EXHIBIT 10.20
A G R E E M E N T
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THIS AGREEMENT, is made and entered on this 1st day of January, 1999, by,
and between N2K Inc. ("N2K"), whose address is 00 Xxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, and Warlock Records Inc. ("WRI"), whose address is 000 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000;
WHEREAS, the parties hereto have determined that it is in their best
interests to jointly pursue their common goals, as defined and set forth herein,
through doing business as a limited liability company ("L.L.C."), and to
formalize their mutual rights and obligations in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and conditions set forth herein, the parties hereto agree as follows:
1. FORMATION, NAME, PRINCIPAL PLACE OF BUSINESS.
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1.1. FORMATION. The parties hereby form and enter into an L.L.C. under
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and pursuant to the laws of the state of Delaware, subject to the terms and
conditions contained in this Agreement. The actual formation of the company
constituting the L.L.C. and filing of documents effectuating such formation
shall be provided by N2K on behalf of the L.L.C. (and costs relating thereto
shall be charged to the L.L.C. ), and such company and its formation shall be
governed by the terms and conditions of this agreement. In addition, the
parties hereto shall create a board of directors (the "Board"), consisting of
five members to be chosen by WRI. It is understood that WRI has selected Xxx
Xxxxxx as a member of the Board. Should Xxx Xxxxxx resign or ask to leave, WRI
shall select a substitute.
1.2. NAME. The parties hereby adopt the name Encoded Music and shall
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conduct the L.L.C. using such name or such other name or such assumed or trade
name as may be adopted by the L.L.C. in consultation with the Board.
1.3. PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
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L.L.C. shall be at 000 Xxxx 00xx Xxxxxx, in New York, New York, or at such other
or additional place or places as may be designated by the Board.
2. PURPOSE, SCOPE, POWERS.
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2.1. PURPOSE. The purpose and business of the L.L.C. shall be the
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creation of a record label primarily (though not necessarily exclusively)
focused upon the manufacture, distribution and exploitation of music in the
genres of jazz, so-called "smooth jazz" and related genres of music and special
products.
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2.2. POWER. In furtherance of the foregoing purpose, the L.L.C. has the
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power and authority, expressly subject to the terms of this Agreement, to:
(a) Acquire, by purchase, lease or otherwise, personal property or
any interest therein, exclusive of real property.
(b) Encumber assets of the L.L.C.
(c) Sell, assign, lease or convey all or any part of its property.
(d) Lend its received funds or make guarantees of obligations of
others upon such terms as the L.L.C. shall determine.
(e) Retain counsel, accountants, financial advisers, and other
professional personnel.
(f) Engage in such other activities and incur such other expenses as
may be necessary or appropriate for the furtherance of the
L.L.C., and execute, acknowledge and deliver any and all
instruments necessary to the foregoing.
2.3. AUTHORITY. The parties intend that the powers set forth in paragraph
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2.2 above be exercised only in furtherance of the business of the L.L.C. to act
on behalf of the L.L.C. only to accomplish the above stated purpose.
Notwithstanding anything to the contrary contained herein, decisions requiring
Board approval are set forth in Schedule A1 (a copy of which is attached hereto
and made a part hereof).
3. CAPITAL, DISTRIBUTIONS AND OWNERSHIP.
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3.1. CAPITAL CONTRIBUTIONS AND OTHER INCOME. The parties agree to make
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contributions to the L.L.C. as follows:
(a) WRI shall fund one hundred percent (100%) of all costs and other
resources necessary to the operation of the L.L.C. and as is customary in the
recording industry, for a period of no less than a three year period commencing
upon the date hereof (the "Initial Term"), including without limitation: costs
related to the production, manufacture, sale and distribution of master
recordings and all other recording agreement payments to artists and/or third
parties; mechanical royalty payments in connection with the sale of musical
product; and overhead. The L.L.C. shall, within ten (10) days following
execution of this agreement, reimburse N2K for any monies advanced by N2K in
connection with the production of or acquisition of unreleased product to be
assigned to the L.L.C. as provided herein. (A schedule of such costs are
attached hereto as Schedule
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A2.) For the purpose of this paragraph, "unreleased product" means master
recordings recorded or currently being recorded by the recording artists known
as Xxxxx Xxxxx, X.X. Xxxx and Xxxxxxxx Xxxxxx. With respect to X.X. Xxxx, the
L.L.C.'s obligation to reimburse N2K for such production costs shall be Thirty
Thousand Dollars ($30,000).
