<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1999
REGISTRATION NO. 333-87547
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ARTISTDIRECT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 95-4760230
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
17835 VENTURA BOULEVARD, SUITE 310
ENCINO, CALIFORNIA 91316
(818) 758-8700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES B. CARROLL
CHIEF FINANCIAL OFFICER
17835 VENTURA BOULEVARD, SUITE 310
ENCINO, CALIFORNIA 91316
(818) 758-8700
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD A. FINK, ESQ. STEVEN L. GROSSMAN, ESQ.
JOSEPH H. CHI, ESQ. ROBERT E. BENFIELD, ESQ.
KOUROSH VOSSOUGHI, ESQ. O'MELVENY & MYERS LLP
BROBECK, PHLEGER & HARRISON LLP 1999 AVENUE OF THE STARS, SUITE 700
38 TECHNOLOGY DRIVE LOS ANGELES, CALIFORNIA 90067
IRVINE, CALIFORNIA 92618 (310) 553-6700
(949) 790-6300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Commission and
the NASD and Nasdaq National Market filing fees.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ----------
<S> <C>
SEC registration fee........................................ $23,977.50
NASD filing fee............................................. 9,125
Blue sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
----------
Total............................................. *
==========
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ARTISTdirect, Inc. (the "Company") is a Delaware corporation. Article VI of
the Company's Bylaws provides that the Company may indemnify its officers and
Directors to the full extent permitted by law. Section 145 of the General
Corporation Law of the State of Delaware (the "GCL") provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding provided that such director or officer acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, provided that such director or officer had no cause to believe his
or her conduct was unlawful.
Subsection (b) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided that
such director or officer acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such director or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action was brought shall determined that despite the
adjudication of liability such
II-1
<PAGE> 3
director or officer is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith; that indemnification provided for by Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the corporation shall have power to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or her or incurred by him or her in any such
capacity or arising out of his or her status as such whether or not the
corporation would have the power to indemnify him or her against such
liabilities under Section 145.
Reference is made to the Form of Underwriting Agreement (to be filed as
Exhibit 1.1 to this Registration Statement) which provides for indemnification
by the Underwriters under certain circumstances of the directors and officers of
the Company signing the Registration Statement and certain controlling persons
of the Company against certain liabilities, including those arising under the
Securities Act.
The Company carries directors' and officers' liability insurance covering
its directors and officers.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the transactions by ARTISTdirect LLC,
predecessor to the Company since it was organized in August 1996, involving
sales of the Company's securities that were not registered under the Securities
Act. All of the numbers reflect the 35-for-1 forward unit split that occurred in
May 1999 with respect to common and preferred securities of ARTISTdirect, LLC,
but do not reflect the one-for-four reverse stock split of ARTISTdirect, Inc.
that will occur upon the closing of this offering.
(a) In September 1996, ARTISTdirect, LLC issued 17,461,365 common
securities to two of the three founders of the Company, Marc Geiger and
Don Muller, in connection with services rendered and to be rendered.
(b) In January 1998, ARTISTdirect, LLC issued 4,014,107 common securities
to the other founder of the Company, Keith Yokomoto, and 1,204,232
common securities to L&G Associates One, in connection with services
rendered and to be rendered. L&G Associates One is affiliated with
Allen Lenard, one of the Company's directors.
(c) In June 1998, ARTISTdirect, LLC issued 1,605,643 common securities to
Steve Rennie and 401,411 common securities to Robert Morse in
connection with services rendered and to be rendered. Mr. Rennie is an
executive officer of the Company.
(d) Throughout 1998, ARTISTdirect, LLC periodically issued additional
common securities, for no additional consideration, to Messrs.
Yokomoto, Rennie and Morse and L&G Associates One. In connection with
each of these issuances, Messrs. Geiger and Muller contributed the same
number of common securities to ARTISTdirect, LLC, for no consideration.
(e) In July 1998, we issued 200,705 shares of common securities to each of
Messrs. Geiger and Muller in exchange for their interests in
ARTISTdirect Holdings, L.L.C.
II-2
<PAGE> 4
(f) Between July 1998 and December 1998, ARTISTdirect, LLC issued a total
of 9,458,340 Series A preferred securities for an aggregate purchase
price of $2,910,000 to several outside investors.
(g) In May 1999, ARTISTdirect, LLC issued a total of 13,982,207 common
securities and 3,372,920 Series A preferred securities to the members
of UBL, LLC in exchange for the 8,042,134 common securities and
1,940,000 preferred securities of UBL held by such members.
(h) In May 1999, ARTISTdirect, LLC issued a total of 15,000,000 Series B
preferred securities for an aggregate purchase price of $15,000,000 to
several outside investors. In connection with this transaction, holders
of ARTISTdirect, LLC's Series A preferred securities received an
aggregate of 354,526 common securities of ARTISTdirect, LLC and $96,000
in exchange for accrued and unpaid preferred returns on their Series A
preferred securities.
From August 1998 to August 1999, we granted options to purchase an
aggregate of 2,619,200 shares of common stock to our directors, executive
officers, employees, artists and consultants at a weighted average exercise
price of $3.45. As of August 31, 1998, options to purchase 261,746 shares at an
exercise price of $1.24 per share, 94,972 shares at an exercise price of $2.32
per share, 2,287,935 shares at an exercise price of $3.60 per share and 879,686
shares at an exercise price of $4.00 per share were outstanding.
None of the foregoing transactions involved any public offering, and the
Company believes that at the time of each transaction, the transaction was
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant
to compensatory benefit plans and contracts relating to compensation as provided
under such rule. The recipients in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the share certificates and instruments, as applicable, issued in
such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Company. As set forth
on page 76 of the prospectus contained in this registration statement, the
Company intends to make a rescission offer with respect to certain shares of its
common stock issued pursuant to option exercises.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated Certificate of Incorporation of the
Registrant.
3.3* Bylaws of the Registrant.
3.4* Amended and Restated Bylaws of the Registrant.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Agreement dated as of November 15, 1996, between the RCA
Records Label and the Registrant.
10.3+ BMI Music Performance Agreement for the UBL, dated October
9, 1998.
10.4+ AT&T Dedicated Hosting Service Agreement, dated April 16,
1999, between AT&T and the Registrant.
</TABLE>
II-3
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
10.5* Settlement Agreement and Mutual General Release, dated as of
October 23, 1997, between William Elson, on the one hand,
and the Registrant, MGE, LLC, Marc Geiger and Donald Muller,
on the other hand.
10.6+ Database, On-Line Internet Retail Store and Consumer Direct
Fulfillment Services Agreement, dated as of August 15, 1998,
between AEC One Stop Group, Inc. and the UBL.
10.7 Securities Purchase Agreement, dated July 28, 1998, among
the Registrant, the UBL, Constellation Venture Capital, L.P
and Constellation Ventures (BVI), Inc.
10.8* Second Amended and Restated Registration Rights Agreement,
dated as of May 18, 1999, by and among AD and the other
parties who are signatories thereto.
10.9 UBL Exchange, Contribution and Distribution Agreement, dated
May 18, 1999.
10.10 Exchange Agreement, dated February 17, 1999, by and among
the UBL, Scott Blum and Eric Benjamin.
10.11 Contingent Loan Agreement, dated February 17, 1999, by and
between the UBL and Scott Blum.
10.12 Letter Agreement, dated February 17, 1999, between the UBL
and Scott Blum regarding bonuses to cover interest
obligations under the Contingent Loan Agreement.
10.13 Issuance, Noncompetition and Nonsolicitation Agreement,
dated as of September 1, 1996, between the Registrant and
Keith Yokomoto.
10.14 Issuance Agreement, dated as of January 1, 1998, between the
Registrant, Marc Geiger, Donald Muller, and L&G Associates
One.
10.15 Issuance, Noncompetition and Nonsolicitation Agreement,
dated as of June 30, 1998, between the Registrant and Steve
Rennie.
10.16 Deferred Compensation Agreement, dated as of July 1, 1998,
by and between Keith Yokomoto and the Registrant dated July
1, 1998.
10.17 Employment Agreement, dated as of January 1, 1998, between
Keith Yokomoto and the Registrant.
10.18 Employment Agreement, dated as of April 1, 1998, between
Steve Rennie and the UBL.
10.19 Employment Agreement, dated as of July 28, 1998, between
Marc Geiger and the Registrant.
10.20 Employment Agreement, dated as of July 28, 1998, between Don
Muller and the Registrant.
10.21* 1999 Employee Stock Purchase Plan.
10.22* 1999 Artist Stock Option Plan.
10.23* 1999 Stock Option Plan.
10.24* 1999 Artist and Artist Advisor Stock Option Plan.
10.25+ Agreement to license Pandesic E-business Solution Service
between Pandesic LLC, AD and UBL.
10.26+ ADNM Merchandiser Agreement, dated as of April 1, 1999,
between Giant Merchandising and ARTISTdirect New Media, LLC.
10.27+ ADNM Merchandiser Agreement, dated as of June 7, 1999,
between Winterland Concessions Company and ARTISTdirect New
Media, LLC.
10.28+ UBL Merchandiser Agreement, dated as of April 1, 1999,
between Giant Merchandising and ARTISTdirect New Media, LLC.
21.1* Subsidiaries of ARTISTdirect, Inc.
23.1* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
</TABLE>
II-4
<PAGE> 6
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
23.2** Consent of KPMG LLP with respect to ARTISTdirect, LLC and
subsidiaries.
23.3** Consent of KPMG LLP with respect to iMusic, Inc.
24.1** Powers of Attorney (See page II-6).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed by the Registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of this
exhibit pursuant to Rule 406 under the Securities Act. In accordance with Rule
406, these confidential portions will be omitted from this exhibit and filed
separately with the Commission.
ITEM 17. UNDERTAKINGS
1. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
2. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on the 14th day of October 1999.
ARTISTDIRECT, INC.
By: /s/ MARC P. GEIGER
------------------------------------
Marc P. Geiger
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARC P. GEIGER Chief Executive Officer and October 14, 1999
- ----------------------------------------------------- Chairman of the Board
Marc P. Geiger (Principal Executive
Officer)
DONALD P. MULLER * President, ARTISTdirect October 14, 1999
- ----------------------------------------------------- Agency and Kneeling Elephant
Donald P. Muller Records and Director
KEITH YOKOMOTO * Chief Operating Officer, October 14, 1999
- ----------------------------------------------------- President and Director
Keith Yokomoto
/s/ JAMES B. CARROLL Executive Vice President and October 14, 1999
- ----------------------------------------------------- Chief Financial Officer
James B. Carroll (Principal Financial and
Accounting Officer)
ALLEN D. LENARD * Director October 14, 1999
- -----------------------------------------------------
Allen D. Lenard
CLIFFORD H. FRIEDMAN * Director October 14, 1999
- -----------------------------------------------------
Clifford H. Friedman
STEPHEN KRUPA * Director October 14, 1999
- -----------------------------------------------------
Stephen Krupa
RICK RUBIN * Director October 14, 1999
- -----------------------------------------------------
Rick Rubin
* Power of attorney
By: /s/ JAMES B. CARROLL
- -----------------------------------------------------
James B. Carroll
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement..............................
3.1* Amended and Restated Certificate of Incorporation of the
Registrant..................................................
3.2* Amended and Restated Certificate of Incorporation of the
Registrant..................................................
3.3* Bylaws of the Registrant....................................
3.4* Amended and Restated Bylaws of the Registrant...............
5.1* Opinion of Brobeck, Phleger & Harrison LLP..................
10.1+ Agreement dated as of November 15, 1996, between the RCA
Records Label and the Registrant............................
10.3+ BMI Music Performance Agreement for the UBL, dated October
9, 1998.....................................................
10.4+ AT&T Dedicated Hosting Service Agreement, dated April 16,
1999, between AT&T and the Registrant.......................
10.5* Settlement Agreement and Mutual General Release, dated as of
October 23, 1997, between William Elson, on the one hand,
and the Registrant, MGE, LLC, Marc Geiger and Donald Muller,
on the other hand...........................................
10.6+ Database, On-Line Internet Retail Store and Consumer Direct
Fulfillment Services Agreement, dated as of August 15, 1998,
between AEC One Stop Group, Inc. and the UBL................
10.7 Securities Purchase Agreement, dated July 28, 1998, among
the Registrant, the UBL, Constellation Venture Capital, L.P
and Constellation Ventures (BVI), Inc.......................
10.8* Second Amended and Restated Registration Rights Agreement,
dated as of May 18, 1999 by and among AD and the other
parties who are signatories thereto.........................
10.9 UBL Exchange, Contribution and Distribution Agreement, dated
May 18, 1999................................................
10.10 Exchange Agreement, dated February 17, 1999, by and among
the UBL, Scott Blum and Eric Benjamin.......................
10.11 Contingent Loan Agreement, dated February 17, 1999, by and
between the UBL and Scott Blum..............................
10.12 Letter Agreement, dated February 17, 1999, between the UBL
and Scott Blum regarding bonuses to cover interest
obligations under the Contingent Loan Agreement.............
10.13 Issuance, Noncompetition and Nonsolicitation Agreement,
dated as of September 1, 1996, between the Registrant and
Keith Yokomoto..............................................
10.14 Issuance Agreement, dated as of January 1, 1998, between the
Registrant, Marc Geiger, Donald Muller, and L&G Associates
One.........................................................
10.15 Issuance, Noncompetition and Nonsolicitation Agreement,
dated as of June 30, 1998, between the Registrant and Steve
Rennie......................................................
10.16 Deferred Compensation Agreement, dated as of July 1, 1998
between Keith Yokomoto and the Registrant dated July 1,
1998........................................................
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- ------------
<S> <C> <C>
10.17 Employment Agreement, dated as of January 1, 1998, between
Keith Yokomoto and the Registrant...........................
10.18 Employment Agreement, dated as of April 1, 1998, between
Steve Rennie and the UBL....................................
10.19 Employment Agreement, dated as of July 28, 1998, between
Marc Geiger and the Registrant..............................
10.20 Employment Agreement, dated as of July 28, 1998, between Don
Muller and the Registrant...................................
10.21* 1999 Employee Stock Purchase Plan...........................
10.22* 1999 Artist Stock Option Plan...............................
10.23* 1999 Stock Incentive Plan...................................
10.24* 1999 Artist and Artist Advisor Stock Option Plan............
10.25+ Agreement to license Pandesic E-business Solution Service
between Pandesic LLC, AD and UBL............................
10.26+ ADNM Merchandiser Agreement, dated as of April 1, 1999,
between Giant Merchandising and ARTISTdirect New Media,
LLC.........................................................
10.27+ ADNM Merchandiser Agreement, dated as of June 7, 1999,
between Winterland Concessions Company and ARTISTdirect New
Media, LLC..................................................
10.28+ UBL Merchandiser Agreement, dated as of April 1, 1999,
between Giant Merchandising and ARTISTdirect New Media,
LLC.........................................................
21.1* Subsidiaries of ARTISTdirect, Inc...........................
23.1* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1)................................................
23.2** Consent of KPMG LLP with respect to ARTISTdirect, LLC and
subsidiaries................................................
23.3** Consent of KPMG LLP with respect to iMusic, Inc.............
24.1** Powers of Attorney (See page II-6)..........................
27.1** Financial Data Schedule.....................................
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed by the Registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of this
exhibit pursuant to Rule 406 under the Securities Act. In accordance with
Rule 406, these confidential portions will be omitted from this exhibit and
filed separately with the Commission.
<PAGE> 1
REDACTED
EXHIBIT 10.1
The following shall constitute the agreement, between THE RCA RECORDS
LABEL, a unit of BMG ENTERTAINMENT ("RCA") and ARTIST DIRECT LLC ("AD"), dated
as of November 15, 1996, with respect to creation of a record label ("Label") to
be managed by AD and funded by RCA as set forth below. The parties hereto agree
to negotiate reasonably, in good faith a more formal agreement consistent with
the terms of this Agreement (the "Formal Agreement"), provided that until the
Formal Agreement is fully executed, this Agreement shall be deemed binding and
fully effective and shall constitute the entire agreement between the parties.
RCA's good faith reasonableness in negotiating the Formal Agreement shall be
judged by reference to RCA's customary business practices relating to comparable
deals.
I. PURPOSE:
A. The Label will identify, secure, and develop recording artists
("Artists").
B. Initially, AD's participation in the proceeds from the
exploitation of master recordings by the Artists will be on a
royalty basis as set forth in paragraph V below (the "Label
Deal"). However, if the provisions of paragraph III.C are
applicable, AD's participation in the proceeds from the
exploitation of master recordings by the Artists shall be
converted into a profit participation (the "Profit Deal").
C. In either event, the Artists' records will be released under the
AD label throughout the world. In the United States, the
Artists' records will be distributed through BMG Distribution,
it being understood and agreed that RCA will not release the
Artists' records in the United States through "independent"
distribution channels without AD's consent. The release of
records through "independent" distribution channels outside of
the United States shall be governed by subparagraph VI.B.2
below.
D. An affiliate of AD ("NT Affiliate") will have the right to
purchase Artist's records from BMG pursuant to its standard
"price card" to customers in the United States. RCA represents
and warrants that the "price card" attached hereto as Exhibit
"A" is in effect as of the date hereof. [***]. At such times
during the term of this Agreement that BMG changes its "price
cards" to its regular customers in the United States, the prices
set forth in said Exhibit "A" shall be automatically increased
or decreased accordingly. Subject to paragraph I.E.3 hereof, the
NT Affiliate shall have the right to sell such records through
non-traditional developing distribution channels throughout the
world (e.g., sales over the Internet and other similar networks
and sales at tour locations) (collectively, "Non-Traditional
Channels").
- --------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
1
<PAGE> 2
E. RCA acknowledges that the NT Affiliate will also be in the
business of entering into agreements with recording artists
specifically for the purpose of distributing product through
Non-Traditional Channels ("NT Product"). In this regard, RCA
recognizes that it is the intention of the NT Affiliate that
[***].
1. If the NT Affiliate acquires the right to distribute the
NT Product through traditional channels of distribution,
[***].
2. [***].
3. [***].
II. TERRITORY: The world.
III. TERM AND PROFIT SHARING CONVERSION:
A. Subject to paragraph III.C below, the term of the Agreement will
be three (3) years commencing upon January 1, 1997. However, if
as set forth in paragraph III.C below, the Label Deal is
converted to the Profit Deal (the "Conversion"), then the term
of Profit Deal shall be equal to six (6) years minus the term of
the Label Deal. All references herein to the "Term" shall mean
the term of the Label Deal and, if applicable, the term of the
Profit Deal.
B. Subject to paragraph III.C below, RCA will have the option to
terminate the Term as of the end of the third year of the Term
("Early Termination Right"). In which event:
1. If the Label has had [***] in net billings during the
term of the Label Deal, or (ii) [***] in net billings in
the 3rd year of the Label Deal, the assets of the Label
will not be divided between RCA and AD.
2. If the Label has had (i) [***] in net billings during
the Label Term, and (ii) [***] in net billings during
the 3rd year of the term of the Label Deal, the assets
of the Label will be divided between RCA and AD, with AD
having the first pick of the Artists.
3. If the terms of paragraph III.B.1 and III.B.2 are not
applicable, the assets of the Label will be divided
between RCA and AD, with RCA having the first pick of
the Artists.
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4. The party who has the first pick can elect to transfer
such first pick to other party. The party who has the
second pick pursuant to either paragraphs III.B.2 or
III.B.3 above will pick the next 2 Artists; thereafter,
the parties will alternate by picking 1 Artist until all
of the Artists have been divided.
5. Rights and Royalty Overrides After the Exercise of the
Early Termination Right:
(a) RCA shall retain the ownership to all product
("Pre-Conversion Product") released by RCA prior
to the date (the "Termination Date") of RCA's
exercise of the Early Termination Right.
(b) With respect to all Artists kept by RCA under
any of the above scenarios ("RCA Retained
Artists"), RCA shall have the unilateral right
to exercise all creative decisions thereafter,
subject to good faith consultation with Marc or
Don provided either of them are available. Prior
to the execution of the Formal Agreement, the
parties agree to negotiate in good faith a
procedure which would allow either party to
pick-up an Artist after the Label Term (without
a royalty override or other participation) if
the other party should decide thereafter not to
exercise an option under an Artist Agreement.
(c) RCA shall continue to advance the Artist
advances and recording funds with respect to
records to be recorded by the Artist after the
Termination Date.
(d) RCA will continue to account to AD on a royalty
basis (the "AD Royalty Participation") for all
records subject to an Artist Agreement in
perpetuity. With respect to product recorded by
a RCA Retained Artist prior to the Termination
Date and all product recorded by a RCA Retained
Artist as of the date a RCA Retained Artist
delivers under the applicable Artist Agreement
the second album recorded after the Termination
Date, the AD Royalty Participation shall be the
amount (the "Label Royalty Spread") by which the
royalty payable to AD pursuant to paragraph V
hereof exceeds the "all-in "royalties payable to
the applicable RCA Retained Artist (including
producer royalties) ("Artist Royalties"). With
respect to product recorded after the delivery
of such second album, the AD Royalty
Participation shall be the Label Royalty Spread
less 50% of any increases in the Artist
Royalties agreed to by RCA after the Termination
Date. Notwithstanding the foregoing, in no event
shall the Ad
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Royalty Participation be less than [***] of the
SRLP with respect to 100% (less free goods and
discounts) of top-line net sales of albums
through normal retail channels in the United
States ("USNRC Album Sales"). The AD Royalty
Participation shall be calculated, reduced and
paid in accordance with the terms of the Formal
Agreement with respect to USNRC Album Sales and
with respect to all other exploitations of the
applicable master recordings. The payment of the
AD Royalty Participation shall continue to be
subject to the recoupment provisions contained
in paragraph IV.G hereof.
