the Certificate of Designations or the Warrant, or
(iii) the condition (financial or otherwise), properties, assets,
liabilities, business or operations of the Company and its Subsidiaries
taken as a whole.
5.4 Subsidiaries. Each Subsidiary of the Company is listed on
Schedule 5.4.
5.5 No Consents. Neither the execution, delivery or performance
of this Agreement, the Certificate of Designations or the Warrant by the
Company, nor the consummation by it of the obligations and transactions
contemplated hereby or thereby (including, without limitation, the
issuance, the reservation for issuance and the delivery of the Securities)
requires any consent of, authorization by, exemption from, filing with or
notice to any governmental authority or any other person, other than the
filing of the Certificate of Designations with the Secretary of State of
Delaware.
5.6 Authorization; Enforcement. The Company has all requisite
corporate power and has taken all necessary corporate action required for
the due authorization, execution, delivery and performance by the Company
of this Agreement and to consummate the transactions contemplated hereby
(including, without limitation, the issuance of the Securities). The
execution, delivery and performance by the Company of each of this
Agreement and the Warrant, the execution and filing of the Certificate of
Designations, and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of the Company. The Company has taken all
actions under its Certificate of Incorporation and its By-laws as may be
necessary or advisable to provide the Purchaser with the rights hereby
contemplated.
5.7 Issuance of Shares. The Securities have been duly
authorized, a sufficient number of authorized but unissued Series A
Preferred Shares have been reserved for issuance upon exercise of the
Warrant and a sufficient number of shares of authorized but unissued Common
Stock have been reserved for issuance upon conversion of the Series A
Preferred Shares and the Warrant Preferred Shares, and upon such issuance,
conversion or exercise in accordance with the terms of this Agreement, the
Certificate of Designations or the Warrant (as applicable), all such
Securities will be duly authorized, validly issued, fully paid and non-
assessable, and free from all mortgages, liens, claims, judgments, pledges,
charges, security interests, escrow equity, or other encumbrances of any
kind, and will not be subject to preemptive rights or other similar rights
of stockholders of the Company and will not impose personal liability upon
the holder thereof.
5.8 No Conflicts. The execution, delivery and performance of
this Agreement and the Warrant, the execution and filing of the Certificate
of Designation, and the consummation of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Securities) will not (a)
result in a violation of the Certificate of Incorporation or By-laws of the
Company, (b) conflict with or result in the breach of the terms, conditions
or provisions of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give rise to any
right of termination, acceleration or cancellation of any right or
obligation of the Company or a loss, in whole or in part, of any benefit or
right to which the Company is entitled under, any material agreement,
lease, mortgage, indenture, instrument or other contract to which the
Company is a party or any license, franchise, permit or other similar
authorization held by the Company, (c) result in a violation of any law,
rule, regulation, order, judgment or decree (including, without limitation,
U.S. federal and state securities laws and regulations) applicable to the
Company or by which any property or asset of the Company is bound or
affected, or (d) result in the creation of any Lien upon any assets of the
Company, except in the case of clauses (b), (c) and (d), for such
contraventions, conflicts, violations, defaults, rights of termination,
cancellation or acceleration, or losses or Liens that would not,
individually or in the aggregate have a Material Adverse Effect on the
Purchaser. For purposes of this Agreement, "Lien" means, with respect to
any properties or assets, any mortgage, lien, claim, judgment, pledge,
charge, security interest, escrow equity, or other encumbrance of any kind
in respect of such property or asset, other than any such mortgage, lien,
pledge, charge, security interest or encumbrance (i) for Taxes (as defined
in Section 5.17) not yet due or being contested in good faith and for which
adequate provision has been made or (ii) which is a carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like lien
arising in the ordinary course of business. The Company is not in
violation of its Certificate of Incorporation or By-laws. The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for violations that, either
individually or in the aggregate, would not have a Material Adverse Effect.
5.9 Material Contracts. Each material contract of the Company
is set forth on Schedule 5.9. Each such contract is the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance or other similar
laws affecting creditors' rights generally and by general equitable
principles. There has not occurred any breach, violation or default or any
event that, with the lapse of time, the giving of notice or the election of
any person, or any combination thereof, would constitute a breach,
violation or default by the Company under any such contract or, to the
knowledge of the Company, by any other person to any such contract nor has
there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation
of, any material agreement, indenture or instrument to which the Company is
a party. The Company has not been notified that any party to any material
contract intends to cancel, terminate, not renew or exercise an option
under any material contract, whether in connection with the transactions
contemplated hereby or otherwise. Except as set forth on Schedule 5.9, the
Company is not a party to any agreement that expressly limits the ability
of the Company to compete in or conduct any line of business or compete
with any Person or in any geographic area or during any period of time
except to the extent that any such limitation, individually or in the
aggregate, would not have a Material Adverse Effect on the Company.
5.10 Right of First Refusal; Stockholders' Agreement; Voting and
Registration Rights. No party has any right of first refusal, right of
first offer, right of co-sale, preemptive right or other similar right
regarding the Company's securities. There are no provisions of the
Certificates of Incorporation or the By-laws, no agreements to which the
Company is a party and no agreements by which the Company is bound, which
(a) may affect or restrict the voting rights of the Purchaser with respect
to the Securities in its capacity as a stockholder of the Company, (b)
restrict the ability of the Purchaser, or any successor thereto or assignee
or transferee thereof, to transfer the Securities or, (c) would adversely
affect the Company's or the Purchaser's right or ability to consummate the
transactions contemplated by this Agreement or comply with the terms of the
Certificate of Designations or the Warrant and the transactions
contemplated hereby or thereby.
5.11 Previous Issuances Exempt. All shares of capital stock and
other securities issued by the Company prior to the Closing Date have been
issued in transactions exempt from the registration requirements under the
Securities Act. The Company has not violated the Securities Act in
connection with the issuance of any shares of capital stock or other
securities prior to the Closing Date. The Company has not offered any of
its capital stock, or any other securities, for sale to, or solicited any
offers to buy any of the foregoing from the Company, or otherwise
approached or negotiated with any other person in respect thereof, in such
a manner as to require registration under the Securities Act. No holder of
any of the Company's capital stock has any rescission or pre-emptive
rights.
5.12 No Integrated Offering. Neither the Company, nor any of its
Affiliates or any other person acting on the Company's behalf, has directly
or indirectly engaged in any form of general solicitation or general
advertising with respect to the Securities nor have any of such persons
made any offers or sales of any security or solicited any offers to buy any
security under circumstances that would require registration of the
Securities under the Securities Act or cause this offering of Securities to
be integrated with any prior offering of securities of the Company for
purposes of the Securities Act.
5.13 Financial Statements. The unaudited consolidated annual
financial statements for 1998 and 1997 and unaudited consolidated interim
financial statements for the first nine months of 1999 of each of
Changemusic.com and CMJ (including any related notes and schedules) present
fairly, in all material respects, the financial position of Changemusic.com
and CMJ and their respective Subsidiaries as of the dates thereof and their
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements), in each case in conformity with
GAAP applied on a consistent basis (except as may be indicated in the notes
thereto).
5.14 No Prior Activities; Absence of Certain Changes.
Since the date of its incorporation and prior to the date hereof,
the Company has not engaged in any activities other than in connection with
or incidental to its formation, the Merger Agreement or this Agreement.
5.15 No Undisclosed Material Liabilities.
There are no material liabilities of the Company whether accrued,
contingent, absolute, determined, determinable or otherwise that would be
required to be reflected in a consolidated balance sheet of the Company
prepared in accordance with GAAP or required to be disclosed on the face
thereof or in the notes thereto in accordance with Statement of Financial
Accounting Standards No. 5 of the Financial Accounting Standards Board,
other than:
(a) liabilities disclosed or provided for in the Changemusic.com
Balance Sheet, the CMJ Balance Sheet, or in the respective notes thereto;
(b) liabilities incurred since such date in the ordinary course
of business; or
(c) liabilities under this Agreement.
