Common use of ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC Clause in Contracts

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalization, combination, exchange of shares, or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price thereof, will be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony will receive upon exercise of the Option the number and class of shares or other securities or property that they would have received in respect of CDnow Common Stock if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced, then the number of shares of CDnow Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15% of the number of shares of CDnow Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the Option. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person and CDnow will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person to merge into CDnow and CDnow will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow or any other person or cash or any other property, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person then, and in each such case, CDnow shall cause the agreement governing such transaction to make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony would have acquired in respect of CDnow Common Stock if the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, or the record date therefor, as applicable, and make any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow the outstanding shares of Santa Xx Xxxxxx Common Stock by reason of a stock dividend, stock split, split-up, merger, consolidation, recapitalization, combination, conversion, exchange of shares, extraordinary or liquidating dividend or similar transactiontransaction which would have the effect of diluting the Grantee's rights hereunder, the type and number of shares or securities subject to purchasable upon the Option, exercise of the Option and the Purchase Exercise Price thereof, will shall be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony the Grantee will receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Common Stock if the Option Shares had the Option been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Common Stock are issued after the date of this Agreement (other than pursuant to an In no event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced, then shall the number of shares of CDnow Santa Xx Xxxxxx Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15exceed 19.9% of the number of shares of CDnow Santa Xx Xxxxxx Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to outstanding at the Optiontime of exercise. (b) Without limiting the foregoing, whenever the number of Option Shares purchasable upon exercise of the Option is adjusted as provided in this Section 3, the Exercise Price shall be adjusted by multiplying the Exercise Price by a fraction, the numerator of which is equal to the number of Option Shares purchasable prior to the adjustment and the denominator of which is equal to the number of Option Shares purchasable after the adjustment. (c) Without limiting the parties' relative rights and obligations under the Merger Agreement, in if the event that CDnow Company enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person and CDnow will not be the continuing or surviving corporation in such consolidation or mergerconsummate a Business Combination Transaction, (ii) to permit any person to merge into CDnow and CDnow will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow or any other person or cash or any other property, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Common Stock if Option Shares had the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, transfer or the record date therefor, as applicable, and will make any other necessary adjustments. (c) Ifadjustments and the Company shall take such steps in connection with such consolidation, at merger, liquidation or other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to securities or property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Issuer Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalization, combination, exchange of shares, shares or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price thereoftherefor, will shall be adjusted appropriately, and proper provision will shall be made in the agreements governing such transaction, if any, so that Time Warner and Sony will receive Holder shall receive, upon exercise of the Option Option, the number and class of shares or other securities or property that they Holder would have received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such event event, or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if If any additional shares of CDnow Issuer Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(a)7(a) or if the number of outstanding shares of CDnow Common Stock is reducedpursuant to this Option), then the number of shares of CDnow Issuer Common Stock subject to the Option will shall be adjusted so that, after such issuance or reductionissuance, it equals 15it, together with any shares of Issuer Common Stock previously issued pursuant hereto, shall not exceed the lesser of (i) 19.9% of the number of shares of CDnow Issuer Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the OptionOption and (ii) that minimum number of shares of Issuer Common Stock which when aggregated with any other shares of Issuer Common Stock beneficially owned by Grantee or any Affiliate thereof would cause the provisions of any Takeover Laws of the ABCA to be applicable to the Merger. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in In the event that CDnow enters into Issuer shall enter in an agreement (other than the Merger Agreement) agreement: (i) to consolidate with or merge into any person person, other than Grantee or one of its Subsidiaries, and CDnow will shall not be the continuing or surviving corporation in of such consolidation or merger, ; (ii) to permit any person person, other than Grantee or one of its Subsidiaries, to merge into CDnow Issuer and CDnow will Issuer shall be the continuing or surviving corporation, but but, in connection with such merger, the then outstanding shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will shall be changed into or exchanged for stock or other securities of CDnow Issuer or any other person or cash or any other property, property or the outstanding shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will, shall after such merger, merger represent less than 50% of the outstanding voting securities shares and share equivalents of the merged company, ; or (iii) to sell or otherwise transfer all or substantially all of its assets Assets to any person person, other than Grantee or one of its Subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to shall make proper provision provisions so that the Option willshall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted (the "Substitute Option"), at the election of Grantee, of either (x) the Acquiring Corporation (as defined below) or (y) any person that controls the Acquiring Corporation (in each case, such person being referred to acquire as the number and class of shares or other securities or property that Time Warner and Sony would have acquired in respect of CDnow Common Stock if the "Substitute Option had been exercised immediately prior to such consolidation, merger, sale or transfer, or the record date therefor, as applicable, and make any other necessary adjustmentsIssuer"). (c) IfThe Substitute Option shall have the same terms as the Option, at any time during provided that, if the period commencing on a Purchase Event and ending on the termination terms of the Substitute Option cannot, for legal reasons, be the same as the Option, such terms shall be as similar as possible and in no event less advantageous to Grantee. The