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CONVERTIBLE LOAN AGREEMENT
between
CDnow, Inc.
as Borrower,
and
SONY MUSIC ENTERTAINMENT INC.
TIME WARNER INC.
as Lenders
Dated as of July 12, 1999
$30,000,000
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TABLE OF CONTENTS
Page
SECTION 1
DEFINITIONS
Section 1.1 Definitions..................................................1
SECTION 2
AMOUNT AND TERMS OF CREDIT FACILITY
-----------------------------------
Section 2.1 Term Loans...................................................9
Section 2.2 Notice of Borrowing..........................................9
Section 2.3 Disbursement of Funds.......................................10
Section 2.4 The Notes...................................................10
Section 2.5 Interest....................................................10
Section 2.6 Voluntary Prepayments.......................................11
Section 2.7 Mandatory Prepayments.......................................11
Section 2.8 Repayment; Reduction in Loan Commitment.....................12
Section 2.9 Method and Place of Payment.................................13
Section 2.10 Taxes.......................................................14
SECTION 3
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent........................................14
Section 3.2 Conditions Precedent to All Loans...........................15
Section 3.3 Conditions Precedent to First Loan..........................16
SECTION 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Merger Agreement Representations............................17
Section 4.2 Authority Relative to this Agreement........................17
Section 4.3 Consents and Approvals; No Violation........................17
Section 4.4 Margin Regulations..........................................18
Section 4.5 Investment Company Act......................................18
Section 4.6 Absence of Indebtedness and Liens...........................18
SECTION 5
AFFIRMATIVE COVENANTS
Section 5.1 Information Covenants.......................................18
Section 5.2 Officer's Certificate.......................................21
Section 5.3 Inspection..................................................21
Section 5.4 Conduct of Business.........................................21
Section 5.5 Maintenance of Property; Insurance..........................22
Section 5.6 Notice of Suit or Adverse Change in
Business..................................................22
Section 5.7 Books, Records, Inspections.................................23
SECTION 6
NEGATIVE COVENANTS
Section 6.1 Merger Agreement Covenants..................................23
Section 6.2 Changes in Business.........................................23
Section 6.3 Limitation on Indebtedness..................................23
Section 6.4 Limitation on Issuances of Guarantees by
Subsidiaries..............................................23
Section 6.5 Limitation on Liens.........................................24
Section 6.6 Limitation on Asset Sales...................................24
Section 6.7 Use of Proceeds.............................................24
Section 6.8 Limitation on Modifications of Certain
Indebtedness..............................................24
Section 6.9 Limitation on Negative Pledge Clauses.......................24
SECTION 7
EVENTS OF DEFAULT
Section 7.1 Events of Default...........................................25
Section 7.2 Rights and Remedies.........................................27
SECTION 8
CONVERSION
Section 8.1 Conversion Privilege and Conversion Price...................27
Section 8.2 Exercise of Conversion Privileges...........................28
Section 8.3 Fractions of Shares.........................................29
Section 8.4 Adjustment of Conversion Price..............................29
Section 8.5 Notice of Adjustments of Conversion Price...................29
Section 8.6 Company to Reserve CDnow Common Stock.......................29
Section 8.7 Taxes on Conversions........................................29
Section 8.8 Covenant as to CDnow Common Stock...........................30
Section 8.9 Investment Intent; Private Placement........................30
SECTION 9
REGISTRATION RIGHTS............................31
SECTION 10
MISCELLANEOUS
Section 10.1 Payment of Expenses, Indemnity, etc.........................31
Section 10.2 Right of Setoff.............................................32
Section 10.3 Notices.....................................................32
Section 10.4 Successors and Assigns; Assignments.........................34
Section 10.5 Amendments and Waivers......................................34
Section 10.6 No Waiver; Remedies Cumulative..............................34
Section 10.7 Governing Law, Submission to Jurisdiction...................35
Section 10.8 Counterparts................................................36
Section 10.9 Headings Descriptive........................................36
Section 10.10 Marshalling; Recapture......................................36
Section 10.11 Severability................................................36
Section 10.12 Survival....................................................36
Section 10.13 Limitation of Liability.....................................36
Section 10.14 [Reserved.].................................................37
Section 10.15 Waiver of Trial by Jury.....................................37
Section 10.16 Interest Rate Limitation....................................37
Section 10.17 Senior Indebtedness.........................................37
Section 10.18 Adjustments; Set-Off........................................38
Section 10.19 Merger Agreement............................................38
Exhibit A - Form of Note
Exhibit B - Form of Guarantee and Collateral Agreement
Exhibit C - Form of Notice of Conversion Election
Exhibit D - Anti-dilution provisions
Schedules
1.1(a) Existing Debt Agreements
1.1(b) Permitted Liens
4.3 Consents and Approvals
CONVERTIBLE LOAN AGREEMENT, dated as of July 12, 1999, between
CDnow, Inc., a Pennsylvania corporation (the "Borrower"), and SONY MUSIC
ENTERTAINMENT INC. and TIME WARNER INC. (each, a "Lender" and, together the
"Lenders").
WHEREAS, this Agreement is being executed and delivered in
connection with, and as a condition to closing under, that certain Agreement of
Merger and Contribution (the "Merger Agreement"), dated as of July 12, 1999,
among Time Warner Inc. ("Time Warner"), Sony Corporation of America ("Sony"),
CDnow, Inc., Holdco, Pennsylvania Sub, Delaware Sub I and Delaware Sub II, as
each such term is defined in the Merger Agreement;
WHEREAS, in connection with the Merger Agreement, the Borrower
has requested that the Lenders make available to it certain interim financing to
satisfy working capital needs of the Borrower; and
WHEREAS, the Lenders are willing to provide such financing to
the Borrower upon the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and intending to be legally
bound hereby, the Borrower and the Lenders hereby agree as follows:
SECTION 1. DEFINITIONS.
Section 1.1 Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural number the singular. Capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the Merger
Agreement.
"Affiliate" shall have the meaning ascribed thereto in the
Governance Agreement.
"Agreement" shall mean this Convertible Loan Agreement as in
effect from time to time.
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"Assignee" shall have the meaning provided in Section 10.4(b).
"Attributable Indebtedness" shall mean, with respect to any
Sale and Leaseback Transaction of any Person, as at the time of determination,
the greater of (i) the capitalized amount in respect of such transaction that
would appear on the balance sheet of such Person in accordance with GAAP and
(ii) the present value (discounted at a rate consistent with accounting
guidelines, as determined in good faith by such Person) of the payments during
the remaining term of the lease (including any period for which such lease has
been extended or may, at the option of the lessor, be extended) or until the
earliest date on which the lessee may terminate such lease without penalty or
upon payment of a penalty (in which case the rental payments shall include such
penalty).
"Availability Date" shall mean, December 16, 1999.
"Bankruptcy Code" shall mean Title 11 of the United States
Code entitled "Bankruptcy," as amended from time to time, and any successor
statute or statutes.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrowing" shall mean the incurrence of Loans from the
Lenders on a given date.
"Business Day" shall mean any day excluding Saturday, Sunday
and any day which shall be in New York City a legal holiday or a day on which
banking institutions are authorized or required by law or other government
actions to close.
"Capital Expenditures" shall mean all expenditures (including,
capitalized portions of Capitalized Lease Obligations) for any property, plant
or equipment (including replacements thereof, substitutions therefore and
additions thereto) that have a useful life of one year or more, where such
expenditures are or would be capitalized on the consolidated balance sheet of
the Borrower and its Subsidiaries during the relevant period in conformity with
GAAP.
"Capitalized Lease" shall mean (i) any lease of property, real
or personal, the obligations under which are capitalized on the consolidated
balance sheet of the Borrower and its Subsidiaries, and (ii) any other such
lease to the extent that the then present value of the minimum
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rental commitment thereunder should, in accordance with GAAP, be capitalized on
a balance sheet of the lessee.
"Capitalized Lease Obligations" shall mean all obligations of
the Borrower and its Subsidiaries under or in respect of Capitalized Leases.
"Closing Price" shall mean, with respect to any security, the
closing sale price of such security on the date of determination on the
principal U.S. or foreign securities exchange on which such securities are
listed or primarily traded or, if such securities are not listed or primarily
traded on any such exchange, the closing sale price of such securities on such
date of determination on NASDAQ or any comparable system then in use (or, in the
event no such sale price is reported on such day, the average of the reported
closing bid and asked prices for such day).
"Collateral" shall mean the property subject to the Lien of
the Security Agreement and all payments and proceeds thereof, as more
particularly defined in the Security Agreement.
"Conversion Price" shall mean an amount equal to the lesser of
(a) $14.3751 and (b) the Closing Price of CDnow Common Stock on the Trading Day
immediately preceding the relevant date on which a Notice of Conversion Election
is given.
"Default" shall mean any event, act or condition which, with
notice or lapse of time, or both, would constitute an Event of Default.
"Default Rate" shall have the meaning provided in Section
2.5(b).
"Disqualified Stock" shall mean any Equity Security which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, or otherwise,
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof or is
exchangeable for Indebtedness at any time, in whole or in part, on or prior to
the 366th day following the date on which the Loans mature.
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"Equity Security" shall have the meaning ascribed thereto in
the Governance Agreement.
"Eurodollar Rate" with respect to any Loan shall mean an
interest rate per annum equal to the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits in the lawful
money of the United States at approximately 11:00 A.M. (London time) two
Business Days prior to the Borrowing of such Loan for a term of six months. If
for any reason such rate is not available, the term "Eurodollar Rate" shall
mean, for any Loan, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in the lawful money of the United States at
approximately 11:00 A.M. (London time) two Business Days prior to the Borrowing
of such Loan for a term of six months; provided, however, if more than one rate
is specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest
1/100 of 1%).
"Event of Default" shall have the meaning provided in Section
7.
"Exchange Rate Obligations" means, with respect to any Person,
any currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Existing Debt Agreements" shall mean the agreements listed on
Schedule 1.1(a).
"Final Maturity Date" shall mean the earlier of (a) such time
as the Loan Commitment is reduced to zero pursuant to the terms hereof, (b)
January 15, 2001 or (c) the Effective Time.
"Governance Agreement" means the form of Governance Agreement
attached as Exhibit F to the Merger Agreement.
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"Indebtedness" means at any time (without duplication), with
respect to any Person, whether recourse is to all or a portion of the assets of
such Person, and whether or not contingent, (i) any obligation of such Person
for money borrowed, (ii) any obligation of such Person evidenced by bonds,
debentures, notes, guarantees or other similar instruments, including, without
limitation, any such obligations incurred in connection with the acquisition of
Property, assets or businesses, excluding trade accounts payable made in the
ordinary course of business, (iii) any reimbursement obligation of such Person
with respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) any obligation of such Person issued
or assumed as the deferred purchase price of Property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business, which in either case are not more than 60 days overdue or which are
being contested in good faith) (v) any Capitalized Lease Obligations of such
Person, (vi) the maximum fixed redemption or repurchase price of Disqualified
Stock of such Person and, to the extent held by other Persons, the maximum fixed
redemption or repurchase price of Disqualified Stock of such Person's
Subsidiaries, at the time of determination, (vii) the principal amount of any
Interest Hedging Obligations or Exchange Rate Obligations of such Person at the
time of determination, (viii) any Attributable Indebtedness with respect to any
Sale and Leaseback Transaction to which such Person is a party and (ix) any
obligation of the type referred to in clauses (i) through (viii) of this
definition of another Person and all dividends and distributions of another
Person the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise. For the purposes of the preceding sentence, the maximum fixed
repurchase price of any Disqualified Stock that does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Stock as if such Disqualified Stock were repurchased on any date on which
Indebtedness shall be required to be determined pursuant hereto. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any guarantees at such date.
"Interest" shall have the meaning provided in Section 2.5.
6
"Interest Hedging Obligation" means, with respect to any
Person, an obligation of such Person pursuant to any interest rate swap
agreement, interest rate cap, collar or floor agreement or other similar
agreement or arrangement designed to protect against or manage such Person's or
any of its Subsidiaries' exposure to fluctuations in interest rates.
"Interest Rate" shall mean a rate per annum equal to the
Eurodollar Rate plus 3%, provided that, from and after the 180th day following
termination of the Merger Agreement, such Interest Rate shall be equal to
twenty-five percent (25%) per annum.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing).
"Loan Commitment" means the maximum aggregate amount of
$30,000,000; provided that in no event shall the Loan Commitment of either
Lender exceed $15,000,000, individually.
"Loan Documents" shall mean this Agreement, the Notes and the
Security Agreement as in effect from time to time.
"Loan Party" shall mean and include the Borrower and its
Subsidiaries.
"Loans" shall have the meaning provided in Section 2.1(a).
"Merger Agreement" shall have the meaning provided in the
first Whereas clause as in effect from time to time, and all references herein
to the Merger Agreement shall be references thereto regardless of whether or not
such agreement shall have been terminated.
"Net Debt Proceeds" shall mean, with respect to any incurrence
of Indebtedness for borrowed money, the cash
7
proceeds (net of underwriting discounts and commissions and other reasonable
costs associated therewith) received by the respective Person from the
respective incurrence of such Indebtedness for borrowed money.
"Net Sale Proceeds" shall mean, for any sale, lease, transfer
or disposition, the gross cash proceeds received from such transaction, net of
the reasonable costs of such transaction and the incremental taxes paid or
payable as a result of such transaction and any reasonable reserves established
in connection therewith as determined in good faith by the Borrower.
"Note" and "Notes" shall have the meanings provided in Section
2.4.
"Notice of Borrowing" shall have the meaning provided in
Section 2.2.
"Notice of Conversion Election" shall have the meaning
provided in Section 8.2.
"Obligations" shall mean all obligations, liabilities and
Indebtedness of every nature of the Borrower from time to time owing to the
Lenders under or in connection with this Agreement or any other Loan Document.
"Permitted Indebtedness" shall mean Permitted Interim
Financing and Purchase Money Indebtedness and Indebtedness outstanding on the
date hereof under Existing Debt Agreements.
"Permitted Interim Financing" shall mean Indebtedness for
borrowed money incurred by the Borrower provided that (i) the Net Debt Proceeds
therefrom shall be applied in accordance with Section 2.7, (ii) the maturity
date thereof extends to at least 366 days beyond the Final Maturity Date, (iii)
such Indebtedness is unsecured and is not guaranteed by any Subsidiary of the
Borrower, (iv) such Indebtedness contains representations, warranties, covenants
and agreements which are not more restrictive, individually or taken as a whole,
than those in effect hereunder, (v) such Indebtedness is subject to
subordination and intercreditor arrangements satisfactory to the Lenders (and
appropriate to reflect the senior, secured nature of the Obligations) and (vi)
such Indebtedness otherwise satisfies
8
the requirements of Section 7.01(a)(x)(A)(II) of the Merger Agreement.
"Permitted Liens" shall mean (a) Liens for taxes, levies,
assessments or other governmental charges not yet due or which are being
contested in good faith by appropriate proceedings; (b) carriers',
warehousemen's, mechanics', materialmen's, repairman's or other like Liens
arising in the ordinary course of business in respect of actions permitted
hereunder which are not overdue for a period of more than 60 days or which are
being contested in good faith by appropriate proceedings; (c) easements,
rights-of-way, restrictions and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially interfere
with the ordinary conduct of the business of the Borrower or any Subsidiary; (d)
Liens in existence on the date hereof listed on Schedule 1.1(b), securing
Indebtedness arising under the Existing Debt Agreements, provided that no such
Lien is spread to cover any additional Property after the date hereof and that
the amount of Indebtedness secured thereby is not increased; and (e) Liens
securing Purchase Money Indebtedness of the Borrower and its Subsidiaries
incurred to finance the acquisition of fixed or capital assets; provided that no
such Lien is spread to cover any additional Property and that the amount of
Indebtedness secured thereby is not increased.
"Pledged Shares" means the Equity Securities that are subject
to the Lien of the Security Agreement and any and all dividends, distributions,
payments and proceeds thereof, as more particularly defined in the Security
Agreement.
"Property" means, with respect to any Person, any interest of
such Person in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible.
"Purchase Money Indebtedness" shall mean Indebtedness of the
Borrower and its Subsidiaries incurred to finance the acquisition of fixed or
capital assets (including pursuant to any permitted Sale and Leaseback
Transaction under Section 6.6(iv)) so long as the principal amount thereof does
not exceed 100% of the fair market value of the asset so acquired at the time of
incurrence. Any asset acquired with proceeds of Purchase Money Indebtedness
shall be deemed to be a capital asset subject to restrictions in Section
7.01(a)(xi) of the Merger Agreement.
9
"Receivables" shall have the meaning provided in Section 4.11.
"Sale and Leaseback Transaction" means, with respect to any
Person, any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Security Agreement" means the Guarantee and Collateral
Agreement, dated the date hereof, to be executed by the Borrower, a form of
which is attached as Exhibit B hereto.
"Subsidiary" shall have the meaning ascribed thereto in the
Governance Agreement.
"Third Party Tender Offer" shall have the meaning ascribed
thereto in the Governance Agreement.
"Trading Day" means, with respect to a securities exchange or
automated quotation system, a day on which such exchange or system is open for a
full day of trading.
"Transactions" shall mean each of the transactions
contemplated by the Loan Documents.
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITY.
Section 2.1 Term Loans. (a) Subject to and upon the terms and
conditions herein set forth, each Lender severally agrees, at any time and from
time to time on and after the Availability Date and prior to the Final Maturity
Date, to make term loans (collectively, "Loans") to the Borrower, in the case of
each Borrowing, in an amount equal to one-half of the amount requested in the
relevant Notice of Borrowing, which Loans shall not at any time exceed in
aggregate principal amount at any time outstanding the Loan Commitment.