5.16 Litigation.
There is no action, suit, investigation or proceeding pending
against, or to the knowledge of the Company threatened against or
affecting, the Company or any of its properties or any of its officers or
directors before any court or arbitrator or any governmental body, agency
or official except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company or prevent or materially delay the
consummation of the transactions contemplated hereby.
5.17 Taxes.
Except as set forth in Schedule 5.17:
(a) The Company has (x) duly and timely filed (or there has been
filed on its behalf) with the appropriate governmental authorities all Tax
Returns required to be filed by it and all such Tax Returns are true,
correct and complete except to the extent any failure to file or any
inaccuracies in any filed Tax Return would not be reasonably likely to have
a Material Adverse Effect on the Company and (y) timely paid (or properly
accrued on the books of the Company) or there has been paid on its behalf
all Taxes due from it or claimed to be due from it by any tax authority
(whether or not set forth on any Tax Return) except to the extent that any
failure to pay would not be reasonably likely to have a Material Adverse
Effect on the Company;
(b) The Company has complied in all material respects with all
applicable Tax Laws relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to sections
1441 and 1442 of the Code and employment withholding Taxes) and has, within
the time and manner prescribed by law, withheld and paid over to the proper
Governmental Entities all amounts required to be withheld and paid over
under all applicable Tax Laws except for amounts that would not be
reasonably likely to have a Material Adverse Effect on the Company;
(c) There are no material Liens for Taxes upon the assets or
properties of the Company except for statutory Liens for current Taxes not
yet due or that are being contested in good faith in appropriate
proceedings and for which adequate reserves have been maintained in
accordance with GAAP;
(d) The Company has not requested any extension of time within
which to file any Tax Return in respect of any taxable year which has not
since been filed, and no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns has been given by or on behalf of the Company except
for such waiver or consent that would not be reasonably likely to have a
Material Adverse Effect on the Company;
(e) The Company has not received any written notice of any
federal, state, local or foreign audits, review, suits, investigations,
actions, claims or other administrative proceedings or court proceedings
("Audits") with regard to any Taxes or Tax Returns of the Company and to
the Company's knowledge no such Audits are currently being conducted;
(f) All Tax deficiencies which have been claimed, proposed or
asserted against the Company by any taxing authority have been fully paid,
except for such deficiency that would not be reasonably likely to have a
Material Adverse Effect on the Company. No issue has been raised by any
taxing authority in any current or prior examination which, by application
of the same principles, would reasonably be expected to result in a
proposed deficiency for any subsequent Taxable Period;
(g) The Company is not required to include in income any
adjustment pursuant to Section 481(a) of the Code, by reason of any
voluntary or involuntary change in accounting method (nor has any tax
authority notified the Company in writing of any such adjustment or change
of accounting method);
(h) To the knowledge of the Company, no power of attorney has
been granted by or with respect to the Company with respect to any matter
relating to Taxes;
(i) The Company has not filed a consent pursuant to Section
341(f) of the Code (or any predecessor provision) or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code);
(j) The reserves for Taxes (determined in accordance with
generally accepted accounting principles consistently applied) reflected in
the Changemusic.com Balance Sheet and the CMJ Balance Sheet are adequate
for the payment of all Taxes payable by the Company through the respective
dates of the CMJ Balance Sheet and the Changemusic.com Balance Sheet;
(k) The Company is not a party to, or subject to, any agreement,
contract or arrangement that could result, separately or in the aggregate,
in the payment of any payments that will not be deductible by operation of
Section 162(m) of the Code;
(l) The Company has not requested or received a ruling or
determination from any tax authority or signed a closing or other agreement
with any tax authority which would be reasonably likely to have a Material
Adverse Effect on the Company;
(m) The Federal Income Tax Returns of the Company for the Tax
Periods ending before January 1, 1995 have been examined by the appropriate
Governmental Entity (or the applicable statue of limitations for the
assessment of such taxes has expired);
(n) The Company is not a party to, is not bound by, nor has any
obligation under, any Tax sharing agreement, Tax indemnification agreement
or similar contract or arrangement (collectively, "Tax Indemnification
Agreements"). As of the date of this Agreement, the Company is not aware
of any potential liability or obligation to any person as a result of, or
pursuant to, any such Tax Indemnification Agreement;
(o) The Company has previously delivered or made available to
the Purchaser complete and accurate copies of each of (a) all audit
reports, letter rulings, technical advice memoranda and similar documents
issued by a Governmental Entity relating to the United States federal,
state, local or foreign Taxes due from or with respect to the Company, (b)
the United States federal income Tax Returns, and those state, local and
foreign income Tax Returns filed by the Company (or on its behalf) and (c)
any closing agreements entered into by the Company with any tax authority.
The Company will deliver to the Purchaser all materials with respect to the
foregoing for all matters relating to the Company arising after the date
hereof;
(p) The Company does not have nor could have any liability for
Taxes of another person under Section 1.1502-6 of the Treasury Regulations
(or any similar provision under state, local or foreign law), by contract
or otherwise;
(q) The Company does not have any deferred intercompany gain or
loss arising as a result of a deferred intercompany transaction within the
meaning of Section 1.1502-13 of the Treasury Regulations (or similar
provision under state, local or foreign law);
(r) No written notice of a claim by a taxing authority in a
jurisdiction where the Company does not file Tax Returns has been received
by the Company to the effect that the Company is or may be subject to
taxation by that jurisdiction;
(s) The Company is not a "United States real property holding
corporation" within the meaning of Section 897 of the Code;
For the purposes of this Agreement, the following terms shall
have the meanings set forth below: "Taxes" means all federal, state, local
and foreign taxes, levies, deficiencies or other assessments and other
charges of whatever nature, whether or not disputed (including income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, back-up withholding, social
security, unemployment, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum and
other taxes or escheat liability), imposed by any taxing authority,
including any interest, penalty (civil or criminal), or addition thereto.
"Tax Law" means the law (including any applicable regulations or any
administrative pronouncement) of any governmental authority relating to any
Tax. "Tax Period" means with respect to any Tax, the period for which the
Tax is reported as provided under the applicable Tax Law. "Tax Return"
means any federal, state, local or foreign return, declaration, report,
claim for refund, amended return, declaration of estimated Tax or
information return or statement relating to Taxes, and any schedule,
exhibit, attachment or other materials submitted with any of the foregoing,
and any amendment thereto.
5.18 Employee Benefit Plans.
(a) For purposes of this Agreement, the term "Company Employee
Plans" shall mean and include: each management, consulting, non-compete,
employment, severance or similar contract, plan, arrangement or policy
applicable to any director, former director, employee or former employee of
the Company and each plan, program, policy, agreement or arrangement
(written or oral), providing for compensation, bonuses, profit-sharing,
stock option or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability
benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) or other
employee benefits of any kind, whether funded or unfunded, which is
maintained, administered or contributed to by the Company and covers any
employee or director or former employee or director of the Company, or
under which the Company has any liability, contingent or otherwise
(including but not limited to each material "employee benefit plan," as
defined in Section 3(3) of ERISA, but excluding any such plan that is a
"multiemployer plan," as defined in Section 3(37) of ERISA). Neither the
Company nor any of its Affiliates contributes to, or is required to
contribute to, any "multiemployer plan" as defined in Section 3(37) of
ERISA. Schedule 5.18 sets forth a true, accurate and complete list of all
Company Employee Plans.
(b) Each Company Employee Plan has been established and
maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations
(including but not limited to ERISA and the Code) which are applicable to
such Plan, except where failure to so comply would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
(c) The Company has not incurred a liability under Title IV of
ERISA that has not been satisfied in full, and no condition exists that
presents a material risk to the Company or any Affiliate of the Company of
incurring any such liability. All contributions required to be made under
the terms of any the Company Employee Plan have been made, and, where
applicable to a Company Employee Plan, the Company and its Affiliates have
complied with the minimum funding requirements under Section 412 of the
Code and Section 302 of ERISA with respect to each such Company Employee
Plan.