(b) N2K hereby assigns to the L.L.C. and the L.L.C. assumes the
following assets and liabilities of N2K Encoded Music related to certain master
recordings, agreements and current outstanding foreign license advances (if any)
(a schedule of which is attached hereto as Schedule B and incorporated herein by
reference):
(i) all rights, title and interest to those certain existing
master recordings owned by N2K (the "N2K Masters") (Schedule B1);
(ii) the assignment of all remaining N2K owned inventory of
product derived from the N2K Masters and previously distributed by N2K (Schedule
B2);
(iii) the right to receivables derived from product currently in
distribution (subject to the L.L.C.'s assumption of obligations with respect to
third party payments such as artist and copyright royalty payments, etc.)
(Schedule B3);
(iv) the assignment of artist recording, licensing and any
other agreements granting rights for the production of and/or distribution of
audio and audiovisual recordings (the "Agreements") (including the benefit of
any applicable unrecouped advances and outstanding advance payments currently
due N2K) (Schedule B4);
(v) N2K hereby provides the L.L.C. a gratis perpetual license
granting it the rights necessary to take control of and operate the existing N2K
Encoded Music label and Encoded Music Artist web sites (the cost of maintaining
such sites being the responsibility of the L.L.C. ) provide that such sites
continue to link exclusively (i.e., to no other record retailer) to N2K's online
music retail website Music Boulevard, located at xxxx://xxx.xxxxxxxxx.xxx, or
any successor site, it being understood, however, that N2K shall have no
obligation to continue to maintain the Encoded Music Artist websites, and
provided further, that N2K may discontinue such websites in its sole discretion
without providing the L.L.C. with replacement services, without any liability to
the L.L.C or WRI. It is understood that N2K hereby transfers and assigns its
rights in and to such Encoded Music Artist web sites and the N2K Encoded Music
label web sites.
(The assets described in sections 3.1(b)(i) through (v) above are sometimes
hereinafter collectively referred to as the "N2K Assets"). N2K shall execute
all documentation necessary to effectuate the transfer and assignment of the N2K
Assets (e.g., copyright registrations, etc.).
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(vi) N2K hereby agrees not to use the name N2K Encoded Music or
any similar name which may be confused with the name Encoded Music L.L.C.
(c) Notwithstanding anything to the contrary contained herein, it is
understood that the L.L.C. shall not require N2K, nor shall N2K be obligated to
make any capital contributions to the L.L.C. during the term of this agreement.
In the event the L.L.C. determines that a capital contribution by N2K and WRI
would otherwise be required to acquire or purchase products and/or assets for
the benefit of the L.L.C., and N2K refuses to make any such capital contribution
to effectuate such acquisition or purchase of such products or assets, WRI's
concurrent or subsequent good faith acquisition or purchase of such products or
assets shall be not be deemed contrary to or in conflict with WRI's obligations
to the L.L.C. as provided herein.
3.2. OTHER CONTRIBUTIONS. The parties agree to contribute to the L.L.C. the
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required talent and expertise as follows:
(a) Commencing on the date hereof, N2K shall furnish to the L.L.C.
the employment services of Xxxx Xxxxxxx ("Xxxxxxx"). For so long as Xxxx Xxxxxxx
works full time for the L.L.C., the L.L.C. agrees that it shall reimburse N2K
for all salary payments (including without limitation, bonuses, A&R and producer
points') and health benefit payments made to Xxxx Xxxxxxx pursuant to N2K's
employment agreement with Xxxx Xxxxxxx, dated as of January 1, 1997 (the
"Xxxxxxx Agreement") (a copy of which is attached hereto as Exhibit A1), for the
balance of the Xxxxxxx Agreement, as that agreement may be amended, modified or
supplemented, except that N2K's obligation to furnish Xxxxxxx'x services to the
L.L.C., shall in any event, end upon (i) termination of Xxxxxxx'x employment;
(ii) expiration of the term of the Xxxxxxx Agreement; or (iii) when Xxxxxxx
voluntarily ceases to provide his employment services to N2K, whichever is
earlier. Xxxxxxx will be reimbursed for his travel and entertainment expenses
directly by the L.L.C. No amendment, modification or supplement to the Xxxxxxx
Agreement shall obligate the L.L.C. to any such additional terms and conditions
unless the L.L.C. has approved such changes.