(e) Notwithstanding RCA's exercise of the Early
Termination Right, AD will continue to own the
name of the Label; it being understood and
agreed, however, that all prior and future
product under an Artist Agreement shall be
released under the Label's name.
(f) With respect to each Artist that is picked by
AD, RCA shall be entitled to an override royalty
("RCA Override"). With respect to 100% (less
free goods and discounts) of USNRC Album Sales
sold by AD on a "p&d" and/or profit sharing
basis, the RCA Override shall be the lesser of
(i) [***] of the SRLP, or (ii) [***]. In such
event, the RCA Override with respect to USNRC
Album Sales and with respect to all other
exploitations of the applicable master
recordings shall be calculated, reduced and paid
in accordance with the applicable Artist
Agreement. With respect to sales of records
through a third party distribution agreement
where AD is paid a royalty and does not pay or
is charged with the manufacturing costs of the
records, the RCA Override shall be equal to
[***] of the difference between the royalty
rates payable to AD under such agreement and the
"all-in" royalties payable to the Artists,
producers and other third party royalty
participants. The RCA Override shall only be
payable to RCA with respect to master recordings
recorded by each Artist prior to the release of
the second newly-recorded album after the
exercise of the Early Termination Right
(including those master recordings contained on
such second album), but shall not be payable
with respect to product distributed by RCA or
any affiliate controlled by RCA. The RCA
Override shall be payable in respect of each
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applicable LP prospectively after recoupment of
the recording costs and artist advances paid in
connection with the LP concerned. Such
recoupment will be calculated at a royalty rate
of [***] of the SRLP with respect to USNRC Album
Sales, whether AD is paid on a royalty basis or
a profit sharing (or "p&d") basis.
C. The Label Deal will automatically convert to a Profit Deal at
the end of the first 3 years, unless RCA exercises the Early
Termination Right. However, if prior to the end of the first 3
years, the aggregate net billings of the Label exceed either (i)
[***] in Qualified Sales, or (ii) [***] in Aggregate Sales, the
Label Deal will automatically convert to the Profit Deal at the
end of the first semi-annual accounting period during which such
sales are achieved ("Conversion Date"). For purposes of the
above calculation, as used herein:
1. the term "Qualified Sales" shall mean [***];
2. the term "Aggregate Sales" shall mean [***]; and
3. the term "net billings" for purposes of determining
Qualified Sales and Aggregate Sales shall mean:
(a) [***]
(b) [***].
IV. LABEL FUNDING AND RECOUPMENT UNDER THE LABEL DEAL:
A. Signing Payment: [***], payable on January 2, 1997.
B. Overhead Advances: [***] per year, [***] of which will be
payable [***].
C. Sales Bonus Overhead Payments: Promptly after the following
events, RCA will pay AD:
1. a sales bonus of [***] for the first album which sells
more than [***] USNRC units, of which [***] shall be
non-recoupable;
2. a sales bonus of [***] for the first album which sells
more than [***] USNRC units, of which [***] shall be
non-recoupable;
3. a sales bonus of [***] for the first album which sells
more than [***] USNRC units, of which [***] shall be
non-recoupable, and
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4. a sales bonus of [***] for the first album which sells
more than [***] USNRC units, of which [***] shall be
non-recoupable.
For the avoidance of doubt, each bonus payment will be a
one-time only payment, which shall be paid in respect of the
first album to achieve the applicable threshold during the Label
Term.
D. A&R:
1. AD shall sign at least 3 Artists during each year of the
Label Term. If at the end of any year of the Label Term,
AD has signed less than 3 Artists in such year, RCA
shall have the right, by written notice to AD, to
suspend its obligations to AD (other than the payment of
Artist and producer advances and royalties) and the term
of the Term until such artists are signed. If any such
suspension continues for 12 months, RCA shall have the
right, within 30 days thereafter, to terminate the Term,
and the assets of the Label will not be divided between
RCA and AD.
2. If at the end of the second year of the Term, less than
[***] albums have been delivered by the Artists, RCA
shall have the right, by written notice to AD, to
suspend its obligations to AD (other than the payment of
Artist and producer advances and royalties) and the Term
until such albums are delivered. Further, if at the end
of the third year of the Term and each year thereafter,
less than [***] albums have been delivered by the
Artists in such year, RCA shall have the right, by
written notice to AD, to suspend its obligations to AD
(other than the payment of Artist and producer advances
and royalties) and the Term. If any such suspension
continues for 6 months, RCA shall have the right within
30 days thereafter to terminate the Term, and the assets
of the Label will not be divided between RCA and AD.
3. Initial Product Commitment: Subject to paragraph IV.D.3
hereof, RCA will make available to AD [***] ("Maximum
A&R Funding") in each year of the Label Deal to be spent
on Artist advances and recording costs (including
producer advances) for the initial product commitment
for each Artist. As used herein, the "initial product
commitment" means all product intended to be recorded
under an Artist Agreement prior to the exercise of an
option under the applicable Artist Agreement. The Artist
advances and recording funds for the initial product
commitment will be subject to the mutual approval of AD
and RCA, provided that if RCA does not
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consent to the Artist advances and/or recording funds
for an initial product commitment, neither RCA nor any
company controlled by RCA shall sign the Artist directly
(unless RCA has knowledge of such Artist independently
from AD), and AD may elect to either take the Artist
(each a "Rejected Artist") to another record company
(subject to subparagraph 3(d) below) or, notwithstanding
RCA's non-consent, AD may enter into the Artist
Agreement with the applicable Artists ("AD Selected
Artists") so long as:
(a) the Artist advances and recording fund for a 1
album firm deal do not exceed [***] for the
first album, and the Artist advances and
recording funds for a 2 album firm deal do not
exceed an aggregate of [***] for the first 2
albums:
(b) the aggregate of all Artist advances and
recording funds for the initial product
commitment for all of the AD Selected Artists in
any 1 year of the Term ("Annual A&R Commitment")
do not exceed [***];
(c) with respect to AD Selected Artists after the
first one in each of the second and third years
of the Label Term, the signing of an AD Selected
Artist in the second or third year of the Label
Term would not cause AD to exceed the "Aggregate
Maximum." The Aggregate Maximum would occur in
the second or subsequent year of the Label Term
whenever the "Outstanding Amount" equals or is
more than [***] in the applicable year of the
Term. As used herein, the term "Outstanding
Amount" shall mean the amount, if any, [***]
(d) Notwithstanding anything to the contrary set
forth herein, AD shall not have the right to
sign more than [***] Rejected Artists to another
record company during any Contract Year of the
Term; [***].
4. Unused A&R Funds: If AD spends less than the Maximum A&R
Funding for initial product commitment in any one year,
then AD can use [***] to increase the Maximum A&R
Funding for the next year of the Label Deal.
5. Optional Product: RCA will advance all Artist advances
and recording funds payable with respect to all product
after the initial product commitment, provided that the
Label will not exercise an option under an Artist
Agreement without RCA's consent, not to be
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unreasonably withheld. [Prior to the execution of the
Formal Agreement, the parties agree to negotiate in good
faith a procedure which would allow AD to pick-up an
Artist (without a royalty override or other
participation to RCA) if RCA should decide not to
exercise an option under an Artist Agreement.]
6. Creative Control: AD will meaningfully and fully consult
with RCA on all creative matters. With respect to each
album, AD will regularly furnish copies of recordings
made during the recording process so that RCA may take
advantage of its consultation right, and so that RCA can
begin to make plans regarding the marketing of the album
concerned.
E. RCA's Marketing and Promotion: RCA will commit to spend at least
[***] to market each album released in the United States. Those
amounts will be spent in accordance with RCA's marketing plan.
RCA will fully consult with AD regarding each marketing plan.
F. AD's Marketing and Promotion:
1. In addition to RCA's committed marketing expenditures,
RCA will spend at least [***] as directed by AD for each
album released in the United States. AD will allocate
these amounts for traditional record marketing purposes
(e.g., independent promotion and marketing, tour
support, etc.) in the United States. AD will have the
right to use [***] for the marketing and promotion of
other albums in full consultation with RCA.
2. In addition, during the Label Term, RCA will make
available to AD a minimum of [***] in the aggregate for
use in non-traditional marketing in full consultation
with RCA.
G. Recoupment:
1. Artist Advances. Artist advances [***] will be
recoupable by RCA from [***] of the royalties set forth
in paragraph V below with respect to the applicable
Artist. There will be no cross-collateralization between
Artists' accounts.
2. Signing Advance, Overhead Advances, and Sales Bonus
Overhead Payments. [***] of the Signing Advance and the
Overhead Advances and the recoupable portion of the
Sales Bonus Overhead Payments (as set forth in paragraph
IV.C hereof) shall be
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recoupable from the aggregate of [***] of the royalties
set forth in paragraph V below from all Artists from the
first record sold.
V. ALL-IN ROYALTY RATES UNDER THE LABEL DEAL:
A. RCA will pay AD a royalty of [***] (the "Base Rate") of the SRLP
with respect to [***] of USNRC Album Sales. The Base Rate will
escalate prospectively to [***] with respect to any album by an
Artist which sells more than [***] USNRC units. If any album by
an Artist sells more than [***] USNRC units, the Base Rate for
all subsequently released albums by that Artist will be [***].
RCA will pay AD a royalty of [***] of the SRLP with respect to
[***] of top-line singles sold through normal retail channels in
the United States.
B. The royalty for compact discs will be [***] of the otherwise
applicable royalty rate. However, if an album in all
configurations has USNRC Album Sales in excess of [***], then
the royalty rate for units of that album sold through USNRC in
excess of [***] will be [***] of the otherwise applicable rate,
and the rate for all compact discs of an album by the applicable
Artist released thereafter shall be [***] of the otherwise
applicable rate.
C. If an Artist's record is released on another type of audiophile
record, then, until such time as particular type of audiophile
record equals [***] of the aggregate of industry-wide sales of
all other configurations, the royalty rate for that record and
all other records by that Artist released in that particular
audiophile configuration during such period will be [***] of the
otherwise applicable royalty rate. Thereafter, the parties will
negotiate a royalty rate for the applicable audiophile record.
D. The foregoing royalty rates assume a standard free goods
allowance of [***] for albums sold in the United States in the
cassette configuration, [***] for albums sold in the United
States in the compact disc configuration and [***] for singles,
and standard packaging deductions of [***] for vinyl, [***] for
analog tape, and [***] for compact discs.
E. On sales through normal trade channels outside the United
States, RCA will pay AD a royalty calculated as a percentage of
the otherwise applicable rate as follows: Canada - [***]; the UK
(including Eire) and Japan - [***]; the rest of the EEC
Countries, Switzerland, Australia and New Zealand - [***]; and
R.O.W. - [***].
F. The other royalty terms will be subject to negotiation prior to
execution of the Formal Agreement.
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VI. VARIOUS PROVISIONS APPLICABLE TO BOTH THE LABEL DEAL AND THE PROFIT
DEAL:
A. Artist Agreements: The terms of the Artist Agreements will be
mutually approved as to total product, royalty rates, etc.
However, RCA will pre-approve certain terms so that AD will not
have to obtain RCA's approval as to the pre-approved terms. With
regard to mechanicals, AD will use its best efforts to secure a
[***] controlled composition rate in its Artist Agreements with
a [***] times cap on albums ([***] times cap on CDs) and subject
to an allowance for [***] covers per album at the full minimum
statutory rate.
B. Release Commitment:
1. RCA will be obligated to release each album delivered by
an Artist in satisfaction of its recording commitment in
the United States.
2. Each time an Artist delivers an album, AD shall provide
a pre-release copy of the album to BMG. BMG shall notify
AD within 60 days thereafter whether it will release
such album. If BMG notifies AD that it will release the
album, BMG will release the album in Canada, the EEC,
Japan, and Australia ( the "Release Territories") within
120 days after the initial release of such album in the
United States. Notwithstanding the foregoing, if the
album concerned is submitted to BMG less than 60 days
prior to its initial release date in the United States,
such 120-day period will be extended by the number of
days by which 60 days exceeds the number of days the
album is submitted prior to the initial release date in
the United States. If BMG does not release the album in
any Release Territory within such time period, AD shall
have the right to enter into a licensing agreement in
such Territory, provided that, without the approval of
RCA, (i) the foreign licensee shall not have the right
to release more than the applicable album (such licensee
shall also have the right to release singles derived
from such album), and (ii) the foreign licensee shall
not be affiliated with [***] (or any company affiliated
with [***] or [***]. If BMG notifies AD that it will not
release the album, AD shall have the right to cause a
licensing agreement to be entered into with respect to
territories outside of the United States on the terms
and conditions set forth above, provided that the
parties will negotiate at the time whether such license
will be granted by BMG or directly by AD. Under the
Label Deal, each foreign licensee not controlled by RCA
shall pay [***] of
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all monies to RCA. After paying the applicable Artist
royalty, RCA will take [***] of the proceeds for its own
account and will apply the remaining [***] of the
proceeds to AD's account. Notwithstanding the foregoing,
at AD's election, up to [***] of such proceeds may be
used for international tour support. During the Profit
Deal, the revenues from AD's foreign licensees shall be
deemed income in computing net profits.
C. Finished Goods Purchases: AD and the NT affiliate will be
entitled to purchase finished goods from BMG (at prices to be
mutually agreed upon prior to the execution of the Label Deal)
for the NT Affiliate's exploitation and distribution over the
internet or other networks, at tour locations and other
non-traditional distribution channels.
D. Record Clubs: No record will be sold through a record club in
the United States earlier than 9 months after its initial
release.
VII. DON'S AND MARC'S ENGAGEMENT:
A. [***].
B. Talent Agents: Neither Don nor Marc shall be required under the
Label Deal or the Profit Deal to breach their fiduciary or other
legal obligations to any of their talent agency clients.
VIII. PROFIT DEAL:
A. Management: Promptly after the Conversion Date, AD and RCA shall
negotiate in good faith an operating agreement, which shall
govern the operation of the New Entity. This agreement will
provide, among other matters, that the business of the New
Entity shall be generally run by a Board of Managers comprised
of Don, Marc, and 2 people designated by RCA, one of whom shall
always be a senior executive of RCA. However, the day-to-day
management decisions of the New Entity shall be made by Don and
Marc. In other words, AD shall have sole and absolute discretion
to run the day-to-day operation of the business of the New
Entity through Marc and Don, subject to the New Entity's
business plan which shall be reasonably agreed upon annually by
the Board of Managers.
B. Ownership and Net Profits: AD and RCA will each own 50% of the
New Entity. AD will be entitled to 50% of the net profits under
the Profit Deal, which will be paid within 90 days after each
year of the Profit Deal. Except for possible minimum annual
distributions to cover each party's tax
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obligations with respect to income subject to the Profit Deal,
no net profits will be distributed until RCA has been reimbursed
for all Chargeable Expenses. Net Profits would mean all revenues
to the Label calculated in accordance with GAAP, as consistently
applied to the financial statements of BMG less Chargeable
Expenses. Revenues from sales of records outside the United
States would mean the Matrix paid or credited to RCA by its
foreign affiliates and all monies paid or credited by its
non-affiliated licensees. As used herein, "Chargeable Expenses"
means the Working Capital Advance described below, all third
party, out-of-pocket manufacturing, marketing, promotional and
exploitation costs incurred by RCA in connection with records
initially released after the Conversion Date and certain
pre-Conversion Date costs as set forth in paragraph VIII.E.2
below.
C. Conversion Payment: If the Label Deal converts to a Profit Deal
as a result of AD achieving the automatic conversion target set
forth in paragraph III.C above (the "Automatic Conversion"), RCA
will pay, upon the Conversion Date, a [***] profit advance to
AD. If the Label Deal converts to a Profit Deal as a result of
RCA exercising its option to extend the Term beyond the initial
3 years (the "Optional Conversion"), RCA will pay, upon the
Conversion Date, a [***] profit advance to AD.
D. Working Capital Advance: Operating funds would be made available
by RCA pursuant to mutually approved annual plans on a
non-interest bearing basis. If AD and RCA are unable to agree
upon an annual business plan for any year, the working capital
advance provided for such non-plan year will be an amount equal
to the following amounts based on the assumption that the New
Entity will sign 5 new Artist during such year: (i) A&R funding
equal to [***] for the initial product commitment; (ii) a
minimum of [***] per album release in marketing and promotion
funds, and (iii) overhead payments equal to [***] in the event
of an Automatic Conversion or [***] in the event of an Optional
Conversion. RCA agrees that all or any portion of the overhead
payments may, at AD's election, be paid to Don and Marc as
salary, perquisites and benefits other distributions.
E. Transition Issues:
1. With respect to all sales and other exploitations of
Pre-Conversion Product prior to the Conversation Date,
RCA will account to AD on a royalty basis.
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2. All sales and other exploitations after the Conversions
Date will be subject to the Profit Deal; subject to the
following:
(a) RCA shall license to the New Entity all rights
to exploit and otherwise use the Pre-Conversion
Product throughout the world during the term of
the Profit Deal (i.e., such license shall end at
the end of the Term). In consideration for such
license, the New Entity shall pay RCA a royalty.
Such royalty shall be at the rate of [***] of
the SRLP with respect to [***] (less free goods
and discounts) of USNRC Album Sales. Such
royalty shall be calculated, reduced and paid in
accordance with the terms of the Formal
Agreement with respect to USNRC Album Sales and
with respect to all other exploitations of the
applicable master recordings.
(b) The New Entity shall pay RCA all artist
royalties payable for all sales and
exploitations of the Pre-Conversion Product by
the New Entity until such time as all advances
and other recoupable charges incurred by RCA
prior to the Conversion Date have been recouped.
Thereafter and during the rest of the Term, the
Label shall account to the applicable Artists
with respect to such artist royalties. The New
Entity will also pay RCA for: (i) all
Pre-Conversion inventory; and (ii) all
Pre-Conversion marketing expenses incurred in
connection with product to be initially released
after the Conversion Date.
3. Except as set forth in paragraph VIII.E.2 above, no
other expenditures by RCA under the Label Deal will be
deemed Chargeable Expenses in computing net profits or
will be used to reduce the Working Capital Advance.
F. Domestic Distribution: Net profits shall be calculated [***].
RCA agrees that, prior to the execution of this Agreement, it
has supplied AD with a true and correct written statement of
calculation of such [***].
G. Domestic Manufacturing: Net profits shall be calculated using
the applicable manufacturing and packaging prices paid by RCA
for its own product as set forth in Exhibit "C" hereof.
H. Foreign Revenues: The revenue from foreign sales by an affiliate
of RCA will be calculated using the Matrix paid to RCA by its
foreign affiliates for
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RCA's other product and all monies paid by licensees of RCA and
of the New Entity.
I. Additional Services: RCA shall provide the New Entity with
promotion, marketing, creative services, including video, art,
artist relations, publicity, promotional merchandise, sales,
distribution, general financial, royalty accounting and
administrative services with respect to the New Entity's
product. In consideration of the foregoing services, RCA shall
be entitled to the following fees: (i) [***] of RCA's wholesale
receipts in the United States paid or credited to the New Entity
in the applicable year until such fees equal [***], (ii) [***]
of such receipts between of in the applicable year until such
fees equal [***], and (iii) [***] of such receipts until such
fees equal [***] in the applicable year. Notwithstanding the
foregoing, the fees payable in any one(1) year shall not be in
excess of [***]. Further, if RCA does not perform all of the
foregoing services, the parties shall negotiate in good faith a
reduction in the maximum fees payable in each year, provided
that RCA shall continue to be paid the fees as set forth herein
during the period of such negotiations.
J. Buy-Out:
1. If RCA does not exercise its Early Termination Right, AD
shall have the right, at any time after the date 6
months prior to the end of the 6th year of the Term, to
offer ("Buy-Out Offer") to sell AD's interest in the New
Entity to RCA as of the last day of the Term for a
purchase price equal to the Buy-Out Offer price. If AD
has not made a Buy-Out Offer as of the end of the Term,
RCA shall have the right thereafter to require AD to
make a Buy-Out Offer by notifying AD to such effect. If
AD does not make a Buy-Out Offer within 60 days after
such notice, then RCA shall have the right to suspend
its obligation to make any further payments to AD until
AD makes a Buy-Out Offer.
2. RCA shall either accept the Buy-Out Offer or offer to
sell its interest in the New Entity to AD for the
Buy-Out Offer price, within 30 days after RCA's receipt
of the Buy-Out Offer.
3. If, on the one hand, RCA accepts the Buy-Out Offer, then
RCA shall promptly purchase AD's interest in the New
Entity for the Buy-Out Offer price. If, on the other
hand, RCA offers to sell its interest in the New Entity
to AD, then AD shall notify RCA, within 30 days
thereafter, whether AD is electing to purchase RCA's
interest in the New Entity at the Buy-Out Offer or is
rejecting RCA's offer to sell.