(d) Each Company Employee Plan which is intended to be qualified
under section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust forming a part
thereof is exempt from federal income tax pursuant to section 501(a) of the
Code and, to the Company's knowledge, no circumstances exist which will
adversely affect such qualification or exception.
(e) No director or officer or other employee of the Company will
become entitled to any retirement, severance or similar benefit or enhanced
or accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any Company Employee Plans
or other benefit under any compensation plan or arrangement of the Company)
solely as a result of the transactions contemplated in this Agreement; and
(ii) no payment made or to be made to any current or former employee of
director of the Company, or any of its Affiliates by reason of the
transactions contemplated hereby (whether alone or in connection with any
other event, including, but not limited to, a termination of employment)
will constitute an "excess parachute payment" within the meaning of Section
280G of the Code.
(f) No Company Employee Plan provides material post-retirement
health and medical, life or other insurance benefits for retired employees
of the Company nor has the Company represented or promised to provide such
benefits.
(g) There has been no amendment to, or change in employee
participation or coverage under, any Company Employee Plan which would
increase materially the expense of maintaining such Company Employee Plan
above the level of the expense incurred in respect thereof by the Company
in connection with the Merger.
(h) The Company is in compliance with all applicable federal,
state, local and foreign statutes, laws (including, without limitation,
common law), judicial decisions, regulations, ordinances, rules, judgments,
orders and codes respecting employment, employment practices, labor, terms
and conditions of employment and wages and hours, and no work stoppage or
labor strike against the Company is pending or threatened, nor is the
Company involved in or threatened with any labor dispute, grievance or
litigation relating to labor matters involving any employees of the
Company, in each case except as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. There are no
suits, actions, disputes, claims (other than routine claims for benefits),
investigations or audits pending or, to the knowledge of the Company,
threatened in connection with any Company Employee Plan, but excluding any
of the foregoing which would not have a Material Adverse Effect on the
Company.
5.19 Compliance with Laws.
The Company has not violated, nor is in violation of, any
applicable provisions of any laws, statutes, ordinances or regulations
except for any violations that, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
5.20 Finders' or Advisors' Fees.
There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf
of the Company who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.
5.21 Environmental Matters.
(a) Except for matters which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company (i) no written
notice, notification, demand, request for information, citation, summons,
complaint or order has been received by, and no investigation, action,
claim, suit, proceeding or review is pending or, to the knowledge of the
Company, threatened by any Person against, the Company, and no penalty has
been assessed against the Company, in each case, with respect to any
matters relating to or arising out of any Environmental Law; (ii) the
Company is in compliance with all Environmental Laws; and (iii) to the
knowledge of the Company there are no liabilities of or relating to the
Company relating to or arising out of any Environmental Law, and there is
no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability.
(b) For purposes of this Agreement, the term "Environmental
Laws" means federal, state, local and foreign statutes, laws, judicial
decisions, regulations, ordinances, rules, judgments, orders, codes,
injunctions, permits and governmental agreements relating to human health
and the environment, including, but not limited to, Hazardous Materials;
and the term "Hazardous Material" means all substances or materials
regulated as hazardous, toxic, explosive, dangerous, flammable or
radioactive under any Environmental Law including, but not limited to: (i)
petroleum, asbestos, or polychlorinated biphenyls and (ii) in the United
States, all substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National Oil and Hazardous Substances Pollution
Contingency Plan.
5.22 Intellectual Property Matters.
(a) For purposes of this Agreement, "Intellectual Property"
means any United States, foreign, international and state: patents and
patent applications, industrial design registrations, certificates of
invention and utility models (collectively, "Patents"); trademarks, service
marks, and trademark or service mark registrations and applications, trade
names, logos, designs, slogans, and general intangibles of like nature,
together with all goodwill related to the foregoing (collectively,
"Trademarks"); Internet domain names; copyrights, copyright registrations,
renewals and applications for copyrights, including without limitation for
the Content and the Software (each as defined below in this Section 5.22)
(collectively, "Copyrights"); Content; Software, technology, trade secrets
and other confidential information, know-how, proprietary processes,
formulae, algorithms, models and methodologies (collectively, "Trade
Secrets"), rights of privacy and publicity, including but not limited to,
the names, likenesses, voices and biographical information of real persons,
and all license agreements and other agreements granting rights relating to
any of the foregoing. "Software" means any and all (i) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code form, (ii) databases,
compilations, and any other electronic data files, including any and all
collections of data, whether machine readable or otherwise, (iii)
descriptions, flow-charts, technical and functional specifications, and
other work product used to design, plan, organize, develop, test,
troubleshoot and maintain any of the foregoing, (iv) without limitation to
the foregoing, the software technology supporting any functionality
contained on Internet site(s), and (v) all documentation, including
technical, end-user, training and troubleshooting manuals and materials,
relating to any of the foregoing. "Content" means any and all information,
pictures, images, graphics, video, audio, text and any other content or
information, in whatever form and on any media. "Company Content" means
any and all Content published or displayed in any form, including
electronically by or on behalf of the Company, including but not limited to
all Content contained in Company publications and events.
(b) The Company owns or has the valid right to use all material
Intellectual Property, as currently used in connection with the business
of the Company, including without limitation all license agreements and
other agreements granting rights relating to any such Intellectual Property
("Company License Agreements") to which the Company is a party or is
otherwise bound (such Intellectual Property, together with the Company
License Agreements the "Company Intellectual Property").
(c) Schedule 5.22(c) sets forth, for the Company Intellectual
Property owned by the Company, a complete and accurate list of all United
States, foreign, international and state (i) patents and patent
applications, (ii) Trademark registrations and applications and material
unregistered Trademarks, (iii) Internet domain names, and (iv) Copyright
registrations and applications, and material unregistered Copyrights,
including Content and Software, indicating for each, the applicable
jurisdiction, registration number (or application number), and date issued
(or date filed).
(d) Except as set forth on Schedule 5.22(d), the Company
Intellectual Property owned by the Company is solely and exclusively owned
by the Company free and clear of all Liens, and the Company is listed in
the records of the appropriate United States, state or foreign agency as
the sole owner of record for each registration and application for any
Patent, Trademark, Internet domain name and Copyright that it owns. Except
as set forth on Schedule 5.22(d), all of the items set forth on Schedule
5.22(c) are valid and subsisting, in full force and effect, and have not
been cancelled, expired, or abandoned. There is no pending or, to the
Company's knowledge, threatened opposition, interference or cancellation
proceeding before any court or registration authority in any jurisdiction
against the items set forth on Schedule 5.22(c) or any other Company
Intellectual Property owned by the Company or, to the Company's knowledge,
against any Company Intellectual Property not owned by the Company.
(e) Except as set forth on Schedule 5.22(e), there are no
settlements, forebearances to sue, consents, judgments, or orders or
similar obligations to which the Company is a party or is otherwise bound,
which (i) materially restrict the Company's rights to use any Company
Intellectual Property, (ii) materially restrict the Company's business in
order to accommodate a third party's Intellectual Property rights or (iii)
permit third parties to use any Intellectual Property which would otherwise
materially infringe any Company Intellectual Property. The Company has not
materially licensed or sublicensed its rights in any Company Intellectual
Property other than pursuant to the Company License Agreements set forth on
Schedule 5.22(e) and no royalties, honoraria or other fees are payable by
for the use of or right to use any Company Intellectual Property in
connection with the Company's business as currently conducted, except
pursuant to the Company License Agreements set forth on Schedule 5.22(e).
(f) The Company License Agreements are valid and binding
obligations of the Company and, to the Company's knowledge, any other
parties thereto, enforceable in accordance with their terms, and there
exists no event or condition which will result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a
default by the Company under any such Company License Agreement.