(b) The L.L.C. shall use its best efforts to secure the employment
services of Xxxxx Xxxxxx during the Initial Term of the Agreement.
(c) N2K shall furnish to the L.L.C. the employment services of
Xxxxxx Trim-XxXxxxx ("XxXxxxx") for a period of six (6) months commencing as of
the date of formation of the L.L.C. During such six (6) month period, the L.L.C.
shall reimburse N2K in the amount of Three Thousand Dollars ($3,000) per month
for XxXxxxx'x services. In the event the L.L.C. wishes to continue to utilize
the employment services of XxXxxxx after such six (6) month period, the L.L.C.
agrees it shall reimburse N2K for all salary payments (including, without
limitation, bonuses) and health benefit payments made to XxXxxxx pursuant to
N2K's employment agreement with XxXxxxx, dated as of December 9, 1996
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(the "XxXxxxx Agreement") (a copy of which is attached hereto as Exhibit A2),
for the balance of the XxXxxxx Agreement, as that agreement may be amended,
modified or supplemented, except that N2K's obligation to furnish XxXxxxx'x
services to the L.L.C., shall in any event, end upon (i) termination of
XxXxxxx'x employment; (ii) expiration of the term of the XxXxxxx Agreement; or
(iii) when XxXxxxx voluntarily ceases to provide her employment services to N2K,
whichever is earlier. XxXxxxx will be reimbursed for her travel and
entertainment expenses directly by the L.L.C. No amendment, modification or
supplement to the XxXxxxx Agreement shall obligate the L.L.C. to any such
additional terms and conditions unless the L.L.C. has approved such changes.
(d) WRI shall contribute the services of Xxxx Xxxx ("Levy").
Notwithstanding the preceding sentence, it is understood that it is the essence
of the agreement between the parties that Levy is principally involved in
performing his personal services for the L.L.C.
(e) N2K will cooperate with the L.L.C. to provide promotional
opportunities on Music Boulevard for the sale of the L.L.C. products online,
subject to its reasonable business judgment. WRI will utilize its existing
operations and its third party relationships to enhance the promotion of the
products of the L.L.C., subject to its reasonable business judgment.
3.3 ADDITIONAL CONSIDERATION TO N2K. In consideration of N2K's
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contribution of the N2K Assets to the L.L.C., the L.L.C. shall pay N2K, in
addition to the consideration described in 4.4 below, the following:
(a) With respect to the sale of product sold by the L.L.C. in the
United States: a royalty of six (6%) percent of the retail selling price of each
unit of all products sold or licensed by the L.L.C. N2K Royalties payable
hereunder shall be subject to the same proportionate reductions, deductions and
configurational, territorial, category and other variations contained in the
applicable artist agreement for which the N2K Royalty is being earned (but not
subject to artist's recoupment). Subject to the recoupment of the then
applicable installment of the N2K Advance (as defined in subparagraph 3.3(b)
below), the L.L.C. shall pay to N2K the N2K Royalty earned by N2K hereunder
retroactive to the first record sold. With respect to (i) exploitations of
products sold by the L.L.C. whereby the L.L.C. is paid on a flat-fee basis
(e.g., where an artist is paid on a net receipts basis pursuant to their
recording agreement with N2K), or (ii) sale of product by the L.L.C. outside the
United States, the L.L.C. shall pay to N2K, in lieu of the N2K Royalty, a sum
equal to ten percent (10%) of the L.L.C.'s net receipts with respect to such
exploitations. (Any monies payable to N2K pursuant to this subparagraph 3.3(a)
shall be referred to as the "N2K Royalty(ies)".) "Net receipts" as used herein
shall mean amounts received by the L.L.C. less any costs or expenses or amounts
which the L.L.C. is obligated to pay to the artist, performers, producers or
others for the performance production or use of the musical works or their
performances. Notwithstanding anything to the contrary contained herein,
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the L.L.C. shall not be obligated to pay the N2K Royalty on any product sold or
licensed by the L.L.C. until sales for such product exceed ten thousand (10,000)
units. Upon obtaining such 10,000 unit for the product concerned, the L.L.C.
