-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AbYItT7p9wbJN848kWqjdMqG+4PjsNSCt3DUjDaBfTIWxV0+aXF5d4+T4VnYk80x 4xy3/U8BmrSzhEib7TUb2Q== /in/edgar/work/20000726/0000912057-00-033234/0000912057-00-033234.txt : 20000921 0000912057-00-033234.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-033234 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000726 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CDNOW INC/PA CENTRAL INDEX KEY: 0001078887 STANDARD INDUSTRIAL CLASSIFICATION: [5735 ] IRS NUMBER: 232979814 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-56575 FILM NUMBER: 679093 BUSINESS ADDRESS: STREET 1: 1005 VIRGINIA DRIVE CITY: FORT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2156199900 MAIL ADDRESS: STREET 1: 1005 VIRGINIA DRIVE CITY: FORT WASHINGTON STATE: PA ZIP: 19034 FORMER COMPANY: FORMER CONFORMED NAME: CDNOW N2K INC DATE OF NAME CHANGE: 19990209 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CDNOW INC/PA CENTRAL INDEX KEY: 0001078887 STANDARD INDUSTRIAL CLASSIFICATION: [5735 ] IRS NUMBER: 232979814 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 1005 VIRGINIA DRIVE CITY: FORT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2156199900 MAIL ADDRESS: STREET 1: 1005 VIRGINIA DRIVE CITY: FORT WASHINGTON STATE: PA ZIP: 19034 FORMER COMPANY: FORMER CONFORMED NAME: CDNOW N2K INC DATE OF NAME CHANGE: 19990209 SC 14D9 1 sc14d9.txt SCHEDULE 14D9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 (RULE 14D-101) SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 CDNOW, INC. (Name of Subject Company) CDNOW, INC. (Name of Person(s) Filing Statement) COMMON STOCK, NO PAR VALUE (Title of Class of Securities) 125086 (CUSIP Number of Class of Securities) DAVID A. CAPOZZI VICE PRESIDENT AND GENERAL COUNSEL 1005 VIRGINIA DRIVE FT. WASHINGTON, PA 19034 215-619-9900 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) / / Check the box if the filing relates solely to preliminary communications made before the Commencement of a tender offer. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SUBJECT COMPANY INFORMATION. The name of the subject company is CDnow, Inc., a Pennsylvania corporation. The address of the principal executive offices of CDNOW is 1005 Virginia Drive, Ft. Washington, Pennsylvania 19034. The telephone number of CDNOW at its principal executive offices is 215.619.9900. The title of the class of equity securities to which this Solicitation/Recommendation Statement relates is CDNOW common stock, no par value. As of July 19, 2000, 32,961,610 shares of CDNOW common stock were outstanding. ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON. The filing person is CDNOW. CDNOW's name, business address and business telephone number are set forth above in Item 1. This Solicitation/Recommendation Statement relates to the tender offer by BINC Acquisition Corp., a Pennsylvania corporation and a wholly-owned subsidiary of Bertelsmann, Inc., a Delaware corporation, to purchase all of the outstanding shares of CDNOW common stock at a purchase price of $3.00 per share, net to the seller in cash, upon the terms and subject to the conditions set forth in BINC Acquisition Corp.'s Offer to Purchase, dated July 26, 2000, included in its Tender Offer Statement on Schedule TO filed with the SEC and the related Letter of Transmittal. The offer is being made pursuant to an Agreement and Plan of Merger, dated as of July 19, 2000, among CDNOW, Bertelsmann and BINC Acquisition Corp. The merger agreement provides for BINC Acquisition Corp. to make the tender offer and that as soon as practicable following the satisfaction or waiver of the conditions set forth in the merger agreement, BINC Acquisition Corp. will be merged with and into CDNOW, which will become a wholly-owned subsidiary of Bertelsmann. At the effective time of the merger, each share of CDNOW common stock then outstanding (other than shares held by CDNOW, BINC Acquisition Corp. and Bertelsmann or by shareholders who perfect their dissenters' rights under the provisions of the Pennsylvania Business Corporation Law of 1988, as amended) will be converted into the right to receive $3.00 in cash. A copy of the merger agreement is included as exhibit (d)(1) to BINC Acquisition Corp.'s Tender Offer Statement on Schedule TO and is incorporated herein by reference. In addition to the merger agreement, CDNOW and Bertelsmann entered into a Convertible Loan Agreement, dated as of July 19, 2000. The convertible loan agreement provides for a loans from Bertelsmann to CDNOW in an aggregate principal amount of up to approximately $42,000,000. The proceeds of the loans will be used to repay all amounts due Time Warner Inc. and Sony Music Entertainment Inc., under the convertible loan agreement among CDNOW, Time Warner and Sony Music Entertainment, Inc. dated as of July 12, 1999, as amended on March 13, 2000 and to meet the working capital needs of CDNOW as contemplated by its business plan until the earlier of (i) October 31, 2000, (ii) the date of the termination of the merger agreement and (iii) the date any other person acquires control of CDNOW. The rules of the Nasdaq National Market, where shares of CDNOW are traded, generally require shareholder approval prior to the issuance of common stock (or securities convertible into common stock) representing 20% or more of the outstanding common stock of an issuer. The Nasdaq rules provide an exception if the delay in obtaining shareholder approval would seriously jeopardize the financial viability of the enterprise, so long as the audit committee or a similar body expressly approves reliance on the exception and shareholders are provided 10 days written notice prior to issuance of the securities. CDNOW's board of directors unanimously approved reliance upon this exception, and CDNOW's application to do so is awaiting approval by Nasdaq. At any time after the expiration of 10 days following the mailing of this Statement, Bertelsmann may convert the loans into shares of CDNOW common stock at a price of $1.50 per share. In no event 1 is Bertelsmann entitled to convert the loans into shares representing more than 49% of the outstanding shares of CDNOW common stock, on a fully-diluted basis. CDNOW and its subsidiaries granted Bertelsmann a security interest in substantially all of their assets to secure the repayment of the loans and other amounts due under the convertible loan agreement. The convertible loan agreement provides that with respect to any vote taken by CDNOW shareholders to adopt or reject a n acquisition proposal by a third party in accordance with the restrictions and terms of the merger agreement, Bertelsmann will vote the shares obtained upon conversion of the loans in the same proportion as the CDNOW shareholders voting upon such proposal. As of July 25, 2000, no amounts were outstanding under the convertible loan agreement. The principal offices of BINC Acquisition Corp. and Bertelsmann are located at 1540 Broadway, 24th floor, New York, New York 10036. ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. As of the date of this Solicitation/Recommendation Statement, except as described below, CDNOW is not aware of any material agreement, arrangement or understanding or any actual or potential conflicts of interest between CDNOW or its affiliates and CDNOW's executive officers, directors or affiliates. MERGER AGREEMENT, CONVERTIBLE LOAN AGREEMENT AND RELATED AGREEMENTS. The summaries of the merger agreement and the convertible loan agreement contained in the offer to purchase of BINC Acquisition Corp., which is being mailed to shareholders together with this Solicitation/ Recommendation Statement, are incorporated herein by reference. TREATMENT OF OPTIONS. At or immediately prior to the effective time of the merger, options held by any current or former employee or director to purchase shares of CDNOW common stock will be converted into the right to receive, upon exercise and payment of the exercise price, $3.00 in cash for each share of CDNOW common stock for which the option is exercisable, and CDNOW will pay the holder of any option with a purchase exercise price of less than $3.00 at or promptly after the effective time of the merger an amount equal to (i) the product of the difference between the exercise price and $3.00 and the number of shares of CDNOW common stock such holder could have purchased had he or she exercised his or her stock option LESS (ii) the amount of any applicable tax required to be withheld. Several CDNOW executive officers and directors hold options to acquire shares of CDNOW common stock. Please see the Information Statement which is attached hereto as Annex B for information relating to ownership of options to acquire shares of CDNOW common stock by CDnow executive officers and directors. RETENTION BONUSES. On March 20, 2000, the compensation committee of the CDNOW board of directors implemented an employee retention (pay-to-stay) bonus program for CDNOW employees, including executive officers, which provides for payments upon the consummation of a change of control of CDNOW to persons employed at the time of the implementation of the program who remain employed with CDNOW. The following executive officers are entitled to receive the amounts set forth opposite their name upon consummation of the tender offer: - Howard Blumenthal, Senior Vice President of Interactive Media--$46,250 - David A. Capozzi, Vice President and General Counsel--$182,000 - Mike Krupit, Chief Development Officer--$225,000 - Joel Sussman, Vice President and Chief Financial Officer--$182,000 2 JASON OLIM AND JONATHAN DIAMOND EMPLOYMENT AGREEMENTS. In March 1999, a wholly-owned subsidiary of CDNOW merged with and into CDnow Online, Inc. and a wholly-owned subsidiary of CDNOW merged with and into N2K Inc. Pursuant to these transactions, CDnow Online, Inc. and N2K Inc. became wholly-owned subsidiaries of CDNOW. In connection with the closing of these transactions on March 17, 1999, Jason Olim, then Chief Executive Officer of CDnow Online, Inc., and Jonathan Diamond, then Vice Chairman of N2K Inc., entered into employment agreements with CDNOW. These employment agreements entitle each of Mr. Olim, now CDNOW's President and Chief Executive Officer and a member of the CDNOW board of directors, and Mr. Diamond, now CDNOW's Chairman of the Board of Directors, to the following benefits if they resign after consummation of the tender offer, or if they are terminated in connection with the merger: - a lump sum payment equal to (i) his average annual bonus for the three prior years and (ii) the larger of twelve months salary or salary for the term remaining under his agreement. For example, if Mr. Olim resigns on December 17, 2000, he would be entitled to an amount equal to fifteen months salary, plus his average bonus for the past three years; - continued medical, dental and disability coverage for the longer of twelve months or the remaining term of the agreement; - all vested benefits under any retirement, incentive, profit sharing, bonus, performance, disability or other employee benefit plans; and - any unexercised stock options shall vest and become immediately exercisable. SEVERANCE PLANS. In July 1999, the compensation committee of the CDNOW board of directors implemented four severance plans, which provide for payments to executive officers in connection with a change in control of CDNOW. In April 2000, CDNOW amended the severance plans for Messrs. Capozzi, Krupit and Sussman. The following executive officers participate in the severance plans and are entitled to the following: - Howard Blumenthal. If at any time within six months following the consummation of the tender offer Mr. Blumenthal's employment is terminated without cause, or he resigns because his work location is changed to a place more than fifty miles from its current location or his compensation or duties are materially diminished, CDNOW must pay him an amount equal to twelve months salary, continue his health and dental benefits for twelve months, pay him a pro rata bonus for the current calendar year based on the number of months he worked prior to his termination date and upon his termination date immediately vest all unvested stock options that would have vested during the two years following his termination. - David A. Capozzi. If thirty days after consummation of the tender offer, but prior to sixty days after consummation of the tender offer, Mr. Capozzi resigns for any reason, or if at any time within six months following the consummation of the tender offer his employment is terminated without cause, or he resigns because his work location is changed to a place more than fifty miles from its current location or his compensation or duties are materially diminished, CDNOW must pay him an amount equal to twelve months salary, continue his health and dental benefits for twelve months, pay him a pro rata bonus for the current calendar year based on the number of months he worked prior to his termination date and upon his termination date immediately vest all unvested stock options that would have vested during the two years following his termination. - Mike Krupit. If thirty days after consummation of the tender offer, but prior to sixty days after consummation of the tender offer, Mr. Krupit resigns for any reason, or if at any time within six months following the consummation of the tender offer his employment is terminated without cause, or he resigns because his work location is changed to a place more than fifty miles from its current location or his compensation or duties are materially diminished, CDNOW must pay 3 him an amount equal to twelve months salary, continue his health and dental benefits for twelve months, pay him a pro rata bonus for the current calendar year based on the number of months he worked prior to his termination date and upon his termination date immediately vest all unvested stock options that would have vested during the two years following his termination. - Joel Sussman. If thirty days after consummation of the tender offer, but prior to sixty days after consummation of the tender offer, Mr. Sussman resigns for any reason, or if at any time within six months following the consummation of the tender offer his employment is terminated without cause, or he resigns because his work location has changed to a place more than fifty miles from its current location or his compensation or duties are materially diminished, CDNOW must pay him an amount equal to twelve months salary, continue his health and dental benefits for twelve months, pay him a pro rata bonus for the current calendar year based on the number of months he worked prior to his termination date and upon his termination date immediately vest all unvested stock options that would have vested during the two years following his termination. SEVERANCE ARRANGEMENT WITH CDNOW DIRECTOR. James E. Coane, the former President of N2K Inc. and current member of the board of directors of CDNOW, was a party to an employment agreement with N2K Inc. which was terminated in the CDNOW/N2K merger discussed above. In accordance with the terms of his employment agreement, Mr. Coane is entitled to severance payments through December 31, 2000. Other than the merger agreement and the convertible loan agreement described above, there are no agreements, arrangements or understandings or actual or potential conflict of interest between CDNOW and BINC Acquisition Corp., its executive officers, directors or affiliates. ITEM 4. THE SOLICITATION OR RECOMMENDATION. RECOMMENDATION OF THE CDNOW BOARD OF DIRECTORS. The CDNOW board of directors, at a meeting held on July 19, 2000, determined that the offer and the merger are fair to and in the best interests of CDNOW and the CDNOW shareholders. The board of directors unanimously approved the merger agreement and the transactions contemplated thereby including the tender offer and the merger. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE CDNOW SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES OF CDNOW COMMON STOCK IN THE OFFER. REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS. In reaching its recommendation, the board of directors considered a number of factors, including: - CDNOW'S FINANCIAL CONDITION. CDNOW publicly stated on several occasions since the announcement of the termination of the proposed merger between CDNOW and Columbia House on March 13, 2000 that it only had sufficient cash reserves to last until September 2000. CDNOW's independent auditor issued a "going concern" qualification to its audit report in connection with its examination of CDNOW's financial statements for the year ended December 31, 1999. CDNOW's sources of cash include operating revenues and borrowings under the convertible loan agreement with Time Warner and Sony. As of July 13, 2000, CDNOW had borrowed the maximum amount allowed under the Time Warner and Sony loan. CDNOW's expenditures exceed revenue and no additional amounts are available to CDNOW from Time Warner and Sony. Therefore, CDNOW needed to find additional sources of cash. At the time of signing the merger agreement with Bertelsmann, CDNOW had no other definitive source of financing available. If CDNOW had not signed the merger agreement or quickly secured an alternative source of financing, CDNOW would have been required to file for bankruptcy. 4 - TERMINATION OF COLUMBIA HOUSE TRANSACTION. On March 13, 2000, CDNOW announced that the proposed transaction with Time Warner, Inc. and Sony Corporation of America which would have combined CDNOW and Columbia House was terminated. The board and management, based, in part, upon advice from CDNOW's financial advisor, Allen & Company, determined that the best interest of CDNOW and its shareholders would be served by pursuing an alternative business combination or investment transaction, as opposed to staying independent. As a result, CDNOW management and Allen & Company sought potential investors and merger partners. - RESULTS OF SEARCH FOR PARTNER--NO SUPERIOR PROPOSALS. In connection with its search for an investment or merger partner, CDNOW management and Allen & Company contacted 62 different parties regarding an interest in an investment, merger or acquisition of CDNOW. Of those initially contacted, 31 parties signed confidentiality agreements and received preliminary information prepared by CDNOW and Allen & Company. Initial indications of interest were requested on May 3, 2000 and eight parties requested further information so as to determine whether they wished to move forward to making an acquisition or investment proposal to CDNOW. CDNOW management made presentations to these potential partners. Final indications of interest and proposals were requested on June 9, 2000. No viable proposals were received by June 9, 2000. Subsequent to this date, CDNOW, through Allen & Company, continued discussions with four separate parties to attempt to reach a transaction. Only two parties were continuing discussions as of July 19, 2000, of which one presented a recapitalization proposal and one, Bertelsmann, presented a purchase proposal. Bertelsmann's proposal was considered to be superior to the recapitalization proposal, which would have resulted in significant dilution to the existing CDNOW shareholders as well as a dramatic restructuring of CDNOW. - INTERIM FINANCING AND STRUCTURE OF THE TRANSACTION. The convertible loan agreement will help CDNOW meet its working capital needs until the consummation of the tender offer. The board also considered the form of consideration to be paid the shareholders in the offer and the merger, and the certainty of value in a cash transaction compared to a stock or other forms of consideration. The board was aware that the consideration received by shareholders in the tender and the merger would be taxable to such holders for federal income tax purposes. - FAIRNESS OPINION OF ALLEN & COMPANY. Allen & Company made a presentation and delivered its opinion that, as of July 19, 2000, the $3.00 in cash per share to be received by CDNOW shareholders in the tender offer and the merger is fair to the shareholders from a financial point of view. A copy of Allen & Company's opinion is attached hereto as Annex A. The board was aware that Allen & Company becomes entitled to the fee described in Item 5 below upon consummation of the tender offer. - TIMING OF COMPLETION. The board considered the anticipated timing of the consummation of the transactions contemplated by the merger agreement, including the structure of the transactions as a cash tender offer for all of the shares of CDNOW common stock, which should allow shareholder to receive the consideration earlier than in an alternative form of transaction, followed by the merger in which shareholders will receive the same consideration as received by shareholders who tendered their shares in the offer. The foregoing includes the material factors considered by the board of directors. In view of its many considerations, the board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered. After weighing all of these considerations, the board unanimously determined to approve the merger agreement and recommend to the CDNOW shareholders that they tender their shares in the offer. 5 INTENT TO TENDER. To the best knowledge of CDNOW, each executive officer, director, affiliate or subsidiary of CDNOW who owns shares of CDNOW common stock intends to tender in the offer all CDNOW common stock held of record or beneficially held by them. Jason Olim, President and Chief Executive Officer of CDNOW, and Matthew Olim, each a member of CDNOW's board of directors, each a holder of 2,960,025 shares of CDNOW common stock, entered into an agreement with Bertelsmann, agreeing to: - tender their shares of CDNOW common stock in the tender offer; - vote in favor of the proposed merger (if a shareholder vote is required); - vote against any other merger transaction that CDNOW may enter into; - refrain from selling their shares of CDNOW common stock; and - not take any action to facilitate a merger type transaction between CDNOW and a party other than Bertelsmann and BINC Acquisition Corp. ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. ALLEN & COMPANY INCORPORATED. In accordance with a letter agreement dated April 14, 2000, CDNOW retained Allen & Company to act as financial advisor to assist CDNOW in connection with a possible combination of CDNOW with a strategic investor or co-venturer, or other disposition of CDNOW securities or assets. Allen & Company will be paid a fee based upon the market capitalization of CDNOW for the ten days after announcement of the transaction, plus the face amount of any indebtedness of CDNOW. The engagement letter provides for a fee of 1.5% of the first $100 million and 1.4% of the excess of such amount over $100 million up to $200 million. In addition, CDNOW will reimburse Allen & Company for its reasonable out-of-pocket expenses, including fees and disbursements of counsel, as well as any other consultants and advisors retained with CDNOW's consent. Upon consummation of the transaction, CDNOW will reimburse Allen & Company for all reasonable expenses incurred in connection with the terminated Columbia House transaction. DEUTCHE BANK ALEX. BROWN. In accordance with a letter agreement dated March 27, 2000, CDNOW retained Deutche Bank Alex.Brown to provide advisory services with respect to a possible transaction involving an entity's acquisition of a controlling interest in CDNOW. As payment for services, CDNOW agreed to pay Deutsche Bank a fee of $750,000 when the tender offer is consummated. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. Neither CDNOW nor any of its subsidiaries has made any transaction in CDNOW common stock within the past sixty days. To the knowledge of CDNOW, no executive officer, director or affiliate has made any transactions in CDNOW common stock within the past 60 days. ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. Except as discussed in this Solicitation/Recommendation Statement, CDNOW is not currently undertaking or engaged in any negotiations in response to the offer that relate to: - a tender offer for or other acquisition of CDNOW's securities by CDNOW, any subsidiary of CDNOW or any other person; - an extraordinary transaction, such as a merger, reorganization or liquidation, involving CDNOW or any subsidiary of CDNOW; 6 - a purchase, sale or transfer of a material amount of assets of CDNOW or any subsidiary of CDNOW; or - any material change in the present dividend rate or policy, indebtedness or capitalization of CDNOW. Except as set forth in this Solicitation/Recommendation Statement, there are no transactions, resolutions of the board of directors, agreements in principle, or signed contracts in response to the offer that relate to one or more of the events referred to in the preceding paragraph. ITEM 8. ADDITIONAL INFORMATION. REGULATORY APPROVAL--UNITED STATES ANTITRUST COMPLIANCE. Under the Hart-Scott-Rodino Antritrust Improvements Act of 1976, as amended, and the rules that have been promulgated thereunder by the Federal Trade Commission, types of acquisition transactions identified in the act and the rules may not be consummated unless information about the transaction and the parties has been provided to the Antitrust Division of the Department of Justice and the FTC, and the waiting period requirements have been satisfied. The proposed purchase of the CDNOW shares in the tender offer is subject to these requirements. BINC Acquisition Corp. indicated to CDNOW that it intends to file, and CDNOW also intends to file, a Notification and Report Form under the HSR Act with respect to purchase of the CDNOW share in the tender offer and the merger with the Antitrust Division and the FTC on or about July 28, 2000, or as soon as possible thereafter. The waiting period applicable to the transaction would expire at 11:59 p.m., New York City time, on or about August 12, 2000, unless the initial waiting period expires or early termination of the waiting period is granted or BINC Acquisition Corp. receives a request for additional information or documentary material prior to that date. BINC Acquisition Corp. and CDNOW indicated that each intends to request early termination of the waiting period. There can be no assurances given, however, that the waiting period will be terminated early. If either the Antitrust Division or the FTC were to request additional information or documentary materials from BINC Acquisition Corp., the waiting period would be extended until 11:59 p.m., New York City time, on the 10th day after substantial compliance with the request. Thereafter, the waiting period can be extended only by consent of the parties. CDNOW expects, and BINC Acquisition Corp. indicated to CDNOW that it expects, the waiting period to expire without extension of the initial 15-day waiting period. SHORT FORM MERGER. Section 1924 of the Pennsylvania Business Corporation Law of 1988, as amended provides that, if a parent corporation owns at least 80% of the then outstanding shares of each class of a subsidiary corporation, the merger into the subsidiary corporation of the parent corporation may be effected by a plan of merger adopted by the board of directors of the parent corporation and the appropriate filings with the Pennsylvania Department of State. Under the Pennsylvania law, if BINC Acquisition Corp. acquires at least 80% of the outstanding shares of CDNOW common stock, Bertelsmann will be able to effect the merger without a vote of the other shareholders of CDNOW. In such event, CDNOW agreed in the merger agreement to take, at the request of BINC Acquisition Corp., all necessary and appropriate action to cause the merger to become effective, as soon as practicable after such acquisition, without a meeting of the CDNOW shareholders. DISSENTERS' RIGHTS. Under Pennsylvania law dissenters' rights are not available to CDNOW shareholders in connection with the tender offer. However, the merger agreement and Pennsylvania law provide, that if the merger is consummated, holders of CDNOW common stock shall have the right to dissent and demand fair value of their shares. Dissenting shareholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their shares of CDNOW common stock and to receive payment of such fair value in cash, together with a fair interest rate, if any. Any such judicial determination of the fair value of shares of CDNOW common 7 stock could be based upon considerations other than or in addition to, the offer price, including, asset values and the investment value of the common stock. Shareholders should recognize that the value so determined could be higher or lower than the price per share of common stock paid in the offer and the merger. Shareholders who wish to exercise dissenters' rights in connection with the merger need not take any action at this time. If the offer is consummated, CDNOW will distribute to the remaining shareholders additional information on the procedures to be followed to perfect their dissenters' rights. ITEM 9. EXHIBITS.
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------ (a)(1) Letter to CDNOW shareholders dated July 26, 2000 (included with this Solicitation/ Recommendation Statement). (a)(2) Opinion of Allen & Company Incorporated, dated July 19, 2000 (included as Annex A hereto). (a)(3) Press Release issued by CDNOW and Bertelsmann (incorporated by reference to press release under cover of Schedule 14D-9 filed by CDNOW on July 20, 2000). (e)(1) Agreement and Plan of Merger, dated as of July 19, 2000, among Bertelsmann, BINC Acquisition Corp. and CDNOW (incorporated by reference to Exhibit (d)(1) to the Schedule TO of BINC Acquisition Corp. filed on July 26, 2000). (e)(2) Convertible Loan Agreement, dated as of July 19, 2000, between Bertelsmann and CDNOW (incorporated by reference to Exhibit (d)(3) to the Schedule TO of BINC Acquisition Corp. filed on July 26, 2000). (e)(3) CDNOW Shareholders Agreement, dated as of July 19, 2000, among Bertelsmann, Jason Olim and Matthew Olim (incorporated by reference to Exhibit (d)(2) of the Schedule TO of BINC Acquisition Corp.). (e)(6) The Information Statement of CDNOW dated July 26, 2000 (included as Annex B hereto). (e)(7) CDNOW Severance Plan for Vice Presidents. (e)(8) Employment Agreement, dated as of March 17, 1999, between CDNOW and Jason Olim. (incorporated by reference to exhibit 10.26 of CDNOW's registration statement on Form S-4 filed February 16, 1999 (SEC file number 333-72463)). (e)(9) Employment Agreement, dated as of March 17, 1999, between CDNOW and Jonathan Diamond (incorporated by reference to exhibit 10.27 of CDNOW's registration statement on Form S-4 filed February 16, 1999 (SEC file number 333-72463)). (e)(10) Employment Agreement, dated as of May 1, 1987, between Telebase Systems, Inc. and James Coane.
8 SIGNATURE After the inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. CDNOW, INC. Date: July 26, 2000 By: /s/ JASON OLIM ----------------------------------------- Name: Jason Olim Title: President and Chief Executive Officer
9 ANNEX A OPINION OF ALLEN & COMPANY, INCORPORATED [LOGO] 711 FIFTH AVENUE - NEW YORK, N.Y. 10022 - (212) 832-8000 July 19, 2000 Members of the Board of Directors CDnow, Inc. 1005 Virginia Drive Fort Washington, PA 19034 Gentlemen: You have requested our opinion as of the date hereof, as to the fairness, from a financial point of view, to CDnow, Inc., a Pennsylvania corporation (the "Company"), of the terms of the Proposed Transaction described below. Pursuant to (i) the draft Agreement and Plan of Merger (the "Merger Agreement") to be entered into on or about the date hereof by and among the Company, Bertlesmann, Inc., a Delaware corporation, ("Buyer") and BINC Acquisition Corp., a Pennsylvania corporation and wholly-owned subsidiary of Buyer ("Merger Sub"), and (ii) other related documents, including a Convertible Loan Agreement for interim financing, the Company will enter into a business combination transaction with Buyer. Pursuant to the terms of the Merger Agreement, Parent will commence a cash tender offer (the "Tender Offer") to purchase any and all shares of Company Common Stock at a price of $3 per share (the "Offer Price"), net to the Seller in cash and without interest. Following completion of the Tender Offer, Merger Sub will merge with and into the Company, and each share of Company common stock not previously tendered will convert into the right to receive the Offer Price. Unless otherwise specifically defined herein, all capitalized terms used herein shall have the meanings ascribed to such terms in the Merger Agreement. We understand that all approvals required for the consummation of the Proposed Transaction have been or, prior to consummation of the Proposed Transaction, will be obtained. As you know, Allen & Company Incorporated ("Allen") will receive a fee for preparing and rendering this opinion pursuant to an engagement letter agreement between the Company and Allen. Allen has from time to time provided various investment banking and financial advisory services to the Company and to N2K Inc. ("N2K"), now a wholly-owned subsidiary of the Company. Allen acted as financial advisor to N2K in connection with its merger transaction with CDnow Online, Inc. and the Company pursuant to an engagement letter agreement dated August 1998 and received fees for such services. In addition, Allen served as a co-managing underwriter in connection with a public offering of N2K's common stock in 1998 and acted as the Company's financial advisor in the proposed transaction among the Company and affiliates of Time Warner Inc, and Sony Corporation of America. Allen has also acted as the Company's financial advisor in its efforts to identify business combination and strategic partner candidates. We note that Allen and certain of its officers, directors and affiliates beneficially own approximately 170,083 shares of the Company's Common Stock and warrants to purchase 147,083 shares of the Company's Common Stock. From time to time in the ordinary course of its business as a broker-dealer and market maker in the Company's Common Stock, Allen may also hold positions and trade in securities of the Company. In arriving at its opinion, Allen reviewed, analyzed and considered, among other things: (i) the terms and conditions of the Proposed Transaction, including drafts of the Merger Agreement, the Convertible Loan Agreement, and related agreements in substantially final form; Members of the Board of Directors CDnow, Inc. July 19, 2000 Page 2 (ii) financial condition of the Company including its current cash position, its expected point of cash breakeven and its prospects and activities with regard to securing additional capital; (iii) reports of the Company filed with the Securities and Exchange Commission; (iv) selected, summary non-public historical and projected financial and operating results of the Company provided by the Company's management; (v) publicly available information regarding the structure and outlook of the music industry in general and, in particular, the outlook for online retailing, the major record labels' activities with regard to exploiting their content on the Internet, as well as the developing competitive environment; (vi) the increasingly competitive online retailing industry and the Company's strategic position therein through review of publicly available information as well as through discussions with the Company's management; (vii) trading history of the Company's common stock; (viii) financial and operating data of selected companies with similar operating characteristics; (ix) valuation premiums paid for selected companies in similar industries; and (x) such other materials and data as we deemed necessary or appropriate for the purposes of the opinion expressed herein. In rendering our opinion, we have assumed and relied upon the accuracy and completeness of the financial and other information respecting the Company and other information provided to us in connection with the Proposed Transaction, and we have not assumed any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets of the Company. With respect to the financial, operating and budgetary data referred to above, we have assumed that they have been reasonably prepared on a basis reflecting the best currently available good faith judgments of the management of the Company as to the future financial performance of the Company. In addition to our review and analysis of the specific information set forth above, our opinion herein reflects our experience in serving as financial advisor to the Company and its subsidiary over a period of years and gives effect to our assessment of general economic, monetary and market conditions existing as of the date hereof as they may affect the business and prospects of the Company. We have prepared this opinion at the request and for the benefit of the Board of Directors of the Company, and we consent to its inclusion in filings the Company may be required to make with the Securities and Exchange Commission. The opinion rendered herein does not constitute a recommendation that the Company pursue the Proposed Transaction or that any shareholder of the Company tender securities of the Company pursuant to the Proposed Transaction. Based on and subject to the foregoing, we are of the opinion that, as of this date, the consideration to be paid in the Offer and the Merger and the terms of the Proposed Transaction are fair to the holders of the Company's common stock from a financial point of view. Very truly yours, ALLEN & COMPANY INCORPORATED
Members of the Board of Directors CDnow, Inc. July 19, 2000 Page 3 By: [SIGNATURE] ----------------------------------------- Nancy B. Peretsman Managing Director
ANNEX B CDNOW, INC. 1005 VIRGINIA DRIVE FT. WASHINGTON, PENNSYLVANIA 19034 INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER This information statement is being mailed to you on our about July 26, 2000 as part of the Solicitation/Recommendation Statement on Schedule 14D-9 of CDnow, Inc. You are receiving this statement in connection with the possible election of persons designated by BINC Acquisition Corp., a Pennsylvania corporation and a wholly-owned subsidiary of Bertelsmann, Inc., a Delaware corporation, to a majority of the seats of the CDNOW board of directors. On July 19, 2000, CDNOW entered into an Agreement and Plan of Merger with BINC Acquisition Corp. and Bertelsmann, the terms of which require BINC Acquisition Corp. to commence a tender offer to purchase all outstanding shares of CDNOW common stock, no par value, at a price per share of $3.00, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated July 26, 2000, and in the related Letter of Transmittal. Copies of the Offer to Purchase and the Letter of Transmittal have been mailed to CDNOW shareholders and are filed as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule TO filed by BINC Acquisition Corp. with the Securities and Exchange Commission on July 26, 2000. The merger agreement provides that, subject to satisfaction or waiver of conditions, following completion of the offer, and in accordance with the Pennsylvania Business Corporation Law of 1988, as amended, BINC Acquisition Corp. will merge with and into CDNOW. Following consummation of the merger, CDNOW will continue as the surviving corporation and will be a wholly-owned subsidiary of Bertelsmann. At the effective time of the merger, each issued and outstanding share of CDNOW common stock, other than shares held by CDNOW, Bertelsmann, BINC Acquisition Corp. or shareholders who exercise their dissenters' rights, will be converted into the right to receive $3.00 in cash. This Information Statement is being mailed to you in accordance with Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 promulgated thereunder. The information set forth herein supplements information contained in the Solicitation/Recommendation Statement. Information set forth herein related to Bertlesmann, BINC Acquisition Corp. or their designees for director, has been provided by Bertelsmann. You are urged to read this Information Statement carefully. You are not, however, required to take any action in connection with the matters set forth herein. BINC Acquisition Corp. commenced the offer on July 26, 2000, The offer is currently scheduled to expire at 12:00 midnight, New York City time, on August 22, 2000, unless BINC Acquisition Corp. extends the offer. GENERAL CDNOW common stock is the only class of equity securities outstanding which is entitled to vote at a meeting of shareholder of CDNOW. As of July 19, 2000, there were 32,961,610 shares of common stock outstanding, of which Bertelsmann and BINC Acquisition Corp. owned no shares as of the date hereof. DESIGNATION OF DIRECTORS BY BINC ACQUISITION CORP. The merger agreement provides that immediately upon acceptance for payment of and payment for shares of the CDNOW common stock by BINC Acquisition Corp. or any of its affiliates pursuant to the tender offer, BINC Acquisition Corp. shall be entitled to designate up to such number of directors, rounded up to the next whole number, for election or appointment to the CDNOW board of directors as will give BINC Acquisition Corp., subject to compliance with 14(f) of the Exchange Act, representation on the CDNOW board of directors equal to the product of (i) the total number of directors on the CDNOW board of directors (giving effect to the increase in size of the board pursuant to this paragraph) and (ii) the percentage that the number of shares of CDNOW common stock beneficially owned by BINC Acquisition Corp. and its affiliates bears to the number of shares of common stock then outstanding. In furtherance thereof, concurrently with such acceptance for payment and payment for such shares of CDNOW common stock, CDNOW shall, upon request of CDNOW or BINC Acquisition Corp. and in compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, promptly increase the size of its board of directors by such number as is necessary to enable the designees to be so elected or appointed to CDNOW's board of directors, and subject to applicable law, CDNOW shall take all reasonable actions available to CDNOW to cause such designee to be so elected or appointed. The merger agreement provides that at such time, CDNOW will, if requested by Bertelsmann or BINC Acquisition Corp. and subject to applicable law, also take all reasonable action necessary to cause persons designated by BINC Acquisition Corp. to constitute at least the same percentage (rounding up to the next whole number) as is on the CDNOW board of directors of (i) each committee of CDNOW's board of directors, (ii) each board of directors of each of CDNOW's subsidiaries and (iii) each committee of such board. It is expected that the designees will assume office promptly following the purchase by BINC Acquisition Corp. of any shares pursuant to the terms of the offer, and that upon assuming such office, the designees together with the directors continuing on CDNOW's board will thereafter constitute the entire board. As of the date of this Information Statement, BINC Acquisition Corp. has not determined who will be its designees. However, the designees will be selected from among the persons listed in Schedule I attached hereto. Schedule I also includes information with respect to each such person. Each of the persons listed on Schedule I has consented to serve as a director, if appointed or elected. None of such persons currently is a director of, or holds any position with, CDNOW. Bertelsmann and BINC Acquisition Corp. advised CDNOW that, to the best of their knowledge, none of the persons listed on Schedule I or any of their affiliates beneficially owns any equity securities or rights to acquire any such securities of CDNOW, nor has any such person been involved in any transaction with CDNOW or any of its directors, executive officers or affiliates that is required to be disclosed pursuant to the rules and regulations of the SEC other than with respect to the proposed offer and merger transaction. 2 STOCK OWNERSHIP SHAREHOLDERS The following table sets forth, as of June 30, 2000, information regarding shares of CDNOW common stock owned "beneficially," within the meaning of the rules of the Securities and Exchange Commission, by directors and executive officers of CDNOW and by persons known by CDNOW to own beneficially more than 5% of CDNOW common stock:
SHARES OF COMMON STOCK OR RIGHTS TO NAME AND ADDRESS OF BENEFICIAL OWNER ACQUIRE SHARES OF COMMON STOCK PERCENT OF CLASS - ------------------------------------ ----------------------------------- ---------------- Jason Olim....................................... 2,960,025 9.0% 1005 Virginia Avenue Ft. Washington, Pa 19034 Matthew Olim..................................... 2,960,025 9.0% 1005 Virginia Avenue Ft. Washington, Pa 19034 Carlos Slim Helu(1).............................. 3,025,000 9.2% Grupo Sanborns, S.A. de C.V.(2) Grupo Carso, S.A. de C.V.(3) Collectively Time Warner Inc.(4).............................. 2,488,739 7.3% 75 Rockefeller Plaza New York, New York 10019 Sony Music Entertainment Inc.(5)................. 2,488,739 7.3% 550 Madison Avenue New York, New York 10022 David A. Capozzi................................. 44,375 Less than 1% 1005 Virginia Avenue Ft. Washington, Pa 19034 James Coane...................................... 176,616 Less than 1% 1005 Virginia Avenue Ft. Washington, Pa 19034 Jonathan V. Diamond.............................. 899,253 2.7% 1005 Virginia Avenue Ft. Washington, Pa 19034 Mike Krupit...................................... 44,911 Less than 1% 1005 Virginia Avenue Ft. Washington, Pa 19034
- ------------------------ (1) The address of Carlos Slim Helu is Paseo de las Palmas 736, Col. Lomas de Chapultepec, Mexico, D.F.., 11000, Mexico. Mr. Slim and members of his immediate family, directly and through their ownership of a majority of the voting and economic interests in a trust, own a majority of the outstanding voting equity securities of Grupo Carso. Accordingly, Mr. Slim may be deemed to beneficially own 2,000,000 shares of common stock. (2) The address of Grupo Sanborns, S.A. de C.V. , is Av. San Fernando No. 649, Col. Pena Pobre, Tlalpan, Mexico, D.F. 14060, Mexico. 3 (3) The address of Grupo Carso, S.A. de C.V., is Insurgentes Sur No. 3500, Col. Pena Pobre, Tlalpan, Mexico, D.F. 14060, Mexico. Grupo Carso is the parent of Grupo Sanborns and therefore beneficially owns 2,000,000 shares of CDNOW common stock. (4) Includes shares issuable upon conversion of amounts owned in connection with the Convertible Loan Agreement, dated as of July 12, 1999, among CDNOW, Time Warner Inc. and Sony Music Entertainment Inc. (5) Includes shares issuable upon conversion of amounts owned in connection with the Convertible Loan Agreement, dated as of July 12, 1999, among CDNOW, Time Warner Inc. and Sony Music Entertainment Inc.
SHARES OF COMMON STOCK OR RIGHTS TO NAME AND ADDRESS OF BENEFICIAL OWNER ACQUIRE SHARES OF COMMON STOCK PERCENT OF CLASS - ------------------------------------ ----------------------------------- ---------------- John Regan....................................... 1,819 Less than 1% 1005 Virginia Drive Ft. Washington, PA 19034 Joel Sussman..................................... 50,856 Less than 1% 1005 Virginia Drive Ft. Washington, PA 19034
Directors and Executive Officers as a group (9 members)....................................... 7,137,880 21.3%
DIRECTORS AND EXECUTIVE OFFICERS On March 17, 1999, a wholly-owned subsidiary of CDNOW, a holding company formed in 1998, merged into CDnow Online, Inc. (the former CDNOW) and a wholly-owned subsidiary of CDNOW merged with and into N2K Inc. As a result of these transactions CDnow Online, Inc. and N2K Inc. became wholly-owned subsidiaries of CDNOW. JAMES E. COANE, 60, has been a member of CDNOW's Board of Directors since the effective date of the CDNOW/N2K merger. Mr. Coane served as President, Chief Operating Officer and a director of N2K from February 1996 through March 17, 1999. From April 1987 to February 1996, Mr. Coane served as President and Chief Executive Officer of Telebase Systems, Inc. and as Chairman of the Board of Directors from 1993 until February 1996. DAVID A. CAPOZZI, 44, became a Vice President and General Counsel of the former CDNOW, in April 1998. He has been a Vice President and General Counsel of CDNOW since the effective date of the CDNOW/N2K merger. From February 1996 to April 1998, Mr. Capozzi was an attorney with the law firm of Morgan, Lewis & Bockius LLP. From 1995 until February 1996, Mr. Capozzi was an attorney with the law firm of Kirkpatrick & Lockhart LLP. JONATHAN V. DIAMOND, 41, has been CDNOW's Chairman of the Board since the effective date of the CDNOW/N2K merger. Mr. Diamond served as Vice Chairman and a director of N2K from February 1996 to March 17, 1999. From June 1995 to February 1996, Mr. Diamond served as Co-Chairman of New York N2K. Mr. Diamond was a director of Telebase Systems, Inc. from September 1994 to February 1996. MICHAEL KRUPIT, 37, was the former CDNOW's Vice President of Technology from October 1997 through the effective date of the CDNOW/N2K merger, then continued as CDNOW's Vice President of Technology through January 31, 2000. He was the Director of Technology for the former CDNOW from April 1997 to October 1997. Mr. Krupit was promoted to Chief Operating Officer on February 1, 2000. Mr. Krupit was the Director of Technology and Product Development at Infonautics, Inc., a 4 provider of searching, viewing, and retrieval applications for the Internet, from February 1994 to March 1997. JASON OLIM, 31, co-founded the former CDNOW in February 1994 and was its President since inception and Chief Executive Officer since November 1997. He has been the Chief Executive Officer and President of CDNOW and a member of its board of directors since the effective date of the CDNOW/N2K merger. MATTHEW OLIM, 31, co-founded the former CDNOW in February 1994 and has been responsible for the development of CDNOW's system architecture and transactions systems. He has been a member of CDNOW's board of directors since the effective date of the CDNOW/N2K merger. JOHN REGAN, 41, has been a director of CDNOW since the effective date of the CDNOW/N2K merger. Since February 1995, Mr. Regan has been a partner in Keystone Venture Funds. JOEL SUSSMAN, 51, was a Vice President and Chief Financial Officer of the former CDNOW since September 1997. He has been a Vice President and the Chief Financial Officer of CDNOW since the effective date of the CDNOW/N2K merger. From June 1995 to September 1997, Mr. Sussman was an independent financial management consultant and served as Interim Chief Financial Officer of a number of companies, including CDNOW. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We described transactions involving more than $60,000 to which CDNOW and any of its subsidiaries are a party with any director, executive office or 5% shareholder in Item 3 of the Schedule 14D-9 to which this Information Statement is Annex B. BOARD OF DIRECTORS 1999 BOARD MEETINGS The board of directors held approximately 30 meetings during 1999. All directors attended at least 75% of the meetings of the board of directors. BOARD COMMITTEES IN 1999 During 1999 the board of directors had the following on-going committees: an audit committee and a compensation committee. AUDIT COMMITTEE. Mr. Regan is the sole member of the audit committee. Prior to his resignation from the board of directors on June 14, 2000, Patrick Kerins was also a member of the audit committee. The audit committee makes recommendations to the board of directors concerning the engagement, retention or discharge of independent public accountants, reviews with CDNOW's independent public accountants the plans for and results of their auditing engagement, reviews their independence, considers the range of fees for audit and non-audit functions, reviews the scope and results of CDNOW's internal auditing procedures, reviews the adequacy of CDNOW's system of internal accounting controls, directs and supervises any investigations into matters within the scope of the foregoing duties, and performs such other related functions as the board of directors may delegate to the audit committee. During 1999, the audit committee held one meeting. COMPENSATION COMMITTEE. Mr. Regan is the sole member of the compensation committee. Prior to his resignation, Mr. Kerins was also a member of the compensation committee. The compensation committee makes recommendations to the board of directors concerning remuneration arrangements for executive officers. During 1999, the compensation committee held two meetings. 5 DIRECTOR COMPENSATION CDNOW reimburses directors for out-of-pocket expenses incurred in connection with the rendering of services as directors. CDNOW currently does not pay cash fees to directors for attendance at meetings. Directors who are not currently receiving compensation as CDNOW officers or employees are eligible to receive options under the CDNOW 1999 Equity Compensation Plan. To date, CDNOW has not granted any options to directors under the plan. REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The compensation committee is currently composed of one non-employee director. The committee is responsible for setting the salaries of the Chief Executive Officer, the Chairman of the Board of Directors and other executive officers of CDNOW, recommending to the full board compensation arrangements for those executive officers, and advising the Chief Executive Officer on compensation for other key executives. Compensation Committee Report on Executive Compensation Among its responsibilities, the Compensation Committee reviews the compensation of the officers of CDNOW and ratifies recommendations made by the Chief Executive Officer concerning executive compensation matters. The compensation of CDNOW's president and chief executive officer was established by his employment contract entered into in March 1999 in connection with the combination with N2K, Inc. Therefore, his compensation was not considered by the Compensation Committee. In its deliberations, the Compensation Committee was guided by certain fundamental considerations, including the need to attract and retain talented executives, the need to provide both short-term and long-term incentives to focus executive performance on the achievement of CDNOW's objectives and the development and implementation of compensation policies, plans and programs which seek to enhance the performance of CDNOW. The Compensation Committee, which met twice in 1999, (i) approved increased base salary levels for the vice presidents on an individual basis and the (management) directors on an aggregate basis, (ii) approved bonus recommendations for the vice presidents on an individual basis and the (management) directors on an aggregate basis based on the performance of CDNOW and the individuals involved and (iii) approved grants under CDNOW's stock option plan. CDNOW's compensation program for senior management is comprised of base salary, annual performance bonuses, longer term incentive compensation in the form of stock options and benefits available generally to CDNOW's employees. Base salary levels for each of CDNOW's executive officers (i) are intended to be competitive with other retail and internet companies and companies of comparable size, (ii) take into consideration the position's responsibility and need for expertise and (iii) take into account individual expertise and performance. John Regan 6 EXECUTIVE COMPENSATION In order to provide CDNOW shareholders with a concise and comprehensive overview of compensation awarded, earned or paid to CDNOW's executive officers named in this Information Statement, several tables and narrative descriptions have been prepared, detailing this information. The Summary Compensation Table, and its accompanying explanatory footnotes, includes individual annual and long-term compensation information on the named executive officers, for services rendered in all capacities during the years ended December 31, 1999, December 31, 1998 and December 31, 1997.
LONG TERM COMPENSATION ------------ AWARDS ANNUAL COMPENSATION ------------ YEAR ---------------------------------- SECURITIES ENDED OTHER ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION DECEMBER 31 SALARY BONUS COMPENSATION OPTIONS COMPENSATION - --------------------------- ----------- -------- -------- ------------ ------------ ------------ Jason Olim................................... 1999 $193,077 -- -- -- $2,822(7) PRESIDENT AND CHIEF EXECUTIVE OFFICER 1998 147,858 -- -- -- 2,286 1997 89,583 -- -- -- 1,272 David A. Capozzi............................. 1999 $144,477 $20,179 $ 9,167(6) 80,000 $2,924(7) VICE PRESIDENT AND GENERAL COUNSEL(1) 1998 85,111 -- -- 39,000 -- Mike Krupit.................................. 1999 $159,885 $22,244 $ 9,583(6) 110,000 $3,094(7) CHIEF DEVELOPMENT OFFICER(2) 1998 115,249 9,500 -- -- 2,495 1997 65,829 -- -- 30,000 -- Rod Parker................................... 1999 $153,859 $ -- $12,574(8) 10,000 $1,154(7) SENIOR VICE PRESIDENT(3) 1998 212,412 55,000 37,218 -- 2,525 1997 130,730 -- 3,879 120,000 1,335 Robert Saltzman.............................. 1999 $152,489 -- -- 60,000 $1,333(7) VICE PRESIDENT(4) 1998 147,998 -- -- -- -- 1997 10,301 -- -- 75,000 -- Joel Sussman................................. 1999 $157,269 $25,000 $12,500(6) 30,000 $2,638(7) VICE PRESIDENT AND CHIEF FINANCIAL 1998 149,327 -- -- -- 2,987 OFFICER(5) 1997 34,792 -- -- 78,000 --
- ------------------------------ (1) Mr. Capozzi commenced employment with CDNOW in April of 1998. (2) Mr. Krupit commenced employment with CDNOW in April of 1997. (3) Mr. Parker commenced employment with CDNOW in June 1997 and resigned in July 1999. Mr. Parker has a one-year severance agreement, which expires in July 2000. (4) Mr. Saltzman commenced employment with CDNOW in December 1997 and resigned in April 2000. Mr. Saltzman has a six-month severance agreement, which expires in October 2000. (5) Mr. Sussman commenced employment with CDNOW in September of 1997. (6) Represents value of restricted stock bonus. (7) Represents CDNOW contribution to 401(k) Plan. (8) Other compensation for Mr. Parker included reimbursement for an apartment in Pennsylvania and travel expenses. Mr. Parker's residence was in Connecticut. 7 FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS DECEMBER 31, 1999 AT DECEMBER 31, 1999 SHARES VALUE --------------------------- --------------------------- NAME EXERCISED RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- --------- ---------- ----------- ------------- ----------- ------------- Dave Capozzi..................... -- -- 23,525 95,475 -- -- James Coane...................... -- -- 102,714 -- $ 375,776 -- Jonathan Diamond................. -- -- 310,770 11,428 $1,001,011 $ 66,275 Mike Krupit...................... 9,000 $ 107,333 5,437 118,063 $ 6,409 $ 98,929 Rod Parker....................... 120,000 $1,782,900 5,000 5,000 -- -- Robert Saltzman.................. -- -- 40,625 94,375 -- -- Joel Sussman..................... -- -- 33,000 55,000 $ 223,291 $180,469
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE CDNOW believes that all filings required to be made during fiscal year 1999 by its current executive officers and directors were made on a timely basis except for Mr. Blumenthal filed his Form 3 late; Mr. Coane filed his Form 3 and one Form 4 late; Mr. Capozzi filed his Form 3 late; Mr. Diamond has not filed a Form 3 or Form 4; Mr. Krupit filed his Form 3 late and two Form 4s late; Mr. J. Olim filed his Form 3 late; Mr. M. Olim filed his Form 3 late; Mr. Regan filed his Form 3 late; Mr. Sussman filed his Form 3 late and one Form 4 late. 8 PERFORMANCE GRAPH Set forth below is a line graph comparing the cumulative total shareholder return on CDNOW's common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the cumulative total return of companies in the S&P 500 Index and the H&Q Internet Index. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CDNW S&P 500 DIV. ADJ. H&Q INTERNET INDEX 2/10/98 100.00 100.00 100.00 2/11/98 91.48 100.10 101.82 2/12/98 90.91 100.52 103.66 2/13/98 91.48 100.12 104.60 2/17/98 94.89 100.39 105.32 2/18/98 102.27 101.31 103.99 2/19/98 102.27 100.95 104.81 2/20/98 98.30 101.54 105.54 2/23/98 97.73 101.93 105.88 2/24/98 90.91 101.19 109.02 2/25/98 89.77 102.41 107.76 2/26/98 98.30 102.98 108.45 2/27/98 103.98 103.05 109.43 3/2/98 108.52 102.90 111.42 3/3/98 110.23 103.33 109.77 3/4/98 107.10 102.87 109.11 3/5/98 102.84 101.67 109.79 3/6/98 102.84 103.71 107.83 3/9/98 118.75 103.38 112.50 3/10/98 111.65 104.56 113.74 3/11/98 111.93 104.98 115.69 3/12/98 112.50 105.13 114.65 3/13/98 109.09 105.01 115.55 3/16/98 109.09 106.06 116.02 3/17/98 107.67 106.18 116.71 3/18/98 116.62 106.69 115.98 3/19/98 111.36 107.11 117.36 3/20/98 110.94 108.04 116.96 3/23/98 107.96 107.69 115.56 3/24/98 113.49 108.69 116.19 3/25/98 109.09 108.33 119.71 3/26/98 106.25 108.22 120.73 3/27/98 110.80 107.70 120.46 3/30/98 113.64 107.52 121.12 3/31/98 109.09 108.34 121.12 4/1/98 120.46 108.97 121.12 4/2/98 135.80 110.14 126.63 4/3/98 128.98 110.41 128.16 4/6/98 123.86 110.29 128.34 4/7/98 126.14 109.13 125.69 4/8/98 140.06 108.36 121.72 4/9/98 161.36 109.26 123.06 4/13/98 159.09 109.16 127.20 4/14/98 161.36 109.77 127.38 4/15/98 160.23 110.12 130.96 4/16/98 155.68 109.03 133.50 4/17/98 154.55 110.47 137.06 4/20/98 157.96 110.57 133.96 4/21/98 155.11 110.82 136.69 4/22/98 142.61 111.23 137.59 4/23/98 129.26 110.16 132.99 4/24/98 126.71 109.02 125.21 4/27/98 109.94 106.92 126.33 4/28/98 131.82 106.79 121.69 4/29/98 132.96 107.73 127.67 4/30/98 145.46 109.42 129.53 5/1/98 135.23 110.34 130.32 5/4/98 132.96 110.45 130.80 5/5/98 130.40 109.81 133.54 5/6/98 122.16 108.77 131.69 5/7/98 117.33 107.81 130.40 5/8/98 119.89 109.10 129.14 5/11/98 113.07 108.96 131.11 5/12/98 109.52 109.86 127.46 5/13/98 108.52 110.17 128.60 5/14/98 105.40 110.03 131.02 5/15/98 106.25 109.19 131.45 5/18/98 99.43 108.91 129.08 5/19/98 97.59 109.28 125.78 5/20/98 99.15 110.22 127.70 5/21/98 101.42 109.79 126.54 5/22/98 95.46 109.39 126.23 5/26/98 88.07 107.77 123.10 5/27/98 93.75 107.60 117.45 5/28/98 87.50 108.14 120.12 5/29/98 83.24 107.47 120.05 6/1/98 82.96 107.50 118.87 6/2/98 78.41 107.72 114.46 6/3/98 80.68 106.69 115.67 6/4/98 82.39 107.89 114.04 6/5/98 84.94 109.77 116.66 6/8/98 80.11 109.96 118.97 6/9/98 78.69 110.23 121.18 6/10/98 81.25 109.64 126.61 6/11/98 77.27 107.90 125.31 6/12/98 81.82 108.32 124.79 6/15/98 80.11 106.18 124.56 6/16/98 78.13 107.22 123.38 6/17/98 79.55 109.15 128.58 6/18/98 82.39 109.09 133.36 6/19/98 81.82 108.53 134.30 6/22/98 80.11 108.79 134.46 6/23/98 85.80 110.40 138.74 6/24/98 98.30 111.73 145.36 6/25/98 98.30 111.38 151.34 6/26/98 92.05 111.77 150.34 6/29/98 90.91 112.30 148.66 6/30/98 91.48 111.84 152.51 7/1/98 93.75 113.30 154.14 7/2/98 96.59 113.10 161.93 7/6/98 111.36 114.18 162.30 7/7/98 105.40 113.92 168.97 7/8/98 92.05 115.08 159.64 7/9/98 89.77 114.32 157.24 7/10/98 93.18 114.89 155.12 7/13/98 93.75 114.98 153.70 7/14/98 88.64 116.21 158.44 7/15/98 86.65 115.94 158.11 7/16/98 90.63 116.86 159.54 7/17/98 94.89 117.13 158.85 7/20/98 102.27 116.88 159.59 7/21/98 103.41 115.01 165.48 7/22/98 106.25 114.91 162.73 7/23/98 100.85 112.52 162.23 7/24/98 93.75 112.63 157.25 7/27/98 86.36 113.33 153.12 7/28/98 74.43 111.65 149.30 7/29/98 73.86 111.16 145.68 7/30/98 74.15 112.92 139.39 7/31/98 74.15 110.73 145.03 8/3/98 64.49 109.92 139.61 8/4/98 56.82 105.94 134.30 8/5/98 59.09 106.87 131.85 8/6/98 63.64 107.68 131.58 8/7/98 66.76 107.67 137.08 8/10/98 63.92 107.06 143.02 8/11/98 64.77 105.66 145.07 8/12/98 63.64 107.18 141.53 8/13/98 61.08 106.26 144.34 8/14/98 63.07 105.07 140.81 8/17/98 65.91 107.14 138.39 8/18/98 61.08 108.88 140.01 8/19/98 61.08 108.58 145.15 8/20/98 59.09 107.94 143.09 8/21/98 59.09 106.93 141.78 8/24/98 55.68 107.62 139.07 8/25/98 56.82 108.09 138.46 8/26/98 51.14 107.24 137.62 8/27/98 48.30 103.13 133.45 8/28/98 38.64 101.61 124.21 8/31/98 35.23 94.70 116.73 9/1/98 40.91 98.37 98.51 9/2/98 43.47 98.00 105.90 9/3/98 39.21 97.19 110.47 9/4/98 38.64 96.37 106.12 9/8/98 44.89 101.28 105.79 9/9/98 41.76 99.58 116.11 9/10/98 36.36 97.01 110.97 9/11/98 38.64 99.88 108.53 9/14/98 42.05 101.93 110.16 9/15/98 42.05 102.72 112.16 9/16/98 40.91 103.50 110.58 9/17/98 39.21 100.87 115.15 9/18/98 38.35 101.00 111.18 9/21/98 39.21 101.38 112.15 9/22/98 40.91 101.96 113.40 9/23/98 44.60 105.58 115.54 9/24/98 42.61 103.27 126.60 9/25/98 41.48 103.48 124.40 9/28/98 39.21 103.87 126.87 9/29/98 40.91 103.91 128.25 9/30/98 40.91 100.75 127.46 10/1/98 36.36 97.72 123.84 10/2/98 36.36 99.33 113.03 10/5/98 34.09 97.95 113.03 10/6/98 36.08 97.56 109.61 10/7/98 36.93 96.19 106.82 10/8/98 36.36 95.08 97.29 10/9/98 33.52 97.56 91.37 10/12/98 36.08 98.89 97.40 10/13/98 34.94 98.61 105.40 10/14/98 36.36 99.68 102.03 10/15/98 38.64 103.84 104.66 10/16/98 36.93 104.73 110.55 10/19/98 39.77 105.33 109.92 10/20/98 39.77 105.49 115.53 10/21/98 39.21 106.09 114.04 10/22/98 42.90 106.96 118.45 10/23/98 39.21 106.19 122.11 10/26/98 38.64 106.36 122.22 10/27/98 37.22 105.68 126.60 10/28/98 36.65 105.95 127.34 10/29/98 34.09 107.73 126.25 10/30/98 33.24 109.00 129.75 11/2/98 32.96 110.29 129.80 11/3/98 37.50 110.22 135.75 11/4/98 38.64 111.01 135.29 11/5/98 38.64 112.52 139.74 11/6/98 36.93 113.24 143.10 11/9/98 38.35 112.17 146.97 11/10/98 54.55 111.98 152.99 11/11/98 67.05 111.27 157.11 11/12/98 61.93 110.95 152.61 11/13/98 52.27 111.75 154.25 11/16/98 55.40 112.77 151.00 11/17/98 60.23 113.11 154.80 11/18/98 62.50 113.63 154.80 11/19/98 55.68 114.45 164.69 11/20/98 55.40 115.54 160.79 11/23/98 61.36 118.00 161.62 11/24/98 65.91 117.48 173.36 11/25/98 77.27 117.88 172.15 11/27/98 122.16 118.42 177.91 11/30/98 109.09 115.58 197.43 12/1/98 103.41 116.74 177.43 12/2/98 93.18 116.35 178.64 12/3/98 70.46 114.26 175.27 12/4/98 76.99 116.91 164.71 12/7/98 90.34 118.01 168.65 12/8/98 86.36 117.38 175.10 12/9/98 83.52 117.60 182.09 12/10/98 80.97 115.77 186.44 12/11/98 77.84 115.92 181.77 12/14/98 69.89 113.42 184.06 12/15/98 80.40 115.57 177.80 12/16/98 80.11 115.49 185.29 12/17/98 80.40 117.29 187.66 12/18/98 80.11 118.10 190.69 12/21/98 92.05 119.58 195.83 12/22/98 94.32 119.66 214.60 12/23/98 119.32 122.15 211.64 12/24/98 105.40 121.93 220.42 12/28/98 103.13 121.86 220.42 12/29/98 98.30 123.49 230.74 12/30/98 87.50 122.51 225.33 12/31/98 81.82 122.25 212.48 1/4/99 85.80 122.14 213.90 1/5/99 82.96 123.81 221.25 1/6/99 86.93 126.55 223.00 1/7/99 90.34 126.30 240.34 1/8/99 94.60 126.84 257.84 1/11/99 109.09 125.73 270.11 1/12/99 102.27 123.32 307.82 1/13/99 97.16 122.81 290.66 1/14/99 92.61 120.61 274.36 1/15/99 92.61 123.71 271.61 1/19/99 99.15 124.58 271.61 1/20/99 87.50 125.05 298.79 1/21/99 97.44 122.92 279.65 1/22/99 107.39 121.94 264.52 1/25/99 100.57 122.82 270.03 1/26/99 97.73 124.65 273.85 1/27/99 97.16 123.75 282.24 1/28/99 101.71 125.96 290.15 1/29/99 105.68 127.39 313.52 2/1/99 102.27 126.73 317.83 2/2/99 100.28 125.65 306.95 2/3/99 104.55 126.66 301.37 2/4/99 100.00 124.31 316.50 2/5/99 93.47 123.42 304.59 2/8/99 88.92 123.86 297.08 2/9/99 85.80 121.11 281.41 2/10/99 79.55 121.86 259.30 2/11/99 85.51 124.90 255.92 2/12/99 83.52 122.53 287.12 2/16/99 84.38 123.70 274.56 2/17/99 79.26 121.93 267.65 2/18/99 77.84 123.26 257.75 2/19/99 77.27 123.46 258.26 2/22/99 78.41 126.70 264.22 2/23/99 77.27 126.61 277.30 2/24/99 77.27 124.85 289.15 2/25/99 75.57 124.02 283.92 2/26/99 73.30 123.36 283.86 3/1/99 72.16 123.15 284.79 3/2/99 72.73 122.10 294.12 3/3/99 73.30 122.32 292.01 3/4/99 70.74 124.21 290.66 3/5/99 68.18 127.09 292.70 3/8/99 66.48 127.82 303.74 3/9/99 72.73 127.54 322.73 3/10/99 79.55 128.25 325.34 3/11/99 76.99 129.33 335.96 3/12/99 75.57 129.03 334.49 3/15/99 85.80 130.30 325.38 3/16/99 80.97 130.22 344.03 3/17/99 83.81 129.37 343.87 3/18/99 88.35 131.24 344.04 3/19/99 90.91 129.53 350.65 3/22/99 86.36 129.31 354.04 3/23/99 80.11 125.84 357.78 3/24/99 76.42 126.49 338.82 3/25/99 85.80 128.63 339.69 3/26/99 84.66 127.92 358.50 3/29/99 77.56 130.65 356.22 3/30/99 76.14 129.72 367.17 3/31/99 73.30 128.29 361.20 4/1/99 72.73 129.03 361.89 4/5/99 75.00 131.77 372.89 4/6/99 73.01 131.45 390.75 4/7/99 66.48 132.36 410.69 4/8/99 67.05 134.07 407.55 4/9/99 64.77 134.51 419.08 4/12/99 61.36 135.54 431.84 4/13/99 72.73 134.67 454.17 4/14/99 68.18 132.54 459.82 4/15/99 72.44 131.99 418.84 4/16/99 72.44 131.61 407.91 4/19/99 60.80 128.67 402.62 4/20/99 65.63 130.35 328.72 4/21/99 63.35 133.34 363.71 4/22/99 65.91 135.61 398.44 4/23/99 64.21 135.42 413.42 4/26/99 62.50 135.75 420.37 4/27/99 69.03 136.03 442.97 4/28/99 66.48 134.85 424.52 4/29/99 72.44 134.05 424.52 4/30/99 88.07 133.29 404.58 5/3/99 98.86 135.24 409.60 5/4/99 83.81 132.99 390.27 5/5/99 83.52 134.52 374.04 5/6/99 75.85 133.00 389.54 5/7/99 76.14 134.30 370.97 5/10/99 82.10 133.84 371.80 5/11/99 86.36 135.37 389.97 5/12/99 92.90 136.22 402.07 5/13/99 92.05 136.58 402.72 5/14/99 89.77 133.61 393.44 5/17/99 89.77 133.79 383.64 5/18/99 88.07 133.18 388.27 5/19/99 86.93 134.27 385.59 5/20/99 83.52 133.74 389.37 5/21/99 89.77 132.89 377.09 5/24/99 85.23 130.54 372.36 5/25/99 83.52 128.32 343.87 5/26/99 79.26 130.36 318.90 5/27/99 77.56 128.04 334.78 5/28/99 81.53 130.08 327.71 6/1/99 85.23 129.33 344.79 6/2/99 83.52 129.39 327.49 6/3/99 82.67 129.87 325.29 6/4/99 82.96 132.70 314.38 6/7/99 84.38 133.38 331.32 6/8/99 83.52 131.67 347.70 6/9/99 80.68 131.81 338.88 6/10/99 79.26 130.23 343.81 6/11/99 73.01 129.32 337.90 6/14/99 67.61 129.36 323.13 6/15/99 69.03 130.08 289.00 6/16/99 70.46 133.01 294.14 6/17/99 71.88 133.97 322.13 6/18/99 69.89 134.27 323.91 6/21/99 77.56 134.89 332.23 6/22/99 77.27 133.59 350.48 6/23/99 79.83 133.31 339.53 6/24/99 80.97 131.59 344.30 6/25/99 77.56 131.55 338.43 6/28/99 76.71 133.16 331.19 6/29/99 80.11 135.17 341.69 6/30/99 80.11 137.31 355.51 7/1/99 81.53 138.14 372.72 7/2/99 81.82 139.17 375.19 7/6/99 77.56 138.87 385.57 7/7/99 80.68 139.65 390.35 7/8/99 90.06 139.51 384.02 7/9/99 90.34 140.40 393.73 7/12/99 101.14 139.99 396.66 7/13/99 92.33 139.44 385.85 7/14/99 95.46 139.91 386.40 7/15/99 103.98 141.06 392.32 7/16/99 103.13 141.99 394.71 7/19/99 99.15 140.88 390.52 7/20/99 95.17 137.83 376.06 7/21/99 98.58 138.05 357.81 7/22/99 96.59 136.22 369.31 7/23/99 94.60 135.83 355.38 7/26/99 93.47 134.91 358.67 7/27/99 93.18 136.43 339.36 7/28/99 97.16 136.69 341.29 7/29/99 93.47 134.26 347.65 7/30/99 89.77 133.03 333.65 8/2/99 84.66 132.97 333.65 8/3/99 76.71 132.39 319.67 8/4/99 73.86 130.71 302.55 8/5/99 72.16 131.56 284.00 8/6/99 71.59 130.22 304.06 8/9/99 64.49 129.97 294.56 8/10/99 62.78 128.34 284.83 8/11/99 67.61 130.40 290.17 8/12/99 68.18 130.03 297.66 8/13/99 69.32 132.99 302.62 8/16/99 68.47 133.31 319.17 8/17/99 66.76 134.66 328.41 8/18/99 69.60 133.53 340.98 8/19/99 68.75 132.61 341.68 8/20/99 70.46 133.95 327.26 8/23/99 70.46 136.32 333.84 8/24/99 70.17 136.65 347.52 8/25/99 68.75 138.49 351.23 8/26/99 67.61 136.52 362.19 8/27/99 66.48 135.15 360.01 8/30/99 65.06 132.72 353.38 8/31/99 64.21 132.37 337.03 9/1/99 64.21 133.44 346.10 9/2/99 63.07 132.25 339.30 9/3/99 65.06 136.08 335.41 9/7/99 63.07 135.40 355.69 9/8/99 61.08 134.78 357.68 9/9/99 61.08 135.14 357.68 9/10/99 61.08 135.55 359.71 9/13/99 62.22 134.80 373.50 9/14/99 62.78 134.02 363.58 9/15/99 63.07 132.19 366.89 9/16/99 61.65 132.24 359.77 9/17/99 59.09 133.95 355.59 9/20/99 56.82 133.97 362.90 9/21/99 55.97 131.17 369.40 9/22/99 56.82 131.47 362.09 9/23/99 56.18 128.46 379.84 9/24/99 54.26 128.16 365.56 9/27/99 54.26 128.76 369.63 9/28/99 53.13 128.66 373.59 9/29/99 53.69 127.28 374.49 9/30/99 56.53 128.72 377.00 10/1/99 56.82 128.74 383.13 10/4/99 60.80 130.93 379.63 10/5/99 59.94 130.61 383.75 10/6/99 64.77 133.03 391.79 10/7/99 69.89 132.26 408.24 10/8/99 74.43 134.11 418.72 10/11/99 73.86 134.04 419.98 10/12/99 69.60 131.82 420.41 10/13/99 65.91 129.06 406.77 10/14/99 66.48 128.86 391.56 10/15/99 62.78 125.25 392.65 10/18/99 61.08 125.93 376.01 10/19/99 61.36 126.66 366.27 10/20/99 66.19 129.49 374.02 10/21/99 63.92 128.91 389.88 10/22/99 62.50 130.73 399.23 10/25/99 61.08 129.93 396.47 10/26/99 61.36 128.76 401.43 10/27/99 63.64 130.25 397.90 10/28/99 62.50 134.89 391.99 10/29/99 61.65 136.95 407.22 11/1/99 60.23 136.08 423.62 11/2/99 59.38 135.44 428.27 11/3/99 59.09 136.17 425.64 11/4/99 58.52 136.95 436.55 11/5/99 57.96 137.72 447.53 11/8/99 59.38 138.41 463.13 11/9/99 58.52 137.24 479.78 11/10/99 58.24 138.07 470.81 11/11/99 56.25 138.88 471.99 11/12/99 58.24 140.35 464.03 11/15/99 62.22 140.19 487.24 11/16/99 64.21 142.76 491.38 11/17/99 63.64 141.85 510.38 11/18/99 65.63 143.29 504.57 11/19/99 65.91 143.00 524.98 11/22/99 68.75 142.90 522.58 11/23/99 66.48 141.27 547.40 11/24/99 69.32 142.52 550.25 11/26/99 77.27 142.48 565.14 11/29/99 72.73 141.61 576.40 11/30/99 69.32 139.71 564.77 12/1/99 68.18 140.60 533.90 12/2/99 68.18 141.75 539.82 12/3/99 64.77 144.20 568.30 12/6/99 64.21 143.20 587.03 12/7/99 57.10 141.78 608.82 12/8/99 62.22 141.26 636.76 12/9/99 59.66 141.69 653.96 12/10/99 61.36 142.60 663.53 12/13/99 62.50 142.42 672.93 12/14/99 59.66 141.22 688.92 12/15/99 60.23 142.24 661.32 12/16/99 60.51 142.80 652.64 12/17/99 59.09 143.03 678.86 12/20/99 54.83 142.74 685.98 12/21/99 54.26 144.30 684.91 12/22/99 50.85 144.57 728.94 12/23/99 49.72 146.82 730.23 12/27/99 49.15 146.70 719.55 12/28/99 45.46 146.76 716.98 12/29/99 45.46 147.35 717.13 12/30/99 46.02 147.46 747.61 12/31/99 44.89 147.95 740.29 1/3/00 45.17 146.55 741.66 1/4/00 45.46 140.93 782.23 1/5/00 38.92 141.21 731.71 1/6/00 44.03 141.35 716.15 1/7/00 46.59 145.19 655.41 1/10/00 55.11 146.82 705.33 1/11/00 51.71 144.91 761.70 1/12/00 50.57 144.28 720.27 1/13/00 51.99 146.04 692.53 1/14/00 52.84 147.61 730.73 1/18/00 51.71 146.61 742.94 1/19/00 53.41 146.69 772.89 1/20/00 52.84 145.66 776.67 1/21/00 54.26 145.24 783.01 1/24/00 56.82 141.18 799.86 1/25/00 58.74 142.04 759.93 1/26/00 56.53 141.45 774.78 1/27/00 58.24 140.90 750.85 1/28/00 54.55 137.04 773.71 1/31/00 52.27 140.50 706.02 2/1/00 51.99 142.00 695.38 2/2/00 55.11 141.99 728.51 2/3/00 52.84 143.59 737.94 2/4/00 48.86 143.54 772.59 2/7/00 46.88 143.53 758.10 2/8/00 48.58 145.30 760.93 2/9/00 46.59 142.28 787.05 2/10/00 44.74 142.81 784.64 2/11/00 43.75 139.82 823.94 2/14/00 44.89 140.11 799.01 2/15/00 43.47 141.34 798.43 2/16/00 42.33 139.89 803.32 2/17/00 40.63 139.96 812.94 2/18/00 38.35 135.71 821.94 2/22/00 36.08 136.33 808.30 2/23/00 36.65 137.20 786.71 2/24/00 37.22 136.47 845.80 2/25/00 36.65 134.45 870.71 2/28/00 36.36 135.94 864.76 2/29/00 36.36 137.80 855.62 3/1/00 37.50 139.10 884.05 3/2/00 37.78 139.36 896.34 3/3/00 38.35 142.13 874.32 3/6/00 42.61 140.33 927.39 3/7/00 40.91 136.74 939.43 3/8/00 39.77 137.87 937.71 3/9/00 42.33 141.40 953.89 3/10/00 42.90 140.74 991.88 3/13/00 36.36 139.59 993.76 3/14/00 31.68 137.13 960.16 3/15/00 30.68 140.47 922.55 3/16/00 30.26 147.16 870.06 3/17/00 30.68 147.78 884.28 3/20/00 25.57 146.99 907.45 3/21/00 21.88 150.76 840.76 3/22/00 22.44 151.44 854.99 3/23/00 22.94 154.15 890.38 3/24/00 22.73 154.16 886.15 3/27/00 22.30 153.81 909.49 3/28/00 23.01 152.19 902.09 3/29/00 15.91 152.27 875.97 3/30/00 17.33 150.20 812.65 3/31/00 17.19 151.28 781.14 4/3/00 17.76 152.03 774.67 4/4/00 18.04 150.90 685.44 4/5/00 16.48 150.17 669.79 4/6/00 17.33 151.58 673.97 4/7/00 20.17 153.11 708.86 4/10/00 24.15 151.91 736.43 4/11/00 20.74 151.53 674.29 4/12/00 18.75 148.16 634.50 4/13/00 18.18 145.47 574.34 4/14/00 15.91 137.00 545.69 4/17/00 13.78 141.54 477.79 4/18/00 13.64 145.61 485.81 4/19/00 15.77 144.18 559.58 4/20/00 17.33 144.90 551.65 4/24/00 17.19 144.44 546.21 4/25/00 18.61 149.25 506.65 4/26/00 19.03 147.59 546.34 4/27/00 19.18 148.00 537.79 4/28/00 19.60 146.74 568.16 5/1/00 21.02 148.35 583.80 5/2/00 19.03 146.13 605.82 5/3/00 16.48 142.99 571.07 5/4/00 17.61 142.44 559.45 5/5/00 21.31 144.78 568.18 5/8/00 21.02 143.93 577.78 5/9/00 20.46 142.72 558.63 5/10/00 18.75 139.79 539.88 5/11/00 19.03 142.30 508.75 5/12/00 18.47 143.63 518.58 5/15/00 18.47 146.81 519.73 5/16/00 18.32 148.20 538.49 5/17/00 18.47 146.36 560.93 5/18/00 16.19 145.30 544.82 5/19/00 16.05 142.25 526.34 5/22/00 15.63 141.62 501.62 5/23/00 14.92 138.91 493.83 5/24/00 14.21 141.47 456.44 5/25/00 14.49 139.70 466.17 5/26/00 14.21 139.35 455.51 5/30/00 13.64 143.85 456.41 5/31/00 13.35 143.67 499.70 6/1/00 10.51 146.53 491.15 6/2/00 22.16 149.42 524.18 6/5/00 19.03 148.45 588.25 6/6/00 18.32 147.46 586.61 6/7/00 18.61 148.84 562.45 6/8/00 18.32 147.86 589.89 6/9/00 19.18 147.39 589.61 6/12/00 20.46 146.29 594.66 6/13/00 19.89 148.67 564.68 6/14/00 19.46 148.79 573.18 6/15/00 14.49 149.62 565.21 6/16/00 13.92 148.19 567.99 6/19/00 13.21 150.37 565.18 6/20/00 13.07 149.36 579.67 6/21/00 12.78 149.69 595.23 6/22/00 13.07 146.97 595.64 6/23/00 13.07 145.89 578.66 6/26/00 13.35 147.30 554.83 6/27/00 13.64 146.82 555.41 6/28/00 13.35 147.26 554.07 6/29/00 12.78 146.01 569.04 6/30/00 14.06 147.25 566.30 7/3/00 13.64 148.77 574.69 7/5/00 13.07 146.42 579.72 7/6/00 12.64 147.48 560.52 7/7/00 13.07 149.74 565.93 7/10/00 12.78 149.41 561.90 7/11/00 11.36 149.95 554.25 7/12/00 11.51 151.18 537.29 7/13/00 11.36 151.48 578.16 7/14/00 12.50 152.92 612.61 7/17/00 12.50 152.98 634.27 7/18/00 13.64 151.29 641.32 7/19/00 13.07 150.10 619.43 7/20/00 13.28 151.48 595.06 7/21/00 13.35 149.93 627.12
FEBRUARY 10, 1998 DECEMBER 31, 1998 DECEMBER 31, 1999 ----------------- ----------------- ----------------- CDNOW 100.00 81.818 44.886 S&P INDEX 100.00 122.247 147.950 H&Q INTERNET INDEX 100.00 212.481 740.286
9 SCHEDULE I As the date of this Information Statement, BINC Acquisition Corp. has not determined who will be its designees to the CDNOW board directors. However, such designees will be selected from the following list of directors and executive officers of Bertelsmann or its affiliates. The information contained herein concerning Bertelsmann and its directors and executive officers and those of its affiliates has been furnished by Bertelsmann and BINC Acquisition Corp. CDNOW assumes no responsibility for the accuracy or completeness of such information. The name, present principal occupation or employment and five-year employment history of each of the persons is set forth below. None of the persons listed below owns any shares of CDNOW common stock or has engaged in any transactions with respect to shares of CDNOW common stock during the past 60 days. During the last five years, none of the persons listed below has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors)nor was such person a party to a civil proceeding of a judicial or administrative body of competent jurisdiction, and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. None of the persons listed below (i) is currently a director of, or holds any position with, CDNOW (ii) has a familial relationship with any of the directors or executive officers of CDNOW or (iii) based on information provided to CDNOW by Bertelsmann (which is to the best of Bertelsmann's knowledge), beneficially owns any securities (or rights to acquire any securities) of CDNOW. CDNOW has been advised by Bertelsmann that, to the best of Bertelsmann's knowledge, none of the persons listed below has been involved in any transaction with CDNOW or any of its directors, executive officers or affiliates which is required to be disclosed pursuant to the rules and regulations of the SEC. German citizens are indicated by asterisk, all others are U.S. citizens.
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND PERIOD SERVED IN SUCH NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY AGE OFFICE(S) - ------------------------- ------------------------------- -------- ---------------------------- JACQUELINE CHASEY........... Vice President, Legal Affairs 48 1994 to date Bertelsmann, Inc. and Assistant Secretary, 1540 Broadway Bertelsmann, Inc. New York, NY 10036 BRYAN D. ELLIS.............. Analyst/Associate, McKinsey & 28 1995 to 1998 1540 Broadway, 29th Floor Company 1998 to date New York, NY 10036 Vice President, International Product Development, BOL.com REINHARD LIEDL *............ Senior Vice President, 46 1991 to 1997 Bertelsmann Multimedia Bertelsmann AG 1998 to date GmbH Executive Vice President and Carl-Bertelsmann Str. 270 Chief Financial Officer, 33311 Gutersloh Bertelsmann Multimedia Group Germany
10
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND PERIOD SERVED IN SUCH NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY AGE OFFICE(S) - ------------------------- ------------------------------- -------- ---------------------------- ERIK PEPER *................ Corporate Development, Premiere 35 1994 to 1996 MFV Magazinverlag am Medien 1996 Fleetrand GmbH GmbH & Co. 1996 to date Stubbenhuk 5 Director, Service and Customer 20459 Hamburg Marketing, RTL Kiosk Germany Programmvertrieb GmbH & Co. Managing Director, MVF Magazinverlagam Fleetrand GmbH ANDREAS SCHMIDT *........... Managing Director, Gruner + 39 1993 to 1998 Millerntorplatz 1 Jahr AG & Co. 1998 to 2000 20359 Hamburg President and CEO, AOL Europe Germany President and CEO, Bertelsmann e-Commerce Group ROBERT J. SORRENTINO........ Partner, Coopers & Lybrand 46 1994 to 1996 Bertelsmann, Inc. Vice President, Taxes, 1996 to 1997 1540 Broadway Bertelsmann, Inc. 1997 to 1998 New York, NY 10036 Executive Vice President and 1998 to date Chief Operating Officer, Bertelsmann, Inc. President and CEO, Director and Member of the Executive Committee of the Board of Directors, Bertelsmann, Inc.
11 EX-99.(A)(1) 2 ex-99_a1.txt EXHIBIT 99(A)(1) EXHIBIT 99(A)(1) [LOGO] CDnow, Inc. 1005 Virginia Drive Ft. Washington, Pennsylvania 19034 July 26, 2000 Dear Shareholder: I am pleased to inform you that CDnow, Inc. entered into a merger agreement with Bertelsmann, Inc. providing for the commencement of a tender offer to purchase all outstanding shares of CDNOW common stock for $3.00 per share in cash by BINC Acquisition Corp., a wholly-owned subsidiary of Bertelsmann, Inc. The tender offer is conditioned upon, among other things, a minimum of a majority of CDNOW shares being tendered and not withdrawn and upon the receipt of required regulatory approvals. The tender offer will be followed by a merger in which each share of CDNOW common stock not purchased in the tender offer will be converted into the right to receive $3.00 in cash. THE CDNOW BOARD OF DIRECTORS DETERMINED THAT THE TERMS OF THE BERTELSMANN OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE CDNOW SHAREHOLDERS AND RECOMMENDS YOU ACCEPT THE OFFER AND TENDER YOUR SHARES OF CDNOW COMMON STOCK. In arriving at its recommendation, the board of directors considered a number of factors, as described in the attached Schedule 14D-9, including the opinion of CDNOW's financial advisor, Allen & Company Incorporated, that, as of the date of the opinion, the $3.00 per share of CDNOW common stock to be received in the tender offer and the merger is fair to the CDNOW shareholders from a financial point of view. A copy of the Allen & Company opinion is attached as Annex A hereto. Enclosed are BINC Acquisition Inc.'s Offer to Purchase, dated July 26, 2000 and related Letter of Transmittal. These documents set forth the terms and conditions of the tender offer. The Schedule 14D-9 describes in more detail the reasons for the CDNOW Board's conclusions and contains other information relating to the tender offer. Please consider this information carefully. [SIGNATURE] Jason Olim PRESIDENT AND CHIEF EXECUTIVE OFFICER EX-99.(E)(7) 3 ex-99_e7.txt EXHIBIT 99(E)(7) Exhibit(e)(7) CDNOW, INC. SEVERANCE PROGRAM FOR VICE PRESIDENTS PLAN DESCRIPTION AND ACCEPTANCE AGREEMENT PART C 1-of-8 CDNOW, INC. SEVERANCE PROGRAM FOR VICE PRESIDENTS PLAN DESCRIPTION AND ACCEPTANCE AGREEMENT PART C 1. BACKGROUND AND PURPOSE. (a) CDnow, Inc. hereby establishes the CDnow, Inc. Severance Plan for Vice Presidents, Part C (the "Plan") to provide severance compensation to certain management employees whose employment with the Company is terminated under the conditions set forth below. (b) The Plan is intended to alleviate, in part or in full, financial hardships which may be experienced by certain employees whose employment is terminated. The Plan is not intended to be an "employee pension benefit plan" or "pension plan" as those terms are defined in section 3(2) of ERISA (as defined below). Rather, the Plan is intended to constitute a severance pay plan under ERISA. The Plan shall be effective as of March 17, 1999. 2. DEFINITIONS. (a) "BASE SALARY" means the base salary (exclusive of bonuses or any other extraordinary remuneration) earned by the Participant on an annualized basis for service with the Company, including any base salary the payment of which is deferred pursuant to a salary reduction or deferral agreement, plan or arrangement (including an arrangement described in section 401(k) or 125 of the Code). (b) "BOARD" means the Board of Directors of CDnow, Inc. (c) "CAUSE" means: (i) the failure of a Participant to perform substantially his or her job duties with the Company or to observe any of the material terms or provisions of any applicable employment agreement with the Company; (ii) misconduct by a Participant with respect to the Company; (iii) a Participant's conviction of a crime involving moral turpitude; or (iv) misappropriation of Company funds by a Participant. Termination for Cause shall be effected by notice delivered by the Company to the Participant and, except as provided below, shall be effective as of the date of such notice; provided, however, that the termination shall not be effective if (x) such termination is because of the Participant's failure to perform substantially his or her job duties or observe any of the material terms or provisions of his or her employment agreement, (y) such notice is the first such notice of termination for any reason delivered by the Company to the Participant hereunder, and (z) within 15 days after the date of such notice, the Participant shall cease his or her refusal and shall use his or her best efforts to perform such obligations. (d) "CHANGE OF CONTROL" means any of the following events that occurs after the effective date of the Plan: (i) any person, entity or group, within the meaning of Section 13(d) or 14(d) of the Exchange Act (as defined below) (excluding for this purpose the Company and any employee benefit plan of the Company which acquires beneficial ownership of voting securities of the Company) becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of CDnow, Inc. representing 30% or more of the voting power of the then outstanding securities of CDnow, Inc.; provided that a Change of Control shall not be deemed to occur as a result of a transaction in which CDnow, Inc. becomes a subsidiary of another corporation and in which the shareholders of CDnow, Inc., immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such 2-of-8 shareholders to more than 50% of all votes to which all shareholders of the parent corporation would be entitled in the election of directors; (ii) the shareholders of CDnow, Inc. approve (or, if shareholder approval is not required, the Board approves) an agreement providing for: (A) the merger or consolidation of CDnow, Inc. with another corporation where the shareholders of CDnow, Inc., immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled in the election of directors, (B) the sale or other disposition of all or substantially all of the assets of CDnow, Inc., or (C) a liquidation or dissolution of CDnow, Inc.; or (iii) any person has commenced a tender offer or exchange offer for 30% or more of the voting power of the then outstanding shares of CDnow, Inc. The merger between CDnow, Inc. and N2K Inc. that occurred on March 17, 1999 shall not be considered a Change of Control for purposes of this Plan. (e) "CODE" means the Internal Revenue Code of 1986, as amended. (f) "COMPANY" means CDnow, Inc. and its subsidiaries. The term "Company" shall also include any successor to the Company by merger or otherwise. (g) "COMPENSATION COMMITTEE" means the Compensation Committee of the Board. (h) "DISABILITY" means a Participant's long-term disability that entitles the Participant to disability benefits under the Company's long-term disability plan or Social Security. (i) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (k) "GOOD REASON" means a Participant's termination from employment with the Company because of a material diminution in the Participant's job responsibilities or aggregate compensation (Base Salary and annual bonuses) or because the Participant's primary work location is changed to a location more than 50 miles from the Participant's primary work location immediately before the change. IN ORDER FOR A TERMINATION TO BE FOR "GOOD REASON," THE PARTICIPANT MUST RESIGN WITHIN 30 DAYS AFTER THE OCCURRENCE OF SUCH EVENT. (l) "PARTICIPANT" means a regular full-time employee of the Company who is employed as a Vice President or at a higher-grade level. (m) "PLAN" is defined in Section 1(a) of this agreement. (n) "PLAN ADMINISTRATOR" means the Company, or any person, committee or other entity designated by the Company to administer the Plan in accordance with Section 7 below. (o) "TERMINATION DATE" means the date on which the employment relationship between a Participant and the Company terminates. 3-of-8 3. TERMINATION OF EMPLOYMENT. Except as provided in Section 4 below and subject to Section 6 below, if the Company terminates a Participant's employment (other than for Cause or Disability) or if a Participant resigns from employment for Good Reason, the Participant shall receive the following severance compensation, beginning on the day following the Participant's Termination Date: (a) Continued Base Salary for six months after the Termination Date, payable according to the Company's then current payroll practices. (b) For six months after the Termination Date, continued participation by the Participant and his or her eligible dependents in the Company's health benefit plan applicable to the Participant on the Termination Date as if the Participant had continued in employment with the Company; provided that if the Company is precluded from providing coverage under its health benefit plan by applicable law or regulation, the Company may provide Participant with a payment equal to the Company's cost of such coverage, without regard to tax effect (a "Benefit Commutation Payment"). The Company shall provide the Participant with continuation coverage rights under the federal Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), which shall commence on the first to occur of (i) the date that is six months after the Termination Date or (ii) the date on which the Company shall have made a Benefit Commutation Payment to the Participant. (c) Continued vesting of the Participant's then outstanding options to purchase CDnow, Inc. stock for the six-month period after the Participant's Termination Date as if the Participant had continued in employment with the Company, and the period for exercising the outstanding options shall be extended to the date that is 90 days after the expiration of such six-month period; provided, however, that in no event may an option be exercised after the expiration of its latest termination date as set forth in the applicable option agreement or stock option plan. (d) Payment of the Participant's bonus for the prior fiscal year if such bonus has not yet been paid, calculated consistent with the Company's past policies and practices, and payment of a pro-rata share (based on the number of full completed months since the beginning of the fiscal year in which the Termination Date occurs) of the bonus that the Participant was expected to receive during the fiscal year in which the Termination Date occurs. (e) Pay for any unused vacation in accordance with Company policy. 4. TERMINATION WITHIN SIX MONTHS AFTER A CHANGE OF CONTROL. If a Change of Control occurs and, within the later of six months after the Change of Control or (if applicable) six months after the completion of a tender offer or exchange offer, as specified in Section 2(d)(iii) of this agreement, the Company terminates a Participant's employment (other than for Cause or Disability) or a Participant resigns for Good Reason, Section 3 shall not apply and, subject to Section 6 below, the Participant shall receive the following severance compensation, beginning on the day following the Participant's Termination Date: (a) Continued Base Salary for 12 months after the Termination Date, payable according to the Company's then current payroll practices. (b) For 12 months after the Termination Date, continued participation by the Participant and his or her eligible dependents in the Company's health benefit plan applicable to the Participant on the Termination Date as if the Participant had continued in employment with the Company; provided that if 4-of-8 the Company is precluded from providing coverage under its health benefit plan by applicable law or regulation, the Company may provide Participant with a payment equal to the Company's cost of such coverage, without regard to tax effect (a "Benefit Commutation Payment"). The Company shall provide the Participant with continuation coverage rights under the federal Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), which shall commence on the first to occur of (i) the date that is 12 months after the Termination Date or (ii) the date on which the Company shall have made a Benefit Commutation Payment to the Participant. (c) Full vesting on the Termination Date of the Participant's then outstanding options to purchase CDnow, Inc. stock that would have vested during the two-year period after the Termination Date if the Participant had continued in employment with the Company, and the period for exercising the outstanding options shall be extended to the date that is 90 days after the expiration of the 12-month period following the Termination Date; provided, however, that in no event may an option be exercised after the expiration of its latest termination date as set forth in the applicable option agreement or stock option plan. (d) Payment of the Participant's bonus for the prior fiscal year if such bonus has not yet been paid, calculated consistent with the Company's past policies and practices, and payment of a pro-rata share (based on the number of full completed months since the beginning of the fiscal year in which the Termination Date occurs) of the bonus that the Participant was expected to receive during the fiscal year in which the Termination Date occurs. (e) Pay for any unused vacation in accordance with Company policy. 5. OTHER TERMINATION. If a Participant voluntarily terminates employment with the Company (other than for Good Reason) or dies, or if a Participant's employment terminates for Cause or on account of Disability, the Participant shall not be entitled to benefits under this Plan. 6. OTHER SEVERANCE PROGRAMS. If a Participant receives severance benefits under Section 3 or 4 above, the Participant shall not receive severance benefits under any other severance plan, program or agreement of the Company (including, without limitation, any severance commitment in a Participant's employment offer letter, employment agreement or other type of agreement). The Company shall require that Participants waive entitlement to any such severance compensation as a condition of participating in this Plan. Notwithstanding anything in the Plan to the contrary, if a Participant refuses to waive entitlement to other severance benefits, he or she shall not receive benefits under this Plan. If a Participant elects to participate in this Plan, and the Compensation Committee terminates the Plan or amends the Plan in such a manner that the benefits offered under the amended Plan are substantially less than the benefits offered under this Plan as of its adoption date, the Participant shall have the right to opt out of the Plan by providing the Plan Administrator notice on a form to be provided by the Plan Administrator, within five business days after the Participant receives notice of such amendment. In that event, the Participant shall be entitled to receive the severance benefits that the Participant previously waived and that the Participant would have been entitled to receive according to the terms of such benefits as of the Plan adoption date as if the Plan had never been implemented. 7. PLAN ADMINISTRATOR. (a) The Plan Administrator shall have the full power and authority to administer the Plan, 5-of-8 carry out its terms and conditions, and effectuate its purposes. The Plan Administrator shall be the "named fiduciary," as such term is defined in ERISA, with responsibility for administration of the Plan. (b) The Plan Administrator shall serve without compensation for its services as administrator. However, all reasonable expenses of the Plan Administrator shall be paid or reimbursed by the Company upon receipt of proper documentation. The Plan Administrator shall be indemnified by the Company against personal liability for actions taken in good faith in the discharge of its duties as the Plan Administrator. 8. AMENDMENT AND TERMINATION. The Compensation Committee shall have the right to amend or terminate the Plan, at any time and from time to time, in whole or in part, for any reason, provided, however, that if a Change of Control occurs, no amendment or termination which would adversely affect Participants' rights or benefits under Section 4 of the Plan shall be made without the express written consent of the affected Participants. The Plan shall terminate, automatically and without further action of the Company, upon the full satisfaction of all of the Company's obligations hereunder. 9. CLAIM PROCEDURES. (a) The Company will advise each Participant of any benefits to which the Participant is entitled under the Plan. If any person believes that the Company has failed to advise him or her of any benefit to which he or she is entitled, he or she may file a written claim with the Plan Administrator. The Plan Administrator shall review such claim and respond thereto within a reasonable time after receiving the claim. The Plan Administrator shall provide to every claimant who is denied a claim for benefits written notice setting forth, in a manner calculated to be understood by the claimant, the following: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the claims review procedure set forth in the following paragraph. (b) Within 60 days of receipt by a claimant of a notice denying a claim under the preceding paragraph, the claimant, or his or her duly authorized representative, may request in writing a full and fair review of the claim by the Plan Administrator. The Plan Administrator may extend the 60-day period where the nature of the benefit involved or other attendant circumstances make such extension appropriate. In connection with such review, the claimant or his or her duly authorized representative may review pertinent documents and may submit issues and comments in writing. The Plan Administrator shall make a decision promptly, and not later than 10 days after the Plan Administrator's receipt of a request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 60 days after receipt of a request for review. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based. 6-of-8 10. MISCELLANEOUS. (a) NONALIENATION OF BENEFITS; SUCCESSORS. None of the benefits or rights of any Participant under the Plan shall be subject to the claims of any creditor of the Participant and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee's process, or any other legal or equitable process available to any creditor of a Participant. No Participant shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits that the Participant may expect to receive, contingently or otherwise, under the Plan. The Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties. (b) TAX WITHHOLDING. All payments under the Plan shall be made subject to all applicable federal, state and local withholding tax and payroll deduction requirements. (c) NO MITIGATION. Participants shall not be obligated to mitigate payments under this Plan by seeking other employment during the severance period, or otherwise. (d) NO CONTRACT OF EMPLOYMENT. Neither the establishment of the Plan, nor any modification thereof, nor the payment of any benefits shall be construed as giving any Participant, or any person whatsoever, the right to be retained in the service of the Company, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been adopted. (e) SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included. (f) UNFUNDED PLAN. The Plan shall not be funded. No Participant shall have any right to, or interest in, any assets of the Company that may be applied by the Company to the payment of benefits. All Participants shall be unsecured creditors of the Company. (g) PAYMENTS TO INCOMPETENT PERSONS. Any benefit payable to or for the benefit of an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Company, the Plan Administrator and all other parties with respect thereto. (h) CONTROLLING LAW. The Plan shall be construed and enforced according to the laws of the Commonwealth of Pennsylvania, except to the extent preempted by ERISA or other federal law. 7-of-8 IN WITNESS WHEREOF, and as evidence of the adoption of the Plan, the Company has caused the same to be executed by its duly authorized officers, this 8th day of June, 1999. CDNOW, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Date: ----------------------------- Acknowledgement of acceptance and RECEIPT BY PARTICIPANT: By: ----------------------------- (Signature) Name: --------------------------- (Print) Date: --------------------------- 8-of-8 EX-99.(E)(10) 4 ex-99_e10.txt EXHIBIT 99(E)(10) EXHIBIT (e)(10) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made as of the 1st day of May, 1987, be and between TELEBASE SYSTEMS, INC., a Pennsylvania business corporation located at 763 West Lancaster avenue, Bryn Mawr, Pennsylvania 19010 ("Employer"), and JAMES E. COANE, an individual currently residing at 19 West Concourse, Brightwaters, New York 11718 ("Employee"). BACKGROUND Employer is desirous of employing the Employing the employee in an executive, research, administrative and/or technical capacity, upon the terms and conditions hereinafter set forth in this Agreement, and the Employee is desirous of being so employed. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt of which the parties hereby acknowledge, the parties hereto, intending to be legally bound hereby, agree as follows: 1. EMPLOYMENT AND DUTIES. Employer shall employ the Employee and the Employee accepts such employment for the term set forth in Section 3 hereof, on the terms and conditions set forth in this Agreement. The Employee shall serve as President and Chief Executive Officer of Employer, if elected or appointed to such office or position, and shall perform such other duties as shall be assigned to him from time to time during the continuance of his Agreement by the Board of Directors of employer (the "Board"). The Employer agrees to (i) give his best efforts and skills to the business and interests of the Employer, (ii) devote substantially all of his time and attention to the business of the Employer, and (iii) comply, in all material respects, with all reasonable policies and rules of Employer in effect from time to time. 2. COMPENSATION PACKAGE. a. In consideration of the services to be performed by Employee hereunder, Employee shall receive: (i) From the date hereof until September 30, 1987, a salary at the rate of One Hundred Fifteen Thousand Dollars ($115,000.00) per year, and, commencing as of October 1, 1987, a salary at the rate of One Hundred Twenty Five Thousand Dollars ($125,000.00) per year, payable in equal semi-monthly or bi-weekly installments in accordance with Employee's accounting procedures and practices in effect from time to time; (ii) Pay scale or increases or other compensation in accordance with policies established by the Board, and at the sole and complete discretion of the Board; (iii) Reimbursement for all authorized reasonable and necessary expenses incurred by Employee in connection with the performance of his duties hereunder; (iv) Term life insurance, naming Employee's designee as beneficiary, in the face amount, at all times, equal to twice Employee's then current annual salary rate and additional benefits as approved by the Board, which may include medical, dental and disability income insurance, sick leave and holidays; (v) Paid vacation to be taken at such time or times as shall not be disapproved by the Board, and in accordance with Employer's policies and procedures in effect from time to time. 3. TERM. This Agreement shall continue in effect until three (3) years from the date hereof (the "Expiration Date"), unless terminated sooner by Employer for Cause or Disability, or pursuant to Section 4 hereof. Termination for Cause shall mean termination by Employer of Employee due to Employer's's dishonesty, fraud, embezzlement, defalcation or violation of Employee's covenants contained in Section 6 hereof, or in clause (ii) or (iii) of Section 1 hereof. This Agreement shall terminate automatically upon the death of the Employee. Employer may terminate this Agreement in the event that Employee for a period of ninety (90) continuous days, or ninety (90) days in any year during the term hereof (including any renewal term), becomes physically or mentally unable to carry out his duties hereunder (herein referred to as "Disability"). In the event that Employer terminates this Agreement upon the occurrence of Employee's Disability, Employer shall, for a period of one (1) year from the date of termination, continue to provide Employee with such term life insurance and such medical insurance as are in effect at the time of termination. Unless written notice shall have been delivered by the party desiring to terminate this Agreement, which written notice shall have been delivered not later than one hundred twenty (120) days prior to the Expiration Date (including the Expiration Date with respect to any renewal term), this Agreement shall be considered renewed for regular periods of one (1) year. 4. TERMINATION. a. Employer may terminate this Agreement at any time prior to the Expiration Date (including the Expiration Date with respect to any renewal term). Upon (i) termination of Employee by Employer prior to the Expiration Date (other than termination for Cause or due to the Disability of Employee), or (ii) termination of this Agreement upon the Expiration Date, unless Employer shall have Cause to terminate Employee (including the Expiration Date with respect to any renewal term), Employer will provide Employee, following the date of termination, with (a) eighteen (18) months' salary, based on Employee's then current annual base salary level, or (b) in the event of the sale of substantially all of the stock of the Employer, or any public offering of Employer's stock resulting in a sale of greater than fifty percent (50%) of Employer's issued and outstanding stock (hereinafter "Change in Control"), salary for the greater of eighteen (18) months or the number of months remaining until the Expiration Date, (any such period of time being hereinafter referred to as the "Benefit Period"), payable in accordance with Employer's payroll accounting practices and procedures, and (c) continuation of all Employer paid benefits, including life insurance (such salary and benefits being hereinafter referred to as "Benefits") until the expiration of the Benefit Period. b. Notwithstanding the provisions of paragraph a. above, upon termination of Employee's Employment with Employer, (provided that such termination does not occur after a Change in Control, in which case Employer shall be obligated to provide Employee with full benefits throughout the Benefit Period), and as a condition to Employer's obligation to provide Employee with the Benefits, Employee will utilize his best efforts to obtain employment. If, after three (3) months from the date of Employee's termination, Employee has been or is thereafter offered a reasonable employment position, in light of, among other things, Employee's education, experience, and salary history, then Employer's responsibility thereafter for the provision of Benefits throughout the course of the Benefit -2- Period shall be to provide Employee with such Benefits, if any, as are necessary, when added to the salary and benefit terms of such offer of a reasonable employment position, to provide Employee with the same salary level and level of Employer paid benefits as Employee received immediately prior to termination by Employer. Upon termination of Employer's obligations to provide Employee with Benefits, upon Expiration of the Benefit Period or otherwise, Employee shall continue to be subject to the provisions of Section 5 hereof. c. Upon the termination of Employee, and in consideration of Employer's agreement to provide Employee with the Benefits, Employee agrees that during the Benefit Period, Employee shall at all times comply with the provisions of Section 6 hereof. 5. CONSULTANCY. a. Upon the termination of Employee's employment with Employer for Cause, or due to Disability, or upon the Expiration Date, or if such employment is terminated by Employee, or upon the expiration of the Benefit Period, Employer shall have the option in its sole discretion to retain Employee as a part-time consultant ("Consultant") in the field in which Employee has worked or with which Employee has become familiar as a consequence of or through his employment by Employer ("Consultancy"). b. In the event that Employer desires to retain Employee as a Consultant, Employee shall hold himself available for a period of two (2) years for not more than twenty-five (25) hours per month, for which Employer shall pay Employee twenty-five percent (25%) of his monthly base pay at the time of termination of Employee's employment with Employer, whether or not Employee is called upon to render actual services in any such month for which he shall be paid. c. Employee shall render such advisory and technical consultation assistance as Employer shall request, provided that such assistance shall not exceed the number of hours per month agreed upon herein. d. Upon sixty (60) days' written notice prior to the end of the duration of the Consultancy, Employer as its sole option may renew Employee's retention as a Consultant for additional yearly periods (up to a maximum of two additional yearly periods) provided that a subsequent renewal (for a second additional yearly period) shall be made upon at least thirty (30) days' written notice. Each renewal shall be accompanied by either an increase in Employee's renumeration by a sum equal to ten percent (10%) of Employee's Consultancy fee, or a decrease in the number of hours per month for which Employee must hold himself available by fifteen percent (15%), at Employer's sole option. e. During the Consultancy period (including renewals), Employee shall at all times comply with the provisions of Section 8 hereof. 6. RESTRICTIVE COVENANTS. a. Employee agrees that during the term of his employment with Employer (whether pursuant to this Agreement or otherwise), and during any Benefit Period (pursuant to section 4 hereof), and during any period of Consultancy (pursuant to Section 5 hereof); -3- (i) he will not solicit for employment or employ for his own or for another's benefit any employee, officer, director or consultant of Employer; and (ii) he shall not directly or indirectly on his own behalf or as an officer, director, consultant, partner, owner, stockholder or employee of any individual, partnership or corporation or other entity, engage in any activity, in those states within the United States and those countries outside the United States in which Employer or any of its subsidiaries then conducts or during his employment had conducted any business, where such activity is competitive with the activities carried on by Employer and its subsidiaries during his employment by Employer or is, directly or indirectly, concerned with soliciting, serving or catering to any of the customers of Employer or its subsidiaries during his employment by Employer. Employee acknowledges that the nature of Employer's activities is such that competitive activities could be conduced effectively regardless of the geographic distance between Employer's place of business and the place of any competitive business. b. In the event that any part of this Section 6 shall be held unenforceable or invalid, the remaining parts thereof shall nevertheless continue to be valid and enforceable as though the invalid portions had not been a part hereof. In the event that the area or period of restriction established in accordance with this Section 6 shall be deemed to exceed the maximum area or period of time which a court of competent jurisdiction deems enforceable, said area or periods of duration shall, for the purposes of this Section 6, be reduced to the extent necessary to render them enforceable. c. The existence of any claim or cause of action of Employee against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement thereof by Employer of any covenant set forth in this Section 6. 7. INJUNCTIVE RELIEF. a. Employee agrees that any violation on his part of any covenant in Seciton 6 hereof will cause such damage to Employer a swill be serious and irreparable and the exact amount of which will be difficult to ascertain, and for that reason, he agrees that Employer shall be entitled, as a matter of right, to a temporary, preliminary and/or permanent injunction and/or other injunctive relief, ex parte or otherwise, from any court of competent jurisdiction, restraining any further violations of Employee. Such injunctive relief shall be in addition to and in no way in limitation of, any and all other remedies Employer shall have in law and equity for the enforcement of such covenants and provisions. b. Employee agrees further that even though his employment with Employer may be terminated, he will at any time, either before or after such termination, cooperate at the expense of the Employer with the Employer and its counsel in the prosecution and/or defense or any litigation which may arise in connection with any customer, supplier, or licensor or licensee of Employer, or in connection with any copyright, trademark, trade secret, or patent rights of the Employer. 8. ENTIRE AGREEMENT. This Agreement supersedes any and all prior agreements between the parties and represents the entire understanding of the parties hereto with respect to the employment of Employee and there are no other agreements, warranties or representations except as herein provided. The parties acknowledge that this Agreement shall not affect any prior, subsequent, or contemporaneous agreements between the parties respecting Employer's confidential information. This -4- Agreement including this Section 8 may not be altered or amended except in writing executed by both parties hereto. 9. ASSIGNMENT; BENEFIT. This Agreement is personal and may not be assigned except that it shall inure to the benefit and be binding upon the successors of Employer and personal representatives of Employee. 10. APPLICABLE LAW. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. Employer and Employee agree and do hereby consent to jurisdiction of any court of the Commonwealth of Pennsylvania which has state-wide jurisdiction with respect to any proceeding arising out of or relating to this Agreement or its subject matter, and further agree that the mailing by registered mail of any process to the last known address of either party shall constitute lawful and valid service of process thereof. In the event any such suit is filed in any state or federal court in the Commonwealth of Pennsylvania, Employer and Employee shall not raise and hereby waive the defenses of lack of personal jurisdiction or venue. In the event that such process requires an answer or response thereto, the time in which Employer or Employee must file and serve such answer or response shall be computed from the day of its or his receipt of such process. 11. NOTICE. Any notice required or permitted to be given hereunder shall be sufficient if in writing and if sent by certified or registered mail to his residence in the case of Employee or to its principal office in the case of Employer. 12. SEPARABILITY OF PROVISIONS. If any of the provisions of this Agreement or the application of any of such provisions hereof shall for any reason be held invalid by a court of competent jurisdiction, such invalidity shall not affect or impair any other provision hereof, it being the intention of the parties hereto that such other provisions shall be and remain in full force and effort. 13. WAIVER. The waiver by Employer of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any other or subsequent breach by Employee of such or any provision. 14. TERMINATION OF PRIOR OBLIGATIONS. Employer and Employee hereby agree that all prior or contemporaneous employment agreements between them shall cease and terminate, and shall be null and void. Employer shall have no further payment or other liability or obligation to Employee pursuant to any such prior or contemporaneous employment agreement, whether oral or written. -5- IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year set forth above. EMPLOYER: Attest: /s/ Joyce Rambo By: /S/ S.J. Melman - ------------------------ ---------------------- Title: Chairman EMPLOYER: Witness: /s/ Joyce Rambo /s/ James E. Coane - ------------------------ ------------------------- -6- ADDENDUM TO EMPLOYMENT AGREEMENT THIS ADDENDUM TO EMPLOYMENT AGREEMENT is made effective as of the 14th day of May, 1987 by and between TELEBASE SYSTEMS, INC., and JAMES E. COANE. BACKGROUND The parties hereto have entered into an Employment Agreement dated as of May 14, 1987. The parties wish to set forth additional terms and conditions relating to the Employment Agreement, which terms and conditions shall be a part of the Employment Agreement as if contained therein. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Employment Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and set forth in the Employment Agreement, the parties hereto, intending to be legally bound hereby, agree as follows: 1. ADDITIONAL BENEFITS. Employer will provide Employee with use of an automobile throughout the term hereof. Employer will pay for all automobile insurance, and all operating costs associated with Employee's use of such automobile in fulfilment of Employee's duties under the Employment Agreement. Employer will reimburse Employee for reasonable housing costs until such time as Employee permanently relocates to the geographic area of Employer's location, or one (1) year from the date hereof, whichever occurs first. 2. STOCK OPTION. Employer hereby grants to Employee the option to purchase four hundred (400) shares (the "Shares") of Employer's stock at a purchase price of One Thousand Dollars ($1,000.00) per share (the "Purchase Price"). Employee shall be entitled to exercise his option as follows: November 14, 1987 - 100; January 2, 1988 - 100; January 2, 1989 - 100; January 2, 1990 - 100 shares. Such other terms and conditions relative to Employee's stock option hereunder shall be substantially similar to those terms and conditions to be set forth in an Incentive Stock Option Plan (the "Plan"), proposed to be adopted and implemented by Employer. A copy of the Plan, as currently proposed, is attached hereto as Exhibit A. 3. COSTS OF SUIT. The prevailing party in a proceeding for damaged or other relief arising out of an alleged breach of either party of any of the terms or conditions of the Employment Agreement or this Addendum shall, in addition to other relief, be entitled to reasonable attorney fees, costs and expenses of litigation incurred in connection with such proceeding. EMPLOYEE: EMPLOYER: /s/ James E. Coane By: /s/ S. J. Melman - ----------------------- ---------------------- Title: CHAIRMAN -----END PRIVACY-ENHANCED MESSAGE-----