(g) To the Company's knowledge, no Trade Secret material to the
business of the Company as currently operated has been disclosed or
authorized to be disclosed to any third party, including any employee,
agent, contractor or other entity, other than pursuant to a non-disclosure
agreement that adequately protects the Company's proprietary interests in
and to such Trade Secrets. To the Company's knowledge, no party to any
non-disclosure agreement relating to such Trade Secrets is in breach
thereof.
(h) To the Company's knowledge, the conduct of the Company's
business as currently conducted and the Company Content do not materially
infringe upon any Intellectual Property owned or controlled by any third
party (either directly or indirectly such as through contributory
infringement or inducement to infringe) and is not materially libelous,
slanderous, defamatory, violative in any way of publicity or privacy
rights, or obscene. Except as set forth on Schedule 5.22(h), there are no
claims or suits pending or, to the Company's knowledge, threatened, and the
Company has not received any notice of a third party claim or suit, (i)
alleging that the Company's activities or the conduct of its businesses
infringes upon or constitutes the unauthorized use of the Intellectual
Property rights of any third party, nor alleging libel, slander,
defamation, or other violation of a personal right, or (ii) challenging the
ownership, use, validity or enforceability of any the Company Intellectual
Property.
(i) To the Company's knowledge, no third party is materially
misappropriating, infringing, diluting, or otherwise violating any Company
Intellectual Property, and, except as set forth on Schedule 5.22(i), no
such claims are pending against a third party by the Company.
(j) Without limitation to the representations and warranties set
forth above in this Section 5.22, the Company represents and warrants that
there are no material restrictions on the Company Content owned by the
Company.
(k) The Company (i) has (other than as set forth in the
following clause (ii)) the unrestricted right to use, copy, distribute,
create derivative works from, perform, display, transmit and otherwise
exploit the Company Content, including, but not limited to, all past,
current and future music reviews published by or on behalf of CMJ on
whatever media (the "CMJ Music Reviews") and (ii) no other person or entity
will have any rights whatsoever in or to any Company Content, except for
(A) any rights set forth in the contacts (other than the Linking Agreement,
dated as of April 20, 1998, between CMJ and CDnow, Inc., a Pennsylvania
corporation (the "CDnow Agreement")) listed on Schedule 5.22(k) and (B) the
right of CDnow, Inc., pursuant to the CDnow Agreement, (x) to be the only
online retail seller of recorded music licensed to use, copy or display the
CMJ Music Reviews over the Internet and (y) to have the right of first
refusal to license any other CMJ Content appearing in either CMJ New Music
Report or CMJ New Music Monthly, except for any chart or chart related data
appearing in either CMJ New Music Report or CMJ New Music Monthly (the
rights in the foregoing clause (B) collectively referred to herein as the
"CDnow Agreement Rights"). Notwithstanding subsection (A) above and
notwithstanding the CDnow Agreement Rights, the Company has the right to
place any and all CMJ Content, including the CMJ Music Reviews, on its
Internet sites, including in connection with its online retail sale of
recorded music. None of the agreements listed on Schedule 5.22(e) hereto
conflict with or violate any provisions of any of the other agreements
listed on Schedule 5.22(e).
5.23 Year 2000 Compliance Matters.
(a) Except as set forth on Schedule 5.23, to the Company's
knowledge after reasonable investigation, all material Date Data and Date-
Sensitive Systems used by the Company in connection with its business as
currently conducted, or in development or on order, are Year 2000
Compliant, or are reasonably expected to be Year 2000 Compliant in a timely
manner. "Date Data" means any data of any type that includes date
information or which is otherwise derived from, dependent on or related to
date information. "Date-Sensitive System" means any Software, microcode or
hardware system or component, including any electronic or electronically
controlled system or component, that processes any Date Data (other than
those licensed from third party providers). "Year 2000 Compliant" means
(i) with respect to Date Data, that such data is in proper format and
accurate for all dates in, or spanning, the twentieth and twenty-first
centuries, and (ii) with respect to Date-Sensitive Systems, that each such
system accurately processes all Date Data, including for the twentieth and
twenty-first centuries, without loss of any functionality, interoperability
or performance, including but not limited to calculating, comparing,
sequencing, storing and displaying such Date Data (including all leap year
considerations), when used as a stand-alone system, or in combination with
other Software, hardware, or Content that is Year 2000 Compliant and
properly interfaces with that Date-Sensitive System.
5.24 Related-Party Transactions.
Except as set forth on Schedule 5.24, no employee, officer, or
director of the Company or member of his or her immediate family is
currently indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of such
individuals. Except as set forth on Schedule 5.24, to the Company's
knowledge, as of the date hereof none of such persons has any direct or
indirect ownership interest in any firm or corporation with which the
Company is affiliated or any firm or corporation that competes with the
Company except that employees, officers, or directors of the Company and
members of their immediate families may own stock in an amount not to
exceed 5% of the outstanding capital stock of publicly traded companies
that may compete with the Company. As of the date hereof, except as set
forth on Schedule 5.24, and other than with respect to agreements for
employment, copies of which have been provided to the Purchaser, no
employee, director, of officer of the Company or any of its Subsidiaries
and no member of the immediate family of any employee, officer, or director
of the Company is directly or indirectly interested in any material
contract with the Company.
5.25 Title to Property and Assets.
As of the date hereof, the Company owns its property and assets
free and clear of all Liens except such Liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or
use of such property or assets. With respect to the property and assets it
leases, the Company currently is in compliance with such leases and, to the
Company's knowledge, holds a valid leasehold interest free of any Liens.
5.26 Insurance.
The Company has, in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject
to reasonable deductibles) to allow the Company to replace any material
assets or properties of the Company that might be damaged or destroyed.
Set forth on Schedule 5.26 is a list of all insurance policies maintained
by or for the benefit of the Company and its directors, officers, employees
or agents.
5.27 Receivables.
The accounts receivable of the Company (i) arose from bona fide
sales transactions in the ordinary course of business, are payable on
ordinary trade terms in the ordinary course of business and are not subject
to setoff, counterclaims or defense, (ii) are, to the knowledge of the
Company, legal, valid and binding obligations of the respective debtors
enforceable in accordance with their terms subject to bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws
affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity), (iii) are subject to reserves established on the Company Balance
Sheet or, with respect to accounts receivable arising subsequent to the
date thereof, to reserves established in the ordinary course consistent
with past practice and in accordance with GAAP.
6. Conditions of Parties' Obligations.
6.1 Conditions of the Purchaser's Obligations. The obligations
of the Purchaser under Section 2 hereof are subject to the fulfillment
prior to or on the Closing Date of all of the following conditions, any of
which may be waived in whole or in part by the Purchaser.
(a) (i) The Company shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Closing Date and (ii) the representations and warranties of
the Company contained in this Agreement shall be true and correct (without
giving effect to any limitation as to "materiality" or "Material Adverse
Effect" set forth therein) at and as of the Closing Date as if made at and
as of such time (except to the extent expressly made as of an earlier date,
in which case as of such earlier date), except where the failure of such
representations and warranties to be true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect"
set forth therein) would not, individually or in the aggregate, have a
Material Adverse Effect on the Company;
(b) There shall not be any statute, rule, regulation,
injunction, order or decree, enacted, enforced, promulgated, entered,
issued or deemed applicable to this Agreement and the other transactions
contemplated hereby (or in the case of any statute, rule or regulation,
awaiting signature or reasonably expected to become law), by any court,
government or governmental authority or agency or legislative body,
domestic, foreign or supranational, that would, or would reasonably be
expected to, have a Material Adverse Effect on the Purchaser at or after
the Closing Date.
(c) Certificate of Designations. The Certificate of
Designations shall have been filed with the Secretary of State of the State
of Delaware, and the Purchaser, shall have received confirmation reasonably
satisfactory to it that such filing has occurred.