shall pay the N2K Royalty retroactive to the first unit sold, in accordance with
the provisions of this agreement.
(b) (i) A non-refundable advance (the "N2K Advance") in the amount
of Three Hundred Thirty-Four Thousand Dollars ($334,000) which advance shall be
recoupable from the N2K Royalty payable to N2K during the Initial Term, provided
that such N2K Royalties shall first be applied to any expense incurred by the
L.L.C. in connection with Excess Inventory Expense (as set forth under Section
3.3(c) below). The N2K Advance shall be paid in equal quarterly installments at
the commencement of each of the four quarters of the first year of the Initial
Term.
i. An additional advance in the amount of Three Hundred
Thirty-Three Thousand Dollars ($333,000) ("2nd Advance")
which shall be paid upon the recoupment of the N2K Advance
and the Expected Returns (less the Returns Credit, as
defined below).
ii. An additional advance in the amount of Three Hundred
Thirty-Three Thousand Dollars ($333,000) ("Third Advance")
which shall be paid upon the recoupment of the N2K Advance
and the 2nd Advance, if any.
(The N2K Advance, the 2nd Advance and the Third Advance are hereinafter referred
to as the "Advance(s)".) Notwithstanding anything to the contrary contained
herein, if all the Advances are recouped prior to the end of the Initial Term,
then within thirty (30) days after the recoupment of such Advances, an
additional advance will also be paid in an amount reflecting the accelerated
rate at which the previous Advance had been recouped during the Initial Term.
The payment procedure of such additional advance shall be determined by the
Board.
(c) For purposes of this subparagraph, the following definitions
shall apply: "Retail Inventory Units" is the number of units at the retail level
of each title as set forth on the attached Schedule C. "Expected Sales" is the
projected number of units of N2K inventory which are expected to be sold by the
L.L.C., on a title by title basis, for a 52 week period (based on Sound scans
report for the week ending January 3, 1999), as indicated on the attached
Schedule C Column "JV/Warlock". The "Expected Returns" is the difference between
Retail Inventory Units and Expected Sales and appears as Column "N2K" in
Schedule C. The L.L.C. shall recoup as against the N2K Advance and the N2K
Royalty up to $1,000,000 in Expected Returns less the Returns Credit (the
"Excess Inventory Expense"). "Returns Credit" shall mean any credit yielded to
the L.L.C. from the non-payment of royalties and other sums on such actual
returns (i.e., artist royalties,
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producer royalties, mechanical royalties union payments, etc.) (It is understood
that all units returned or credited shall be valued at the actual price sold
less any applicable discount on such unit.) N2K Royalties shall first be applied
to recoup the Excess Inventory Expense before recoupment of the N2K Advances set
forth in Section 3.3(b) above). Any returns of product in excess of the Expected
Returns for the applicable title and any product shipped by the L.L.C. from
inventory shall be solely an L.L.C. liability. [By way of illustration: the
Expected Sales contained on Schedule C with respect to Xxxxxxxx Xxxxxx are
24,076 units. The Expected Returns for Xxxxxxxx Xxxxxx is 6,287 units. The
L.L.C. shall have the right to apply such 6,287 units against the N2K Advance
and N2K Royalty payable to N2K hereunder. Any units returned in excess of the
Expected Returns shall be the L.L.C.'s liability.]
3.4. DISTRIBUTION OF AVAILABLE CASH TO THIRD PARTIES. The Board shall
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determine disbursements of cash and/or profits to the members of the L.L.C.