(b) Loans may be voluntarily prepaid pursuant to
Section 2.6 and shall be mandatorily prepaid pursuant to Section 2.7. Any
amounts so prepaid may not be reborrowed. The Loan Commitment shall expire and
the Loans
10
shall mature on the Final Maturity Date, without further action on the part of
the Lender.
(c) Each Borrowing under this Section 2.1 shall be in
the aggregate maximum amount of the lesser of (i) $5,000,000 or (ii) the
remaining unborrowed amount of the Loan Commitment.
Section 2.2 Notice of Borrowing. Whenever the Borrower desires
to borrow hereunder, the Borrower's Chief Financial Officer shall make a formal
request to each Lender for such Borrowing by giving each Lender prior written
notice thereof (each such notice, a "Notice of Borrowing") on or before 10:00
a.m., New York City time, at least two Business Days prior to the date requested
for such Borrowing. Each Notice of Borrowing shall specify (a) the aggregate
principal amount of the requested Borrowing, (b) the proposed date of the
Borrowing (which shall be a Business Day and which shall not be less than ten
Business Days from the last date of Borrowing), (c) the proposed use of the
proceeds of any such Borrowing, which use of proceeds shall be in compliance
with Section 6.7 and (d) that each of the conditions set forth in Section 3 has
been, and remains, satisfied as of the date of such Notice of Borrowing.
Section 2.3 Disbursement of Funds. Upon receipt of a Notice of
Borrowing delivered in accordance with and in compliance with Section 2.2 above,
on the date specified in such Notice of Borrowing, each Lender will make
available one-half of the aggregate principal amount of the Borrowing requested
to be made on such date, in U.S. dollars by wire transfer in immediately
available funds to an account specified in a written instrument signed by the
Chief Financial Officer of the Borrower and delivered to such Lender, together
with any Notice of Borrowing. The failure of a Lender to fund any Loan to be
made by it shall not relieve the other Lender from its obligation to fund any
Loan to be made by it.
Section 2.4 The Notes. The Borrower's obligation to pay the
principal of, and Interest on, the Loans made by a Lender hereunder, shall be
evidenced by a promissory note (each a "Note," and collectively the "Notes"),
payable to such Lender duly executed and delivered by the Borrower,
substantially in the form of Exhibit A hereto. The Borrower hereby irrevocably
authorizes each of the Lenders to endorse the date and amount of each Loan made
11
by such Lender and any payment and repayment of the principal amount thereof or
Interest thereon, on the Schedule of Principal, Conversion and Repayment
attached to such Note and constituting a part thereof, which endorsement shall
constitute prima facie evidence of the information so endorsed; provided,
however, that any failure of a Lender to make such endorsement shall not affect
the obligation of the Borrower to make any payments hereunder.
Section 2.5 Interest. (a) The Borrower agrees to pay interest
in respect of the unpaid principal amount of each Loan ("Interest") at the
Interest Rate in effect from time to time, in respect of such Loan, from the
date of the making of such Loan until the earlier of (i) the date on which such
Loan shall be paid in full and (ii) the Final Maturity Date, such Interest to be
computed on the basis of a 360-day year and the actual number of days elapsed.
(b) Overdue principal and, to the extent permitted by
law, overdue Interest in respect of each Loan, and any other overdue amount
payable hereunder (including, without limitation, all amounts outstanding
following an Event of Default) shall bear interest at a rate per annum (the
"Default Rate") equal to the rate which is 2% in excess of the rate then borne
by such Loans, computed on the basis of a 360-day year and the actual number of
days elapsed; provided that nothing in any Loan Document shall permit the
Lenders to receive interest in excess of the maximum rate of interest permitted
by law.
(c) Interest on each Loan shall accrue from and
including the date of the Borrowing thereof to but excluding the date of any
repayment thereof (provided that any Loan borrowed and repaid on the same day
shall accrue one day's interest) and shall be payable on the Final Maturity
Date.
(d) In the event that a Lender elects to convert any
accrued and unpaid amount of interest on any Loan into CDnow Common Stock in
accordance with the provisions of Section 8 hereof, the Borrower's obligation to
pay Interest on such Loan, pursuant to this Section 2.5, shall be deemed
satisfied by the delivery of the CDnow Common Stock upon conversion of such
accrued and unpaid interest as therein provided, to the extent of such
conversion. Each Lender agrees to give Borrower at least one Business Day's
notice of its intent to convert any
12
Interest otherwise due and payable, or to become due and payable, into CDnow
Common Stock in accordance with this Agreement.
Section 2.6 Voluntary Prepayments. The Borrower shall have the
right to prepay in accordance with Section 2.9 the Loans in whole or in part
from time to time on the following terms and conditions: (i) the Borrower shall
give the Lenders written notice (or telephonic notice promptly confirmed in
writing), which notice shall be irrevocable, of its intent to prepay the Loans,
at least two, or after the Merger Agreement has terminated, five Business Days
prior to a prepayment, which notice shall specify the date (which shall be a
Business Day), the Loans and the amount of such prepayment and (ii) each partial
prepayment shall be in an aggregate principal amount of $1,000,000 or integral
multiples thereof.
Section 2.7 Mandatory Prepayments. (a) If the Borrower or any
of its Subsidiaries shall receive any proceeds from any sale, lease, transfer or
disposition to any Person of any of its Property or Equity Securities (other
than sales of inventory in the ordinary course of business and permitted Sale
and Leaseback Transactions) then the Borrower shall immediately upon receipt
thereof apply in accordance with Section 2.9 an amount in cash equal to 100% of
the Net Sale Proceeds from such sale, lease, transfer or disposition to the
Lenders as a mandatory repayment of outstanding Loans and reduction in the
remaining Loan Commitment in accordance with the requirements of Section 2.8.
(b) If the Borrower or any of its Subsidiaries shall
receive any proceeds from any incurrence by the Borrower or any of its
Subsidiaries of Permitted Interim Financing, then the Borrower shall immediately
upon receipt thereof apply in accordance with Section 2.9 an amount equal to
100% of the Net Debt Proceeds from the Permitted Interim Financing to the
Lenders as a mandatory repayment of outstanding Loans and reduction in the
remaining Loan Commitment in accordance with the requirements of Section 2.8.
(c) If the Borrower enters into any Acquisition
Agreement relating to a CDnow Takeover Proposal or there is consummated a Third
Party Tender Offer or the Merger Agreement is terminated pursuant to Section
10.01 (c) (to the extent that one or more of the breaches of the
13
representations, warranties, covenants and agreements of CDnow that formed the
basis of such termination could reasonably be expected to have been avoided had
CDnow used its reasonable best efforts to ensure the continued accuracy,
compliance and performance of its representations, warranties, covenants and
agreements under the Merger Agreement) or Section 10.01(d) thereof, then (i) the
Loan Commitment shall automatically and immediately terminate and the unpaid
aggregate principal amount of, and any and all accrued Interest on, the Loans
and any and all other Obligations shall automatically become immediately due and
payable, with all Interest from time to time accrued thereon and without
presentation, demand or protest or other requirements of any kind (including
without limitation, valuation and appraisement, due diligence, presentment,
notice of intent to demand or accelerate and notice of acceleration), all of
which are hereby expressly waived by the Borrower, and the obligation of the
Lenders to make any Loans hereunder shall thereupon terminate.
Section 2.8 Repayment; Reduction in Loan Commitment. Each
amount required or permitted to be applied to repay outstanding Loans under
Section 2.6 or 2.7 shall be applied first, to prepay accrued but unpaid Interest
on the Loans and other Obligations (other than the principal on the Loans)
hereunder and second to prepay amounts in respect of principal outstanding under
the Loans. The excess of any Net Debt Proceeds or Net Sale Proceeds over amounts
required to repay principal and Interest shall reduce the remaining unused Loan
Commitment. Each reduction shall be allocated pro rata between the Lenders. By
three Business Days prior notice to the Lenders, the Borrower may at any time
reduce the amount of the Loan Commitment to an amount not less than the
outstanding principal amount of the Loans. By notice to the Lenders, the
Borrower may, at any time when no Loans are outstanding and no Obligations
remain unpaid, terminate the Loan Commitment.
Section 2.9 Method and Place of Payment. (a) All payments and
prepayments of principal and Interest under this Agreement and the Notes shall
be made in equal amounts to each Lender not later than 12:00 noon, New York City
time, on the date when due and shall be made in lawful money
of the United States of America by wire transfer in immediately available funds
to such account as shall be designated by each Lender.
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Any funds received by the Lenders after such time shall, for
all purposes hereof, be deemed to have been paid on the next succeeding Business
Day.
(b) Whenever any payment to be made hereunder or
under the Notes shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, Interest shall be payable at the
applicable rate during such extension.
(c) All payments made by the Borrower hereunder and
under any Note shall be made irrespective of, and without any reduction for, any
setoff or counterclaims, including, without limitation, any setoff or
counterclaims arising due to a breach or alleged breach by a Lender or any of
its Subsidiaries or Affiliates of any other agreement to which a Lender or any
of its Subsidiaries or Affiliates and any of the Loan Parties are parties.
Section 2.10 Taxes. All payments made by the Borrower under
this Agreement shall be made free and clear of, and without reduction or
withholding for or on account of, any present or future Taxes. If any Taxes are
required to be withheld from any amounts payable to the Lender hereunder or
under any Note, the amounts so payable to the Lender shall be increased to the
extent necessary to yield to the Lender (after payment of all Taxes) Interest or
any such other amounts payable hereunder at the rates or in the amounts
specified in this Agreement and the specific Note. Whenever any Taxes are
payable by the Borrower, as promptly as possible thereafter, the Borrower shall
send to the applicable Lender a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Taxes when due to the appropriate taxing authority or fails to remit to a
Lender the required receipts or other required documentary evidence, the
Borrower shall indemnify such Lender for any incremental taxes, interest or
penalties that may become payable by such Lender as a result of any such
failure. The agreements in this Section 2.10 shall survive the termination of
this Agreement and the payment of the Notes and all other Obligations.
15
SECTION 3. CONDITIONS PRECEDENT.
Section 3.1 Conditions Precedent. This Agreement shall become
effective upon satisfaction of the following conditions precedent:
(a) Loan Documents.
(i) Convertible Loan Agreement. The Borrower
shall have executed and delivered this Agreement to the Lenders.
(ii) Security Agreement. Each Loan Party shall
have executed and delivered the Security Agreement to the Lenders.
(iii) Notes. The Borrower shall have executed and
delivered to each Lender a Note as provided herein.
(b) Corporate Documents. The Lenders shall have
received the Articles of Incorporation of each Loan Party as in effect on the
effective date of this Agreement, certified to be true, correct and complete by
the Secretary of State of the State of the jurisdiction of incorporation of such
Loan Party.
(c) Certified Resolutions, etc. The Lenders shall
have received a certificate of the Secretary or Assistant Secretary of each Loan
Party dated the date hereof certifying (i) the names and true signatures of the
incumbent officers of such Person authorized to sign the Loan Documents to which
it is a party, (ii) the By-Laws of such Person as in effect on the date of the
adoption of the resolutions referred to in clause (iii), (iii) the resolutions
of such Person's Board of Directors approving and authorizing the execution,
delivery and performance of the Loan Documents to which it is a party, and (iv)
that there have been no changes in the Articles of Incorporation of such Person
since the date of the most recent certification thereof by the appropriate
Secretary of State.
(d) Delivery of Collateral and Pledged Shares. The
Borrower shall have delivered to the Lender stock certificates representing the
Pledged Shares, registered in the name of the Borrower, accompanied by undated
stock powers duly executed in blank.
16
(e) Actions to Perfect Liens. The Lenders shall have
received evidence in form and substance satisfactory to them that all filings,
recordings, registrations and other actions, including, without limitation, the
filing of duly executed financing statements on form UCC-1, necessary or, in the
opinion of the Lenders, desirable to perfect the Liens created by the Security
Agreement shall have been completed.
(f) Lien Searches. The Lenders shall have received
the results of a recent search by a Person satisfactory to the Lenders, of the
Uniform Commercial Code, judgement and tax lien filings which may have been
filed with respect to personal property of the Loan Parties, and the results of
such search shall be satisfactory to the Lenders.
(g) Representations. The representations and
warranties set forth in Section 4 and in the Security Agreement shall be true
and correct.
Section 3.2 Conditions Precedent to All Loans. In addition to
the provisions of Section 2.2, the obligation of the Lenders to make any Loan is
subject to the satisfaction on the date such Loan is made of the following
conditions precedent:
(a) No Event of Default. No Event of Default
hereunder shall have occurred and be continuing on such date either before or
after giving effect to the making of such Loans.
(b) No Injunction. No law or regulation shall have
been adopted, no order, judgment or decree of any Governmental Entity shall have
been issued, and no litigation shall be pending, that is seeking to enjoin,
prohibit or restrain, the making or repayment of the Loans.
(c) No Termination of Merger Agreement. The Merger
Agreement shall not have been terminated (i) by Sony or Time Warner pursuant to
Section 10.01(c) (to the extent that one or more of the breaches of the
representations, warranties, covenants and agreements of CDnow that formed the
basis of such termination could reasonably be expected to have been avoided had
CDnow used its reasonable best efforts to ensure the continued accuracy,
compliance and performance of its representations, warranties, covenants
17
and agreements under the Merger Agreement) or Section 10.01(d) thereof; or (ii)
by CDnow other than pursuant to Sections 10.01(b)(i) or Section 10.01(e)
thereof.
(d) No Third Party Tender Offer or Takeover Proposal.
There shall not have been commenced a Third Party Tender Offer and CDnow shall
not have entered into an Acquisition Agreement with respect to a CDnow Takeover
Proposal.
(e) Available Cash. The aggregate cash and cash
equivalents of the Borrower and its Subsidiaries shall be less than $7,500,000.
The acceptance of the proceeds of each Loan shall constitute a
representation and warranty by the Borrower to the Lenders that all of the
conditions required to be satisfied under this Section 3 in connection with the
making of such Loan have been satisfied.
Section 3.3 Conditions Precedent to First Loan. In addition to
the provisions of Section 3.2, the obligation of each Lender to make its first
Loan hereunder is subject to the receipt by the Lenders of a legal opinion,
dated the date of Borrowing of the first Loan, from counsel to the Loan Parties,
concerning due authorization, execution, delivery and the enforceability of this
Agreement, the Notes and the Security Agreement, absence of conflicts with laws,
articles, by-laws, agreements, absence of consents and approvals and the
perfection of the Lenders' security interest in the Collateral, all in form and
substance reasonably satisfactory to the Lenders.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement
and to make the Loans, the Borrower makes the following representations and
warranties, which shall survive the execution and delivery of this Agreement and
the Notes and the making of the Loans:
Section 4.1 Merger Agreement Representations. Each of the
representations and warranties of the Borrower set forth in Section 3 of the
Merger Agreement is incorporated herein by reference as if set forth by length
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as the representations and warranties of the Borrower hereunder.
Section 4.2 Authority Relative to this Agreement. Each Loan
Party has full corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents to which it is a party and to consummate
the Transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Loan Documents to which it is a party and the
consummation of the Transactions contemplated hereby and thereby have been duly
and validly authorized by all corporate and shareholder action, and no other
corporate proceedings on the part of any Loan Party are necessary to authorize
the Loan Documents to which it is a party or to consummate the Transactions
contemplated hereby and thereby. The Loan Documents to which it is a party have
been duly and validly executed and delivered by each Loan Party party thereto,
and constitute valid and binding agreements of each Loan Party party thereto,
enforceable against such Loan Party in accordance with their respective terms.
Section 4.3 Consents and Approvals; No Violation. (a) Except
as set forth in Schedule 4.3, the execution and delivery by each Loan Party of
each Loan Document to which it is a party will not (i) conflict with or result
in any breach of any provision of the Articles of Incorporation or Bylaws of
such Loan Party, (ii) require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
(iii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, agreement or other instrument
or obligation to which any Loan Party is a party or by which any Loan Party or
any of its assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained, or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any Loan Party or any of its
assets.
(b) Except for any registration statement filed with
the United States Securities and Exchange Commission (the "SEC") pursuant to
Section 9 hereof, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of any governmental or
19
regulatory body or authority is necessary for the consummation by the Borrower
of the Transactions.
Section 4.4 Margin Regulations. No part of the proceeds of any
Loan will be used by the Borrower to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying any Margin
Stock. Neither the making of any Loan nor the use of the proceeds thereof will
violate or be inconsistent with the provisions of Regulations T, U or X of the
Federal Reserve Board.
Section 4.5 Investment Company Act. Neither the Borrower nor
any of its Subsidiaries is an "investment company" or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
Section 4.6 Absence of Indebtedness and Liens. Neither the
Borrower nor any Subsidiary has any liabilities or obligations, either accrued,
absolute, contingent, or otherwise, in respect of any Indebtedness or Liens,
except (a) under Existing Debt Agreements, (b) Permitted Indebtedness and (c)
Permitted Liens.