(d) Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under
applicable state securities laws shall have been obtained for the lawful
execution, delivery and performance of this Agreement, including without
limitation the offer and sale of the Securities.
(e) Certificate of Officer. The Company shall have delivered to
the Purchaser a certificate dated the Closing Date, executed by its Chief
Executive Officer, certifying the satisfaction of the conditions specified
in paragraphs (a) of this Section 6.1 and as to the filing of the
Certificate of Designations.
(f) Warrant. The Company shall have executed and delivered the
Warrant in the form attached hereto as Exhibit B.
(g) Registration Rights Agreement. The Purchaser, the Company
and the other stockholders of the Company shall have executed and delivered
the Registration Rights Agreement in the form attached hereto as Exhibit C.
(h) Stockholders Agreement. The Purchaser, the Company and the
other stockholders of the Company shall have executed and delivered the
Stockholders Agreement in the form attached hereto as Exhibit D.
(i) Supporting Documents. The Purchaser shall have received the
following:
(i) Copies of resolutions of the Board of Directors of the
Company, certified by the Secretary of the Company, authorizing and
approving the filing of the Certificate of Designations, the
execution, delivery and performance of this Agreement, the Warrant,
the Registration Rights Agreement, the Stockholders Agreement and all
other documents and instruments to be delivered pursuant hereto and
thereto;
(ii) A certificate of incumbency executed by the Secretary
of the Company (A) certifying the names, titles and signatures of the
officers authorized to execute the documents referred to in
subparagraph (i) above and (B) further certifying that the Certificate
of Incorporation and By- laws of the Company delivered to the
Purchaser at the time of the execution of this Agreement have been
validly adopted and have not been amended or modified, except to the
extent provided in the Certificate of Designations; and
(iii) Such additional supporting documentation and other
information with respect to the transactions contemplated by this
Agreement as the Purchaser may reasonably request.
(j) No Material Adverse Change. There shall have been no
material adverse change in the business, properties, assets or condition
(financial or otherwise) of the Company from and after the date of this
Agreement.
(k) Consents and Waivers. The Company shall have obtained all
consents or waivers necessary to execute and perform its obligations under
this Agreement, and the documents contemplated herein, to issue the
Securities, and to carry out the transactions contemplated hereby and
thereby. All corporate and other action and governmental filings necessary
to effectuate the terms of this Agreement, the Securities, and other
agreements and instruments executed and delivered by the Company in
connection herewith shall have been made or taken.
6.2 Conditions of Company's Obligations. The Company's
obligations under Section 2 hereof are subject to the fulfillment prior to
or on the Closing Date of the following conditions, any of which may be
waived in whole or in part by the Company.
(a) (i) The Purchaser shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Closing Date, (ii) the representations and warranties of
the Purchaser contained in this Agreement shall be true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) at and as of the Closing Date as if made
at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such earlier date), except where the
failure of such representations and warranties to be true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not, individually or in the
aggregate, have a Material Adverse Effect on the Purchaser, and (iii) the
Company shall have received a certificate signed by an executive officer of
the Purchaser to the foregoing effect;
(b) There shall not be any statute, rule, regulation,
injunction, order or decree, enacted, enforced, promulgated, entered,
issued or deemed applicable to this Agreement and the other transactions
contemplated hereby (or in the case of any statute, rule or regulation,
awaiting signature or reasonably expected to become law), by any court,
government or governmental authority or agency or legislative body,
domestic, foreign or supranational, that would, or would reasonably be
expected to, have a Material Adverse Effect on the Company at or after the
Closing Date.
6.3 Conditions of Each Party's Obligations. The respective
obligations of each party to consummate the transactions contemplated
hereunder are subject to the fulfillment prior to or on the Closing Date of
all of the following conditions:
(a) Effectiveness of the Merger. The Merger shall have become
effective contemporaneous with or immediately prior to the Closing.
(b) Absence of Litigation. The parties shall be satisfied as to
the absence of (i) litigation challenging or seeking damages in connection
with the transactions contemplated by this Agreement and (ii) any provision
of any applicable law or regulation, or any judgment, injunction, order or
decree prohibiting or enjoining the transactions contemplated by this
Agreement.
7. Covenants. For so long as the Purchaser beneficially owns not
less than 500 shares of Series A Preferred Stock, the Company agrees that
the Company (and each of its Subsidiaries unless the context otherwise
requires) will do the following:
7.1 Maintain Corporate Rights and Facilities. Maintain and
preserve its corporate existence and all rights, franchises, licenses,
trademarks, service marks, trade names, copyrights and other authority
reasonably deemed adequate by the Company for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
and conduct its business in an orderly manner without voluntary
interruption.
7.2 Maintain Insurance. Maintain in full force and effect a
policy or policies of insurance issued by insurers of recognized
responsibility, insuring it and its properties and business against such
losses and risks, and in such amounts, as are customary in the case of
corporations of established reputation engaged in the same or a similar
business.
7.3 Information Rights.
(a) Access to Records. The Company shall, and shall cause each
subsidiary to, afford to the Purchaser, the affiliates of the Purchaser and
each of their respective officers, employees, advisors, counsel and other
authorized representatives (collectively with the affiliates of the
Purchaser, the "Representatives"), during normal business hours, reasonable
access, upon reasonable advance notice, to all of the books, records and
properties of the Company and its Subsidiaries and all officers and
employees of the Company and such Subsidiaries. The Purchaser shall
maintain the confidentiality of any confidential and proprietary
information regarding the Company and its Subsidiaries; provided, however,
that the foregoing shall in no way limit or otherwise restrict the ability
of the Purchaser or any of its Representatives to disclose any such
information concerning the Company and its Subsidiaries which it may be
required to disclose pursuant to or as required by law.
(b) Financial Reports. For so long as the Purchaser
beneficially owns not less than 500 shares of Series A Preferred Stock, the
Company shall furnish to the Purchaser the following:
(i) Quarterly Reports. As soon as available, but not later
than 45 days after the end of each quarterly accounting period, (A) a
consolidated balance sheet of the Company as of the end of such period
and consolidated statements of income, cash flows and changes in
stockholders' equity for such quarterly accounting period and for the
period commencing at the end of the previous fiscal year and ending
with the end of such period, setting forth in each case in comparative
form the corresponding figures for the corresponding period of the
preceding fiscal year, and including comparisons to the budget or
business plan and an analysis of the variances from the budget or
plan, all prepared in accordance with generally accepted accounting
principals consistently applied, subject to normal year-end
adjustments and the absence of footnote disclosure, and (B) a report
by management of the Company of the operating and financial highlights
of the Company and its Subsidiaries for such period, which shall
include (x) a comparison between operating and financial results and
budget and (y) an analysis of the operations of the Company and its
Subsidiaries for such period.
(ii) Annual Audit. As soon as available, but not later than
90 days after the end of each fiscal year of the Company, audited
consolidated financial statements of the Company, which shall include
statements of income, cash flows and changes in stockholders' equity
for such fiscal year and a balance sheet as of the last day thereof,
each prepared in accordance with generally accepted accounting
principles, consistently applied, and accompanied by the report of a
"Big 5" firm of independent certified public accountants selected by
the Company's Board of Directors (the "Accountants"). The Company and
its Subsidiaries shall maintain a system of accounting sufficient to
enable its Accountants to render the report referred to in this
Section 7.3(b)(ii).
(iii) Miscellaneous. Promptly upon becoming available,
each of the following:
(A) copies of all financial statements, reports, press
releases, notices, proxy statements and other documents sent by the
Company or its Subsidiaries to its stockholders generally or released
to the public and copies of all regular and periodic reports, if any,
filed by the Company or its Subsidiaries with the SEC, any securities
exchange or the NASD;
(B) notification in writing of the existence of any default
under any material agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which any of their assets are
bound;
(C) upon request, copies of all reports prepared for or
delivered to the management of the Company or its Subsidiaries by its
accountants; and
(D) upon request, any other routinely collected financial
or other information available to management of the Company or its
Subsidiaries (including, without limitation, routinely collected
statistical data).