3.5. OWNERSHIP OF THE L.L.C. PROPERTY. All property of the L.L.C. shall
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be registered or cause to be registered, in the name of the L.L.C., including
the copyright in all materials created and produced in connection with the
L.L.C. which contain the requisite degree of creativity and originality. All
such materials shall be registered in the United States under the Berne
Convention of 1986, as revised, and the requisite copyright notice shall be
included on each copy or phonorecord of the materials. All tangible and
intangible property generated or produced in furtherance of the purposes of the
L.L.C. shall be the property of the L.L.C. subject to the terms hereof. Except
as otherwise provided herein, upon termination of the L.L.C., all copyrights of
the L.L.C. will be jointly owned by N2K and WRI in the percentages hereinafter
indicated. Ownership of the L.L.C. and all derivative works shall be in the
following percentages:
WRI: eighty and one-tenth percent (80.1%)
N2K: nineteen and nine-tenths percent (19.9%)
Derivative works or Products owned on a different percentage basis, and any
change of ownership of the L.L.C., will be evidenced by a separate document,
signed by each party.
3.6. SECURITY AGREEMENT. Simultaneously upon the execution of this
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agreement, WRI and the L.L.C. shall execute the Security Agreement, a copy of
which is attached hereto as Exhibit B, and is incorporated herein by reference.
4. MANAGEMENT.
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4.1. MANAGEMENT OF L.L.C. The overall management and control of the day-
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to-day business and affairs of the L.L.C. shall determined by the Board and
carried out by the Officers appointed by the Board. The L.L.C. may make any
payment to any member or
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any business owned, operated or controlled by such member so long as such
payments are mutually approved payments to the person or entity for services
rendered or approved expenses incurred on behalf of the L.L.C.; provided also,
that no salaries to employees of the Parties hereto or their owned, operated or
controlled business, or any general overhead expenses shall be deducted from
gross receipts in determining net profits, except as otherwise set forth in the
applicable operating budget, or as otherwise agreed upon by the Board. For
avoidance of doubt, it is understood that during the Initial Term, no payments
shall be made to any member or any related party of such member in connection
with any agreements or transactions with such member or any related party of
such member without the prior written approval of the Board.
4.2. MARKETING. It is anticipated that the L.L.C. may enter into
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additional marketing and distribution agreements with respect to the Products.
The terms of such agreements shall be subject to Board approval.
4.3. DUTIES OF THE PARTIES; BUDGET AND MEETINGS. WRI shall use its best
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efforts to carry out the purposes of the L.L.C.; shall devote such time to the
L.L.C. business as shall be reasonably required to carry out such purposes; and
shall use its best efforts to assure the efficient management and operation of
the L.L.C.'s business. To the extent deemed necessary, the Board shall
establish a budget for the activities of the L.L.C., which shall set forth the
categories of expenses of the L.L.C., the amounts of WRI's capital contributions
with respect thereto, and the timing of the making of such expenditures and
contributions. It is agreed that the Board shall meet no less frequently than
quarterly to discuss the business of the L.L.C. and the progress thereof.
4.4. COMPENSATION OF PARTIES. The net profits of the L.L.C., less such
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amounts as may be deemed by the L.L.C. to be necessary to meet the anticipated
cash flow and capital needs of the L.L.C., will be distributed to the Parties
hereto, proportionate with their ownership interest in the L.L.C., within thirty
(30) days after the end of each calendar year and shall be accompanied by
statements of account setting forth the calculation of such net profits. For
purposes of distribution hereunder, "net profits" shall be net profits
calculated by the L.L.C.'s accountants employing G.A.A.P and in accordance with
the applicable provisions of this agreement.
4.5. WARRANTIES AND REPRESENTATIONS.
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WRI warrants and represents:
(a) WRI is authorized, empowered and able to enter into and fully
perform its obligations under this agreement. Neither this agreement nor the
fulfillment thereof by WRI infringes upon the rights of any third party. WRI
has no knowledge of any claim or purported claim which would interfere with
N2K's rights hereunder or create any liability on the part of N2K or on behalf
of the L.L.C.
