EXECUTION COPY
CDNOW, INC. SHAREHOLDER AGREEMENT dated as of July 12,
1999, among TIME WARNER INC., a Delaware corporation ("Time
Warner"), SONY CORPORATION OF AMERICA, a New York corporation
("Sony"), and the individuals and other parties listed on
Schedule A hereto (each, a "Shareholder" and, collectively,
the "Shareholders").
WHEREAS Time Warner, Sony, CDnow, Inc., a Pennsylvania corporation
("CDnow"), Delaware Holdco Corporation, a Delaware corporation and a wholly
owned subsidiary of CDnow ("Holdco"), Pennsylvania Subsidiary, Inc., a
Pennsylvania corporation and a wholly owned subsidiary of Holdco, Delaware Sub I
L.L.C., a Delaware limited liability company and a wholly owned subsidiary of
Holdco, and Delaware Sub II L.L.C., a Delaware limited liability company and a
wholly owned subsidiary of Holdco, propose to enter into an Agreement of Merger
and Contribution dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement);
WHEREAS each Shareholder owns the number of shares of CDnow Common
Stock set forth opposite his name on Schedule A hereto (such shares of CDnow
Common Stock, together with any other shares of capital stock of CDnow acquired
by such Shareholder after the date hereof and during the term of this Agreement,
being collectively referred to herein as the "Subject Shares" of such
Shareholder); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Time Warner and Sony have requested that each Shareholder enter into
this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of Each Shareholder. Each
Shareholder hereby, severally and not jointly, represents and warrants to Time
Warner and Sony as of the date hereof in respect of himself as follows:
(a) Authority; Execution and Delivery; Enforceability. The
Shareholder has all requisite power and authority to execute this Agreement and
to consummate the transactions contemplated hereby. The Shareholder has duly
executed and delivered this Agreement, and this Agreement constitutes the legal,
valid and binding obligation of the
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Shareholder, enforceable against the Shareholder in accordance with its terms.
The execution and delivery by the Shareholder of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancelation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Shareholder under, any provision of any Contract
to which the Shareholder is a party or by which any properties or assets of the
Shareholder are bound or, subject to the filings and other matters referred to
in the next sentence, any provision of any Judgment or Law applicable to the
Shareholder or the properties or assets of the Shareholder. No Consent of, or
registration, declaration or filing with, any Governmental Entity is required to
be obtained or made by or with respect to the Shareholder in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, other than such reports under Sections 13(d)
and 16 of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated hereby. If the Shareholder is married and the
Subject Shares of the Shareholder constitute community property, or spousal or
other approval is otherwise required for this Agreement to be legal, valid and
binding, this Agreement has been duly authorized, executed and delivered by, and
constitutes a valid and binding agreement of, the Shareholder's spouse,
enforceable against such spouse in accordance with its terms.
(b) The Subject Shares. The Shareholder is the record and beneficial
owner of and has good and marketable title to, the Subject Shares set forth
opposite his name on Schedule A attached hereto, free and clear of any Liens.
The Shareholder does not own, of record or beneficially, any shares of capital
stock of CDnow other than the Subject Shares set forth opposite his name on
Schedule A attached hereto. The Shareholder has the sole right to vote such
Subject Shares, and none of such Subject Shares is subject to any voting trust
or other agreement, arrangement or restriction with respect to the voting of
such Subject Shares, except as contemplated by this Agreement.
SECTION 2. Representations and Warranties of Time Warner and Sony.
Each of Time Warner and Sony, severally and not jointly, hereby represents and
warrants to each Shareholder as to itself as follows: It has all requisite
corporate power and authority to execute this Agreement and
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to consummate the transactions contemplated hereby. The execution and delivery
by it of this Agreement and consummation of the transactions contemplated hereby
have been duly authorized by all necessary action on its part. It has duly
executed and delivered this Agreement, and this Agreement constitutes its legal,
valid and binding obligation, enforceable against it in accordance with the
terms hereof.
SECTION 3. Covenants of Each Shareholder. Each Shareholder,
severally and not jointly, covenants and agrees as follows:
(a) (1) At any meeting of the shareholders of CDnow called to seek
the CDnow Shareholder Approval or in any other circumstances upon which a vote,
consent or other approval (including by written consent) with respect to the
Merger Agreement, any other Transaction Agreement or any Transaction is sought,
the Shareholder shall, including by executing a written consent solicitation if
requested by Time Warner and Sony, vote (or cause to be voted) the Subject
Shares of the Shareholder in favor of granting the CDnow Shareholder Approval.