7.4 Notice of Litigation, Disputes and Adverse Changes; Other
Information. (a) Promptly notify the Purchaser of (i) each legal action,
suit, arbitration or other administrative or governmental investigation or
proceeding (whether federal, state, local or foreign) instituted or, to the
Company's knowledge, threatened against the Company (or of any occurrence
or dispute which involves a reasonable likelihood of any such action, suit,
arbitration, investigation or proceeding being instituted), or (ii) any
other occurrence or change of circumstance relating to the Company which,
in either such case, could reasonably be expected to materially and
adversely affect the Company's condition (financial or otherwise),
properties, assets, liabilities, business or operations (except for any
changes that are the effect or result of economic factors generally
affecting the economy as a whole).
(b) Promptly provide the Purchaser with such other information
relating to the Company as reasonably requested by the Purchaser including,
but not limited to, such financial or other information necessary for the
Purchaser's compliance with its reporting requirements under the Exchange
Act.
7.5 Conduct of Business. Conduct its business in accordance
with all applicable provisions of federal, state, local and foreign law.
7.6 Compliance with Certificate of Incorporation and Bylaws.
Perform and observe all of its obligations to the holders of all of its
securities set forth in the Company's Certificate of Incorporation and By-
laws.
7.7 Internal Accounting Controls. Maintain a system of internal
accounting controls administered in accordance with Section 13(b)(2) of the
Securities Exchange Act of 1934.
7.8 Indemnification of the Board of Directors; Directors and
Officers Insurance Policy. Reimburse all directors of the Company for
their reasonable out-of-pocket expenses in connection with attending
meetings of the Company's Board of Directors and all committees thereof and
all reasonable out-of-pocket expenses otherwise incurred in fulfilling
their duties as directors. The Company's By-Laws or charter shall at all
times require the indemnification of all of the Company's directors against
liability for actions and omissions to act in their capacity as directors
of the Company to the maximum extent that such individuals may lawfully be
so indemnified by the Company.
Maintain in full force and effect a directors and officer
liability insurance policy issued by issuers of recognized responsibility,
insuring its directors and officers against such losses and risks, and in
such amounts, as are customary in the case of corporations of established
reputation in the same or similar business.
7.9 Use of Proceeds. The Company will use up to $1.8 million of
the proceeds to the Company from the sale of the Series A Preferred Shares
and the Warrant for the satisfaction of all indebtedness of the Company
that shall have been inherited from CMJ as a result of the Merger. The
Company will use the remainder of such proceeds to provide the Company with
working capital and for general corporate purposes.
7.10 Reservation of Capital Stock. The Company shall reserve and
keep available out of its authorized but unissued Series A Preferred stock
and Common Stock the number of shares required for issuance upon exercise
of the Warrant and the conversion of all of the Series A Preferred Shares
and the Warrant Preferred Shares (including any additional shares which may
become so issuable by reason of the operation of the payment-in-kind
dividend provisions of the Certificate of Designations and the anti-
dilution provisions of the Certificate of Designations and the Warrant).
7.11 Advice of Changes. The Company shall confer with the
Purchaser on a regular and frequent basis as reasonably requested by the
Purchaser, orally and, if requested by the Purchaser, in writing, with
regard to any change that has had a Material Adverse Effect with respect to
the Company or its Subsidiaries. The Company shall promptly provide to the
Purchaser copies of all filings made by the Company or any subsidiary with
any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
7.12 Protective Provisions. For so long as the Purchaser
beneficially owns not less than 500 shares of Series A Preferred Stock
(subject to appropriate adjustment in the event of any stock dividend,
subdivision, stock split or combination of the Series A Preferred Shares),
the Company shall not, and shall not permit any Subsidiary to, without the
prior written consent of the Purchaser, which consent shall not be
unreasonably withheld:
(a) amend the Certificate of Incorporation or By-laws of the
Company if such amendment would adversely alter or change the rights,
preferences or privileges of the Series A Preferred Shares or otherwise so
as to adversely effect the Series A Preferred Shares.
(b) merge, consolidate, or amalgamate with any person or entity,
except in connection with any Permitted Acquisition;
(c) effect, approve or authorize any Liquidation of the Company
or any recapitalization or reorganization of the Company or any Subsidiary;
(d) directly or indirectly declare or pay any dividend or make
any other distribution in respect thereof, or directly or indirectly redeem
or repurchase any shares of capital stock of the Company, whether in cash
or property or in obligations of the Company or any Subsidiary; provided,
however, that the Company may declare or pay any dividend on, distribution
upon or redemption of the Series A Preferred Shares and Warrant Preferred
Shares, in accordance with their terms;
(e) agree to, or permit any Subsidiary to agree to, any
provision in any agreement that would impose any restriction on the ability
of the Company to honor the exercise of any rights of the holders of the
Series A Preferred Stock or the Warrant;
(f) other than employment arrangements approved by the Board of
Directors enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property, the rendering of any service
or the payment of any management, advisory or similar fees, with any
Affiliate unless such transaction is (a) in the ordinary course of business
of the Company and its Subsidiaries, and (b) upon fair and reasonable terms
no less favorable to the Company and its Subsidiaries than they would
obtain in a comparable arm's length transaction with a Person which is not
an Affiliate;
(g) materially alter or change the business of the Company or
any Subsidiary as it is currently conducted or planned to be conducted;
(h) hire or fire, or amend the employment terms of, the Chief
Executive Officer or the Chief Operating Officer of the Company;
(i) acquire or dispose of any business or assets in a single
transaction or a series of related transactions with an aggregate value in
such transaction or series of related transactions in excess of $500,000
(including all assumed debt, all cash payments, and the fair market value
of all securities or other property issued as consideration);
(j) adopt any employee stock option plan or stock incentive
plan, or alter in any material respect any of the Company's equity
incentive plans for executive officers;
(k) issue any equity securities other than to employees or
directors upon exercise of the stock options referred to in Section 8.3 of
the Merger Agreement;
(l) the creation or incurrence of any indebtedness, or the
guaranty of any indebtedness of any other Person, by the Company or any
Subsidiary in excess of $500,000; or
(m) agree or otherwise commit to take any of the actions set
forth above.
8. Registration Rights. The Purchaser shall be entitled to the
registration rights with respect to the Conversion Shares and the Warrant
Shares as set forth in the Registration Rights Agreement attached hereto as
Exhibit C.
9. Third Party Transfers. The Purchaser acknowledges that each
certificate evidencing the Securities shall be stamped or otherwise
imprinted with a legend (in addition to any restrictive legend set forth in
Section 10 hereof) in substantially the following form:
"The shares represented by this Certificate are subject to the
limitations and may be transferred only in compliance with the
conditions contained in Section 10.4 of the Securities Purchase
Agreement, dated as of November 12, 1999, between CMJ.com,
Inc. and Rare Medium Group, Inc."
10. Registration, Transfer and Substitution of Certificates for
Shares.
10.1 Stock Register; Ownership of Securities. (a) The Company
will keep at its principal office a register in which the Company will
provide for the registration of transfers of the Securities. The Company
may treat the Person in whose name any of the Securities are registered on
such register as the owner thereof and the Company shall not be affected by
any notice to the contrary. All references in this Agreement to a "holder"
of any Securities shall mean the Person in whose name such Securities are
at the time registered on such register.
10.2 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificate representing Securities, and, in the case of
any such loss, theft or destruction, upon delivery of indemnity reasonably
satisfactory to the Company in form and amount or, in the case of any such
mutilation, upon surrender of such certificate for cancellation at the
office of the Company maintained pursuant to subdivision (a) of Section
10.1 hereof, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate representing Securities of like tenor.
