EXHIBIT (D)(1)
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
dated as of
July 19, 2000
among
BERTELSMANN, INC.
CDnow, Inc.
and
BINC ACQUISITION CORP.
TABLE OF CONTENTS
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PAGE
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ARTICLE 1
THE OFFER
SECTION 1.01. The Offer.....................................................1
SECTION 1.02. Company Action................................................2
SECTION 1.03. Directors.....................................................3
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger....................................................4
SECTION 2.02. Conversion of Shares..........................................5
SECTION 2.03. Surrender and Payment.........................................5
SECTION 2.04. Stock Options.................................................7
SECTION 2.05. Lost Certificates.............................................7
SECTION 2.06. Dissenters' Rights............................................7
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Articles of incorporation.....................................8
SECTION 3.02. Bylaws........................................................8
SECTION 3.03. Directors and Officers........................................8
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Corporate Existence and Power.................................8
SECTION 4.02. Corporate Authorization.......................................9
SECTION 4.03. Governmental Authorization....................................9
SECTION 4.04. Non-Contravention.............................................9
SECTION 4.05. Capitalization...............................................10
SECTION 4.06. Subsidiaries.................................................11
SECTION 4.07. SEC Filings..................................................11
SECTION 4.08. Financial Statements.........................................11
SECTION 4.09. Disclosure Documents.........................................12
SECTION 4.10. Absence of Certain Changes...................................13
SECTION 4.11. No Undisclosed Material Liabilities..........................14
SECTION 4.12. Litigation...................................................14
PAGE
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SECTION 4.13. Taxes........................................................15
SECTION 4.14. Employee Benefit Plans; ERISA; Labor.........................16
SECTION 4.15. Compliance with Laws; No Defaults............................19
SECTION 4.16. Finders' Fees................................................19
SECTION 4.17. Environmental Matters........................................19
SECTION 4.18. Antitakeover Statutes........................................20
SECTION 4.19. Intellectual Property........................................20
SECTION 4.20. Properties...................................................20
SECTION 4.21. Affiliates...................................................21
SECTION 4.22. Material Contracts...........................................21
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 5.01. Corporate Existence and Power................................23
SECTION 5.02. Corporate Authorization......................................23
SECTION 5.03. Governmental Authorization...................................23
SECTION 5.04. Non-Contravention............................................23
SECTION 5.05. Disclosure Documents.........................................24
SECTION 5.06. Litigation...................................................24
ARTICLE 6
COVENANTS OF THE COMPANY
SECTION 6.01. Conduct of the Company.......................................24
SECTION 6.02. Shareholder Meetings; Proxy Materials........................27
SECTION 6.03. Other Offers, etc............................................28
SECTION 6.04. Tax Matters..................................................29
ARTICLE 7
COVENANTS OF PARENT
SECTION 7.01. Obligations of Merger Subsidiary.............................30
SECTION 7.02. Voting of Shares of Company Stock............................30
SECTION 7.03. Director and Officer Liability...............................30
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
SECTION 8.01. Notices of Certain Events....................................31
SECTION 8.02. Reasonable Best Efforts......................................32
SECTION 8.03. Access to Information Concerning Properties and Records......32
ii
SECTION 8.04. Cooperation..................................................33
SECTION 8.05. Public Announcements.........................................33
SECTION 8.06. Further Assurances...........................................33
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party..................34
ARTICLE 10
TERMINATION
SECTION 10.01. Termination.................................................34
SECTION 10.02. Effect of Termination.......................................35
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices.....................................................36
SECTION 11.02. Entire Agreement; Third Party Beneficiaries; Non-
Survival of Representations and Warranties..................37
SECTION 11.03. Amendments; No Waivers......................................37
SECTION 11.04. Expenses....................................................38
SECTION 11.05. Successors and Assigns......................................38
SECTION 11.06. Governing Law...............................................38
SECTION 11.07. Jurisdiction................................................38
SECTION 11.08. WAIVER OF JURY TRIAL........................................39
SECTION 11.09. Counterparts; Effectiveness.................................39
SECTION 11.10. Captions....................................................39
SECTION 11.11. Specific Performance........................................39
SECTION 11.12. Joint and Several Liability.................................39
SECTION 11.13. Definitions and Usage.......................................40
Annex I
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 19, 2000 among Bertelsmann,
Inc., a Delaware corporation ("Parent"), CDnow, Inc., a Pennsylvania
corporation (the "Company"), and BINC Acquisition Corp., a Pennsylvania
corporation and a wholly-owned subsidiary of Parent ("Merger Subsidiary").
The parties agree:
ARTICLE 1
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 10.01 and nothing shall have
occurred or be existing (and shall not have been waived by Parent or Merger
Subsidiary) that would result in a failure to satisfy any of the conditions set
forth in Annex I hereto, as promptly as practicable, but in any event within 7
business days after the date hereof, Merger Subsidiary shall commence an offer
(the "Offer") to purchase all outstanding shares of common stock, no par value,
of the Company ("Company Stock") at a price of $3.00 per share, net to the
seller in cash (the "Offer Price"). The Offer shall be subject to the condition
that there shall be validly tendered pursuant to the Offer and not properly
withdrawn a number of shares of Company Stock that, together with the shares of
Company Stock then beneficially owned by Parent (excluding shares issuable upon
exercise of the Convertible Loan Agreement), represents at least a majority of
the shares of Company Stock outstanding on a diluted basis taking into
consideration options and warrants to acquire Company Stock at an exercise or
conversion price of $10.00 per share or less but excluding shares issuable upon
exercise of the Convertible Loan Agreement (the "Minimum Condition") and to the
other conditions set forth in Annex I hereto. Merger Subsidiary expressly
reserves the right to waive any of the conditions to the Offer and to make any
change in the terms or conditions of the Offer, provided that without the prior
written consent of the Company, no change may be made that waives the Minimum
Condition, changes the form of consideration to be paid, decreases the price
per share of Company Stock or the number of shares of Company Stock sought in
the Offer or imposes conditions to the Offer in addition to those set forth in
Annex I. Subject to the foregoing and to the terms and conditions of the Offer,
Merger Subsidiary shall, and Parent shall cause it to, accept for payment and
pay for, as promptly as
practicable after the expiration of the Offer, all shares of Company Stock
validly tendered and not properly withdrawn pursuant to the Offer.
(b) As soon as practicable on the date of commencement of the Offer,
Merger Subsidiary shall file with the Securities and Exchange Commission
("SEC") a Statement on Schedule TO with respect to the Offer (such Schedule TO
and the documents included therein pursuant to which the Offer will be made,
together with any supplements or amendments thereto, the "Offer Documents").
Parent, Merger Subsidiary and the Company each agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading in any material
respect. Merger Subsidiary agrees to take all steps necessary to cause the
Offer Documents as so corrected to be filed with the SEC and to be disseminated
to holders of shares of Company Stock, in each case as and to the extent
required by applicable federal securities laws. The Company and its counsel
shall be given a reasonable opportunity to review and comment on the Offer
Documents prior to their being filed with the SEC or disseminated to the
holders of shares of Company Stock.
SECTION 1.02. Company Action. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that its Board of Directors,
at a meeting duly called and held has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, are fair to, and in the best interests of, the Company's shareholders,
(ii) adopted this Agreement and the transactions contemplated hereby, including
the Offer and the Merger, in accordance with the requirements of the
Pennsylvania Business Corporation Law of 1988, as amended ("Pennsylvania Law")
and (iii) resolved (subject to Section 6.03(b)) to recommend acceptance of the
Offer and approval and adoption of this Agreement and the Merger by its
shareholders. The Company further represents that Allen & Co. (the "Company
Financial Advisor") has delivered to the Company's Board of Directors its
opinion that the consideration to be paid in the Offer and the Merger is fair
to the holders of shares of Company Stock from a financial point of view. The
Company has been advised by each of its directors and by each executive officer
who as of the date hereof is actually aware (to the knowledge of the Company)
of the transactions contemplated by this Agreement that each such person
intends to tender pursuant to the Offer all shares of Company Stock owned by
such person. The Company will promptly furnish Parent with a list of its
shareholders, mailing labels and any available listing or computer file
containing the names and addresses of all record holders of shares of Company
Stock and lists of securities positions of shares of Company Stock held in
stock depositories, in each case true and correct as of the most recent
practicable date, and will provide to Parent such additional information
(including, without limitation, updated lists of shareholders, mailing labels
and lists of securities positions) and such other assistance as Parent or its
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agents may reasonably request in connection with the Offer. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Offer or the Merger, Parent and Merger Subsidiary and each of their
affiliates, agents and advisors shall hold in confidence the information
contained in any such lists, labels, listings or files, shall use such
information only in connection with the Offer and the Merger and, if this
Agreement shall be terminated and if the Company so requests, shall deliver,
and shall use their reasonable efforts to cause their affiliates, agents and
advisors to deliver, to the Company all copies and any extracts or summaries
from such information then in their possession or control.
(b) As soon as practicable after the time that the Offer is commenced, the
Company shall file with the SEC and disseminate to holders of shares of Company
Stock, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with
any amendments or supplements thereto, the "Schedule 14D-9") that shall reflect
the recommendations of the Company's Board of Directors referred to above. The
Company and Parent each agree promptly to correct any information provided by
it for use in the Schedule 14D-9 if and to the extent that it shall have become
false or misleading in any material respect. The Company agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and to be disseminated to holders of shares of Company Stock, in each
case as and to the extent required by applicable federal securities laws.
Parent and its counsel shall be given a reasonable opportunity to review and
comment on the Schedule 14D-9 prior to its filing with the SEC or dissemination
to holders of shares of Company Stock.