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4. In the event AD rejects RCA's offer to sell RCA's
interest in the New Entity, AD shall be deemed to have
offered to sell to RCA AD's interest in the New Entity
for [***] of the original Buy-Out Offer price. RCA shall
either accept the [***] Buy-Out Offer or offer to sell
its interest in the New Entity to AD for the [***]
Buy-Out Offer or offer to sell its interest in the New
Entity to AD for the [***] Buy-Out Offer price, within
30 days after such notice. If, on the one hand, RCA
accepts the [***] Buy-Out Offer, then RCA shall promptly
purchase AD's interest in the New Entity for the [***]
Buy-Out Offer price. If, on the other hand, RCA offers
to sell its interest in the New Entity to AD, then AD
shall notify RCA, within 30 days thereafter, whether AD
is electing to purchase RCA's interest in the New Entity
at the [***] Buy-Out Offer or is rejecting RCA's offer
to sell.
5. The foregoing procedure will continue with reductions
equal to [***] of the initial Buy-Out Offer price at
each level until one of the parties agrees to purchase
the other party's interest in the New Entity.
6. For the avoidance of doubt, the Pre-Conversion Product
shall not be deemed assets of the New Entity and,
accordingly, shall not be subject to the foregoing
provisions of this paragraph VIII.J.
7. It is understood and agreed that if AD purchases RCA's
interest in the New Entity, [***] of the New Entity's
net losses shall be added to AD's purchase price.
K. Consultants: If RCA purchases AD's interest in the New Entity,
Marc and Don, at RCA's election at the time of RCA's purchase
(provided that RCA will not be able to engage one without the
other), will act as consultants to the Label for one (1) year.
During this period, Marc and Don will not be involved in the
record industry (insofar as traditional record distribution is
concerned) with anyone other than RCA. The salary paid to Marc
and Don during this consultancy will be the same amount as the
salary paid to them during the last year of the Profit Deal. The
other terms related to this consultancy shall be negotiated by
the parties in good faith prior to the execution of the Formal
Agreement.
IX. ANCILLARY RIGHTS: In the event that AD or the Label (or any other entity
owned or controlled, directly or indirectly, by the Marc and Don)
obtains music publishing or merchandising rights with respect to any
artist, RCA or its affiliates will be given the first opportunity to
exploit such rights on reasonable business terms. "Reasonableness" in
the preceding sentence will be judged by references
- --------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
15
<PAGE> 16
to ordinary course, arms-length negotiations conducted in good faith. If
the parties are unable to reach agreement with respect to ancillary
rights in any case, AD and its affiliates will not do a deal with any
third party on terms less favorable than the terms offered to RCA or its
affiliate without first offering such terms to RCA or its affiliate.
X. KEY MAN: During the Term, both Don and Marc will be deemed to be "key
men." Accordingly, if either of them cease to perform or becomes unable
to perform their respective obligations during the Term, RCA will have
the option to terminate the Term.
XI. LEGAL FEES: RCA will not be responsible for any legal or consultancy
fees incurred in connection with the negotiation of this transaction.
XII. WARRANTIES: Each of the parties hereto represents and warrants that: (i)
it has the full right and authority to enter into and fully perform this
agreement; (ii) entering into this agreement will not violate or
infringe upon the rights of any third party: and (iii) it is under no
disability, restriction, or prohibition with respect to its rights to
enter into, and fulfill, all of its obligations under this agreement.
XIII. MISCELLANEOUS: All reference to "this Agreement," "hereof," "herein,"
"hereunder," and words of similar connotation include all exhibits
attached hereto, unless specified otherwise. This Agreement cannot be
canceled, modified, amended or waived, in part or in full, in any manner
except by an instrument in writing signed by the party to be charged. No
waiver by any party to this Agreement, whether expressed or implied, of
any provision of this Agreement or default hereunder shall affect such
party's right to thereafter enforce such provision or to exercise the
right or remedy set forth in this Agreement in the event of any other
default, whether or not similar. Whenever examples are used in this
Agreement with the words "including," "for example," "e.g.," "such as,"
"etc." or any derivation thereof, such examples are intended to be
illustrative and not in limitation thereof.
RCA RECORDS, INC. ARTIST DIRECT, LLC
By: /s/ Jeff Walker By: /s/ Marc Geiger
------------------------------- -------------------------------
Jeff Walker Marc Geiger
Senior Vice President
Business & Legal Affairs
By: /s/ Marc Geiger
-------------------------------
Marc Geiger
16
<PAGE> 1
REDACTED EXHIBIT 10.3
BMI WEB SITE
MUSIC PERFORMANCE AGREEMENT
http://www.bmi.com
AGREEMENT, made on October 9, 1998, by and between BROADCAST MUSIC, INC.
("BMI"), a New York corporation with its principal offices at 320 West 57th
Street, New York, New York 10019 and ARTISTDIRECT ("LICENSEE") a California
(State)
(check one) [ ] corporation
[ ] partnership
[ ] limited liability company
[ ] individual d/b/a ___________________________ (complete if
applicable) with its principal offices at 17835 Ventura Blvd., Suite 310,
Encino, CA 91316.
IT IS HEREBY AGREED AS FOLLOWS:
1. Definitions.
As used in this Agreement, the following terms shall have the following
respective meanings:
(a) The "Term" of this Agreement shall mean the period from
October 9, 1998 through June 30, 2000 and continuing on a year-to-year basis
thereafter; provided, however, that either party may terminate the Agreement
upon 60 days' prior written notice at the end of June of any year beginning with
June 30, 2000.
(b) "Web Site" shall mean an Internet computer service currently
registered with Internic and known as ULTIMATE BAND LIST that LICENSEE produces
and/or packages and then transmits or causes to be transmitted either directly
or indirectly to persons who receive the service from the URL http://UBL.COM
over the Internet by means of a personal computer or by means of another device
capable of receiving Internet transmissions. LICENSEE agrees that this Agreement
covers only transmissions originating from this Web Site and URL within the
Territory. LICENSEE may list additional Web Sites owned, operated and/or
controlled by LICENSEE on Exhibit A hereto. LICENSEE must comply separately with
all reporting requirements under this Agreement for each Web Site listed on
Exhibit A. References herein to Web Site shall include those additional sites
listed on Exhibit A.
(c) "Territory" shall mean the United States, its territories,
commonwealths and possessions.
(d) "Online Service" shall mean a commercial computer online
information and/or entertainment programming packaging service (including, but
not limited to, America Online, Microsoft Network, CompuServe and Prodigy) which
may offer consumers, for a fee, access to proprietary centralized databases as
well as remote sources of audio and video programming and which may provide
Internet access.
(e) "Web page" shall mean a set of associated files transferred
sequentially to and rendered more or less simultaneously by a browser.
<PAGE> 2
(f) "Page impression" shall mean a transfer request for a single
web page.
(g) "Music page" shall mean a web page which presents an icon
that may be clicked on to access music or at which music is played upon loading
the web page.
(h) "Music impression" shall mean a page impression of a music
page multiplied by the number of music file titles on that page either visible
by means of an icon on that page or otherwise (e.g., a music page with five (5)
music file titles would yield 5 music impressions whenever that page is
requested).
(i) "Gross Revenues" shall mean [***].
(j) "Music Area Revenues" shall mean Gross Revenues multiplied
by a fraction the numerator of which is the total number of music impressions
for the Web Site and the denominator or which is the total number of page
impressions for the Web Site.
2. Grant of Rights.
(a) BMI hereby grants to LICENSEE, for the Term of this
Agreement, a non-exclusive license to perform publicly within the Territory, in
and as part of LICENSEE's Web Site transmitted or caused to be transmitted
either directly or indirectly by LICENSEE over the Internet all musical works,
the rights to grant public performance licenses of which BMI controls. This
license shall include only public performances by transmissions originating from
a server within the Territory and received by listeners via personal computers
or by means of another device capable of receiving the Internet through
streaming technologies as well as those transmissions that are downloaded by
persons on personal computers or otherwise. This license shall not include
dramatic rights or the right to perform dramatico-musical works in whole or in
substantial part. In no event shall this license include transmissions to any
commercial premises where LICENSEE's Web Site is used as a commercial music
service (as that term is currently understood in the industry) or is performed
publicly; such performances of BMI music shall be subject to appropriate
separate BMI license(s).
(b) Nothing herein shall be construed as the grant by BMI of any
license in connection with any transmission which is not party of LICENSEE's Web
Site transmitted or caused to be transmitted by LICENSEE and nothing herein
shall be construed as authorizing LICENSEE to grant to others (including, but
not limited to, online services, cable television system operators and open
video systems (acting as other than Internet service providers)) any license or
right to reproduce or perform publicly by any means, method or process
whatsoever, any of the musical compositions licensed hereunder.
(c) The transmission by LICENSEE of a public performance
licensed hereunder may originate at any place within the Territory whether or
not such place is licensed by BMI.
- ----------
[***] Confidential treatment has been requested for the
bracketed portion. The confidential redacted portion has been omitted
and filed separately with the Securities and Exchange Commission.
2
<PAGE> 3
(d) This Agreement grants only public performing rights to
LICENSEE, and does not grant any reproduction, distribution, performance right
in sound recordings or any other intellectual property right(s) in any musical
compositions to any person or entity that may receive and/or download or
otherwise store the transmission of musical works.
(e) This Agreement only grants to LICENSEE the right to publicly
perform musical works in which and to the extent BMI has been granted the public
performing rights.
(f) LICENSEE represents and warrants that it shall not offer
LICENSEE's Web Site for resale by a third party as a pay or premium audio
service, and that LICENSEE's Web Site shall not be packaged or included on a
tier of services for additional revenues either independently or with other Web
Sites by third parties. The license granted hereunder shall not extend to any
such use of the Web Site.
3. License Fee.
In consideration of the license granted herein, LICENSEE shall pay to
BMI for each quarter year of the Term a license fee equal to either of the
following amounts the choice between which shall be LICENSEE's:
(a) Gross Revenues Calculation. LICENSEE shall pay to BMI [***]
of LICENSEE's Gross Revenues generated by LICENSEE's Web Site during each
quarter year of the Term according to the Payment Schedule set forth below
("Payment Schedule"); or
(b) Music Area Revenues Calculation. LICENSEE shall pay to BMI
the [***].
[***]:
<TABLE>
<CAPTION>
Quarter Period Ending* Payment Due Date*
------- -------------- -----------------
<S> <C> <C>
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
</TABLE>
4. Minimum Fee
Upon signing this Agreement, LICENSEE shall pay to BMI an [***].
Thereafter, LICENSEE shall pay the [***] the beginning of each calendar year by
no later than January 31. The minimum fee payment will be credited against any
additional fees LICENSEE shall owe to BMI above the minimum fee in the same year
to which the minimum fee shall apply. Web Sites paying only the minimum fee must
still furnish financial reports under Paragraph 5 per the schedule set forth
above.
- ----------
[***] Confidential treatment has been requested for the
bracketed portion. The confidential redacted portion has been omitted
and filed separately with the Securities and Exchange Commission.
3
<PAGE> 4
5. Financial Reports and Audit.
(a) LICENSEE shall submit to BMI separate reports as to all
Gross Revenues generated by LICENSEE's Web Site as follows:
(i) For each quarter year to which this Agreement
applies, a quarterly report, certified by an authorized representative of
LICENSEE, for the Web Site, in the form substantially the same as the Web Site
Music Performance License Quarterly Report Form annexed to this Agreement as
Exhibit B, due at the same time as the applicable quarterly license fee on or
before the thirtieth (30th) day after the end of the quarter year in accordance
with the Payment Schedule set forth above in Paragraph 3. LICENSEE agrees to use
software which BMI may provide to LICENSEE to prepare and deliver such reports
electronically.
(ii) In the absence of timely filed quarterly reports as
set forth above, BMI shall have the right to estimate the fees due for a given
quarter year on the basis of the highest quarterly fee during the previous
twelve (12) months and bill LICENSEE therefor. However, neither BMI's estimation
of the fee for a reporting period nor anything else shall relieve LICENSEE of
the obligation to report and make appropriate actual fee payment for the
reporting period. If said quarterly estimate in the absence of a timely
completed report reflects that LICENSEE's total estimated license fee for said
quarter year was less than the estimated fee paid, BMI shall credit the
overpayment to LICENSEE's account. If LICENSEE has submitted all contractually
required prior reports and payments to BMI and this Agreement is no longer in
effect, BMI shall refund the overpayment to LICENSEE.
(b) BMI shall have the right to require that LICENSEE provide
BMI with data or information as may be necessary to ascertain the license fee
due hereunder.
(c) BMI shall have the right, once with respect to each year of
the Term (or portion thereof), by its duly authorized representatives, at any
time during customary business hours and upon thirty (30) days' advance written
notice, to examine the books and records of account of LICENSEE necessary to
verify any and all statements, accounting and reports rendered and/or required
by this Agreement and in order to ascertain the license fee due BMI for any
unreported period. BMI shall treat as confidential all data and information
coming to its attention as the result of any such examination of books and
records.
(d) In the event that BMI conducts an audit under Paragraph 5(c)
and such audit reveals that LICENSEE has underpaid license fees to BMI, LICENSEE
shall immediately pay the amount LICENSEE owes BMI and, in addition, if such
underpayment amounts to [***] or more of LICENSEES annual fees for the audited
period LICENSEE shall pay BMI a late payment charge in the amount of [***] of
all monies owed commencing on the actual date such monies were due.
- ----------
[***] Confidential treatment has been requested for the
bracketed portion. The confidential redacted portion has been omitted
and filed separately with the Securities and Exchange Commission.
4
<PAGE> 5
6. Late Payment Charge.
BMI may impose a late payment charge of [***] from the date payment was
due on any payment that is received by BMI more than [***] after the due date.
7. Music Use Reports.
Upon BMI's request, LICENSEE shall provide BMI with separate detailed
information in electronic form from LICENSEE's log, and statistics about the
transmission of all musical works on LICENSEE's Web Site. Such information shall
identify the musical works by title, composer/writer, author, artist, record
label, length, type of use (i.e., theme, background or feature performance) and
manner of performance (i.e. instrumental or vocal) (or any other methodology
agreed to by BMI and LICENSEE) and specify the number of times each musical work
is transmitted and whether such transmission is streamed or downloaded. LICENSEE
shall request reports from its licensors or outside producers with respect to
all content provided by others and transmitted by LICENSEE as part of LICENSEE's
Web Site. LICENSEE shall deliver to BMI all reports with respect to such data
covering programs transmitted by LICENSEE during each calendar quarter year on
or before the thirtieth day following the end of such quarter pursuant to the
schedule set forth in Paragraph 3 herein. LICENSEE agrees to use software which
BMI may provide to LICENSEE to prepare and deliver such reports electronically.
8. Indemnification.
BMI shall indemnify, save and hold harmless and defend LICENSEE and its
officers and employees from and against any and all claims, demands and suits
that may be made or brought against them or any of them with respect to the
public performance within the Territory of any Works, licensed under this
Agreement; provided, however, that such indemnity shall be limited to those
claims, demands or suits that are made or brought within the Territory, and
provided further that such indemnity shall be limited to works which are BMI
affiliated works at the time of LICENSEE's performance of such works. This
indemnity shall not apply to transmissions of any musical work performed by
LICENSEE after written request from BMI to LICENSEE that LICENSEE refrain from
performance thereof. BMI shall, upon reasonable written request, advise LICENSEE
whether particular musical works are available for performance as part of BMI's
repertoire. LICENSEE shall provide the title and the writer/composer of each
musical composition requested to be identified. LICENSEE agrees to give BMI
immediate notice of any such claim, demand, or suit, to deliver to BMI any
papers pertaining thereto, and to cooperate with BMI with respect thereto, and
BMI shall have full charge of the defense of such claim, demand, or suit;
provided, however, that LICENSEE may retain counsel on its behalf and at its own
expense and participate in the defense of such claim, demand or suit.
- ----------
[***] Confidential treatment has been requested for the
bracketed portion. The confidential redacted portion has been omitted
and filed separately with the Securities and Exchange Commission.
5
<PAGE> 6
9. Warranty: Reservation of Rights.
(a) LICENSEE shall use its best efforts to ensure that its
transmissions of musical works by means of LICENSEE's Web Site are digitally
encoded to prevent the recipient of the transmission from digitally copying or
transmitting the works to others.
(b) This Agreement is experimental in nature and both parties
reserve the right to reevaluate the appropriateness of the fees and terms herein
for periods following the expiration of the Term.
10. Breach or Default.
Upon any breach or default of the terms and conditions of this Agreement
by LICENSEE, BMI shall have the right to cancel this Agreement, but any such
cancellation shall only become effective if such breach or default continues
thirty (30) days after LICENSEE's receipt of written notice thereof. The right
to cancel shall be in addition to any and all other remedies which BMI may have.
No waiver by BMI of full performance of this Agreement by LICENSEE in any one or
more instances shall be a waiver of the right to require full and complete
performance of this Agreement thereafter or of the right to cancel this
Agreement in accordance with the terms of this Paragraph.
11. Arbitration.
All disputes of any kind, nature or description arising in connection
with the terms and conditions of this Agreement (except for matters within the
jurisdiction of the BMI rate court) shall be submitted to arbitration in the
City, County, and State of New York under the then prevailing rules of the
American Arbitration Association by an arbitrator or arbitrators to be selected
as follows: Each of the parties shall, by written notice to the other, have the
right to appoint one arbitrator. If, within ten (10) days following the giving
of such notice by one party the other shall not, by written notice, appoint
another arbitrator, the first arbitrator shall be the sole arbitrator. If two
arbitrators are so appointed, they shall appoint a third arbitrator. If ten (10)
days elapse after the appointment of the second arbitrator and the two
arbitrators are unable to agree upon the third arbitrator, then either party
may, in writing, request the American Arbitration Association to appoint the
third arbitrator. The award made in the arbitration shall be binding and
conclusive on the parties and judgment may be, but need not be, entered in any
court having jurisdiction. Such award shall include the fixing of costs,
expenses, and attorneys' fees of arbitration, which shall be borne by the
unsuccessful party.
12. Withdrawal of Works.
BMI reserves the right at its discretion to withdraw from the license
granted hereunder any musical work as to which legal action has been instituted
or a claim made that BMI does not have the right to license the performing
rights in such work or that such work infringes another composition.
- ----------
[***] Confidential treatment has been requested for the
bracketed portion. The confidential redacted portion has been omitted
and filed separately with the Securities and Exchange Commission.
6
<PAGE> 7
13. Notice.
All notices and other communications between the parties hereto shall be
in writing and deemed received (i) when delivered in person; (ii) upon confirmed
transmission by telex or facsimile device; or (iii) five (5) days after
deposited in the United States mails, postage prepaid, certified or registered
mail, addressed to the other party at the address set forth below (or at such
other address as such other party may supply by written notice):
BMI 320 West 57th Street
New York, New York 10019
Attn: John Shaker
Senior Vice President Licensing
with a separate copy to:
Marvin L. Berenson Esq.
Senior Vice President and General Counsel
LICENSEE: 17835 Ventura Blvd., #310
-----------------------------------------------
Encino, CA 91316
-----------------------------------------------
Attn
-----------------------------------------------
with a separate copy to:
Tricia Halloran
-----------------------------------------------
Content Editor
-----------------------------------------------
14. Assignment.
This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns, but no
assignment shall relieve the parties hereto of their respective obligations
hereunder.
15. Entire Agreement.
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter hereof. This Agreement cannot be waived,
added to or modified orally and no waiver, addition or modification shall be
valid unless in writing and signed by the parties. This Agreement, its validity,
construction, and effect, shall be governed by the laws of the State of New
York. The fact that any provisions herein are found by a court of competent
jurisdiction to
7
<PAGE> 8
be void or unenforceable shall not affect the validity or enforceability of any
other provisions.
BROADCAST MUSIC, INC. Ultimate Band List
------------------------------------
(Licensee)
By: /s/ Richard Conlon
---------------------------------
(Signature) By: /s/ Steve Rennie
------------------------------------
(Signature)
Richard Conlon
- ------------------------------------
(Print Name of Signer) Steve Rennie
------------------------------------
(Print Name of Signer)
Vice President
Marketing & Business Development President
Media Licensing ------------------------------------
- ------------------------------------ (Title of Signer)
(Title of Signer)
PLEASE COMPLETE SHADED AREA ONLY
Please return signed agreement together with minimum fee to:
BMI
320 West 57th Street
New York, NY 10019
ATTN: Web Site Licensing
8
<PAGE> 9
EXHIBIT B
- --------------------------------------------------------------------------------
BMI WEB SITE MUSIC PERFORMANCE AGREEMENT
Music Area Revenues Calculation
QUARTERLY REPORT FORM
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 1- April 1- July 1- October 1-
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C> <C>
Report for Calendar Quarter: [ ] [ ] [ ] [X] 1998
</TABLE>
Company Name: ARTISTDIRECT
-----------------------------
Address: 17835 Ventura Blvd.
-----------------------------
Encino, CA 91316
-----------------------------
Phone #: 818-748-8700
-----------------------------
Name of Web Site: ULTIMATE BAND LIST
-----------------------------
URL: http://ubl.com
-----------------------------
Your Gross Revenues
<TABLE>
<S> <C>
1. Subscriber Revenue (including commissions on third party transactions) [***]
2. Advertising Revenue (less agency commissions) [***]
3. Provision of Space or Time [***]
4. Donations [***]
5. Trade or Barter [***]
6. Proprietary Software [***]
</TABLE>
TOTAL GROSS REVENUES (add lines 1 through 6) [***]
<TABLE>
<S> <C> <C> <C>
[***] x ( [***] ) + ( [***] ) = [***]
- -------------------- ---------------------------- --------------------------- -------------------
Total Gross Revenues Total # of Music Impressions Total # of Page Impressions Music Area Revenues
</TABLE>
LICENSEE'S TOTAL PAYMENT DUE SHALL BE THE [***].