10.3 Restrictive Legends. Each certificate evidencing Securities
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933 and may not be
transferred in the absence of such registration or an exemption
therefrom under such Act."
10.4 Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Securities, the holder thereof will give written notice
to the Company of such holder's intention to effect such transfer and to
comply in all other respects with this Section 10.4. Each such notice
shall describe the manner and circumstances of the proposed transfer. If
within 5 business days after receipt by the Company of such notice, the
Company requests an opinion of counsel for such holder that the proposed
transfer may be effected without registration of such Securities under the
Securities Act, then the Company shall not be required to register such
transfer, and the holder thereof shall not be entitled to effect such
transfer, unless and until the Company receives such an opinion (which
counsel and opinion shall each be reasonably satisfactory to the Company).
Such holder shall thereupon be entitled to transfer such Securities in
accordance with the terms of the notice delivered by such holder to the
Company. Each certificate representing such shares issued upon or in
connection with such transfer shall bear the restrictive legends required
by Sections 9 and 10.3.
11. Definitions. Unless the context otherwise requires, the terms
defined in this Section 11 shall have the meanings specified for all
purposes of this Agreement.
Except as otherwise expressly provided, all accounting terms used
in this Agreement, whether or not defined in this Section 11, shall be
construed in accordance with United States generally accepted accounting
principles. If and so long as the Company has one or more Subsidiaries,
such accounting terms shall be determined on a consolidated basis for the
Company and each of its Subsidiaries, and the financial statements and
other financial information to be furnished by the Company pursuant to this
Agreement shall be consolidated and presented with consolidating financial
statements of the Company and each of its Subsidiaries.
"Affiliate" shall mean any Person that directly or indirectly
controls, is controlled by, or is under common control with, the indicated
Person.
"Agreement" shall mean this Agreement.
"Certificate of Incorporation" shall have the meaning assigned to
it in Section 1 hereof.
"Changemusic.com Balance Sheet" shall mean the consolidated
balance sheet of Changemusic.com as of September 30, 1999 delivered to the
Purchaser.
"CMJ Balance Sheet" shall mean the consolidated balance sheet of
CMJ as of September 30, 1999 delivered to the Purchaser.
"Closing" shall have the meaning assigned to it in Section 3
hereof.
"Closing Date" shall have the meaning assigned to it in Section 3
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning assigned to it in Section 1
hereof.
"Company Employee Plans" shall have the meaning assigned to it in
Section 5.18 hereof.
"Conversion Shares" shall mean the shares of Common Stock,
issuable upon conversion of the Series A Preferred Stock.
"Environmental Law" shall have the meaning assigned to it in
Section 5.21(b) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"GAAP" shall mean U.S. generally accepted accounting principles.
"Governmental Entity" shall mean any national, federal, state,
municipal, local, territorial, foreign or other government or any
department, commission, board, bureau, agency, regulatory authority or
instrumentality thereof, or any court, judicial, administrative or arbitral
body or public or private tribunal.
"Hazardous Material" shall have the meaning assigned to it in
Section 5.21(b) hereof.
"Intellectual Property "shall have the meaning assigned to it in
Section 5.22(b) hereof.
"Lien" shall have the meaning assigned to it in Section 5.8
hereof.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Company, other than any
dissolution, liquidation or winding up in connection with any
reincorporation of the Company in another jurisdiction.
"Material Adverse Effect" shall have the meaning assigned to it
in Section 5.3 hereof.
"Merger" shall have the meaning assigned to it in Section 5
hereof.
"Merger Agreement" means the Agreement and Plan of Merger, dated
as of November 12, 1999, among Changemusic.com, CMJ and the Company.
"Net Liabilities" has the meaning given in the Merger Agreement.
"Permitted Acquisition" means any acquisition by the Company or
any Subsidiary of (i) any business or assets with a purchase price of
$500,000 or less (including all assumed debt, all cash payments, and the
fair market value of all securities or other property issued as
consideration) or (ii) any business or assets for which the consent or
approval of the Purchaser has been given.
"Person" shall include all natural persons, corporations,
business trusts, associations, companies, partnerships, joint ventures,
limited liability companies and other entities and governments and agencies
and political subdivisions.
"Purchase Price" shall have the meaning assigned it in Section 2
hereof.
"Purchaser" shall have the meaning assigned it in the
introductory paragraph of this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall have the meaning assigned to it in Section 1
hereof.
"Securities Act" or "Act" shall mean the Securities Act of 1933,
as amended.
"Series A Preferred Shares" and "Series A Preferred Stock" shall
have the meanings assigned to such terms in Section 1 hereof.
"Subsidiary" shall mean any corporation, association or other
business entity (i) at least 50% of the outstanding voting securities of
which are at the time owned or controlled directly or indirectly by the
Company or (ii) with respect to which the Company possesses, directly or
indirectly, the power to direct or cause the direction of the affairs or
management of such person.
"Taxes" shall have the meaning assigned to it in Section 5.17
hereof.
"Tax Indemnification Agreement" shall have the meaning assigned
to it in Section 5.16 hereof.
"Tax Law" shall have the meaning assigned to it in Section 5.17
hereof.
"Tax Period" shall have the meaning assigned to it in Section
5.17 hereof.
"Tax Return" shall have the meaning assigned to it in Section
5.17 hereof.
"Warrant" shall have the meaning assigned to it in Section 1
hereof.
"Warrant Preferred Shares" shall have the meaning assigned to it
in Section 1 hereto.
"Warrant Shares" shall have the meaning assigned to it in Section
1 hereof.
12. Miscellaneous.
12.1 Waivers and Amendments. Upon the approval of the Company
and the written consent of the Purchaser (a) the obligations of the Company
and the rights of the Purchaser under this Agreement may be waived (either
generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely),
and (b) the Company may enter into a supplementary agreement for the
purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement, or of any supplemental
agreement or modifying in any manner the rights and obligations hereunder
or thereunder of the Purchaser and the Company.
The foregoing notwithstanding, no such waiver or supplemental
agreement shall (a) affect any of the rights of any holder of a Security
created by the Certificate of Designations, the Warrant or by the Delaware
General Corporation Law without compliance with all applicable provisions
of the Certificate of Designation, the Warrant and the Delaware General
Corporation Law, or (b) reduce the aforesaid fraction of Series A Preferred
Shares or Warrant Preferred Shares, as the case may be, the holders of
which are required to consent to any waiver or supplemental agreement,
without the consent of the holders of all the Series A Preferred Shares and
Warrant Preferred Shares, respectively.
Neither this Agreement, nor any provision hereof, may be changed,
waived, discharged or terminated orally or by course of dealing, but only
by a statement in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, except to the
extent provided in this Section 13.1.
12.2 Notices. All notices, requests, consents and other
communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given,
(a) if to the Purchaser, to:
Rare Medium Group, Inc.
565 Fifth Avenue, 29th Floor
New York, NY 10017
Attention: Robert C. Lewis, General Counsel
Facsimile No.: (212) 856-9122
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022-3897
Attention: Gregory A. Fernicola, Esq.
Facsimile No.: (212) 735-2000
or (b) if to the Company, to:
CMJ.com, Inc.
565 Fifth Avenue, 29th Floor
New York, New York 10017
Attention: Seth Tapper
Facsimile No.: (212) 856-9081
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Gregory A. Fernicola, Esq.
Facsimile No.: (212) 735-2000
and
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: David H. Landau, Esq.
Facsimile No.: (212) 940-8776
or at such other address or facsimile number as the Company or the
Purchaser each may hereafter specify for the purpose by notice to the other
party. Each such notice, request, or other communication shall be
effective
(a) if given by facsimile, when such facsimile is transmitted to
the facsimile number specified in this Section and the appropriate
facsimile confirmation is received or (b) if given by any other means, when
delivered at the address specified in this Section.
12.3 Termination of Agreement. This Agreement may be terminated
prior to the Closing as follows:
(a) by mutual consent of the Purchaser and the Company; or
(b) at the election of the Purchaser or the Company, if the
Merger has not been consummated as of February 12, 2000.