SECTION 5. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that from the Availability
Date and until the Loan Commitment has terminated and the Obligations are paid
in full:
Section 5.1 Information Covenants. The Borrower will furnish
to each Lender:
(a) Quarterly Statements-- within 45 days after the
end of each quarterly fiscal period in each fiscal year of the Borrower (other
than the last quarterly fiscal period of each such fiscal year), duplicate
copies of
(i) a consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such quarter, and
(ii) consolidated statement of operations,
shareholders' equity and changes in financial position of the Borrower and its
Subsidiaries for such quarter and (in the case of the second and third quarters)
20
for the portion of the fiscal year ending with such quarter, in each case
setting forth in comparative form the figures for the corresponding periods in
the previous fiscal year, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and certified by the Chief Financial
Officer of the Borrower as fairly presenting, in all material respects, the
financial position of the companies being reported on and their results of
operations and cash flows, except for the absence of footnotes and changes
resulting from year-end adjustments, provided that delivery within the time
period specified above of the Borrower's Quarterly Report on Form 10-Q prepared
in compliance with the requirements therefor and filed with the SEC shall be
deemed to satisfy the requirements of this Section 5.1;
(b) Annual Statements - within 90 days after the end
of each fiscal year of the Borrower, duplicate copies of
(i) a consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such year, and
(ii) consolidated statements of operations,
shareholders' equity and changes in financial position of the Borrower and its
Subsidiaries for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, provided that
the delivery within the time period specified above of the Borrower's Annual
Report on Form 10-K for such fiscal year (together with the Borrower's annual
report to shareholders, if any, prepared pursuant to Rule 14a-3 under the
Exchange Act) prepared in accordance with the requirements therefor and filed
with the SEC, shall be deemed to satisfy the requirements of this Section
5.1(b);
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(c) Audit Reports, etc.-- promptly (and in any event
within five Business Days) after receipt thereof, copies of all management
letters and reports submitted to the Borrower or any of its Subsidiaries by
independent certified public accountants in connection with any annual, interim
or special audit of the Borrower or any Subsidiary made by such accountants;
(d) SEC and Other Reports-- promptly upon their
becoming available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Borrower or any Subsidiary to public securities
holders generally, and (ii) each regular or periodic reports, each registration
statement (without exhibits except as expressly requested by a Lender), and each
prospectus and all amendments thereto filed by the Borrower or any Subsidiary
with the SEC and of all press releases and other statements made available
generally by the Borrower or any Subsidiary to the public concerning
developments that are material;
(e) Notice of Default or Event of Default--
immediately (and in any event within two Business Days) after the Borrower
becomes aware of the existence of any Default or Event of Default, a written
notice specifying the nature and period of existence thereof and what action the
Borrower is taking or proposes to take with respect thereto;
(f) Notices from Governmental Authority -- promptly,
and in any event within five days of receipt thereof, copies of any notice to
the Borrower or any Subsidiary from any federal, state or foreign Governmental
Entity relating to any order, ruling, statute or other law or regulation that
could reasonably be expected to have a CDnow Material Adverse Effect or that
could reasonably be expected to impair the ability of the Borrower to perform
any of its obligations hereunder or under any of the Loan Documents;
(g) Requested Information-- with reasonable
promptness, such other data and information relating to the business,
operations, affairs, financial condition, assets or property of the Borrower or
any of its Subsidiaries or relating to the ability of the Borrower to perform
its obligations hereunder, under the Notes and under the Security Agreement as
from time to time may be reasonably requested by the Lenders; and
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(h) Notice of Prepayment Transaction-- two, or after
the Merger Agreement has terminated, five Business Days prior to the Borrower or
any Subsidiary entering into any transaction or taking any action which would
result in a mandatory prepayment under Section 2.7(a) and (b), a written notice
specifying the nature thereof.
Section 5.2 Officer's Certificate. Each set of financial
statements delivered to a Lender pursuant to Section 5.l(a) or Section 5.l(b)
hereof shall be accompanied by a certificate of the Chief Financial Officer
containing a statement that such officer has reviewed the relevant terms hereof
and has made, or caused to be made, under his or her supervision, a review of
the transactions and conditions of the Borrower and its Subsidiaries from the
beginning of the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not have
disclosed the existence during such period of any condition or event that
constitutes a Default or an Event of Default or, if any such condition or event
existed or exists, specifying the nature and period of existence thereof and
what action the Borrower or its Subsidiaries shall have taken or proposes to
take with respect thereto.
Section 5.3 Inspection. Each Lender, or any person designated
from time to time by such Lender, shall have the right, from time to time
hereafter, to call at the Borrower's or its Subsidiaries' place or places of
business during ordinary business hours, and, without hindrance or delay, (a) to
inspect, audit, check, and makes copies of and extracts from the Borrower's and
its Subsidiaries' books, records, journals, orders, receipts, and any
correspondence and other data relating to the business of the Borrower or its
Subsidiaries or to any transactions between the parties hereto, and (b) to
discuss the affairs, finances, and business of the Borrower and its Subsidiaries
with the officers of the Borrower and its Subsidiaries.
Section 5.4 Conduct of Business. (a) The Borrower shall, and
shall cause each Subsidiary to (i) maintain its existence and qualification to
do business in good standing in each jurisdiction where the failure to be so
qualified would have a material adverse effect on the financial condition of the
Borrower and its Subsidiaries taken as a whole, (ii) maintain in full force and
effect all licenses, bonds, franchises, leases, patents, contracts, and other
rights necessary to the conduct of its business, and
23
(iii) comply in all material respects with all applicable laws and regulations
of any federal, state, or local governmental authority, including those relating
to environmental matters, labor and employment laws and employee benefit
matters.
(b) The Borrower shall, and shall cause its
Subsidiaries to, duly pay and discharge (i) all lawful claims, whether for
labor, materials, supplies, services, or anything else, which might or could, if
unpaid, become a lien or charge upon its property or assets, unless and to the
extent only that the validity thereof is being contested in good faith and by
such appropriate proceedings, (ii) all of its trade bills when due in accordance
with customary practice, and (iii) all taxes, unless and to the extent that the
validity thereof is being contested by the Borrower in good faith and by
appropriate proceedings.
Section 5.5 Maintenance of Property; Insurance. (a) The
Borrower shall keep and maintain, and shall cause its Subsidiaries to keep and
maintain, at their sole cost and expense, (i) all Property necessary to the
business of the Borrower and its Subsidiaries in reasonably good working order
and condition, ordinary wear and tear excepted, (ii) insurance on their assets
for the full replacement value (or the full insurable value) thereof against
loss or damage by fire, theft, explosion, and all other hazards and risks
ordinarily insured against by other owners or users of such properties in
similar businesses similarly situated; and (iii) public liability insurance
relating to the Borrower's and its Subsidiaries' ownership and use of their
assets.
(b) All such insurance shall (i) provide
that no cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after receipt by the
Lenders of written notice thereof, (ii) name the Security Agent (as such term is
defined in the Security Agreement) as insured party or loss payee, (iii) if
reasonably requested by the Lenders, include a breach of warranty clause and
(iv) be reasonably satisfactory in all other respects to the Lenders.
(c) All such policies of insurance shall be
in such form and in such amounts as is customary in the case of other owners or
users of like properties in similar businesses, with insurers as shall be
reasonably satisfactory to each Lender. Upon demand, the Borrower
24
shall deliver to each Lender the original (or certified) copy of each policy
insurance, and evidence of payment of all premiums for each such policy.
Section 5.6 Notice of Suit or Adverse Change in Business. The
Borrower shall give written notice to each Lender (a) as soon as possible, and
in any event within five business days after the Borrower receives actual notice
(written or oral) of any material proceeding(s) being instituted against the
Borrower or any Subsidiary in any federal, state, or local court or before any
commission or other regulatory body (federal, state, or local), and (b) as soon
as possible, and in any event within five business days after the Borrower
learns of any material adverse change in the financial condition, results of
operations, business, or assets of the Borrower and its Subsidiaries taken as a
whole.
Section 5.7 Books, Records, Inspections. The Borrower will,
and will cause each of its Subsidiaries to, keep proper books of record and
accounts in which full, true and correct entries in conformity with generally
accepted accounting principles and all requirements of law shall be made of all
dealings and transactions in relation to its business and activities.
SECTION 6. NEGATIVE COVENANTS.
The Borrower covenants and agrees that from the date hereof
(except, in the case of Sections 6.2 and 6.7, which shall be from the
Availability Date) until the Loan Commitment has terminated, and the Obligations
are paid in full, without the prior written consent of Lenders:
Section 6.1 Merger Agreement Covenants. The covenants and
agreements of the Borrower set forth in the first sentence of Section 7.01(a)
and Sections 7.01(a)(i), (iii), (iv) (other than acquisitions made solely for
Equity Securities of the Borrower), (vii), (viii), (x)(B), (xi), (xiii), (xiv)
as it relates to clause (ix) of Section 3.18 of the Merger Agreement (provided
that the Borrower may consummate transactions of the type described in clause
(B) of such Section 3.18(ix) without regard to the dollar limits referred to
therein so long as such transactions (I) are on market terms, (II) do not extend
for a period of greater than thirty-six months, (III) are only entered into
after
25
good faith consultations by the Borrower with the Lenders and (IV) are
consummated at a cost per customer target not in excess of the amount previously
disclosed to the Lenders (or, if lower, the cost per customer target then in
effect)), and (xv) of the Merger Agreement are hereby incorporated herein by
reference as of set forth at length and shall be covenants and agreements of the
Borrower hereunder. To the extent there is a waiver under the Merger Agreement
then there shall be deemed to be a waiver under this Agreement and, to the
extent that matters are set forth in the CDnow Disclosure Letter, they shall be
deemed to be set forth herein. For the avoidance of doubt, nothing contained
herein shall derogate from the Borrower's obligations to comply with every
covenant and agreement contained in the Merger Agreement during the term thereof
in accordance with the terms thereof.
Section 6.2 Changes in Business. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any business which is
substantially different from that conducted by the Borrower, as the case may be,
on the date hereof.
Section 6.3 Limitation on Indebtedness. The Borrower will not,
and will not permit its Subsidiaries to, directly or indirectly, incur any
Indebtedness other than Permitted Indebtedness (so long as, in the case of
Permitted Interim Financing, the Net Debt Proceeds thereof are applied as
required by Section 2.7) and the Borrower will not issue any Disqualified Stock
or permit any of its Subsidiaries to issue any Disqualified Stock.
Section 6.4 Limitation on Issuances of Guarantees by
Subsidiaries. The Borrower will not permit any Subsidiary to guarantee, directly
or indirectly, any Indebtedness of the Borrower, other than Permitted
Indebtedness.
Section 6.5 Limitation on Liens. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter into,
create, incur, assume or suffer to exist any Liens of any kind (other than
Permitted Liens) on or with respect to any of their Property or assets now owned
or hereafter acquired, or any interest therein or any income or profits
therefrom.
26
Section 6.6 Limitation on Asset Sales. The Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, convey,
sell, lease, assign, transfer or otherwise dispose of any of its Property,
whether now on or hereafter acquired, except:
(i) obsolete Property disposed of in the ordinary
course of business;
(ii) the sale of inventory in ordinary course of
business;
(iii) the sale or other disposition of any Property
for fair market value and for consideration consisting solely of cash and so
long as the Net Sale Proceeds thereof are applied as required by Section 2.8;
and
(iv)(a) Sale and Leaseback Transactions in respect of
capital equipment acquired ninety days or less prior to consummation of such
Sale and Leaseback Transaction and (b) other Sale and Leaseback Transactions in
respect of which the Attributable Indebtedness does not exceed $1,000,000 in the
aggregate; provided that all of such Sale and Leaseback Transactions referred to
in both clauses (a) and (b) are for fair market value.
Section 6.7 Use of Proceeds. The Borrower will not use the
proceeds of any Loan for any purpose other than in the ordinary course of the
Borrower's business and to meet the ongoing working capital needs of the
Borrower.
Section 6.8 Limitation on Modifications of Certain
Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries
to, directly or indirectly amend or modify, or permit the amendment or
modification of, any Existing Debt Agreement.
Section 6.9 Limitation on Negative Pledge Clauses. The
Borrower will not, and will not permit its Subsidiaries to, directly or
indirectly, enter into with any Person any agreement, other than (a) this
Agreement and (b) any Purchase Money Indebtedness permitted by this Agreement
(in which case, any prohibition or limitation shall only be effective against
the assets financed thereby), which prohibits or limits the ability of the
Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist
any Lien upon any of its Property or revenues, whether now owned or hereafter
acquired.
27
SECTION 7. EVENTS OF DEFAULT.
Section 7.1 Events of Default. Each of the following events,
acts, occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:
(a) Failure to Make Payments. The Borrower shall (i)
default in the payment when due of any principal of, or Interest on, the Loans
or (ii) default in the payment when due of any other amounts owing hereunder,
and in the case of the circumstances described in this clause (ii), such default
shall continue unremedied for three or more Business Days, provided, however,
that in the event that a Lender elects to convert any amount of principal or
Interest otherwise due under any of the Notes into CDnow Common Stock in
accordance with the provisions of Section 8 hereof, the amount so converted
shall be deemed to have been timely paid and the failure to make payment in
respect thereof shall not constitute a Default or Event of Default hereunder.
(b) Breach of Representations. The representations
and warranties of the Borrower set forth in Section 4 or in the Security
Agreement shall, individually or in the aggregate, have been untrue or
inaccurate in any material respect when made.
(c) Breach of Covenants.
(i) The Borrower shall fail to perform or observe
any agreement, covenant or obligation arising under Section 6 hereof or
Section 5 of the Security Agreement.
(ii) The Borrower shall fail to perform or
observe any agreement, covenant or obligation arising under this
Agreement or other Loan Agreement Document (except those described in
subsections (a) and (b)(i) above), and such failure shall continue for
15 days after notice thereof to the Borrower.
28
(d) Default Under Other Agreements. Any Loan Party
shall default in the payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) of any amount owing in respect of
any Indebtedness (including any Indebtedness under the Existing Debt Agreements)
individually or in the aggregate in excess of $250,000 other than the
Obligations; or any Loan Party shall default in the performance or observance of
any obligation or condition with respect to any such Indebtedness or any other
event shall occur or condition exist, if the effect of such default, event or
condition is to accelerate the maturity of any such Indebtedness or to permit
(without regard to any required notice or lapse of time) the holder or holders
thereof, or any trustee or agent for such holders, to accelerate the maturity of
any such Indebtedness, or any such Indebtedness shall become or be declared to
be due and payable prior to its stated maturity other than as a result of a
regularly scheduled payment.
(e) Loan Documents. Any Loan Document shall at any
time and for any reason not be or shall cease to be valid, binding and
enforceable against any Loan Party or any Loan Party or any other Person shall
contest or deny the validity and enforceability of any Loan Document or shall
disaffirm or repudiate any of its or any Loan Party's obligations thereunder, or
the Obligations (or any of them) shall fail to be secured by a first-priority
perfected security interest in the Collateral.
(f) Bankruptcy, etc. (i) Any Loan Party shall
commence a voluntary case concerning itself under the Bankruptcy Code; or (ii)
an involuntary case is commenced against any Loan Party and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or (iii) a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of any Loan Party or any Loan Party commences any other proceedings
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to any Loan Party or there is
commenced against any Loan Party any such proceeding which remains undismissed
for a period of 60 days; or (iv) any order of relief or other order approving
any such case or proceeding is entered; or (v) any Loan Party is adjudicated
insolvent or bankrupt; or (vi) any Loan Party makes a general assignment for the
benefit of creditors; or (vii) any Loan
29
Party shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or (viii) any Loan Party
shall cooperate with its creditors with a view to arranging a composition or
adjustment of its debts; or (ix) any Loan Party shall by any act or failure to
act consent to, approve of or acquiesce in any of the foregoing; or (x) any
corporate action is taken by any Loan Party for the purpose of effecting any of
the foregoing.
Section 7.2 Rights and Remedies. Upon the occurrence of any
Event of Default described in Section 7.1(f), the Loan Commitment shall
automatically and immediately terminate and the unpaid principal amount of, and
any and all accrued interest on, the Loans and any and all other Obligations
shall automatically become immediately due and payable, with all additional
interest from time to time accrued thereon and without presentation, demand, or
protest or other requirements of any kind (including, without limitation,
valuation and appraisement, due diligence, presentment, notice of intent to
demand or accelerate and notice of acceleration), all of which are hereby
expressly waived by the Borrower, and the obligation of the Lenders to make any
Loan hereunder shall thereupon terminate; and upon the occurrence and during the
continuance of any other Event of Default, without limiting the other provisions
of this Agreement (including Section 2.7), each Lender may, by written notice to
the Borrower, (i) declare that its Loan Commitment is terminated, whereupon such
Loan Commitment and the obligation of such Lender to make any Loan hereunder
shall immediately terminate, and (ii) declare the unpaid principal amount of and
any and all accrued and unpaid interest on the Loans of such Lender and any and
all other Obligations owed to such Lender to be, and the same shall thereupon
be, immediately due and payable with all additional Interest from time to time
accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by the
Borrower.
SECTION 8. CONVERSION.
30
Section 8.1 Conversion Privilege and Conversion Price. Subject
to and upon compliance with the provisions of this Section 8, each Lender, at
its sole option, may, at any time after termination of the Merger Agreement and
from time to time thereafter, convert (a) each Note or any portion of the
principal amount thereof which equals $500,000 or any integral multiple thereof,
and (b) the amount of accrued and unpaid Interest on the Loan represented by
such Note (including without limitation any overdue Interest accruing at the
Default Rate), into a number of fully paid and nonassessable shares (calculated
as to each conversion to the nearest 1/100 of a share) of CDnow Common Stock
equal to the quotient obtained by dividing (i) the aggregate of such principal
amount and accrued and unpaid interest to be so converted by (ii) the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
Any certificates evidencing CDnow Common Stock issued upon the
conversion of the Note shall bear such legends, including legends reflecting
restrictions on transfer required in order to maintain compliance with the
provisions of the Securities Act, as the Borrower shall deem to be necessary or
appropriate.