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(b) WRI is a duly organized and existing under the laws of the
State of New York.
(c) The master recordings and other product (if any), to be
released by the L.L.C. hereunder and the recorded performances embodied thereon
shall be produced in accordance with the rules and regulations of any union(s)
having jurisdiction herein.
(d) The L.L.C. shall be solely responsible for and shall pay all
sums due any artist, producers and all other parties entitled to receive
royalties in connection with the master recordings (including audiovisual
recordings, if any). N2K shall provide the L.L.C. a schedule (attached hereto as
Schedule D) of current royalty liability and the recouped/unrecouped status of
each such project.
4.6. INDEMNIFICATION.
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(a) WRI shall indemnify and hold harmless N2K and the L.L.C. from
and against all claims, demands, actions or rights of action
(including costs of defense and settlement and reasonable
attorneys' fees) arising as a result of WRI's conduct in breach
of the warranties, representations, covenants and terms of this
L.L.C. Agreement. Upon the assertion of any such claim, demand,
action or right of action, N2K or the L.L.C. shall notify WRI
and provide WRI with the opportunity to participate in the
defense thereof at WRI's sole cost and expense; provided that
any failure to give such notice shall not affect N2K's right of
indemnity provided as part of this L.L.C. Agreement.
(b) N2K shall indemnify and hold harmless WRI and the L.L.C. from
and against all claims, demands, actions or rights of action
(including costs of defense and settlement and reasonable
attorneys' fees) arising solely in connection with the N2K
Assets and rights and obligations associated therewith. Upon
the assertion of any such claim, demand, action or right of
action, WRI or the L.L.C. shall notify N2K and provide N2K with
the opportunity to participate in the defense thereof at N2K's
sole cost and expense; provided that any failure to give such
notice shall not affect WRI's right of indemnity provided as
part of this L.L.C. Agreement.
5. FISCAL MATTERS.
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5.1. BOOKS AND RECORDS. Accurate books of the L.L.C. shall be maintained
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on
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behalf of the L.L.C., at the principal place of business of the L.L.C. showing
all receipts and expenditures, assets and liabilities, profits and losses, and
all other records necessary for recording the L.L.C.'s business and affairs in
accordance with policies established by the Board of Directors. The Parties
shall have access at all reasonable times to the books and records of the L.L.C.
Each Party may, at its sole cost and election, employ or utilize the services of
a third party to conduct an audit and examine all of the books and records of
the L.L.C. no more than once per calendar year, and make copies of such books
and records for its own use. Any claims generated by the said audit must be made
in writing within one (1) year from the date said audit commences.
5.2. ACCOUNTING FOR EXPENSES. As a general guideline, the Parties agree
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that the L.L.C. budget shall be approved by the Board. Out-of-pocket expenses
expended by a Party but not approved by the Board (or not previously approved by
the Board as part of the L.L.C. budget) shall be absorbed by the Party incurring
such expenses.
5.3. BANK ACCOUNTS. All funds of the L.L.C. shall be accounted for in its
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name in such checking accounts, savings accounts, time deposits, certificates of
deposit or internal accounts as shall be designated by the L.L.C..
6. TERM AND GENERAL PROVISIONS.
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6.1. TERM. The term of the L.L.C. shall consist of the Initial Term (as
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defined in subparagraph 3.1(a) above), and shall continue thereafter until
terminated by mutual agreement, as provided by law, or as otherwise provided
herein.
6.2. NOTICES. All notices shall be in writing, and shall be deemed
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properly given when personally delivered or when mailed, first class mail,
certified, return receipt requested, all charges prepaid, as follows (subject to
change by notice):
To N2K: N2K Inc.
00 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxx Xxxxxxx
With courtesy copy to: N2K Inc.
