EXHIBIT 10.26
FORM OF EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of ________________, 1999 by and
between CDnow/N2K, Inc. (the "Company"), a corporation organized under the laws
of Pennsylvania, and Xxxxx Xxxx (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company on
a full-time basis for such period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
(a) During the period of his employment hereunder, the Executive will
be the Chief Executive Officer and President of the Company and a member of the
Board of Directors of the Company (the "Board"). The Executive shall serve as a
full time employee of the Company and shall perform such duties as the Board may
from time to time reasonably direct. The Executive's responsibilities will
include overall management of the Company commensurate with his position as
Chief Executive Officer and President. During the period of employment
hereunder, the Executive also agrees to serve, if elected, as an officer and
director of any subsidiary of the Company. The Board shall propose the
Executive for re-election to the Board, and shall elect the Executive to the
positions specified above, throughout the period of the Executive's employment
hereunder. The Executive shall report directly to the Board, and all senior
executive officers will report directly to the Executive. The Executive shall
not be required to reside in the area of the Company's headquarters.
(b) Notwithstanding the foregoing, the Executive may maintain his
interests existing as of the date of this Agreement in the entities set forth on
Exhibit A hereto (the "Permitted Interests") and may accept one or more
directorships in other companies and engage in various charitable and
educational activities as described in Section 3(b).
2. TERM.
(a) The period of the Executive's employment under this Agreement
shall commence on the date hereof, and shall continue for a period of 36 full
calendar months thereafter (the last day of the 36-month period or any renewal
period is referred to as the "Expiration Date"). Unless written notice shall
have been delivered by the party desiring to terminate this Agreement, which
written notice shall have been delivered not later than 120 days prior to the
Expiration Date (including the Expiration Date with respect to any renewed
term), this Agreement shall be renewed for consecutive one year periods after
each Expiration Date.
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(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, and reasonable vacation periods, the Executive
shall devote substantially all his business time, attention, skill, and efforts
to the faithful performance of his duties hereunder, including activities and
services related to the organization, operation and management of the Company;
provided, however, that, with the approval of the Board, as evidenced by a
resolution of the Board, from time to time, the Executive may serve, or continue
to serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in the Board's judgment, will not present
any conflict of interest with the Company, or materially affect the performance
of the Executive's duties pursuant to this Agreement.
(c) Except as set forth in Section 2(d), notwithstanding anything
herein contained to the contrary: (i) the Executive's employment with the
Company may be terminated by the Company or the Executive during the term of
this Agreement, subject to the terms and conditions of this Agreement; and (ii)
nothing in this Agreement shall mandate or prohibit a continuation of the
Executive's employment following the expiration of the term of this Agreement
upon such terms and conditions as the Board and the Executive may mutually
agree.
(d) Notwithstanding anything in this Agreement to the contrary, the
Executive's employment may not be terminated except by a vote of 80% of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to the Executive and an opportunity for him, together
with counsel, to be heard before the Board); provided that a vote of 80% of the
Board shall not be required with respect to the Company's decision whether or
not to renew the Agreement at the Expiration Date pursuant to Section 2(a). Any
Notice of Termination must be accompanied by a copy of such resolution of the
Board.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Company shall pay the Executive as compensation a salary of
not less than $250,000 per year ("Base Salary"). Such Base Salary shall be
payable in accordance with the Company's payroll practices in effect from time
to time. During the period of this Agreement, the Executive's Base Salary shall
be reviewed at least annually by the Compensation Committee of the Board; the
first such review will be made no later than one year from the date of this
Agreement. The Board may increase (but not reduce) the Executive's Base Salary.
An increase shall become the "Base Salary" for purposes of this Agreement.
(b) The Executive shall also receive each year an annual bonus in an
amount to be determined by the Board (the "Annual Bonus"). The Executive shall
be eligible for an Annual Bonus as long as the Executive remains an employee of
the Company.
(c) The Executive will be entitled to four weeks paid vacation
annually. The Executive will be entitled to participate in or receive benefits
under any employee benefit plans (including, but not limited to, retirement
plans (i.e., 401(k) plans), supplemental retirement plans, pension plans,
profit-sharing plans, health and accident plan, medical coverage, term life
insurance plans and any other employee benefit plans or arrangements) generally
made available by the Company currently or in the future to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements.
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(d) The Executive will be entitled to incentive compensation
(including without limitation stock option grants) and bonuses as provided in
any plan of the Company in which the Executive is eligible to participate. Any
stock options or other incentive compensation shall be granted without regard to
the Executive's ownership of substantial stock of the Company. The Executive's
participation in bonus plans and incentive compensation plans shall provide him
with the opportunity to earn, in the aggregate, on a year-by-year basis, short-
term and long-term incentive compensation at least equal to the aggregate
incentive compensation that is similarly earned by any other executive officer
of the Company or an affiliated company. Nothing paid to the Executive under
any such plan or arrangement will be deemed to be in lieu of other compensation
to which the Executive is entitled under this Agreement.