Substitute Option Issuer shall also enter into an agreement with the then-holder or holders of the Substitute Option in accordance with Section 2substantially the same form as this Agreement, Time Warner and Sony jointly send which shall be applicable to CDnow an Exercise Notice indicating an election the Substitute Option. (d) The Substitute Option shall be exercisable for such number of shares of the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned Value (as hereinafter defined) multiplied by the number of shares of the Issuer Common Stock for which the Option was theretofore exercisable, divided by the Average Price (as hereinafter defined). The exercise their right price of the Substitute Option per share of the Substitute Common Stock (the "Cash-Out RightSubstitute Purchase Price") pursuant to this Section 6(c), shall then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash be equal to one half of such number of Option Shares the Purchase Price multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on a fraction in which the CDnow Common Stock numerator is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect shares of the Issuer Common Stock for which the Cash-Out Right may be exercised shall be reduced to Option was theretofore exercisable and the extent necessary such that denominator is the amount number of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of shares for which the Cash-Out Right may not be exercised as a result of Substitute Option is exercisable. (e) The following terms have the application of the previous sentence.meanings indicated:

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Common Stock Shares by reason of a stock dividendreclassification, recapitalization, stock split, split-up, merger, recapitalization, combination, exchange of shares, stock dividend, dividend, dividend payable in any other securities, or any similar transactionevent, the type and number of shares Shares or securities subject to the Option, and the Purchase Price thereoftherefor (including for purposes of repurchase thereof pursuant to Section 7), will shall be adjusted appropriately, and proper provision will provisions shall be made in the agreements governing such transaction, so that Time Warner Grantee and Sony will Issuer each shall receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Common Stock Shares if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if If any additional shares of CDnow Issuer Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(aimmediately preceding sentence)) or if the number of outstanding shares of CDnow Common Stock is reduced, then the number of shares of CDnow Issuer Common Stock subject to the Option will shall be adjusted so that, after that immediately prior to such issuance or reductionissuance, it equals 15% of the number of shares of CDnow Common Stock Shares then issued and outstanding, . In no event shall the number of shares of Issuer Common Stock subject to the Option exceed 15% of the number of shares of Issuer Common Stock issued and outstanding at the time of exercise (without giving effect to any shares subject to or issued pursuant to the Option). (b) Without limiting the foregoing, whenever the number of Option Shares purchasable upon exercise of the Option is adjusted as provided in this Section 6, the Purchase Price per Option Share shall be adjusted by multiplying the Purchase Price by a fraction, the numerator of which is equal to the number of Option Shares purchasable prior to the adjustment and the denominator of which is equal to the number of Option Shares purchasable after the adjustment. (c) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow Issuer enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge or convert into any person Person, other than Grantee or one of its Subsidiaries, and CDnow Issuer will not be the continuing or surviving corporation in such consolidation consolidation, conversion, or merger, (ii) to permit any person Person, other than Grantee or one of its Subsidiaries, to merge into CDnow Issuer and CDnow Issuer will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Company Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow Issuer or any other person Person or cash or any other property, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person Person, other than Grantee or one of its Subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Common Stock if Option Shares had the Option had been exercised immediately prior to such consolidation, conversion, merger, sale or transfer, transfer or the record date therefor, as applicable. Issuer shall take such steps in connection with such consolidation, and make merger, conversion, sale, transfer, or other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to securities or property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow the outstanding shares of DVN Common Stock by reason of a stock dividend, stock split, split-up, merger, consolidation, recapitalization, combination, conversion, exchange of shares, extraordinary or liquidating dividend or similar transactiontransaction which would have the effect of diluting the Grantee's rights hereunder, the type and number of shares or securities subject to purchasable upon the Option, exercise of the Option and the Purchase Exercise Price thereof, will shall be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony the Grantee will receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Common Stock if the Option Shares had the Option been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Common Stock are issued after the date of this Agreement (other than pursuant to an In no event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced, then shall the number of shares of CDnow DVN Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15exceed 19.9% of the number of shares of CDnow DVN Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to outstanding at the Optiontime of exercise. (b) Without limiting the foregoing, whenever the number of Option Shares purchasable upon exercise of the Option is adjusted as provided in this Section 3, the Exercise Price shall be adjusted by multiplying the Exercise Price by a fraction, the numerator of which is equal to the number of Option Shares purchasable prior to the adjustment and the denominator of which is equal to the number of Option Shares purchasable after the adjustment. (c) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow the Company enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person person, other than the Grantee or one of its subsidiaries, and CDnow the Company will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person person, other than the Grantee or one of its subsidiaries, to merge into CDnow the Company and CDnow the Company will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow the Company or any other person or cash or any other property, or the shares of CDnow the DVN Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person person, other than the Grantee or one of its subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Common Stock if Option Shares had the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, transfer or the record date therefor, as applicable, and will make any other necessary adjustments. (c) Ifadjustments and the Company shall take such steps in connection with such consolidation, at merger, liquidation or other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to securities or property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Issuer Common Stock Shares by reason of a stock dividenddividends, stock splitsplits, split-upups, mergerspin-offs, recapitalizationrecapitalizations, combinationrecombinations, exchange of shares, extraordinary dividends or similar transactionthe like, the type and number of shares or securities subject to the OptionOption Shares, and the Purchase Price thereofOption Price, will as the case may be, shall be adjusted appropriately, appropriately to reflect such event and proper provision will shall be made in any agreement governing any such transaction to provide for such adjustment and the agreements governing such transaction, so that Time Warner and Sony will receive upon exercise full satisfaction of the Option the number and class of shares or other securities or property Issuer's obligations hereunder, provided that they would have received in respect of CDnow Common Stock if the Option had been exercised immediately prior to such no event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced, then shall the number of shares of CDnow Issuer Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15exceed 19.9% of the number of shares of CDnow Issuer Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to outstanding on the Optiondate of exercise. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in if the event that CDnow Issuer enters into an agreement (with respect to an Takeover Proposal or other than transaction involving the Merger Agreement) (i) to consolidate with exchange or merge into any person and CDnow will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person to merge into CDnow and CDnow will be the continuing or surviving corporation, but in connection with such merger, the conversion of Issuer Common Shares for shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow the Issuer or any other person or cash or any other propertyanother person, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person then, and in each such case, CDnow shall cause then the agreement governing such transaction to shall make proper provision so that the Option willshall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Issuer Common Stock Shares if the Option had been exercised immediately prior to the consummation of such consolidation, merger, sale or transferTakeover Proposal, or the record date therefor, as applicable, and make any other necessary adjustments. (c) If, at any time during the period commencing on Exercisability Period, Grantee sends to Issuer a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to exercise their right notice (the a "Cash-Out RightNotice") indicating Grantee's election to exercise its right pursuant to this Section 6(c), then CDnow Issuer shall pay to each of Time Warner and Sony Grantee, on the Option Closing Datedate specified in the Cash-Out Notice, which shall be a date not earlier than three business days nor later than 15 business days from the Cash-Out Notice, in exchange for the cancelation cancellation of the Option with respect (if the Option has not been exercised) or the repurchase of any Issuer Common Shares issued to such number of Grantee pursuant hereto which Grantee then beneficially owns and has requested that Issuer repurchase (if the Option Shares as Time Warner and Sony specify in the Exercise Noticehas been exercised), an amount in cash at a price per share equal to one half the higher of such number (x) if applicable, the highest price per share of Option Shares multiplied Common Stock paid or proposed to be paid by the difference between any Person pursuant to any Takeover Proposal (inon-cash consideration to be valued as set forth in Section 7(e) hereof) or (y) the average of the closing price, for prices of the 10 trading days commencing shares of Common Stock on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national principal securities exchange or national securities quotation system on which the CDnow Common Stock is then listed or quotedtraded as reported in The Wall Street Journal (or another authoritative source) and (ii) for the Purchase Pricefive consecutive trading days immediately preceding the date of the Cash-Out Notice, less, if the Option has not been exercised, the Option Price in respect of each Option Share being cancelled. Notwithstanding the termination of the Option, Time Warner and Sony Grantee will be entitled to exercise their its rights pursuant to under this Section 6 6(c) if they have it has exercised such rights in accordance with this Section 6 the terms hereof prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to The payment contemplated by this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced made in immediately available funds to the extent necessary such that the amount of cash payable an account specified by CDnow Grantee. Amounts paid under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under shall be suject to Section 8.07(b7(a) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentencehereof.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Issuer Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalizationrecapitali zation, combination, exchange of shares, or similar transactiontrans action, the type and number of shares or securities subject to the Option, and the Purchase Price thereof, will be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony Grantee will receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional addi tional shares of CDnow Issuer Common Stock are issued after the date of this Agreement (other than pursuant to this Agreement or an event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Issuer Common Stock is reduced, then the number of shares of CDnow Issuer Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15% the same percentage of the aggregate number of shares of CDnow Issuer Common Stock then issued and outstandingoutstanding after giving effect to such issuance or reduction as immediately prior to such issuance or reduction, in each case without giving effect to any shares subject to or issued pursuant to the Option. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow Issuer enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person person, other than Grantee or one of its subsidiaries, and CDnow Issuer will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person person, other than Grantee or one of its subsidiaries, to merge into CDnow Issuer and CDnow Issuer will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow Issuer or any other person or cash or any other property, or the shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person person, other than Grantee or one of its subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to shall make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Issuer Common Stock if the Option had been exercised in full with respect to all Option Shares then purchasable immediately prior to such consolidation, merger, sale sale, or transfer, or the record date therefor, as applicable, and make any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send Grantee sends to CDnow Issuer an Exercise Notice indicating an Grantee's election to exercise their its right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow Issuer shall pay to each of Time Warner and Sony Grantee, on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.the

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalization, combination, exchange of shares, or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price thereof, will be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony will receive upon exercise of the Option the number and class of shares or other securities or property that they would have received in respect of CDnow Common Stock if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced, then the number of shares of CDnow Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15% of the number of shares of CDnow Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the Option. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person and CDnow will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person to merge into CDnow and CDnow will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow or any other person or cash or any other property, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person then, and in each such case, CDnow shall cause the agreement governing such transaction to make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony would have acquired in respect of CDnow Common Stock if the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, or the record date therefor, as applicable, and make any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.which