SECTION 1.03. Directors. (a) Effective upon the acceptance for payment
pursuant to the Offer of a number of shares of Company Stock that satisfies the
Minimum Condition, Parent shall be entitled to designate the number of
directors, rounded up to the nearest whole number, on the Company's Board of
Directors that equals the product of (i) the total number of directors on the
Company's Board of Directors and (ii) the percentage that the number of shares
of Company Stock beneficially owned by Parent bears to the total number of
shares of Company Stock outstanding, and the Company shall take all action
necessary to cause Parent's designees to be elected or appointed to the
Company's Board of Directors, including, without limitation, increasing the
number of directors, and seeking and accepting resignations of incumbent
directors. At such time, the Company will also use its best efforts to cause
individuals designated by Parent to constitute the number of members, rounded
up to the nearest whole number, on (i) each committee of the Board of Directors
of the Company and (ii) each board of directors of each subsidiary of the
Company (and each committee thereof) that represents the same percentage as
such individuals represent on the Board of
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Directors of the Company. Notwithstanding the foregoing, the Parent and the
Company shall use their reasonable efforts to ensure that at least two members
of the Company's Board of Directors as of the date hereof who are not employees
of the Company (the "Continuing Directors") shall remain members of the
Company's Board of Directors until the Effective Time.
(b) The Company's obligations to appoint Parent's designees to the
Company's Board of Directors shall be subject to Section 14(f) of the 1934 Act
and Rule 14f-1 promulgated thereunder. The Company shall promptly take all
actions, and shall include in the Schedule 14D-9 such information with respect
to the Company and its officers and directors, as Section 14(f) and Rule 14f-1
require in order to fulfill its obligations under this Section. Parent shall
supply to the Company in writing and be solely responsible for any information
with respect to itself and its nominees, officers, directors and affiliates
required by Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of Parent's designees pursuant
to Section 1.03(a) and until the Effective Time, the approval of a majority of
the Continuing Directors shall be required to authorize (and such authorization
shall constitute the authorization of the Company's Board of Directors and no
other action on the part of the Company, including any action by any other
director of the Company, shall be required to authorize) any termination of
this Agreement by the Company, any amendment of this Agreement requiring action
by the Company's Board of Directors, any extension of time for performance of
any obligation or action hereunder by Parent or Merger Subsidiary and any
waiver of compliance with any of the agreements or conditions contained herein
for the benefit of the Company.
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger. (a) Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time, Merger Subsidiary shall be
merged (the "Merger") with and into the Company in accordance with Pennsylvania
Law, whereupon the separate existence of Merger Subsidiary shall cease, and the
Company shall continue as the surviving corporation (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger set forth herein, the Company
and Merger Subsidiary will file articles of merger with the Secretary of State
of
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the Commonwealth of Pennsylvania and make all other filings or recordings
required by Pennsylvania Law in connection with the Merger. The Merger shall
become effective at such time as the articles of merger are duly filed with the
Secretary of State of the Commonwealth of Pennsylvania or at such later time as
is agreed by Parent and the Company and specified in the articles of merger
(the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Subsidiary, all as provided under Pennsylvania Law.
SECTION 2.02. Conversion of Shares. At the Effective Time:
(a) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation with the same rights, powers
and privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
(b) each share of Company Stock held by the Company as treasury stock or
owned by Parent or any of its subsidiaries immediately prior to the Effective
Time shall be canceled, and no payments shall be made with respect thereto; and
(c) except as otherwise provided in Section 2.02(b) or Section 2.06, each
share of Company Stock outstanding immediately prior to the Effective Time
shall be converted into the right to receive the Offer Price (or any higher
consideration paid in the Offer), without interest (the "Merger
Consideration").
SECTION 2.03. Surrender and Payment. (a) Prior to the Effective Time,
Parent shall appoint an agent reasonably acceptable to the Company (the
"Depositary") for the purpose of exchanging certificates representing shares of
Company Stock (the "Certificates") for the Merger Consideration. Parent will
make available to the Depositary, in such amounts as may be needed from time to
time, the Merger Consideration to be paid pursuant to Section 2.02 in exchange
for outstanding shares of Company Stock. Promptly after the Effective Time,
Parent will send, or will cause the Depositary to send, to each holder of
shares of Company Stock at the Effective Time a letter of transmittal for use
in such exchange (which shall specify that delivery of the Merger Consideration
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Depositary).
5
(b) Each holder of shares of Company Stock that have been converted into a
right to receive the Merger Consideration, upon surrender to the Depositary of
a Certificate, together with a properly completed letter of transmittal if
applicable, will be entitled to receive the Merger Consideration payable for
each share of Company Stock represented by such Certificate. Until so
surrendered, each such Certificate shall, after the Effective Time, represent
for all purposes only the right to receive such Merger Consideration, without
interest thereon.
(c) If any portion of the Merger Consideration is to be paid to a person
other than the person in whose name the surrendered Certificate is registered,
it shall be a condition to such payment that the Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such payment shall pay to the Depositary any transfer or
other taxes required as a result of such payment to a person other than the
registered holder of such Certificate or establish to the satisfaction of the
Depositary that such tax has been paid or is not applicable.
(d) At the Effective Time, the stock transfer books of the Company shall
be closed and there shall be no further registration of transfers of shares of
Company Stock. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration provided for, and in accordance with the procedures set forth, in
this Article 2.
(e) Any portion of the Merger Consideration made available to the
Depositary pursuant to Section 2.03(a) that remains unclaimed by the holders of
shares of Company Stock six months after the Effective Time shall be returned
to Parent, upon demand, and any such holder who has not exchanged them for the
Merger Consideration in accordance with this Section 2.03 prior to that time
shall thereafter look only to Parent for payment of the Merger Consideration in
respect of such shares of Company Stock. Notwithstanding the foregoing, Parent
shall not be liable to any holder of shares of Company Stock for any amount
paid to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(f) Parent and Merger Subsidiary shall be entitled to deduct and withhold,
or cause its agents to deduct and withhold, from the Offer Price or Merger
Consideration payable to a holder of shares of Company Stock pursuant to the
Offer or Merger any withholding taxes as are required under the Internal
Revenue Code of 1986 (the "Code") or any applicable provision of state, local
or foreign tax law. To the extent that amounts are so withheld by Parent or
Merger Subsidiary, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Company Stock
in
6
respect of which such deduction and withholding was made by Parent or Merger
Subsidiary.
SECTION 2.04. Stock Options. (a) At or immediately prior to the Effective
Time, each option to purchase shares of Company Stock held by any current or
former employee or director pursuant to any compensation plan or arrangement of
the Company, whether or not vested or exercisable (collectively, the "Stock
Options"), shall be converted into the right to receive upon exercise (and
payment of the exercise price) $3.00 for each share of Company Stock for which
such Stock Option is exercisable, and the Company shall pay each holder of any
such option with a per share exercise price of less than $3.00, at or promptly
after the Effective Time, an amount equal to (i) the product of the excess, if
any, of $3.00 over the applicable per share exercise price of such option and
the number of shares of Company Stock such holder could have purchased
(assuming full vesting of such options) had such holder exercised such option
in full immediately prior to the Effective Time minus (ii) the amount of any
applicable withholding tax.
(b) Prior to the Effective Time, to the extent required to effect the
transactions contemplated hereby, the Company shall take any actions necessary
with respect to its stock option or compensation plans or arrangements.
SECTION 2.05. Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Depositary will pay, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the shares of
Company Stock represented by such Certificate, as contemplated by this Article
2.
SECTION 2.06. Dissenters' Rights. To the extent holders of shares of
Company Stock exercise dissenters' rights pursuant to applicable provisions of
Pennsylvania Law, the shares of such holder shall not be converted into the
right to receive the Merger Consideration, but the Merger Consideration shall
be held by Parent subject to the provisions of Pennsylvania Law. If any such
holder fails to protect or withdraws or loses its dissenters' rights, such
Company Stock shall then be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration.
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ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Articles of incorporation. The articles of incorporation of
Merger Subsidiary in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until amended in accordance with
applicable law, provided that, at the Effective Time, Article I of such
articles of incorporation shall be amended to read as follows: "The name of the
corporation is CDnow, Inc".
SECTION 3.02. Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended
in accordance with applicable law.
SECTION 3.03. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
the Pennsylvania Law and the articles of incorporation and bylaws of the
Surviving Corporation, (a) the directors of Merger Subsidiary at the Effective
Time shall be the directors of the Surviving Corporation, and (b) the officers
of the Company at the Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent that except as otherwise
disclosed in writing to Parent prior to the date hereof.
SECTION 4.01. Corporate Existence and Power. Each of the Company and its
subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has the requisite corporate or other power
and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now conducted, except for such
matters as would not reasonably be expected to have a material adverse effect
on the Company. Each of the Company and its subsidiaries is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary, except for such matters as
would not reasonably be expected to have a material adverse effect on the
Company. The Company has heretofore delivered or made available to Parent true
and complete copies of the Company's articles of incorporation and bylaws as
currently in effect.
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SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Company's
corporate powers and, except as set forth in the next succeeding sentence of
this Section 4.02, have been duly authorized by all necessary corporate action.
The affirmative vote of a majority of the outstanding shares of Company Stock
is the only vote of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
by this Agreement. Subject to the receipt of the approval described in the
immediately preceding sentence in connection with the consummation of the
Merger, this Agreement constitutes a valid and binding agreement of the
Company.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority other than (i) the filing of articles of merger with respect to the
Merger with the Secretary of the Commonwealth of Pennsylvania; (ii) compliance
with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"); (iii) compliance with any applicable
requirements of the Securities Act of 1933 (the "1933 Act"); (iv) compliance
with any applicable requirements of the Securities Exchange Act of 1934 (the
"1934 Act"); (v) compliance with any other applicable securities or takeover
laws, whether state or foreign; (vi) any actions or filings which, if not taken
or made, would not reasonably be expected to have a material adverse effect on
the Company or the transactions contemplated hereby; and (vii) any filings or
notices not required to be made or given until after the Effective Time.