Section 8.2 Exercise of Conversion Privileges. In order to
exercise the conversion privilege with respect to any amount of principal or
Interest (including any defaulted Interest) of any Note, a Lender shall, in the
case of a conversion with respect to all outstanding principal only, surrender
such Note, duly endorsed or assigned to the Borrower or in blank, at the
principal executive offices of the Borrower, and, in all cases, deliver a Notice
of Conversion Election (in the form attached hereto as Exhibit C, a "Notice of
Conversion Election") to the effect that such Lender elects to convert such Note
or, if less than the entire principal amount and Interest thereof is to be
converted, the portion thereof to be converted.
Any amount of principal and Interest of a Note shall be deemed
to have been converted immediately prior to the close of business on the day of
delivery of the relevant Notice of Conversion Election in accordance with the
foregoing provisions, and at such time the rights of such Lender as a holder of
the Note with respect to the principal amount to be so converted (or, in the
case of conversion of any Interest payable on the Note, the right of Lender to
be paid such Interest in cash) shall cease, and the Person or
31
Persons entitled to receive the CDnow Common Stock of the Borrower issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such CDnow Common Stock as and after such time. As promptly as practicable on or
after conversion date, the Borrower shall issue and shall deliver to such
Lender, at the address specified by such Lender in writing, a certificate or
certificates for the number of full shares of CDnow Common Stock of the Borrower
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 8.3.
Section 8.3 Fractions of Shares. No fractional share of CDnow
Common Stock shall be issued upon conversion of a Note. Instead of any
fractional share of such CDnow Common Stock which would otherwise be issuable
upon conversion of such Note (or a portion thereof), or upon the conversion of
any Interest (including defaulted Interest) payable with respect to such Note,
the Borrower shall pay a cash adjustment in respect of such fractional share in
an amount equal to such fraction multiplied by the Closing Price of the CDnow
Common Stock at the close of business on the day of conversion (or, if such day
is not a Trading Day, on the Trading Date immediately preceding such day).
Section 8.4 Adjustment of Conversion Price. The Conversion
Price then applicable to any Note shall be appropriately adjusted in accordance
with the anti-dilution provisions attached hereto as Exhibit D.
Section 8.5 Notice of Adjustments of Conversion Price.
Whenever the Conversion Price of any Note is adjusted, the Borrower shall
compute the adjusted Conversion Price in accordance with Section 8.4 and shall
prepare a certificate signed by the Chief Financial Officer of the Borrower
setting forth the adjusted Conversion Price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall be
provided to the Lenders.
Section 8.6 Company to Reserve CDnow Common Stock. The
Borrower shall at all times reserve and keep available, free from preemptive
rights, out of its authorized but unissued CDnow Common Stock or out of its
CDnow Common Stock held in treasury, for the purpose of effecting the conversion
of Notes and any accrued and unpaid Interest thereon, the full number of shares
of its CDnow Common Stock then issuable upon the conversion of the entire
32
principal amount of the aggregate Loan Commitment and all Interest that would
accrue on such aggregate amount up to and including the Final Maturity Date.
Section 8.7 Taxes on Conversions. The Borrower will pay any
and all original issuance, transfer, stamp and other similar taxes that may be
payable in respect of the issue or delivery of shares of its Common Shock on
conversion of Notes and any accrued and unpaid Interest thereon pursuant hereto.
The Borrower shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of its
CDnow Common Stock in a name other than that of a Lender or other holder of the
Note, portion thereof or Interest thereon to be converted, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Borrower the amount of any such tax, or has established to the
satisfaction of the Borrower that such tax has been paid.
Section 8.8 Covenant as to CDnow Common Stock.
(a) The Borrower covenants that all shares of its
CDnow Common Stock which may be issued upon conversion of Notes or any Interest
payment in respect thereof will upon issue be validly issued, fully paid and
nonassessable.
(b) The Borrower shall from time to time take all
action necessary so that the CDnow Common Stock which may be issued upon
conversion of Notes or any Interest payment in respect thereof, immediately upon
their issuance (or, if such CDnow Common Stock is subject to restrictions on
transfer under the Securities Act, upon their resale pursuant to any effective
registration statement under the Securities Act), will be listed on the
principal securities exchanges, interdealer quotation systems and markets, if
any, on which shares of CDnow Common Stock are then listed or quoted.
Section 8.9 Investment Intent; Private Placement. Each Lender
represents and warrants to the Borrower that:
(a) The Lender is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments in equity
33
securities presenting an investment decision like that involved in the
acquisition of CDnow Common Stock upon the conversion of Notes and any accrued
and unpaid Interest thereon pursuant to this Section 8.
(b) Upon the conversion of any Notes or any Interest
payment in respect thereof, the Lender will be acquiring CDnow Common Stock
issued upon such conversion for investment for its own account only and not with
a view to, or for resale in connection with, any "distribution" thereof within
the meaning of the Securities Act. The Lender has no present intention of
selling, granting and participation in, or otherwise distributing the CDnow
Common Stock, except in compliance with the Securities Act or pursuant to an
available exemption thereunder.
(c) The Lender understands that the CDnow Common
Stock has not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of the Lender's investment intent as expressed herein. The Lender is
familiar with Rule 144 under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
The Lender further understands that the certificate(s) representing the CDnow
Common Stock shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
34
SECTION 9. REGISTRATION RIGHTS.
The Lenders and the Borrower agree that, with respect to any
and all shares of Common Stock of the Borrower issued upon conversion of any
Note or any portion thereof, or any Interest payable with respect thereto, the
Lenders shall have the registration rights provided for in the Stock Option
Agreement regardless of whether or not such agreement shall be in effect, and
any and all shares of Common Stock of the Borrower issued upon conversion of the
Loans or any portion thereof, or any Interest payable with respect thereto,
shall constitute shares of securities that have been acquired by or are issuable
to the Lenders upon exercise of the "Option" as defined therein.
SECTION 10. MISCELLANEOUS.
Section 10.1 Payment of Expenses, Indemnity, etc. The Borrower
shall:
(a) pay all reasonable out-of-pocket costs and
expenses of each Lender in connection with the preservation of rights under, and
enforcement of, the Loan Documents and the documents and instruments referred to
therein or in connection with any restructuring or rescheduling of the
Obligations (including, without limitation, the reasonable fees and
disbursements of counsel for each Lender);
(b) pay, and hold the Lenders harmless from and
against, any and all present and future stamp, excise and other similar taxes
with respect to the foregoing matters and hold the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to the Lender) to pay such
taxes; and
(c) indemnify each Lender, its officers, directors,
employees, representatives and agents (each an "Indemnitee") from, and hold each
of them harmless against, any and all losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements of any kind or nature whatsoever (including, without limitation,
the fees and disbursements of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be
35
designated a party thereto) that may at any time (including, without limitation,
at any time following the payment of the Obligations) be imposed on, asserted
against or incurred by any Indemnitee as a result of, or arising out of, or in
any way related to or by reason of, any of the Transactions or the execution,
delivery or performance of any Loan Document except to the extent resulting from
the gross negligence or willful misconduct of the Indemnitee.
Section 10.2 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default each Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to any
Loan Party or any other Person, any such notice being hereby expressly waived,
to set off any other indebtedness or other obligation at any time held or owing
by such Lender to or for the credit or the account of any Loan Party against and
on account of the Obligations of the Loan Parties to such Lender under this
Agreement or under any of the other Loan Documents, and all other claims of any
nature or description arising out of or connected with this Agreement or any
other Loan Document, irrespective of whether or not the Lenders shall have made
any demand hereunder and although said Obligations, liabilities or claims, or
any of them, shall be contingent or unmatured.
Section 10.3 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery to the party to be notified; on the next Business Day after
delivery to a recognized overnight courier service; upon confirmation of receipt
of a facsimile transmission; or five days after deposit with the United States
Post Office, by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice; provided that notices of a change
of address shall be effective only upon receipt thereof):
If to the Borrower, to:
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
36
with a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. XxXxxxxx, Xx., Esq.
If to Time Warner Inc., to:
Time Warner Inc.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer
with a copy to:
Time Warner Inc.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
and
If to Sony Music Entertainment Inc., to:
Sony Music Entertainment Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
with a copy to:
Rosenman & Colin LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-00000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxx, Esq.
37
Section 10.4 Successors and Assigns; Assignments.
(a) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Lenders, all future
holders of the Notes and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of the Lenders.
(b) Assignments. Either Lender may at any time assign
to any other Person (each an "Assignee") other than a competitor of the Borrower
or any of its Subsidiaries all but not in part of its rights and obligations
under this Agreement, the Notes and any other Loan Documents, and the Borrower
and the Lenders agree that to the extent of any assignment, the Assignee shall
be deemed to have the same rights and benefits under the Loan Documents as the
Lenders hereunder; provided that such assignment shall not relieve the Lenders
of their respective obligations hereunder. Any assignment by a Lender to any
Person that is not an Affiliate of such Lender shall require the prior written
consent of the non-assigning Lender.
Section 10.5 Amendments and Waivers. Neither this Agreement,
any other Loan Document to which the Borrower is a party, nor any terms hereof
or thereof may be amended, supplemented, modified or waived except in accordance
with the provisions of this Section. The Lenders acting jointly and the Borrower
may, from time to time, enter into written amendments, supplements,
modifications or waivers for the purpose of adding, deleting, changing or
waiving any provisions to this Agreement or any Note. Any such amendment,
supplement, modification or waiver shall apply to and shall be binding upon the
Borrower, the Lenders and all future holders of such Notes or any portion
thereof or participation therein. In the case of any waiver, the Borrower and
the Lenders shall be restored to their former position and rights hereunder and
under the outstanding Notes, and any Default or Event of Default waived shall be
deemed to be cured and not continuing, but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
Section 10.6 No Waiver; Remedies Cumulative. No failure or
delay on the part of the Lenders or any
38
subsequent holder of a Note in exercising any right, power or privilege
hereunder or under any other Loan Document and no course of dealing between any
Loan Party and the Lenders or the subsequent holder of any Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege hereunder or under any other Loan Document preclude any other or
further exercise thereof of the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Lenders or the
subsequent holder of any Note would otherwise have. No notice to or demand on
any Loan Party in any case shall entitle any Loan Party to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Lenders or the subsequent holder of any Note to any other or
further action in any circumstances without notice or demand.
Section 10.7 Governing Law, Submission to Jurisdiction. (a)
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to
this Agreement or any other Loan Document and any action for enforcement of any
judgment in respect thereof may be brought in the courts of the State of New
York in New York County or of the United States of America for the Southern
District of New York, and, by execution and delivery of this Agreement, the
Borrower hereby accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts and
appellate courts from any thereof. The Borrower irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, the Borrower at its address set forth in Section 10.3. The
Borrower hereby irrevocably waives any objection which it may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement or any other Loan Document
brought in the courts referred to above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such
39
action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Lenders or any
holder of a Note to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Borrower in any
other jurisdiction.
Section 10.8 Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
Section 10.9 Headings Descriptive. The headings of the several
Sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
Section 10.10 Marshalling; Recapture. The Lenders shall be
under no obligation to xxxxxxxx any assets in favor of any Loan Party or any
other party or against or in payment of any or all of the Obligations. To the
extent the Lenders receive any payment by or on behalf of any Loan Party, which
payment or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to such Loan
Party or its estate, trustee, receiver, custodian or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such payment or repayment, the obligation or part thereof which has
been paid, reduced or satisfied by the amount so repaid shall be reinstated by
the amount so repaid and shall be included within the liabilities of such Loan
Party to the Lenders as of the date such initial payment, reduction or
satisfaction occurred.
Section 10.11 Severability. In case any provision in or
obligation under this Agreement or any Note shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other Jurisdiction, shall not in any way be affected or impaired thereby.
Section 10.12 Survival. All indemnities set forth herein shall
survive the execution and delivery of
40
this Agreement and the Notes and the making and repayment of the Loans
hereunder.
Section 10.13 Limitation of Liability. No claim may be made by
any Loan Party or any other Person against any Lender or any of its Affiliates,
directors, officers, employees, attorneys or agents for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or any other theory of liability arising out of or related to the transactions
contemplated by this Agreement or any act, omission or event occurring in
connection herewith; and each Loan Party hereby waives, releases and agrees not
to xxx upon any claim for any such damages, whether or not accrued and whether
or not known or suspected to exist in its favor. For the avoidance of doubt, the
parties expressly acknowledge and agree that each Lender's obligations under
this Agreement, including without limitation Section 2, are separate and
individual in nature and are not joint and several. In no event shall a Lender
be held responsible for a breach by the other Lender of this Agreement.
Section 10.14 [Reserved.]
Section 10.15 Waiver of Trial by Jury. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, EACH OF THE BORROWER AND EACH LENDER HEREBY IRREVOCABLY
WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
Section 10.16 Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the Interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lenders holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the Interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section 10.16 shall be cumulated and the
Interest and Charges payable to such Lender in respect of other Loans or periods
shall be increased (but not above the Maximum Rate
41
therefor) until such cumulated amount shall have been received by Lenders.
Section 10.17 Senior Indebtedness. The Indebtedness created
pursuant to the Loan Documents shall be senior in right of payment, as to
principal, Interest and all other Obligations, to all other Indebtedness of the
Borrower, whether now existing, or hereafter created, except for Indebtedness
under the Existing Debt Agreements, Purchase Money Indebtedness and Sale and
Leaseback Transactions entered into in accordance with Section 6.6(iv).
Section 10.18 Adjustments; Set-Off. If any Lender (a
"benefitted Lender") shall at any time receive any payment of all or part of its
Loans, or Interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 7, or otherwise), in a greater
proportion than any such payment to or collateral received by any other Lender,
if any, in respect of such other Lender's Loans, or Interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders a participating
interest in such portion of each such other Lender's Loan, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause such benefitted Lender to share the excess
payment or benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
Section 10.19 Merger Agreement. Nothing in this Agreement
shall reduce or relieve any of the Loan Parties from any of their obligations
under the Merger Agreement.
42
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
CDnow, Inc.
By: /s/ Xxxxx Xxxx
------------------------------
Name: Xxxxx Xxxx
Title: President and Chief
Executive Officer
SONY MUSIC ENTERTAINMENT INC.
By: /s/ Xxxxx Xxxxxxxx
------------------------------
Name: Xxxxx Xxxxxxxx
Title: Executive Vice
President and Chief
Financial Officer
TIME WARNER INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Executive Vice
President and Chief
Financial Officer
CDnow, Inc.
SCHEDULES TO
CONVERTIBLE LOAN AGREEMENT, DATED AS OF JULY 12, 1999
BETWEEN CDnow, Inc., SONY MUSIC ENTERTAINMENT INC.
and TIME WARNER INC.
Exhibit A
(to Convertible Loan Agreement)
[Form of Promissory Note]
CDnow, Inc.
PROMISSORY NOTE
$15,000,000 New York, New York
[Date]
FOR VALUE RECEIVED, the undersigned, CDnow, Inc., a
Pennsylvania corporation (the "Borrower"), hereby unconditionally promises to
pay to __________ or registered assigns (the "Lender"), on the Final Maturity
Date (as defined in Credit Agreement referred to below), in lawful money of the
United States of America and in immediately available funds, the principal
amount of Fifteen Million Dollars ($15,000,000) or, if less, the aggregate
amount outstanding of the Loans made by the Lender (as defined in the Credit
Agreement). The Borrower hereby unconditionally further agrees to pay interest
in like money on the unpaid principal amount hereof from time to time from the
date hereof at the rates and on the dates specified in Section 2.5 of the
Convertible Loan Agreement dated as of July 12, 1999 between the Borrower and
the Lender and ___________ (as amended, modified or supplemented from time to
time, the "Credit Agreement").
This Note is one of the Notes referred to in Section 2.4 of the Credit Agreement
and is entitled to the benefits thereof. All of the terms, conditions, and
covenants of the Credit Agreement are expressly made a part of this Note by
reference in the same manner and with the same effect as if set forth herein.
Any transferee of this Note, by its acceptance hereof, agrees to be bound by all
the terms, conditions and covenants of the Credit Agreement applicable to the
holder of a Note.
The principal amount of this Note, together with all accrued and unpaid interest
thereon, is convertible into Common
2
Stock of the Borrower at any time and from time to time, as, and subject to the
conditions and limitations, specified in the Credit Agreement. The Conversion
Price applicable to this Note and any accrued and unpaid Interest hereon shall
be specified in the Credit Agreement, which Conversion Price shall be subject to
adjustment as set forth in the Credit Agreement.
As provided in the Credit Agreement, the Loans evidenced by this Note are
subject to optional and mandatory repayments, in whole and in part, all as
specified in the Credit Agreement.
If an Event of Default, as defined in the Credit Agreement, occurs and is
continuing, all amounts remaining unpaid on this Note shall become, or may be
declared to be, immediately due and payable, all as provided therein.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW).
CDnow, Inc.