(a) [***] X [***] = [***]
------------------- --------------
Music Area Revenues Music Area Fee
- ----------
[***] Confidential treatment has been requested for the
bracketed portion. The confidential redacted portion has been omitted
and filed separately with the Securities and Exchange Commission.
9
<PAGE> 10
(b) [***] x [***] = [***]
-------------- --------------
Gross Revenues
TOTAL PAYMENT DUE = [***]
I hereby certify on this 9th day of October, 1998 that the above is true and
correct.
BY: /s/ Steve Rennie Please return report and payment to:
-------------------------------
(Signature)
Steve Rennie
------------------------------- Web Licensing
(Print Name of Signer) BMI
320 West 57th Street, 4th Floor
New York, NY 10019
President
-------------------------------
(Title of Signer)
Please e-mail any questions to [email protected]
- ----------
[***] Confidential treatment has been requested for the
bracketed portion. The confidential redacted portion has been omitted
and filed separately with the Securities and Exchange Commission.
10
<PAGE> 1
REDACTED EXHIBIT 10.4
- --------------------------------------------------------------------------------
Customer Name Service Period
Artist Direct Twelve (12) months
- --------------------------------------------------------------------------------
1. INITIAL CONTRACT TERM, SERVICE PERIOD, AND BILLING
The Initial Contract Term begins on the Effective Date and, if applicable, ends
on the anniversary of the Implementation Date (as defined below) unless
terminated earlier in accordance with the provisions hereof. Charges for
customer's early cancellation of service are set forth on the Price Sheet. After
the Initial Contract Term, this Attachment shall continue in effect until
terminated as set forth in the AT&T Web Site Services Attachment to which this
Attachment is appended; provided, however, that in the case of Collocated Web
Services (as defined below), this Attachment shall expire no later than the date
on which the Lease (as defined below) expires or is terminated unless the same
has been replaced with another Lease, and provided further that it is understood
that AT&T shall have no obligation to renew, extend, keep in effect or replace
the Lease. Billing, with respect to each site, begins as of the date of physical
completion of server deployment and connection of the server to AT&T's network
("Implementation Date"), regardless of when or whether the customer's content
has been deployed. The Service Period begins on the Implementation Date.
2. ABSENCE OF SUPPORT FOR AUTHORING TOOLS OR CONTENT
Customer is solely responsible for creating, updating and maintaining the
Content. AT&T will not provide support for use of content authoring tools or
other support in connection with the Content of Customer's Web Site.
3. COLLOCATION SPACE
The services covered by this Attachment may involve the provision to Customer of
collated web services ("Collocated Web Services"), which include a AT&T- or
customer-owned server or other equipment that is to be collocated on AT&T's
premises and which may include use of third party software, hardware or other
third party services. The collocation space (the "Space"), which is in premises
that may be leased by AT&T, is described on Exhibit A. If Customer has elected
to do so, AT&T agrees to allow Customer to place certain equipment (the
"Equipment") as defined in Exhibit A, subject and subordinate to the terms and
provisions of the applicable lease or leases (the "Lease") between AT&T or its
affiliates and the landlord or landlords of the Space. The Equipment shall be
approved by AT&T prior to installation in the Space and shall not exceed the
standard dimensions identified in the Price Sheet. Customer hereby accepts the
Space in its as is condition and acknowledges that AT&T has no obligation to
make alterations, improvements, additions, decorations or changes within the
leased premises, Space or any part thereof. In connection with the provision of
the Space, AT&T shall provide to Customer the installation services, remote hand
services and other space services set forth on Exhibit A hereto. In the event of
any taking by eminent domain or damage by fire or other casualty to the leased
premises or the Space, Customer shall acquiesce and be bound by any action taken
by or agreement entered into between AT&T or its Affiliates and the landlord or
landlords with respect thereto.
4. EQUIPMENT
All right, title and interest in all facilities and associated equipment
provided by either party shall at all times remain exclusively with such party.
Neither party shall create any liens or encumbrances with respect to such
facilities or equipment of the other party. Upon termination of Collocated Web
Services, Customer shall as promptly as possible and in any event within 60 days
of termination, release to AT&T all IP addresses provided by AT&T in connection
with the Collocated Web Services. Upon termination of this Attachment, Customer
shall leave the Space in as good condition (except for normal wear and tear) as
it was at the commencement of this Attachment, and shall remove its Equipment
and other property from the Space. Upon sixty (60) days' prior written notice
or, in the event of an emergency, with as much notice as may be feasible, AT&T
may require Customer at Customers expense to relocate the Equipment within the
leased premises, provided, however, that the site of relocation shall afford
comparable environmental conditions for the Equipment and comparable
accessibility to the Equipment. AT&T shall use reasonable efforts to maintain
the Collocated Web Services in accordance with applicable performance standards
therefor and to obtain and keep in effect all rights of way required to provide
the Collocated Web Services. AT&T shall have no responsibility for the hardware
maintenance and repair of, or any liability of any kind with respect to,
facilities and equipment which it does not furnish, and may assess Customer its
standard charge for any false call outs.
5. INDEMNIFICATION
Without limitation of any other provision of the Agreement, Customer hereby
agrees to indemnify and hold harmless AT&T against any and all liabilities,
costs, expenses and claims relating to (i) Customers unlawful or improper use of
the Collocated Web Services, the Space or lease premises or the AT&T network,
(ii) Customers failure to comply with the terms and provisions of the Agreement,
including without limitation this Attachment, or (iii) property damage or
personal injury claims caused by Customer's acts or omissions or arising from
its operation of its Equipment or its use of the Space or the leased premises.
6. ACCESS
As part of the covered services, Customer is granted access into AT&T's Space.
Customer shall at all times use care when working in and around AT&T's or other
Customer's equipment. AT&T, at its sole discretion, may grant Customer use of an
access card. In the event such a card is lost or stolen, Customer shall so
report to AT&T as soon as its loss is discovered. A lost or stolen access card
is replaceable upon payment of a replacement fee to AT&T.
7. INTERNET SERVER AVAILABILITY
Under the AT&T Internet Server Availability Guarantee Program, AT&T Level 2
Dedicated Hosting Service Customers have the confidence that their Web Site will
be accessible by end users of the global Internet, subject to the program rules
and regulations set forth below.
If an AT&T-hosted Customer reports that an end user has been unable to access
their Web Site due to the unavailability of the AT&T content hosting production
web server, the Customer will be eligible to receive a credit against his/her
hosting Monthly Service Fee incurred during the affected month as specified
below, subject to the program rules and regulations set forth below.
Interruptions of [***]
------------------------------------ --------------
Interruption Length Credit
------------------------------------ --------------
[***] [***]
------------------------------------ --------------
[***] [***]
------------------------------------ --------------
[***] [***]
------------------------------------ --------------
[***] [***]
------------------------------------ --------------
[***] [***]
------------------------------------ --------------
[***].
Program rules and regulations:
1. Claims may be made only by participating AT&T Hosting Service Customers.
2. An outage under this limited guarantee is defined as unscheduled
unavailability of an AT&T Hosting Server and does not include outages for
scheduled periods of maintenance and upgrades. Notice of a scheduled outage
may be given by posting of the notice on the applicable customer care
website for the service.
3. Web server availability only applies to content hosting servers used for
hosting Customer's Web Site. It does not apply to servers used to provide
services other than this Hosting Service, including without limitation
transaction service servers or AT&T Internet mail servers.
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 2
AT&T MA Reference No.______
AT&T Dedicated Hosting Service Level 2
4. AT&T must be notified in writing of a claim by a Customer within 10 days of
an occurrence of a possible Service outage. Customer claims must be sent to
the e-mail address [email protected] or as otherwise specified in the web
site provided by AT&T for customer support. All submitted claims must
include the date and time of the Service outage.
5. All claims are subject to review and verification by AT&T.
6. AT&T will be the sole party to verify and determine that an AT&T Hosting
Server experienced an outage.
7. A Customer may only receive credits equal to up to [***] AT&T Hosting
Service Fee during any calendar quarter. A Customer will not receive a
credit for AT&T Web Hosting Nonrecurring Charges, other recurring monthly
charges, or charges related to storage space and data download by users.
8. AT&T reserves the right to change or modify the program rules and
regulations or discontinue this limited guarantee program at any time
without notice.
9. Credits are exclusive of any applicable taxes charged to Customer of
collected by AT&T.
This limited guarantee is subject to the applicable AT&T Hosting Service terms
and conditions set forth in the AT&T Web Site Services Attachment to which the
Attachment is appended.
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 3
AT&T MA Reference No.______
AT&T Dedicated Hosting Service Level 2
EXHIBIT A
REMOTE HANDS - TERMS OF SERVICE
1. Remote Hands Services.
Customer has, pursuant to this Attachment, located certain equipment on AT&T
premises (the "Premises"), and may from time to time request that AT&T perform
certain basic services with respect to such equipment. Such services (herein
referred to as "Remote Hands Services") offer an opportunity for the Customer to
avoid dispatching field services personnel for certain basic on-site activity.
2. Levels of Service.
Remote Hands Services include 3 levels of service, as follows:
Remote Hands Class A, provided at no additional cost, involves the most basic
activities of an on-site technician, performed with "eyes," "ears" and
"fingers," but without involvement of tools, equipment, physical labor, keyboard
or other data input. Examples of Class A service would include:
- pushing a button
- switching a toggle
- setting a dip switch
- power cycling (turning off and on) equipment
- securing cabling to connections
- observing, describing or reporting on indicator lights or display
information on machines or consoles
- basic observation and reporting on local environment in AT&T premises
Remote Hands Class B, provided in accordance with the fee(s) set forth in the
Price Schedule, involves all the services of Class A, plus some configuration or
running of certain basic operations pursuant to real-time instructions of
Customer. This level of service does not involve opening or moving equipment or
any direct hardware or software interaction. Examples of Class B services would
include:
- running single, built-in diagnostic equipment
- typing commands on a keyboard console
- changing of pre-labeled tapes
- cable organization, ties or labeling
- modifying basic cable layout, such as Ethernet or FDDI connections
- re-labeling equipment
Remote Hands Class C, provided in accordance with the fee(s) set forth in the
Price Schedule, involves all the services of Class B, plus direct contact with
equipment configuration, including hardware and software interaction, provided
Customer provides accurate, understandable real-time instructions. Examples of
Class C services would include:
- installation of previously received equipment in existing track space
- replacing hardware components with spares of upgrades
- adding memory
- upgrading drive capacity by installation of new or additional disk
drives
AT&T shall, in its own reasonable discretion, determine the appropriate Level of
Remote Hands to which each service request applies.
Remote Hands Services may be purchased on a per hour basis as needed, or on a
monthly basis under contract. Customer will be billed for services rendered
along with Customer's monthly service invoice.
3. Request Procedure.
Customer shall initiate a Remote Hands Service request by following the
procedure set forth in the Configuration Review Form (CRF) provided to Customer,
as such procedure may be modified by notice to Customer by AT&T from time to
time. Each service request requires a separate initiation by the Customer, by
fax, e-mail or other writing if possible. Each request from a Customer which has
not elected a contract option shall require an original signed request from a
previously authorized Customer representative. In cases of emergency, a signed
facsimile transmission service request followed by a signed original is
acceptable. AT&T's technicians will use reasonable efforts to respond to a
Customer request for Remote Hands Service by telephone or electronic
communication within 30 minutes of receipt of the initial Customer's request.
AT&T's technician will assign a Trouble Ticket and will use reasonable efforts
to commence the rendering of the service within the time window specified below
from the point of assignment of the Trouble Ticket.
----------------------- --------------------------
AT&T PREMISE SERVICE INITIATION
WITHIN:
----------------------- --------------------------
San Diego, 9850 1 hr.
Scranton Road
----------------------- --------------------------
New York, 67 Broad 1 hr.
Street
----------------------- --------------------------
4. No Warranty/Limitation on Damages.
Customer acknowledges that AT&T will provide Remote Hands Services under
Customer's specific direction. AT&T DOES NOT OFFER OR PROVIDE (AND HEREBY
DISCLAIMS) ANY WARRANTY WITH RESPECT TO REMOTE HANDS SERVICES. NOTWITHSTANDING
ANYTHING CONTAINED IN THE AGREEMENT TO THE CONTRARY, THE REMOTE HANDS SERVICES
ARE PROVIDED ON AN "AS IS" BASIS. AT&T SHALL NOT BE LIABLE IN ANY WAY WHATSOEVER
FOR ANY DIRECT OR INDIRECT LOSS, COST OR DAMAGE CUSTOMER MAY INCUR IN CONNECTION
WITH AT&T PROVIDING OR FAILING TO PROVIDE THE REMOTE HANDS SERVICES TO CUSTOMER.
5. Indemnity.
Customer will at all times defend, indemnify and hold harmless AT&T from and
against any and all damages, liabilities, losses, penalties, interest and other
expenses (including, without limitation, reasonable attorney's fees), whether or
not arising out of or relating to any third party claims, and regardless of the
form of action, whether in contract, tort, strict liability or otherwise,
concerning AT&T's provision of the Remote Hands Services to Customer.
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 4
AT&T MA Reference No.______
AT&T Dedicated Hosting Service Level 2
EXHIBIT B
SERVICE COMPONENTS AND PRICING
Exhibit B specifies the AT&T Dedicated Hosting Service hardware and hardware
components, along with one-time service set-up fees, recurring service fees, and
standard charges for other services which may be requested from time to time
under the terms of this Attachment.
SECTION 1: Standard Service Fees
Standard fees include recurring and non-recurring charges. Non-recurring charges
are for site set-up, which includes hardware and software installation,
configuration and testing, and Remote Hands Service, which may be requested by
Customer as needed during the term of this Attachment.
Table 1. Non-Recurring Charges.
- ------------------------------------------ ------------
Basic Site Registration/Set-up Charge(1) [***]
- ------------------------------------------ ------------
On-demand Remote Hands Service(2)
Class A [***]
Class B [***]
Class C [***]
- ------------------------------------------ ------------
Table 2. Recurring Charges (per
month).(3)(4)(5)
- ------------------------------------------ ------------
Bandwidth(6)
0.5 Mbps [***]
1 Mbps additional bandwidth up to a [***]
total of 3.5 Mbps
- ------------------------------------------ ------------
Maintenance, Monitoring, Power and [***]
Standard Rack Space (per server)
- --------------------- --------- ---------- ------------
Contracted Remote Hours Class B Class C
Hands Service per
month
--------- ---------- ------------
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
- --------------------- --------- ---------- ------------
SECTION 2: Quoted Service Fees
Service fees are quoted for each contract for the following components:
Lease: Rental of equipment and software provided by AT&T.
Rack Space: Non-standard rack space.
Additional Installation and Set-up fees: Installation and set-up of more than
one server system and of software.(7)
Bandwidth Options: Bandwidth values other than those described in SECTION 1:
Standard Service Fees, rate shaping and bursting options.
Detailed information about quoted charges, including descriptions and itemized
pricing, is specified below in SECTION 3: Services and Fees.
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 5
AT&T MA Reference No.______
AT&T Dedicated Hosting Service Level 2
SECTION 3: Services and Fees
Table 3. Detailed Charges for Hardware. Detailed description of hardware to be
provided with charges for installation and monthly rental (if applicable).
- -------------------------------------------------------
Description: [***];
- -------------------------------------------------------
[***];
[***]
[***]
[***]
[***]
[***]
- -------------------------------------------------------
Amount Comments/Additional
Information
- ---------------- ------------- ------------------------
Installation/Set-up [***] [***]
Monthly Fee [***]
- ---------------- ------------- ------------------------
Table 4. Detailed Charges for Software. Detailed description of software to be
provided with charges for installation and monthly rental (if applicable).
- -------------------------------------------------------
Description: N/A
- -------------------------------------------------------
Amount Comments/Additional
Information
- ---------------- ------------- ------------------------
Installation/Set-up [***] N/A
Monthly Fee [***] N/A
- ---------------- ------------- ------------------------
Table 5. Detailed Charges for Additional Features and Services. Detailed
description of any additional features or services with charges for installation
and any monthly charge.
- -------------------------------------------------------
Description: N/A
- -------------------------------------------------------
Amount Comments/Additional
Information
- ---------------- ------------- ------------------------
Installation/Set-up [***] N/A
Monthly Fee [***] N/A
- ---------------- ------------- ------------------------
SECTION 4: Summary of Charges
This detailed itemization will constitute the Customer ordered and agreed to
equipment, software components and configurations.
AT&T Dedicated Hosting Service Level 2 includes four key elements plus an
installation fee. These elements are combined as required to build the
Customer's customized server configurations:
B: Ethernet connection unit to a cluster of maximum three (3) servers.
L: Lease of certified Sun or Compaq computers (optional) plus software.
M: OS maintenance, performance monitoring, per server.
R: Rack space (required for servers exceeding the standard four (4) inch
height).
Table 6. Service Elements Ordered. Summary of total charges by Element, plus
Total Installation charge.
- ---------- --------- ----------------------------------
Element Amount Description/Comments and
Additional Information
- ---------- --------- ----------------------------------
B $ [***] [***].
- ---------- --------- ----------------------------------
L [***]
- ---------- --------- ----------------------------------
M $ [***] [***]
- ---------- --------- ----------------------------------
R $ [***] [***]
- ---------- --------- ----------------------------------
Install $ [***] [***].
- ---------- --------- ----------------------------------
- -------------------------------------------------------
TOTAL INSTALLATION FEE [***] Customer is
responsible
for
installation
and content
management.
- ---------------------------- ---------- ---------------
TOTAL MONTHLY SERVICE FEE [***]
- ---------------------------- ---------- ---------------
Prices shown are for U.S. only and are subject to change on sixty days notice.
Every effort has been made to ensure that the information is complete and
accurate; however, AT&T is not responsible for typographic errors or omissions.
As prices change, the most current prices will be reflected in on-line HELP.
AT&T and AT&T and the Globe Design are registered trademarks and service marks
of AT&T Corp. Any other marks may be proprietary marks of one or more third
parties. (C) 1998 AT&T. All Rights Reserved. Printed in the U.S.A.
- --------
(1) Includes vanity domain name registration (2 years) and set-up, installation
and testing of hardware and standard software for a single server system.
(2) Refer to Exhibit A for a Remote Hands Services.
(3) Minimum term commitment of 1 year. Except as specified below, in the event
of early cancellation of service, the Customer is responsible for payment of the
remaining portion of the term commitment in full and is not eligible for a
refund of any fees. In the event of a notice of price increase of the monthly
Base Rate of [***] or more, the Customer may cancel Service with no cancellation
penalty by providing written notice of cancellation within [***] following the
date of notice of such price increase. In the event of a notice of price
increase of any of the software options noted above of [***] or more, the
Customer may cancel the affected optional feature with no cancellation penalty
by providing written notice of cancellation of such feature with no cancellation
penalty by providing written notice of cancellation of such feature within [***]
following the date of notice of such price increase.
(4) [***]. Registration and monthly charges accrue upon physical completion of
server deployment and connection of the server to AT&T's network regardless of
when or whether the Customer" content has been deployed. Customer is responsible
for content installation and management.
(5) The AT&T Dedicated Hosting Service Level 2 does not include inbound e-mail
or Internet access capabilities, which are the responsibility of the Customer to
obtain.
(6) Standard bandwidth must be ordered with no more than three (3) 1 Mbps
increments for each 0.5 Mbps. Charges for non-standard bandwidth and bursting,
if applicable, will be specified in Section 3 of this Exhibit B.
(7) See Note 1 above. Additional charges apply when more than one server is
ordered, and for any software which AT&T deems not to be a part of its standard
configuration.
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 6
AT&T MA Reference No.______
AT&T Dedicated Hosting Service Level 2
ADDENDUM TO DEDICATED HOSTING SERVICE LEVEL 2 AGREEMENT
This Addendum, effective as of the date of the last signature herein to the AT&T
Dedicated Hosting Service Level 2 Agreement ("Agreement") between Artist Direct
("Customer") and AT&T Corporation ("Provider") dated on or about April 16, 1999,
is hereby incorporated with reference to the following:
WITNESSETH:
Whereas, Customer agrees to amend the define certain obligations of the parties
hereto pursuant to the Agreements.
Whereas, Provider agrees to amend and define certain obligations of the parties
hereto pursuant to the Agreements.
Whereas, Customer and Provider agree to amend certain obligations and
incorporate this Amendment as expressed and set forth.
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein the parties agree as follows:
The Agreement is amended as follows:
1. Add into Section (4) under EQUIPMENT: the language "False Call Out services
are determined when contracted client asks AT&T to provide services and then
realizes that the request for services were not required at all. Therefore
AT&T will bill contracted client for False Call Out services as Remote Hands
Class B services. The prices for Remote Hands Class B services are noted in
Exhibit B "Service Components and Pricing" of the AT&T Dedicated Hosting
Service Level 2 agreement."
2. Delete from Section (5) under INDEMNIFICATION (ii): the language "Customers
failure to comply with the terms and provisions of the Agreement, including
without limitation this Attachment, or" and insert in its place, "Customer's
failure to comply with the material terms and provisions of the Agreement,
including without limitation this Attachment."
