5
Exhibit: 2.1
EXECUTION COPY
TERMINATION AGREEMENT dated as of March 13, 2000, among TIME WARNER INC., a
Delaware corporation ("Time Warner"), SONY CORPORATION OF AMERICA, a New York
corporation ("Sony"), CDNOW, INC., a Pennsylvania corporation ("CDnow"),
DELAWARE HOLDCO CORPORATION, a Delaware corporation and a direct wholly owned
subsidiary of CDnow ("Holdco"), PENNSYLVANIA SUBSIDIARY, INC., a Pennsylvania
corporation and a direct wholly owned subsidiary of Holdco ("Pennsylvania Sub"),
DELAWARE SUB I L.L.C., a Delaware limited liability company and a direct wholly
owned subsidiary of Holdco ("Delaware Sub I"), DELAWARE SUB II L.L.C., a
Delaware limited liability company and a direct wholly owned subsidiary of
Holdco ("Delaware Sub II"), and the individuals party to this Termination
Agreement.
WHEREAS Time Warner, Sony, CDnow, Holdco, Pennsylvania Sub, Delaware Sub I
and Delaware Sub II have entered into an Agreement of Merger and Contribution
dated as of July 12, 1999 (the "Merger and Contribution Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Warner Music Canada Ltd., a corporation organized under
the laws of Ontario ("Time Warner Canada"), Sony Music Entertainment (Canada)
Inc., a corporation organized under the laws of Canada ("Sony Canada"), The
Columbia House Company (Canada), a general partnership organized under the laws
of Ontario ("Columbia House Canada"), the general partners of which are Time
Warner Canada and Sony Canada, 3030809 Nova Scotia ULC, an unlimited liability
company organized under the laws of Nova Scotia and a direct wholly owned
subsidiary of Columbia House Canada, and Holdco entered into a Master Canadian
Transaction Agreement dated as of July 12, 1999 (the "Master Canadian
Transaction Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony and the certain shareholders of CDnow
entered into the CDnow, Inc. Shareholders Agreement dated as of July 12, 1999
(the "CDnow Shareholder Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony and CDnow entered into a Stock Option
Agreement dated as of July 12, 1999 (the "Stock Option Agreement");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony, CDnow, Holdco, Pennsylvania
Subsidiary, Delaware Sub I and Delaware Sub II entered into a Letter Agreement
dated July 12, 1999 (together with the Merger and Contribution Agreement, the
Master Canadian Transaction Agreement, the CDnow Shareholder Agreement and the
Stock Option Agreement, the "Transaction Agreements");
WHEREAS, in connection with the execution and delivery of the Merger and
Contribution Agreement, Time Warner, Sony Music Entertainment Inc., a Delaware
corporation ("SMEI"), and CDnow entered into a Convertible Loan Agreement dated
as of July 12, 1999 (the "Convertible Loan Agreement);
WHEREAS, in connection with the Convertible Loan Agreement, CDnow and
certain related companies entered into a Guarantee and Collateral Agreement
dated as of January 21, 2000, in favor of Time Warner, as Security Agent for
Time Warner and SMEI as lenders under the Convertible Loan Agreement (the
"Security Agreement"); and
6
WHEREAS, the parties hereto mutually desire to terminate the Transaction
Agreements on the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth in this Termination Agreement, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE I
Termination
SECTION 1.01. Termination. Time Warner, Sony and CDnow mutually consent to
terminate the Merger and Contribution Agreement pursuant to Section 10.01(a) of
the Merger and Contribution Agreement, which termination constitutes automatic
termination of (i) the Master Canadian Transaction Agreement pursuant to Section
4.4 thereof and (ii) the CDnow Shareholder Agreement pursuant to Section 4
thereof. Each of Time Warner, Sony and CDnow acknowledges and agrees that,
pursuant to Section 2 of the Stock Option Agreement, the termination of the
Merger and Contribution Agreement as provided in the preceding sentence shall
cause the Option (as defined in Section 1 of the Stock Option Agreement) granted
under the Stock Option Agreement to terminate and be of no further force and
effect.