SECTION 4.04. Non-Contravention. The execution, delivery and performance
by the Company of this Agreement do not, and the consummation by the Company of
the transactions contemplated hereby will not (a) assuming receipt of the
approval of shareholders referred to in Section 4.02, contravene or conflict
with the articles of incorporation or bylaws of the Company, (b) assuming
compliance with the matters referred to in Section 4.03, violate any applicable
law, rule, regulation, judgment, injunction, order or decree, (c) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company or any of its
subsidiaries or to a loss of any benefit to which the Company or any of its
subsidiaries is entitled under any provision of any agreement or other
instrument binding upon the Company or any of its subsidiaries or any license,
franchise, permit or other similar authorization held by the Company or any of
its subsidiaries, or (d) result in the creation or imposition of any Lien on
any asset of the Company or any of its subsidiaries, except in the case of
clause (b), (c) or (d), for such matters as that would not
9
reasonably be expected to have a material adverse effect on the Company or the
transaction contemplated hereby. For purposes of this Agreement, "Lien" means,
with respect to any asset, any mortgage, lien, pledge, charge, security
interest or encumbrance in respect of such asset.
SECTION 4.05. Capitalization. The authorized capital stock of the Company
consists of (x) 200,000,000 shares of common stock, no par value, and (y)
50,000,000 shares of preferred stock, no par value. As of the close of business
on July 14, 2000, there were outstanding (i) 32,961,610 shares of Company
Stock, (ii) stock options to purchase an aggregate of 3,545,803 shares of
Company Stock at a weighted average exercise price of $6.06 per share under
Company's employee and director stock option or compensation plans or
arrangements (including the CDnow, Inc. 2000 Equity Compensation Plan, CDnow,
Inc. 1999 Equity Compensation Plan, CDnow, Inc. 1996 Equity Compensation Plan,
N2K Inc. 1997 Directors' Stock Option Plan, N2K Inc. Amended and Restated 1996
Stock Option Plan, N2K Inc. 1996 Employee Stock Purchase Plan (discontinued),
1987 Telebase Systems, Inc. Employee Incentive Stock Option Plan)
(collectively, the "Option Plans"), (iii) warrants listed on Schedule 4.05
(collectively, the "Warrants") to purchase an aggregate of 949,773 shares of
Company Stock at a weighted average exercise price of $15.72 per share and (iv)
$30,000,000 principal amount of notes (the "Convertible Notes") convertible
(together with accrued interest thereon) into an aggregate of approximately
3,080,000 shares of Company Stock at a conversion price of $10.00 per share,
which Convertible Notes shall be repaid prior to consummation of the Offer from
proceeds of borrowings under the Convertible Loan Agreement. All the
outstanding shares of the Company's capital stock are, and all shares which may
be issued in connection with the Option Plans, the exercise of the Warrants and
the conversion of the Convertible Notes, will be, if and when issued in
accordance with the respective terms thereof, duly authorized, validly issued,
fully paid and non-assessable. Except as set forth in this Section 4.05 and for
changes since July 14, 2000 resulting from the exercise or conversion of
employee, consultant or director stock options, Warrants or Convertible Notes
outstanding on such date, there are no outstanding (x) shares of capital stock
or other voting securities of the Company, (y) securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company or (z) options, warrants or other rights to acquire
from the Company, or other obligation of the Company to issue, transfer or
sell, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company. Except with
respect to the Convertible Notes, neither the Company nor any of its
subsidiaries has any contractual obligation to repurchase, redeem or otherwise
acquire any of the securities referred to above. Except as contemplated in
connection with the execution of this Agreement, there are no shareholder
agreements, voting trusts or other agreements or understandings to which the
Company or any of its
10
subsidiaries is a party or to which it is bound relating to the voting of any
shares of capital stock of the Company. After the Effective Time, the Company's
stock options, the Warrants and, if not repaid, the Convertible Notes will no
longer be exercisable or convertible into capital stock of the Company but will
be exercisable or convertible into cash in an amount equal to the product of
(i) the number of shares of Company Stock that would have been issuable upon
exercise or conversion thereof immediately prior to the Effective Time and (ii)
the excess, if any, of the Merger Consideration over the applicable exercise or
conversion price.
SECTION 4.06. Subsidiaries. All of the outstanding shares of capital stock
of, or other ownership interests in, each subsidiary of the Company is owned by
the Company, directly or indirectly, free and clear of any Lien (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests). There are no outstanding (i) securities of
the Company or any of its subsidiaries convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in
any subsidiary of the Company, or (ii) options or other rights to acquire from
the Company or any of its subsidiaries, or other obligation of the Company or
any of its subsidiaries to issue, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable for
any capital stock, voting securities or ownership interests in, any subsidiary
of the Company.
SECTION 4.07. SEC Filings. (a) The Company or its predecessor has filed
all required reports, schedules, forms, statements and other documents with the
SEC since February 9, 1998 (the "Company Filings") it being understood that
"Company Filings" shall not include any documents filed with the SEC by N2K
Inc. prior to February 17, 1999.
(b) Each Company Filing filed pursuant to the 1934 Act did not, as of its
filing date, and each Company Filing filed pursuant to the 1933 Act did not, as
of its effective date, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent that such statements have been
modified or superseded by a subsequent Company Filing made prior to the date
hereof.
SECTION 4.08. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company's Annual Report on Form 10-K for the fiscal
years ended December 31, 1999 and its quarterly report on Form 10-Q for its
fiscal quarter ended March 31, 2000 (the "Company 10-Q") have been prepared in
accordance with United States generally accepted accounting principles
11
("GAAP") applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments in the case of any unaudited interim financial
statements). For purposes of this Agreement, "Company Balance Sheet" means the
consolidated balance sheet of the Company as of March 31, 2000 set forth in the
Company 10-Q and "Company Balance Sheet Date" means March 31, 2000.
SECTION 4.09. Disclosure Documents. (a) Each document required to be filed
by the Company with the SEC or required to be distributed or otherwise
disseminated to the Company's shareholders in connection with the transactions
contemplated by this Agreement (the "Company Disclosure Documents"), including,
without limitation, the Schedule 14D-9 and the proxy or information statement
of the Company (the "Company Proxy Statement"), if any, to be filed with the
SEC in connection with the Merger, and any amendments or supplements thereto,
when filed, distributed or disseminated, as applicable, will comply as to form
in all material respects with the applicable requirements of the 1934 Act.
(b) (i) The Company Proxy Statement, as supplemented or amended, if
applicable, at the time such Company Proxy Statement or any amendment or
supplement thereto is first mailed to shareholders of the Company and at the
time such shareholders vote on adoption of this Agreement, and (ii) any Company
Disclosure Document (other than the Company Proxy Statement), at the time of
the filing of such Company Disclosure Document or any supplement or amendment
thereto and at the time of any distribution or dissemination thereof, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties contained in Section 4.09(b) will not apply to
statements or omissions included in the Company Disclosure Documents furnished
or based upon information furnished to the Company in writing by Parent
specifically for use therein.
(c) The information with respect to the Company or any of its subsidiaries
that the Company furnishes to Parent in writing specifically for use in the
Offer Documents, at the time of the filing thereof, at the time of any
distribution or dissemination thereof and at the time of the consummation of
the Offer, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
12
SECTION 4.10. Absence of Certain Changes. Except as disclosed in the
Company Filings filed prior to the date of this Agreement and except as
permitted by Section 6.01, since the Company Balance Sheet Date, the business
of the Company and its subsidiaries has been conducted in the ordinary course
consistent with past practices and there has not been:
(a) any event, occurrence or development which has had or would reasonably
be expected to have a material adverse effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
subsidiaries of any outstanding shares of capital stock or other equity
securities of, or other ownership interests in, the Company or any of its
subsidiaries;
(c) any amendment of any term of any outstanding security of the Company
or any of its subsidiaries that would materially increase the obligations of
the Company or such subsidiary under such security;
(d) any incurrence, assumption or guarantee by the Company or any of its
subsidiaries of any indebtedness for borrowed money;
(e) any creation or assumption by the Company or any of its subsidiaries
of any Lien on any asset of the Company or any subsidiary;
(f) any making of any loan, advance or capital contribution to or
investment in any person by the Company or any of its subsidiaries other than
(i) in connection with any acquisition or capital expenditure permitted by
Section 6.01, (ii) loans, advances or capital contributions to or investments
in wholly-owned subsidiaries of the Company, (iii) loans or advances to the
Company by any of its subsidiaries or (iv) loans or advances to employees of
the Company or any of its subsidiaries made in the ordinary course of business
consistent with past practices;
(g) (i) any contract or agreement entered into by the Company or any of
its subsidiaries relating to any material acquisition or disposition of any
assets or business or (ii) any modification, amendment, assignment, termination
or relinquishment by the Company or any of its subsidiaries of any contract,
license or other right that would have a material adverse effect on the
Company;
(h) any material change in any method of accounting or accounting practice
by the Company or any of its subsidiaries, except for any such change required
by reason of a change in GAAP;
13
(i) any (i) employment, deferred compensation, severance, retirement or
other similar agreement entered into with any director, officer or employee of
the Company (or any amendment to any such existing agreement), (ii) grant of
any severance or termination pay to any director, officer or employee of the
Company, or (iii) change in benefits payable to any director, officer or
employee of the Company pursuant to any severance or retirement plans or
policies thereof; or
(j) any Tax election made or changed, any annual tax accounting period
changed, any method of tax accounting adopted or changed, any amended Tax
Returns or claims for income Tax refunds filed, any material closing agreement
entered into, any material Tax claim, audit for assessment settled, or any
right to claim an income Tax refund, offset or other reduction in Tax liability
surrendered; or
(k) any agreement or commitment to take any action referred to in Section
4.10(a) through 4.10(j).