By:
--------------------------
Name:
Title:
Schedule of Principal Advances, Conversions and Repayments
Principal
Amount
Amount of Amount of Amount of Converted Interest
Principal Interest Principal into Common Converted into
Date Advance Payment Repayment Stock Common Stock
EXHIBIT B
(to Convertible Loan Agreement)
================================================================================
GUARANTEE AND COLLATERAL AGREEMENT
made by
CDNOW, INC.
and certain of its Subsidiaries
in favor of
TIME WARNER INC.,
as Security Agent
Dated as of _______, 1999
================================================================================
TABLE OF CONTENTS
Page
----
SECTION 1.DEFINED TERMS..................................................................................2
1.1 Definitions............................................................................2
1.2 Other Definitional Provisions..........................................................6
SECTION 2.GUARANTEE......................................................................................6
2.1 Guarantee..............................................................................6
2.2 Right of Contribution..................................................................7
2.3 No Subrogation.........................................................................8
2.4 Amendments, etc. with Respect to the Borrower Obligations..............................8
2.5 Guarantee Absolute and Unconditional...................................................9
2.6 Reinstatement.........................................................................10
2.7 Payments..............................................................................10
SECTION 3.GRANT OF SECURITY INTEREST....................................................................10
SECTION 4.REPRESENTATIONS AND WARRANTIES................................................................11
4.1 Representations in Credit Agreement...................................................11
4.2 Perfected First Priority Liens........................................................12
4.3 Chief Executive Office................................................................12
4.4 Inventory and Equipment...............................................................12
4.5 Pledged Securities....................................................................12
4.6 Receivables...........................................................................13
4.7 Contracts.............................................................................13
4.8 Intellectual Property.................................................................13
SECTION 5.COVENANTS.....................................................................................13
5.1 Covenants in Credit Agreement.........................................................13
5.2 Delivery of Instruments and Chattel Paper.............................................13
5.3 Payment of Obligations................................................................14
5.4 Maintenance of Perfected Security Interest; Further Documentation.....................14
5.5 Changes in Locations, Name, etc.......................................................14
5.6 Notices...............................................................................15
5.7 Pledged Securities....................................................................15
5.8 Intellectual Property.................................................................17
SECTION 6.REMEDIAL PROVISIONS...........................................................................17
6.1 Certain Matters Relating to Receivables...............................................17
6.2 Communications with Obligors; Grantors Remain Liable..................................18
i
6.3 Pledged Stock.........................................................................19
6.4 Proceeds to be Turned Over to Security Agent..........................................20
6.5 Application of Proceeds...............................................................20
6.6 Code and Other Remedies...............................................................21
6.7 Registration Rights...................................................................22
6.8 Waiver; Deficiency....................................................................23
SECTION 7.THE SECURITY AGENT............................................................................23
7.1 Appointment...........................................................................23
7.2 Delegation of Duties..................................................................23
7.3 Exculpatory Provisions................................................................23
7.4 Reliance by Security Agent............................................................24
7.5 Notice of Default.....................................................................24
7.6 Non-Reliance on Security Agent and Other Lenders......................................25
7.7 Indemnification.......................................................................26
7.8 Security Agent in Its Individual Capacity.............................................26
7.9 Security Agent's Appointment as Attorney-in-Fact, etc.................................26
7.10 Duty of Security Agent................................................................29
7.11 Execution of Financing Statements.....................................................29
7.12 Authority of Security Agent...........................................................29
SECTION 8.MISCELLANEOUS.................................................................................30
8.1 Amendments in Writing.................................................................30
8.2 Notices...............................................................................30
8.3 No Waiver by Course of Conduct; Cumulative Remedies...................................30
8.4 Enforcement Expenses; Indemnification.................................................31
8.5 Successors and Assigns................................................................31
8.6 Set-Off...............................................................................31
8.7 Counterparts..........................................................................32
8.8 Severability..........................................................................32
8.9 Section Headings......................................................................32
8.10 Integration...........................................................................33
8.11 GOVERNING LAW.........................................................................33
8.12 Submission To Jurisdiction; Waivers...................................................33
8.13 Acknowledgments.......................................................................34
8.14 WAIVER OF JURY TRIAL..................................................................34
8.15 Additional Grantors...................................................................34
8.16 Releases..............................................................................34
ii
Schedules
---------
Schedule 1 Addresses for Notices
Schedule 2 Pledged Securities
Schedule 3 Actions for Perfection
Schedule 4 Chief Executive Offices
Schedule 5 Locations of Inventory and Equipment
Schedule 6 Intellectual Property
Schedule 7 Contracts
iii
Exhibit B
(to Convertible Loan Agreement)
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of _______, 1999,
made by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the "Grantors"), in favor of TIME
WARNER INC., as Security Agent (in such capacity, the "Security Agent") for TIME
WARNER INC. and SONY MUSIC ENTERTAINMENT INC. (the "Lenders") under the
Convertible Loan Agreement, dated as of July 12, 1999 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among CDnow,
Inc. (the "Borrower") and the Lenders.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Borrower upon the terms and
subject to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated
group of companies that includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the
Credit Agreement will be used in part to enable the Borrower to make valuable
transfers to one or more of the other Grantors in connection with the operation
of their respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in
related businesses, and each Grantor will derive substantial direct and indirect
benefit from the making of the extensions of credit under the Credit Agreement;
and
WHEREAS, it is a condition precedent to the obligation of the
Lenders to make their respective extensions of credit to the Borrower under the
Credit Agreement that the Grantors shall have executed and delivered this
Agreement to the Security Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce
the Lenders to enter into the Credit Agreement and to induce the Lenders to make
their respective extensions of credit to the Borrower thereunder, each
2
Grantor hereby agrees with the Security Agent, for the ratable benefit of the
Lenders, as follows: 2
SECTION 1.
DEFINED TERMS
-------------
1.1 Definitions. (1) Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement, and the following terms which are defined in the
Uniform Commercial Code in effect in the State of New York on the date hereof
are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment,
Farm Products, Instruments, Inventory and Investment Property.
(2) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the
same may be amended, supplemented or otherwise modified from time to time.
"Borrower Obligations": the collective reference to the unpaid
principal of and interest on the Loans and all other obligations and liabilities
of the Borrower (including, without limitation, interest accruing at the then
applicable rate provided in the Credit Agreement after the maturity of the Loans
and interest accruing at the then applicable rate provided in the Credit
Agreement after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) to the Security Agent or any Lender, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Loan Documents, or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Security Agent or to the Lenders that
are required to be paid by the Borrower pursuant to the terms of any of the
foregoing agreements).
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by
the Security Agent as provided in Section 6.1 or 6.4.
3
"Contracts": the contracts and agreements listed in Schedule
7, as the same may be amended, supplemented or otherwise modified from time to
time, including, without limitation, (i) all rights of any Grantor to receive
moneys due and to become due to it thereunder or in connection therewith, (ii)
all rights of any Grantor to damages arising thereunder and (iii) all rights of
any Grantor to perform and to exercise all remedies thereunder.
"Copyright Licenses": any written agreement naming any Grantor
as licensor or licensee (including, without limitation, those listed in Schedule
6), granting any right under any Copyright, including, without limitation, the
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.
"Copyrights": (i) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those listed in Schedule 6), all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, and (ii) the right to obtain all renewals thereof.
"General Intangibles": all "general intangibles" as such term
is defined in Article 9 of the Uniform Commercial Code in effect in the State of
New York on the date hereof and, in any event, including, without limitation,
with respect to any Grantor, all contracts, agreements, instruments and
indentures in any form, and portions thereof, to which such Grantor is a party
or under which such Grantor has any right, title or interest or to which such
Grantor or any property of such Grantor is subject, as the same may from time to
time be amended, supplemented or otherwise modified, including, without
limitation, (i) all rights of such Grantor to receive moneys due and to become
due to it thereunder or in connection therewith, (ii) all rights of such Grantor
to damages arising thereunder and (iii) all rights of such Grantor to perform
and to exercise all remedies thereunder, in each case to the extent the grant by
such Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture is not
prohibited by such contract, agreement, instrument or indenture without the
consent of any other
4
party thereto, would not give any other party to such contract, agreement,
instrument or indenture the right to terminate its obligations thereunder, or is
permitted with consent if all necessary consents to such grant of a security
interest have been obtained from the other parties thereto (it being understood
that the foregoing shall not be deemed to obligate such Grantor to obtain such
consents); provided, that the foregoing limitation shall not affect, limit,
restrict or impair the grant by such Grantor of a security interest pursuant to
this Agreement in any Receivable or any money or other amounts due or to become
due under any such contract, agreement, instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the
collective reference to (i) the Borrower Obligations and (ii) all obligations
and liabilities of such Guarantor which may arise under or in connection with
this Agreement or any other Loan Document to which such Guarantor is a party, in
each case whether on account of guarantee obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to the Security Agent or to the Lenders that are required to be paid
by such Guarantor pursuant to the terms of this Agreement or any other Loan
Document).
"Guarantors": the collective reference to each Grantor other
than the Borrower.
"Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all
rights to xxx at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.
"Intercompany Note": any promissory note evidencing loans made
by any Grantor to any Grantor or any of their Subsidiaries.
"Issuers": the collective reference to each issuer of a
Pledged Security.
5
"New York UCC": the Uniform Commercial Code as from time to
time in effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to any Grantor of any right to manufacture, use or
sell any invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 6.
"Patents": (i) all letters patent of the United States, any
other country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without limitation,
any of the foregoing referred to in Schedule 6, (ii) all applications for
letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, including, without limitation,
any of the foregoing referred to in Schedule 6, and (iii) all rights to obtain
any reissues or extensions of the foregoing.
"Pledged Notes": all promissory notes listed on Schedule 2,
all Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than promissory notes
issued in connection with extensions of trade credit by any Grantor in the
ordinary course of business).
"Pledged Securities": the collective reference to the Pledged
Notes and the Pledged Stock.
"Pledged Stock": the Equity Securities listed on Schedule 2,
together with any other shares, stock certificates, options or rights of any
nature whatsoever in respect of the Equity Securities of any Person that may be
issued or granted to, or held by, any Grantor while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Article
9 of the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Securities, collections thereon or distributions
or payments with respect thereto.
6
"Receivable": any right to payment for goods sold or leased or
for services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
"Trademark License": any agreement, whether written or oral,
providing for the grant by or to any Grantor of any right to use any Trademark,
including, without limitation, any of the foregoing referred to in Schedule 6.
"Trademarks": (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common-law
rights related thereto, including, without limitation, any of the foregoing
referred to in Schedule 6, and (ii) the right to obtain all renewals thereof.
1.2 Other Definitional Provisions. (1) The words "hereof,"
"herein," "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section and Schedule references are to this
Agreement unless otherwise specified.
(2) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(3) Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to a Grantor, shall refer
to such Grantor's Collateral or the relevant part thereof.
7
SECTION 2.
GUARANTEE
---------
2.1 Guarantee. (1) Each of the Guarantors hereby, jointly and
severally, unconditionally and irrevocably, guarantees to the Security Agent,
for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(2) Anything herein or in any other Loan Document to the
contrary notwithstanding, the maximum liability of each Guarantor hereunder and
under the other Loan Documents shall in no event exceed the amount which can be
guaranteed by such Guarantor under applicable federal and state laws relating to
the insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(3) Each Guarantor agrees that the Borrower Obligations
may at any time and from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing the guarantee contained in this Section 2
or affecting the rights and remedies of the Security Agent or any Lender
hereunder.
(4) The guarantee contained in this Section 2 shall remain
in full force and effect until all the Borrower Obligations and the obligations
of each Guarantor under the guarantee contained in this Section 2 shall have
been satisfied by payment in full and the Loan Commitment shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Borrower Obligations.
(5) No payment made by the Borrower, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Security Agent or any Lender from the Borrower, any of the Guarantors, any
other guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such
8
payment (other than any payment made by such Guarantor in respect of the
Borrower Obligations or any payment received or collected from such Guarantor in
respect of the Borrower Obligations), remain liable for the Borrower Obligations
up to the maximum liability of such Guarantor hereunder until the Borrower
Obligations are paid in full and the Loan Commitment is terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate share
of any payment made hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor hereunder which has
not paid its proportionate share of such payment. Each Guarantor's right of
contribution shall be subject to the terms and conditions of Section 2.3. The
provisions of this Section 2.2 shall in no respect limit the obligations and
liabilities of any Guarantor to the Security Agent and the Lenders, and each
Guarantor shall remain liable to the Security Agent and the Lenders for the full
amount guaranteed by such Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Security Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Security Agent or any Lender against the
Borrower or any other Guarantor or any collateral security or guarantee or right
of offset held by the Security Agent or any Lender for the payment of the
Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing to
the Security Agent and the Lenders by the Borrower on account of the Borrower
Obligations are paid in full and the Loan Commitment is terminated. If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Borrower Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Security Agent and
the Lenders, segregated from other funds of such Guarantor, and shall, forthwith
upon receipt by such Guarantor, be turned over to the Security Agent in the
exact form received by such Guarantor (duly indorsed by such Guarantor to the
Security Agent, if required), to be applied against the Borrower Obligations,
whether matured or unmatured, in such order as the Security Agent may determine.
9
2.4 Amendments, etc. with Respect to the Borrower Obligations.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Security Agent or any Lender may be rescinded by the
Security Agent or such Lender and any of the Borrower Obligations continued, and
the Borrower Obligations, or the liability of any other Person upon or for any
part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Security Agent or any Lender, and the Credit
Agreement and the other Loan Documents and any other documents executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Security Agent (or the Lenders, as the
case may be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Security Agent or any
Lender for the payment of the Borrower Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Security Agent nor any Lender shall
have any obligation to protect, secure, perfect or insure any Lien at any time
held by it as security for the Borrower Obligations or for the guarantee
contained in this Section 2 or any property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Borrower Obligations and notice of or proof of reliance by the Security
Agent or any Lender upon the guarantee contained in this Section 2 or acceptance
of the guarantee contained in this Section 2; the Borrower Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon the
guarantee contained in this Section 2; and all dealings between the Borrower and
any of the Guarantors, on the one hand, and the Security Agent and the Lenders,
on the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this Section 2. Each
Guarantor waives diligence, presentment, protest, demand for payment and notice
of default or nonpayment to or upon the Borrower or any of the Guarantors with
respect to
10
the Borrower Obligations. Each Guarantor understands and agrees that the
guarantee contained in this Section 2 shall be construed as a continuing,
absolute and unconditional guarantee of payment without regard to (a) the
validity or enforceability of the Credit Agreement or any other Loan Document,
any of the Borrower Obligations or any other collateral security therefor or
guarantee or right of offset with respect thereto at any time or from time to
time held by the Security Agent or any Lender, (b) any defense, set- off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Borrower or any other Person against
the Security Agent or any Lender, or (c) any other circumstance whatsoever (with
or without notice to or knowledge of the Borrower or such Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Borrower Obligations, or of such Guarantor
under the guarantee contained in this Section 2, in bankruptcy or in any other
instance. When making any demand hereunder or otherwise pursuing its rights and
remedies hereunder against any Guarantor, the Security Agent or any Lender may,
but shall be under no obligation to, make a similar demand on or otherwise
pursue such rights and remedies as it may have against the Borrower, any other
Guarantor or any other Person or against any collateral security or guarantee
for the Borrower Obligations or any right of offset with respect thereto, and
any failure by the Security Agent or any Lender to make any such demand, to
pursue such other rights or remedies or to collect any payments from the
Borrower, any other Guarantor or any other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any
release of the Borrower, any other Guarantor or any other Person or any such
collateral security, guarantee or right of offset, shall not relieve any
Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Security Agent or any Lender against any Guarantor. For
the purposes hereof "demand" shall include the commencement and continuance of
any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2
shall continue to be effective, or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any of the Borrower Obligations is
rescinded or must otherwise be restored or returned by the Security Agent or any
Lender upon the insolvency,
11
bankruptcy, dissolution, liquidation or reorganization of the Borrower or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Borrower or any
Guarantor or any substantial part of its property, or otherwise, all as though
such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Security Agent without set-off or counterclaim in
the lawful money of the United States of America at the office of the Security
Agent set forth in Schedule 1.
SECTION 3.
GRANT OF SECURITY INTEREST
--------------------------
Each Grantor hereby assigns and transfers to the Security
Agent, and hereby grants to the Security Agent, for the ratable benefit of the
Lenders, a security interest in, all of the following property now owned or at
any time hereafter acquired by such Grantor or in which such Grantor now has or
at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"), as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of such Grantor's Obligations:
(1) all Accounts;
(2) all Chattel Paper;
(3) all Contracts;
(4) all Documents;
(5) all Equipment;
(6) all General Intangibles;
(7) all Instruments;
(8) all Intellectual Property;
(9) all Inventory;
12
(10) all Pledged Securities and other
Investment Property;
(11) all books and records pertaining to the
Collateral; and
(12) to the extent not otherwise included,
all Proceeds and products of any and all of the foregoing and all collateral
security and guarantees given by any Person with respect to any of the
foregoing.
SECTION 4.
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lenders to enter into the Credit Agreement and
to induce the Lenders to make their respective extensions of credit to the
Borrower thereunder, each Grantor hereby represents and warrants to the Security
Agent and each Lender that:
4.1 Representations in Credit Agreement In the case of each
Guarantor, the representations and warranties set forth in Section 4 of the
Credit Agreement as they relate to such Guarantor or to the Loan Documents to
which such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Security Agent and each Lender shall be
entitled to rely on each of them as if they were fully set forth herein,
provided that each reference in each such representation and warranty to the
Borrower's knowledge shall, for the purposes of this Section 4.1, be deemed to
be a reference to such Guarantor's knowledge.