SECTION 1.02. Effect of Termination. Notwithstanding anything to the
contrary contained in the Transaction Agreements, the Convertible Loan Agreement
or the Security Agreement, except with respect to (i) Section 3.14, Section
4.14, the last sentence of Section 8.02(a), Section 8.07(a), Section 10.02 and
Article XI of the Merger and Contribution Agreement and (ii) Article 4 of the
Master Canadian Transaction Agreement, which provisions shall survive the
termination of the Transaction Agreements (for the avoidance of doubt, Section
8.07(b) and Section 8.07(c) of the Merger and Contribution Agreement shall not
survive the termination of the Transaction Agreements), none of the parties to
this Agreement nor any of their respective parents, subsidiaries or affiliates,
or any of their respective directors, officers, trustees, representatives,
employees, attorneys, advisors, investment bankers, agents, stockholders,
warrant holders, partners, associates, predecessors, heirs, executors,
administrators, legal representatives, successors or assigns shall have any
liability or obligation under the Transaction Agreements.
SECTION 1.03. Public Announcements. The press release announcing the
termination of the Transaction Agreements shall be in the form of Exhibit A to
this Termination Agreement.
ARTICLE II
Releases and Absence of Indemnification
SECTION 2.01. Releases. (a) Each of CDnow, Holdco, Pennsylvania Sub,
Delaware Sub I, Delaware Sub II, and each of the individuals who execute this
Termination Agreement, for such party and such party's successors and assigns,
hereby releases and forever discharges each of Time Warner and Sony, and any and
all of their respective present, former and future parents, subsidiaries and
affiliates, and any and all of their respective present, former and future
directors, officers, trustees, representatives, employees, attorneys, advisors,
investment bankers, agents, stockholders, warrant holders, partners, associates,
7
predecessors, heirs, executors, administrators, legal representatives,
successors and assigns, in any capacity whatsoever (the "Time Warner and Sony
Released Persons"), from all claims, actions, complaints, causes of action,
judgments, liabilities, obligations, damages, debts, demands or suits (each
individually, a "Claim" and collectively, "Claims"), at law or in equity, known
or unknown, which CDnow or any other CDnow Released Person (as hereinafter
defined) claiming through, under or on behalf of CDnow or any other CDnow
Released Person or any of their successors or assigns ever had, now has or
hereafter can, shall or may have for, upon, or by reason of any matter, cause or
thing whatsoever from the beginning of the world to the date of this Termination
Agreement, which Claims relate to or result from or arise out of any Transaction
Agreement or any of the transactions contemplated by any of the Transaction
Agreements. For the avoidance of doubt, nothing in this Termination Agreement
shall constitute a release of any Claims under the Convertible Loan Agreement or
the Security Agreement or the notes and documents issued thereunder.
(b) Each of Time Warner and Sony, for such party and such party's
successors and assigns, hereby releases and forever discharges each of CDnow,
Holdco, Pennsylvania Sub, Delaware Sub I, Delaware Sub II, and each of the
individuals who execute this Termination Agreement, and any and all of their
respective present, former and future parents, subsidiaries and affiliates, and
any and all of their respective present, former and future directors, officers,
trustees, representatives, employees, attorneys, advisors, investment bankers,
agents, stockholders, warrant holders, partners, associates, predecessors,
heirs, executors, administrators, legal representatives, successors and assigns,
in any capacity whatsoever (the "CDnow Released Persons"), from all Claims, at
law or in equity, known or unknown, which Time Warner, Sony or any other Time
Warner and Sony Released Person claiming through, under or on behalf of Time
Warner or Sony or any other Time Warner and Sony Released Person or any of their
successors or assigns ever had, now has or hereafter can, shall or may have for,
upon, or by reason of any matter, cause or thing whatsoever from the beginning
of the world to the date of this Termination Agreement, which Claims relate to
or result from or arise out of any Transaction Agreement or any of the
transactions contemplated by any of the Transaction Agreements. For the
avoidance of doubt, nothing in this Termination Agreement shall constitute a
release of any Claims under the Convertible Loan Agreement or the Security
Agreement or the notes and documents issued thereunder.