(c) upon termination of the Merger Agreement pursuant to Section
11.1 thereof.
In the event that the Purchaser elects to terminate this
Agreement pursuant to clause (b) of this Section 13.3, it shall give
written notice of such termination to the Company in accordance with the
provisions of Section 13.2.
If this Agreement is terminated pursuant to this Section 13.3,
this Agreement shall become void and of no effect with no liability on the
part of any party hereto, except that the agreements contained in this
Section 13.3, and in Section 13.11, shall survive the termination hereof.
12.4 Indemnification. (a) The Company hereby indemnifies the
Purchaser against and agrees to hold it harmless from any and all damage,
loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' and accountants' fees
and expenses in connection with any action, suit or proceeding)
(collectively, "Loss") incurred or suffered by the Purchaser arising out of
any misrepresentation or breach of warranty, covenant or agreement made or
to be performed by the Company pursuant to this Agreement, the Certificate
of Designations or the Warrant; provided that no claim for indemnification
against any Loss under this Section 12.4(a) shall be asserted unless and
until the cumulative total of the asserted Losses exceeds $25,000.
(b) The Purchaser indemnifies the Company against and agrees to
hold it harmless from any and all Loss incurred or suffered by the Company
arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by the Purchaser pursuant to this
Agreement; provided that no claim for indemnification against any Loss
under this Section 12.4(b) shall be asserted unless and until the
cumulative total of the asserted Losses exceeds $25,000.
(c) Notwithstanding the foregoing, the indemnification
provisions referred to in Section 12.4(a) above shall not be enforceable by
the Purchaser to the extent that any misrepresentation or breach of
warranty, covenant or agreement by the Company hereunder is attributable to
Changemusic.com and the Purchaser had knowledge of such misrepresentation
or breach prior to consummation of the Merger.
12.5 Indemnification Procedures.
(a) The party seeking indemnification under Section 12.4 (the
"Indemnified Party") agrees to give prompt notice to the party against whom
indemnity is sought (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of
which indemnity may be sought under such Section. The Indemnifying Party
may, and at the request of the Indemnified Party shall, participate in and
control the defense of any such suit, action or proceeding at its own
expense. The Indemnifying Party shall not be liable under Section 12.4 for
any settlement effected without its consent of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder; provided
that such consent is not unreasonably withheld.
(b) The Indemnified Party shall cooperate fully in all aspects
of any matter for which indemnity is sought pursuant to Section 12.4 with
respect to an action brought by a third party, including, in such case, by
providing reasonable access to employees and officers (as witnesses or
otherwise) and other information.
12.6 Survival of Representations and Warranties, etc. The
representations and warranties contained (i) in Sections 4.1, 4.2, 4.3,
4.4, 4.7, 4.8, 4.9, 4.10, 4.11, 5.1, 5.2, 5.3, 5.5, 5.6, 5.7, 5.8, 5.10,
5.11, 5.12 and 5.22(k) hereof shall survive the Closing Date for the period
of the statute of limitations applicable to a claim for breach of such
representations and warranties (ii) in Sections 4.5, 5.14, 5.16, 5.19,
5.21, 5.23, 5.24, 5.26 hereof shall survive through the first anniversary
of the Closing Date and (iii) in all other Sections of this Agreement shall
survive through the second anniversary of the Closing Date, notwithstanding
any investigation at any time made by or on behalf of the Purchaser, and
the sale and purchase of the Securities and payment therefor; and all
statements contained in any certificate, instrument or other writing
delivered by or on behalf of the Company pursuant hereto or in connection
with or contemplation of the transactions herein contemplated shall
constitute representations and warranties by the Company hereunder.
At the end of the applicable survival period set forth above, the
Company and the Purchaser shall, without further action as to such
representations and warranties, be deemed to have fully released each other
from any and all responsibilities arising thereunder unless during such
period a party shall have notified the other party in writing of the nature
and particulars of any claimed misrepresentation or breach by the other
party.
12.7 Amendments; No Waivers.
(a) Any provision of this Agreement (including the Exhibits and
Schedules hereto) may be amended or waived prior to the Closing Date, if,
and only if, such amendment or waiver is in writing and signed by each of
the parties hereto;
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
12.8 Successors and Assigns. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective parties hereto, the successors and assigns of
the Purchaser and the successors of the Company, whether so expressed or
not (each of which is expressly deemed to be a third party beneficiary
hereunder). Neither party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other party
hereto, except that the Purchaser may, without the prior consent of the
Company, (a) assign its rights to purchase the Securities hereunder to any
of its Affiliates and (b) in connection with any transfer of at least 50%
of its original investment in the Series A Preferred Shares hereunder
(whether in the form of Series A Preferred Stock, Conversion Shares or a
combination thereof) assign any or all of its rights hereunder or under the
Certificate of Designations. This Agreement shall not inure to the benefit
of or be enforceable by any other Person.
12.9 Headings. The headings of the Sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do
not constitute a part of this Agreement.
12.10 Governing Law. It is the intention of the parties that
the internal laws, and not the laws of conflicts, of New York should govern
the enforceability and validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties.
12.11 Expenses. The Company agrees, subject to the
consummation of the transactions contemplated hereby, to pay, reimburse and
hold the Purchaser harmless from liability for the payment of, all
reasonable expenses incurred by the Purchaser in connection with the
preparation and negotiation of this Agreement, and the consummation of the
transactions contemplated hereby and thereby, including, without
limitation:
(i) the fees and expenses of its counsel and accountants
and the Purchaser's out of pocket expenses, arising in connection with
the preparation, negotiation and execution of this Agreement, the
Certificate of Designations and the Warrant and the consummation of
the transactions contemplated hereby (the fees and expenses of such
counsel may be paid by check delivered to such counsel at the Closing
by the Purchaser, the amount of such check being deducted from the
aggregate amount to be paid by the Purchaser at the Closing for the
Securities to be purchased by it hereunder),
(ii) the fees and expenses incurred with respect to any
amendments to this Agreement, the Certificate of Designations or the
Warrant proposed by the Company (whether or not the same become
effective),
(iii) the fees and expenses incurred in connection with
any requested waiver of the right of any holder of Securities or the
consent of any holder of Securities to contemplated acts of the
Company not otherwise permissible by the terms of this Agreement, the
Certificate of Designations or the Warrant,
(iv) stamp and other taxes, excluding income taxes, which
may be payable with respect to the execution and delivery of this
Agreement, or the issuance, delivery or acquisition of the Series A
Preferred Shares or the Warrant or upon the conversion of the Series A
Preferred Shares or the exercise of the Warrant, and
(v) all costs of the Company's performance and compliance
with this Agreement, the Certificate of Designations and the Warrant.
12.12 Jurisdiction.
Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby may be brought in any federal or state
court located in the State of New York, and each of the parties hereby
consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 13.2
shall be deemed effective service of process on such party.
12.13 Waiver of Jury Trial.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.14 Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, with the same effect as if all parties had signed
the same document. All such counterparts shall be deemed an original,
shall be construed together and shall constitute one and the same
instrument. This Agreement shall become effective when each party hereto
shall have received counterparts hereof signed by all of the other parties
hereto.
12.15 Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter
hereof and such Agreement supersedes and replaces all other prior
agreements, written or oral, among the parties hereto with respect to the
subject matter hereof.
12.16 Severability.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or arbitrator having jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated 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 a determination, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated
to the fullest extent possible.
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed as of the day and year
first above written.
CMJ.COM, INC.
By:/s/ Robert Haber
--------------------------------------
Name: Robert Haber
Title: Chief Executive Officer
and President
RARE MEDIUM GROUP, INC.
By:/s/ Robert Lewis
--------------------------------------
Name: Robert Lewis
Title: Vice President, General Counsel
and Secretary