4.2 Perfected First Priority Liens. The security interests
granted pursuant to this Agreement (1) upon completion of the filings and other
actions specified on Schedule 3 (which, in the case of all filings and other
documents referred to on said Schedule, have been delivered to the Security
Agent in completed and duly executed form) will constitute valid perfected
security interests in all of the Collateral in favor of the Security Agent, for
the ratable benefit of the Lenders, as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such
13
Grantor and (2) are prior to all other Liens on the Collateral in existence on
the date hereof except for unrecorded Liens permitted by the Credit Agreement
which have priority over the Liens on the Collateral by operation of law.
4.3 Chief Executive Office. On the date hereof, such Grantor's
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
4.4 Inventory and Equipment. On the date hereof, the Inventory
and the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
4.5 Pledged Securities. (1) The shares of Pledged Stock
pledged by such Grantor hereunder constitute all the issued and outstanding
shares of all classes of the Equity Securities of each Issuer owned by such
Grantor.
(2) Except as set forth on Schedule 2, all the shares of
the Pledged Stock have been duly and validly issued and are fully paid and
nonassessable.
(3) Each of the Pledged Notes constitutes the legal, valid
and binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(4) Such Grantor is the record and beneficial owner of,
and has good and marketable title to, the Pledged Securities pledged by it
hereunder, free of any and all Liens or options in favor of, or claims of, any
other Person, except the security interest created by this Agreement.
4.6 Receivables. No material amount payable to such Grantor
under or in connection with any Receivable is evidenced by any Instrument or
Chattel Paper which has not been delivered to the Security Agent.
4.7 Contracts. (1) No consent of any party (other than such
Grantor) purports to be required,
14
purports to be required, in connection with the execution, delivery and
performance of this Agreement.
(2) No material amount payable to such Grantor under or in
connection with any Contract is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Security Agent.
4.8 Intellectual Property. Schedule 6 lists all Intellectual
Property owned by such Grantor in its own name on the date hereof.
SECTION 5.
COVENANTS
---------
Each Grantor covenants and agrees with the Security Agent and
the Lenders that, from and after the date of this Agreement until the
Obligations shall have been paid in full and the Loan Commitment shall have
terminated:
5.1 Covenants in Credit Agreement. In the case of each
Guarantor, such Guarantor shall take, or shall refrain from taking, as the case
may be, each action that is necessary to be taken or not taken, as the case may
be, so that no Default or Event of Default is caused by the failure to take such
action or to refrain from taking such action by such Guarantor or any of its
Subsidiaries.
5.2 Delivery of Instruments and Chattel Paper. If any material
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Security Agent, duly indorsed in a
manner satisfactory to the Security Agent, to be held as Collateral pursuant to
this Agreement.
5.3 Payment of Obligations. Such Grantor will pay and
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, assessments and governmental charges
or levies imposed upon the Collateral or in respect of income or profits
therefrom, as well as all claims of any kind (including, without limitation,
claims for labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if the amount or validity
thereof is currently being contested in good faith by appropriate proceedings,
reserves in conformity with GAAP
15
with respect thereto have been provided on the books of such Grantor and such
proceedings could not reasonably be expected to result in the sale, forfeiture
or loss of any material portion of the Collateral or any interest therein.
5.4 Maintenance of Perfected Security Interest; Further
Documentation. (1) Such Grantor shall maintain the security interest created by
this Agreement as a perfected security interest having at least the priority
described in Section 4.2 and shall defend such security interest against the
claims and demands of all Persons whomsoever.
(2) Such Grantor will furnish to the Security Agent and
the Lenders from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Security Agent may reasonably request, all in reasonable
detail.
(3) At any time and from time to time, upon the written
request of the Security Agent, and at the sole expense of such Grantor, such
Grantor will promptly and duly execute and deliver, and have recorded, such
further instruments and documents and take such further actions as the Security
Agent may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby.
5.5 Changes in Locations, Name, etc. Such Grantor will not,
except upon 30 days' prior written notice to the Security Agent and delivery to
the Security Agent of (a) all additional executed financing statements and other
documents reasonably requested by the Security Agent to maintain the validity,
perfection and priority of the security interests provided for herein and (b) if
applicable, a written supplement to Schedule 5 showing any additional location
at which Inventory or Equipment shall be kept:
(1) permit any of the Inventory or Equipment to be kept at
a location other than those listed on Schedule 5;
16
(2) change the location of its chief executive office or
sole place of business from that referred to in Section 4.3; or
(3) change its name, identity or corporate structure to
such an extent that any financing statement filed by the Security Agent in
connection with this Agreement would become misleading.
5.6 Notices. Such Grantor will advise the Security Agent and
the Lenders promptly, in reasonable detail, of:
(1) any Lien (other than security interests created hereby
or Liens permitted under the Credit Agreement) on any of the Collateral; and
(2) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the aggregate value
of the Collateral or on the security interests created hereby.
5.7 Pledged Securities. (1) If such Grantor shall become
entitled to receive or shall receive any certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Equity Securities of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the
same as the agent of the Security Agent and the Lenders, hold the same in trust
for the Security Agent and the Lenders and deliver the same forthwith to the
Security Agent in the exact form received, duly indorsed by such Grantor to the
Security Agent, if required, together with an undated stock power covering such
certificate duly executed in blank by such Grantor and with, if the Security
Agent so requests, signature guaranteed, to be held by the Security Agent,
subject to the terms hereof, as additional collateral security for the
Obligations. Any sums paid upon or in respect of the Pledged Securities upon the
liquidation or dissolution of any Issuer shall be paid over to the Security
Agent to be held by it hereunder as additional collateral security for the
Obligations, and in case any distribution of capital shall be made on or in
respect of the Pledged Securities or any property shall be
17
distributed upon or with respect to the Pledged Securities pursuant to the
recapitalization or reclassification of the capital of any Issuer or pursuant to
the reorganization thereof, the property so distributed shall, unless otherwise
subject to a perfected security interest in favor of the Security Agent, be
delivered to the Security Agent to be held by it hereunder as additional
collateral security for the Obligations. If any sums of money or property so
paid or distributed in respect of the Pledged Securities shall be received by
such Grantor, such Grantor shall, until such money or property is paid or
delivered to the Security Agent, hold such money or property in trust for the
Lenders, segregated from other funds of such Grantor, as additional collateral
security for the Obligations.
(2) Without the prior written consent of the Security
Agent, such Grantor will not (i) sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Pledged Securities or
Proceeds thereof (except pursuant to a transaction expressly permitted by the
Credit Agreement), (ii) create, incur or permit to exist any Lien or option in
favor of, or any claim of any Person with respect to, any of the Pledged
Securities or Proceeds thereof, or any interest therein, except for the security
interests created by this Agreement or (iii) enter into any agreement or
undertaking restricting the right or ability of such Grantor or the Security
Agent to sell, assign or transfer any of the Pledged Securities or Proceeds
thereof.
(3) In the case of each Grantor which is an Issuer, such
Issuer agrees that (i) it will be bound by the terms of this Agreement relating
to the Pledged Securities issued by it and will comply with such terms insofar
as such terms are applicable to it, (ii) it will notify the Security Agent
promptly in writing of the occurrence of any of the events described in Section
5.7(a) with respect to the Pledged Securities issued by it and (iii) the terms
of Sections 6.3(c) shall apply to it, mutatis mutandis, with respect to all
actions that may be required of it pursuant to Section 6.3(c) with respect to
the Pledged Securities issued by it.
5.8 Intellectual Property. (1) Whenever such Grantor, either
by itself or through any agent, employee, licensee or designee, shall file an
application for the registration of any Intellectual Property with the United
States Patent and Trademark Office, the United States
18
Copyright Office or any similar office or agency in any other country or any
political subdivision thereof, such Grantor shall report such filing to the
Security Agent within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Security Agent, such
Grantor shall execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as the Security Agent may request to evidence
the Security Agent's and the Lenders' security interest in any Copyright, Patent
or Trademark and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby.
(2) Such Grantor will take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United States
Patent and Trademark Office, the United States Copyright Office or any similar
office or agency in any other country or any political subdivision thereof, to
maintain and pursue each application (and to obtain the relevant registration)
and to maintain each registration of the material Intellectual Property,
including, without limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.
SECTION 6.
REMEDIAL PROVISIONS
-------------------
6.1 Certain Matters Relating to Receivables. (1) The Security
Agent hereby authorizes each Grantor to collect such Grantor's Receivables,
subject to the Security Agent's reasonable direction and control, and the
Security Agent may curtail or terminate said authority at any time after the
occurrence and during the continuance of an Event of Default. If required by the
Security Agent at any time after the occurrence and during the continuance of an
Event of Default, any payments of Receivables, when collected by any Grantor,
(i) shall be forthwith (and, in any event, within two Business Days) deposited
by such Grantor in the exact form received, duly indorsed by such Grantor to the
Security Agent if required, in a Collateral Account maintained under the sole
dominion and control of the Security Agent, subject to withdrawal by the
Security Agent for the account of the Lenders only as provided in Section 6.5,
and (ii) until so turned over, shall be held by such Grantor in trust for the
19
Security Agent and the Lenders, segregated from other funds of such Grantor.
Each such deposit of Proceeds of Receivables shall be accompanied by a
report identifying in reasonable detail the nature and
source of the payments included in the deposit.
(2) At the Security Agent's request, each Grantor shall
deliver to the Security Agent all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to the Receivables,
including, without limitation, all original orders, invoices and shipping
receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (1)
The Security Agent in its own name or in the name of others may at any time
after the occurrence and during the continuance of an Event of Default
communicate with obligors under the Receivables and parties to the Contracts to
verify with them to the Security Agent's satisfaction the existence, amount and
terms of any Receivables or Contracts.
(2) Upon the request of the Security Agent at any time
after the occurrence and during the continuance of an Event of Default, each
Grantor shall notify obligors on the Receivables and parties to the Contracts
that the Receivables and the Contracts have been assigned to the Security Agent
for the ratable benefit of the Lenders and that payments in respect thereof
shall be made directly to the Security Agent.
(3) Anything herein to the contrary notwithstanding, each
Grantor shall remain liable under each of the Receivables and Contracts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise thereto. Neither the Security Agent nor any Lender shall have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) or Contract by reason of or arising out of this Agreement or the
receipt by the Security Agent or any Lender of any payment relating thereto, nor
shall the Security Agent or any Lender be obligated in any manner to perform any
of the obligations of any Grantor under or pursuant to any Receivable (or any
agreement giving rise thereto) or Contract, to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as
to the sufficiency of any performance by any party thereunder, to present or
file any claim, to take any action
20
to enforce any performance or to collect the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
6.3 Pledged Stock. (1) Unless an Event of Default shall have
occurred and be continuing and the Security Agent shall have given notice to the
relevant Grantor of the Security Agent's intent to exercise its corresponding
rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive
all cash dividends paid in respect of the Pledged Stock and all payments made in
respect of the Pledged Notes, in each case paid in the normal course of business
of the relevant Issuer and consistent with past practice, to the extent
permitted in the Credit Agreement, and to exercise all voting and corporate
rights with respect to the Pledged Securities; provided, however, that no vote
shall be cast or corporate right exercised or other action taken which, in the
Security Agent's reasonable judgment, would impair the Collateral or which would
be inconsistent with or result in any violation of any provision of the Credit
Agreement, this Agreement or any other Loan Document.
(2) If an Event of Default shall occur and be continuing
and the Security Agent shall give notice of its intent to exercise such rights
to the relevant Grantor or Grantors, (i) the Security Agent shall have the right
to receive any and all cash dividends, payments or other Proceeds paid in
respect of the Pledged Securities and make application thereof to the
Obligations in such order as the Security Agent may determine, and (ii) any or
all of the Pledged Securities shall be registered in the name of the Security
Agent or its nominee, and the Security Agent or its nominee may thereafter
exercise (x) all voting, corporate and other rights pertaining to such Pledged
Securities at any meeting of shareholders of the relevant Issuer or Issuers or
otherwise and (y) any and all rights of conversion, exchange and subscription
and any other rights, privileges or options pertaining to such Pledged
Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization or
other fundamental change in the corporate structure of any Issuer, or upon the
exercise by any Grantor or the Security Agent of any right, privilege or option
pertaining to such Pledged Securities, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Securities
21
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Security Agent may determine), all
without liability except to account for property actually received by it, but
the Security Agent shall have no duty to any Grantor to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
(3) Each Grantor hereby authorizes and instructs each
Issuer of any Pledged Securities pledged by such Grantor hereunder to (i) comply
with any instruction received by it from the Security Agent in writing that (x)
states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each Issuer
shall be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Security Agent.
6.4 Proceeds to be Turned Over to Security Agent. In addition
to the rights of the Security Agent and the Lenders specified in Section 6.1
with respect to payments of Receivables, if an Event of Default shall occur and
be continuing, all Proceeds received by any Grantor consisting of cash, checks
and other near-cash items shall be held by such Grantor in trust for the
Security Agent and the Lenders, segregated from other funds of such Grantor, and
shall, forthwith upon receipt by such Grantor, be turned over to the Security
Agent in the exact form received by such Grantor (duly indorsed by such Grantor
to the Security Agent, if required). All Proceeds received by the Security Agent
hereunder shall be held by the Security Agent in a Collateral Account maintained
under its sole dominion and control. All Proceeds while held by the Security
Agent in a Collateral Account (or by such Grantor in trust for the Security
Agent and the Lenders) shall continue to be held as collateral security for all
the Obligations and shall not constitute payment thereof until applied as
provided in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be
agreed upon by the Borrower and the Security Agent, or, if an Event of Default
shall have occurred and be continuing, at any time at the Security Agent's
election, the Security Agent may apply all or any part of Proceeds
22
held in any Collateral Account in payment of the Obligations as follows:
First, to the extent not theretofore paid by or on behalf of
any Loan Party, to pay all fees, costs, expenses of the Security Agent and the
Lenders incurred in connection with the performance of their duties hereunder or
under the Loan Documents, as the case may be, including attorneys' fees and
expenses and any other amounts payable to the Security Agent and the Lenders
hereunder or under any of the Loan Documents in respect of any indemnities;
Second, to the Lenders pro rata in accordance with
the aggregate amount of Interest owed to such Lenders;
Third, to the Lenders pro rata in accordance with the
aggregate amount of all other Obligations held by such Lenders;
Fourth, the balance, if any, to the Grantor or such other
person or persons as are entitled thereto.
Any balance of such Proceeds remaining after the Obligations shall have been
paid in full and the Loan Commitment shall have terminated shall be paid over to
the Borrower or to whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall
occur and be continuing, the Security Agent, on behalf of the Lenders, may
exercise, in addition to all other rights and remedies granted to them in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the New York UCC or any other applicable law. Without limiting the generality of
the foregoing, the Security Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon any Grantor or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any exchange, broker's board or office of the
23
Security Agent or any Lender or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Security Agent
or any Lender shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in any Grantor, which right or equity is hereby waived and released.
Each Grantor further agrees, at the Security Agent's request, to assemble the
Collateral and make it available to the Security Agent at places which the
Security Agent shall reasonably select, whether at such Grantor's premises or
elsewhere. The Security Agent shall apply the net proceeds of any action taken
by it pursuant to this Section 6.6, after deducting all reasonable costs and
expenses of every kind incurred in connection therewith or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Security Agent and the Lenders hereunder,
including, without limitation, reasonable attorneys' fees and disbursements, to
the payment in whole or in part of the Obligations, in the order set forth in
Section 6.5, and only after such application and after the payment by the
Security Agent of any other amount required by any provision of law, including,
without limitation, Section 9-504(1)(c) of the New York UCC, need the Security
Agent account for the surplus, if any, to any Grantor. To the extent permitted
by applicable law, each Grantor waives all claims, damages and demands it may
acquire against the Security Agent or any Lender arising out of the exercise by
them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition.
6.7 Registration Rights. Each Grantor recognizes that the
Security Agent may be unable to effect a public sale of any or all the Pledged
Stock, by reason of certain prohibitions contained in the Securities Act and
applicable state securities laws or otherwise, and may be compelled to resort to
one or more private sales thereof to a restricted group of purchasers which will
be obliged to agree, among other things, to acquire such securities for their
own account for investment and not with a view to the distribution or resale
thereof. Each Grantor acknowledges and agrees that any such private sale may
result in prices
24
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Security Agent
shall be under no obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit the Issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such Issuer would agree to do so.
6.8 Waiver; Deficiency. To the extent permitted by applicable
law, each Grantor waives and agrees not to assert any rights or privileges which
it may acquire under Section 9-112 of the New York UCC. Each Grantor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay its Obligations and the
fees and disbursements of any attorneys employed by the Security Agent or any
Lender to collect such deficiency.
SECTION 7.
THE SECURITY AGENT
------------------
7.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Security Agent as the agent of such Lender under this Agreement and
the other Loan Documents, and each such Lender irrevocably authorizes the
Security Agent, in such capacity, to take such action on its behalf under the
provisions of this Agreement and the other Loan Documents and to exercise such
powers and perform such duties as are expressly delegated to the Security Agent
by the terms of this Agreement and the other Loan Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Agreement, the Security Agent shall not have
any duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Security
Agent. The Security Agent shall not take any action to foreclose upon, sell or
otherwise realize upon any Collateral unless directed to do so by the Lenders
acting jointly.
25
7.2 Delegation of Duties. The Security Agent may execute any
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Security Agent shall not
be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
7.3 Exculpatory Provisions. Neither the Security Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its breach of this Agreement or its or such Person's own
gross negligence or willful misconduct) or (ii) responsible in any manner to any
of the Lenders for any recitals, statements, representations or warranties made
by any Grantor or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Security Agent under or in
connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of any Grantor to
perform its obligations hereunder or thereunder. The Security Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Grantor.
7.4 Reliance by Security Agent. The Security Agent shall be
entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to any Grantor), independent accountants
and other experts selected by the Security Agent. The Security Agent may deem
and treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Security
26
Agent. The Security Agent shall be fully justified in failing or refusing to
take any action under this Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Lenders as it deems appropriate
or it shall first be indemnified to its satisfaction by the Lenders against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Security Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
and the other Loan Documents in accordance with a request of the Lenders, acting
jointly, and such request and any action taken or failure to act pursuant
thereto shall be binding upon the Lenders and all future holders of the Loans.
7.5 Notice of Default. The Security Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Security Agent has received notice from a Lender or the
Borrower referring to the Credit Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Security Agent receives such a notice, the Security Agent shall give notice
thereof to the Lenders. The Security Agent shall take such action with respect
to such Default or Event of Default as shall be reasonably directed by the
Lenders, acting jointly.
7.6 Non-Reliance on Security Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Security Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Security Agent
hereinafter taken, including any review of the affairs of the Borrower, shall be
deemed to constitute any representation or warranty by the Security Agent to any
Lender. Each Lender represents to the Security Agent that it has, independently
and without reliance upon the Security Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Grantors and made its
own decision to make its Loans under the Credit Agreement and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Security Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and
27
decisions in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Security
Agent hereunder, the Security Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Grantor which may come into the possession of the
Security Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
7.7 Indemnification. The Lenders agree to indemnify the
Security Agent in its capacity as such (to the extent not reimbursed by the
Grantor and without limiting the obligation of the Grantor to do so), ratably,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on, incurred by or asserted
against the Security Agent in any way relating to or arising out of, the Loan
Commitment, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Security
Agent under or in connection with any of the foregoing; provided that no Lender
shall be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Security Agent's breach of this
Agreement, gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Loans and all other amounts payable
hereunder.
7.8 Security Agent in Its Individual Capacity. The Security
Agent and its Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with the Grantor as though the Security Agent
were not the Security Agent hereunder and under the other Loan Documents. With
respect to the Loans made by it, the Security Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not the Security
28
Agent, and the terms "Lender" and "Lenders" shall include the Security Agent in
its individual capacity.
7.9 Security Agent's Appointment as Attorney-in- Fact, etc.
(1) Each Grantor hereby irrevocably constitutes and appoints the Security Agent
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of such Grantor and in the name of such Grantor or in its own
name, for the purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, each Grantor
hereby gives the Security Agent the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do any or all of the following:
(1) in the name of such Grantor or its own name, or
otherwise, take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Receivable or Contract or with respect to any
other Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Security Agent for the purpose of collecting any and
all such moneys due under any Receivable or Contract or with respect to
any other Collateral whenever payable;
(2) in the case of any Intellectual Property, execute and
deliver, and have recorded, any and all agreements, instruments,
documents and papers as the Security Agent may request to evidence the
Security Agent's and the Lenders' security interest in such
Intellectual Property and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby;
(3) pay or discharge taxes and Liens levied or placed on
or threatened against the Collateral, effect any repairs or any
insurance called for by the terms of this Agreement and pay all or any
part of the premiums therefor and the costs thereof;
(4) execute, in connection with any sale provided for in
Section 6.6 or 6.7, any
29
indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(5) direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become
due thereunder directly to the Security Agent or as the Security Agent
shall direct;
(6) ask or demand for, collect, and receive payment of
and receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral;
(7) sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral;
(8) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any portion thereof and to enforce any
other right in respect of any Collateral;
(9) defend any suit, action or proceeding brought against
such Grantor with respect to any Collateral;
(10) settle, compromise or adjust any such suit, action or
proceeding and, in connection therewith, give such discharges or
releases as the Security Agent may deem appropriate;
(11) assign any Copyright, Patent or Trademark (along with
the goodwill of the business to which any such Copyright, Patent or
Trademark pertains), throughout the world for such term or terms, on
such conditions, and in such manner, as the Security Agent shall in its
sole discretion determine; and
(12) generally, sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Security Agent were the absolute
owner thereof for all purposes, and do, at the Security Agent's option
and such
30
Grantor's expense, at any time, or from time to time, all acts and
things which the Security Agent deems necessary to protect, preserve or
realize upon the Collateral and the Security Agent's and the Lenders'
security interests therein and to effect the intent of this Agreement,
all as fully and effectively as such Grantor might do.
Anything in this Section 7.9(1) to the contrary
notwithstanding, the Security Agent agrees that it will not exercise any rights
under the power of attorney provided for in this Section 7.9(1) unless an Event
of Default shall have occurred and be continuing.
(2) If any Grantor fails to perform or comply with any of
its agreements contained herein, the Security Agent, at its option, but without
any obligation so to do, may perform or comply, or otherwise cause performance
or compliance, with such agreement.
(3) The expenses of the Security Agent incurred in
connection with actions undertaken as provided in this Section 7.9, together
with interest thereon at a rate per annum equal to the Interest Rate, from the
date of payment by the Security Agent to the date reimbursed by the relevant
Grantor, shall be payable by such Grantor to the Security Agent on demand.
(4) Each Grantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. All powers,
authorizations and agencies contained in this Agreement are coupled with an
interest and are irrevocable until this Agreement is terminated and the security
interests created hereby are released.
7.10 Duty of Security Agent. The Security Agent's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Security Agent
deals with similar property for its own account. Neither the Security Agent, any
Lender nor any of their respective officers, directors, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Grantor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on
31
the Security Agent and the Lenders hereunder are solely to protect the Security
Agent's and the Lenders' interests in the Collateral and shall not impose any
duty upon the Security Agent or any Lender to exercise any such powers. The
Security Agent and the Lenders shall be accountable only for amounts that they
actually receive as a result of the exercise of such powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to any Grantor for any act or failure to act hereunder, except for their own
breach of Agreement, gross negligence or willful misconduct.
7.11 Execution of Financing Statements. Pursuant to Section
9-402 of the New York UCC and any other applicable law, each Grantor authorizes
the Security Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the
signature of such Grantor in such form and in such offices as the Security Agent
reasonably determines appropriate to perfect the security interests of the
Security Agent under this Agreement. A photographic or other reproduction of
this Agreement shall be sufficient as a financing statement or other filing or
recording document or instrument for filing or recording in any jurisdiction.
7.12 Authority of Security Agent. Each Grantor acknowledges
that the rights and responsibilities of the Security Agent under this Agreement
with respect to any action taken by the Security Agent or the exercise or non-
exercise by the Security Agent of any option, voting right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Security Agent and the Lenders, be governed by
subsections 7.1 to 7.8 hereof and by such other agreements with respect thereto
as may exist from time to time among them, but, as between the Security Agent
and the Grantors, the Security Agent shall be conclusively presumed to be acting
as agent for the Lenders with full and valid authority so to act or refrain from
acting, and no Grantor shall be under any obligation, or entitlement, to make
any inquiry respecting such authority.
SECTION 8.
MISCELLANEOUS
-------------
32
8.1 Amendments in Writing. None of the terms or provisions of
this Agreement may be waived, amended, supplemented or otherwise modified except
by a written instrument executed by each affected Grantor and the Security Agent
with the consent of each Lender.
8.2 Notices. All notices, requests and demands to or upon the
Security Agent or any Grantor hereunder shall be effected in the manner provided
for in subsection 10.3 of the Credit Agreement; provided that any such notice,
request or demand to or upon any Guarantor or the Security Agent shall be
addressed to such Guarantor or the Security Agent at its notice address set
forth on Schedule 1; and provided further that a copy of each notice to the
Security Agent shall be provided to each Lender at its address for notices set
forth in the Credit Agreement.
8.3 No Waiver by Course of Conduct; Cumulative Remedies.
Neither the Security Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Security Agent or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Security Agent or any Lender of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Security Agent or such Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.
8.4 Enforcement Expenses; Indemnification. (1) Each Guarantor
agrees to pay or reimburse each Lender and the Security Agent for all its costs
and expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Loan Documents to which such Guarantor is a party,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and of
counsel to the Security Agent.
33
(2) Each Guarantor agrees to pay, and to save the Security
Agent and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(3) Each Guarantor agrees to pay, and to save the Security
Agent and the Lenders harmless from, any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement to the
extent the Borrower would be required to do so pursuant to subsection 10.1 of
the Credit Agreement.
(4) The agreements in this Section 8.4 shall survive
repayment of the Obligations and all other amounts payable under the Credit
Agreement and the other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of each Grantor and shall inure to the benefit
of the Security Agent and the Lenders and their successors and assigns; provided
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Security Agent and the Lenders. Upon exercise by the Security Agent, in its
capacity as a Lender, of its conversion option under the Credit Agreement with
respect to all of its Loans, the Security Agent shall be deemed to have assigned
its rights and obligations as a Security Agent hereunder to the remaining
Lender.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
Security Agent and each Lender at any time and from time to time while an Event
of Default shall have occurred and be continuing, without notice to such Grantor
or any other Grantor, any such notice being expressly waived by each Grantor, to
set-off and appropriate and apply any and all deposits (general or special, time
or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the
34
Security Agent or such Lender to or for the credit or the account of such
Grantor, or any part thereof in such amounts as the Security Agent or such
Lender may elect, against and on account of the obligations and liabilities of
such Grantor to the Security Agent or such Lender hereunder and claims of every
nature and description of the Security Agent or such Lender against such
Grantor, in any currency, whether arising hereunder, under the Credit Agreement,
any other Loan Document or otherwise, as the Security Agent or such Lender may
elect, whether or not the Security Agent or any Lender has made any demand for
payment and although such obligations, liabilities and claims may be contingent
or unmatured. The Security Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Security Agent or
such Lender of the proceeds thereof, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of the Security Agent and each Lender under this Section 8.6 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Security Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Grantors, the Security Agent and the Lenders with
respect to the subject matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Security
35
Agent or any Lender relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby
irrevocably and unconditionally:
(1) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of the
State of New York in New York County, the courts of the United States of America
for the Southern District of New York, and appellate courts from any thereof;
(2) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(3) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to such
Grantor at its address referred to in Section 8.2 or at such other address of
which the Security Agent shall have been notified pursuant thereto;
(4) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to xxx in any other jurisdiction; and
(5) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or proceeding
referred to in this Section any special, exemplary, punitive or consequential
damages.
36
8.13 Acknowledgments. Each Grantor hereby acknowledges that:
(1) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents to which
it is a party;
(2) neither the Security Agent nor any Lender has any
fiduciary relationship with or duty to any Grantor arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between the Grantors, on the one hand, and the Security Agent and
Lenders, on the other hand, in connection herewith or therewith is solely that
of debtor and creditor; and
(3) no joint venture is created hereby or by the other
Loan Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Grantors and the Lenders.
8.14 WAIVER OF JURY TRIAL. EACH GRANTOR AND THE SECURITY AGENT
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
8.15 Additional Grantors. Each Subsidiary of the Borrower is
required to become a party to this Agreement pursuant to the Credit Agreement
and shall become a Grantor for all purposes of this Agreement upon execution and
delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1
hereto.
8.16 Releases. (a) At such time as the Loans and the other
Obligations shall have been paid in full, the Loan Commitment has been
terminated, the Collateral shall be released from the Liens created hereby, and
this Agreement and all obligations (other than those expressly stated to survive
such termination) of the Security Agent and each Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantors. At the
request and sole expense of any Grantor following any such termination, the
Security Agent shall deliver to such Grantor any Collateral held by the Security
Agent hereunder, and execute and deliver to such Grantor such documents as
37
such Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or
otherwise disposed of by any Grantor in a transaction permitted by the Credit
Agreement, then the Security Agent, at the request and sole expense of such
Grantor, shall execute and deliver to such Grantor all releases or other
documents reasonably necessary or desirable for the release of the Liens created
hereby on such Collateral. At the request and sole expense of the Borrower, a
Guarantor shall be released from its obligations hereunder in the event that all
the Equity Securities of such Guarantor shall be sold, transferred or otherwise
disposed of in a transaction permitted by the Credit Agreement; provided that
the Borrower shall have delivered to the Security Agent, at least ten Business
Days prior to the date of the proposed release, a written request for release
identifying the relevant Guarantor and the terms of the sale or other
disposition in reasonable detail, including the price thereof and any expenses
in connection therewith, together with a certification by the Borrower stating
that such transaction is in compliance with the Credit Agreement and the other
Loan Documents.
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee and Collateral Agreement to be duly executed and delivered as of the
date first above written.
CDnow, Inc. as a Grantor
By:
---------------------------------
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came __________,
to me known to be the person who signed the foregoing instrument and who being
duly sworn by me did depose and state that [he,she] is the ___________ of
_______________; [he, she] signed the instrument in the name of ____________;
and [he, she] had the authority to sign the instrument on behalf of ___________.
----------------------
Notary Public
Cdnow Online, Inc., as a
Grantor
By:
---------------------------------
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came __________,
to me known to be the person who signed the foregoing instrument and who being
duly sworn by me did depose and state that [he,she] is the ___________ of
_______________; [he, she] signed the instrument in the name of ____________;
and [he, she] had the authority to sign the instrument on behalf of ___________.
----------------------
Notary Public
N2K Inc., as a Grantor
By:
------------------------------
Title:
0
XXXXX XX XXX XXXX )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came __________,
to me known to be the person who signed the foregoing instrument and who being
duly sworn by me did depose and state that [he,she] is the ___________ of
_______________; [he, she] signed the instrument in the name of ____________;
and [he, she] had the authority to sign the instrument on behalf of ___________.
----------------------
Notary Public
CDnow Investments, Inc., as a
Grantor
By:
--------------------------------
Name:
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came
________________, to me known to be the person who signed the foregoing
instrument and who being duly sworn by me did depose and state that [he,she] is
the ___________ of _______________; [he, she] signed the instrument in the name
of ____________; and [he, she] had the authority to sign the instrument on
behalf of ______________.
----------------------
Notary Public
Cdnow Trademarks, Inc.,
as a Grantor
By:
-----------------------------
Title:
0
XXXXX XX XXX XXXX )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came
________________, to me known to be the person who signed the foregoing
instrument and who being duly sworn by me did depose and state that [he,she] is
the ___________ of _______________; [he, she] signed the instrument in the name
of ____________; and [he, she] had the authority to sign the instrument on
behalf of _____________.
----------------------
Notary Public
superSonic Boom, Inc.,
as a Grantor
By:
--------------------------
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came
________________, to me known to be the person who signed the foregoing
instrument and who being duly sworn by me did depose and state that [he,she] is
the ___________ of _______________; [he, she] signed the instrument in the name
of ____________; and [he, she] had the authority to sign the instrument on
behalf of _______________.
----------------------
Notary Public
TSI Licensing, Inc., as a
Grantor
By:
-----------------------------
Title:
0
XXXXX XX XXX XXXX )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came
________________, to me known to be the person who signed the foregoing
instrument and who being duly sworn by me did depose and state that [he,she] is
the ___________ of _______________; [he, she] signed the instrument in the name
of ____________; and [he, she] had the authority to sign the instrument on
behalf of _____________.
----------------------
Notary Public
TIME WARNER INC., as Security
Agent and for purpose of
Sections 7.1 - 7.9, a Lender
By:
-------------------------------
Name:
Title:
SONY MUSIC ENTERTAINMENT INC.,
as for purposes of
Sections 7.1 - 7.9, a Lender
By:
-------------------------------
Name:
Title:
Schedule 1
----------
NOTICE ADDRESSES
1. CDnow, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
2. CDnow Online, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
3. N2K Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
4. CDnow Investments, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
5. CDnow Trademarks, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
6. superSonic Boom, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
7. TSI Licensing, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
8. Time Warner Inc., as Security Agent
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attn: Chief Financial Officer
Facsimile No: (000) 000-0000
with a copy to:
Time Warner Inc.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attn: General Counsel
Facsimile No: (000) 000-0000
Schedule 2
----------
DESCRIPTION OF PLEDGED SECURITIES
Pledged Stock:
Class of Stock No. of
Issuer Stock Certificate No. Shares
------------------------------------- -------------------- --------------------------- -----------------
CDnow Online, Inc.
N2K Inc.
CDnow Investments, Inc.
CDnow Trademarks, Inc.
superSonic Boom, Inc.
TSI Licensing, Inc.
Liquid Audio, Inc.* Common* -- 38,316*
Liquid Audio, Inc.* Warrant to purchase 48,860*
shares of common
stock*
xxxxxxxxx.xxx, Inc.* Warrant to purchase 400,000*
shares of common
stock*
Pledged Notes:
Issuer Payee Principal Amount
---------------------------------------------- ------------------------ ---------------------------------
----------------------
* Exceptions to Section 4.5(b) hereof.
Schedule 3
----------
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
-------------------------------
[List each office where a financing statement is to be filed]
Patent and Trademark Filings
----------------------------
[List all filings]
Actions with respect to Pledged Stock
-------------------------------------
Other Actions
-------------
[Describe other actions to be taken]
Schedule 4
----------
LOCATION OF JURISDICTION OF ORGANIZATION
AND CHIEF EXECUTIVE OFFICE
Grantor Location
------- --------
Schedule 5
----------
LOCATION OF INVENTORY AND EQUIPMENT
Grantor Location
------- --------
Schedule 6
----------
COPYRIGHTS AND COPYRIGHT LICENSES
PATENTS AND PATENT LICENSES
TRADEMARKS AND TRADEMARK LICENSES
Schedule 7
----------
CONTRACTS
ACKNOWLEDGMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the
Guarantee and Collateral Agreement dated as of [ ], 1999 (the "Agreement"), made
by the Grantors parties thereto for the benefit of Time Warner Inc., as Security
Agent. The undersigned agrees for the benefit of the Security Agent and the
Lenders as follows:
1. The undersigned will be bound by the terms of the Agreement
and will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Security Agent promptly in
writing of the occurrence of any of the events described in Section 5.8(a) of
the Agreement.