SECTION 4.11. No Undisclosed Material Liabilities. There are no
liabilities of the Company or any of its subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability, other than:
(a) liabilities provided for in the Company Balance Sheet or disclosed in
the notes thereto or in the Company Filings filed prior to the date hereof;
(b) liabilities incurred in the ordinary course of business consistent
with past practices since the Company Balance Sheet Date; or
(c) other undisclosed liabilities which, individually or in the aggregate,
would not reasonably be expected to have a material adverse effect on the
Company.
SECTION 4.12. Litigation. Except as disclosed in the Company Filings filed
prior to the date hereof, there is no action, suit, investigation or proceeding
pending against, or to the knowledge of the Company threatened against or
affecting, the Company or any of its subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which (a) would reasonably be expected to have a material adverse
effect on the Company or (b) as of the date hereof, questions the validity of
this Agreement or any action to be taken by the Company in connection with the
consummation of the transactions contemplated hereby or could otherwise prevent
14
or delay the consummation of the transactions contemplated by this Agreement.
Except as and to the extent disclosed in the Company Filings filed prior to the
date hereof, none of the Company or its subsidiaries is subject to any
outstanding order, writ, injunction or decree which does or would reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on the Company.
SECTION 4.13. Taxes. (a) All material Tax Returns required by applicable
law to be filed with any Taxing Authority by, or on behalf of, the Company or
any of its subsidiaries have been filed when due in accordance with all
applicable laws after giving effect to any extensions, and all such material
Tax Returns are true and complete in all material respects.
(b) The Company and each of its subsidiaries has paid (or has had paid on
its behalf) or has withheld and remitted to the appropriate Taxing Authority,
or, where payment is not yet due, has established (or has had established on
its behalf and for its sole benefit and recourse) in accordance with GAAP an
adequate accrual for all material Taxes through the end of the last period for
which the Company and its subsidiaries ordinarily record items on their
respective books.
(c) The income and franchise Tax Returns of the Company and its
subsidiaries through the Tax year ended December 31, 1995 have been examined
and closed or are Returns with respect to which the applicable period for
assessment under applicable law, after giving effect to extensions or waivers,
has expired.
(d) There is no material claim, action, suit, proceeding or investigation
now pending or threatened against or with respect to the Company or any of its
subsidiaries in respect of any Tax or Tax asset.
(e) During the five-year period ending on the date hereof, neither the
Company nor any of its subsidiaries was a distributing corporation or a
controlled corporation in a transaction intended to be governed by Section 355
of the Code.
(f) Neither the Company nor any of its subsidiaries owns an interest in
real property in any jurisdiction in which a Tax is imposed, or the value of
the interest is reassessed, on the transfer of an interest in real property and
which treats the transfer of an interest in an entity that owns an interest in
real property as a transfer of the interest in real property.
(g) Schedule 4.13(g) contains a list of all jurisdictions (whether foreign
or domestic) in which the Company or any of its subsidiaries currently files
Tax Returns.
15
(h) For purposes hereof,
"Tax" means (i) any tax, governmental fee or other like assessment or
charge of any kind whatsoever (including, but not limited to, withholding on
amounts paid to or by any person), together with any interest, penalty,
addition to tax or additional amount imposed by any governmental authority (a
"Taxing Authority") responsible for the imposition of any such tax (domestic or
foreign), and any liability for any of the foregoing as transferee, (ii) in the
case of the Company or any of its subsidiaries, liability for the payment of
any amount of the type described in clause (i) as a result of being or having
been before the Effective Time a member of an affiliated, consolidated,
combined or unitary group, or a party to any agreement or arrangement, as a
result of which liability of the Company or any of its subsidiaries to a Taxing
Authority is determined or taken into account with reference to the activities
of any other person, and (iii) liability of the Company or any of its
subsidiaries for the payment of any amount as a result of being party to any
Tax sharing agreement or with respect to the payment of any amount imposed on
any person of the type described in (i) or (ii) as a result of any existing
express or implied agreement or arrangement (including, but not limited to, an
indemnification agreement or arrangement).
"Tax Return" means any report, return, document, declaration or other
information or filing required to be supplied to any Taxing Authority with
respect to Taxes, including information returns, any documents with respect to
or accompanying payments of estimated Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information.
SECTION 4.14. Employee Benefit Plans; ERISA; Labor. (a) The Company has
provided Parent with a list identifying each material "employee benefit plan",
as defined in Section 3(3) of ERISA, each employment, severance or similar
contract, plan, arrangement or policy and each other plan or arrangement
(written or oral) providing for compensation, bonuses, profit-sharing, stock
option or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance (including any self-insured
arrangements), health or medical benefits, employee assistance program,
disability or sick leave benefits, workers' compensation, supplemental
unemployment benefits, severance benefits and post- employment or retirement
benefits (including compensation, pension, health, medical or life insurance
benefits) (i) which is maintained, administered or contributed to by the
Company, any of its subsidiaries or any trade or business, whether or not
incorporated, which is or has been under common control, or which is or has
ever been treated as a single employer, with the Company under Section 414 of
the Code (an "ERISA Affiliate"), or would be deemed a
16
"controlled group" within the meaning of Section 4001(a)(14) of ERISA and (ii)
which covers any employee or former employee of the Company or any of its
subsidiaries, or with respect to which Company or any of its subsidiaries has
any liability. Copies of such plans (and, if applicable, related trust or
funding agreements or insurance policies) and all amendments thereto and
written interpretations thereof have been furnished to Parent together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto) and tax return (Form 990) prepared in connection with any such plan or
trust. Such plans are referred to collectively herein as the "Benefit Plans".
(b) Neither the Company nor any ERISA Affiliate nor any predecessor
thereof sponsors, maintains or contributes to, or has in the past sponsored,
maintained or contributed to, any Benefit Plan subject to Title IV of ERISA.
(c) Neither the Company nor any ERISA Affiliate nor any predecessor
thereof contributes to, or has in the past contributed to, any "multiemployer
plan", as defined in Section 3(37) of ERISA (a "Multiemployer Plan").
(d) Each Benefit Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter, or has
pending or has time remaining in which to file, an application for such
determination from the Internal Revenue Service, and the Company is not aware
of any reason why any such determination letter should be revoked. The Company
has made available to Parent copies of the most recent Internal Revenue Service
determination letters with respect to each such Benefit Plan. Each Benefit Plan
has been maintained in material compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Benefit Plan. No events have occurred with respect to any Benefit Plan that
could result in payment or assessment by or against the Company of any material
excise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E
or 5000 of the Code.
(e) Except as disclosed in Schedule 4.14(e), the consummation of the
transactions contemplated by this Agreement will not (either alone or together
with any other event) entitle any employee or independent contractor of the
Company or any of its subsidiaries to severance pay or accelerate the time of
payment or vesting or trigger any material payment or funding (through a
grantor trust or otherwise) of compensation or benefits under, increase the
amount payable or trigger any other obligation pursuant to, any Benefit Plan.
There is no contract, plan or arrangement (written or otherwise) covering any
employee or former employee of the Company or any of its subsidiaries that,
individually or collectively, would entitle any employee or former employee to
any severance or
17
other payment in connection with the transactions contemplated hereby that
would not be deductible pursuant to the terms of Section 280G or 162(m) of the
Code.
(f) Neither the Company nor any of its subsidiaries has any liability in
respect of post-retirement health, medical or life insurance benefits for
retired, former or current employees of the Company or any of its subsidiaries
except as required to avoid excise tax under Section 4980B of the Code.
(g) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Company or any of its affiliates relating to,
or change in employee participation or coverage under, any Benefit Plan which
would increase materially the expense of maintaining such Benefit Plan above
the level of the expense incurred in respect thereof for the fiscal year ended
December 31, 1999.
(h) All material contributions and payments accrued under each Benefit
Plan, determined in accordance with prior funding and accrual practices, as
adjusted to include proportional accruals for the period ending as of the date
hereof, have been discharged and paid on or prior to the date hereof or
otherwise properly provided for in the consolidated financial statements or
financial records of the Company.
(i) There is no material action, suit, investigation, audit or proceeding
pending against or involving or, to the knowledge of the Company, threatened
against or involving, any Benefit Plan before any court or arbitrator or any
state, federal or local governmental body, agency or official.
(j) Neither the Company nor any of its subsidiaries is a party to or
subject to, or is currently negotiating in connection with entering into, any
collective bargaining agreement or other contract or understanding with a labor
union or organization. No labor organization or group of employees of the
Company or any of its subsidiaries has made a pending demand for recognition or
certification, and, to the Company's knowledge, there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. Except as would not have a material adverse effect on the Company,
there has been no "mass layoff" or "plant closing" as defined by WARN with
respect to the Company within six months of the date of this Agreement. "WARN"
means the Worker Adjustment and Retraining Notification Act and any similar
state or local "plant closing" law.
18
SECTION 4.15. Compliance with Laws; No Defaults. Except as disclosed in
the Company Filings filed prior to the date hereof, (i) neither the Company nor
any of its subsidiaries is in violation of any applicable law, rule,
regulation, judgment, injunction, order or decree; and (ii) there is no default
under any contract or agreement to which the Company or any of its subsidiaries
is a party, either by the Company or any of its subsidiaries or, to the
Company's knowledge, by any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute a
default thereunder by the Company or any of its subsidiaries or, to the
Company's knowledge, any other party, except, in the case of (i) and (ii)
above, for such matters as would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company.