(c) Each of the parties to this Termination Agreement hereby acknowledges
and agrees that all claims under Section 1542 of the California Civil Code and
any other provision of law now or hereafter enacted, adjudicated or sought to be
adjudicated relating to the release or waiver of unknown or unspecified claims
are hereby specifically and expressly released and waived. Each of the parties
understands that Section 1542 of the California Civil Code provides that "[a]
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor". For
purposes of this Termination Agreement, each of the parties acknowledges and
agrees that it may be considered to be both a "creditor" and a "debtor" for all
purposes and with respect to all claims it may now know or suspect to exist
within the meaning of Section 1542 of the California Civil Code and any other
provision of law nor or hereafter enacted, adjudicated or sought to be
adjudicated relating to the release or waiver of unknown or unspecified claims.
SECTION 2.02. No Indemnification. Nothing in this Article II shall in any
way constitute an agreement by any party to this Termination Agreement to
indemnify any other party hereto against any third party Claim or, except as
specifically set forth herein with respect to the Time Warner and Sony Released
Persons and the CDnow Released Persons, waive, release, limit or restrict any
Claim which any party may have against any person or entity not a party to this
Termination Agreement.
8
ARTICLE III
Financing Arrangements
SECTION 3.01. Amendment of Convertible Loan Agreement and Consent in
respect of Security Agreement. Time Warner and CDnow shall, and Sony shall cause
SMEI to, simultaneously with the execution and delivery of this Termination
Agreement, enter into an amendment to the Convertible Loan Agreement in the form
of Exhibit B to this Termination Agreement. Time Warner and CDnow shall, and
Sony shall cause SMEI to, simultaneously with the execution and delivery of this
Termination Agreement, enter into a consent in respect of the Security Agreement
in the form of Exhibit C to this Termination Agreement.
SECTION 3.02. Purchase of Common Stock. (a) Each of Time Warner and Sony
agrees to, or to cause one or more of its subsidiaries to, purchase from CDnow,
and CDnow agrees to sell to each of Time Warner and Sony, or one or more
subsidiaries of Time Warner or Sony, as the case may be, that number of shares
of common stock, without par value, of CDnow (the "CDnow Common Stock"),
determined by dividing $10,500,000 by the Market Value (as defined below) of
shares of CDnow Common Stock, rounded up to the nearest whole share (all such
shares of CDnow Common Stock purchased by Time Warner and Sony, and any of their
respective subsidiaries, the "Purchased Shares") for an aggregate purchase price
of $21,000,000 (the "Aggregate Purchase Price"). For purposes of this Section
3.02, the term "Market Value" shall mean $8.73 per share of CDnow Common Stock,
which is the volume weighted average of the closing price of CDnow Common Stock
as reported on the Nasdaq National Market on each of the ten consecutive trading
days ending with the trading day immediately preceding the date of this
Termination Agreement. CDnow represents and warrants that, upon issuance of the
Purchased Shares and receipt of payment therefor, such shares will be validly
issued, fully paid and nonassessable.
(b) On or prior to March 16, 2000, each of Time Warner and Sony shall pay
to CDnow, in U.S. dollars by wire transfer in immediately available funds to an
account specified by the Chief Financial Officer of CDnow in a written notice
delivered to each of Time Warner and Sony on or prior to March 14, 2000, an
amount equal to one-half of the Aggregate Purchase Price. Not later than one
business day following receipt by CDnow of the Aggregate Purchase Price, CDnow
shall deliver to each of Time Warner and Sony certificates representing the
Purchased Shares.