(e) The Company shall pay or reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in performing his
obligations under this Agreement, pursuant to the Company's expense
reimbursement policy generally applicable to its senior executives and key
management employees.
(f) In addition to the foregoing, the Company shall reimburse the
Executive for all reasonable costs of travel and living expenses when the
Executive travels to New York for Company business while the Company's
headquarters is in New York. The expenses shall include, but not be limited to,
the rental costs and related expenses of an apartment or hotel accommodations in
New York satisfactory to the Executive, and other related living expenses.
(g) In addition to the foregoing, if the Executive moves his principal
residence to New York, the Company will reimburse the Executive for the closing
costs and any financial loss on the sale of his principal residence in the
Philadelphia area and all other relocation costs (other than a new residence or
the cost of a mortgage on a new residence) resulting from the move to New York.
All payments under this Section 3(g) and Section 3(f) above shall be accompanied
by a payment from the Company that covers all taxes payable by the Executive on
the reimbursement and tax payments under Sections 3(f) and 3(g).
4. PAYMENTS TO THE EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean a termination of employment, other than upon Retirement
(as defined in Section 6), death or Disability (as defined in Section 6), or for
Cause (as defined in Section 7), for either of the following reasons: (i) the
termination by the Company of the Executive's employment hereunder, including,
without limitation, as a result of the Company's failure to renew this Agreement
or (ii) the Executive's resignation from the Company's employ for "Good Reason."
For purposes of this Agreement, "Good Reason" means a (A) failure to elect or
reelect or to appoint or reappoint the Executive as Chief Executive Officer and
President, (B) unless consented to by the Executive, a material change in the
Executive's functions, duties, or responsibilities, which change would cause the
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1 above (and
any such material change shall be deemed a continuing breach of this Agreement),
or (C) a material breach of this Agreement by the Company. Upon the occurrence
of an event described in clause (ii) above, the Executive shall have the right
to elect to terminate his employment under this Agreement by resignation upon
not less than 30
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days prior written notice given within a reasonable period of time not to
exceed, except in case of a continuing breach, three calendar months after the
event giving rise to such right to terminate. The Company shall have the right
to cure the event giving rise to the Executive's resignation within 30 days of
receiving such notice. If the Company does not cure such event during the 30-day
period, the Executive's termination under this Section 4 shall be effective
immediately.
(b) Upon the occurrence of an Event of Termination, the Company shall
be obligated to pay the Executive (or, in the event of his subsequent death, his
beneficiary or estate, as the case may be), as severance pay or liquidated
damages, or both, severance compensation for the Separation Period. The
Separation Period is the period beginning on the date of the Executive's
termination of employment and ending on the later to occur of (i) 12 months
after the date of termination or (ii) the Expiration Date described in Section
2(a) above. During the Separation Period, the Company shall pay to the
Executive monthly an amount equal to the sum of (i) 1/12 of the Executive's Base
Salary at the time of the occurrence of the Event of Termination plus (ii) 1/12
of the average of the Executive's Annual Bonus amount for the three prior years
after the date of this Agreement (or such lesser number of years in which the
Executive has been employed by the Company, in the event that the Executive has
been employed by the Company for less than three years after the date of this
Agreement). If a Change in Control (as defined in Section 5(a)) has occurred,
the salary and bonus described in this Section 4(b) shall be paid in a lump sum
payment on the date of the Executive's termination of employment, and not in
monthly payments.
(c) Upon the occurrence of an Event of Termination, the Company will
cause to be continued for the Separation Period life, medical, dental and
disability coverage (to the extent available) substantially identical to the
coverage maintained by the Company for the Executive and his dependents prior to
his termination; provided that, in lieu of continuing the Executive in the
Company's benefit plans, the Company may pay to the Executive a lump sum cash
payment equal to the cost to the Executive of maintaining such coverage for the
Separation Period; and further provided that the COBRA health continuation
coverage period under Section 4980B of the Code shall run concurrently with the
Separation Period.
(d) Upon the occurrence of an Event of Termination, the Executive will
be entitled to receive vested benefits due him under or contributed by the
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Company on the Executive's behalf to the extent that such benefits are not
otherwise paid to the Executive under a separate provision of this Agreement.
(e) Upon the occurrence of an Event of Termination, any unexercised
stock options held by the Executive shall immediately vest and become fully
exercisable upon the Executive's termination of employment.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there
shall have been a Change in Control of the Company as set forth below. For
purposes of this Agreement, a "Change in Control" of the Company shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1 (a) of the current report on Form 8-K pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") if the Company were (or is)
required to file reports pursuant
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to the Exchange Act; or (ii) without limitation such a Change in Control shall
be deemed to have occurred at such time as (A) individuals who constitute the
Board on the date hereof (the "Incumbent Board")cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least a majority of the directors comprising the Incumbent Board, shall be,
for purposes of this clause (A), considered as though he were a member of the
Incumbent Board; or (B) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Company or similar transaction occurs
in which the Company is not the resulting entity, provided that a Change in
Control shall not be deemed to occur under this item (B) as a result of a
transaction in which the shareholders of the Company immediately prior to the
transaction, will beneficially own, immediately after the transaction, directly
or indirectly, shares entitling such shareholders to more than 50% of all votes
to which all shareholders in the resulting entity would be entitled in the
election of directors; or (C) a proxy statement shall be distributed soliciting
proxies from stockholders of the Company, by someone other than the current
management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Company shall be
distributed; or (D) a tender offer is made for 20% or more of the voting
securities of the Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board has determined that a Change in
Control has occurred, the Executive shall be entitled to the benefits provided
in paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement (regardless of whether
such termination results from his dismissal or his resignation), unless such
termination is because of his death, or Termination for Cause.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment (as described above), then the Executive
shall be entitled to the payments and benefits set forth in Sections 4(b), (c)
and (d) hereof as if an Event of Termination had occurred. If the termination
meets the requirements of an Event of Termination under Section 4(e), the
provisions of Section 4(e) shall also apply.
(d) Upon the occurrence of a Change in Control, one-half of any
unvested, unexercised stock options held by the Executive shall immediately vest
and be immediately exercisable.
6. TERMINATION UPON RETIREMENT, DEATH, AND DISABILITY.
(a) Termination by the Company of the Executive based on "Retirement"
shall mean termination in accordance with the Company's retirement policy or in
accordance with any retirement arrangement established with the Executive's
consent with respect to him. Upon termination of the Executive upon Retirement,
the Executive shall be entitled to all benefits owed to the Executive under any
retirement plan of the Company and other plans in which the Executive is a
participant, and this Agreement shall terminate.
(b) This Agreement shall automatically terminate upon the death of the
Executive.
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(c) If the Executive is Disabled (as defined below) for a continuous
period of six months, the Company may terminate this Agreement upon written
notice to the Executive. Upon termination of the Executive on account of
Disability, the Executive shall be entitled to all benefits owed to the
Executive on account of Disability under any retirement and disability plans of
the Company and other plans in which the Executive is a participant. In
addition, if the Executive's employment terminates on account of Disability, the
Company shall, for a period of 12 months from the date of termination, provide
the Executive and his dependents with life, medical and dental coverage
substantially identical to the coverage maintained by the Company for the
Executive and his dependents prior to his termination; provided that, in lieu of
continuing the Executive in the Company's benefit plans, the Company may pay to
the Executive a lump sum cash payment equal to the cost to the Company of
maintaining such coverage for the 12-month period; and further provided that the
COBRA health continuation coverage period under Section 4980B of the Code shall
run concurrently with the 12-month period. The Executive, for purposes hereof,
shall be deemed to be "Disabled" when, as a result of bodily injury or disease
or mental disorder, he is so disabled that he is prevented from performing the
principal duties of his employment and is under the regular care of a currently
licensed physician or surgeon for such bodily injury, disease or mental
disorder.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of (i)
any act, or failure to act, by the Executive involving fraud or willful
malfeasance in the performance of his duties under this Agreement, including,
but not limited to, the Executive's willful failure to serve as an employee of
the Company pursuant to the terms and provisions of Section 1 of this Agreement,
or (ii) the Executive's unlawful appropriation of a corporate opportunity or
other breach of fiduciary duty or other obligation to the Company, or (iii) the
conviction of the Executive of a felony under federal or state law. For purposes
of this Section 7, no act, or the failure to act, on the Executive's part shall
be "willful" unless done, or omitted to be done, not in good faith and without
reasonable belief that the action or omission was in the best interest of the
Company or its affiliates. Notwithstanding the foregoing, the Executive shall
not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to him a Notice of Termination which shall include a copy of
a resolution duly adopted by the affirmative vote of 80% of the members of the
Board at a meeting of the Board called and held for that purpose (after
reasonable notice to the Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct justifying Termination for
Cause and specifying the particulars thereof in detail. The Executive shall not
have the right to receive compensation or other benefits for any period after
Termination for Cause. Any unexercised stock options held by the Executive
shall become null and void effective upon the Executive's receipt of Notice of
Termination for Cause, and such options shall not be exercisable by or delivered
to the Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination of employment by the Company or by the
Executive shall be communicated by a Notice of Termination to the other party.
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
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(b) "Date of Termination" shall mean (A) if the Executive's employment
is terminated for Disability, ten days after a Notice of Termination is given
(provided that he shall not have returned to the performance of his duties on a
full-time basis during such ten day period), and (B) if his employment is
terminated for any other reason, the date specified in the Notice of
Termination, subject to the Company's right to cure pursuant to Section 4(a).
9. CONFIDENTIALITY AND NON-COMPETITION AGREEMENT.
Notwithstanding anything in this Agreement to the contrary, as a
condition to the Company's obligations under this Agreement, the Executive
agrees to execute and be bound by the Confidentiality and Non-Competition
Agreement attached as Exhibit B hereto.
10. PARACHUTE PAYMENTS.
(a) Notwithstanding the foregoing, in the event that it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"), would
constitute an "excess parachute payment" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), and that it would be
economically advantageous to the Executive to reduce the payment to avoid
imposition of an excise tax under Section 4999 of the Code, the aggregate
present value of amounts payable or distributable to or for the benefit of the
Executive pursuant to this Agreement (such payments or distributions pursuant to
this Agreement are hereinafter referred to as "Agreement Payments") shall be
reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall
be an amount expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be subject to the
imposition of an excise tax under Section 4999 of the Code. The reduction
described in this Section 10 shall only be made if the net after-tax amount to
be received by the Executive after giving effect to the reduction will be
greater than the net after-tax amount that would be received by the Executive
without the reduction.
(b) For purposes of this Section 10, "present value" shall be
determined in accordance with Section 280G(d)(4) of the Code. All
determinations to be made under this Section 10 shall be made by the Company's
independent public accountant immediately prior to the change of control (the
"Accounting Firm"), which firm shall provide its determinations and any
supporting calculations both to the Company and the Executive within ten days of
the Executive's termination date. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. The Executive shall in his
sole discretion determine which and how much of the Agreement Payments shall be
eliminated or reduced consistent with the requirements of this Section 10.
Within five days after the Executive's determination, the Company shall pay (or
cause to be paid) or distribute (or cause to be distributed) to or for the
benefit of the Executive such amounts as are then due to the Executive under
this Agreement.
(c) All of the fees and expenses of the Accounting Firm in performing
the determinations referred to above shall be borne solely by the Company. The
Company agrees to indemnify and hold harmless the Accounting Firm of and from
any and all claims, damages and expenses resulting from or relating to its
determinations pursuant to this Paragraph, except for claims, damages or
expenses resulting from the gross negligence or willful misconduct of the
Accounting Firm.
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11. NO MITIGATION; NO OFFSET.
In the event of any termination of the Executive's employment under
the Agreement, he shall be under no obligation to seek other employment, and
there shall be no offset against amounts due him under the Agreement on account
of any remuneration attributable to any subsequent employment that he may
obtain.
12. SOURCE OF PAYMENTS; WITHHOLDING
All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Company. The Company may use insurance
proceeds especially obtained therefore as partial payment in the event of
disability. All payments shall be subject to all applicable federal, state,
local and other tax withholding requirements.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Company or any
predecessor of the Company and the Executive. No provision of this Agreement
shall be interpreted to mean that the Executive is subject to receiving fewer
benefits than those available to him under the Company's benefit plans without
reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Executive and the Company and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
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16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
17. BYLAWS OF THE COMPANY.
The Company shall cause to be maintained during the period of the
Executive's employment hereunder Section [___] of the Bylaws of the Company,
which requires a vote of 80% of the entire Board in order to remove the
Executive from the positions described in this Agreement (other than at the
Expiration Date of this Agreement if the Company elects not to renew the
Agreement pursuant to Section 2(a)) or otherwise to amend or modify the terms of
this Agreement.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without regard to conflicts of laws principles, unless otherwise
specified herein.
20. PAYMENT OF LEGAL FEES; INTEREST.
All reasonable legal fees paid or incurred by the Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall
be paid or reimbursed by the Company, if the Executive is successful pursuant to
a legal judgment, arbitration or settlement. If the Company fails to make any
payments owed under this Agreement when due, the unpaid amounts shall bear
interest at the prime rate of PNC Bank plus 1%.
21. INDEMNIFICATION.
The Company shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors and
officers liability insurance policy at its expense, or in lieu thereof, shall
indemnify the Executive (and his heirs, executors and administrators) to the
fullest extent permitted under Pennsylvania law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Company (whether or not he continues to be a
director or officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys, fees and the cost of reasonable settlements.
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22. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and its seal to be affixed hereunto by its duly authorized officer, and the
Executive has signed this Agreement, on the ____ day of ____________, 1999.
CDnow/N2K, Inc.
By:_____________________________
Name:
Title:
________________________________________
Xxxxx Xxxx
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