SECTION 4.16. Finders' Fees. Except for Allen & Co. and Deutsche Bank
Alex.Brown, no investment banker, broker, finder or other intermediary is
entitled to any fee or commission from the Company or any of its subsidiaries
upon consummation of the transactions contemplated by this Agreement. The
Company has heretofore delivered or made available to Parent true and complete
copies of the engagement letters with Allen & Co. and Deutsche Bank Alex.Brown.
SECTION 4.17. Environmental Matters. Except as disclosed in the Company
Filings filed prior to the date hereof and for such matters as would not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the Company:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed,
no penalty has been assessed, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company, is
threatened by any governmental entity or other person relating to or
arising out of any Environmental Law;
(ii) the Company is and has been in compliance with all Environmental
Laws and all permits required under Environmental Law except for such
matters as would not reasonably be expected to have a material adverse
effect on the Company; and
(iii) there are no liabilities of or relating to the Company or any
of its subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise arising under or relating
to any Environmental Law, and there are no facts, conditions, situations
or
19
set of circumstances which could reasonably be expected to result in or be
the basis for any such liability.
"Environmental Law" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule or regulation, relating
to the environment, natural resources, or the effect of the environment on
public or employee health and safety and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.ss.9601 et seq., the Hazardous Materials Transportation Act, 49
U.S.C.ss.1801 et. seq., the Resource Conservation and Recovery Act, 42
U.S.C.ss.6901 et seq., the Clean Water Act, 33 U.S.C.ss.1251 et seq., the Clean
Air Act, 33 U.S.C.ss.2601 et seq., the Toxic Substances Control Act, 15
U.S.C.ss.2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act,
7 U.S.C.ss.136 et seq., the Oil Pollution Act of 1990, 33 U.S.C.ss.2701 et
seq., as such laws have been amended or supplemented on or prior to the
Effective Time, and the regulations promulgated pursuant thereto on or prior to
the Effective Time.
SECTION 4.18. Antitakeover Statutes. The Board of Directors of the Company
has approved this Agreement, the Convertible Loan Agreement (as defined below)
and the transactions contemplated hereby and thereby, and such approval is
sufficient to render inapplicable to this Agreement, the CDnow Shareholder
Agreement, dated as of the date hereof, between Parent, Jason Olim and Matthew
Olim (the "CDnow Shareholder Agreement"), the Convertible Loan Agreement and
the transactions contemplated hereby and thereby the provisions of Section
2538(a) and subchapter F of Chapter 25 of the Pennsylvania Law or any other
antitakeover or similar statute or regulation to which the Company is subject
or any antitakeover provision in the Company's articles of incorporation and
bylaws. The provisions of subchapters E, G, H, I and J of Chapter 25 of the
Pennsylvania Law are not applicable to the Company.
SECTION 4.19. Intellectual Property. The Company and its subsidiaries own
or have the legal rights to use all material patents, trademarks, tradenames,
copyrights, trade secrets or other intellectual property right used in
connection with the conduct of its business as currently conducted (the
"Intellectual Property Rights"), and the Company and its subsidiaries have not
assigned, hypothecated or otherwise encumbered any of the Intellectual Property
Rights. Except for such matters as would not reasonably be expected to have a
material adverse effect on the Company, the Intellectual Property Rights are
valid and enforceable, no person is infringing the Intellectual Property
Rights, and the use of the Intellectual Property Rights by the Company and its
subsidiaries does not infringe the rights of any other person.
20
SECTION 4.20. Properties. The Company and its subsidiaries have good title
to, or in the case of leased property have valid leasehold interests in, all
material property reflected on the Company Balance Sheet or acquired after the
Company Balance Sheet Date, except for properties sold since the Company
Balance Sheet Date in the ordinary course of business consistent with past
practices. None of such property is subject to any Lien, except:
(a) Liens disclosed on the Company Balance Sheet or notes thereto or
securing liabilities reflected on the Company Balance Sheet or notes thereto;
(b) Liens for taxes, assessments and similar charges that are not yet due
or are being contested in good faith;
(c) mechanic's, materialman's, carrier's, repairer's and other similar
Liens arising or incurred in the ordinary course of business or that are not
yet due and payable or are being contested in good faith; or
(d) Liens securing the obligations of the Company under the Convertible
Loan Agreement dated as of the date hereof between the Company and Parent (as
amended from time to time, the "Convertible Loan Agreement"); or
(e) Liens incurred in the ordinary course of business since the Company
Balance Sheet Date.
SECTION 4.21. Affiliates. To the Company's knowledge, no affiliate of the
Company: (a) has a material financial interest in a competitor, supplier or
customer of the Company or any of its affiliates, (b) owns any material
property necessary for the operations of the Company or any of its affiliates,
(c) has any material claim against the Company or any of its affiliates outside
the normal course of business.
SECTION 4.22. Material Contracts. (a) Except as disclosed in the Company
Filings filed prior to the date hereof, neither the Company nor any of its
subsidiaries is a party to or bound by any of the following agreements:
(i) any agreement committing the Company or any of its subsidiaries
to purchase or sell materials, supplies, goods, services, equipment or
other assets providing for annual payments by or to the Company or any of
its subsidiaries, respectively, of $150,000 or more or aggregate payments
by or to the Company or any of its subsidiaries, respectively, of $500,000
or more;
21
(ii) any partnership, joint venture or other similar agreement or
arrangement;
(iii) any agreement relating to the prospective acquisition or
disposition of any business (whether by merger, sale of stock, sale of
assets or otherwise);
(iv) any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property (in either case, whether incurred,
assumed, guaranteed or secured by any asset), except the Convertible Loan
Agreement and any such agreement with an aggregate outstanding principal
amount not exceeding $150,000 and which may be prepaid on not more than 30
days notice without the payment of any penalty;
(v) any material license, franchise or similar agreement;
(vi) any agreement that materially limits the freedom of the Company
or any of its subsidiaries to compete in any line of business or with any
person or in any area or to own, operate, sell, transfer, pledge or
otherwise dispose of or encumber any material assets or which would so
limit the freedom of Parent or any of its affiliates after the
consummation of the Offer or the Merger;
(vii) any other agreement, commitment, arrangement or plan not made
in the ordinary course of business that is material to the Company and its
subsidiaries.
(b) Each agreement required to be disclosed pursuant to this Section is a
valid and binding agreement of the Company or one of its subsidiaries and is in
full force and effect, and none of the Company or any of its subsidiaries or,
to the knowledge of the Company, any other party thereto is in default or
breach in any material respect under the terms of any such agreement, and, to
the knowledge of the Company, no event or circumstance has occurred that, with
notice or lapse of time or both, would constitute any event of default
thereunder, except for such matters as would not reasonably be expected to have
a material adverse effect on the Company. True and complete copies of each such
agreement, including all amendments and modifications thereto, have been
delivered to Parent.
22
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company that except as otherwise
disclosed in writing to the Company prior to the date hereof:
SECTION 5.01. Corporate Existence and Power. Each of Parent and Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and has the
requisite corporate power and authority and governmental approvals to own,
lease and operate its properties and to carry on its business as now conducted,
except for such matters as could not reasonably be expected to have a material
adverse effect on Parent or the transactions contemplated hereby. Since the
date of its incorporation, Merger Subsidiary has not engaged in any activities
other than in connection with or as contemplated by this Agreement. Parent has
heretofore delivered or made available to the Company true and complete copies
of Parent's certificate of incorporation and by laws as currently in effect.
SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary have
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of each of Parent and Merger
Subsidiary.
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (i) the filing of articles of
merger with respect to the Merger with the Secretary of the Commonwealth of
Pennsylvania; (ii) compliance with any applicable requirements of the HSR Act;
(iii) compliance with any applicable requirements of the 1933 Act; (iv)
compliance with any applicable requirements of the 1934 Act; (v) compliance
with any other applicable securities laws; (vi) any actions or filings which,
if not taken or made, would not have a material adverse effect on Parent or the
transactions contemplated hereby; and (vii) any filings or notices not required
to be made or given until after the Effective Time.
SECTION 5.04. Non-Contravention. The execution, delivery and performance
by Parent and Merger Subsidiary of this Agreement do not, and the consummation
by Parent and Merger Subsidiary of the transactions contemplated
23
hereby will not (i) contravene or conflict with the certificate or articles of
incorporation or bylaws of Parent or Merger Subsidiary, (ii) assuming
compliance with the matters referred to in Section 5.03, violate any applicable
law, rule, regulation, judgment, injunction, order or decree, or (iii)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of Parent or Merger Subsidiary or to
a loss of any benefit to which Parent or Merger Subsidiary is entitled under
any provision of any agreement or other instrument binding upon Parent or
Merger Subsidiary or any license, franchise, permit or other similar
authorization held by Parent or Merger Subsidiary, or (iv) result in creation
or imposition of any Lien on any asset of Parent or any of its subsidiaries,
except in the case of clause (ii), (iii) or (iv) for such matters as could not
reasonably be expected to have a material adverse effect on Parent or the
transaction contemplated hereby.
SECTION 5.05. Disclosure Documents. (a) None of the information provided
by Parent or Merger Subsidiary for inclusion in the Offer Documents or any
amendment or supplement thereto, at the time the Offer Documents or any
amendment or supplement thereto is first mailed to shareholders of the Company,
will contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
SECTION 5.06. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Parent threatened against or
affecting, Parent or any of its subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which, as of the date hereof, questions the validity of this Agreement
or any action to be taken by Parent in connection with the consummation of the
transactions contemplated hereby or could otherwise materially prevent or delay
the consummation of the transactions contemplated by this Agreement.
ARTICLE 6
COVENANTS OF THE COMPANY
SECTION 6.01. Conduct of the Company. The Company covenants and agrees
that, from the date hereof until the Effective Time, except as expressly
provided otherwise in this Agreement (or except as disclosed in writing to
Parent prior to the date hereof), the Company and its subsidiaries shall
conduct their business in the ordinary course consistent with past practices
and shall use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present
24
officers and employees. Without limiting the generality of the foregoing, and
except as otherwise contemplated hereby, from the date hereof until the
Effective Time:
(a) the Company will not adopt or propose any change in its articles of
incorporation or any material change in its bylaws;
(b) the Company will not, and will not permit any of its subsidiaries to,
adopt a plan or agreement of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization of the Company or any of its subsidiaries (other than a
liquidation or dissolution of any such subsidiary, a merger or consolidation
between wholly-owned subsidiaries of the Company or of any such wholly-owned
subsidiary into the Company);
(c) the Company will not, and will not permit any of its subsidiaries to,
make any equity investment in or acquisition of any business of any person or
any material amount of assets, except (i) for any capital expenditure permitted
by Section 6.01(h), and (ii) for equity investment in any wholly-owned
subsidiary of the Company;
(d) the Company will not, and will not permit any of its subsidiaries to,
sell, lease, license or otherwise dispose of any assets in an amount that would
be material to the Company and its subsidiaries, taken as a whole, except
pursuant to existing contracts or commitments;
(e) the Company will not, and will not permit any of its subsidiaries to,
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock other than dividends or
other distributions paid by any of its subsidiaries to the Company or any other
wholly-owned subsidiary of the Company;
(f) the Company will not, and will not permit any of its subsidiaries to,
(x) issue, sell, transfer, pledge or dispose of any shares of, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of any class or
series of the Company or its subsidiaries, other than (i) issuances pursuant to
the exercise of options under the Option Plans and Warrants described in
Section 4.05 outstanding on the date hereof, or (ii) issuances by any of its
subsidiaries to the Company or any wholly-owned subsidiary of the Company
and(y) reduce the exercise or conversion price, extend the term or otherwise
modify the terms of any equity securities of the Company or any such
subsidiary;
25
(g) the Company will not, and will not permit any of its subsidiaries to,
redeem, purchase or otherwise acquire directly or indirectly any of the
Company's capital stock;
(h) the Company will not, and will not permit any of its subsidiaries to,
make or commit to make any capital expenditure, except in the ordinary course
of business;
(i) the Company will not, and will not permit any of its subsidiaries to,
(i) incur or assume any long-term or short-term debt or issue any debt
securities, except for borrowings under the Convertible Loan Agreement; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person,
except for obligations of the wholly owned subsidiaries of the Company; (iii)
make any loans, advances or capital contributions to, or investment in, any
other person, except in the ordinary course of business consistent with past
practice and except to wholly owned subsidiaries of the Company or to the
Company; (iv) pledge or otherwise encumber shares of capital stock of the
Company or its subsidiaries; or (v) mortgage or pledge any of its material
assets, tangible or intangible, or create any material Lien thereupon, except
in the ordinary course of business consistent with past practice;
(j) except as may be required by law or as contemplated by this Agreement
or as required by existing agreements or arrangements, the Company will not,
and will not permit any of its subsidiaries to, increase in any manner the
compensation or benefits under the Benefit Plans of any director, officer or
employee or pay any benefit or compensation not required by any plan and
arrangement as in effect as of the date hereof (including, without limitation,
the granting of stock appreciation rights or performance units);
(k) the Company will not, and will not permit any of its subsidiaries to,
enter into any material contract, agreement, commitment or transaction, other
than in the ordinary course of business consistent with past practice;
(l) except as may be required as a result of a change in law or in GAAP,
the Company will not, and will not permit any of its subsidiaries to, change
materially any of the accounting principles or practices used by it;
(m) the Company will not, and will not permit any of its subsidiaries to,
revalue any material assets (including, without limitation, writing down the
value of inventory or writing-off notes or accounts receivable) other than in
the ordinary course of business consistent with past practice or as required by
GAAP;
26
(n) the Company will not, and will not permit any of its subsidiaries to,
pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than in the
ordinary and usual course of business consistent with past practice or waive
the benefits of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement to which the Company or any of its subsidiaries
is a party;
(o) the Company will not, and will not permit any of its subsidiaries to,
settle or compromise any pending or threatened suit, action or claim relating
to the transactions contemplated hereby;
(p) the Company will not, and will not permit any of its subsidiaries to,
enter into any agreement that limits or otherwise restricts the Company or any
of its subsidiaries or any successor thereto or that could, after the Effective
Time, limit or restrict the Surviving Corporation and its affiliates (including
Parent) or any successor thereto, from engaging or competing in any line of
business or in any geographic area;
(q) the Company will not, and will not permit any of its subsidiaries to,
agree or commit to do any of the foregoing; and
(r) the Company will not, and will not permit any of its subsidiaries to
take any action that would make any representation and warranty of the Company
hereunder inaccurate in any material respect at, or as of any time prior to,
the Effective Time.
SECTION 6.02. Shareholder Meetings; Proxy Materials. Unless Pennsylvania
Law does not require a vote of shareholders of the Company for consummation of
the Merger, the Company shall cause a meeting of its shareholders (the
"Shareholder Meeting") to be duly called and held as soon as reasonably
practicable after consummation of the Offer for the purpose of voting on the
approval and adoption of this Agreement and the Merger (the "Shareholder
Approval"). Subject to Section 6.03(b), the Board of Directors of the Company
shall recommend approval and adoption of this Agreement and the Merger by the
Company's shareholders. In connection with the Shareholder Meeting, the Company
(x) will promptly prepare and file with the SEC, will use its reasonable best
efforts to have cleared by the SEC and will thereafter mail to its shareholders
as promptly as practicable the Company Proxy Statement and all other proxy
materials for such meeting, (y) will use its reasonable best efforts to obtain
the Shareholder Approval and (z) will otherwise comply with all legal
requirements applicable to such meeting. If after consummation of the Offer,
Parent, Merger Subsidiary or any other subsidiary of Parent shall directly or
indirectly beneficially own at least 80% of the outstanding shares of Company
27
Stock, the parties hereto agree to take all necessary and appropriate action to
cause the Merger to be effective as soon as practicable after the acceptance
for payment and purchase of shares of Company Stock pursuant to the Offer
without a meeting of shareholders of the Company in accordance with Section
1924(b) Pennsylvania Law.
SECTION 6.03. Other Offers, etc. (a) From the date hereof until the
termination hereof, the Company will not and will cause the subsidiaries not to
and will use its reasonable best efforts to cause the officers, directors,
employees and other agents and advisors of the Company and its subsidiaries not
to, directly or indirectly, (i) take any action to solicit, initiate or
encourage any Acquisition Proposal or (ii) furnish information to or
participate in any discussions or negotiations with any person that has made an
Acquisition Proposal; provided, however, that nothing contained in this Section
6.03(a) shall prohibit the Board of Directors of the Company from furnishing
information to, or entering into discussions or negotiations with, any person
that has made an unsolicited bona fide written Acquisition Proposal if, and
only to the extent that (A) the acceptance for payment of shares of Company
Stock pursuant to the Offer shall not have occurred, (B) the Board of Directors
of the Company, based on advice of outside legal counsel, determines in good
faith that failure to take such action would present a reasonable probability
of violating its fiduciary duties under applicable law, and (C) prior to taking
such action, the Company (x) provides reasonable notice to Parent to the effect
that it intends to take such action and (y) receives from such person an
executed confidentiality agreement in reasonably customary form and in any
event containing terms at least as stringent as those contained in the
confidentiality agreement dated April 14, 2000 between Parent and the Company
(the "Confidentiality Agreement"). Prior to providing any information to or
entering into discussions or negotiations with any person in connection with an
Acquisition Proposal by such person, the Company shall notify Parent of any
such Acquisition Proposal (including, without limitation, the material terms
and conditions thereof and the identity of the person making it) as promptly as
practicable (but in no case later than one business day) after its receipt
thereof, and shall thereafter inform Parent on a prompt basis of the status of
any discussion or negotiations with such third party and any material changes
to the terms and conditions of such Acquisition Proposal, and shall promptly
give Parent a copy of any information delivered to such person which has not
previously been reviewed by Parent. The Company will, and will cause its
subsidiaries and the officers, directors, employees and other agents and
advisors of the Company and its subsidiaries to, immediately cease and cause to
be terminated all discussions and negotiations, if any, that have taken place
prior to the date hereof with any parties with respect to any Acquisition
Proposal. Nothing contained in this Agreement shall prevent the Board of
Directors of the Company from complying with Rule 14e-2 under the 1934 Act with
respect to any Acquisition Proposal. For
28
purposes of this Agreement, "Acquisition Proposal" means any offer or proposal
for, or any indication of interest in, a merger or other business combination
transaction involving the acquisition of all or any portion of the equity
interest in, or all or a material portion of the assets of, the Company and its
subsidiaries, other than the transactions contemplated by this Agreement.
(b) The Board of Directors of the Company may not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent, its approval or
recommendation of this Agreement, the Offer or the Merger unless the Board of
Directors of the Company, based on advice of its outside legal counsel,
determines in good faith that failure to do so would present a reasonable
probability of violating its fiduciary duties under Pennsylvania Law; provided,
however, the Board of Directors of the Company may not approve or recommend
(and in connection therewith, withdraw or modify its approval or recommendation
of this Agreement, the Offer or the Merger) an Acquisition Proposal unless (i)
the Company has complied with the terms of this Section 6.03, including,
without limitation, the requirement in Section 6.03(a) that it notify Parent
promptly after its receipt of any Acquisition Proposal, (ii) the Acquisition
Proposal is a Superior Proposal and (iii) it determines in good faith (based on
advice of its outside legal counsel) that the failure to do so would present a
reasonable probability of violating its fiduciary duties under applicable law.
For purposes of this Agreement, "Superior Proposal" means any Acquisition
Proposal (A) involving the acquisition of the entire equity interest in, or all
or substantially all of the assets and liabilities of, the Company and its
subsidiaries and (B) with respect to which the Board of Directors of the
Company (x) determines in good faith that such proposal, if accepted, is
reasonably likely to be consummated, taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making the proposal
and (y) believes in good faith, based on the advice of its financial advisors,
that such proposal would, if consummated, result in a transaction more
favorable to the Company's shareholders from a financial point of view than the
Offer and the Merger.
SECTION 6.04. Tax Matters. (a) Neither the Company nor any of its
subsidiaries shall make or change any Tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file any
amended Tax Returns or claims for income Tax refunds, enter into any material
closing agreement, surrender any material Tax claim, audit or assessment,
surrender any right to claim an income Tax refund, offset or other reduction in
Tax liability surrendered, consent to any extension or waiver of the
limitations period applicable to any Tax claim or assessment or take or omit to
take any other action, if any such action or omission would have the effect of
materially increasing the Tax liability or materially reducing any Tax asset of
the Company or any of its subsidiaries.
29
(b) The Company and each of its subsidiaries will establish or cause to be
established in accordance with GAAP on or before the Effective Time an adequate
accrual for all material Taxes due with respect to any period ending prior to
or as of the Effective Time.
(c) On or prior to the date on which Merger Subsidiary acquires shares of
Company Stock pursuant to the Offer, the Company shall provide to Parent a
certificate meeting the requirements of Treas. Reg. ss.1.897-2(h) promulgated
under the Code to the effect that the Company is not, nor has it been within 5
years of the date thereof, a "United States real property holding corporation"
as defined in Section 897 of the Code.
ARTICLE 7
COVENANTS OF PARENT
SECTION 7.01. Obligations of Merger Subsidiary. Parent will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Offer and the Merger on the terms and
conditions set forth in this Agreement.
SECTION 7.02. Voting of Shares of Company Stock. Parent agrees to vote all
shares of Company Stock beneficially owned by it in favor of adoption of this
Agreement at the Shareholder Meeting (if any).
SECTION 7.03. Director and Officer Liability. After the Effective Time,
the Parent will cause the Surviving Corporation to indemnify each person who is
now, or has been at any time prior to the date hereof, a director or officer of
the Company (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), to the fullest extent permitted by law, with respect to
any claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense (including reasonable fees and
expenses of legal counsel), whenever asserted or claimed, based in whole or in
part on, or arising in whole or in part out of, any facts or circumstances
occurring at or prior to the Effective Time whether commenced, asserted or
claimed before or after the Effective Time, including liability arising under
the 1933 Act, the 1934 Act or state law. Parent shall, or shall cause the
Surviving Corporation to, maintain in effect for not less than three years
after the Effective Time the current policies of directors' and officers'
liability insurance maintained by the Company and its subsidiaries on the date
hereof (provided that Parent may substitute therefor policies with reputable
and financially sound carriers having at least the same coverage and amounts
thereof and containing terms and conditions which are no
30
less advantageous to the persons currently covered by such policies as the
insured) with respect to facts or circumstances occurring at or prior to the
Effective Time to the extent that such liability insurance can be maintained
annually at a cost to Parent not greater than 150% of the current annual
premium for the current Company directors' and officers' liability insurance;
provided that if such insurance cannot be so maintained or obtained at such
costs, Parent shall maintain or obtain as much of such insurance as can be so
maintained or obtained at a cost equal to 150% of the current annual premium of
the Company for such insurance. Parent agrees to pay all expenses (including
fees and expenses of counsel) that may be incurred by any Indemnified Party in
successfully enforcing the indemnity or other obligations under this Section
7.03. The rights under this Section 7.03 are in addition to rights that an
Indemnified Party may have under the articles of incorporation, bylaws, or
other similar organizational documents of the Company or any of its
subsidiaries or Pennsylvania Law. The rights under this Section 7.03 shall
survive consummation of the Merger and are expressly intended to benefit each
Indemnified Party. Parent agrees to cause the Surviving Corporation and any of
its subsidiaries (or their successors) to maintain in effect for a period of
six years provisions in its articles of incorporation or bylaws or similar
organizational documents providing for indemnification and exculpation of
Indemnified Parties, with respect to facts or circumstances occurring at or
prior to the Effective Time, to the extent set forth in the Company's articles
of incorporation and bylaws as of the date hereof; provided that the foregoing
shall not in any way restrict or preclude any sale, liquidation or dissolution
of any subsidiary of Parent at any time after the Effective Time.
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
SECTION 8.01. Notices of Certain Events. (a) The Company and Parent shall
promptly notify each other of:
(i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
(b) The Company shall promptly notify Parent of:
31
(i) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting the Company or any of its subsidiaries
which relate to the consummation of the transactions contemplated by this
Agreement; and
(ii) the occurrence of any event or condition that becomes known to
an executive officer of the Company which would reasonably be expected to
result in the condition set forth in clause (i)(G) of Annex I hereto not
being met.
(c) Parent shall promptly notify the Company of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge threatened
against, relating to or involving or otherwise affecting Parent or any of its
subsidiaries which relate to the consummation of the transactions contemplated
by this Agreement.
SECTION 8.02. Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the Offer and the Merger and the other transactions contemplated by
this Agreement. In furtherance and not in limitation of the foregoing, each
party hereto agrees to make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated
hereby as promptly as practicable and in any event within ten business days
after the date hereof. The Company and Parent shall furnish, or cause to be
furnished, to each other such necessary information and reasonable assistance
as the other may request in connection with its preparation of necessary
filings or submissions under the provisions of the HSR Act. The Company and
Parent, or its affiliate, will promptly respond to any request for additional
information. Each of the Company and Parent will take all other actions
necessary to cause the expiration or termination of the applicable waiting
periods as soon as practicable.
SECTION 8.03. Access to Information Concerning Properties and Records. To
the extent permitted by applicable law, from the date hereof until the
Effective Time, the Company will give to Parent and its counsel, financial
advisors, auditors and other authorized representatives reasonable access
during normal business hours to its, and its subsidiaries, offices, properties,
books and records, and will furnish to the other party, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such persons may reasonably request and
will instruct its
32
employees, counsel and financial advisors to cooperate with the other party in
its investigation of the business of the Company, as the case may be.
SECTION 8.04. Cooperation. Without limiting the generality of Section
8.02, Parent and the Company shall cooperate (i) in connection with the
preparation of the Company Disclosure Documents and the Offer Documents, (ii)
in determining whether any action by or in respect of, or filing with, any
governmental body, agency or official, or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (iii) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Company Disclosure
Documents or the Offer Documents and seeking timely to obtain any such actions,
consents, approvals or waivers.
SECTION 8.05. Public Announcements. So long as this Agreement is in
effect, Parent and the Company will consult with each other before issuing any
press release or other public statement with respect to this Agreement or the
transactions contemplated hereby and, except as may be required by applicable
law, court process or any listing agreement with or rule of any national
securities exchange, will not issue any such press release or other public
statement prior to such consultation and providing the other party with a
reasonable opportunity to comment thereon.
SECTION 8.06. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
33
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Subsidiary to consummate the Merger are
subject to the satisfaction (or waiver by the party for whose benefit the
applicable condition exists) of the following conditions:
(a) if required the Company shall have received the approval of the
shareholders of the Company with respect to this Agreement;
(b) no provision of any applicable law or regulation and no judgment,
injunction, order or decree of a court of competent jurisdiction shall prohibit
or enjoin the consummation of the Merger; and
(c) Merger Subsidiary shall have acquired shares of Company Stock pursuant
to the Offer.
ARTICLE 10
TERMINATION
SECTION 10.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the shareholders of the
Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent,
(i) if the Offer has not been consummated on or before October 31,
2000, provided that the right to terminate this Agreement pursuant to this
Section 10.01(b)(i) shall not be available to any party whose breach of
any provision of this Agreement results in the failure of the Offer to be
consummated by such time; or
(ii) if consummation of the Offer or the Merger would violate or be
prohibited by any law or regulation or if any injunction, judgment, order
or decree of a court of competent jurisdiction enjoining the Company,
Parent or Merger Subsidiary from consummating the Offer or
34
the Merger is entered and such injunction, judgment, order or decree shall
become final and nonappealable;
(c) by Parent, if prior to the purchase of any shares of Company Stock
pursuant to the Offer,
(i) the Board of Directors of the Company shall have failed to
recommend or withdrawn or materially modified in a manner adverse to
Parent its adoption or recommendation of the Offer and the Merger or there
shall have been a material breach of any of the provisions of Section
6.03;
(ii) the Company shall have entered into, or announced its intention
to enter into, an agreement with respect to a Superior Proposal; or
(iii) any person or group of persons (other than Parent) shall have
acquired a majority of the equity interest in, or all or any material
portion of the assets of, the Company and its subsidiaries; or
(d) by the Company, if prior to purchase of any shares of Company Stock
pursuant to the Offer, (i) the Company notifies Parent in writing that it
intends to enter into an agreement with respect to a Superior Proposal in
accordance with Section 6.03, provided the Company has complied in all material
respects with the provisions thereof, including the notice provision therein;
(ii) Parent does not make, within four business days after receipt of the
Company's notification pursuant to clause (i), an offer that the Board of
Directors of the Company determines, in good faith based on the advice of its
financial advisors, is at least as favorable to the Company's shareholders as
the Superior Proposal and (iii) prior to or simultaneously with such
termination, the Company makes payment to Parent of the amounts payable
pursuant to Section 11.04(b)(i).