3. The terms of Sections 6.3(a) of the Agreement shall apply
to it, mutatis mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(a) of the Agreement.
[NAME OF ISSUER]
By
---------------------------------
Title:
-----------------------------
Address for Notices:
-----------------------------------
-----------------------------------
Fax:
-------------------------------
Annex 1 to
Guarantee and Collateral Agreement
----------------------------------
ASSUMPTION AGREEMENT, dated as of _____________, 199_, made
by ______________________________, a ______________ (the "Additional Grantor"),
in favor of TIME WARNER INC., as Security Agent (in such capacity, the "Security
Agent") for SONY MUSIC ENTERTAINMENT INC. and TIME WARNER INC. (the "Lenders")
parties to the Credit Agreement referred to below. All capitalized terms not
defined herein shall have the meaning ascribed to them in such Credit Agreement.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, CDnow, Inc. (the "Borrower") and the Lenders have
entered into a Convertible Loan Agreement, dated as of July 12, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement");
WHEREAS, in connection with the Credit Agreement, the Borrower
and certain of its Affiliates (other than the Additional Grantor) have entered
into the Guarantee and Collateral Agreement, dated as of ________ __, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Guarantee
and Collateral Agreement") in favor of the Security Agent for the benefit of the
Lenders;
WHEREAS, the Credit Agreement requires the
Additional Grantor to become a party to the Guarantee and
Collateral Agreement; and
WHEREAS, the Additional Grantor has agreed to execute and
deliver this Assumption Agreement in order to become a party to the Guarantee
and Collateral Agreement;
NOW, THEREFORE, IT IS AGREED:
2
1. Guarantee and Collateral Agreement. By executing and
delivering this Assumption Agreement, the Additional Grantor, as provided in
Section 8.15 of the Guarantee and Collateral Agreement, hereby becomes a party
to the Guarantee and Collateral Agreement as a Grantor thereunder with the same
force and effect as if originally named therein as a Grantor and, without
limiting the generality of the foregoing, hereby (i) guarantees the Borrower
Obligations, (ii) assigns and transfers to the Security Agent and grants to the
Security Agent a security interest in the Collateral owned by it as collateral
security for its Obligations, and (iii) expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in Schedules ____________ to
the Guarantee and Collateral Agreement. The Additional Grantor hereby represents
and warrants that each of the representations and warranties contained in
Section 4 of the Guarantee and Collateral Agreement is true and correct on and
as the date hereof (after giving effect to this Assumption Agreement) as if made
on and as of such date.
2. Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
----------------------
Name:
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this __ day of _______, _____, before me personally came
________________, to me known to be the person who signed the foregoing
instrument and who being duly sworn by me did depose and state that [he,she] is
the ___________ of _______________; [he, she] signed the instrument in the name
of ____________; and [he, she] had the authority to sign the instrument on
behalf of _____________.
----------------------
Notary Public
Exhibit C
(to Convertible Loan Agreement)
To: CDnow, Inc.
0000 Xxxxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: General Counsel
NOTICE OF CONVERSION ELECTION
Reference is hereby made to that certain Convertible Loan
Agreement, dated as of July 12, 1998, by and between Sony Music
Entertainment, Inc., Time Warner Inc. and CDnow, Inc. ("CDnow").
The undersigned hereby exercises its rights to convert the Note, or
a portion thereof, or Interest payable with respect thereto, into Common Stock
of CDnow, as provided in the Convertible Loan Agreement, and requests that
certificates representing shares of CDnow Common Stock issuable upon such
conversion be issued in the name of, and delivered to:
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(Print Name, Address, and Social Security Number)
and, if conversion shall not be with respect to the entire principal amount of
the Note, that a new Note for the principal balance remaining of the Note issued
and registered in the name of, and delivered to, the undersigned at the address
stated below.
Principal Amount To Be Converted $
Interest Amount To Be Converted $
Date: Name
-------------------------------
(Print)
Address:
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--------------------
(Signature)
Exhibit D
(to Convertible Loan Agreement)
ADJUSTMENTS
A. Adjustments To Conversion Price. The Conversion Price in clause
(a) of the definition thereof (the "Fixed Conversion Price"), the number of
shares of CDnow Common Stock issuable upon conversion of each Note and the
securities and other assets due to either Lender upon conversion of its Note
shall be subject to adjustment as set forth below from time to time as follows:
(1) Stock Dividends; Stock Splits; Reverse Stock Splits;
Reclassifications. In case the Borrower shall (i) pay a dividend or other
distribution on its CDnow Common Stock in shares of any class or series of
capital stock, (ii) subdivide its outstanding shares of CDnow Common Stock,
(iii) combine its outstanding shares of CDnow Common Stock into a smaller number
of shares of CDnow Common Stock, or (iv) issue any shares of its capital stock
in a reclassification of the CDnow Common Stock, the number of shares of CDnow
Common Stock issuable upon conversion of each Note immediately prior to the
record date for such dividend or distribution or the effective date of such
subdivision or combination shall be adjusted so that the Lenders shall
thereafter be entitled to receive for each Note the kind and number of shares of
CDnow Common Stock and/or other capital stock that the Lenders would have owned
or have been entitled to receive after the happening of any of the events
described above, had the Note been converted immediately prior to the happening
of such event or any record date with respect thereto. An adjustment made
pursuant to this Section (A)(1) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(2) Distributions of Debt, Assets, Subscription Rights or
Convertible Securities. In case the Borrower shall fix a record date for the
making of a distribution to all holders of shares of CDnow Common Stock of
evidences of its indebtedness, assets, cash dividends or distributions
(excluding dividends or distributions referred to in Sections (A)(1) above and
excluding distributions in connection with the dissolution, liquidation or
winding up of the Borrower) or securities (excluding those referred to in
Section (A)(1) above), then, in each case, the number of shares of CDnow Common
Stock issuable after such record date for such dividend or distribution upon the
conversion of each Note shall be determined by multiplying the number of shares
of CDnow Common Stock issuable upon the conversion of such Note immediately
prior to such record date by a fraction, the numerator of which shall be the
Closing Price per share of CDnow Common Stock immediately prior to the record
date for such dividend or
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distribution and the denominator of which shall be the Closing Price per share
of CDnow Common Stock immediately prior to the record date for such distribution
less the then fair value (as determined in good faith by the Board of Directors
of the Borrower) of the portion of the assets, evidences of indebtedness, cash
dividends or distributions or securities so distributed applicable to one share
of CDnow Common Stock. An adjustment made pursuant to this Section (A)(2) shall
be made whenever any such distribution is made, and shall become effective on
the date of distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution.
(3) Issuance of CDnow Common Stock at Less Than Public Market Price.
If the Borrower issues shares of CDnow Common Stock (or rights, options,
warrants or Convertible Securities containing the right to subscribe for or
purchase shares of CDnow Common Stock) ("Additional Shares"), for a
consideration per share less than the public market price per share of CDnow
Common Stock on the date immediately preceding the date the Borrower issues such
additional shares, the Fixed Conversion Price shall be adjusted (calculated to
the nearest $.0001) so that it shall equal the price determined by multiplying
the Fixed Conversion Price in effect immediately prior thereto by a fraction,
the numerator of which shall be (i) an amount equal to the sum of (A) the number
of shares of CDnow Common Stock outstanding immediately prior to such sale and
issuance plus (B) the number of shares of CDnow Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at such the public market price per share, and the denominator of
which shall be (ii) the total number of shares of CDnow Common Stock outstanding
immediately after such sale or issuance. Such adjustment shall be made
successively whenever such an issuance is made.
The number of shares of CDnow Common Stock issuable upon the
conversion of each Note shall also be adjusted and shall be that number
determined by multiplying the number of shares of CDnow Common Stock issuable
upon conversion immediately prior to such adjustment by a fraction, the
numerator of which is the Fixed Conversion Price in effect immediately prior to
such adjustment and the denominator is the Fixed Conversion Price as so
adjusted. For the purposes of such adjustments, the shares of CDnow Common Stock
which the holder of any such rights, options, warrants or convertible or
exchangeable securities shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of the sale and issuance of
the rights, warrants or convertible or exchangeable securities and the
consideration received by the Borrower therefor shall be deemed to be the
consideration received by the Borrower for such rights, options, warrants or
convertible or exchangeable securities, plus the consideration or premiums
stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares of CDnow Common Stock covered thereby. In
case the Borrower shall sell and issue shares of CDnow Common Stock or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase shares of CDnow Common Stock for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then in determining the "price per share or CDnow Common Stock" and the
"consideration received" by the Borrower for purposes of the first sentence of
this Section (A)(3), the Board of Directors of the Borrower shall determine, in
good faith, the fair value of said
3
property. There shall be no adjustment of the Fixed Conversion Price in respect
of the CDnow Common Stock pursuant to this Section (A)(3) if the amount of such
adjustment shall be less than $0.0001 per share of CDnow Common Stock; provided,
however, that any adjustments which by reason of this proviso are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment.
This Section (A)(3) does not apply to (i) any of the transactions
described in Section (A)(1) or (2), (ii) the conversion or exchange of
securities convertible or exchangeable for CDnow Common Stock covered by this
Section (A)(3), (iii) Additional Shares issued in a bona fide public offering
pursuant to a firm commitment underwriting or issued in exchange for equity or
assets in an acquisition or investment in any third party, (iv) the conversion
of any options or issuance of any shares under any options or purchase or other
rights that are outstanding on or prior to the date hereof and that were issued
pursuant to any of the Borrower's employees stock option, appreciation or
purchase rights plans, (v) the conversion of any options or purchase or other
rights or the issuance of any shares under any options or rights that are
granted after the date hereof, whether in accordance with the terms of any of
the Borrower's employee stock option, appreciation or purchase right plans or
otherwise, so long as the conversion price of any such option, warrant,
subscription or purchase right is not less than the Closing Price on the date
that such grant is approved by the Borrower's Board of Directors or a duly
authorized committee thereof or, if later, the date that such conversion price
is established, (vi) the conversion of any other options, warrants or other
subscription or purchase rights outstanding on or prior to the date hereof,
including, without limitation, the Notes, (vii) the exercise of any conversion
or exchange rights outstanding on or prior to the date hereof issued by the
Borrower, or (viii) the exercise of any conversion or exchange rights issued by
the Borrower after the date hereof, so long as the conversion or exchange price
is not less than the Closing Price on the date that such issuance is approved by
the Borrower's Board of Directors or a duly authorized committee thereof or, if
later, the date that such conversion or exchange price is established.
(4) Expiration of Rights, Options and Conversion Privileges. Upon
the expiration of any rights, options, warrants or conversion or exchange
privileges, the issuance of which caused an adjustment pursuant to Section
(A)(3) hereof, if any thereof shall not have been exercised, the Fixed
Conversion Price and the number of shares of CDnow Common Stock issuable upon
the conversion of each Note shall, upon such expiration, be readjusted and shall
thereafter, upon any future conversion, be such as they would have been had they
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (A) the only shares of CDnow Common Stock so issued were
the shares of CDnow Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights and
(B) such shares of CDnow Common Stock, if any, were issued or sold for the
consideration actually received by the Borrower upon such exercise plus the
consideration, if any,
4
actually received by the Borrower for issuance, sale or grant of all such
rights, options, warrants or conversion or exchange rights whether or not
exercised; provided, further, that no such readjustment shall have the effect
of increasing the Fixed Conversion Price by an amount, or decreasing the
number of shares issuable upon conversion of each Note by a number, in excess
of the amount or number of the adjustment initially made in respect to the
issuance, sale or grant of such rights, options, warrants or conversion or
exchange rights.
(5) Certain Other Events. If any event occurs as to which the
foregoing provisions of this Section A are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors of the Borrower fairly protect the conversion rights of the Notes in
accordance with the essential intent and principles of such provisions, then
such Board shall make such adjustments in the application of such provisions, in
accordance with such essential intent and principles, as shall be reasonably
necessary, in the good faith opinion of such Board, to protect such conversion
rights as aforesaid, but in no event shall any such adjustment have the effect
of increasing the Fixed Conversion Price or decreasing the number of shares of
CDnow Common Stock subject to issuance upon conversion of the Notes.
B. When Adjustments To Be Made. The adjustments required by the
preceding subsections of this Exhibit D shall be made whenever and as often as
any specified event requiring an adjustment shall occur. Adjustments shall
become effective immediately after the record date for the determination of
stockholders entitled to receive an issuance or distribution, or if there is no
record date, then the date of issuance or distribution described in this Exhibit
D. Such adjustments shall be made successively whenever any event specified in
this Exhibit D shall occur.
C. Notice of Adjustment. Whenever the Fixed Conversion Price or
number of shares subject to each Note shall be adjusted pursuant to this Exhibit
D, the Borrower shall forthwith obtain a certificate signed by the principal
financial officer of the Borrower setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
and specifying the Fixed Conversion Price and the number of shares to each Note,
after giving effect to such adjustment or change. Not less than 30 nor more than
90 days prior to the effective date or 15 days prior to the record date, as the
case may be, of any action which requires or might require an adjustment or
readjustment pursuant to this Exhibit D, the Borrower shall cause a signed copy
of such certificate to be delivered to each Lender. The Borrower shall keep at
its address for notices in Section 10.3 of this Agreement, copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by either Lender or any prospective purchaser of
Notes designated by either Lender. Upon the reasonable request of either Lender,
Borrower shall cause independent public accountants of recognized national
standing selected by the Borrower (which may be the
5
regular auditors of the Borrower) to verify such computation and prepare a
report setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (i) the number of
shares of CDnow Common Stock outstanding or deemed to be outstanding and (ii)
the Fixed Conversion Price and number of shares subject to the Notes in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted (if required by this Exhibit D) on account thereof. The Borrower will
forthwith mail a copy of each such report to the Lenders. The Borrower will also
keep copies of all such reports at its principle office, and will cause the same
to be available for inspection at such office during normal business hours by
any Lender, or any prospective purchaser of a Note designated in writing by any
Lender.
D. Fractional Interests. In computing adjustments under
this Exhibit D, fractional interests in CDnow Common Stock shall be
taken into account to the nearest one-thousandth of a share.
E. Merger or Consolidation.
(1) Subject to the provisions of Subsection (2) below of this
Section E, in case of the consolidation of the Borrower with, or merger of the
Borrower with or into, or of the sale of all or substantially all of the
properties and assets of the Borrower to, any Person and in connection therewith
consideration is payable to holders of CDnow Common Stock (or other securities
or property issuable upon conversion of the Notes) in exchange therefor, the
Notes shall remain subject to the terms and conditions set forth in this
Agreement and each Note shall, after such consolidation, merger or sale, entitle
the Lenders to receive upon conversion the number of shares of capital stock or
other securities or property (including cash) of the Borrower, or of such Person
resulting from such consolidation or surviving such merger or to which such sale
shall be made, as the case may be, that would have been distributable or payable
on account of the shares of CDnow Common Stock (or other securities or
properties issuable upon conversion of the Notes) if such Lender's Notes had
been converted immediately prior to such merger, consolidation or sale (or, if
applicable, the record date therefor); and in any such case the provisions of
this Agreement with respect to the rights and interest thereafter of the Lenders
shall be appropriately adjusted by the Board of Directors of the Borrower in
good faith so as to be applicable, as nearly as may be reasonably be, to any
shares or stock or other securities or any property thereafter deliverable on
the conversion of the Notes.
(2) Notwithstanding the foregoing at the election of a Lender in the
exercise of its sole discretion, (x) if the Borrower merges or consolidates
with, or sells all or substantially all of its property and assets to, another
Person and consideration is payable to holders of CDnow Common Stock in exchange
for their CDnow Common
6
Stock in connection with such merger, consolidation or sale which consists
solely of cash, or (y) in the event of the dissolution, liquidation or winding
up of the Borrower, then the electing Lender shall be entitled to receive
distributions on the date of such event on an equal basis with holders of CDnow
Common Stock (or other securities issuable upon conversion of its Note) as if
its Notes had been converted immediately prior to such event, less the
Conversion Price. Upon receipt of such payment, if any, the right of such Lender
shall terminate and cease and such Lender's Note shall expire.
The foregoing provisions of Section E shall similarly apply to
successive mergers, consolidations or dispositions of assets as described in
this Section E.
F. Notice to Holders of Corporate Action. In addition to other
requirements of notice separately provided for in this Agreement, in case at any
time after the date hereof there shall be (i) the taking by the Borrower of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution on such securities, or (ii) a voluntary or involuntary dissolution,
total liquidation or winding up of the Borrower, then the Borrower shall cause
to be mailed (by first- class mail, postage prepaid) to each Lender, at the
earliest practicable time (and, in any event, not less than ten (10) calendar
days before any date set for definitive action), notice of the date on which
such dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of the
shares of record of CDnow Common Stock shall be entitled to exchange their
shares for securities, money or other property deliverable upon such
dissolution, liquidation or winding up, as the case may be, on which date the
Lenders shall be entitled to receive upon surrender of their Notes the cash or
other property, less the Conversion Price for such Notes then in effect, that
the Lenders would have been entitled to receive had the Notes been exercisable
and converted immediately prior to such dissolution, liquidation or winding up
and any and all rights of the Lenders to conversion the Notes shall terminate in
their entirety.