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Common Stock Shares by reason of a stock dividendreclassification, recapitalization, stock split, split-up, merger, recapitalization, combination, exchange of shares, stock dividend, dividend, dividend payable in any other securities, or any similar transactionevent, the type and number of shares Shares or securities subject to the Option, and the Purchase Price thereoftherefor (including for purposes of repurchase thereof pursuant to Section 7), will shall be adjusted appropriately, and proper provision will provisions shall be made in the agreements governing such transaction, so that Time Warner and Sony will Grantee shall receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Common Stock Shares if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if If any additional shares of CDnow Common Stock Shares are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(aimmediately preceding sentence)) or if , the number of outstanding shares of CDnow Common Stock is reduced, then the number of shares of CDnow Common Stock Shares subject to the Option will shall be adjusted so that, after that immediately prior to such issuance or reductionissuance, it equals 1519.9% of the number of shares of CDnow Common Stock Shares then issued and outstanding, . In no event shall the number of Shares subject to the Option exceed 19.9% of the number of Shares issued and outstanding at the time of exercise (without giving effect to any shares subject to or issued pursuant to the Option). (b) Without limiting the foregoing, whenever the number of Option Shares purchasable upon exercise of the Option is adjusted as provided in this Section 6, the Purchase Price per Option Share shall be adjusted by multiplying the Purchase Price by a fraction, the numerator of which is equal to the number of Option Shares purchasable prior to the adjustment and the denominator of which is equal to the number of Option Shares purchasable after the adjustment. (c) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow Issuer enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person person, other than Grantee or one of its Subsidiaries, and CDnow Issuer will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person Person, other than Grantee or one of its Subsidiaries, to merge into CDnow Issuer and CDnow Issuer will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow Issuer or any other person Person or cash or any other property, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person Person, other than Grantee or one of its Subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Common Stock if Option Shares had the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, transfer or the record date therefor, as applicable. Issuer shall take such steps in connection with such consolidation, and make merger, liquidation or other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to securities or property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Class A Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalization, combination, exchange or conversion of shares, or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price thereof, will shall be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony will Grantee shall receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Class A Common Stock if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Class A Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced), then the number of shares of CDnow Class A Common Stock subject to the Option will shall be adjusted so that, after such issuance or reductionissuance, it equals 1519.9% of the number of shares of CDnow Class A Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the Option. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow Issuer enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person person, other than Grantee or one of its subsidiaries, and CDnow Issuer will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person person, other than Grantee or one of its subsidiaries, to merge into CDnow Issuer and CDnow Issuer will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Class A Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow Issuer or any other person or cash or any other property, or the shares of CDnow Class A Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person person, other than Grantee or one of its subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares stock or other securities or cash or other property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Class A Common Stock if the Option had been exercised immediately prior to such consolidation, merger, sale sale, or transfer, or the record date therefor, as applicable, applicable and make any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send Grantee sends to CDnow Issuer an Exercise Notice indicating an Grantee's election to exercise their its right (the "CashCASH-Out RightOUT RIGHT") pursuant to this Section 6(c), then CDnow Issuer shall pay to each of Time Warner and Sony Grantee, on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify Grantee specifies in the Exercise Notice, an amount in cash equal to one half the greater of (i) $1.00 per Option Share the subject of such Exercise Notice and (ii) such number of Option Shares multiplied by the difference between (iA) the average closing price, for the 10 ten trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Class A Common Stock as reported on Nasdaq the NASDAQ, as reported in THE WALL STREET JOURNAL (Northeast edition), or, if not listed on Nasdaqreported thereby, as reported on any other national securities exchange or national securities quotation system on which authoritative source (the CDnow Common Stock is listed or quoted"CLOSING PRICE") and (iiB) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will Grantee shall be entitled to exercise their its rights pursuant to under this Section 6 6(c) if they have it has exercised such rights in accordance with this Section 6 the terms hereof prior to the termination of the Option. If, prior Notwithstanding anything herein to the time at which contrary, the Cash-Out Right is exercised aggregate amount payable by Issuer to Grantee pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence500,000.