(2) The Shareholder hereby irrevocably grants to, and appoints Time
Warner or Sony, or any of them, and any individual designated in writing by any
of them, and each of them individually, as the Shareholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of the Shareholder, to vote the Subject Shares of the Shareholder, or
grant a consent or approval in respect of the Subject Shares of the Shareholder
in a manner consistent with this Section 3. The Shareholder understands and
acknowledges that Time Warner and Sony are entering into the Merger Agreement in
reliance upon the Shareholder's execution and delivery of this Agreement. The
Shareholder hereby affirms that the irrevocable proxy set forth in this Section
3(a) is given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties of the
Shareholder under this Agreement. The Shareholder hereby further affirms that
the irrevocable proxy is coupled with an interest and may under no circumstances
be revoked. The Shareholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 1759 of the PBCL. The irrevocable proxy granted
hereunder shall automatically terminate upon the termination of Sections 3(a)
and 3(b).
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(b) At any meeting of shareholders of CDnow or at any adjournment
thereof or in any other circumstances upon which the Shareholder's vote, consent
or other approval is sought, the Shareholder shall vote (or cause to be voted)
the Subject Shares of the Shareholder against (i) any Acquisition Agreement,
merger, consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by CDnow (other
than the Merger Agreement and the Transactions), (ii) any CDnow Takeover
Proposal and (iii) any amendment of the CDnow Charter or the CDnow Bylaws or
other proposal or transaction involving CDnow or any CDnow Subsidiary, which
amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify any provision of the Merger Agreement, any other
Transaction Agreement, any Transaction or change in any manner the voting rights
of any class of CDnow Capital Stock. The Shareholder shall not commit or agree
to take any action inconsistent with the foregoing.
(c) Other than this Agreement, the Shareholder shall not (i) except
as set forth on Schedule A attached hereto, sell, transfer, pledge, assign or
otherwise dispose of (including by gift) (collectively, "Transfer"), or enter
into any Contract, option or other arrangement (including any profit sharing
arrangement) with respect to the Transfer of, any Subject Shares to any person
other than pursuant to the Transactions or (ii) enter into any voting
arrangement, whether by proxy, voting agreement or otherwise, with respect to
any Subject Shares and shall not commit or agree to take any of the foregoing
actions; provided, however, that, at any time that is not more than three days
prior to the date on which such tender offer expires, the Shareholder may
Transfer the Subject Shares pursuant to any tender offer solely involving cash
consideration and constituting a Superior CDnow Proposal (it being understood
that any voting rights with respect to such Transferred Subject Shares shall
also be transferred).
(d) The Shareholder shall not, nor shall it authorize or permit any
employee of, or any investment banker, financial advisor, attorney, accountant
or other advisor or representative retained by, the Shareholder to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any action designed to facilitate,
any inquiries or the making of a proposal which constitutes, or may reasonably
be expected to lead to, any CDnow Takeover Proposal, (ii) participate in any
discussions or negotiations regarding any CDnow Takeover Proposal or (iii) enter
into any agreement with respect to any CDnow
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Takeover Proposal; provided, however, that the Shareholder may participate in
discussions or negotiations with any person regarding a Superior CDnow Proposal
if at such time CDnow is permitted to engage in, and is actually engaged in,
discussions or negotiations with such person pursuant to Section 7.02(a) of the
Merger Agreement. The Shareholder promptly shall advise Time Warner and Sony
orally and in writing of any request for information or of any CDnow Takeover
Proposal, or any inquiry made to the Shareholder with respect to or that could
lead to any CDnow Takeover Proposal, the material terms and conditions of such
request, CDnow Takeover Proposal or inquiry and the identity of the person
making any such request, CDnow Takeover Proposal or inquiry. The Shareholder
will keep Time Warner, Sony and CDnow informed of the status and details
(including amendments and proposed amendments) of any such request, CDnow
Takeover Proposal or inquiry.
(e) The Shareholder shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Transactions. The Shareholder shall not issue any press release
or make any other public statement with respect to any Transaction Agreement or
any Transaction without the prior consent of Time Warner and Sony, except as may
be required by applicable Law.
(f) The Shareholder hereby consents to and approves the actions
taken by the CDnow Board in approving the Transaction Agreements and the
Transactions. The Shareholder hereby waives, and agrees not to exercise or
assert, any dissent rights under Subchapter D in connection with the
Transactions.
(g) If, at the time the Merger Agreement is submitted for approval
to the shareholders of CDnow, the Shareholder is an "affiliate" of CDnow for
purposes of Rule 145 under the Securities Act, the Shareholder shall deliver to
Time Warner and Sony at least 30 days prior to the Closing a written agreement
substantially in the form attached as Exhibit R to the Merger Agreement.