The party desiring to terminate this Agreement pursuant to clauses (b), (c) or
(d) shall give written notice of such termination to the other party in
accordance with Section 11.01.
SECTION 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01, this Agreement shall become void and of no effect
with no liability on the part of any party hereto, except that (a) the
agreements contained in this Section 10.02 and in Sections 8.04 and 11.04 and
in the Confidentiality Agreement shall survive the termination hereof and (b)
no such termination shall relieve any party of any liability or damages
resulting from any willful breach by that party of this Agreement.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given:
if to Parent or Merger Subsidiary, to:
Bertelsmann, Inc.
1540 Broadway
New York, New York, 10036
Fax: 212-782-1103
Attention: Robert Sorrentino
with a copy to:
Bertelsmann AG
Carl-Bertelsmann Strasse 270
33311 Guetersloh
Germany
Fax: 011-49-5241-809318
Attention: Bettina Wolf
and
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: 212-450-4800
Attention: Christopher Mayer
if to the Company, to:
CDnow, Inc.
1005 Virginia Drive
Ft. Washington, PA 19034
Fax: 215-619-9521
Attention: David Capozzi
36
with a copy to:
Morgan Lewis Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Fax: 215-963-5299
Attention: Peter S. Sartorius
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests or other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5 p.m. on any business
day in the place of receipt. Otherwise, any such notice, request or other
communication shall be deemed not to have been received until the next
succeeding business day in the place of receipt.
SECTION 11.02. Entire Agreement; Third Party Beneficiaries; Non- Survival
of Representations and Warranties. (a) This Agreement, the Confidentiality
Agreement, and the Convertible Loan Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, among the parties with respect to such subject matter. None of such
agreements or any other agreement contemplated hereby or thereby (or any
provision hereof or thereof) is intended to confer on any person other than the
parties hereto or thereto any rights or remedies (except that Section 7.03 is
intended to confer rights and remedies on the persons specified therein).
(b) The representations and warranties contained herein or in any
schedule, instrument or other writing delivered pursuant hereto shall not
survive the consummation of the Offer.
SECTION 11.03. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, but only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and Parent or, in the case of a waiver, by the party against whom
the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
37
SECTION 11.04. Expenses. (a) Except as otherwise specified in this Section
11.04 or agreed in writing by the parties, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such cost or expense.
(b) The Company agrees to pay to Parent (by wire transfer of immediately
available funds) an amount equal to
(i) $3,000,000 prior to or simultaneously with the termination of
this Agreement as a result of the occurrence of any of the events set
forth in Section 10.01(c) or Section 10.01(d); and
(ii) actual and reasonable out-of-pocket expenses incurred by Parent
or Merger Subsidiary in connection with this Agreement and the
transactions contemplated hereby, promptly upon receipt of reasonable
documentation of such expenses, in connection with the termination of this
Agreement as a result of the occurrence of any of the following events:
(A) any of the events set forth in Section 10.01(c) or Section
10.01(d); or
(B) the condition set forth in clause (i)(D) of Annex I hereto
not having been met as a result of a breach by the Company of its
representations and warranties set forth in this Agreement;
SECTION 11.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns; provided that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the written consent of the other
parties hereto except that Parent and Merger Subsidiary may assign their rights
hereunder to any of their respective affiliates.
SECTION 11.06. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York, without
regard to the conflict of laws rules of such state (except that matters
expressly governed by Pennsylvania Law shall be governed by such statute).
SECTION 11.07. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought against any of the parties in the United States District Court for the
Southern
38
District of New York or any New York state court sitting in the City of New
York, and each of the parties hereto hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding which is brought in any such
court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
generality of the foregoing, each party hereto agrees that service of process
upon such party as provided in Section 11.01 shall be deemed effective service
of process upon such party.
SECTION 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 11.09. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 11.10. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 11.11. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties (a) will
waive, in any action for specific performance, the defense of adequacy of a
remedy at law and the posting of any bond in connection therewith and (b) shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement or to enforce specifically the terms and provisions of this Agreement
in the United States District Court for the Southern District of New York or
any New York state court sitting in the City of New York, in addition to any
other remedy to which they are entitled at law or in equity.
SECTION 11.12. Joint and Several Liability. Parent and Merger Subsidiary
hereby agree that they will be jointly and severally liable for all
39
covenants, agreements, obligations and representations and warranties made by
either of them in this Agreement.
SECTION 11.13. Definitions and Usage. (a) For purposes of this Agreement:
"affiliate" means, with respect to any person, any other person directly
or indirectly controlling, controlled by, or under common control with such
person.
"material adverse effect" means, with respect to any person, a material
adverse effect on the business, assets, financial condition or results of
operations of such person and its subsidiaries, taken as a whole; provided,
however, that the effects relating to (i) the announcement of the transactions
contemplated hereby, or (ii) changes in the industry in which the Company
operates which do not disproportionately effect the Company, shall not be
deemed to constitute a material adverse effect.
"person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"subsidiary" means, with respect to any person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at any time directly or indirectly owned by such person.
(b) A reference in this Agreement to any statute shall be to such statute
as amended from time to time, and to the rules and regulations promulgated
thereunder.
(c) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
- ---- -------
1933 Act............................................................4.03
1934 Act............................................................4.03
Acquisition Proposal................................................6.03
Benefit Plans.......................................................4.14
Certificates........................................................2.03
Code................................................................2.03
Company.............................................................preamble
Company 10-Q........................................................4.08
Company Balance Sheet...............................................4.08
Company Balance Sheet Date..........................................4.08
Company Disclosure Documents........................................4.09
40
Term Section
- ---- -------
Company Filings.....................................................4.07
Company Financial Advisor...........................................1.02
Company Proxy Statement.............................................4.09
Company Stock.......................................................1.01
Confidentiality Agreement...........................................6.03
Continuing Directors................................................1.03
Convertible Loan Agreement..........................................4.20
Convertible Notes...................................................4.05
Effective Time......................................................2.01
Environmental Law...................................................4.17
ERISA Affiliate.....................................................4.14
Depositary..........................................................2.03
GAAP................................................................4.08
HSR Act.............................................................4.03
Indemnified Party...................................................7.03
Intellectual Property Rights........................................4.19
Lien................................................................4.04
Market Price........................................................1.01
Merger..............................................................2.01
Merger Consideration................................................2.02
Merger Subsidiary...................................................preamble
Minimum Condition...................................................1.01
Multiemployer Plan..................................................4.14
Offer...............................................................1.01
Offer Documents.....................................................1.01
Option Plans........................................................4.05
Offer Price.........................................................1.01
Parent..............................................................preamble
Pennsylvania Law....................................................1.02
Schedule 14D-9......................................................1.02
SEC.................................................................1.01
Stock Options ......................................................2.04
Shareholder Approval................................................6.02
Shareholder Meeting.................................................6.02
Superior Proposal...................................................6.03
Surviving Corporation...............................................2.01
Tax.................................................................4.13
Tax Return..........................................................4.13
Taxing Authority....................................................4.13
WARN................................................................4.14
Warrants............................................................4.05
41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BERTELSMANN, INC.
By: /s/ Robert J. Sorrentino
--------------------------------------
Title: President and Chief Executive
Officer
CDnow, INC.
By: /s/ Jason Olim
--------------------------------------
Title: President and Chief Executive
Officer
BINC ACQUISITION CORP.
By /s/ Robert J. Sorrentino
--------------------------------------
Title: President
ANNEX I
Notwithstanding any other provision of the Offer, Merger Subsidiary shall not
be required to accept for payment or pay for any shares of Company Stock, and
may, subject to the terms of this Agreement, terminate the Offer, if
(i) at the expiration of the Offer, (A) the Minimum Condition has not been
satisfied, (B) the applicable waiting periods under the HSR Act or other
applicable antitrust or competition laws shall not have expired or been
terminated, (C) all consents and approvals from any governmental body, agency,
official or authority or any other person necessary in order to consummate the
Offer and the Merger shall not have been obtained except for such consents and
approvals that individually or in the aggregate could not reasonably be
expected to have a material adverse effect on the Company, (D) the
representations and warranties of the Company set forth in this Agreement shall
not be true and accurate as of the expiration of the Offer as though made on or
as of such date (except for those representations and warranties that expressly
address matters only as of a particular date or only with respect to a specific
period of time which need only be true and accurate as of such date or with
respect to such period) or (E) the Company shall have failed to perform or
comply in all material respects with any of its obligations, agreements or
covenants required by this Agreement; or
(ii) at any time on or after July 19, 2000 and prior to the acceptance for
payment of shares of Company Stock, any of the following conditions exist:
(a) there shall be any law, rule, regulation, judgment, order, injunction
or decree enacted, entered, enforced, promulgated or deemed applicable to the
Offer or the Merger, other than the application to the Offer or the Merger of
applicable waiting periods under the HSR Act, that prohibits the consummation
of the Offer, the Merger or any other transaction contemplated by the Merger
Agreement; or
(b) this Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Parent and Merger
Subsidiary and may, subject to the terms of this Agreement, be waived by Parent
and Merger Subsidiary in whole or in part at any time and from time to time in
their discretion.