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Common Stock the Shares by reason of a stock dividend, stock split, split-up, mergercombination, reclassification, recapitalization, combination, exchange of shares, dividend, dividend payable in any other securities or similar transactionevent, the type and number of shares Shares or securities subject to the Option, and the Purchase Exercise Price thereoftherefor, will shall be adjusted appropriately, and proper provision will shall be made in the agreements governing such transaction, so that Time Warner and Sony will Grantee shall receive upon exercise of the Option the same class and number and class of outstanding shares or other securities or property that they Grantee would have received in respect of CDnow Common Stock the Shares if the Option had been exercised immediately prior to such event event, or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if . (b) If any additional shares of CDnow Common Stock Shares are issued after the date of this Agreement (other than pursuant to an event described in Section 3(a) above and other than as permitted by the first sentence of this Section 6(aMerger Agreement)) or if , the number of outstanding shares of CDnow Common Stock is reduced, Shares then the number of shares of CDnow Common Stock remaining subject to the Option will shall be adjusted so that, after such issuance or reductionof additional Shares, it such number of Shares then remaining subject to the Option, together with shares theretofore issued pursuant to the Option and the Parent Treasury Option, equals 1519.9% of the number of shares of CDnow Common Stock Shares then issued and outstanding, . In no event shall the number of Option Shares plus the number of Shares purchased pursuant to the Parent Treasury Option exceed 19.9% of the number of Shares issued and outstanding at the time of exercise (without giving effect to the issuance of any shares Shares subject to or issued pursuant to the Option or the Parent Treasury Option). (bc) To the extent any of the provisions of this Agreement apply to the Exercise Price, they shall be deemed to refer to the Exercise Price as adjusted pursuant to this Section 3. (d) Without limiting the foregoing, whenever the number of Option Shares purchasable upon exercise of the Option is adjusted as provided in this Section 3, the Exercise Price per Option Share shall be adjusted by multiplying the Exercise Price by a fraction, the numerator of which is equal to the number of Option Shares purchasable prior to the adjustment and the denominator of which is equal to the number of Option Shares purchasable after the adjustment. (e) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow the Company enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person person, other than Grantee or one of its Subsidiaries, and CDnow the Company will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person Person, other than Grantee or one of its Subsidiaries, to merge into CDnow the Company and CDnow the Company will be the continuing or surviving corporation, but in connection with such merger, the ordinary shares of CDnow Common Stock the Company outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock ordinary shares or other securities of CDnow the Company or any other person Person or cash or any other property, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person Person, other than Grantee or one of its Subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Common Stock if Option Shares had the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, transfer or the record date therefor, as applicable. The Company shall take such steps in connection with such consolidation, and make merger, liquidation or other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to securities or property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow the outstanding shares of PZE Common Stock by reason of a stock dividend, stock split, split-up, merger, consolidation, recapitalization, combination, conversion, exchange of shares, extraordinary or liquidating dividend or similar transactiontransaction which would have the effect of diluting the Grantee's rights hereunder, the type and number of shares or securities subject to purchasable upon the Option, exercise of the Option and the Purchase Exercise Price thereof, will shall be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony the Grantee will receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Common Stock if the Option Shares had the Option been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Common Stock are issued after the date of this Agreement (other than pursuant to an In no event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced, then shall the number of shares of CDnow PZE Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15exceed 19.9% of the number of shares of CDnow PZE Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to outstanding at the Optiontime of exercise. (b) Without limiting the foregoing, whenever the number of Option Shares purchasable upon exercise of the Option is adjusted as provided in this Section 3, the Exercise Price shall be adjusted by multiplying the Exercise Price by a fraction, the numerator of which is equal to the number of Option Shares purchasable prior to the adjustment and the denominator of which is equal to the number of Option Shares purchasable after the adjustment. (c) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow the Company enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person person, other than the Grantee or one of its subsidiaries, and CDnow the Company will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person person, other than the Grantee or one of its subsidiaries, to merge into CDnow the Company and CDnow the Company will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow the Company or any other person or cash or any other property, or the shares of CDnow the PZE Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person person, other than the Grantee or one of its subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Common Stock if Option Shares had the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, transfer or the record date therefor, as applicable, and will make any other necessary adjustments. (c) Ifadjustments and the Company shall take such steps in connection with such consolidation, at merger, liquidation or other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to securities or property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Issuer Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalization, combination, exchange of shares, shares or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price thereoftherefor, will shall be adjusted appropriately, and proper provision will shall be made in the agreements governing such transaction, if any, so that Time Warner and Sony will receive Holder shall receive, upon exercise of the Option Option, the number and class of shares or other securities or property that they Holder would have received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such event event, or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if If any additional shares of CDnow Issuer Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(a)7(a) or if the number of outstanding shares of CDnow Common Stock is reducedpursuant to this Option), then the number of shares of CDnow Issuer Common Stock subject to the Option will shall be adjusted so that, after such issuance or reductionissuance, it equals 15it, together with any shares of Issuer Common Stock previously issued pursuant hereto, shall not exceed the lesser of (i) 19.9% of the number of shares of CDnow Issuer Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the OptionOption and (ii) that minimum number of shares of Issuer Common Stock which when aggregated with any other shares of Issuer Common Stock beneficially owned by Grantee or any Affiliate thereof would cause the provisions of any Takeover Laws of the DGCL to be applicable to the Merger. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in In the event that CDnow enters into prior to the termination of this Agreement, Issuer shall enter in an agreement (other than the Merger Agreement) agreement: (i) to consolidate with or merge into any person person, other than Grantee or one of its Subsidiaries, and CDnow will shall not be the continuing or surviving corporation in of such consolidation or merger, ; (ii) to permit any person person, other than Grantee or one of its Subsidiaries, to merge into CDnow Issuer and CDnow will Issuer shall be the continuing or surviving corporation, but but, in connection with such merger, the then outstanding shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will shall be changed into or exchanged for stock or other securities of CDnow Issuer or any other person or cash or any other property, property or the then outstanding shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will, shall after such merger, merger represent less than 50% of the outstanding voting securities shares and share equivalents of the merged company, ; or (iii) to sell or otherwise transfer all or substantially all of its assets and its Subsidiaries' Assets to any person person, other than Grantee or one of its Subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to shall make proper provision provisions so that the Option willshall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted (the "Substitute Option"), at the election of Grantee, of either (x) the Acquiring Corporation (as defined below) or (y) any person that controls the Acquiring Corporation (in each case, such person being referred to acquire as the number and class of shares or other securities or property that Time Warner and Sony would have acquired in respect of CDnow Common Stock if the "Substitute Option had been exercised immediately prior to such consolidation, merger, sale or transfer, or the record date therefor, as applicable, and make any other necessary adjustmentsIssuer"). (c) IfThe Substitute Option shall have the same terms as the Option, at any time during provided that, if the period commencing on a Purchase Event and ending on the termination terms of the Substitute Option cannot, for legal reasons, be the same as the Option, such terms shall be as similar as possible and in no event less advantageous to Grantee. The Substitute Option Issuer shall also enter into an agreement with the then-holder or holders of the Substitute Option in accordance with Section 2substantially the same form as this Agreement, Time Warner and Sony jointly send which shall be applicable to CDnow an Exercise Notice indicating an election the Substitute Option. (d) The Substitute Option shall be exercisable for such number of shares of the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned Value (as hereinafter defined) multiplied by the number of shares of the Issuer Common Stock for which the Option was immediately theretofore exercisable, divided by the Average Price (as hereinafter defined). The exercise their right price of the Substitute Option per share of the Substitute Common Stock (the "Cash-Out RightSubstitute Purchase Price") pursuant to this Section 6(c), shall then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash be equal to one half of such number of Option Shares the Purchase Price multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on a fraction in which the CDnow Common Stock numerator is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect shares of the Issuer Common Stock for which the Cash-Out Right may be exercised shall be reduced to Option was immediately theretofore exercisable and the extent necessary such that denominator is the amount number of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of shares for which the Cash-Out Right may not be exercised as a result of Substitute Option is exercisable. (e) The following terms have the application of the previous sentence.meanings indicated:

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event ----------------------------------------------- of any change in CDnow Issuer Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalization, combination, exchange of shares, or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price thereof, will be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony Grantee will receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Issuer Common Stock are issued after the date of this Agreement (other than pursuant to (i) any option, warrant, or other right outstanding as of the date of this Agreement pursuant to which the Issuer has an obligation to issue additional shares of Issuer Common Stock or (ii) an event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Issuer Common Stock is reduced, then the number of shares of CDnow Issuer Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, that it equals 15% the same percentage of the aggregate number of shares of CDnow Issuer Common Stock then issued and outstandingoutstanding after giving effect to such issuance as immediately prior to such issuance, in each case without giving effect to any shares subject to or issued pursuant to the Option. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow Issuer enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person Person, other than Grantee or one of its Subsidiaries, and CDnow Issuer will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person Person, other than Grantee or one of its Subsidiaries, to merge into CDnow Issuer and CDnow Issuer will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow Issuer or any other person Person or cash or any other property, or the shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged surviving company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person Person, other than Grantee or one of its Subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such consolidation, merger, sale sale, or transfer, or the record date therefor, as applicable, applicable and make any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send Grantee sends to CDnow Issuer an Exercise Notice indicating an Grantee's election to exercise their its right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow Issuer shall pay to each of Time Warner and Sony Grantee, on the Option Closing Date, in exchange for the cancelation cancellation of the Option with respect to such number of Option Shares as Time Warner and Sony specify Grantee specifies in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Issuer Common Stock as reported on The Nasdaq National Market (or, if not listed on NasdaqThe Nasdaq National Market, as reported on any other national securities exchange or national securities quotation system on which the CDnow Issuer Common Stock is listed or quoted, as reported in The Wall Street Journal (Northeast edition), or, if not reported ----------------------- thereby, any other authoritative source) (the "Closing Price") and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow the outstanding shares of Devon Common Stock by reason of a stock dividend, stock split, split-up, merger, consolidation, recapitalization, combination, conversion, exchange of shares, extraordinary or liquidating dividend or similar transactiontransaction which would have the effect of diluting the Grantee's rights hereunder, the type and number of shares or securities subject to purchasable upon the Option, exercise of the Option and the Purchase Exercise Price thereof, will shall be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony the Grantee will receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Common Stock if the Option Shares had the Option been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Common Stock are issued after the date of this Agreement (other than pursuant to an In no event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Common Stock is reduced, then shall the number of shares of CDnow Devon Common Stock subject to the Option will be adjusted so that, after such issuance or reduction, it equals 15exceed 19.9% of the number of shares of CDnow Devon Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to outstanding at the Optiontime of exercise. (b) Without limiting the foregoing, whenever the number of Option Shares purchasable upon exercise of the Option is adjusted as provided in this Section 3, the Exercise Price shall