(c) Each of Time Warner and Sony, and any of their respective subsidiaries
who hold Purchased Shares, shall have registration rights with respect to the
Purchased Shares that are identical to the registration rights provided in
Section 9 of the Convertible Loan Agreement in respect of any shares of CDnow
Common Stock issued upon conversion of any loans, or any interest payable with
respect thereto, made by Time Warner or SMEI to CDnow pursuant to the
Convertible Loan Agreement.
(d) Time Warner and Sony, and any of their respective subsidiaries who hold
shares of CDnow Common Stock, acting as one group, shall be entitled, but shall
not be required, at any time and from time to time, to designate one individual
(the "Designee") to serve as a member of the Board of Directors of CDnow (the
"Board of Directors"). In the event a Designee shall have been designated, CDnow
shall use all reasonable efforts to cause the Board of Directors to effect the
nomination of the Designee (i) in the case of any Designee designated on or
9
prior to December 31, 2001, as a Class I Director and (ii) in the case of any
Designee designated after December 31, 2001, for so long as the Board of
Directors shall have more than one class, as a member of that class of directors
whose term expires at the annual meeting of shareholders of CDnow occurring in
the year that is three years after the year in which such Designee is
designated, and, in the event the Board of Directors shall have only one class,
as a member of the Board of Directors. If the Designee is a director or holds a
management level position in any entity whose primary business (i) is engaged in
selling pre-recorded music or videos through the Internet or (ii) otherwise
competes with the business of CDnow, then Time Warner and Sony shall cause this
Designee to immediately resign from the Board of Directors. The right of Time
Warner and Sony, and any of their respective subsidiaries who hold shares of
CDnow Common Stock, to designate the Designee shall terminate whenever the total
number of shares of CDnow Common Stock held by Time Warner, Sony or any of their
respective subsidiaries shall be less than 50% of the number of shares
constituting the Purchased Shares, in each case appropriately adjusted in
accordance with the provisions contained in Exhibit D to the Convertible Loan
Agreement.
ARTICLE IV
Strategic Relationships
Each of Time Warner, Sony and CDnow will work together to explore strategic
relationships into which they may enter for the benefit of the businesses of
CDnow and The Columbia House Company. Nothing contained in this Termination
Agreement, any of the Transaction Agreements, the Convertible Loan Agreement or
the Security Agreement shall in any way require or otherwise obligate, or be
deemed to require or otherwise obligate, any of the parties to this Termination
Agreement to enter into any relationship with, or to make any commitment to, any
of the other parties to this Termination Agreement, and any and all decisions as
to whether or not to enter into any such relationship or to make any such
commitment shall be made by each party in its sole discretion.
10
ARTICLE V
General Provisions
SECTION 5.01. Notices. All notices, requests, claims, demands and other
communications under this Termination Agreement shall be in writing and shall be
deemed given upon receipt by the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Time Warner, to
Time Warner Inc.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
with a copy to:
Cravath, Swaine & Xxxxx
000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxx, Esq.
(b) if to Sony, to
Sony Corporation of America
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Executive Vice President and Chief Financial Officer
with a copy to:
Sony Corporation of America
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Vice President, Legal Department
and:
Rosenman & Colin
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: H. Xxxx Xxxxx, Esq.
(c) if to CDnow, Holdco, Pennsylvania Sub, Delaware Sub I, Delaware Sub II
or any individual who is a party to this Termination Agreement, to
CDnow, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: General Counsel
with a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: N. Xxxxxxx Xxxxxxx, Esq.
11
SECTION 5.02. Interpretation. When a reference is made in this Termination
Agreement to a Section, such reference shall be to a Section of this Termination
Agreement unless otherwise indicated. The headings contained in this Termination
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Termination Agreement. Whenever the words
"include", "includes" or "including" are used in this Termination Agreement,
they shall be deemed to be followed by the words "without limitation".