3. Add into Section (5) under INDEMNIFICATION: the language "In the event that
the Service fails to perform as otherwise warranted hereunder, solely as a
result of the calendar change from year 1999 to the 2000, or solely as a
result of a calculation made through use of such service which involve dates
after December 31, 1999, and not as a result of use of the Service with
services, products, data or systems that themselves fail to function
properly because of such date change or calculation, then AT&T will take
reasonable steps to correct any such failure of the Service, at no
additional charge to Customer, as Customer's exclusive remedy."
4. Delete from Section (6) under ACCESS the fifth sentence: the language "A
lost or stolen access card is replaceable upon payment of a replacement fee
to AT&T." and insert in its place, "A lost or stolen access card is
replaceable upon payment of a reasonable replacement fee to AT&T.".
5. Add into Section (7) under INTERNET SERVER AVAILABILITY: the language
"AT&T/CERFnet Dedicated Hosting Services' national availability percentage
is [***], which equates to [***]. This includes scheduled downtime.
The following is AT&T/CERFnet's standard Service Level Agreement based on
server availability:
- All measurements are based on a thirty (30) day measurement period.
- Server availability of [***], which equates to [***] per month of
down-time. This downtime will include scheduled and unscheduled
maintenance windows.
- Mean time to respond - [***]. This means any customer calls that are not
answered directly will receive a call back within [***] of the time
their message is recorded.
- Mean time to restore - [***]. This mean that any server outage will be
resolved and the service will be brought back on-line within [***].
- Mean time to repair - [***]. This means that the cause of the server
outage will be corrected within [***].
Scheduled Maintenance and Notification Procedure.
AT&T/CERFnet will use commercially reasonable efforts to provide advance
notice to Customer."
AT&T PROPRIETARY
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 7
AT&T MA Reference No.______
AT&T Dedicated Hosting Service Level 2
6. Delete from Footnote (3) in the third sentence: the language "In the event
of a notice of price increase of the Monthly Base Rate of 10% or more, the
Customer may cancel Service with no cancellation penalty by providing
written notice of cancellation within 60 days following the date of notice
of such price increase."
All other Terms and Conditions pursuant to the Agreement shall remain in full
force and effect.
The parties have caused this Amendment to be executed by duly authorized
representatives as indicated hereinbelow.
AT&T CORPORATION ARTIST DIRECT
Name: Name: Marc Geiger
------------------------------- ----------------------------------
Title: Title: Co. CEO
------------------------------ ---------------------------------
Signature: Signature: /s/ MARC GEIGER
-------------------------- -----------------------------
Marc Geiger
Date: Date: 4/17/99
------------------------------- ----------------------------------
Addendum to AT&T Dedicated Hosting Serviced Level 2 Agreement, Dated April 15,
1999
<PAGE> 1
EXHIBIT 10.6
AEC ONE STOP GROUP, INC.
DATABASE, ON-LINE INTERNET RETAIL STORE
AND CONSUMER DIRECT FULFILLMENT SERVICES AGREEMENT
Dated as of August 15, 1998
1. SERVICES: AEC One Stop Group, Inc. (hereafter referred to as "AEC") is in the
business of wholesaling and fulfilling orders for pre-recorded audio and video
products, maintaining certain associated databases, and designing and developing
certain technologies that help its retail customers increase sales of products
found in such databases. Company wishes to engage AEC to provide, by itself and
through its affiliated entities, the following services and licenses to The
Ultimate Band List, LLC (hereafter referred to as "Company"):
- To develop, design and create a generic internet music retail storefront
for Company (the "Store") tentatively called "The UBL Store," to be
linked with Company's Internet Web Site called "The Ultimate Band List"
located under the domain name www.ubl.com ("UBL.COM");
- To operate and maintain the Store on behalf of Company, until such time
as Company and AEC mutually agree to transition the continued operation
and maintenance of the Store from AEC to Company;
- To handle all customer orders placed through the Store, including by
processing all credit card transactions and providing necessary customer
support services in accordance with [Exhibit 1 - Customer Service]
hereto, until such time as Company and AEC mutually agree to transition
the continued customer order handling from AEC to Company;
- To perform as Company's preferred product distributor and fulfillment
service provider with respect to pre-recorded audio-only product in all
formats ("Records) sold through the Store; and
- To receive, warehouse and manage Company's inventory of all such other
products ("Consignment Product") as may be offered for sale on the Store
from time to time (e.g., apparel, concert tickets, posters, tour
memorabilia, collectible items and other merchandise), and fulfill all
orders thereof on Company's behalf.
- To license to Company, for use on the Store as well as on UBL.COM, the
electronic database versions of the general interest music and movie
guides published under the trade names "All-Music Guide" and "All-Movie
Guide" (individually and collectively, the "AMG Database"), which
databases are compiled by AEC;
2. [***] .
- --------------------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
1
<PAGE> 2
3. TERM: Subject to the respective termination rights of the parties set forth
in Annex A hereto, this Agreement shall have a term of five (5) years commencing
on June 1, 1998, and shall automatically renew for additional one (1) year terms
unless either party notifies the other of termination at least 90 days prior to
the expiration of the then current term.
4. GENERAL TERMS AND CONDITIONS: All of the above terms are subject to the
General Terms and Conditions attached hereto as Annex A and incorporated herein
by reference. Additionally, shipping and return policies and procedures,
electronic interfacing protocols, representations and warranties, choice of law
provisions, etc., are all as contained in said Annex A, and such terms and
conditions are an integral part of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE ULTIMATE BAND LIST, LLC AEC ONE STOP GROUP, INC.
By: ARTISTdirect New Media, LLC By: [Illegible]
Its: Manager --------------------------------
Its:
-------------------------------
By: ARTISTdirect, LLC
Its: Member
By: /s/ Marc Geiger
----------------------
Marc Geiger
Its: Member
By: /s/ Donald Muller
----------------------
Donald Muller
Its: Member
2
<PAGE> 3
ANNEX A - GENERAL TERMS AND CONDITIONS
TO AEC ONE STOP GROUP, INC.
DATABASE, ON-LINE INTERNET RETAIL STORE
AND CONSUMER DIRECT FULFILLMENT SERVICES AGREEMENT
In consideration of the mutual agreements and covenants contained herein, the
parties hereto agree as follows:
1. STORE DEVELOPMENT AND OPERATION.
1.1 Store Development:
1.1.1 AEC will, at its sole expense, design, create and develop the Store on
behalf of, and in cooperation with, Company, pursuant to the specifications set
forth in Exhibit 2 attached hereto.
1.1.2 AEC shall provide software repairs to the Store for the development effort
completed by AEC and as defined in said Exhibit 2. It is understood by both
parties that on-going enhancements of the Store shall be regularly required to
keep the Store compelling and competitive in the marketplace. Therefore, Company
and AEC agree that a transition period is required after AEC completes its
initial service role in the development of the Store and to shift the on-going
development effort required on the Store to the Company for its control and
continued improvement.
1.1.3 AEC shall use its best commercially reasonable efforts to make available
to Company the required information to facilitate the Transition (as defined
below) in a manner that minimizes interruptions to each party. AEC shall deliver
to Company the latest version of the source code for the Store as and when it is
updated, but in any event no less frequently than twice per month. Upon
Company's request, but in no event later than upon the commencement of the
Transition, AEC shall deliver to Company complete documentation for the source
code.
1.1.4 Company shall cooperate with AEC to develop the technical linkages between
the Store, UBL.COM and the AMG Database. AEC will not intentionally design or
develop the Store in a manner that would prevent Company from adapting the Store
to accommodate the inventory availability databases used by other fulfillment
providers if AEC is no longer fulfilling Product for the Store.
1.2 Store Hosting:
1.2.1 Prior to the Transition, AEC shall host and maintain the Store. In this
regard, Company shall provide AEC with one or more servers (which shall remain
the property of Company and be returned to Company as part of the Transition) to
be used for workload balancing and redundancy for the Store. AEC shall use its
current, recently upgraded T1 line to support the Store.
Annex A - Page 1
<PAGE> 4
1.2.2 [***].
1.3 Store Transition:
1.3.1 The parties agree that a transition of the hosting and maintenance of the
Store from AEC to Company (the "Transition") shall be made on or about February
28, 1999 (or such alternative time as the parties hereto may mutually agree).
1.3.2 AEC shall provide technical support for the Store, including timely
maintenance and repair on any of the development completed on the Store features
developed by AEC, for three (3) months following the Transition. In the event
Company continues to require AEC technical support for the Store after such
three (3) month period, Company and AEC shall negotiate a reasonable monthly fee
payable by Company to AEC for such support services.
1.3.3 Company agrees to reimburse AEC for all reasonable ISP costs incurred by
AEC in connection with the Transition.
2. ORDER FULFILLMENT. Subject to the terms of this Section 2, AEC shall supply
to customers all Records and Consignment Product (collectively, "Product")
ordered by the customers of the Store (the "Customers"). In connection
therewith, AEC shall perform the fulfillment, technical and professional
services described below.
2.1 Fulfillment Services:
2.1.1 AEC shall process orders received from Store and arrange to have the
ordered Product shipped to the Customer. All orders will be quality controlled
through advanced sorting and UPC verification methods. However, AEC will have no
obligation to ship "Commercially Unavailable Product," which shall mean any
Record or other item of Product which, at the time the order for such item is
ordered by a Customer or during the process of such order being fulfilled, is
not in the inventory of AEC and, with respect to Records only: (a) is no longer
manufactured; (b) is not reasonably available to AEC from the company that
releases such product; or (c) has been deleted from the catalog of the company
that releases such items.
2.1.2 The Store shall provide advanced on-line connectivity in order to query or
commit Product orders for Customers in real time fulfillment.
2.1.3 AEC shall host a "Remote Order Entry" application that will permit Company
to manually enter Customer orders, cancel or delete orders, query order status
and process authorization for product returns, directly from the AEC fulfillment
computer system. This application will permit Company to access Customer orders.
2.1.4 AEC shall be an invisible fulfillment arm. AEC will produce custom Company
invoices with Company's logo and store policies, shipping labels and packaging
consistent with AEC technologies and capabilities that will accompany an order
to identify the product/order as from
- --------------------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
Annex A - Page 2
<PAGE> 5
Company. AEC will affix stickers and any other identification labels as Company
may request from time to time in respect of all orders of Product, [***]. In
addition, AEC will, [***], insert promotional materials (e.g., stickers bearing
Company's logo, coupons, etc.) on behalf of Company with each shipment, [***]
shall bear the costs of invoices and shipping labels, provided [***] accepts
[***] invoice and shipping label formats (samples of which are attached hereto
as Exhibit 3). Special handling considerations not otherwise addressed herein
shall be reviewed during formal operations meetings and it is understood that
AEC and Company shall negotiate in good faith as to the cost, if any, which will
be charged for such special handling.
2.1.5 AEC will make available account representatives who will be responsible
for using reasonable efforts to meet all Company's customer service, product
sales, and technological needs for Company to manage the Store on an on-going
basis.
2.2 Shipping and Return Procedures:
2.2.1 Other than with respect to Commercially Unavailable Product, AEC
represents that (i) all Product for which a Verified Order has been received by
AEC prior to 3:00 PM Eastern Time shall be shipped on a same-day basis, and (ii)
no less than 95% of all units of Product shall be shipped from an AEC facility
within 24 hours of AEC's receipt of a Verified Order therefor. No Product shall
be shipped or otherwise released by AEC to any third party other than pursuant
to a Verified Order. As used herein, the term "Verified Order" means an order
that provides all of the relevant Customer information, including valid account,
address, credit card information and Product related information and for which
transaction authorization has been received by Company's (or AEC's, if
applicable) credit card contractor or payment from the Customer has otherwise
been received by Company.
2.2.2 Current methods of shipment include: United States Postal Service: and
United Parcel Service. AEC shall offer to Company the full range of shipping
options to Customers of Company at no additional cost above fees charged by the
shipping carriers. [***].
2.2.3 Company shall designate the return policies of the Store (which current
policies are set forth on Exhibit 4 attached hereto and shall not be subject to
significant changes in respect of Records without AEC's consent). AEC shall not
issue a refund or other credit to any Consumer for returned Product without
first verifying that Company has issued an appropriate return authorization for
the Product concerned. Company shall assume and pay for all shipping and other
costs incurred in respect of returned, exchanged, refused and undeliverable
Product, including all shipping and other costs incurred with respect to the
processing of an order if the Customer provides incorrect information to AEC, or
if Company causes incorrect order information (i.e., other than as provided by
the Customer) to be provided to AEC. Notwithstanding the foregoing, AEC shall be
responsible for all Product either incorrectly shipped to a Customer or damaged
while in transit to the Customer, but only if such Product was shipped via an
insured and traceable carrier. In such cases, AEC shall assume and pay for all
shipping and other costs incurred in the return or exchange of Product and will
ensure that Company incurs no product cost for the involved transaction. With
respect to all unopened
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Records returned by a Customer in accordance with the return policies of the
Store other than defective, damaged or incorrectly shipped Records, [***].
2.2.4 Company shall also be able to receive electronic updates on orders
shipped, including shipping methods, tracking numbers, fill, invoice totals, and
all pertinent data reasonably requested by Company.
2.3 Prices; Costs; Fees:
2.3.1 Company shall designate the price of all Product offered for sale on the
Store, as well as all other amounts to be charged to the Customers (e.g.,
shipping and handling charges).
2.3.2 Company shall purchase from AEC each Record fulfilled by AEC hereunder at
[***]. The parties acknowledge that such prices may be subject to such increases
or decreases (e.g., if the manufacturers of Records adjust their prices to AEC)
as mutually agreed by the parties from time to time. [***].
2.3.3 Notwithstanding the foregoing, in order effectively to promote and attract
Customers to the Store, the parties acknowledge the value of Company offering
for sale on the Store selected Records at special marked-down prices for limited
periods of time (a "Limited Special"). Company shall advise AEC of the
applicable SKU's and time periods for which Company wishes to conduct a Limited
Special at least thirty (30) days prior to the scheduled commencement thereof,
[***].
2.3.4 Company shall pay AEC a fulfillment fee for each item of Consignment
Product fulfilled by AEC hereunder equal to that set forth on Exhibit 6 attached
hereto.
2.3.5 Subject to paragraph 2.2.2 above, Company shall reimburse AEC for its
actual shipping expenses to ship ordered Product to the Customers. The shipping
rates of AEC's shippers and carriers that shall be charged to Company are set
forth on Exhibit 7 attached hereto. Subject to paragraph 2.2.2 above, shipping
rates are subject to changes generally noticed to trade and Company by AEC.
2.3.6 Company shall be responsible for the cost of actual packaging materials
(e.g., shipping boxes) required for secure shipment of Consignment Product (as
opposed to shipment of Records, for which the costs of packaging materials are
included in the prices charged to Company hereunder) to Customers. Such costs
are set forth on Exhibit 8 attached hereto.
2.3.7 Company shall pay AEC a [***] service charge per Customer inquiry handled
by AEC pursuant to Section 3 below, including per manual order processed by AEC
(i.e., orders received by AEC other than via the interactive Store electronic
order processing, such as via fax, phone or email). The parties agree to
negotiate a reasonable increase or decrease of such service charge if the volume
of Customer inquiries and/or AEC's associated costs prove significantly
different than expected by the parties as of the execution hereof.
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2.3.8 Except as otherwise expressly provided herein, AEC shall impose no
additional incremental charges to Company for handling Records and Consignment
Product to be shipped to Company's customers hereunder.
2.4 Foreign Fulfillment: It is the intention of the parties that AEC shall
initially fulfill orders of Product hereunder throughout the world. [***].
3. CUSTOMER SERVICE.
3.1 Subject to paragraph 2.3.7 above, AEC shall initially provide, on behalf of
Company, customer support for those orders placed by Customers through the
Store. It is contemplated that AEC shall provide such services during the
initial nine (9) months of the term of this Agreement. The period during which
AEC provides such services is sometimes referred to herein as the "AEC Service
Period." These services shall include retaining and supervising customer support
personnel who will respond to Customer inquiries about products ordered via the
telephone, fax, and on-line. AEC shall also provide office space and equipment
for that personnel. It is further contemplated that, after said nine (9) month
period, Company shall assume this Customer support function, subject to Company
notifying AEC of its intention to do so at least 60 days in advance. The parties
understand that when AEC provides Customer support, it will be provided so the
Customer perceives that such support is being provided by Company. AEC (or
Company, as applicable) shall respond promptly and professionally to Customers'
questions regarding the procedure for ordering Products and any other questions
regarding their orders. In communicating with Customers in connection with
Customers' inquiries, AEC and Company shall use e-mail or other online
connectivity to Customers whenever reasonably possible.
3.2 AEC will provide Company's customers with a toll-free (800 phone number)
call center and AEC will establish and maintain an e-mail customer service
address. AEC will maintain Company's consumer call center at its Florida
headquarters. Consumer Call Center operates Monday through Friday (excluding
holidays), 9:00 AM to 6:00 PM, Eastern Time. Incoming phone calls received after
normal coverage hours are handled via e-mail and AEC will respond to all its
customer email messages the following working day. The services to be provided
by AEC under this Section 3 are further outlined on Exhibit 1 attached hereto.
3.3 The Store will contain a prominently featured hyperlink, with the AMG logo,
to www.allmusic.com. In the event Company receives corrections, additions,
errors, and other comments about the AMG Database from the Store's users,
Company shall forward those comments to the AEC staff. Additionally, both
Company and AEC will review, use and evaluate statistical information collected
via the Store that indicates Customer preferences, purchasing patterns and
similar buying behaviors.
3.4 During the AEC Service Period, all credit card transactions shall be handled
by AEC, [***], under Company's credit card merchant clearing agreement. If AEC
should nevertheless receive
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any monies from a Customer in respect of Product sold on the Store, it will
promptly pay over 100% of such monies to Company.
4. DATABASES.
4.1 AMG Database:
4.1.1 AEC hereby irrevocably grants to Company the non-exclusive license
(without the right of sub-license, whether to Company's affiliates or
otherwise), throughout the universe, to use, copy, display and otherwise exploit
the AMG Database, and any portions thereof, and the AMG Marks (as defined in
Section 5 below), solely in and as part of the Store and/or UBL.COM.
4.1.2 Subject to paragraph 4.3.7 below, the period of the license granted to
Company pursuant to this paragraph 4.1 shall commence on June 1, 1998 and end on
the date five (5) years after the expiration or termination of the term of this
Agreement (the "AMG License Period").
4.1.3 The rights licensed to Company hereby in respect of the AMG Database shall
include all future revisions, enhancements and updates thereto. In this regard,
AEC shall deliver to Company an updated copy of the most recent version of the
AMG Database no later than upon the fifth day of each month of the AMG License
Period (unless otherwise agreed upon by both parties) in a format to be mutually
agreed upon. Delivery shall be by FTP pickup, at a designated site for Company's
site, unless otherwise agreed by the parties. Any expenses for any other method
of delivery shall be borne by Company.
4.1.4 With respect to musical recordings sold on the Store during the term of
this Agreement via a digital transferring process when the AMG Database is used
to help promote and feature such sales, AEC shall receive [***] of the revenues
derived from such sales and actually received by Company [***].
4.1.5 If Company continues to use the AMG Database on the Store and/or UBL.COM
during the portion of the AMG License Period occurring after the expiration or
termination of the term of this Agreement, then, in consideration of the license
granted to Company under this paragraph 4.1, Company agrees to pay AEC a royalty
equal to [***] of the Net Monthly Sales generated after the expiration or
termination of the term of this Agreement, but only for as long as Company
continues to use the AMG Database. As used herein, the term "Net Monthly Sales"
shall mean amount of revenues [***].
4.1.6 For purposes of Section 365(n) of the United States Bankruptcy Code, the
licenses granted to Company under this paragraph 4.1 shall be considered
licenses of rights to "intellectual property" as defined thereunder.
Notwithstanding any provision contained herein to the contrary, if the party
that grants such license is under any proceeding under the United States
Bankruptcy Code and the trustee in bankruptcy of such party, or such party, as a
debtor in possession, rightfully elects to reject this Agreement, Company may,
pursuant to 11 U.S.C.
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Section 365(n)(1) and (2), retain any and all rights licensed to Company under
this paragraph 4.1, to the maximum extent permitted by law, subject to Company
making any payments to AEC required under paragraph 4.1.5 above.
4.1.7 If, at any time during the AMG License Period, AEC (or any affiliate of
AEC) is approached by a third party or otherwise commences communications with a
third party with respect to a proposed sale or other transfer of ownership or
control in respect of the AMG Database, AEC (or such affiliate) shall promptly
notify Company to such effect so as to accord Company a reasonable opportunity
to negotiate with AEC (or such affiliate) in order to obtain the rights proposed
to be so sold or transferred.
4.2 AEC Availability File: AEC currently compiles and maintains, and shall
continue at all times during the term of this Agreement to compile and maintain,
a separate inventory database which provides AEC's retail customers with
information regarding the availability and pricing of AEC's available SKU's (the
"AEC Availability File"). Subject to paragraph 4.3.7 below, AEC hereby
irrevocably grants to Company, during the term of this Agreement, the
non-exclusive license (without the right of sub-license, whether to Company's
affiliates or otherwise), throughout the universe, to use, copy, display and
otherwise exploit the AEC Availability File, and any portions thereof, solely in
and as part of the Store and in the manner contemplated hereby.