SECTION 4. Termination. This Agreement shall terminate upon the
earliest of (i) the Effective Time and (ii) the termination of the Merger
Agreement in accordance with its terms.
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SECTION 5. Additional Matters. (a) Each Shareholder shall, from time
to time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Time Warner
and Sony may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
(b) No person executing this Agreement who is or becomes during the
term hereof a director or officer of CDnow makes any agreement or understanding
herein in his or her capacity as such director or officer of CDnow. Each
Shareholder signs solely in his, her or its capacity as the record holder and
beneficial owner of such Shareholder's Subject Shares and nothing herein shall
limit or affect any actions taken by any Shareholder in his capacity as an
officer or director of CDnow to the extent specifically permitted by the Merger
Agreement.
SECTION 6. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Time Warner and Sony in
accordance with Section 11.02 of the Merger Agreement and to the Shareholders at
their respective addresses set forth on Schedule A hereto (or at such other
address for a party as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".
(d) Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to
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any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement. This
Agreement shall become effective against Time Warner and Sony when one or more
counterparts have been signed by Time Warner and Sony and delivered to each
Shareholder. This Agreement shall become effective against any Shareholder when
one or more counterparts have been executed by such Shareholder and delivered to
Time Warner and Sony. Each party need not sign the same counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(i) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise, by any of the parties without the prior
written consent of the other parties; provided, however, that each of Time
Warner and Sony may assign its rights, interests and obligations under this
Agreement to any affiliate thereof that is a party to the Transactions, without
the prior written consent of the other parties. Any purported assignment without
such consent shall be void. Subject to the preceding sentences, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
(i) Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
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accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any New York state court, or any
Federal court located in the State of New York, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (i) consents to submit itself to the personal jurisdiction
of any New York state court or any Federal court located in the State of New
York in the event any dispute arises out of this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that it will not bring any
action relating to this Agreement in any court other than a New York state court
or any Federal court sitting in the State of New York and (iv) waives any right
to trial by jury with respect to any claim or proceeding related to or arising
out of this Agreement or any transaction contemplated hereby.
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IN WITNESS WHEREOF, each party has duly executed this Agreement, all
as of the date first written above.
TIME WARNER INC.,
by /s/ RICHARD J. BRESSLER
---------------------------------
Name: RICHARD J. BRESSLER
Title: Executive Vice President
and Chief Financial Officer
SONY CORPORATION OF AMERICA,
by /s/ HOWARD STRINGER
---------------------------------
Name: HOWARD STRINGER
Title: Chairman and Chief
Executive Officer
/s/ JASON OLIM
---------------------------------
JASON OLIM
/s/ MATTHEW OLIM
---------------------------------
MATTHEW OLIM
/s/ JONATHAN V. DIAMOND
---------------------------------
JONATHAN V. DIAMOND
/s/ ROBERT DAVID GRUSIN
---------------------------------
ROBERT DAVID GRUSIN
/s/ JAMES E. COANE
---------------------------------
JAMES E. COANE
SCHEDULE A
Number of Shares
Name and Address of CDnow Common Exceptions to
of Shareholder Stock Owned Section 3(c)(i)
- ---------------- ---------------- ---------------
Jason Olim 2,960,025 Bona fide pledge
765 Limekiln Pike, #18 of up to 165,000
Glenside, PA 19038 Subject Shares to
secure the down payment
and improvements loan for
the property to be
purchased by JO for his
home; provided that Mr.
Olim retains all voting
rights with respect to
such pledged Subject
Shares.
Matthew Olim 2,960,025 Bona fide pledge
8460 Limekiln Pike of up to 165,000
PH-8 Subject Shares to
Wyncote, PA 19095 secure margin
loans or the down payment
on a home mortgage loan;
provided that Mr. Olim
retains all voting rights
with respect to such
pledged Subject Shares.
Jonathan V. Diamond 663,382 None.
1 West 67th Street
New York, NY 10023
Number of Shares
Name and Address of CDnow Common Exceptions to
of Shareholder Stock Owned Section 3(c)(i)
- ---------------- ---------------- ---------------
Robert David Grusin 584,668 If Mr. Grusin
700 Garrin Street ceases to be a
Santa Fe, NM 87501 member of the
Board of Directors of
CDnow, thereafter he will
have the right to
Transfer his Subject
Shares without regard to
the restrictions set
forth in Section 3(c)(i)
and upon any such
Transfer, such Subject
Shares shall cease to be
bound by this Agreement.
James E. Coane 88,902 Sale of up to
3 Constance Court 50,000 Subject
East Setawket, NY 11733 Shares.