00 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: General Counsel
To WRI: Warlock Records Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
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Attn: Xxxx Xxxx
with courtesy copy to: Borstein & Xxxxxxxxx
000 Xxxxxxxxx Xxx., Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxxxxx, Esq.
6.3. DISSOLUTION.
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(a) In the event of WRI's dissolution or the liquidation of WRI's assets,
or the filing by or against WRI of a petition for liquidation or
reorganization under Title 11 of the United States Code as now or
hereafter in effect or under any similar statute relating to
insolvency, bankruptcy, liquidation or reorganization and the same is
not dismissed within ninety (90) days of the date of said petition, or
in the event of the appointment of a trustee, receiver or custodian
for WRI or for any of its property, or in the event that WRI shall
make an assignment for the benefit of creditors or in the event WRI
shall fail to fulfill any of its material obligations in this
agreement, then in addition to any other remedies which may be
available, N2K shall have the option by notice to WRI to either: (a)
terminate this agreement; or (b) require WRI to assign all of its
voting interest in the L.L.C. holdings to N2K. In the event that N2K
elects Termination, the L.L.C. shall be liquidated in an orderly
manner. All of the assets shall be sold in the best interest of the
L.L.C., except for the N2K Masters which shall be reassigned to N2K
along with all of the inventory of the N2K Masters. All returns of N2K
merchandise after liquidation shall be the asset and liability of N2K.
All other rights and liabilities related to the N2K Masters likewise
shall belong to N2K. In the event that N2K elects assignment, WRI may
require a reassignment of voting rights only upon discharge from
bankruptcy. An election to terminate by either Party before the end of
the Initial Term shall act as a waiver of all rights to receive and
make further payments pursuant to (S)3.3(b) above.
(b) In the event of N2K's dissolution or the liquidation of N2K's assets,
or the filing by or against N2K of a petition for liquidation or
reorganization under Title 11 of the United States Code as now or
hereafter in effect or under any similar statute relating to
insolvency, bankruptcy, liquidation or reorganization, or in the event
of the appointment of a trustee, receiver or custodian for N2K or for
any of its property, or in the event that N2K shall make an assignment
for the benefit of creditors, then in addition to any other remedies
which may be available, WRI shall have the option by notice to N2K to
terminate this agreement.
6.4. EVENTS OF TERMINATION.
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(a) In the event WRI breaches any of its warranties or
representations hereunder, or in the event of the death, or incapacity of
Levy lasting for a period of sixty (60) days or more and/or in the event
that Levy shall cease for whatever reason to be actively engaged in WRI's
management in a controlling capacity, N2K shall have the right, without
liability of any kind whatsoever, by giving WRI written notice thereof
("N2K Option"), to terminate the Term of this L.L.C., as of the date of
such notice. If any breach of warranty or representation is curable, the
notice of breach shall contain a thirty (30) day cure provision allowing
the recipient to cure. In the event N2K exercises the N2K Option to
terminate this L.L.C., N2K may require the L.L.C. to either: (a) assign to
N2K all of the N2K Assets, and neither the L.L.C. nor WRI shall have any
further interest therein; associated accounts receivable and the returns,
if any. In the event N2K exercises its option to terminate this agreement
pursuant to this subparagraph, N2K shall pay WRI an amount equal to 80% of
the fair market value of the L.L.C. as of the date of N2K's exercise of its
option to terminate this agreement. The L.L.C.'s "fair market value" shall
be determined by an independent certified public accountant mutually
selected by both parties.
(b) Notwithstanding anything to the contrary contained in this
paragraph, solely in the event of Levy's death or incapacity occurring no
earlier than one (1) year following the date hereof ("Occurrence Date"),
N2K may at its option buy WRI's interest in the L.L.C. by paying WRI (or
its heirs or assigns) an amount equal to 80% of the fair market value of
the L.L.C. as of the date of death or incapacity. Such payment shall be
made before the end of the fiscal year in which the Occurrence Date occurs.
The L.L.C.'s "fair market value" shall be determined by an independent
certified public accountant mutually selected by both parties.
(c) In the event WRI exercises its option to terminate this
agreement pursuant to subparagraph 6.3(b) above, WRI shall pay N2K an
amount equal to 19.9% of the fair market value of the L.L.C. as of the date
of WRI's exercise of its option to terminate this agreement, under same
terms and conditions specified. in subparagraph 6.4(a) above. The L.L.C.'s
"fair market value" shall be determined by an independent certified public
accountant mutually selected by both parties.
6.5. BUY-OUT. Notwithstanding anything to the contrary contained in this
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agreement:
(a) on or after the first anniversary of the term of this agreement,
N2K may give notice to WRI of its interest to buy WRI's interest
in the L.L.C. (the "N2K Buyout Offer"). The Buyout Offer shall
contain a price, a schedule of payment dates, security, if any,
and penalty clauses, if any, to be valid. Within sixty 60 days
following receipt of the N2K Buyout Offer, WRI may (I) elect to
accept the N2K Buyout
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Offer; in which case N2K will pay WRI the amount equal to the
N2K Buyout Offer in accordance its terms, or (ii) purchase N2K's
interest in the L.L.C. for an amount equal to 19.9% of the N2K
Buyout Offer upon the same terms and conditions as contained in
the Buyout Offer. If WRI does not respond within such sixty (60)
day period, then WRI must sell its interest in the L.L.C. to N2K
at the N2K Buyout Offer.
(b) on or after the first anniversary of the term of this agreement,
WRI may give notice to N2K of its interest to buy N2K's interest
in the L.L.C. (the "WRI Buyout Offer"). The Buyout Offer shall
contain a price, a schedule of payment dates, security, if any,
and penalty clauses, if any, to be valid. Within 60 days
following receipt of the WRI Buyout Offer, N2K may (I) elect to
accept the WRI Buyout Offer; in which case WRI will pay N2K the
amount equal to the WRI Buyout Offer in accordance with its
terms, or (ii) purchase WRI's interest in the L.L.C. for an
amount equal to 400% of the WRI Buyout Offer upon the same terms
and conditions as contained in the Buyout Offer. If N2K does not
respond within such sixty (60) day period, then N2K must sell
its interest in the L.L.C. to WRI at the WRI Buyout Offer.
6.6. ASSIGNMENT. No Party hereto shall assign its interest in this
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Agreement or the L.L.C. without the prior written consent of the other Parties
hereto, except to an entity acquiring all or substantially all of the assets of
a Party or to an entity created as a result of merger with a Party. It is
contemplated that N2K will merge with CDNow Inc. (the "Merger"). WRI hereby
consents to N2K's assignment of its interest contained in this agreement (i)
directly to the newly merged business entity resulting from such Merger; or (ii)
to N2K as a wholly owned subsidiary of such newly merged business entity, such
determination shall be made by such newly merged business entity in its sole
discretion.
6.7. BINDING EFFECT. Except as herein otherwise provided to the contrary
--------------
above, this Agreement shall be binding upon, and inure to the benefit of, the
Parties and their respective heirs, executors, administrators, successors,
transferees and assigns.
6.8. CHOICE OF LAW. This agreement will be governed and construed
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pursuant to the laws of the state of New York applicable to contracts entered
into and performed entirely within the State of New York.
6.9. JURISDICTIONAL VENUE. Any disputes or controversies arising
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hereunder shall be subject to the jurisdiction of Courts of the State of New
York or of the U.S. District Court for the Southern District of New York.
6.10. SERVICE OF PROCESS. Any process in any action or proceeding arising
------------------
under or relating to this agreement may, among other methods, be served upon
either Party by
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delivering or mailing the same by registered or certified mail, directed to the
address first written above or such other address as designated by notice to
such other party. Any such delivery or mail service shall be deemed to have the
same force and effect as personal service within the State of New York.
6.13. CONFIDENTIALITY/PRESS RELEASE. The Parties hereto acknowledge and
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agree that the terms of this agreement are confidential and shall not be
disclosed to any third party without the prior approval of the other Party,
except as may be required by law or as necessary to disclose to such Party's
board of directors, management or shareholders. Arrangements made in connection
with any press release concerning the signing of this agreement must be mutually
approved by the Parties hereto, and any such press release itself must be
mutually approved.
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IN WITNESS WHEREOF, the Parties have executed this L.L.C. Agreement, or
have caused it to be executed by their duly authorized representatives, as of
the day and year first above written.
N2K INC.
By:____________________________
Date: ________________________
WARLOCK RECORDS INC.
By:____________________________
Date: ________________________
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