4.3 Other Terms Concerning Databases:
4.3.1 The AMG Database and the AEC Availability File are sometimes referred to
herein individually as a "Database" or collectively as the "Databases."
4.3.2 Except as set forth in paragraph 4.1.5 above, the rights licensed to
Company hereby in respect of the Databases shall not involve the payment of
royalties or any other consideration whatsoever to AEC, its affiliates, or any
other person or entity.
4.3.3 AEC shall incorporate the Databases into the Store to be used as the
Customers' shopping catalog, and shall provide regular updating and general
editorial and database maintenance service at all times so as to make the
information contained in the Databases current and complete to the same extent
as the versions of the Databases which are current at the time this Agreement is
executed, which versions have been reviewed by Company. AEC represents and
warrants that the AMG Database shall be updated no less frequently than monthly,
and that the AEC Availability File shall be updated no less frequently than
weekly, or at such other intervals as mutually agreed by AEC and Company, but in
no event less frequently than AEC or any of its affiliates provide updates to
any of their other licensees. Both parties recognize the importance of offering
the Customers complete details on the up and coming new album releases.
4.3.4 At Company's request, AEC shall adapt the Databases so as to allow them to
be linked to third party audio sample databases (subject to AEC's reasonable
approval), provided such third party databases contain accurate UPC bar codes
for all applicable audio formats and configurations (e.g., videocassette, laser
discs, etc.) and Company causes such third party databases to be delivered to
AEC. If Company requires additional linking beyond the UPC bar code, this can be
arranged for a fee to be agreed upon by Company and AEC.
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4.3.5 AEC shall provide reasonable maintenance and support for the Databases to
Company personnel at all times during the license period set forth herein
applicable to the Database concerned.
4.3.6 The parties acknowledge that additional product data will have to be
incorporated into the Databases for use in the Store in order to support the
sale of Consignment Product; the parties hereto shall mutually determine the
best means (operationally and from an expense position) to accomplish such task.
4.3.7 [***].
5. AMG TRADEMARKS.
5.1 Company agrees to include the "All Music Guide" trademark, service mark
and/or associated design or logo (individually and collectively, the "AMG
Marks") with all presentations of AMG Database information on the Store and
UBL.COM (e.g., page view, discography listing, biography, album review, album
track listing), so as to inform the viewer that the data viewed has been
provided by the All Music Guide. The placement of the AMG Marks shall be
designated by AEC, subject to Company's approval, not to be unreasonably
withheld or delayed. Placement of the AMG Marks in accordance with the
illustrations attached hereto as Exhibit 9 attached hereto shall be deemed
pre-approved by AEC and Company. Without limiting the generality of the
foregoing, displays of the following AMG Database information will be marked
with the corresponding AMG logo and branding as set forth below: Artist
Biographies, Essays, and Album Reviews will be marked "AMG Biography," "AMG
Essay," and "AMG Review," respectively. After each biography and album review,
the name of the author, and the term "AMG" will be listed. Ratings will be
marked "AMG Ratings," and relational elements such as the following will be
marked as: "AMG Roots & Influences," "AMG Similar/Related Artists," "AMG Music
Maps," "AMG Track Listings" and "AMG Similar Albums."
5.2 During the AMG License Period, Company agrees to cause the AMG Marks to
appear prominently in all promotional materials prepared by Company in respect
of the Store, provided that any inadvertent failure to comply with this
paragraph 5.2 shall not be deemed a breach of this Agreement.
6. CONSIGNMENT PRODUCT.
6.1 With respect to all items of Consignment Product, as between AEC and
Company, Company shall be solely responsible for: (i) shipping the items to AEC
[***], (iii) assisting AEC in insuring that each item has a viable UPC code,
(iv) ensuring that each item is legal for sale and that Company has the legal
rights to request AEC to fill orders thereof.
6.2 The parties hereto anticipate that inventory of Consignment Product held by
AEC in its warehouses will be in such quantities and held for such periods of
time so as to allow an average
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of no less than [***] turnovers per year of such inventory. In the event, after
the initial three (3) months the Store has been in operation, the parties
determine that the average turnover rate for all such inventory is less than so
anticipated, then AEC shall be entitled to charge Company a warehouse rental fee
equal to [***] per month thereafter during which the turnover rate is lower than
an average of [***] per year for each required warehouse bin/storage location.
6.3 AEC shall receive, unpack, count and add UPC codes (to the extent required)
to all shipments of Consignment Product and promptly incorporate such units into
the AEC Availability File and/or otherwise provide Company with up-to-date
inventory levels in a manner reasonably satisfactory to Company. AEC shall
promptly notify Company if there is a discrepancy between the actual number of
units received in any shipment and the corresponding number reflected on the
packing slip. Company shall advise AEC at least seven (7) days in advance of
forthcoming deliveries.
6.4 As between AEC and Company, all Consignment Product inventory shall remain
the property of Company at all times. AEC agrees that it shall safeguard such
inventory in the same manner that it safeguards items in its own inventory in
its warehouse, and that it shall be responsible for all inventory shrinkage.
6.5 All inventory of Consignment Product shall be held in separate locations in
AEC's warehouse so as to physically segregate all Consignment Product inventory
from AEC's inventory of other products, which locations shall be clearly marked
by posted signs or placards identifying all inventory in the applicable storage
area as belonging to a third party. Company shall have the right to approve all
such signs and placards as to language, size and placement. AEC agrees from time
to time to execute and deliver all further instruments and documents, and take
all further actions, that may be necessary or desirable, or that Company may
reasonably request, in order to protect Company's and the Company Clients'
rights in the Consignment Product inventory. Without limiting the generality of
the foregoing AEC hereby irrevocably grants to each of Company and the Company
Clients a power-of-attorney to sign and file one or more financing or
continuation statements, and amendments thereto, under the Uniform Commercial
Code relative to all or any part of the Consignment Product inventory without
the signature of AEC where permitted by law.
7. PAYMENTS, REPORTS AND AUDIT RIGHTS.
7.1 Payment Terms: Company shall make all payments due AEC hereunder within
[***] days of its receipt of appropriate invoices therefor from AEC.
Notwithstanding the foregoing, invoices for payments due pursuant to paragraphs
1.2.2, 1.3.3 and 2.3.7 hereof shall be payable within fifteen (15) days of
Company's receipt thereof.
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7.2 Sales Reports:
7.2.1 During the AEC Service Period, AEC shall electronically transmit to
Company, on a daily basis, data reflecting all sales and returns of Product for
the preceding day. Further, within thirty (30) days after each calendar month of
the AEC Service Period, AEC shall send Company a comprehensive report detailing
all sales and returns of Product during the calendar month concerned.
7.2.2 Within thirty (30) days after each calendar month of the term of this
Agreement subsequent to the AEC Service Period, Company shall send AEC a summary
sales report detailing the Net Monthly Sales during the calendar month
concerned.
7.2.3 To the extent Company uses the AMG Database after the term of this
Agreement, Company shall compute, pursuant to paragraph 4.1.5 above, AEC's share
of the Net Monthly Sales received by Company during each calendar month and send
AEC, within thirty (30) days after the calendar month concerned, a summary sales
report detailing such Net Monthly Sales, along with payment of any amounts due.
7.2.4 In the event Company sells musical recordings on the Store via a digital
transferring process and the AMG Database is used to help promote and feature
such sales, then Company shall send AEC, [***] after each calendar month of the
AMG License Period, a summary sales report detailing all revenues generated
thereby, as well as all associated sales tax and credit card charges, together
with payment to AEC computed in accordance with paragraph 4.1.4 above in respect
of any such revenues earned during the term of this Agreement, it being
understood that any such revenues earned after the term of this Agreement shall
be included as "Net Monthly Sales" under paragraph 4.1.5 above. Company shall
not be obligated to render statements under this paragraph 7.2.4 for months
during which there are no such sales.
7.3 Inventory Reports: Without limiting the generality of paragraph 6.3 above,
within thirty (30) days after each calendar month of the term of this Agreement,
AEC shall send Company detailed inventory reports for all Consignment Product
reflecting shipments received, units sold and returned, and then-current
inventory levels as of the end of the calendar month concerned. Company shall
have reasonable access to AEC's warehouse in order to perform physical inventory
counts from time to time.
7.4 Books and Records: Each party shall have the right, at its sole cost and
expense and upon reasonable notice to the other party, to inspect and audit the
books and records of such other party insofar as said books and records pertain
to the calculation of monies payable hereunder. Such examination shall take
place during normal business hours at the place of business where such books and
records are kept, and not more than once per calendar year. Any such inspection
must be undertaken within two (2) years after the end of the calendar year being
inspected.
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8. OWNERSHIP.
8.1 Store: Subject to AEC's rights in the Developed Technology (as defined
below) pursuant to paragraph 8.1 below, AEC recognizes and agrees that Company
is the sole owner of all right, title and interest in all rights associated with
the Store, and that all goodwill associated with the Store shall inure
exclusively to the benefit of Company.
8.2 Developed Technology: All rights (including all intellectual property
rights, whether recognized currently or in the future) in and to the works
developed by AEC for the Store in connection with this Agreement ("Developed
Technology"), including the source and object code, end-user interface,
navigational structure, appearance, commerce technology, HTML formatting code,
scripts, software, text, graphics, audio, video, artwork and designs, [***].
8.3 Independent Technology: Notwithstanding anything to the contrary contained
in this Agreement, Company will acquire no ownership interest in any technology
developed by AEC prior to or independently of this Agreement ("AEC Technology")
and AEC will acquire no ownership interest in any technology developed by
Company prior to or independently of this Agreement (the "Company Technology").
AEC hereby grants to Company a royalty-free, nonexclusive, irrevocable,
perpetual license, throughout the universe, to exploit the AEC Technology (but
specifically excluding the Databases) solely to the extent reasonably required
to [***]. For purposes of Section 365(n) of the United States Bankruptcy Code,
said license shall be considered a license of rights to "intellectual property"
as defined thereunder. Notwithstanding any provision contained herein to the
contrary, if AEC is under any proceeding under the United States Bankruptcy Code
and the trustee in bankruptcy of AEC, or AEC, as a debtor in possession,
rightfully elects to reject this Agreement, then Company may, pursuant to 11
U.S.C. Section 365(n)(1) and (2), retain any and all of its rights under such
license, to the maximum extent permitted by law.
8.4 Databases:
8.4.1 Company acknowledges and agrees that the Databases and all revisions,
modifications and enhancements thereof provided by AEC to Company under this
Agreement are the exclusive and proprietary information of AEC. Title and full
ownership rights thereto, including copyright, trade secret, trademark, trade
name and other intellectual and proprietary rights, are reserved to, and shall
remain with and be the valuable property of, AEC. Company acknowledges the
valuable, proprietary nature of the Databases, including all revisions,
modifications and enhancements thereof, and agrees that irreparable injury will
result from any use, disclosure, reproduction or distribution of the Databases
that is not authorized by this Agreement and agrees not to contest in any way
whatsoever the proprietary status of the Databases or AEC's subsisting
copyrights therein. Company will not remove any proprietary or confidential
legends or markings which AEC has placed upon or within the Databases. Transfer
of certain Store
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technology, as provided herein, shall not, under any circumstances, transfer any
right , title or interest in or to the Databases from AEC to Company.
8.4.2 Company acknowledges that AEC may, at any time or times during the license
period set forth herein applicable to the Database concerned, substitute a new
version of the Database for the version of such Database originally provided
hereunder; in which case the license granted to Company by this Agreement shall
cease with respect to the replaced version of such Database, and Company shall
purge all copies of the replaced version from Company's computer system and from
any other computer storage device or medium as to which Company has or should
have control consistent with this license.
8.5 AMG Marks: Company acknowledges that AEC is the sole owner of all right,
title and interest in the AMG Marks. Nothing contained in this Agreement shall
be construed as an assignment or grant to Company of any right, title or
interest in or to the AMG Marks. All rights relating thereto are expressly being
reserved by AEC, except for the limited licenses granted to Company herein, and
all goodwill associated with the AMG Marks inures to the benefit of AEC.
8.6 UBL Properties: AEC acknowledges and agrees that all information obtained by
AEC from UBL.COM (including any information contained in the various databases
published by Company through UBL.COM, such as artist information and links to
third party Web Sites) or supplied to AEC, in connection with linking UBL.COM
with the Store and the AMG Database or otherwise, as well as all related
copyright, trade secret, trademark, trade name and other intellectual and
proprietary rights (collectively, "UBL Properties") are reserved to, and shall
remain with and be the valuable property of, Company. AEC acknowledges the
valuable, proprietary nature of the UBL Properties, including all revisions,
modifications and enhancements thereof, and agrees that irreparable injury will
result from any use, disclosure, reproduction or distribution of the UBL
Properties that is not authorized by this Agreement and agrees not to contest in
any way whatsoever the proprietary status of the UBL Properties or Company's
subsisting copyrights therein. [***].
9. CONFIDENTIALITY.
9.1 During and following the term hereof, each party to this Agreement expressly
undertakes to retain in confidence, and to require and cause its subsidiaries
and affiliates and its and their respective employees, contractors and agents to
retain in confidence, all information and know how transmitted to such party
(the "Receiving Party") (i) which the disclosing party hereunder (the
"Disclosing Party") has identified in writing as being proprietary and/or
confidential or (ii) which the Receiving Party reasonably should know, based
upon the nature of the information being disclosed, ought to be treated as
confidential (collectively "Confidential Information"). The Receiving Party will
make no use of such Confidential Information except as expressly authorized
under this Agreement. Either party may, however, disclose Confidential
Information if required by law or legal process, provided such party shall
undertake to give the other
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reasonable notice prior to such disclosure and shall comply with any applicable
protective order or equivalent. Under no circumstances shall a Disclosing Party
be entitled to terminate this Agreement for an alleged unauthorized use or
disclosure by the Receiving Party of Confidential Information which was not
marked as "confidential" or "proprietary" unless such disclosure was made in bad
faith (in which case the Disclosing Party may terminate this Agreement to the
extent permitted under Section 12 below).
9.2 Without limiting the generality of paragraph 9.1 above, the parties agree
that the following information disclosed by one party to the other shall be
deemed Confidential Information: the capabilities, technical descriptions and
source code relating to either party's released or unreleased software or
hardware products or services; the marketing or promotion plans of any product
or service of either party; either party's business policies or practices; and
information received from others that either party is obligated to treat as
confidential.
9.3 Without limiting the foregoing:
9.3.1 Company agrees that the Databases and all information contained therein
and/or provided by AEC hereunder, including database layouts, schema, algorithms
and linking and other program features, are and shall be treated as Confidential
Information. Company agrees not to copy, disclose or otherwise make available
the Databases, in any form, to any person for any purpose other than as
necessary to permit Company's use of the Databases as authorized herein. Company
shall include in copies or reproductions of the AMG Database the "AMG" logo and
any other patent, copyright, trademark or proprietary notices contained in the
original or as reasonably required by AEC. Company shall take all reasonable
steps to safeguard the Databases against unauthorized disclosure. Company also
agrees not to use the Databases except as authorized under this Agreement and,
in particular, without limiting the foregoing, not to use such information to
develop a product that would be competitive with the Databases.
9.3.2 AEC agrees that the UBL Properties and all information contained therein
and/or provided by Company hereunder, including database layouts, schema,
algorithms and linking and other program features, are and shall be treated as
Confidential Information. AEC agrees not to copy, disclose or otherwise make
available any UBL Properties, in any form, to any person for any purpose. AEC
shall take all reasonable steps to safeguard the UBL Properties against
unauthorized disclosure. AEC also agrees not to use the UBL Properties except
for purposes of performing its services hereunder in connection with the Store
and, in particular, without limiting the foregoing, not to use such information
to develop a product that would be competitive with UBL.COM.
9.4 Both parties acknowledge that unauthorized disclosure or use of Confidential
Information could cause irreparable harm and significant injury which may be
difficult to ascertain. Accordingly, both parties agree that the aggrieved party
will have the right to seek and obtain injunctive relief from breaches of this
Section 9, in addition to any other rights and remedies it may have. Both
parties agree that each has and shall retain ownership rights to its own
Confidential Information, and that upon expiration or termination of this
Agreement each party shall return and shall not retain the Confidential
Information of the other party.
9.5 Notwithstanding anything in this Section 9 to the contrary, Confidential
Information shall not be construed to mean any information which the Receiving
Party can show: (i) is, or subsequently becomes, publicly available other than
as a result of the Receiving Party's breach of
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any obligation owed to the Disclosing Party or a third party; (ii) became known
to the Receiving Party prior to the Disclosing Party's disclosure of such
information to the Receiving Party, (iii) became known to the Receiving Party
from a source other than the Disclosing Party other than as a result of such
source's breach of an obligation of confidentiality owed to the Disclosing
Party, (iv) is independently developed by the Receiving Party, or (v) has been
authorized for disclosure by the Disclosing Party.
9.6 The provisions of this Section 9 shall survive termination or expiration of
the term of this Agreement.
10. WARRANTIES AND REPRESENTATIONS.
10.1 By AEC.
10.1.1 AEC warrants and represents for the benefit of Company as follows: (i)
the services to be performed by AEC hereunder will be rendered in accordance
with all requirements identified in this Agreement, (ii) AEC has all rights,
licenses and authorizations required to enter into and perform this Agreement,
and the performance of AEC's obligations pursuant to this Agreement will not
violate any United States federal, state or municipal laws, rules, regulations
or ordinances or the provisions of any agreement to which AEC is a party or by
which AEC is bound; (iii) no Developed Technology or the exploitation or use
thereof shall violate or infringe upon any common law or statutory rights of any
party, including contractual rights, copyrights, and rights of privacy or
publicity or shall defame any person or entity; and (iv) any invoices, reports
and documentation to be delivered to Company hereunder will be complete and
accurate to the best of AEC's knowledge.
10.1.2 AEC represents and warrants that AEC (and its affiliates) is the rightful
owner and/or licenser of the Databases, including the copyrights, trademarks,
trade names or other property rights contained therein and being licensed herein
by AEC. The foregoing notwithstanding, AEC does not warrant that it owns any
right to the album artwork or artist images or likenesses that have been
electronically scanned and linked to the Databases. The scanning process and
delivery of the images has been done as a service to Company.
10.2 By Company. Company warrants and represents for the benefit of AEC as
follows: (i) Company's responsibilities and promises herein will be rendered in
accordance with all requirements identified in this Agreement; (ii) Company has
all rights, licenses and authorizations required to enter into and perform this
Agreement, and the performance by Company of its obligations pursuant to this
Agreement will not violate any United States federal, state or municipal laws,
rules, regulations or ordinances or the provisions of any agreement to which
Company is a party or by which Company is bound; and (iii) to the best of
Company's knowledge, all orders for Products conveyed to AEC shall be accurately
conveyed to AEC including, as to each order, all information in the form
provided by any Customer. AEC acknowledges that Company is making no
representations and warranties concerning anticipated success of the Store
and/or the amount of consideration payable to AEC hereunder. AEC agrees that it
shall not make any claim and no liability shall be imposed upon Company based
upon any claim that more sales could have been made or better business could
have been done in connection with the Store.
Annex A - Page 14
<PAGE> 17
10.3 Survival. The representations and warranties contained in this Section 10
are continuous in nature and shall be deemed first given upon the execution of
the Agreement and shall survive termination or expiration of this Agreement.
11. INDEMNIFICATION.
11.1 BY AEC. AEC shall indemnify, hold harmless and defend Company and all of
Company's members, employees, officers, directors and agents from and against
any and all claims, damages, losses, liabilities, suits, actions, demands,
proceedings (whether legal or administrative) and expenses (including reasonable
attorneys' fees incurred, with or without suit, in arbitration or mediation, on
appeal or in a bankruptcy or similar proceeding) (collectively, "Claims")
threatened, asserted or filed by a third party against any of the aforesaid
persons or entities to the extent that such third party Claims arise out of or
relate to (i) the breach of any material warranty, representation or agreement
made by AEC in this Agreement; or (ii) any grossly negligent or tortuous act,
willful misconduct or willful omission by AEC; provided, however, that AEC shall
not be liable for any errors, omissions or inaccuracies in the Databases, or the
updates thereof unless caused by AEC's gross negligence or willful neglect.
Furthermore, AEC shall not be liable for any delays or interruptions in the
delivery, transmission or distribution of the Databases or the updates by reason
of unavoidable equipment failure, communication circuit failure, power failure,
Acts of God, government intervention, fire, flood, or other Acts beyond AEC's
reasonable control. Claims arising from modifications by Company of the
Databases or as a result of a failure by Company to implement any enhancements,
improvements, or updates to the Databases as supplied by AEC, shall be deemed
excluded from the indemnity under this paragraph 11.1.
11.2 By Company. Company shall indemnify, hold harmless and defend AEC and all
employees, officers, directors and agents of AEC from and against any and all
Claims threatened, asserted or filed by a third party against any of the
aforesaid persons or entities to the extent that such third party Claims arise
out of or relate to: (i) the breach of any material warranty, representation or
agreement made by Company in this Agreement; or (ii) any grossly negligent or
tortuous act, willful misconduct or willful omission by Company (iii) the use of
the digitized album and portrait pictures used in the Store.