be adjusted by multiplying the Exercise Price by a fraction, the numerator of which is equal to the number of Option Shares purchasable prior to the adjustment and the denominator of which is equal to the number of Option Shares purchasable after the adjustment. (c) Without limiting the parties' relative rights and obligations under the Merger Agreement, in if the event that CDnow Company enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person and CDnow will not be the continuing or surviving corporation in such consolidation or mergerconsummate a Business Combination Transaction, (ii) to permit any person to merge into CDnow and CDnow will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow or any other person or cash or any other property, or the shares of CDnow Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Common Stock if Option Shares had the Option had been exercised immediately prior to such consolidation, merger, sale or transfer, transfer or the record date therefor, as applicable, and will make any other necessary adjustments. (c) Ifadjustments and the Company shall take such steps in connection with such consolidation, at merger, liquidation or other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to securities or property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event ----------------------------------------------- of any change in CDnow Issuer Common Stock by reason of a stock dividend, stock split, split-up, merger, recapitalization, combination, exchange of shares, or similar transaction, the type and number of shares or securities subject to the Option, and the Purchase Price thereof, will be adjusted appropriately, and proper provision will be made in the agreements governing such transaction, so that Time Warner and Sony Grantee will receive upon exercise of the Option the number and class of shares or other securities or property that they Grantee would have received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if any additional shares of CDnow Issuer Common Stock are issued after the date of this Agreement (other than pursuant to an event described in the first sentence of this Section 6(a)) or if the number of outstanding shares of CDnow Issuer Common Stock is reduced, then the number of shares of CDnow Issuer Common Stock subject to the Option will be adjusted so that, after such issuance or reductionissuance, it equals 15% the same percentage of the aggregate number of shares of CDnow Issuer Common Stock then issued and outstandingoutstanding after giving effect to such issuance as immediately prior to such issuance, in each case without giving effect to any shares subject to or issued pursuant to the Option. In the event that Grantee, its Subsidiaries or any of their respective pension or retirement plans (including, if applicable, the related trust) owns on the date hereof or acquires after the date hereof any shares of Issuer Common Stock ("Owned Issuer Common Stock") that, when aggregated with the number of shares of Issuer Common Stock subject to the Option, would exceed 19.9% of the number of shares of Issuer Common Stock then issued and outstanding, then the number of shares of Issuer Common Stock subject to the Option will be adjusted so that, when aggregated with the shares of Owned Issuer Common Stock, it equals 19.9% of the number of shares of Issuer Common Stock then issued and outstanding. (b) Without limiting the parties' relative rights and obligations under the Merger Agreement, in the event that CDnow Issuer enters into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person Person, other than Grantee or one of its Subsidiaries, and CDnow Issuer will not be the continuing or surviving corporation in such consolidation or merger, (ii) to permit any person Person, other than Grantee or one of its Subsidiaries, to merge into CDnow Issuer and CDnow Issuer will be the continuing or surviving corporation, but in connection with such merger, the shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will be changed into or exchanged for stock or other securities of CDnow Issuer or any other person Person or cash or any other property, or the shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will, after such merger, represent less than 50% of the outstanding voting securities of the merged company, or (iii) to sell or otherwise transfer all or substantially all of its assets to any person Person, other than Grantee or one of its Subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to will make proper provision so that the Option will, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical terms appropriately adjusted to acquire the number and class of shares or other securities or property that Time Warner and Sony Grantee would have acquired received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such consolidation, merger, sale sale, or transfer, or the record date therefor, as applicable, applicable and make any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event at the time the Company consummates any Takeover Proposal and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send Grantee sends to CDnow Issuer an Exercise Notice indicating an Grantee's election to exercise their its right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow Issuer shall pay to each of Time Warner and Sony Grantee, on the Option Closing Date, in exchange for the cancelation cancellation of the Option with respect to such number of Option Shares as Time Warner and Sony specify Grantee specifies in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Issuer Common Stock as reported on The Nasdaq National Market (or, if not listed on NasdaqThe Nasdaq National Market, as reported on any other national securities exchange or national securities quotation system on which the CDnow Issuer Common Stock is listed or quoted, as reported in The Wall Street Journal ----------------------- (Northeast edition), or, if not reported thereby, any other authoritative source) (the "Closing Price") and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony Grantee will be entitled to exercise their its rights pursuant to under this Section 6 6(c) if they have it has exercised such rights in accordance with this Section 6 the terms hereof prior to the termination of the Option. If, prior to the time at which the Cash-Out Right is exercised pursuant to this Section 6(c), Time Warner and Sony shall have received a Termination Fee pursuant to clause (A), (B) or (C) of Section 8.07(b) of the Merger Agreement, the number of Option Shares in respect of which the Cash-Out Right may be exercised shall be reduced to the extent necessary such that the amount of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of which the Cash-Out Right may not be exercised as a result of the application of the previous sentence.

ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. (a) In the event of any change in CDnow Issuer Common Stock by reason of a stock dividend, stock split, split-up, recapitalization, merger, recapitalizationconversation, combination, exchange of shares, shares extraordinary or liquidating dividend or similar transaction, which would have the effect of diluting the Holder's rights hereunder, the type and number of shares or securities subject to the Option, and the Purchase Price thereoftherefor, will shall be adjusted appropriately, and proper provision will shall be made in the agreements governing documentation pertaining to such transaction, transaction so that Time Warner and Sony will receive Holder shall receive, upon exercise of the Option Option, the number and class of shares or other securities or property that they Holder would have received in respect of CDnow Issuer Common Stock if the Option had been exercised immediately prior to such event event, or the record date therefor, as applicable. Subject to Section 1, and without limiting the parties' relative rights and obligations under the Merger Agreement, if If any additional shares of CDnow Issuer Common Stock are issued or otherwise become outstanding after the date of this Agreement (other than whether upon exercise of stock options or otherwise but excluding any issuance pursuant to an event described in the first sentence of this Section 6(a7(a)) or if the number of outstanding shares of CDnow Common Stock is reduced), then the number of shares of CDnow Issuer Common Stock subject to the Option will shall be adjusted so that, after such issuance or reductionissuance, it such number of shares, together with any shares of Issuer Common Stock previously issued pursuant hereto, equals 1519.9% of the number of shares of CDnow Issuer Common Stock then issued and outstanding, without giving effect to any shares subject to or issued pursuant to the Option (with any fractional share being rounded up to the next full share). Issuer agrees that in no event shall the number of shares of Issuer Common Stock issued after the date of this Agreement pursuant to the preceding sentence, together with the number of shares of Issuer Common Stock subject to the Option, adjusted as aforesaid, exceed the number of available authorized but unissued and unreserved shares of Issuer Common Stock. Nothing contained in this Section 7(a) or elsewhere in this Agreement shall be deemed to authorize Issuer to issue shares in breach of any provision of the Reorganization Agreement. (b) Without limiting the parties' relative rights and obligations under the Merger AgreementReorganization, in the event that CDnow enters Issuer shall, prior to the Expiration Date, enter into an agreement (other than the Merger Agreement) (i) to consolidate with or merge into any person person, other than Grantee or one of its subsidiaries, and CDnow will shall not be the continuing or surviving corporation in of such consolidation or merger, (ii) to permit any person person, other than Grantee or one of its subsidiaries, to merge into CDnow Issuer and CDnow will Issuer shall be the continuing or surviving corporation, but but, in connection with such merger, the then outstanding shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will shall be changed into or exchanged for stock or other securities of CDnow Issuer or any other person or cash or any other property, property or the outstanding shares of CDnow Issuer Common Stock outstanding immediately prior to the consummation of such merger will, shall after such merger, merger represent less than 50% of the outstanding voting securities shares and share equivalents of the merged company, or (iii) to sell or otherwise transfer all or substantially all a substantial part of its consolidated assets or deposit liabilities to any person Person other than Grantee or one of its subsidiaries, then, and in each such case, CDnow shall cause the agreement governing such transaction to shall make proper provision provisions so that the Option willshall, upon the consummation of any such transaction and upon the terms and conditions set forth herein, be converted into, or exchanged for, an option with identical (the "Substitute Option"), at the election of Grantee, of either (A) the Acquiring Corporation (as defined below), (B) any person that controls the Acquiring Corporation, or (C) in the case of a merger described in clause (ii), Issuer (such person in each such case being referred to as the "Substitute Option Issuer"). (c) The Substitute Option shall have the same terms appropriately adjusted to acquire as the number and class of shares or other securities or property that Time Warner and Sony would have acquired in respect of CDnow Common Stock Option, PROVIDED THAT if the terms of the Substitute Option had been exercised immediately prior cannot, for legal reasons, be the same as the Option, such terms shall be as similar as possible and in no event less advantageous to Grantee. The Issuer and the Substitute Option Issuer shall take such steps in connection with such consolidation, merger, sale liquidation or transfer, other such transaction as may be reasonably necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any securities or the record date therefor, as applicable, and make any other necessary adjustments. (c) If, at any time during the period commencing on a Purchase Event and ending on the termination of the Option in accordance with Section 2, Time Warner and Sony jointly send to CDnow an Exercise Notice indicating an election to property thereafter deliverable upon exercise their right (the "Cash-Out Right") pursuant to this Section 6(c), then CDnow shall pay to each of Time Warner and Sony on the Option Closing Date, in exchange for the cancelation of the Option with respect to such number of Option Shares as Time Warner and Sony specify in the Exercise Notice, an amount in cash equal to one half of such number of Option Shares multiplied by the difference between (i) the average closing price, for the 10 trading days commencing on the 12th trading day immediately preceding the Notice Date, per share of CDnow Common Stock as reported on Nasdaq (or, if not listed on Nasdaq, as reported on any other national securities exchange or national securities quotation system on which the CDnow Common Stock is listed or quoted) and (ii) the Purchase Price. Notwithstanding the termination of the Option, Time Warner and Sony will be entitled to exercise their rights pursuant to this Section 6 if they have exercised such rights in accordance with this Section 6 prior to the termination of the Option. If, prior The Substitute Option Issuer shall also enter into an agreement with the then holder or holders of the Substitute Option in substantially the same form as this Agreement (after giving effect for such purposes to the time at which the Cash-Out Right is exercised pursuant to provisions of this Section 6(cAgreement), Time Warner and Sony which shall have received a Termination Fee pursuant be applicable to clause the Substitute Option. (A), (Bd) or (C) The Substitute Option shall be exercisable for such number of Section 8.07(b) shares of the Merger Agreement, Substitute Common Stock (as is hereinafter defined) as is equal to the Assigned Value (as is hereinafter defined) multiplied by the number of Option Shares in respect shares of the Issuer Common Stock for which the Cash-Out Right may Option was exercisable immediately prior to any event in Section 7(b), divided by the Average Price (as is hereinafter defined). The exercise price of the Substitute Option per share of the Substitute Common Stock (the "Substitute Purchase Price") shall then be exercised shall be reduced equal to the extent necessary such that Purchase Price multiplied by a fraction in which the amount numerator is the number of cash payable by CDnow under this Section 6(c), together with the aggregate amount of any Termination Fee previously received by Time Warner and Sony under Section 8.07(b) shares of the Merger Agreement, shall not exceed $25 million (in the case of a Termination Fee described in clause (A) of Section 8.07(b)) or $31 million (in the case of a Termination Fee described in clause (B) or (C) of Section 8.07(b)). For the avoidance of doubt, Time Warner and Sony shall continue to be entitled to purchase in accordance with Section 3 any Option Shares specified in the Exercise Notice in respect of Issuer Common Stock for which the Cash-Out Right may not be exercised as a result Option was theretofore exercisable and the denominator is the number of shares of the application of Substitute Common Stock for which the previous sentenceSubstitute Option is exercisable. (e) As used herein, the following terms have the meanings indicated: