{"id":43034,"date":"2015-09-17T11:25:58","date_gmt":"2015-09-17T16:25:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/contracts\/uncategorized\/agreement-and-plan-of-merger-bertelsmann-inc-and-cdnow-inc.html"},"modified":"2015-09-17T11:25:58","modified_gmt":"2015-09-17T16:25:58","slug":"agreement-and-plan-of-merger-bertelsmann-inc-and-cdnow-inc","status":"publish","type":"corporate_contracts","link":"https:\/\/corporate.findlaw.com\/contracts\/planning\/agreement-and-plan-of-merger-bertelsmann-inc-and-cdnow-inc.html","title":{"rendered":"Agreement and Plan of Merger &#8211; Bertelsmann Inc. and CDnow Inc."},"content":{"rendered":"<pre>                                                                 CONFORMED COPY\n\n\n                          AGREEMENT AND PLAN OF MERGER\n\n                                  dated as of\n\n                                 July 19, 2000\n\n                                     among\n\n                               BERTELSMANN, INC.\n\n                                  CDnow, Inc.\n\n                                      and\n\n                             BINC ACQUISITION CORP.\n\n\n\n\n\n                               TABLE OF CONTENTS\n\n                             ----------------------\n\n                                                                           PAGE\n                                                                           ----\n                                   ARTICLE 1\n                                   THE OFFER\n\nSECTION 1.01.  The Offer.....................................................1\nSECTION 1.02.  Company Action................................................2\nSECTION 1.03.  Directors.....................................................3\n\n                                   ARTICLE 2\n                                   THE MERGER\n\nSECTION 2.01.  The Merger....................................................4\nSECTION 2.02.  Conversion of Shares..........................................5\nSECTION 2.03.  Surrender and Payment.........................................5\nSECTION 2.04.  Stock Options.................................................7\nSECTION 2.05.  Lost Certificates.............................................7\nSECTION 2.06.  Dissenters' Rights............................................7\n\n                                   ARTICLE 3\n                           THE SURVIVING CORPORATION\n\nSECTION 3.01.  Articles of incorporation.....................................8\nSECTION 3.02.  Bylaws........................................................8\nSECTION 3.03.  Directors and Officers........................................8\n\n                                   ARTICLE 4\n                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY\n\nSECTION 4.01.  Corporate Existence and Power.................................8\nSECTION 4.02.  Corporate Authorization.......................................9\nSECTION 4.03.  Governmental Authorization....................................9\nSECTION 4.04.  Non-Contravention.............................................9\nSECTION 4.05.  Capitalization...............................................10\nSECTION 4.06.  Subsidiaries.................................................11\nSECTION 4.07.  SEC Filings..................................................11\nSECTION 4.08.  Financial Statements.........................................11\nSECTION 4.09.  Disclosure Documents.........................................12\nSECTION 4.10.  Absence of Certain Changes...................................13\nSECTION 4.11.  No Undisclosed Material Liabilities..........................14\nSECTION 4.12.  Litigation...................................................14\n\n\n\n\n\n                                                                           PAGE\n                                                                           ----\nSECTION 4.13.  Taxes........................................................15\nSECTION 4.14.  Employee Benefit Plans; ERISA; Labor.........................16\nSECTION 4.15.  Compliance with Laws; No Defaults............................19\nSECTION 4.16.  Finders' Fees................................................19\nSECTION 4.17.  Environmental Matters........................................19\nSECTION 4.18.  Antitakeover Statutes........................................20\nSECTION 4.19.  Intellectual Property........................................20\nSECTION 4.20.  Properties...................................................20\nSECTION 4.21.  Affiliates...................................................21\nSECTION 4.22.  Material Contracts...........................................21\n\n                                   ARTICLE 5\n                    REPRESENTATIONS AND WARRANTIES OF PARENT\n\nSECTION 5.01.  Corporate Existence and Power................................23\nSECTION 5.02.  Corporate Authorization......................................23\nSECTION 5.03.  Governmental Authorization...................................23\nSECTION 5.04.  Non-Contravention............................................23\nSECTION 5.05.  Disclosure Documents.........................................24\nSECTION 5.06.  Litigation...................................................24\n\n                                   ARTICLE 6\n                            COVENANTS OF THE COMPANY\n\nSECTION 6.01.  Conduct of the Company.......................................24\nSECTION 6.02.  Shareholder Meetings; Proxy Materials........................27\nSECTION 6.03.  Other Offers, etc............................................28\nSECTION 6.04.  Tax Matters..................................................29\n\n                                   ARTICLE 7\n                              COVENANTS OF PARENT\n\nSECTION 7.01.  Obligations of Merger Subsidiary.............................30\nSECTION 7.02.  Voting of Shares of Company Stock............................30\nSECTION 7.03.  Director and Officer Liability...............................30\n\n                                   ARTICLE 8\n                      COVENANTS OF PARENT AND THE COMPANY\n\nSECTION 8.01.  Notices of Certain Events....................................31\nSECTION 8.02.  Reasonable Best Efforts......................................32\nSECTION 8.03.  Access to Information Concerning Properties and Records......32\n\n\n                                      ii\n\n\n\nSECTION 8.04.  Cooperation..................................................33\nSECTION 8.05.  Public Announcements.........................................33\nSECTION 8.06.  Further Assurances...........................................33\n\n                                   ARTICLE 9\n                            CONDITIONS TO THE MERGER\n\nSECTION 9.01.  Conditions to the Obligations of Each Party..................34\n\n                                   ARTICLE 10\n                                  TERMINATION\n\nSECTION 10.01.  Termination.................................................34\nSECTION 10.02.  Effect of Termination.......................................35\n\n                                   ARTICLE 11\n                                 MISCELLANEOUS\n\nSECTION 11.01.  Notices.....................................................36\nSECTION 11.02.  Entire Agreement; Third Party Beneficiaries; Non-\n                Survival of Representations and Warranties..................37\nSECTION 11.03.  Amendments; No Waivers......................................37\nSECTION 11.04.  Expenses....................................................38\nSECTION 11.05.  Successors and Assigns......................................38\nSECTION 11.06.  Governing Law...............................................38\nSECTION 11.07.  Jurisdiction................................................38\nSECTION 11.08.  WAIVER OF JURY TRIAL........................................39\nSECTION 11.09.  Counterparts; Effectiveness.................................39\nSECTION 11.10.  Captions....................................................39\nSECTION 11.11.  Specific Performance........................................39\nSECTION 11.12.  Joint and Several Liability.................................39\nSECTION 11.13.  Definitions and Usage.......................................40\n\nAnnex I\n\n\n                                      iii\n\n\n\n                          AGREEMENT AND PLAN OF MERGER\n\n\n     AGREEMENT AND PLAN OF MERGER dated as of July 19, 2000 among Bertelsmann,\nInc., a Delaware corporation (\"Parent\"), CDnow, Inc., a Pennsylvania\ncorporation (the \"Company\"), and BINC Acquisition Corp., a Pennsylvania\ncorporation and a wholly-owned subsidiary of Parent (\"Merger Subsidiary\").\n\n                              The parties agree:\n\n                                   ARTICLE 1\n                                   THE OFFER\n\n     SECTION 1.01. The Offer. (a) Provided that this Agreement shall not have\nbeen terminated in accordance with Section 10.01 and nothing shall have\noccurred or be existing (and shall not have been waived by Parent or Merger\nSubsidiary) that would result in a failure to satisfy any of the conditions set\nforth in Annex I hereto, as promptly as practicable, but in any event within 7\nbusiness days after the date hereof, Merger Subsidiary shall commence an offer\n(the \"Offer\") to purchase all outstanding shares of common stock, no par value,\nof the Company (\"Company Stock\") at a price of $3.00 per share, net to the\nseller in cash (the \"Offer Price\"). The Offer shall be subject to the condition\nthat there shall be validly tendered pursuant to the Offer and not properly\nwithdrawn a number of shares of Company Stock that, together with the shares of\nCompany Stock then beneficially owned by Parent (excluding shares issuable upon\nexercise of the Convertible Loan Agreement), represents at least a majority of\nthe shares of Company Stock outstanding on a diluted basis taking into\nconsideration options and warrants to acquire Company Stock at an exercise or\nconversion price of $10.00 per share or less but excluding shares issuable upon\nexercise of the Convertible Loan Agreement (the \"Minimum Condition\") and to the\nother conditions set forth in Annex I hereto. Merger Subsidiary expressly\nreserves the right to waive any of the conditions to the Offer and to make any\nchange in the terms or conditions of the Offer, provided that without the prior\nwritten consent of the Company, no change may be made that waives the Minimum\nCondition, changes the form of consideration to be paid, decreases the price\nper share of Company Stock or the number of shares of Company Stock sought in\nthe Offer or imposes conditions to the Offer in addition to those set forth in\nAnnex I. Subject to the foregoing and to the terms and conditions of the Offer,\nMerger Subsidiary shall, and Parent shall cause it to, accept for payment and\npay for, as promptly as\n\n\n\n\n\npracticable after the expiration of the Offer, all shares of Company Stock\nvalidly tendered and not properly withdrawn pursuant to the Offer.\n\n     (b) As soon as practicable on the date of commencement of the Offer,\nMerger Subsidiary shall file with the Securities and Exchange Commission\n(\"SEC\") a Statement on Schedule TO with respect to the Offer (such Schedule TO\nand the documents included therein pursuant to which the Offer will be made,\ntogether with any supplements or amendments thereto, the \"Offer Documents\").\nParent, Merger Subsidiary and the Company each agrees promptly to correct any\ninformation provided by it for use in the Offer Documents if and to the extent\nthat such information shall have become false or misleading in any material\nrespect. Merger Subsidiary agrees to take all steps necessary to cause the\nOffer Documents as so corrected to be filed with the SEC and to be disseminated\nto holders of shares of Company Stock, in each case as and to the extent\nrequired by applicable federal securities laws. The Company and its counsel\nshall be given a reasonable opportunity to review and comment on the Offer\nDocuments prior to their being filed with the SEC or disseminated to the\nholders of shares of Company Stock.\n\n     SECTION 1.02. Company Action. (a) The Company hereby approves of and\nconsents to the Offer and represents and warrants that its Board of Directors,\nat a meeting duly called and held has unanimously (i) determined that this\nAgreement and the transactions contemplated hereby, including the Offer and the\nMerger, are fair to, and in the best interests of, the Company's shareholders,\n(ii) adopted this Agreement and the transactions contemplated hereby, including\nthe Offer and the Merger, in accordance with the requirements of the\nPennsylvania Business Corporation Law of 1988, as amended (\"Pennsylvania Law\")\nand (iii) resolved (subject to Section 6.03(b)) to recommend acceptance of the\nOffer and approval and adoption of this Agreement and the Merger by its\nshareholders. The Company further represents that Allen &amp; Co. (the \"Company\nFinancial Advisor\") has delivered to the Company's Board of Directors its\nopinion that the consideration to be paid in the Offer and the Merger is fair\nto the holders of shares of Company Stock from a financial point of view. The\nCompany has been advised by each of its directors and by each executive officer\nwho as of the date hereof is actually aware (to the knowledge of the Company)\nof the transactions contemplated by this Agreement that each such person\nintends to tender pursuant to the Offer all shares of Company Stock owned by\nsuch person. The Company will promptly furnish Parent with a list of its\nshareholders, mailing labels and any available listing or computer file\ncontaining the names and addresses of all record holders of shares of Company\nStock and lists of securities positions of shares of Company Stock held in\nstock depositories, in each case true and correct as of the most recent\npracticable date, and will provide to Parent such additional information\n(including, without limitation, updated lists of shareholders, mailing labels\nand lists of securities positions) and such other assistance as Parent or its\n\n\n                                       2\n\n\n\nagents may reasonably request in connection with the Offer. Subject to the\nrequirements of applicable law, and except for such steps as are necessary to\ndisseminate the Offer Documents and any other documents necessary to consummate\nthe Offer or the Merger, Parent and Merger Subsidiary and each of their\naffiliates, agents and advisors shall hold in confidence the information\ncontained in any such lists, labels, listings or files, shall use such\ninformation only in connection with the Offer and the Merger and, if this\nAgreement shall be terminated and if the Company so requests, shall deliver,\nand shall use their reasonable efforts to cause their affiliates, agents and\nadvisors to deliver, to the Company all copies and any extracts or summaries\nfrom such information then in their possession or control.\n\n     (b) As soon as practicable after the time that the Offer is commenced, the\nCompany shall file with the SEC and disseminate to holders of shares of Company\nStock, a Solicitation\/Recommendation Statement on Schedule 14D-9 (together with\nany amendments or supplements thereto, the \"Schedule 14D-9\") that shall reflect\nthe recommendations of the Company's Board of Directors referred to above. The\nCompany and Parent each agree promptly to correct any information provided by\nit for use in the Schedule 14D-9 if and to the extent that it shall have become\nfalse or misleading in any material respect. The Company agrees to take all\nsteps necessary to cause the Schedule 14D-9 as so corrected to be filed with\nthe SEC and to be disseminated to holders of shares of Company Stock, in each\ncase as and to the extent required by applicable federal securities laws.\nParent and its counsel shall be given a reasonable opportunity to review and\ncomment on the Schedule 14D-9 prior to its filing with the SEC or dissemination\nto holders of shares of Company Stock.\n\n     SECTION 1.03. Directors. (a) Effective upon the acceptance for payment\npursuant to the Offer of a number of shares of Company Stock that satisfies the\nMinimum Condition, Parent shall be entitled to designate the number of\ndirectors, rounded up to the nearest whole number, on the Company's Board of\nDirectors that equals the product of (i) the total number of directors on the\nCompany's Board of Directors and (ii) the percentage that the number of shares\nof Company Stock beneficially owned by Parent bears to the total number of\nshares of Company Stock outstanding, and the Company shall take all action\nnecessary to cause Parent's designees to be elected or appointed to the\nCompany's Board of Directors, including, without limitation, increasing the\nnumber of directors, and seeking and accepting resignations of incumbent\ndirectors. At such time, the Company will also use its best efforts to cause\nindividuals designated by Parent to constitute the number of members, rounded\nup to the nearest whole number, on (i) each committee of the Board of Directors\nof the Company and (ii) each board of directors of each subsidiary of the\nCompany (and each committee thereof) that represents the same percentage as\nsuch individuals represent on the Board of\n\n\n                                       3\n\n\n\nDirectors of the Company. Notwithstanding the foregoing, the Parent and the\nCompany shall use their reasonable efforts to ensure that at least two members\nof the Company's Board of Directors as of the date hereof who are not employees\nof the Company (the \"Continuing Directors\") shall remain members of the\nCompany's Board of Directors until the Effective Time.\n\n     (b) The Company's obligations to appoint Parent's designees to the\nCompany's Board of Directors shall be subject to Section 14(f) of the 1934 Act\nand Rule 14f-1 promulgated thereunder. The Company shall promptly take all\nactions, and shall include in the Schedule 14D-9 such information with respect\nto the Company and its officers and directors, as Section 14(f) and Rule 14f-1\nrequire in order to fulfill its obligations under this Section. Parent shall\nsupply to the Company in writing and be solely responsible for any information\nwith respect to itself and its nominees, officers, directors and affiliates\nrequired by Section 14(f) and Rule 14f-1.\n\n     (c) Following the election or appointment of Parent's designees pursuant\nto Section 1.03(a) and until the Effective Time, the approval of a majority of\nthe Continuing Directors shall be required to authorize (and such authorization\nshall constitute the authorization of the Company's Board of Directors and no\nother action on the part of the Company, including any action by any other\ndirector of the Company, shall be required to authorize) any termination of\nthis Agreement by the Company, any amendment of this Agreement requiring action\nby the Company's Board of Directors, any extension of time for performance of\nany obligation or action hereunder by Parent or Merger Subsidiary and any\nwaiver of compliance with any of the agreements or conditions contained herein\nfor the benefit of the Company.\n\n                                   ARTICLE 2\n                                   THE MERGER\n\n     SECTION 2.01. The Merger. (a) Upon the terms and subject to the conditions\nset forth in this Agreement, at the Effective Time, Merger Subsidiary shall be\nmerged (the \"Merger\") with and into the Company in accordance with Pennsylvania\nLaw, whereupon the separate existence of Merger Subsidiary shall cease, and the\nCompany shall continue as the surviving corporation (the \"Surviving\nCorporation\").\n\n     (b) As soon as practicable after satisfaction or, to the extent permitted\nhereunder, waiver of all conditions to the Merger set forth herein, the Company\nand Merger Subsidiary will file articles of merger with the Secretary of State\nof\n\n\n                                       4\n\n\n\nthe Commonwealth of Pennsylvania and make all other filings or recordings\nrequired by Pennsylvania Law in connection with the Merger. The Merger shall\nbecome effective at such time as the articles of merger are duly filed with the\nSecretary of State of the Commonwealth of Pennsylvania or at such later time as\nis agreed by Parent and the Company and specified in the articles of merger\n(the \"Effective Time\").\n\n     (c) From and after the Effective Time, the Surviving Corporation shall\npossess all the rights, powers, privileges and franchises and be subject to all\nof the obligations, liabilities, restrictions and disabilities of the Company\nand Merger Subsidiary, all as provided under Pennsylvania Law.\n\n     SECTION 2.02. Conversion of Shares. At the Effective Time:\n\n     (a) each share of common stock of Merger Subsidiary outstanding\nimmediately prior to the Effective Time shall be converted into and become one\nshare of common stock of the Surviving Corporation with the same rights, powers\nand privileges as the shares so converted and shall constitute the only\noutstanding shares of capital stock of the Surviving Corporation.\n\n     (b) each share of Company Stock held by the Company as treasury stock or\nowned by Parent or any of its subsidiaries immediately prior to the Effective\nTime shall be canceled, and no payments shall be made with respect thereto; and\n\n     (c) except as otherwise provided in Section 2.02(b) or Section 2.06, each\nshare of Company Stock outstanding immediately prior to the Effective Time\nshall be converted into the right to receive the Offer Price (or any higher\nconsideration paid in the Offer), without interest (the \"Merger\nConsideration\").\n\n     SECTION 2.03. Surrender and Payment. (a) Prior to the Effective Time,\nParent shall appoint an agent reasonably acceptable to the Company (the\n\"Depositary\") for the purpose of exchanging certificates representing shares of\nCompany Stock (the \"Certificates\") for the Merger Consideration. Parent will\nmake available to the Depositary, in such amounts as may be needed from time to\ntime, the Merger Consideration to be paid pursuant to Section 2.02 in exchange\nfor outstanding shares of Company Stock. Promptly after the Effective Time,\nParent will send, or will cause the Depositary to send, to each holder of\nshares of Company Stock at the Effective Time a letter of transmittal for use\nin such exchange (which shall specify that delivery of the Merger Consideration\nshall be effected, and risk of loss and title to the Certificates shall pass,\nonly upon proper delivery of the Certificates to the Depositary).\n\n\n                                       5\n\n\n\n     (b) Each holder of shares of Company Stock that have been converted into a\nright to receive the Merger Consideration, upon surrender to the Depositary of\na Certificate, together with a properly completed letter of transmittal if\napplicable, will be entitled to receive the Merger Consideration payable for\neach share of Company Stock represented by such Certificate. Until so\nsurrendered, each such Certificate shall, after the Effective Time, represent\nfor all purposes only the right to receive such Merger Consideration, without\ninterest thereon.\n\n     (c) If any portion of the Merger Consideration is to be paid to a person\nother than the person in whose name the surrendered Certificate is registered,\nit shall be a condition to such payment that the Certificate so surrendered\nshall be properly endorsed or otherwise be in proper form for transfer and that\nthe person requesting such payment shall pay to the Depositary any transfer or\nother taxes required as a result of such payment to a person other than the\nregistered holder of such Certificate or establish to the satisfaction of the\nDepositary that such tax has been paid or is not applicable.\n\n     (d) At the Effective Time, the stock transfer books of the Company shall\nbe closed and there shall be no further registration of transfers of shares of\nCompany Stock. If, after the Effective Time, Certificates are presented to the\nSurviving Corporation, they shall be canceled and exchanged for the Merger\nConsideration provided for, and in accordance with the procedures set forth, in\nthis Article 2.\n\n     (e) Any portion of the Merger Consideration made available to the\nDepositary pursuant to Section 2.03(a) that remains unclaimed by the holders of\nshares of Company Stock six months after the Effective Time shall be returned\nto Parent, upon demand, and any such holder who has not exchanged them for the\nMerger Consideration in accordance with this Section 2.03 prior to that time\nshall thereafter look only to Parent for payment of the Merger Consideration in\nrespect of such shares of Company Stock. Notwithstanding the foregoing, Parent\nshall not be liable to any holder of shares of Company Stock for any amount\npaid to a public official pursuant to applicable abandoned property, escheat or\nsimilar laws.\n\n     (f) Parent and Merger Subsidiary shall be entitled to deduct and withhold,\nor cause its agents to deduct and withhold, from the Offer Price or Merger\nConsideration payable to a holder of shares of Company Stock pursuant to the\nOffer or Merger any withholding taxes as are required under the Internal\nRevenue Code of 1986 (the \"Code\") or any applicable provision of state, local\nor foreign tax law. To the extent that amounts are so withheld by Parent or\nMerger Subsidiary, such withheld amounts shall be treated for all purposes of\nthis Agreement as having been paid to the holder of the shares of Company Stock\nin\n\n\n                                       6\n\n\n\nrespect of which such deduction and withholding was made by Parent or Merger\nSubsidiary.\n\n     SECTION 2.04. Stock Options. (a) At or immediately prior to the Effective\nTime, each option to purchase shares of Company Stock held by any current or\nformer employee or director pursuant to any compensation plan or arrangement of\nthe Company, whether or not vested or exercisable (collectively, the \"Stock\nOptions\"), shall be converted into the right to receive upon exercise (and\npayment of the exercise price) $3.00 for each share of Company Stock for which\nsuch Stock Option is exercisable, and the Company shall pay each holder of any\nsuch option with a per share exercise price of less than $3.00, at or promptly\nafter the Effective Time, an amount equal to (i) the product of the excess, if\nany, of $3.00 over the applicable per share exercise price of such option and\nthe number of shares of Company Stock such holder could have purchased\n(assuming full vesting of such options) had such holder exercised such option\nin full immediately prior to the Effective Time minus (ii) the amount of any\napplicable withholding tax.\n\n     (b) Prior to the Effective Time, to the extent required to effect the\ntransactions contemplated hereby, the Company shall take any actions necessary\nwith respect to its stock option or compensation plans or arrangements.\n\n     SECTION 2.05. Lost Certificates. If any Certificate shall have been lost,\nstolen or destroyed, upon the making of an affidavit of that fact by the person\nclaiming such Certificate to be lost, stolen or destroyed and, if required by\nthe Surviving Corporation, the posting by such person of a bond, in such\nreasonable amount as the Surviving Corporation may direct, as indemnity against\nany claim that may be made against it with respect to such Certificate, the\nDepositary will pay, in exchange for such lost, stolen or destroyed\nCertificate, the Merger Consideration to be paid in respect of the shares of\nCompany Stock represented by such Certificate, as contemplated by this Article\n2.\n\n     SECTION 2.06. Dissenters' Rights. To the extent holders of shares of\nCompany Stock exercise dissenters' rights pursuant to applicable provisions of\nPennsylvania Law, the shares of such holder shall not be converted into the\nright to receive the Merger Consideration, but the Merger Consideration shall\nbe held by Parent subject to the provisions of Pennsylvania Law. If any such\nholder fails to protect or withdraws or loses its dissenters' rights, such\nCompany Stock shall then be treated as if they had been converted as of the\nEffective Time into a right to receive the Merger Consideration.\n\n\n                                       7\n\n\n\n                                   ARTICLE 3\n                           THE SURVIVING CORPORATION\n\n     SECTION 3.01. Articles of incorporation. The articles of incorporation of\nMerger Subsidiary in effect at the Effective Time shall be the articles of\nincorporation of the Surviving Corporation until amended in accordance with\napplicable law, provided that, at the Effective Time, Article I of such\narticles of incorporation shall be amended to read as follows: \"The name of the\ncorporation is CDnow, Inc\".\n\n     SECTION 3.02. Bylaws. The bylaws of Merger Subsidiary in effect at the\nEffective Time shall be the bylaws of the Surviving Corporation until amended\nin accordance with applicable law.\n\n     SECTION 3.03. Directors and Officers. From and after the Effective Time,\nuntil successors are duly elected or appointed and qualified in accordance with\nthe Pennsylvania Law and the articles of incorporation and bylaws of the\nSurviving Corporation, (a) the directors of Merger Subsidiary at the Effective\nTime shall be the directors of the Surviving Corporation, and (b) the officers\nof the Company at the Effective Time shall be the officers of the Surviving\nCorporation.\n\n                                   ARTICLE 4\n                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY\n\n     The Company represents and warrants to Parent that except as otherwise\ndisclosed in writing to Parent prior to the date hereof.\n\n     SECTION 4.01. Corporate Existence and Power. Each of the Company and its\nsubsidiaries is a corporation, partnership or other entity duly organized,\nvalidly existing and in good standing under the laws of the jurisdiction of its\nincorporation or organization, and has the requisite corporate or other power\nand authority and governmental approvals to own, lease and operate its\nproperties and to carry on its business as now conducted, except for such\nmatters as would not reasonably be expected to have a material adverse effect\non the Company. Each of the Company and its subsidiaries is duly qualified to\ndo business as a foreign corporation and is in good standing in each\njurisdiction where such qualification is necessary, except for such matters as\nwould not reasonably be expected to have a material adverse effect on the\nCompany. The Company has heretofore delivered or made available to Parent true\nand complete copies of the Company's articles of incorporation and bylaws as\ncurrently in effect.\n\n\n                                       8\n\n\n\n     SECTION 4.02. Corporate Authorization. The execution, delivery and\nperformance by the Company of this Agreement and the consummation by the\nCompany of the transactions contemplated hereby are within the Company's\ncorporate powers and, except as set forth in the next succeeding sentence of\nthis Section 4.02, have been duly authorized by all necessary corporate action.\nThe affirmative vote of a majority of the outstanding shares of Company Stock\nis the only vote of any class or series of the Company's capital stock\nnecessary to approve and adopt this Agreement and the transactions contemplated\nby this Agreement. Subject to the receipt of the approval described in the\nimmediately preceding sentence in connection with the consummation of the\nMerger, this Agreement constitutes a valid and binding agreement of the\nCompany.\n\n     SECTION 4.03. Governmental Authorization. The execution, delivery and\nperformance by the Company of this Agreement and the consummation by the\nCompany of the transactions contemplated hereby require no action by or in\nrespect of, or filing with, any governmental body, agency, official or\nauthority other than (i) the filing of articles of merger with respect to the\nMerger with the Secretary of the Commonwealth of Pennsylvania; (ii) compliance\nwith any applicable requirements of the Hart-Scott-Rodino Antitrust\nImprovements Act of 1976 (the \"HSR Act\"); (iii) compliance with any applicable\nrequirements of the Securities Act of 1933 (the \"1933 Act\"); (iv) compliance\nwith any applicable requirements of the Securities Exchange Act of 1934 (the\n\"1934 Act\"); (v) compliance with any other applicable securities or takeover\nlaws, whether state or foreign; (vi) any actions or filings which, if not taken\nor made, would not reasonably be expected to have a material adverse effect on\nthe Company or the transactions contemplated hereby; and (vii) any filings or\nnotices not required to be made or given until after the Effective Time.\n\n     SECTION 4.04. Non-Contravention. The execution, delivery and performance\nby the Company of this Agreement do not, and the consummation by the Company of\nthe transactions contemplated hereby will not (a) assuming receipt of the\napproval of shareholders referred to in Section 4.02, contravene or conflict\nwith the articles of incorporation or bylaws of the Company, (b) assuming\ncompliance with the matters referred to in Section 4.03, violate any applicable\nlaw, rule, regulation, judgment, injunction, order or decree, (c) constitute a\ndefault under or give rise to a right of termination, cancellation or\nacceleration of any right or obligation of the Company or any of its\nsubsidiaries or to a loss of any benefit to which the Company or any of its\nsubsidiaries is entitled under any provision of any agreement or other\ninstrument binding upon the Company or any of its subsidiaries or any license,\nfranchise, permit or other similar authorization held by the Company or any of\nits subsidiaries, or (d) result in the creation or imposition of any Lien on\nany asset of the Company or any of its subsidiaries, except in the case of\nclause (b), (c) or (d), for such matters as that would not\n\n\n                                       9\n\n\n\nreasonably be expected to have a material adverse effect on the Company or the\ntransaction contemplated hereby. For purposes of this Agreement, \"Lien\" means,\nwith respect to any asset, any mortgage, lien, pledge, charge, security\ninterest or encumbrance in respect of such asset.\n\n     SECTION 4.05. Capitalization. The authorized capital stock of the Company\nconsists of (x) 200,000,000 shares of common stock, no par value, and (y)\n50,000,000 shares of preferred stock, no par value. As of the close of business\non July 14, 2000, there were outstanding (i) 32,961,610 shares of Company\nStock, (ii) stock options to purchase an aggregate of 3,545,803 shares of\nCompany Stock at a weighted average exercise price of $6.06 per share under\nCompany's employee and director stock option or compensation plans or\narrangements (including the CDnow, Inc. 2000 Equity Compensation Plan, CDnow,\nInc. 1999 Equity Compensation Plan, CDnow, Inc. 1996 Equity Compensation Plan,\nN2K Inc. 1997 Directors' Stock Option Plan, N2K Inc. Amended and Restated 1996\nStock Option Plan, N2K Inc. 1996 Employee Stock Purchase Plan (discontinued),\n1987 Telebase Systems, Inc. Employee Incentive Stock Option Plan)\n(collectively, the \"Option Plans\"), (iii) warrants listed on Schedule 4.05\n(collectively, the \"Warrants\") to purchase an aggregate of 949,773 shares of\nCompany Stock at a weighted average exercise price of $15.72 per share and (iv)\n$30,000,000 principal amount of notes (the \"Convertible Notes\") convertible\n(together with accrued interest thereon) into an aggregate of approximately\n3,080,000 shares of Company Stock at a conversion price of $10.00 per share,\nwhich Convertible Notes shall be repaid prior to consummation of the Offer from\nproceeds of borrowings under the Convertible Loan Agreement. All the\noutstanding shares of the Company's capital stock are, and all shares which may\nbe issued in connection with the Option Plans, the exercise of the Warrants and\nthe conversion of the Convertible Notes, will be, if and when issued in\naccordance with the respective terms thereof, duly authorized, validly issued,\nfully paid and non-assessable. Except as set forth in this Section 4.05 and for\nchanges since July 14, 2000 resulting from the exercise or conversion of\nemployee, consultant or director stock options, Warrants or Convertible Notes\noutstanding on such date, there are no outstanding (x) shares of capital stock\nor other voting securities of the Company, (y) securities of the Company\nconvertible into or exchangeable for shares of capital stock or voting\nsecurities of the Company or (z) options, warrants or other rights to acquire\nfrom the Company, or other obligation of the Company to issue, transfer or\nsell, any capital stock, voting securities or securities convertible into or\nexchangeable for capital stock or voting securities of the Company. Except with\nrespect to the Convertible Notes, neither the Company nor any of its\nsubsidiaries has any contractual obligation to repurchase, redeem or otherwise\nacquire any of the securities referred to above. Except as contemplated in\nconnection with the execution of this Agreement, there are no shareholder\nagreements, voting trusts or other agreements or understandings to which the\nCompany or any of its\n\n\n                                      10\n\n\n\nsubsidiaries is a party or to which it is bound relating to the voting of any\nshares of capital stock of the Company. After the Effective Time, the Company's\nstock options, the Warrants and, if not repaid, the Convertible Notes will no\nlonger be exercisable or convertible into capital stock of the Company but will\nbe exercisable or convertible into cash in an amount equal to the product of\n(i) the number of shares of Company Stock that would have been issuable upon\nexercise or conversion thereof immediately prior to the Effective Time and (ii)\nthe excess, if any, of the Merger Consideration over the applicable exercise or\nconversion price.\n\n     SECTION 4.06. Subsidiaries. All of the outstanding shares of capital stock\nof, or other ownership interests in, each subsidiary of the Company is owned by\nthe Company, directly or indirectly, free and clear of any Lien (including any\nrestriction on the right to vote, sell or otherwise dispose of such capital\nstock or other ownership interests). There are no outstanding (i) securities of\nthe Company or any of its subsidiaries convertible into or exchangeable for\nshares of capital stock or other voting securities or ownership interests in\nany subsidiary of the Company, or (ii) options or other rights to acquire from\nthe Company or any of its subsidiaries, or other obligation of the Company or\nany of its subsidiaries to issue, any capital stock, voting securities or other\nownership interests in, or any securities convertible into or exchangeable for\nany capital stock, voting securities or ownership interests in, any subsidiary\nof the Company.\n\n     SECTION 4.07. SEC Filings. (a) The Company or its predecessor has filed\nall required reports, schedules, forms, statements and other documents with the\nSEC since February 9, 1998 (the \"Company Filings\") it being understood that\n\"Company Filings\" shall not include any documents filed with the SEC by N2K\nInc. prior to February 17, 1999.\n\n     (b) Each Company Filing filed pursuant to the 1934 Act did not, as of its\nfiling date, and each Company Filing filed pursuant to the 1933 Act did not, as\nof its effective date, contain any untrue statement of a material fact or omit\nto state any material fact required to be stated therein or necessary in order\nto make the statements therein, in light of the circumstances under which they\nwere made, not misleading, except to the extent that such statements have been\nmodified or superseded by a subsequent Company Filing made prior to the date\nhereof.\n\n     SECTION 4.08. Financial Statements. The audited consolidated financial\nstatements and unaudited consolidated interim financial statements of the\nCompany included in the Company's Annual Report on Form 10-K for the fiscal\nyears ended December 31, 1999 and its quarterly report on Form 10-Q for its\nfiscal quarter ended March 31, 2000 (the \"Company 10-Q\") have been prepared in\naccordance with United States generally accepted accounting principles\n\n\n                                      11\n\n\n\n(\"GAAP\") applied on a consistent basis during the periods involved (except as\nmay be indicated in the notes thereto) and fairly present in all material\nrespects the consolidated financial position of the Company and its\nconsolidated subsidiaries as of the dates thereof and their consolidated\nresults of operations and cash flows for the periods then ended (subject to\nnormal year-end adjustments in the case of any unaudited interim financial\nstatements). For purposes of this Agreement, \"Company Balance Sheet\" means the\nconsolidated balance sheet of the Company as of March 31, 2000 set forth in the\nCompany 10-Q and \"Company Balance Sheet Date\" means March 31, 2000.\n\n     SECTION 4.09. Disclosure Documents. (a) Each document required to be filed\nby the Company with the SEC or required to be distributed or otherwise\ndisseminated to the Company's shareholders in connection with the transactions\ncontemplated by this Agreement (the \"Company Disclosure Documents\"), including,\nwithout limitation, the Schedule 14D-9 and the proxy or information statement\nof the Company (the \"Company Proxy Statement\"), if any, to be filed with the\nSEC in connection with the Merger, and any amendments or supplements thereto,\nwhen filed, distributed or disseminated, as applicable, will comply as to form\nin all material respects with the applicable requirements of the 1934 Act.\n\n     (b) (i) The Company Proxy Statement, as supplemented or amended, if\napplicable, at the time such Company Proxy Statement or any amendment or\nsupplement thereto is first mailed to shareholders of the Company and at the\ntime such shareholders vote on adoption of this Agreement, and (ii) any Company\nDisclosure Document (other than the Company Proxy Statement), at the time of\nthe filing of such Company Disclosure Document or any supplement or amendment\nthereto and at the time of any distribution or dissemination thereof, will not\ncontain any untrue statement of a material fact or omit to state any material\nfact necessary in order to make the statements made therein, in the light of\nthe circumstances under which they were made, not misleading. The\nrepresentations and warranties contained in Section 4.09(b) will not apply to\nstatements or omissions included in the Company Disclosure Documents furnished\nor based upon information furnished to the Company in writing by Parent\nspecifically for use therein.\n\n     (c) The information with respect to the Company or any of its subsidiaries\nthat the Company furnishes to Parent in writing specifically for use in the\nOffer Documents, at the time of the filing thereof, at the time of any\ndistribution or dissemination thereof and at the time of the consummation of\nthe Offer, will not contain any untrue statement of a material fact or omit to\nstate any material fact necessary in order to make the statements made therein,\nin the light of the circumstances under which they were made, not misleading.\n\n\n                                      12\n\n\n\n     SECTION 4.10. Absence of Certain Changes. Except as disclosed in the\nCompany Filings filed prior to the date of this Agreement and except as\npermitted by Section 6.01, since the Company Balance Sheet Date, the business\nof the Company and its subsidiaries has been conducted in the ordinary course\nconsistent with past practices and there has not been:\n\n     (a) any event, occurrence or development which has had or would reasonably\nbe expected to have a material adverse effect on the Company;\n\n     (b) any declaration, setting aside or payment of any dividend or other\ndistribution with respect to any shares of capital stock of the Company, or any\nrepurchase, redemption or other acquisition by the Company or any of its\nsubsidiaries of any outstanding shares of capital stock or other equity\nsecurities of, or other ownership interests in, the Company or any of its\nsubsidiaries;\n\n     (c) any amendment of any term of any outstanding security of the Company\nor any of its subsidiaries that would materially increase the obligations of\nthe Company or such subsidiary under such security;\n\n     (d) any incurrence, assumption or guarantee by the Company or any of its\nsubsidiaries of any indebtedness for borrowed money;\n\n     (e) any creation or assumption by the Company or any of its subsidiaries\nof any Lien on any asset of the Company or any subsidiary;\n\n     (f) any making of any loan, advance or capital contribution to or\ninvestment in any person by the Company or any of its subsidiaries other than\n(i) in connection with any acquisition or capital expenditure permitted by\nSection 6.01, (ii) loans, advances or capital contributions to or investments\nin wholly-owned subsidiaries of the Company, (iii) loans or advances to the\nCompany by any of its subsidiaries or (iv) loans or advances to employees of\nthe Company or any of its subsidiaries made in the ordinary course of business\nconsistent with past practices;\n\n     (g) (i) any contract or agreement entered into by the Company or any of\nits subsidiaries relating to any material acquisition or disposition of any\nassets or business or (ii) any modification, amendment, assignment, termination\nor relinquishment by the Company or any of its subsidiaries of any contract,\nlicense or other right that would have a material adverse effect on the\nCompany;\n\n     (h) any material change in any method of accounting or accounting practice\nby the Company or any of its subsidiaries, except for any such change required\nby reason of a change in GAAP;\n\n\n                                      13\n\n\n\n     (i) any (i) employment, deferred compensation, severance, retirement or\nother similar agreement entered into with any director, officer or employee of\nthe Company (or any amendment to any such existing agreement), (ii) grant of\nany severance or termination pay to any director, officer or employee of the\nCompany, or (iii) change in benefits payable to any director, officer or\nemployee of the Company pursuant to any severance or retirement plans or\npolicies thereof; or\n\n     (j) any Tax election made or changed, any annual tax accounting period\nchanged, any method of tax accounting adopted or changed, any amended Tax\nReturns or claims for income Tax refunds filed, any material closing agreement\nentered into, any material Tax claim, audit for assessment settled, or any\nright to claim an income Tax refund, offset or other reduction in Tax liability\nsurrendered; or\n\n     (k) any agreement or commitment to take any action referred to in Section\n4.10(a) through 4.10(j).\n\n     SECTION 4.11. No Undisclosed Material Liabilities. There are no\nliabilities of the Company or any of its subsidiaries of any kind whatsoever,\nwhether accrued, contingent, absolute, determined, determinable or otherwise,\nand there is no existing condition, situation or set of circumstances which\ncould reasonably be expected to result in such a liability, other than:\n\n     (a) liabilities provided for in the Company Balance Sheet or disclosed in\nthe notes thereto or in the Company Filings filed prior to the date hereof;\n\n     (b) liabilities incurred in the ordinary course of business consistent\nwith past practices since the Company Balance Sheet Date; or\n\n     (c) other undisclosed liabilities which, individually or in the aggregate,\nwould not reasonably be expected to have a material adverse effect on the\nCompany.\n\n     SECTION 4.12. Litigation. Except as disclosed in the Company Filings filed\nprior to the date hereof, there is no action, suit, investigation or proceeding\npending against, or to the knowledge of the Company threatened against or\naffecting, the Company or any of its subsidiaries or any of their respective\nproperties before any court or arbitrator or any governmental body, agency or\nofficial which (a) would reasonably be expected to have a material adverse\neffect on the Company or (b) as of the date hereof, questions the validity of\nthis Agreement or any action to be taken by the Company in connection with the\nconsummation of the transactions contemplated hereby or could otherwise prevent\n\n\n                                      14\n\n\n\nor delay the consummation of the transactions contemplated by this Agreement.\nExcept as and to the extent disclosed in the Company Filings filed prior to the\ndate hereof, none of the Company or its subsidiaries is subject to any\noutstanding order, writ, injunction or decree which does or would reasonably be\nexpected to have, individually or in the aggregate, a material adverse effect\non the Company.\n\n     SECTION 4.13. Taxes. (a) All material Tax Returns required by applicable\nlaw to be filed with any Taxing Authority by, or on behalf of, the Company or\nany of its subsidiaries have been filed when due in accordance with all\napplicable laws after giving effect to any extensions, and all such material\nTax Returns are true and complete in all material respects.\n\n     (b) The Company and each of its subsidiaries has paid (or has had paid on\nits behalf) or has withheld and remitted to the appropriate Taxing Authority,\nor, where payment is not yet due, has established (or has had established on\nits behalf and for its sole benefit and recourse) in accordance with GAAP an\nadequate accrual for all material Taxes through the end of the last period for\nwhich the Company and its subsidiaries ordinarily record items on their\nrespective books.\n\n     (c) The income and franchise Tax Returns of the Company and its\nsubsidiaries through the Tax year ended December 31, 1995 have been examined\nand closed or are Returns with respect to which the applicable period for\nassessment under applicable law, after giving effect to extensions or waivers,\nhas expired.\n\n     (d) There is no material claim, action, suit, proceeding or investigation\nnow pending or threatened against or with respect to the Company or any of its\nsubsidiaries in respect of any Tax or Tax asset.\n\n     (e) During the five-year period ending on the date hereof, neither the\nCompany nor any of its subsidiaries was a distributing corporation or a\ncontrolled corporation in a transaction intended to be governed by Section 355\nof the Code.\n\n     (f) Neither the Company nor any of its subsidiaries owns an interest in\nreal property in any jurisdiction in which a Tax is imposed, or the value of\nthe interest is reassessed, on the transfer of an interest in real property and\nwhich treats the transfer of an interest in an entity that owns an interest in\nreal property as a transfer of the interest in real property.\n\n     (g) Schedule 4.13(g) contains a list of all jurisdictions (whether foreign\nor domestic) in which the Company or any of its subsidiaries currently files\nTax Returns.\n\n\n                                      15\n\n\n\n     (h) For purposes hereof,\n\n     \"Tax\" means (i) any tax, governmental fee or other like assessment or\ncharge of any kind whatsoever (including, but not limited to, withholding on\namounts paid to or by any person), together with any interest, penalty,\naddition to tax or additional amount imposed by any governmental authority (a\n\"Taxing Authority\") responsible for the imposition of any such tax (domestic or\nforeign), and any liability for any of the foregoing as transferee, (ii) in the\ncase of the Company or any of its subsidiaries, liability for the payment of\nany amount of the type described in clause (i) as a result of being or having\nbeen before the Effective Time a member of an affiliated, consolidated,\ncombined or unitary group, or a party to any agreement or arrangement, as a\nresult of which liability of the Company or any of its subsidiaries to a Taxing\nAuthority is determined or taken into account with reference to the activities\nof any other person, and (iii) liability of the Company or any of its\nsubsidiaries for the payment of any amount as a result of being party to any\nTax sharing agreement or with respect to the payment of any amount imposed on\nany person of the type described in (i) or (ii) as a result of any existing\nexpress or implied agreement or arrangement (including, but not limited to, an\nindemnification agreement or arrangement).\n\n     \"Tax Return\" means any report, return, document, declaration or other\ninformation or filing required to be supplied to any Taxing Authority with\nrespect to Taxes, including information returns, any documents with respect to\nor accompanying payments of estimated Taxes, or with respect to or accompanying\nrequests for the extension of time in which to file any such report, return,\ndocument, declaration or other information.\n\n     SECTION 4.14. Employee Benefit Plans; ERISA; Labor. (a) The Company has\nprovided Parent with a list identifying each material \"employee benefit plan\",\nas defined in Section 3(3) of ERISA, each employment, severance or similar\ncontract, plan, arrangement or policy and each other plan or arrangement\n(written or oral) providing for compensation, bonuses, profit-sharing, stock\noption or other stock related rights or other forms of incentive or deferred\ncompensation, vacation benefits, insurance (including any self-insured\narrangements), health or medical benefits, employee assistance program,\ndisability or sick leave benefits, workers' compensation, supplemental\nunemployment benefits, severance benefits and post- employment or retirement\nbenefits (including compensation, pension, health, medical or life insurance\nbenefits) (i) which is maintained, administered or contributed to by the\nCompany, any of its subsidiaries or any trade or business, whether or not\nincorporated, which is or has been under common control, or which is or has\never been treated as a single employer, with the Company under Section 414 of\nthe Code (an \"ERISA Affiliate\"), or would be deemed a\n\n\n                                      16\n\n\n\n\"controlled group\" within the meaning of Section 4001(a)(14) of ERISA and (ii)\nwhich covers any employee or former employee of the Company or any of its\nsubsidiaries, or with respect to which Company or any of its subsidiaries has\nany liability. Copies of such plans (and, if applicable, related trust or\nfunding agreements or insurance policies) and all amendments thereto and\nwritten interpretations thereof have been furnished to Parent together with the\nmost recent annual report (Form 5500 including, if applicable, Schedule B\nthereto) and tax return (Form 990) prepared in connection with any such plan or\ntrust. Such plans are referred to collectively herein as the \"Benefit Plans\".\n\n     (b) Neither the Company nor any ERISA Affiliate nor any predecessor\nthereof sponsors, maintains or contributes to, or has in the past sponsored,\nmaintained or contributed to, any Benefit Plan subject to Title IV of ERISA.\n\n     (c) Neither the Company nor any ERISA Affiliate nor any predecessor\nthereof contributes to, or has in the past contributed to, any \"multiemployer\nplan\", as defined in Section 3(37) of ERISA (a \"Multiemployer Plan\").\n\n     (d) Each Benefit Plan which is intended to be qualified under Section\n401(a) of the Code has received a favorable determination letter, or has\npending or has time remaining in which to file, an application for such\ndetermination from the Internal Revenue Service, and the Company is not aware\nof any reason why any such determination letter should be revoked. The Company\nhas made available to Parent copies of the most recent Internal Revenue Service\ndetermination letters with respect to each such Benefit Plan. Each Benefit Plan\nhas been maintained in material compliance with its terms and with the\nrequirements prescribed by any and all statutes, orders, rules and regulations,\nincluding but not limited to ERISA and the Code, which are applicable to such\nBenefit Plan. No events have occurred with respect to any Benefit Plan that\ncould result in payment or assessment by or against the Company of any material\nexcise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E\nor 5000 of the Code.\n\n     (e) Except as disclosed in Schedule 4.14(e), the consummation of the\ntransactions contemplated by this Agreement will not (either alone or together\nwith any other event) entitle any employee or independent contractor of the\nCompany or any of its subsidiaries to severance pay or accelerate the time of\npayment or vesting or trigger any material payment or funding (through a\ngrantor trust or otherwise) of compensation or benefits under, increase the\namount payable or trigger any other obligation pursuant to, any Benefit Plan.\nThere is no contract, plan or arrangement (written or otherwise) covering any\nemployee or former employee of the Company or any of its subsidiaries that,\nindividually or collectively, would entitle any employee or former employee to\nany severance or\n\n\n                                      17\n\n\n\nother payment in connection with the transactions contemplated hereby that\nwould not be deductible pursuant to the terms of Section 280G or 162(m) of the\nCode.\n\n     (f) Neither the Company nor any of its subsidiaries has any liability in\nrespect of post-retirement health, medical or life insurance benefits for\nretired, former or current employees of the Company or any of its subsidiaries\nexcept as required to avoid excise tax under Section 4980B of the Code.\n\n     (g) There has been no amendment to, written interpretation or announcement\n(whether or not written) by the Company or any of its affiliates relating to,\nor change in employee participation or coverage under, any Benefit Plan which\nwould increase materially the expense of maintaining such Benefit Plan above\nthe level of the expense incurred in respect thereof for the fiscal year ended\nDecember 31, 1999.\n\n     (h) All material contributions and payments accrued under each Benefit\nPlan, determined in accordance with prior funding and accrual practices, as\nadjusted to include proportional accruals for the period ending as of the date\nhereof, have been discharged and paid on or prior to the date hereof or\notherwise properly provided for in the consolidated financial statements or\nfinancial records of the Company.\n\n     (i) There is no material action, suit, investigation, audit or proceeding\npending against or involving or, to the knowledge of the Company, threatened\nagainst or involving, any Benefit Plan before any court or arbitrator or any\nstate, federal or local governmental body, agency or official.\n\n     (j) Neither the Company nor any of its subsidiaries is a party to or\nsubject to, or is currently negotiating in connection with entering into, any\ncollective bargaining agreement or other contract or understanding with a labor\nunion or organization. No labor organization or group of employees of the\nCompany or any of its subsidiaries has made a pending demand for recognition or\ncertification, and, to the Company's knowledge, there are no representation or\ncertification proceedings or petitions seeking a representation proceeding\npresently pending or threatened in writing to be brought or filed with the\nNational Labor Relations Board or any other labor relations tribunal or\nauthority. Except as would not have a material adverse effect on the Company,\nthere has been no \"mass layoff\" or \"plant closing\" as defined by WARN with\nrespect to the Company within six months of the date of this Agreement. \"WARN\"\nmeans the Worker Adjustment and Retraining Notification Act and any similar\nstate or local \"plant closing\" law.\n\n\n                                      18\n\n\n\n     SECTION 4.15. Compliance with Laws; No Defaults. Except as disclosed in\nthe Company Filings filed prior to the date hereof, (i) neither the Company nor\nany of its subsidiaries is in violation of any applicable law, rule,\nregulation, judgment, injunction, order or decree; and (ii) there is no default\nunder any contract or agreement to which the Company or any of its subsidiaries\nis a party, either by the Company or any of its subsidiaries or, to the\nCompany's knowledge, by any other party thereto, and no event has occurred that\nwith the lapse of time or the giving of notice or both would constitute a\ndefault thereunder by the Company or any of its subsidiaries or, to the\nCompany's knowledge, any other party, except, in the case of (i) and (ii)\nabove, for such matters as would not reasonably be expected to have,\nindividually or in the aggregate, a material adverse effect on the Company.\n\n     SECTION 4.16. Finders' Fees. Except for Allen &amp; Co. and Deutsche Bank\nAlex.Brown, no investment banker, broker, finder or other intermediary is\nentitled to any fee or commission from the Company or any of its subsidiaries\nupon consummation of the transactions contemplated by this Agreement. The\nCompany has heretofore delivered or made available to Parent true and complete\ncopies of the engagement letters with Allen &amp; Co. and Deutsche Bank Alex.Brown.\n\n     SECTION 4.17. Environmental Matters. Except as disclosed in the Company\nFilings filed prior to the date hereof and for such matters as would not\nreasonably be expected to have, individually or in the aggregate, a material\nadverse effect on the Company:\n\n          (i) no notice, notification, demand, request for information,\n     citation, summons or order has been received, no complaint has been filed,\n     no penalty has been assessed, and no investigation, action, claim, suit,\n     proceeding or review is pending or, to the knowledge of the Company, is\n     threatened by any governmental entity or other person relating to or\n     arising out of any Environmental Law;\n\n          (ii) the Company is and has been in compliance with all Environmental\n     Laws and all permits required under Environmental Law except for such\n     matters as would not reasonably be expected to have a material adverse\n     effect on the Company; and\n\n          (iii) there are no liabilities of or relating to the Company or any\n     of its subsidiaries of any kind whatsoever, whether accrued, contingent,\n     absolute, determined, determinable or otherwise arising under or relating\n     to any Environmental Law, and there are no facts, conditions, situations\n     or\n\n\n                                      19\n\n\n\n     set of circumstances which could reasonably be expected to result in or be\n     the basis for any such liability.\n\n     \"Environmental Law\" means any federal, state, local or foreign law\n(including common law), statute, code, ordinance, rule or regulation, relating\nto the environment, natural resources, or the effect of the environment on\npublic or employee health and safety and includes, but is not limited to, the\nComprehensive Environmental Response, Compensation and Liability Act, 42\nU.S.C.ss.9601 et seq., the Hazardous Materials Transportation Act, 49\nU.S.C.ss.1801 et. seq., the Resource Conservation and Recovery Act, 42\nU.S.C.ss.6901 et seq., the Clean Water Act, 33 U.S.C.ss.1251 et seq., the Clean\nAir Act, 33 U.S.C.ss.2601 et seq., the Toxic Substances Control Act, 15\nU.S.C.ss.2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act,\n7 U.S.C.ss.136 et seq., the Oil Pollution Act of 1990, 33 U.S.C.ss.2701 et\nseq., as such laws have been amended or supplemented on or prior to the\nEffective Time, and the regulations promulgated pursuant thereto on or prior to\nthe Effective Time.\n\n     SECTION 4.18. Antitakeover Statutes. The Board of Directors of the Company\nhas approved this Agreement, the Convertible Loan Agreement (as defined below)\nand the transactions contemplated hereby and thereby, and such approval is\nsufficient to render inapplicable to this Agreement, the CDnow Shareholder\nAgreement, dated as of the date hereof, between Parent, Jason Olim and Matthew\nOlim (the \"CDnow Shareholder Agreement\"), the Convertible Loan Agreement and\nthe transactions contemplated hereby and thereby the provisions of Section\n2538(a) and subchapter F of Chapter 25 of the Pennsylvania Law or any other\nantitakeover or similar statute or regulation to which the Company is subject\nor any antitakeover provision in the Company's articles of incorporation and\nbylaws. The provisions of subchapters E, G, H, I and J of Chapter 25 of the\nPennsylvania Law are not applicable to the Company.\n\n     SECTION 4.19. Intellectual Property. The Company and its subsidiaries own\nor have the legal rights to use all material patents, trademarks, tradenames,\ncopyrights, trade secrets or other intellectual property right used in\nconnection with the conduct of its business as currently conducted (the\n\"Intellectual Property Rights\"), and the Company and its subsidiaries have not\nassigned, hypothecated or otherwise encumbered any of the Intellectual Property\nRights. Except for such matters as would not reasonably be expected to have a\nmaterial adverse effect on the Company, the Intellectual Property Rights are\nvalid and enforceable, no person is infringing the Intellectual Property\nRights, and the use of the Intellectual Property Rights by the Company and its\nsubsidiaries does not infringe the rights of any other person.\n\n\n                                      20\n\n\n\n     SECTION 4.20. Properties. The Company and its subsidiaries have good title\nto, or in the case of leased property have valid leasehold interests in, all\nmaterial property reflected on the Company Balance Sheet or acquired after the\nCompany Balance Sheet Date, except for properties sold since the Company\nBalance Sheet Date in the ordinary course of business consistent with past\npractices. None of such property is subject to any Lien, except:\n\n     (a) Liens disclosed on the Company Balance Sheet or notes thereto or\nsecuring liabilities reflected on the Company Balance Sheet or notes thereto;\n\n     (b) Liens for taxes, assessments and similar charges that are not yet due\nor are being contested in good faith;\n\n     (c) mechanic's, materialman's, carrier's, repairer's and other similar\nLiens arising or incurred in the ordinary course of business or that are not\nyet due and payable or are being contested in good faith; or\n\n     (d) Liens securing the obligations of the Company under the Convertible\nLoan Agreement dated as of the date hereof between the Company and Parent (as\namended from time to time, the \"Convertible Loan Agreement\"); or\n\n     (e) Liens incurred in the ordinary course of business since the Company\nBalance Sheet Date.\n\n     SECTION 4.21. Affiliates. To the Company's knowledge, no affiliate of the\nCompany: (a) has a material financial interest in a competitor, supplier or\ncustomer of the Company or any of its affiliates, (b) owns any material\nproperty necessary for the operations of the Company or any of its affiliates,\n(c) has any material claim against the Company or any of its affiliates outside\nthe normal course of business.\n\n     SECTION 4.22. Material Contracts. (a) Except as disclosed in the Company\nFilings filed prior to the date hereof, neither the Company nor any of its\nsubsidiaries is a party to or bound by any of the following agreements:\n\n          (i) any agreement committing the Company or any of its subsidiaries\n     to purchase or sell materials, supplies, goods, services, equipment or\n     other assets providing for annual payments by or to the Company or any of\n     its subsidiaries, respectively, of $150,000 or more or aggregate payments\n     by or to the Company or any of its subsidiaries, respectively, of $500,000\n     or more;\n\n\n                                      21\n\n\n\n          (ii) any partnership, joint venture or other similar agreement or\n     arrangement;\n\n          (iii) any agreement relating to the prospective acquisition or\n     disposition of any business (whether by merger, sale of stock, sale of\n     assets or otherwise);\n\n          (iv) any agreement relating to indebtedness for borrowed money or the\n     deferred purchase price of property (in either case, whether incurred,\n     assumed, guaranteed or secured by any asset), except the Convertible Loan\n     Agreement and any such agreement with an aggregate outstanding principal\n     amount not exceeding $150,000 and which may be prepaid on not more than 30\n     days notice without the payment of any penalty;\n\n          (v) any material license, franchise or similar agreement;\n\n          (vi) any agreement that materially limits the freedom of the Company\n     or any of its subsidiaries to compete in any line of business or with any\n     person or in any area or to own, operate, sell, transfer, pledge or\n     otherwise dispose of or encumber any material assets or which would so\n     limit the freedom of Parent or any of its affiliates after the\n     consummation of the Offer or the Merger;\n\n          (vii) any other agreement, commitment, arrangement or plan not made\n     in the ordinary course of business that is material to the Company and its\n     subsidiaries.\n\n     (b) Each agreement required to be disclosed pursuant to this Section is a\nvalid and binding agreement of the Company or one of its subsidiaries and is in\nfull force and effect, and none of the Company or any of its subsidiaries or,\nto the knowledge of the Company, any other party thereto is in default or\nbreach in any material respect under the terms of any such agreement, and, to\nthe knowledge of the Company, no event or circumstance has occurred that, with\nnotice or lapse of time or both, would constitute any event of default\nthereunder, except for such matters as would not reasonably be expected to have\na material adverse effect on the Company. True and complete copies of each such\nagreement, including all amendments and modifications thereto, have been\ndelivered to Parent.\n\n\n                                      22\n\n\n\n                                   ARTICLE 5\n                    REPRESENTATIONS AND WARRANTIES OF PARENT\n\n     Parent represents and warrants to the Company that except as otherwise\ndisclosed in writing to the Company prior to the date hereof:\n\n     SECTION 5.01. Corporate Existence and Power. Each of Parent and Merger\nSubsidiary is a corporation duly organized, validly existing and in good\nstanding under the laws of the jurisdiction of its incorporation, and has the\nrequisite corporate power and authority and governmental approvals to own,\nlease and operate its properties and to carry on its business as now conducted,\nexcept for such matters as could not reasonably be expected to have a material\nadverse effect on Parent or the transactions contemplated hereby. Since the\ndate of its incorporation, Merger Subsidiary has not engaged in any activities\nother than in connection with or as contemplated by this Agreement. Parent has\nheretofore delivered or made available to the Company true and complete copies\nof Parent's certificate of incorporation and by laws as currently in effect.\n\n     SECTION 5.02. Corporate Authorization. The execution, delivery and\nperformance by Parent and Merger Subsidiary of this Agreement and the\nconsummation by Parent and Merger Subsidiary of the transactions contemplated\nhereby are within the corporate powers of Parent and Merger Subsidiary have\nbeen duly authorized by all necessary corporate action. This Agreement\nconstitutes a valid and binding agreement of each of Parent and Merger\nSubsidiary.\n\n     SECTION 5.03. Governmental Authorization. The execution, delivery and\nperformance by Parent and Merger Subsidiary of this Agreement and the\nconsummation by Parent and Merger Subsidiary of the transactions contemplated\nhereby require no action by or in respect of, or filing with, any governmental\nbody, agency, official or authority other than (i) the filing of articles of\nmerger with respect to the Merger with the Secretary of the Commonwealth of\nPennsylvania; (ii) compliance with any applicable requirements of the HSR Act;\n(iii) compliance with any applicable requirements of the 1933 Act; (iv)\ncompliance with any applicable requirements of the 1934 Act; (v) compliance\nwith any other applicable securities laws; (vi) any actions or filings which,\nif not taken or made, would not have a material adverse effect on Parent or the\ntransactions contemplated hereby; and (vii) any filings or notices not required\nto be made or given until after the Effective Time.\n\n     SECTION 5.04. Non-Contravention. The execution, delivery and performance\nby Parent and Merger Subsidiary of this Agreement do not, and the consummation\nby Parent and Merger Subsidiary of the transactions contemplated\n\n\n                                      23\n\n\n\nhereby will not (i) contravene or conflict with the certificate or articles of\nincorporation or bylaws of Parent or Merger Subsidiary, (ii) assuming\ncompliance with the matters referred to in Section 5.03, violate any applicable\nlaw, rule, regulation, judgment, injunction, order or decree, or (iii)\nconstitute a default under or give rise to a right of termination, cancellation\nor acceleration of any right or obligation of Parent or Merger Subsidiary or to\na loss of any benefit to which Parent or Merger Subsidiary is entitled under\nany provision of any agreement or other instrument binding upon Parent or\nMerger Subsidiary or any license, franchise, permit or other similar\nauthorization held by Parent or Merger Subsidiary, or (iv) result in creation\nor imposition of any Lien on any asset of Parent or any of its subsidiaries,\nexcept in the case of clause (ii), (iii) or (iv) for such matters as could not\nreasonably be expected to have a material adverse effect on Parent or the\ntransaction contemplated hereby.\n\n     SECTION 5.05. Disclosure Documents. (a) None of the information provided\nby Parent or Merger Subsidiary for inclusion in the Offer Documents or any\namendment or supplement thereto, at the time the Offer Documents or any\namendment or supplement thereto is first mailed to shareholders of the Company,\nwill contain any untrue statement of a material fact or omit to state any\nmaterial fact necessary in order to make the statements made therein, in the\nlight of the circumstances under which they were made, not misleading.\n\n     SECTION 5.06. Litigation. There is no action, suit, investigation or\nproceeding pending against, or to the knowledge of Parent threatened against or\naffecting, Parent or any of its subsidiaries or any of their respective\nproperties before any court or arbitrator or any governmental body, agency or\nofficial which, as of the date hereof, questions the validity of this Agreement\nor any action to be taken by Parent in connection with the consummation of the\ntransactions contemplated hereby or could otherwise materially prevent or delay\nthe consummation of the transactions contemplated by this Agreement.\n\n                                   ARTICLE 6\n                            COVENANTS OF THE COMPANY\n\n     SECTION 6.01. Conduct of the Company. The Company covenants and agrees\nthat, from the date hereof until the Effective Time, except as expressly\nprovided otherwise in this Agreement (or except as disclosed in writing to\nParent prior to the date hereof), the Company and its subsidiaries shall\nconduct their business in the ordinary course consistent with past practices\nand shall use their reasonable best efforts to preserve intact their business\norganizations and relationships with third parties and to keep available the\nservices of their present\n\n\n                                      24\n\n\n\nofficers and employees. Without limiting the generality of the foregoing, and\nexcept as otherwise contemplated hereby, from the date hereof until the\nEffective Time:\n\n     (a) the Company will not adopt or propose any change in its articles of\nincorporation or any material change in its bylaws;\n\n     (b) the Company will not, and will not permit any of its subsidiaries to,\nadopt a plan or agreement of complete or partial liquidation, dissolution,\nmerger, consolidation, restructuring, recapitalization or other material\nreorganization of the Company or any of its subsidiaries (other than a\nliquidation or dissolution of any such subsidiary, a merger or consolidation\nbetween wholly-owned subsidiaries of the Company or of any such wholly-owned\nsubsidiary into the Company);\n\n     (c) the Company will not, and will not permit any of its subsidiaries to,\nmake any equity investment in or acquisition of any business of any person or\nany material amount of assets, except (i) for any capital expenditure permitted\nby Section 6.01(h), and (ii) for equity investment in any wholly-owned\nsubsidiary of the Company;\n\n     (d) the Company will not, and will not permit any of its subsidiaries to,\nsell, lease, license or otherwise dispose of any assets in an amount that would\nbe material to the Company and its subsidiaries, taken as a whole, except\npursuant to existing contracts or commitments;\n\n     (e) the Company will not, and will not permit any of its subsidiaries to,\ndeclare, set aside or pay any dividend or other distribution payable in cash,\nstock or property with respect to its capital stock other than dividends or\nother distributions paid by any of its subsidiaries to the Company or any other\nwholly-owned subsidiary of the Company;\n\n     (f) the Company will not, and will not permit any of its subsidiaries to,\n(x) issue, sell, transfer, pledge or dispose of any shares of, or securities\nconvertible into or exchangeable for, or options, warrants, calls, commitments\nor rights of any kind to acquire, any shares of capital stock of any class or\nseries of the Company or its subsidiaries, other than (i) issuances pursuant to\nthe exercise of options under the Option Plans and Warrants described in\nSection 4.05 outstanding on the date hereof, or (ii) issuances by any of its\nsubsidiaries to the Company or any wholly-owned subsidiary of the Company\nand(y) reduce the exercise or conversion price, extend the term or otherwise\nmodify the terms of any equity securities of the Company or any such\nsubsidiary;\n\n\n                                      25\n\n\n\n     (g) the Company will not, and will not permit any of its subsidiaries to,\nredeem, purchase or otherwise acquire directly or indirectly any of the\nCompany's capital stock;\n\n     (h) the Company will not, and will not permit any of its subsidiaries to,\nmake or commit to make any capital expenditure, except in the ordinary course\nof business;\n\n     (i) the Company will not, and will not permit any of its subsidiaries to,\n(i) incur or assume any long-term or short-term debt or issue any debt\nsecurities, except for borrowings under the Convertible Loan Agreement; (ii)\nassume, guarantee, endorse or otherwise become liable or responsible (whether\ndirectly, contingently or otherwise) for the obligations of any other person,\nexcept for obligations of the wholly owned subsidiaries of the Company; (iii)\nmake any loans, advances or capital contributions to, or investment in, any\nother person, except in the ordinary course of business consistent with past\npractice and except to wholly owned subsidiaries of the Company or to the\nCompany; (iv) pledge or otherwise encumber shares of capital stock of the\nCompany or its subsidiaries; or (v) mortgage or pledge any of its material\nassets, tangible or intangible, or create any material Lien thereupon, except\nin the ordinary course of business consistent with past practice;\n\n     (j) except as may be required by law or as contemplated by this Agreement\nor as required by existing agreements or arrangements, the Company will not,\nand will not permit any of its subsidiaries to, increase in any manner the\ncompensation or benefits under the Benefit Plans of any director, officer or\nemployee or pay any benefit or compensation not required by any plan and\narrangement as in effect as of the date hereof (including, without limitation,\nthe granting of stock appreciation rights or performance units);\n\n     (k) the Company will not, and will not permit any of its subsidiaries to,\nenter into any material contract, agreement, commitment or transaction, other\nthan in the ordinary course of business consistent with past practice;\n\n     (l) except as may be required as a result of a change in law or in GAAP,\nthe Company will not, and will not permit any of its subsidiaries to, change\nmaterially any of the accounting principles or practices used by it;\n\n     (m) the Company will not, and will not permit any of its subsidiaries to,\nrevalue any material assets (including, without limitation, writing down the\nvalue of inventory or writing-off notes or accounts receivable) other than in\nthe ordinary course of business consistent with past practice or as required by\nGAAP;\n\n\n                                      26\n\n\n\n     (n) the Company will not, and will not permit any of its subsidiaries to,\npay, discharge or satisfy any claims, liabilities or obligations (absolute,\naccrued, asserted or unasserted, contingent or otherwise), other than in the\nordinary and usual course of business consistent with past practice or waive\nthe benefits of, or agree to modify in any manner, any confidentiality,\nstandstill or similar agreement to which the Company or any of its subsidiaries\nis a party;\n\n     (o) the Company will not, and will not permit any of its subsidiaries to,\nsettle or compromise any pending or threatened suit, action or claim relating\nto the transactions contemplated hereby;\n\n     (p) the Company will not, and will not permit any of its subsidiaries to,\nenter into any agreement that limits or otherwise restricts the Company or any\nof its subsidiaries or any successor thereto or that could, after the Effective\nTime, limit or restrict the Surviving Corporation and its affiliates (including\nParent) or any successor thereto, from engaging or competing in any line of\nbusiness or in any geographic area;\n\n     (q) the Company will not, and will not permit any of its subsidiaries to,\nagree or commit to do any of the foregoing; and\n\n     (r) the Company will not, and will not permit any of its subsidiaries to\ntake any action that would make any representation and warranty of the Company\nhereunder inaccurate in any material respect at, or as of any time prior to,\nthe Effective Time.\n\n     SECTION 6.02. Shareholder Meetings; Proxy Materials. Unless Pennsylvania\nLaw does not require a vote of shareholders of the Company for consummation of\nthe Merger, the Company shall cause a meeting of its shareholders (the\n\"Shareholder Meeting\") to be duly called and held as soon as reasonably\npracticable after consummation of the Offer for the purpose of voting on the\napproval and adoption of this Agreement and the Merger (the \"Shareholder\nApproval\"). Subject to Section 6.03(b), the Board of Directors of the Company\nshall recommend approval and adoption of this Agreement and the Merger by the\nCompany's shareholders. In connection with the Shareholder Meeting, the Company\n(x) will promptly prepare and file with the SEC, will use its reasonable best\nefforts to have cleared by the SEC and will thereafter mail to its shareholders\nas promptly as practicable the Company Proxy Statement and all other proxy\nmaterials for such meeting, (y) will use its reasonable best efforts to obtain\nthe Shareholder Approval and (z) will otherwise comply with all legal\nrequirements applicable to such meeting. If after consummation of the Offer,\nParent, Merger Subsidiary or any other subsidiary of Parent shall directly or\nindirectly beneficially own at least 80% of the outstanding shares of Company\n\n\n                                      27\n\n\n\nStock, the parties hereto agree to take all necessary and appropriate action to\ncause the Merger to be effective as soon as practicable after the acceptance\nfor payment and purchase of shares of Company Stock pursuant to the Offer\nwithout a meeting of shareholders of the Company in accordance with Section\n1924(b) Pennsylvania Law.\n\n     SECTION 6.03. Other Offers, etc. (a) From the date hereof until the\ntermination hereof, the Company will not and will cause the subsidiaries not to\nand will use its reasonable best efforts to cause the officers, directors,\nemployees and other agents and advisors of the Company and its subsidiaries not\nto, directly or indirectly, (i) take any action to solicit, initiate or\nencourage any Acquisition Proposal or (ii) furnish information to or\nparticipate in any discussions or negotiations with any person that has made an\nAcquisition Proposal; provided, however, that nothing contained in this Section\n6.03(a) shall prohibit the Board of Directors of the Company from furnishing\ninformation to, or entering into discussions or negotiations with, any person\nthat has made an unsolicited bona fide written Acquisition Proposal if, and\nonly to the extent that (A) the acceptance for payment of shares of Company\nStock pursuant to the Offer shall not have occurred, (B) the Board of Directors\nof the Company, based on advice of outside legal counsel, determines in good\nfaith that failure to take such action would present a reasonable probability\nof violating its fiduciary duties under applicable law, and (C) prior to taking\nsuch action, the Company (x) provides reasonable notice to Parent to the effect\nthat it intends to take such action and (y) receives from such person an\nexecuted confidentiality agreement in reasonably customary form and in any\nevent containing terms at least as stringent as those contained in the\nconfidentiality agreement dated April 14, 2000 between Parent and the Company\n(the \"Confidentiality Agreement\"). Prior to providing any information to or\nentering into discussions or negotiations with any person in connection with an\nAcquisition Proposal by such person, the Company shall notify Parent of any\nsuch Acquisition Proposal (including, without limitation, the material terms\nand conditions thereof and the identity of the person making it) as promptly as\npracticable (but in no case later than one business day) after its receipt\nthereof, and shall thereafter inform Parent on a prompt basis of the status of\nany discussion or negotiations with such third party and any material changes\nto the terms and conditions of such Acquisition Proposal, and shall promptly\ngive Parent a copy of any information delivered to such person which has not\npreviously been reviewed by Parent. The Company will, and will cause its\nsubsidiaries and the officers, directors, employees and other agents and\nadvisors of the Company and its subsidiaries to, immediately cease and cause to\nbe terminated all discussions and negotiations, if any, that have taken place\nprior to the date hereof with any parties with respect to any Acquisition\nProposal. Nothing contained in this Agreement shall prevent the Board of\nDirectors of the Company from complying with Rule 14e-2 under the 1934 Act with\nrespect to any Acquisition Proposal. For\n\n\n                                      28\n\n\n\npurposes of this Agreement, \"Acquisition Proposal\" means any offer or proposal\nfor, or any indication of interest in, a merger or other business combination\ntransaction involving the acquisition of all or any portion of the equity\ninterest in, or all or a material portion of the assets of, the Company and its\nsubsidiaries, other than the transactions contemplated by this Agreement.\n\n     (b) The Board of Directors of the Company may not withdraw or modify, or\npropose to withdraw or modify, in a manner adverse to Parent, its approval or\nrecommendation of this Agreement, the Offer or the Merger unless the Board of\nDirectors of the Company, based on advice of its outside legal counsel,\ndetermines in good faith that failure to do so would present a reasonable\nprobability of violating its fiduciary duties under Pennsylvania Law; provided,\nhowever, the Board of Directors of the Company may not approve or recommend\n(and in connection therewith, withdraw or modify its approval or recommendation\nof this Agreement, the Offer or the Merger) an Acquisition Proposal unless (i)\nthe Company has complied with the terms of this Section 6.03, including,\nwithout limitation, the requirement in Section 6.03(a) that it notify Parent\npromptly after its receipt of any Acquisition Proposal, (ii) the Acquisition\nProposal is a Superior Proposal and (iii) it determines in good faith (based on\nadvice of its outside legal counsel) that the failure to do so would present a\nreasonable probability of violating its fiduciary duties under applicable law.\nFor purposes of this Agreement, \"Superior Proposal\" means any Acquisition\nProposal (A) involving the acquisition of the entire equity interest in, or all\nor substantially all of the assets and liabilities of, the Company and its\nsubsidiaries and (B) with respect to which the Board of Directors of the\nCompany (x) determines in good faith that such proposal, if accepted, is\nreasonably likely to be consummated, taking into account all legal, financial,\nregulatory and other aspects of the proposal and the person making the proposal\nand (y) believes in good faith, based on the advice of its financial advisors,\nthat such proposal would, if consummated, result in a transaction more\nfavorable to the Company's shareholders from a financial point of view than the\nOffer and the Merger.\n\n     SECTION 6.04. Tax Matters. (a) Neither the Company nor any of its\nsubsidiaries shall make or change any Tax election, change any annual tax\naccounting period, adopt or change any method of tax accounting, file any\namended Tax Returns or claims for income Tax refunds, enter into any material\nclosing agreement, surrender any material Tax claim, audit or assessment,\nsurrender any right to claim an income Tax refund, offset or other reduction in\nTax liability surrendered, consent to any extension or waiver of the\nlimitations period applicable to any Tax claim or assessment or take or omit to\ntake any other action, if any such action or omission would have the effect of\nmaterially increasing the Tax liability or materially reducing any Tax asset of\nthe Company or any of its subsidiaries.\n\n\n                                      29\n\n\n\n     (b) The Company and each of its subsidiaries will establish or cause to be\nestablished in accordance with GAAP on or before the Effective Time an adequate\naccrual for all material Taxes due with respect to any period ending prior to\nor as of the Effective Time.\n\n     (c) On or prior to the date on which Merger Subsidiary acquires shares of\nCompany Stock pursuant to the Offer, the Company shall provide to Parent a\ncertificate meeting the requirements of Treas. Reg. ss.1.897-2(h) promulgated\nunder the Code to the effect that the Company is not, nor has it been within 5\nyears of the date thereof, a \"United States real property holding corporation\"\nas defined in Section 897 of the Code.\n\n                                   ARTICLE 7\n                              COVENANTS OF PARENT\n\n     SECTION 7.01. Obligations of Merger Subsidiary. Parent will take all\naction necessary to cause Merger Subsidiary to perform its obligations under\nthis Agreement and to consummate the Offer and the Merger on the terms and\nconditions set forth in this Agreement.\n\n     SECTION 7.02. Voting of Shares of Company Stock. Parent agrees to vote all\nshares of Company Stock beneficially owned by it in favor of adoption of this\nAgreement at the Shareholder Meeting (if any).\n\n     SECTION 7.03. Director and Officer Liability. After the Effective Time,\nthe Parent will cause the Surviving Corporation to indemnify each person who is\nnow, or has been at any time prior to the date hereof, a director or officer of\nthe Company (individually an \"Indemnified Party\" and collectively the\n\"Indemnified Parties\"), to the fullest extent permitted by law, with respect to\nany claim, liability, loss, damage, judgment, fine, penalty, amount paid in\nsettlement or compromise, cost or expense (including reasonable fees and\nexpenses of legal counsel), whenever asserted or claimed, based in whole or in\npart on, or arising in whole or in part out of, any facts or circumstances\noccurring at or prior to the Effective Time whether commenced, asserted or\nclaimed before or after the Effective Time, including liability arising under\nthe 1933 Act, the 1934 Act or state law. Parent shall, or shall cause the\nSurviving Corporation to, maintain in effect for not less than three years\nafter the Effective Time the current policies of directors' and officers'\nliability insurance maintained by the Company and its subsidiaries on the date\nhereof (provided that Parent may substitute therefor policies with reputable\nand financially sound carriers having at least the same coverage and amounts\nthereof and containing terms and conditions which are no\n\n\n                                      30\n\n\n\nless advantageous to the persons currently covered by such policies as the\ninsured) with respect to facts or circumstances occurring at or prior to the\nEffective Time to the extent that such liability insurance can be maintained\nannually at a cost to Parent not greater than 150% of the current annual\npremium for the current Company directors' and officers' liability insurance;\nprovided that if such insurance cannot be so maintained or obtained at such\ncosts, Parent shall maintain or obtain as much of such insurance as can be so\nmaintained or obtained at a cost equal to 150% of the current annual premium of\nthe Company for such insurance. Parent agrees to pay all expenses (including\nfees and expenses of counsel) that may be incurred by any Indemnified Party in\nsuccessfully enforcing the indemnity or other obligations under this Section\n7.03. The rights under this Section 7.03 are in addition to rights that an\nIndemnified Party may have under the articles of incorporation, bylaws, or\nother similar organizational documents of the Company or any of its\nsubsidiaries or Pennsylvania Law. The rights under this Section 7.03 shall\nsurvive consummation of the Merger and are expressly intended to benefit each\nIndemnified Party. Parent agrees to cause the Surviving Corporation and any of\nits subsidiaries (or their successors) to maintain in effect for a period of\nsix years provisions in its articles of incorporation or bylaws or similar\norganizational documents providing for indemnification and exculpation of\nIndemnified Parties, with respect to facts or circumstances occurring at or\nprior to the Effective Time, to the extent set forth in the Company's articles\nof incorporation and bylaws as of the date hereof; provided that the foregoing\nshall not in any way restrict or preclude any sale, liquidation or dissolution\nof any subsidiary of Parent at any time after the Effective Time.\n\n                                   ARTICLE 8\n                      COVENANTS OF PARENT AND THE COMPANY\n\n     SECTION 8.01. Notices of Certain Events. (a) The Company and Parent shall\npromptly notify each other of:\n\n          (i) any notice or other communication from any person alleging that\n     the consent of such person is or may be required in connection with the\n     transactions contemplated by this Agreement; and\n\n          (ii) any notice or other communication from any governmental or\n     regulatory agency or authority in connection with the transactions\n     contemplated by this Agreement.\n\n     (b) The Company shall promptly notify Parent of:\n\n\n                                      31\n\n\n\n          (i) any actions, suits, claims, investigations or proceedings\n     commenced or, to its knowledge threatened against, relating to or\n     involving or otherwise affecting the Company or any of its subsidiaries\n     which relate to the consummation of the transactions contemplated by this\n     Agreement; and\n\n          (ii) the occurrence of any event or condition that becomes known to\n     an executive officer of the Company which would reasonably be expected to\n     result in the condition set forth in clause (i)(G) of Annex I hereto not\n     being met.\n\n     (c) Parent shall promptly notify the Company of any actions, suits,\nclaims, investigations or proceedings commenced or, to its knowledge threatened\nagainst, relating to or involving or otherwise affecting Parent or any of its\nsubsidiaries which relate to the consummation of the transactions contemplated\nby this Agreement.\n\n     SECTION 8.02. Reasonable Best Efforts. Subject to the terms and conditions\nof this Agreement, each party will use its reasonable best efforts to take, or\ncause to be taken, all actions and to do, or cause to be done, all things\nnecessary, proper or advisable under applicable laws and regulations to\nconsummate the Offer and the Merger and the other transactions contemplated by\nthis Agreement. In furtherance and not in limitation of the foregoing, each\nparty hereto agrees to make an appropriate filing of a Notification and Report\nForm pursuant to the HSR Act with respect to the transactions contemplated\nhereby as promptly as practicable and in any event within ten business days\nafter the date hereof. The Company and Parent shall furnish, or cause to be\nfurnished, to each other such necessary information and reasonable assistance\nas the other may request in connection with its preparation of necessary\nfilings or submissions under the provisions of the HSR Act. The Company and\nParent, or its affiliate, will promptly respond to any request for additional\ninformation. Each of the Company and Parent will take all other actions\nnecessary to cause the expiration or termination of the applicable waiting\nperiods as soon as practicable.\n\n     SECTION 8.03. Access to Information Concerning Properties and Records. To\nthe extent permitted by applicable law, from the date hereof until the\nEffective Time, the Company will give to Parent and its counsel, financial\nadvisors, auditors and other authorized representatives reasonable access\nduring normal business hours to its, and its subsidiaries, offices, properties,\nbooks and records, and will furnish to the other party, its counsel, financial\nadvisors, auditors and other authorized representatives such financial and\noperating data and other information as such persons may reasonably request and\nwill instruct its\n\n\n                                      32\n\n\n\nemployees, counsel and financial advisors to cooperate with the other party in\nits investigation of the business of the Company, as the case may be.\n\n     SECTION 8.04. Cooperation. Without limiting the generality of Section\n8.02, Parent and the Company shall cooperate (i) in connection with the\npreparation of the Company Disclosure Documents and the Offer Documents, (ii)\nin determining whether any action by or in respect of, or filing with, any\ngovernmental body, agency or official, or authority is required, or any\nactions, consents, approvals or waivers are required to be obtained from\nparties to any material contracts, in connection with the consummation of the\ntransactions contemplated by this Agreement, and (iii) in seeking any such\nactions, consents, approvals or waivers or making any such filings, furnishing\ninformation required in connection therewith or with the Company Disclosure\nDocuments or the Offer Documents and seeking timely to obtain any such actions,\nconsents, approvals or waivers.\n\n     SECTION 8.05. Public Announcements. So long as this Agreement is in\neffect, Parent and the Company will consult with each other before issuing any\npress release or other public statement with respect to this Agreement or the\ntransactions contemplated hereby and, except as may be required by applicable\nlaw, court process or any listing agreement with or rule of any national\nsecurities exchange, will not issue any such press release or other public\nstatement prior to such consultation and providing the other party with a\nreasonable opportunity to comment thereon.\n\n     SECTION 8.06. Further Assurances. At and after the Effective Time, the\nofficers and directors of the Surviving Corporation will be authorized to\nexecute and deliver, in the name and on behalf of the Company or Merger\nSubsidiary, any deeds, bills of sale, assignments or assurances and to take and\ndo, in the name and on behalf of the Company or Merger Subsidiary, any other\nactions and things to vest, perfect or confirm of record or otherwise in the\nSurviving Corporation any and all right, title and interest in, to and under\nany of the rights, properties or assets of the Company acquired or to be\nacquired by the Surviving Corporation as a result of, or in connection with,\nthe Merger.\n\n\n                                      33\n\n\n\n                                   ARTICLE 9\n                            CONDITIONS TO THE MERGER\n\n     SECTION 9.01. Conditions to the Obligations of Each Party. The obligations\nof the Company, Parent and Merger Subsidiary to consummate the Merger are\nsubject to the satisfaction (or waiver by the party for whose benefit the\napplicable condition exists) of the following conditions:\n\n     (a) if required the Company shall have received the approval of the\nshareholders of the Company with respect to this Agreement;\n\n     (b) no provision of any applicable law or regulation and no judgment,\ninjunction, order or decree of a court of competent jurisdiction shall prohibit\nor enjoin the consummation of the Merger; and\n\n     (c) Merger Subsidiary shall have acquired shares of Company Stock pursuant\nto the Offer.\n\n                                   ARTICLE 10\n                                  TERMINATION\n\n     SECTION 10.01. Termination. This Agreement may be terminated and the\nMerger may be abandoned at any time prior to the Effective Time\n(notwithstanding any approval of this Agreement by the shareholders of the\nCompany):\n\n     (a) by mutual written agreement of the Company and Parent;\n\n     (b) by either the Company or Parent,\n\n          (i) if the Offer has not been consummated on or before October 31,\n     2000, provided that the right to terminate this Agreement pursuant to this\n     Section 10.01(b)(i) shall not be available to any party whose breach of\n     any provision of this Agreement results in the failure of the Offer to be\n     consummated by such time; or\n\n          (ii) if consummation of the Offer or the Merger would violate or be\n     prohibited by any law or regulation or if any injunction, judgment, order\n     or decree of a court of competent jurisdiction enjoining the Company,\n     Parent or Merger Subsidiary from consummating the Offer or\n\n\n                                      34\n\n\n\n     the Merger is entered and such injunction, judgment, order or decree shall\n     become final and nonappealable;\n\n     (c) by Parent, if prior to the purchase of any shares of Company Stock\npursuant to the Offer,\n\n          (i) the Board of Directors of the Company shall have failed to\n     recommend or withdrawn or materially modified in a manner adverse to\n     Parent its adoption or recommendation of the Offer and the Merger or there\n     shall have been a material breach of any of the provisions of Section\n     6.03;\n\n          (ii) the Company shall have entered into, or announced its intention\n     to enter into, an agreement with respect to a Superior Proposal; or\n\n          (iii) any person or group of persons (other than Parent) shall have\n     acquired a majority of the equity interest in, or all or any material\n     portion of the assets of, the Company and its subsidiaries; or\n\n     (d) by the Company, if prior to purchase of any shares of Company Stock\npursuant to the Offer, (i) the Company notifies Parent in writing that it\nintends to enter into an agreement with respect to a Superior Proposal in\naccordance with Section 6.03, provided the Company has complied in all material\nrespects with the provisions thereof, including the notice provision therein;\n(ii) Parent does not make, within four business days after receipt of the\nCompany's notification pursuant to clause (i), an offer that the Board of\nDirectors of the Company determines, in good faith based on the advice of its\nfinancial advisors, is at least as favorable to the Company's shareholders as\nthe Superior Proposal and (iii) prior to or simultaneously with such\ntermination, the Company makes payment to Parent of the amounts payable\npursuant to Section 11.04(b)(i).\n\nThe party desiring to terminate this Agreement pursuant to clauses (b), (c) or\n(d) shall give written notice of such termination to the other party in\naccordance with Section 11.01.\n\n     SECTION 10.02. Effect of Termination. If this Agreement is terminated\npursuant to Section 10.01, this Agreement shall become void and of no effect\nwith no liability on the part of any party hereto, except that (a) the\nagreements contained in this Section 10.02 and in Sections 8.04 and 11.04 and\nin the Confidentiality Agreement shall survive the termination hereof and (b)\nno such termination shall relieve any party of any liability or damages\nresulting from any willful breach by that party of this Agreement.\n\n\n                                      35\n\n\n\n                                   ARTICLE 11\n                                 MISCELLANEOUS\n\n     SECTION 11.01. Notices. All notices, requests and other communications to\nany party hereunder shall be in writing (including facsimile transmission) and\nshall be given:\n\n                  if to Parent or Merger Subsidiary, to:\n\n                           Bertelsmann, Inc.\n                           1540 Broadway\n                           New York, New York, 10036\n                           Fax: 212-782-1103\n                          Attention: Robert Sorrentino\n\n                  with a copy to:\n\n                           Bertelsmann AG\n                           Carl-Bertelsmann Strasse 270\n                           33311 Guetersloh\n                           Germany\n                           Fax: 011-49-5241-809318\n                           Attention: Bettina Wolf\n\n                           and\n\n                           Davis Polk &amp; Wardwell\n                           450 Lexington Avenue\n                            New York, New York 10017\n                           Fax: 212-450-4800\n                          Attention: Christopher Mayer\n\n                  if to the Company, to:\n\n                           CDnow, Inc.\n                           1005 Virginia Drive\n                           Ft. Washington, PA 19034\n                           Fax: 215-619-9521\n                            Attention: David Capozzi\n\n\n                                      36\n\n\n\n                  with a copy to:\n\n                           Morgan Lewis Bockius LLP\n                           1701 Market Street\n                           Philadelphia, PA 19103\n                           Fax: 215-963-5299\n                         Attention: Peter S. Sartorius\n\nor such other address or facsimile number as such party may hereafter specify\nfor the purpose by notice to the other parties hereto. All such notices,\nrequests or other communications shall be deemed received on the date of\nreceipt by the recipient thereof if received prior to 5 p.m. on any business\nday in the place of receipt. Otherwise, any such notice, request or other\ncommunication shall be deemed not to have been received until the next\nsucceeding business day in the place of receipt.\n\n     SECTION 11.02. Entire Agreement; Third Party Beneficiaries; Non- Survival\nof Representations and Warranties. (a) This Agreement, the Confidentiality\nAgreement, and the Convertible Loan Agreement constitute the entire agreement\namong the parties with respect to the subject matter hereof and thereof and\nsupersede all prior agreements, understandings and negotiations, both written\nand oral, among the parties with respect to such subject matter. None of such\nagreements or any other agreement contemplated hereby or thereby (or any\nprovision hereof or thereof) is intended to confer on any person other than the\nparties hereto or thereto any rights or remedies (except that Section 7.03 is\nintended to confer rights and remedies on the persons specified therein).\n\n     (b) The representations and warranties contained herein or in any\nschedule, instrument or other writing delivered pursuant hereto shall not\nsurvive the consummation of the Offer.\n\n     SECTION 11.03. Amendments; No Waivers. (a) Any provision of this Agreement\nmay be amended or waived prior to the Effective Time if, but only if, such\namendment or waiver is in writing and signed, in the case of an amendment, by\nthe Company and Parent or, in the case of a waiver, by the party against whom\nthe waiver is to be effective.\n\n     (b) No failure or delay by any party in exercising any right, power or\nprivilege hereunder shall operate as a waiver thereof nor shall any single or\npartial exercise thereof preclude any other or further exercise thereof or the\nexercise of any other right, power or privilege. The rights and remedies herein\nprovided shall be cumulative and not exclusive of any rights or remedies\nprovided by law.\n\n\n                                      37\n\n\n\n     SECTION 11.04. Expenses. (a) Except as otherwise specified in this Section\n11.04 or agreed in writing by the parties, all costs and expenses incurred in\nconnection with this Agreement and the transactions contemplated hereby shall\nbe paid by the party incurring such cost or expense.\n\n     (b) The Company agrees to pay to Parent (by wire transfer of immediately\navailable funds) an amount equal to\n\n          (i) $3,000,000 prior to or simultaneously with the termination of\n     this Agreement as a result of the occurrence of any of the events set\n     forth in Section 10.01(c) or Section 10.01(d); and\n\n          (ii) actual and reasonable out-of-pocket expenses incurred by Parent\n     or Merger Subsidiary in connection with this Agreement and the\n     transactions contemplated hereby, promptly upon receipt of reasonable\n     documentation of such expenses, in connection with the termination of this\n     Agreement as a result of the occurrence of any of the following events:\n\n               (A) any of the events set forth in Section 10.01(c) or Section\n          10.01(d); or\n\n               (B) the condition set forth in clause (i)(D) of Annex I hereto\n          not having been met as a result of a breach by the Company of its\n          representations and warranties set forth in this Agreement;\n\n     SECTION 11.05. Successors and Assigns. The provisions of this Agreement\nshall be binding upon, inure to the benefit of and be enforceable by the\nparties hereto and their respective successors and assigns; provided that no\nparty may assign, delegate or otherwise transfer any of its rights or\nobligations under this Agreement without the written consent of the other\nparties hereto except that Parent and Merger Subsidiary may assign their rights\nhereunder to any of their respective affiliates.\n\n     SECTION 11.06. Governing Law. This Agreement shall be construed in\naccordance with and governed by the laws of the State of New York, without\nregard to the conflict of laws rules of such state (except that matters\nexpressly governed by Pennsylvania Law shall be governed by such statute).\n\n     SECTION 11.07. Jurisdiction. Any suit, action or proceeding seeking to\nenforce any provision of, or based on any matter arising out of or in\nconnection with, this Agreement or the transactions contemplated hereby may be\nbrought against any of the parties in the United States District Court for the\nSouthern\n\n\n                                      38\n\n\n\nDistrict of New York or any New York state court sitting in the City of New\nYork, and each of the parties hereto hereby consents to the exclusive\njurisdiction of such courts (and of the appropriate appellate courts therefrom)\nin any such suit, action or proceeding and irrevocably waives, to the fullest\nextent permitted by law, any objection which it may now or hereafter have to\nthe laying of the venue of any such suit, action or proceeding in any such\ncourt or that any such suit, action or proceeding which is brought in any such\ncourt has been brought in an inconvenient forum. Process in any such suit,\naction or proceeding may be served on any party anywhere in the world, whether\nwithin or without the jurisdiction of any such court. Without limiting the\ngenerality of the foregoing, each party hereto agrees that service of process\nupon such party as provided in Section 11.01 shall be deemed effective service\nof process upon such party.\n\n     SECTION 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY\nIRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING\nARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED\nHEREBY.\n\n     SECTION 11.09. Counterparts; Effectiveness. This Agreement may be signed\nin any number of counterparts, each of which shall be an original, with the\nsame effect as if the signatures thereto and hereto were upon the same\ninstrument. This Agreement shall become effective when each party hereto shall\nhave received counterparts hereof signed by all of the other parties hereto.\n\n     SECTION 11.10. Captions. The captions herein are included for convenience\nof reference only and shall be ignored in the construction or interpretation\nhereof.\n\n     SECTION 11.11. Specific Performance. The parties hereto agree that\nirreparable damage would occur if any provision of this Agreement were not\nperformed in accordance with the terms hereof and that the parties (a) will\nwaive, in any action for specific performance, the defense of adequacy of a\nremedy at law and the posting of any bond in connection therewith and (b) shall\nbe entitled to an injunction or injunctions to prevent breaches of this\nAgreement or to enforce specifically the terms and provisions of this Agreement\nin the United States District Court for the Southern District of New York or\nany New York state court sitting in the City of New York, in addition to any\nother remedy to which they are entitled at law or in equity.\n\n     SECTION 11.12. Joint and Several Liability. Parent and Merger Subsidiary\nhereby agree that they will be jointly and severally liable for all\n\n\n                                      39\n\n\n\ncovenants, agreements, obligations and representations and warranties made by\neither of them in this Agreement.\n\n     SECTION 11.13. Definitions and Usage. (a) For purposes of this Agreement:\n\n     \"affiliate\" means, with respect to any person, any other person directly\nor indirectly controlling, controlled by, or under common control with such\nperson.\n\n     \"material adverse effect\" means, with respect to any person, a material\nadverse effect on the business, assets, financial condition or results of\noperations of such person and its subsidiaries, taken as a whole; provided,\nhowever, that the effects relating to (i) the announcement of the transactions\ncontemplated hereby, or (ii) changes in the industry in which the Company\noperates which do not disproportionately effect the Company, shall not be\ndeemed to constitute a material adverse effect.\n\n     \"person\" means an individual, corporation, partnership, limited liability\ncompany, association, trust or other entity or organization, including a\ngovernment or political subdivision or an agency or instrumentality thereof.\n\n     \"subsidiary\" means, with respect to any person, any entity of which\nsecurities or other ownership interests having ordinary voting power to elect a\nmajority of the board of directors or other persons performing similar\nfunctions are at any time directly or indirectly owned by such person.\n\n     (b) A reference in this Agreement to any statute shall be to such statute\nas amended from time to time, and to the rules and regulations promulgated\nthereunder.\n\n     (c) Each of the following terms is defined in the Section set forth\nopposite such term:\n\nTerm                                                                Section\n----                                                                -------\n1933 Act............................................................4.03\n1934 Act............................................................4.03\nAcquisition Proposal................................................6.03\nBenefit Plans.......................................................4.14\nCertificates........................................................2.03\nCode................................................................2.03\nCompany.............................................................preamble\nCompany 10-Q........................................................4.08\nCompany Balance Sheet...............................................4.08\nCompany Balance Sheet Date..........................................4.08\nCompany Disclosure Documents........................................4.09\n\n\n                                      40\n\n\n\nTerm                                                                Section\n----                                                                -------\nCompany Filings.....................................................4.07\nCompany Financial Advisor...........................................1.02\nCompany Proxy Statement.............................................4.09\nCompany Stock.......................................................1.01\nConfidentiality Agreement...........................................6.03\nContinuing Directors................................................1.03\nConvertible Loan Agreement..........................................4.20\nConvertible Notes...................................................4.05\nEffective Time......................................................2.01\nEnvironmental Law...................................................4.17\nERISA Affiliate.....................................................4.14\nDepositary..........................................................2.03\nGAAP................................................................4.08\nHSR Act.............................................................4.03\nIndemnified Party...................................................7.03\nIntellectual Property Rights........................................4.19\nLien................................................................4.04\nMarket Price........................................................1.01\nMerger..............................................................2.01\nMerger Consideration................................................2.02\nMerger Subsidiary...................................................preamble\nMinimum Condition...................................................1.01\nMultiemployer Plan..................................................4.14\nOffer...............................................................1.01\nOffer Documents.....................................................1.01\nOption Plans........................................................4.05\nOffer Price.........................................................1.01\nParent..............................................................preamble\nPennsylvania Law....................................................1.02\nSchedule 14D-9......................................................1.02\nSEC.................................................................1.01\nStock Options ......................................................2.04\nShareholder Approval................................................6.02\nShareholder Meeting.................................................6.02\nSuperior Proposal...................................................6.03\nSurviving Corporation...............................................2.01\nTax.................................................................4.13\nTax Return..........................................................4.13\nTaxing Authority....................................................4.13\nWARN................................................................4.14\nWarrants............................................................4.05\n\n\n                                      41\n\n\n\n     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be\nduly executed by their respective authorized officers as of the day and year\nfirst above written.\n\n                                  BERTELSMANN, INC.\n\n\n                                  By: \/s\/ Robert J. Sorrentino\n                                     --------------------------------------\n                                     Title: President and Chief Executive\n                                              Officer\n\n\n                                  CDnow, INC.\n\n\n                                  By: \/s\/ Jason Olim\n                                     --------------------------------------\n                                     Title: President and Chief Executive\n                                              Officer\n\n\n                                  BINC ACQUISITION CORP.\n\n\n                                  By \/s\/ Robert J. Sorrentino\n                                     --------------------------------------\n                                     Title: President\n\n\n\n\n\n                                                                        ANNEX I\n\n\nNotwithstanding any other provision of the Offer, Merger Subsidiary shall not\nbe required to accept for payment or pay for any shares of Company Stock, and\nmay, subject to the terms of this Agreement, terminate the Offer, if\n\n     (i) at the expiration of the Offer, (A) the Minimum Condition has not been\nsatisfied, (B) the applicable waiting periods under the HSR Act or other\napplicable antitrust or competition laws shall not have expired or been\nterminated, (C) all consents and approvals from any governmental body, agency,\nofficial or authority or any other person necessary in order to consummate the\nOffer and the Merger shall not have been obtained except for such consents and\napprovals that individually or in the aggregate could not reasonably be\nexpected to have a material adverse effect on the Company, (D) the\nrepresentations and warranties of the Company set forth in this Agreement shall\nnot be true and accurate as of the expiration of the Offer as though made on or\nas of such date (except for those representations and warranties that expressly\naddress matters only as of a particular date or only with respect to a specific\nperiod of time which need only be true and accurate as of such date or with\nrespect to such period) or (E) the Company shall have failed to perform or\ncomply in all material respects with any of its obligations, agreements or\ncovenants required by this Agreement; or\n\n     (ii) at any time on or after July 19, 2000 and prior to the acceptance for\npayment of shares of Company Stock, any of the following conditions exist:\n\n     (a) there shall be any law, rule, regulation, judgment, order, injunction\nor decree enacted, entered, enforced, promulgated or deemed applicable to the\nOffer or the Merger, other than the application to the Offer or the Merger of\napplicable waiting periods under the HSR Act, that prohibits the consummation\nof the Offer, the Merger or any other transaction contemplated by the Merger\nAgreement; or\n\n     (b) this Agreement shall have been terminated in accordance with its\nterms.\n\n     The foregoing conditions are for the sole benefit of Parent and Merger\nSubsidiary and may, subject to the terms of this Agreement, be waived by Parent\nand Merger Subsidiary in whole or in part at any time and from time to time in\ntheir discretion.\n\n<\/pre>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_contracts_companies":[7037],"corporate_contracts_industries":[9497],"corporate_contracts_types":[9622,9626],"class_list":["post-43034","corporate_contracts","type-corporate_contracts","status-publish","hentry","corporate_contracts_companies-cdnow-inc","corporate_contracts_industries-retail__electronics","corporate_contracts_types-planning","corporate_contracts_types-planning__merger"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts\/43034","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate_contracts"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=43034"}],"wp:term":[{"taxonomy":"corporate_contracts_companies","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_companies?post=43034"},{"taxonomy":"corporate_contracts_industries","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_industries?post=43034"},{"taxonomy":"corporate_contracts_types","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_types?post=43034"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}