11.3 Manner of Exercise. Any person or entity that is entitled to be indemnified
pursuant to this Section 11 (the "Indemnified Party") must give prompt notice to
the indemnifying party (the "Indemnifying Party") of the occurrence of the Claim
for which indemnity is requested and, at the option of the Indemnifying Party,
the Indemnifying Party may assume the handling, settlement and defense of such
Claim, in which event the Indemnified Party will cooperate in all reasonable
respects with the Indemnifying Party at the Indemnifying Party's expense. The
failure by the Indemnified Party to give such prompt notice shall not relieve
the Indemnifying Party from any liability under this Section 11 unless, and only
to the extent that, such failure results in prejudice to or forfeiture of,
substantive rights or defenses of the Indemnifying Party. The Indemnifying Party
shall reimburse the Indemnified Party on demand for any payment made by the
Indemnified Party in respect of any Claim to which the foregoing indemnity
relates which either (i) has resulted in an adverse judgment against the
Indemnified Party or (ii) has been settled with the written consent of the
Indemnifying Party, which it may withhold for any reason.
12. DEFAULT AND TERMINATION RIGHTS.
Annex A - Page 15
<PAGE> 18
12.1 Default. In the event of a default (a "Default"), the non defaulting party
shall have the right, without limiting any other right or remedy provided in
this Agreement or that it may have under law or equity (subject, however, to
Section 13 below), to terminate this Agreement by giving notice to the other
party under this Agreement and of its election to terminate this Agreement,
after the non defaulting party becomes aware of such Default. Each of the
following is a Default
12.1.1 The failure of either party to materially perform any of such party's
obligations contained in this Agreement, which failure has not been cured within
[***], in the case of a breach in any payment obligation hereunder, or [***], in
the case of a breach in any other kind of obligation hereunder, after the non
breaching party provides notice to the breaching party describing the breach(es)
in reasonable detail.
12.1.2 The failure by AEC to fulfill on a timely basis, in accordance with the
requirements set forth in paragraph 2.2.1 above, at least [***] of all orders
for units of Product received during any particular [***] period (except with
respect to Commercially Unavailable Product, cutouts and imports); provided,
however, that the preceding [***] figure shall instead be [***] with respect to
any thirty (30) day period, the majority of which occurs during a Surge Month.
As used herein, the term "Surge Month" shall mean any calendar month in which
the [***].
12.1.3 The occurrence of any of the following: (a) any party admits in writing
its inability to pay its debts generally or makes a general assignment for the
benefit of creditors; (b) any affirmative act of insolvency by any party filing
by any party of any petition or action under any bankruptcy, reorganization,
insolvency, arrangement, liquidation, dissolution or moratorium law, or any
other similar law or laws for the benefit of, or relating to, debtors; (c) the
filing, by any third party, against any party of any petition or action of the
type described in clause (b) above, which has not been either controverted by
such party within fifteen (15) days after its receipt of the service of process
dating to such filing, or stayed or dismissed within thirty (30) days after the
time of such receipt; (d) the subjection of a material part of any party's
property to any levy, seizure, assignment or sale for or by any creditor, third
party or governmental agency, provided that such levy, seizure, assignment or
sale has not been stayed, discharged or reversed within thirty (30) days after
the date of issuance of the order or decree which authorized the same; or (e)
the issuance of an injunction enjoining either party from performing any of its
material obligations hereunder, which injunction has not been stayed, discharged
or reversed within thirty (30) days after the date of issuance of the order or
decree which authorized the same.
13. LIMITATION OF LIABILITY. NEITHER OF THE PARTIES HERETO SHALL HAVE ANY
LIABILITY TO THE OTHER PARTY HERETO OR TO ANY THIRD PARTY FOR ANY INDIRECT,
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES ARISING UNDER THE TERMS
OF THIS AGREEMENT, EVEN IF ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH
DAMAGES. The foregoing shall not be interpreted to limit any party's right to be
fully indemnified to the extent provided under Section
- -------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
Annex A - Page 16
<PAGE> 19
11 above for damages claimed by a third party. Company acknowledges that nothing
in this Agreement shall be deemed to establish a contractual or other legally
recognizable relationship between AEC and a Customer, it being agreed that the
services provided hereunder are for Company's benefit and as agent for Company.
14. FORCE MAJEURE. Except for obligations under Section 9 above and obligations
of payment, the executory obligations of the parties hereunder shall be excused
to the extent, but only to the extent, delayed or prevented by Acts of God,
including earthquake, storm, flood, fire, explosion, power failure, civil
insurrection, or any other cause beyond the reasonable control of the affected
party hereto and which such party could not by reasonable diligence have avoided
(collectively, "Force Majeure"), provided that notice of such Force Majeure is
given by the affected party to the other within twenty (20) days of such party's
becoming affected by the Force Majeure. Furthermore, in the event such notice is
timely given, no failure or delay by either party in the performance of any of
its obligations (other than under Section 9 above) as a result of a Force
Majeure shall give rise to any liability to the other party for any loss,
injury, delay, or other casualty suffered or incurred by such other party due to
such Force Majeure. The party directly affected by a Force Majeure shall use all
reasonable efforts to minimize the effects of the same. At the election of the
party not directly affected by a Force Majeure, a period of time equal to the
duration of any suspension of performance by the other party as a result of a
Force Majeure shall be added to the end of the then current term of this
Agreement, and such term shall be accordingly extended.
15. GENERAL.
15.1 Entire Agreement/Amendment: All references to "this Agreement," "hereof,"
"herein" and words of similar connotation include the agreement to which this
Annex A is attached, as well as all exhibits attached hereto, unless specified
otherwise. Each party acknowledges that it has read this Agreement, understands
it, and agrees to be bound by its terms. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements, negotiations, understandings, representations,
statements and writings among the parties relating thereto with regard to the
subject matter hereof. No modification, alteration, waiver or change in any of
the terms of this Agreement shall be valid or binding upon the parties hereto
unless made in writing and duly executed by both of the parties hereto.
15.2 Governing Law: This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Florida and the United States of
America, without regard to the principles of conflicts of law. The parties
hereby consent to and submit to the sole jurisdiction of a competent court
located in the State of Florida. Such court shall be the sole and exclusive
venue for resolution of any disputes or disagreements between the parties
relating to this Agreement or the transactions contemplated hereby or otherwise
arising hereunder or with respect to any breach of the terms and provisions
hereof.
15.3 Severability: Should any part of this Agreement be held unenforceable or in
conflict with the applicable laws or regulations of any jurisdiction, the
invalid or unenforceable part or provision shall be replaced with a provision
which accomplishes, to the extent possible, the original business purpose of
such part or provision in a valid and enforceable manner, and the remainder of
this Agreement shall remain binding upon the parties.
Annex A - Page 17
<PAGE> 20
15.4 Successors and Assigns: This Agreement and all obligations and rights
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
15.5 Relationship between the Parties: This Agreement is not intended to create
any relationship other than AEC as an independent contractor performing services
covered by this Agreement, and Company as the party contacting with AEC for
those services. No party is a partner or a legal representative of the other for
any purpose whatsoever. No party is authorized to make any contract, agreement
or warranty on behalf of any other party. Under no circumstance shall one
party's employees be construed to be employees of any other party.
15.6 Notices: All notices given to the parties hereunder and all statements and
payments hereunder shall be addressed to the parties at the address set forth
below or at such other address as shall be designated by the parties in writing
from time to time:
If to Company: with a copy to:
The Ultimate Band List, LLC Lenard & Gonzalez LLP
17835 Ventura Blvd., Suite 310 1900 Avenue of the Stars, 25th Floor
Encino, CA 91316 Los Angeles, CA 90067
Attn.: Marc Geiger Attn.: Allen D. Lenard, Esq.
If to AEC: with a copy to:
AEC One Stop Group, Inc. Alliance Entertainment Corp.
4250 Coral Ridge Drive 4250 Coral Ridge Drive
Coral Springs, Florida 33065 Coral Springs, Florida 33065
Attn.: Eric Weisman Attn.: General Counsel
All notices shall be in writing and shall be personally delivered, or served by
certified mail, return receipt requested, or by overnight mail service such as
Federal Express, all charges prepaid. Except as otherwise provided herein, such
notices shall be deemed given three days after mailing or delivery to an
overnight mail service, all charges prepaid, except that notices of change of
address shall be effective only after actual receipt thereof. The failure of the
recipient to accept or receive notice given by certified mail, return receipt
requested, postage prepaid, does not affect the validity of the notice.
15.7 Survival: The terms and provisions of this Agreement by their sense and
context are intended to survive the performance of such term or provision or of
this Agreement shall so survive the completion of performance and termination of
this Agreement, including the provisions of Sections 9, 10 and 11 hereof.
15.8 Waiver of Default or Breach: Waiver by either party of a default or breach
or a succession of defaults or breaches, or any failure by either party to
enforce any rights hereunder, shall not be deemed to constitute a waiver of any
subsequent default or breach with respect to the same or any other provision
hereof, and shall not deprive such party of any right to terminate this
Agreement arising by reason of any subsequent default or breach.
15.9 Captions; Examples: The captions used in this Agreement are for convenience
of reference only and are not to affect the construction hereof or be taken into
consideration in the
Annex A - Page 18
<PAGE> 21
interpretation hereof. Whenever examples are used in this Agreement with the
words "including," "for example," "e.g.," "such as," "etc." or any derivation
thereof, such examples are intended to be illustrative and not in limitation
thereof.
15.10 Drafting Party: Notwithstanding that this Agreement may have been drafted
by one or another of the parties hereto, neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against either
party, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties hereto and shall be construed
and interpreted according to the fair meaning of the words used so as to
accomplish the purposes and intentions of the parties hereto.
15.11 Counterparts: This Agreement may be executed in one or more counterparts
each of which shall be deemed an original but all of which taken together shall
be deemed one and the same instrument.
End of General Terms & Conditions
Annex A - Page 19
<PAGE> 22
EXHIBIT 1
CUSTOMER SERVICE
AEC shall provide on behalf of Company customer support for those
orders placed by Customers through the Store. This Exhibit shall define the
service level and performance requirements mandated to govern such activities.
DEFINITION OF SERVICE LEVEL
1. Contact Numbers. AEC Customer Support Service Department will provide
Company with an (800) phone number, Voice-Mail Messaging system, a (800) fax
phone number, and an e-mail address. The contact numbers will be presented
to the Customers from within the Store and on the printed hardcopy invoice.
The contact numbers will be provided to Company prior to Store launch.
Company shall designate and provide to AEC a contact person (including their
phone number, fax number and email address) to resolve out of policy store
issues that may arise from Store Customers.
2. Customer Support Hours. AEC Customer Support Service Department will operate
Monday through Friday (excluding holidays), between the hours of 9:00 AM and
6:00 PM Eastern Time.
3. Customer Support Activities. AEC Customer Support Services Department will
assist customers with all customer inquiries concerning orders and product
information as defined below:
a) Order Status Information. Customer Service will provide research
and/or updates on orders, as required by the consumer (i.e., is the
order shipping today, did my order ship, when should I expect the
order, etc.)
b) Back Orders & Special Orders. Customer Service will provide support,
answer, update information from the consumer on items placed on back
order or on special order. (e.g., Has the product been received? Do
you know when product will become available? How long does this
usually take?) Additionally, Customer Service will update the
consumer on discontinued items, release product as these become
available, and cancel back orders.
c) Shipping Status. Customer Service will answer questions on items
already shipped or currently in AEC's warehouse ready to ship. This
may also involve tracking the shipment through UPS and providing an
estimate on date of arrival to consumer.
d) Tracking and Locating Product. Customer Service will initiate tracers
with UPS on shipments that have not arrived as promised, and file
claims for service failures.
e) Order Changes, Cancellations, and/or Deletions. Customer Service will
make changes for orders that have not been processed or already
billed. Once orders are processed, changes cannot be made. (e.g.,
adding or deleting product, cancel orders, change shipping address,
etc.)
f) Refused/Undeliverable Shipment. Customer Service will contact
customer when product has been refused on delivery. This will involve
determining if the item(s) should be reshipped, address may need
correction or simply issuing credit to the consumer. If product is
returned "undeliverable" Customer Service will contact the customer
to validate address and arrange for re-shipment of product.
g) Claims Research. Customer Service will research all claims for
product that has already been billed and shipped. (e.g., billing
information, overcharges, credits, product ordered, total amount
billed to credit card, tracking number, ship via method, invoice
itemization, returns etc.)
h) Defective-Product received defective. Customer Service will validate
the defect, issue a return authorization number, retrieve the
defective product and generate a replacement order.
Alliance Entertainment Corp.
Exhibit 1 - Page 1
<PAGE> 23
i) Damaged-Product arrived damaged. Customer Service will validate the
damage, file a claim for the loss with UPS issue a return
authorization number, retrieve the damaged product and generate a
replacement order.
j) Lost-Product lost in transit. Customer Service will validate the
damage, file a claim for the loss with shipping agent, issue a return
authorization, retrieve the damaged product and generate a
replacement order.
k) Incorrect Product. Customer Service will validate the claim for
incorrect item received and will issue a return authorization number,
retrieve product and generate a replacement order.
l) Billing Inquiries. Customer Service will answer and support general
billing questions from consumer, as well as provide detailed
itemization of billing charges.
m) Copy of Invoices. Upon request, Customer Service will generate an
additional copy of the invoice and mail a copy to the consumer.
n) Credit Card Reconciliation. Customer Service will research charges
and credits on behalf of the consumer. (i.e. product returned and
credit has not yet been applied to the credit card, researching
overcharges and credits )
o) Product Inquiries. Customer Service will provide information on
product availability, song titles and artist information to the
consumer. (i.e., Is this available ?, Who is this artist)
4. Non-Store Sales Orders. AEC Customer Service shall provide sales support for
those orders not placed directly through the Store. The following are two
order entry methods available to the Customer.
Phone Sales (order Entry). Customer Service will support orders
submitted via the telephone. All telephone orders will be answered in
the order these are received in Customer Service. If the call is not
answered by a Customer Service Representative, the consumer may leave a
voice mail message and have their call returned.
Fax Sales (order entry). Customer Service will enter orders received via
fax on behalf of the consumer. All fax orders will be answered in the
order these are received in Customer Service.
5. Product Returns. AEC Customer Service will process Customer returns and
conduct the authorization and processing required based on Company's
predetermined returns policy.
Returns. Customers may return product for received damaged, incorrect
item(s) or defective. Customer Service will validate the customer's
claim and issue a return authorization number. Customer Service will
perform this function in accordance with the Store's procedures and
policy.
CUSTOMER SERVICE PERFORMANCE REQUIREMENTS
6. Performance Requirements. The following are AEC's Customer Service
performance representations.
Daily Phone Call Volume. In order to meet the level of Customer Service
as defined herein, a daily incoming Customer Service call volume of (30)
thirty Customer Service related calls (excluding order placement calls)
shall be processed while meeting the below performance standards. Should
demand exceed Daily Call Volume by 15% or more in any month, AEC will
notify Company of the increased Call
- --------------------------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
Alliance Entertainment Corp.
Exhibit 1 - Page 2
<PAGE> 24
Volume (as provided in Customer Service Regular Customer Service
Reports), and the parties shall negotiate a reasonable monthly fee
payable by Company to AEC by virtue of such increase.
Voice Mail Support. The goal of customer service is to be able to answer
each inbound call immediately by anyone of our several Customer Service
Representatives. However, in the event that the customer's call cannot
be answered in the order it is received, the customer may leave a voice
mail message. Voice mail inquiries received Monday through Friday before
12:00 noon Eastern Time will be acknowledged on the same day. Voice mail
inquiries received after 12:00 noon Eastern Time will be answered the
next day. Voice mail inquiries received over the weekend or on
non-working holidays will be answered on the next regularly scheduled
working day.
Faxed Sales Orders. Orders faxed for manual order entry received by
12:00 noon (Monday-Friday) Eastern Time will be processed and prepared
for shipment the same day. Fax orders received after 12:00 noon Eastern
Time will be processed the following working day and shipped that same
day. Fax orders received over the weekend or on non-working holidays
will be answered on the next regularly scheduled working day.
Phone Sales Orders. All telephone sales orders received for manual order
entry and processing before 12:00 noon (Monday-Friday) Eastern Time will
be processed and prepared for shipment the same day. Voice mail messages
received after 12:00 noon (Monday-Friday) Eastern Time will be
acknowledged, processed and prepared for shipment the next regularly
scheduled working day.
E-mail Inquiries. Email inquiries received before 12:00 noon Eastern
Time (Monday through Friday) will be acknowledged on the same day. Email
received after 12:00 noon Eastern Time (Monday through Friday) will be
answered the next day. Email received over the weekend or on non-working
holidays will be responded to on the next regularly scheduled working
day.
Customer Service Claims Report. A Customer Service Claims Report,
provided by AEC to Company will be generated and distributed to Company
on a BI-weekly basis. The report will display Company with information
pertaining to all open, pending and resolved inquiries received by the
AEC Customer Service Department. This report is primarily used by
Customer Service to monitor service issues. Customer Service will
provide via an Excel file an electronic e-mail copy of this report to
Company. This report will provide detail of customer inquiries by date,
inquiry reason and resolution. This report is currently used to measure
the performance and responsiveness of Customer Service.
Alliance Entertainment Corp.
Exhibit 1 - Page 3
<PAGE> 25
EXHIBIT 2
STORE DEFINITION SUMMARY
AEC as service to the Company, shall design, develop and host the Store as
defined below. This Exhibit shall define the general features and functionality
of the Store. Additionally, the attached ("Storyboard") shall display a visual
depiction of the general flow of the user navigation, and the data elements that
will be displayed on the various particular page views.
STORE LOCATION
1. URL Address. The Store will be reached via the Ultimate Band List Internet
Web Page (UBL.COM). This site is located at http://www.ubl.com. The actual
Store itself will be hosted on AEC'S web servers located in Coral Springs,
Florida.
DATABASE SEARCHES
1. Searches. The Store will allow for the following database search and
retrieval capabilities.
a) The artist search and alpha-key board type search by artist will be
performed by UBL.
b) The album and song title search will be performed by AEC.
c) AEC searches may accept one or more full or partial keywords.
d) A direct match for an artist search will result in the corresponding
artist card being displayed.
e) A direct match for an album or song title search will result in the
corresponding album page being displayed.
f) If a direct match is not found for the artist search, the artist
search results list will be displayed
g) If a direct match is not found for the album or song title search,
the album search results list will be displayed
ALBUM FEATURES - SPOTLIGHTS
1. Features. The Store will provided browsers with several different (i.e.,
genre specific) featured albums depending on area in the Store the browser
is in. Albums selected for featuring will normally contain complete
descriptive details (e.g., artist name, album title, tracks, cover art,
sound bytes (if available), fulfillment status, etc,.). The feature album
list(s) will be updated automatically by AEC and AMG on a weekly basis. AEC
and AMG staff will determine the albums that will be featured on a weekly
basis. The feature album list will be uploaded into the Store database via
an automated application process.
a) Up to three (3) albums will be featured upon entering each main
section of the Store. These album features could be of any musical
genre.
Alliance Entertainment Corp.
Exhibit 2 - Page 1
<PAGE> 26
b) Up to three (3) genre specific features will be displayed in
corresponding genre areas of the Store (e.g., search performed on New
Release by Genre will produce (3) featured albums from the specific
genre searched upon) to the type of genre being displayed.
c) All features will normally contain complete details and/or
descriptive album content (i.e., covers, track listings, sound
bytes.)
NEW RELEASE LISTS
1. New Releases. The program will allow for the easy display of all new
releases contain in the AEC Availability File. Release information is
updated in the Store on weekly basis.
a) Upon selecting the New Release option, user will be displayed (3)
non-genre specific featured albums and will then need to select from
a the list of genres available and/or a date range (e.g., last two
weeks, etc.).
b) New releases will be displayed alphabetically by artist.
c) A release is considered new for the prior 30 days of release or the
following 7 days of the date selected.
d) The album images (if available at the time of release) will be
displayed along with artist name, album title, price and any
suggestive sales data such as sound bytes, etc.
TOP SELLERS
1. Top Sellers. This list will provide the browser with an update-to-date
(weekly) listing of those albums that captured the lions-share of individual
total units sold both to traditional retail and/internet sales on product
sold and filled by AEC. The top sellers are AEC'S top sellers.
a) Up to the top 25 sellers will be displayed by genre.
b) Top sellers are determined weekly based on AEC sales.
c) Top sellers will be AMG content rich.
d) Featured Albums will be presented within each list.
UPCOMING RELEASES
1. Upcoming Releases. These releases are albums that are targeted for release
to general public but are not available for immediate shipment. Accuracy of
releases dates will always be suspect for review. The Store will allow for
and process the pre-booking of upcoming releases. These orders if not in AEC
inventory upon order and/or availability will be treated as a back-order or
a special order.
a) A release is defined as upcoming if it is to be released in the next
7 or more days.
b) Upcoming releases will be displayed by genre and/or release date.
Alliance Entertainment Corp.
Exhibit 2 - Page 2
<PAGE> 27
c) New releases will be featured in this section.
SHOP BY GENRE
1. Shop by Genre. This area of the Store will help the music consumer better
explore areas of music they may not be familiar with. The view is provided
with detailed information about a particular genre of their choice and is
presented with a convenient and quick list of artists and/or albums of
recognized acclaim within this specific genre.
a) A genre is chosen upon entering this section.
b) A style or decade may then be entered.
c) If style is chosen, a description of the style is displayed along
with a listing of the most notable artists of this style.
d) If decade is chosen, the best artists and the best albums for the
decade will be displayed.
e) New releases will be featured in this section.