SECTION 5.03 Severability. If any term or other provision of this
Termination Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of this
Termination Agreement shall nevertheless remain in full force and effect so long
as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Termination Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 5.04 Counterparts. This Termination Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement. This Termination Agreement shall become effective as of the date
first written above when each of Time Warner, Sony, CDnow, Holdco, Pennsylvania
Sub, Delaware Sub I and Delaware Sub II shall have received counterparts of this
Termination Agreement that, when taken together, bear the signatures of all such
parties to this Termination Agreement, notwithstanding the absence of
counterparts of this Termination Agreement bearing the signature of any
individual identified on the signature pages to this Termination Agreement. Once
effective, this Termination Agreement shall be binding upon, and enforceable
against, each of Time Warner, Sony, CDnow, Holdco, Pennsylvania Sub, Delaware
Sub I, Delaware Sub II and each individual who executes this Termination
Agreement, notwithstanding the failure of any individual identified on the
signature pages to this Termination Agreement to execute this Termination
Agreement. For the avoidance of doubt, each of Time Warner, Sony, CDnow, Holdco,
Pennsylvania Sub, Delaware Sub I, Delaware Sub II and each individual who
executes this Termination Agreement, and no other entity or person, shall be a
party to this Termination Agreement.
SECTION 5.05. Entire Agreement; No Third-Party Beneficiaries. This
Termination Agreement and the Convertible Loan Agreement, as amended as provided
in this Termination Agreement, and Security Agreement, as modified as provided
in this Termination Agreement, and any notes and documents issued thereunder,
(a) constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Termination Agreement and (b) except as provided in
Section 2.01(a) and Section 2.01(b), are not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 5.06. Governing Law. This Termination Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 5.07. Assignment. This Termination Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
12
SECTION 5.08 Enforcement. The parties to this Termination Agreement agree
that irreparable damage would occur and that the parties would not have any
adequate remedy at law in the event that any of the provisions of this
Termination Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Termination
Agreement and to enforce specifically the terms and provisions of this
Termination Agreement in any New York state court or, any Federal court located
in the State of New York, this being in addition to any other remedy to which
they are entitled at law or in equity. Each of the parties hereto (i) consents
to submit itself to the personal jurisdiction of any New York state court or any
Federal court located in the State of New York in the event any dispute arises
out of this Termination Agreement, (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court, (iii) agrees that it will not bring any action relating to this
Termination Agreement in any court other than any New York state court or any
Federal court sitting in the State of New York and (iv) waives any right to
trial by jury with respect to any action related to or arising out of this
Termination Agreement.
SECTION 5.09. Acknowledgments. Each of the parties to this Termination
Agreement acknowledges and represents that this Termination Agreement, including
Article II hereof, is entered into freely and voluntarily by it, it is
represented by counsel and it has had an opportunity to review this Termination
Agreement, including Article II hereof, with counsel prior to affixing its
signature to this Termination Agreement.
SECTION 5.10. Fees and Expenses. All fees and expenses incurred in
connection with this Termination Agreement and the termination of the
Transaction Agreements shall be borne by the party incurring such fees and
expenses.
13
IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Termination Agreement, all as of the date first written above.
TIME WARNER INC.,
by /s/ Xxxxxxx X. Xxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Vice President and
Deputy General Counsel
SONY CORPORATION OF AMERICA,
by /s/ Xxxxxxx X. Xxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Executive Vice President
CDNOW, INC.,
by /s/ Xxxxx Xxxx
---------------------------------
Name: Xxxxx Xxxx
Title: President & CEO
DELAWARE HOLDCO CORPORATION,
by /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Vice President & Secretary
PENNSYLVANIA SUBSIDIARY, INC.,
by /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Vice President & Secretary
DELAWARE SUB I L.L.C.,
by /s/ Xxxxx Xxxx
---------------------------------
Name: Xxxxx Xxxx
Title: President
DELAWARE SUB II L.L.C.,
by /s/ Xxxxx Xxxx
---------------------------------
Name: Xxxxx Xxxx
Title: President
/s/ Xxxxx Xxxx
---------------------------------
XXXXX XXXX
/s/ Xxxxxxx Xxxx
---------------------------------
XXXXXXX XXXX