RECOMMENDATIONS
1. Album and Artist Recommendations. This section of the Store will provide a
quick and specific list of either a list of artists or albums that the music
consumer may want to explore based on their entry of a "liked" artist or
"album". It is not based on "case-based reasoning" or the likes of other
music consumers.
a) User enters their favorite Artist or Album title.
b) The Store returns a list of similar recommendations.
c) While viewing recommendations list, the suggested sell and the most
recent release will be featured automatically.
SHOPPING CART
1. Shopping Cart Features.
a) Cybercash will be used to process credit cards.
b) Gift wrapping options and selection of the gift wrap style (e.g.,
Xmas, birth-day, etc.) will be available to the viewer via images. If
one or more items are ordered, each item in that order will be gift
wrapped individually.
c) Inventory will be checked real time and reserved after placing the
entire order.
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
Alliance Entertainment Corp.
Exhibit 2 - Page 3
<PAGE> 28
d) A confirmation number will be assigned after the order is completed.
HELP
1. The Help Section. The help section of the Store will contain the following
topics. Many items will need continual updating to keep the information
presented up-to-date and accurate. Both AEC and Company will work closely
together on defining and maintaining this section of the Store.
a) Customer service
b) Database Search
c) Store Policies
d) Returns Processing
e) Back Orders
f) Special Orders
g) Shipping Rates
h) Frequently Asked Questions
Alliance Entertainment Corp.
Exhibit 2 - Page 4
<PAGE> 29
EXHIBIT 3
SAMPLE INVOICES
Alliance Entertainment Corp.
Exhibit 3
<PAGE> 30
EXHIBIT 4
RETURNS POLICY
Your satisfaction guaranteed!
If you have received damaged, defective, or incorrectly shipped merchandise
please notify Customer Service within 30 days and follow the instructions below.
We will gladly replace the merchandise without additional charge, or provide you
with a full refund.
If you are unsatisfied with your UBL purchase and the merchandise is unopened we
will be happy to exchange it for you. Original shipping and handling charges
cannot be refunded, and you will be responsible for all costs associated with
return shipment. No COD returns will be accepted.
A return must be approved by Customer Service. Once validated a Return
Authorization Number (RA#) is issued. At that time, Customer Service will
generate a new order and replace the item(s). All returns must display the
Return Authorization number on the outside of each box, along with the
customer's return address. Returns received at our facility without an
authorization will be refused on delivery.
Important Information
- Special order and open product are non-returnable.
- Prior to returning product, contents must be well packaged to
assure safe arrival. Product must be unopened, and in re-salable
condition. We recommend using the original packaging for
shipment.
- Shipments must be received pre-paid at our returns facility. Any
COD shipments will not be accepted.
RETURNS PROCEDURE
Please follow these simple steps to ensure your fast returns and appropriate new
shipment or credit.
1. CONTACT CUSTOMER SERVICE
You must contact Customer Service to obtain a RETURN AUTHORIZATION NUMBER (RA#).
Returns cannot be accepted without this number. You may contact Customer Service
in any of the following three ways:
- E-mail: [email protected]
- Phone: 1-800-538-3465, Monday to Friday, 9am to 6pm, Eastern
Standard Time
Alliance Entertainment Corp.
Exhibit 4
<PAGE> 31
- Fax: (954) 255-4837
2. INFORMATION NEEDED
Please have the following information ready before you call or as part of your
e-mail or fax.
1. Order confirmation number
2. Your name
3. Your e-mail address
4. Your phone number
5. Product #
6. Product Name
7. Reason for return
3. PACK AND SEND
1. Fill out the return label (provided on the back of your invoice),
including your RA#. RETURNS CANNOT BE ACCEPTED WITHOUT AN RA#.
2. Enclose merchandise and this completed form in a sturdy package (the
original package is preferred).
3. Enclose the original packing slip/invoice in the package.
4. Affix the return label to the outside of the package and send to the
following address:
Ultimate Band List Store
Attn: Returns Department
4250 Coral Ridge Drive
Coral Springs, FL 33065
Alliance Entertainment Corp.
Exhibit 4
<PAGE> 32
EXHIBIT 5
INTERNET FULFILLMENT PRICE LIST
a. I. Major Label and Independent Price List
(i) Compact Disc
(ii) Suggested List UBL Price
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
I = INDEPENDENT LABEL PRICE M = MAJOR LABEL PRICE
Cassette
(III) Suggested List UBL Price
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
II. MONTHLY DISCOUNTS
Within thirty (30) days before the beginning of each calendar month,
Company and AEC shall use good faith efforts to agree upon [***].
- --------------------------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
Alliance Entertainment Corp.
Exhibit 5
<PAGE> 33
EXHIBIT 6
CONSIGNMENT PRODUCT FULFILLMENT FEES
-----------------------------------------------------------
Product Item Retail Price Fulfillment Fee
-----------------------------------------------------------
[***] [***]
[***] [***]
[***] [***]
[***] [***]
-----------------------------------------------------------
- --------------------------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
Alliance Entertainment Corp.
Exhibit 6
<PAGE> 34
EXHIBIT 7
SHIPPING RATES
[***]
- --------------------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
Alliance Entertainment Corp.
Exhibit 7
<PAGE> 35
EXHIBIT 8
PACKAGING MATERIAL COSTS
-----------------------------------------------------------
Box Size Packaging Cost
-----------------------------------------------------------
[***] [***]
[***] [***]
[***] [***]
-----------------------------------------------------------
- --------------------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
Alliance Entertainment Corp.
Exhibit 8
<PAGE> 36
EXHIBIT 9
AMG MARK PLACEMENT
Alliance Entertainment Corp.
<PAGE> 1
EXHIBIT 10.7
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
dated as of July 28, 1998
by and among
ARTISTdirect, LLC
and
The Ultimate Band List, LLC
and
Constellation Venture Capital, L.P.
and
Constellation Ventures (BVI), Inc.
- --------------------------------------------------------------------------------
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of July 28, 1998, by and among
ARTISTdirect, LLC, a California limited liability company ("AD"), The Ultimate
Band List, LLC, a California limited liability company ("UBL" and together with
AD, the "Companies"), and Constellation Venture Capital, L.P., a Delaware
limited partnership and Constellation Ventures (BVI), Inc., a British Virgin
Islands corporation (each a "Purchaser" and together "Purchasers"). Each of AD
and UBL are sometimes referred to herein individually as "Company."
W I T N E S S E T H :
WHEREAS, Purchasers have agreed to make capital contributions to UBL in
the amount of $1,200,000 and in exchange therefor, UBL has agreed to issue to
Purchasers, upon the terms and conditions provided in this Agreement and in the
UBL Operating Agreement, (i) an aggregate of 1,200 UBL Preferred Units, as
defined, and (ii) the UBL Option (as defined).
WHEREAS, Purchasers have agreed to make capital contributions to AD in
the amount of $1,800,000 and in exchange therefor, AD has agreed to issue to
Purchasers, upon the terms and conditions provided in this Agreement and in the
AD Operating Agreement, (i) an aggregate of 167,527.57 AD Preferred Units, as
defined, and (ii) the AD Option (as defined).
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Companies and
Purchasers hereby agree as follows:
I. DEFINITIONS
"Affiliate" shall (i) have the meaning specified by Rule 12b-2 under
the Exchange Act, (ii) be deemed to include any member or manager of a limited
liability company or any partner in any partnership or joint venture and (iii)
be deemed to include (when such term is used in reference to any Purchaser) the
partners of Constellation Venture Capital, LP and Constellation Venture Capital
Offshore, LP.
"AD" shall have the meaning set forth in the preamble to this
Agreement.
"ADNM" shall have the meaning set forth in Section 4.5.
"AD Common Units" shall mean the Common Units authorized under the AD
Operating Agreement or any class of Equity Securities issued in exchange
therefor in any merger, consolidation or recapitalization.
"AD Conversion Units" shall mean the AD Common Units into which the AD
Units are convertible, as adjusted from time to time in accordance with the
terms of the AD Operating Agreement.
<PAGE> 3
"AD Manager" shall mean the Board of Directors of AD appointed pursuant
to the AD Operating Agreement or any Person performing a similar function.
"AD Member" shall have the meaning set forth in Section 1.1 of the AD
Operating Agreement.
"AD Operating Agreement" shall mean the operating agreement of AD dated
as of September 1, 1996, as amended, and as amended and restated as of the date
hereof.
"AD Option" shall mean Purchasers' option to make an additional capital
contribution to AD of up to $600,000 (on the terms and conditions set forth in
this Agreement exercisable for a period of 30 days following the Closing
hereunder) for which Purchasers shall receive additional AD Preferred Units in
accordance with Section 3.3(c) of the AD Operating Agreement.
"AD Option Units" shall mean the number of AD Preferred Units for which
the AD Option is exercisable.
"AD Preferred Units" shall mean a series of Preferred Units to be
designated "Series A Preferred Units" which shall be convertible into AD Common
Units, in accordance with the terms of the AD Operating Agreement.
"AD Registration Rights Agreement" shall mean the Registration Rights
Agreement by and between AD and Purchasers, substantially in the form attached
hereto as EXHIBIT A-1, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"AD Units" shall mean (i) 167,527.57 AD Preferred Units sold to
Purchasers hereunder as adjusted from time to time in accordance with the terms
of the AD Operating Agreement and (ii) any AD Equity Securities purchased
pursuant to Section 3.8(d) of the AD Operating Agreement, in each case as
equitably adjusted or as a result of or in connection with any dividend, split
or reverse split (in respect of any AD Equity Securities) or any combination,
recapitalization, reclassification, merger or consolidation, exchange or
distribution.
"ARI" shall mean American Recordings, Inc., a New York corporation.
"Balance Sheet Date" shall have the meaning set forth in Section
4.7(b).
"Business Day" shall mean any day that is not a Saturday, a Sunday or a
day on which banks are required or permitted to be closed in the State of New
York or California.
"Common Units" shall mean the AD Common Units and the UBL Common Units.
"Constellation Voting Agreements and Irrevocable Proxys" shall mean the
agreements to be executed pursuant to Section 6.2(b).
-2-
<PAGE> 4
"Contract" shall mean any contract, agreement, indenture, note, bond,
loan, instrument, lease, conditional sale contract, mortgage, license,
franchise, insurance policy, commitment or other arrangement or agreement,
whether written or oral.
"Contribution Agreement" shall mean that certain Contribution Agreement
dated as of August 5, 1997 by and between UBL and ARI.
"Conversion Units" shall mean the AD Conversion Units and the UBL
Conversion Units.
"Employment Agreements" shall mean the employment agreements of Marc
Geiger and Donald Muller, substantially in the forms attached hereto as EXHIBIT
B-1 AND B-2, as such agreements may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"Environmental Law" means any and all federal, state, local, provincial
and foreign, civil and criminal laws, statutes, rules, ordinances, codes,
regulations, permits relating to the protection of health and the environment,
worker health and safety and or governing the use, handling, storage, discharge
or disposal of Hazardous Substances, including but not limited to the
Comprehensive Environmental Response, Compensation and Liability Act, 42 USC
Section 9601 et. seq., the Resource Conservation and Recovery Act, 42 USC
Section 6901 et. seq., the Occupational Health and Safety Act, 29 USC Section
651 et. seq., the Canadian Environmental Protection Act; and the state and
provincial analogues thereto, all as amended or superseded from time to time.
"Equity Securities" shall mean all shares, options, warrants, general
or limited partnership interests, limited liability company membership interest,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Exchange Act).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
(or any successor legislation thereto), as amended from time to time and any
regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
"Fiscal Year" shall mean the twelve month fiscal year of a Company.
"Founders Voting Agreement and Power of Attorney" shall have the
meaning set forth in Section 6.1(f).
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"Governmental Authority" shall mean any nation or government, any state
or
-3-
<PAGE> 5
other political subdivision thereof, any court or arbitrator (public or
private), and any agency, department, instrumentality, authority or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Hazardous Material" means petroleum and petroleum products,
radioactive materials, asbestos-containing materials, radon, lead-based paint,
polychlorinated biphenyls, pesticides and any other chemicals, substances,
wastes or materials defined, listed or regulated by any Environmental Law.
"Indebtedness" of any Person shall mean (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services with respect to which a Person is liable, contingent or otherwise, as
obligor or otherwise (other than obligations to trade creditors incurred in the
ordinary course of business which are not more than 30 days past due), (ii) all
obligations evidenced by notes, bonds, debentures or similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person, (iv) any
commitment by which a Person assures a creditor against loss (including
contingent reimbursement obligations with respect to letters of credit), (v) any
obligations under capitalized leases with respect to which a Person is liable,
contingently or otherwise, (vi) any unsatisfied obligation for "withdrawal
liability" to a "multiemployer plan" as such terms are defined under ERISA or
for other liabilities under Title IV of ERISA, (vii) any indebtedness of another
described in (i) through (vi) above guaranteed in any manner by such Person
(including, without limitation, guarantees in the form of an agreement to
repurchase or reimburse) or which is secured by a lien or encumbrance on such
Person's assets to the extent of the indebtedness guaranteed or the assets
subject to such lien or encumbrance.
"IRC" shall mean the Internal Revenue Code of 1986, as amended.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"Law" means any federal, state, local or foreign law (including common
law), statute, code, ordinance, rule, regulation or other requirement or
guideline.
"Lien" shall mean any lien, pledge, hypothecation, levy, mortgage, deed
of trust, security interest, claim, lease, charge, option, right of first
refusal, preemptive right easement, or other real estate declaration, covenant,
condition, restriction or servitude, transfer restriction under any shareholder
or similar agreement, encumbrance or any other restriction or limitation
whatsoever.
"Manager" shall mean the AD Manager and the UBL Manager.
"Member" shall mean the AD Members and the UBL Members.
"Material Adverse Effect" shall mean any material adverse effect on (i)
the business, assets, operations, prospects of the Company as listed on SCHEDULE
A or condition (financial or otherwise) of a Person or any of its subsidiaries
or (ii) the ability of a Person to enter into this Agreement, consummate the
transactions contemplated hereby or in the other Transaction Documents to which
such Person is a party or perform any of its obligations under
-4-
<PAGE> 6
this Agreement or the other Transaction Documents to which such Person is a
party.
"Non-Competition Agreements" shall mean the non-competition agreements
of Marc Geiger and Donald Muller contained in the Employment Agreements as well
as the non-competition agreements entered into with those individuals listed on
SCHEDULE 5.1 and substantially in the form of EXHIBIT C attached hereto.
"Operating Agreements" shall mean the AD Operating Agreement and the
UBL Operating Agreement.
"Options" shall mean the AD Option and the UBL Option.
"Option Conversion Units" shall mean the number of Common Units into
which Option Units are convertible.
"Option Units" shall mean the AD Option Units and the UBL Option Units.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, any instrumentality, division, agency, body or department thereof).
"Public Market Sale" shall mean any sale of Common Stock after the QIPO
which is made pursuant to Rule 144 promulgated by the SEC under the Securities
Act or which is made pursuant to a registration statement filed with and
declared effective by the SEC.
"QIPO" shall mean a public offering of common stock of the corporate
successor to a Company at a price at least twice the then-current Conversion
Price (as defined in such Company's Operating Agreement) per share of such
common stock with net proceeds to such Company of no less than $15 million and
firmly underwritten by any of the underwriters listed on SCHEDULE B or any other
underwriter of comparable quality.
"Registration Rights Agreements" shall mean the AD Registration Rights
Agreement and the UBL Registration Rights Agreement.
"SEC" shall mean the U.S. Securities and Exchange Commission, or any
successor thereto.
"Securities" shall mean the Units, Conversion Units, Option Units and
Option Conversion Units.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
all rules and regulations promulgated thereunder.
"Subsidiaries" shall mean any Person more than 50% of the voting
interest of which is owned, directly or indirectly, by Company or any Subsidiary
of Company; provided, however, that UBL shall at all times be deemed a
"Subsidiary" of AD.
-5-
<PAGE> 7
"Transaction Documents" shall mean this Agreement, the Operating
Agreements, the Registration Rights Agreements, the Founders Voting Agreement
and Power of Attorney, Constellation Voting Agreements and Irrevocable Proxys,
the Employment Agreements and the Non-Competition Agreements.
"Transfer" shall have the meaning set forth in Section 1.1 of the UBL
Operating Agreement.
"UBL" shall have the meaning set forth in the preamble to this
Agreement.
"UBL Common Units" shall mean the Common Units authorized under the UBL
Operating Agreement or any class of Equity Securities issued in exchange
therefor in any merger, consolidation or recapitalization.
"UBL Conversion Units" shall mean the UBL Common Units into which the
UBL Units are convertible, as adjusted from time to time in accordance with the
terms of the UBL Operating Agreement.
"UBL Manager" shall mean the manager of UBL (which on the date hereof
shall be ADNM) or any successor(s) appointed pursuant to the UBL Operating
Agreement or any Person performing a similar function.
"UBL Member" shall have the meaning set forth in Section 1.1 of the UBL
Operating Agreement.
"UBL Operating Agreement" shall mean the amended and restated operating
agreement of UBL dated the date hereof.
"UBL Option" shall mean Purchasers' option to make an additional
capital contribution to UBL of up to $400,000 (on the terms and conditions set
forth in this Agreement exercisable for a period of 30 days following the
Closing hereunder) for which Purchasers shall receive additional UBL Preferred
Units in accordance with Section 3.3(c) of the UBL Operating Agreement.
"UBL Option Units" shall mean the number of UBL Preferred Units for
which the UBL Option is exercisable.
"UBL Preferred Units" shall mean a series of Preferred Units to be
designated "Series A Preferred Units" which shall be convertible into UBL Common
Units, in accordance with the terms of the UBL Operating Agreement.
"UBL Registration Rights Agreement" shall mean the Registration Rights
Agreement by and between UBL and Purchasers, substantially in the form attached
hereto as EXHIBIT A-2 as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"UBL Units" shall mean (i) 1,200 UBL Preferred Units sold to Purchasers
-6-
<PAGE> 8
hereunder as adjusted from time to time in accordance with the terms of the UBL
Operating Agreement and (ii) any Equity Securities purchased pursuant to Section
3.8(d) of the UBL Operating Agreement, in each case as equitably adjusted or as
a result of or in connection with any dividend, split or reverse split (in
respect of any Equity Securities) or any combination, recapitalization,
reclassification, merger or consolidation, exchange or distribution.
"Units" shall mean the AD Units and the UBL Units.
References to this "Agreement" shall mean this Securities Purchase
Agreement, including all amendments, modifications and supplements and any
exhibits or schedules to any of the foregoing, and shall refer to the Agreement
as the same may be in effect at the time such reference becomes operative.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole, including the Exhibits and
Schedules hereto, as the same may from time to time be amended, modified or
supplemented, and not to any particular section, subsection or clause contained
in this Agreement. Any reference to an Article, Section or Exhibit means an
Article or Section of or Exhibit to this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, including the terms "Purchaser" and
"Purchasers," and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, the feminine and the neuter. The word "including"
shall mean "including, without limitation," whether or not so expressed.
II. THE PURCHASE OF SHARES AND OPTIONS; TRANSFERS
2.1. Purchase of Units. (a) Subject to the terms and conditions set
forth in this Agreement and in the AD Operating Agreement, upon execution of
this Agreement (the "Closing Date"), Purchasers agree to purchase from AD and AD
agrees to issue and sell to Purchasers, (i) the AD Units and (ii) the AD Option.
The aggregate purchase price for the AD Units and the AD Option is $1,800,000,
payable in full on the Closing Date in cash or immediately available funds.
(b) Subject to the terms and conditions set forth in this
Agreement and in the UBL Operating Agreement, on the Closing Date, Purchasers
agree to purchase from UBL and UBL agrees to issue and sell to Purchasers, (i)
the UBL Units and (ii) the UBL Option. The aggregate purchase price for the UBL
Units and the UBL Option is $1,200,000, payable in full on the Closing Date in
cash, immediately available funds or the cancellation of that certain
Subordinated Secured Convertible Bridge Note dated as of June 12, 1998.
2.2. Closing. The closing of the purchase and sale of the Units and the
Options (the "Closing") shall take place at the offices of Kramer, Levin,
Naftalis & Frankel or such other place as shall be mutually agreed to by the
parties hereto.
-7-
<PAGE> 9
2.3. Use of Proceeds. (a) AD shall use its proceeds as follows:
(i) $1,501,000 will be contributed to ADNM, $1,200,000 of which will be used to
purchase 1,200 Series B Preferred Units and the balance of which will be used to
launch the "ARTISTdirect Stores" and to provide for ADNM's general corporate
needs, including working capital and capital expenditures, (ii) $174,000 will be
used to make tax distributions pursuant to Section 8.5 of the AD Operating
Agreement to Geiger and Muller in respect of AD's 1997 Fiscal Year, (iii)
$75,000 will be used to return a capital contribution made by Geiger to AD, and
(iv) $50,000 will be paid to Geiger as compensation for the period commencing
January 1, 1998 through and including the Closing Date.
(b) UBL shall use the proceeds of the sale of the Units and the
Option to enhance its internet sites, launch the "UBL Store" and provide for its
general corporate needs, including working capital and capital expenditures.
III. PURCHASERS' REPRESENTATIONS
Each Purchaser severally makes the following representations and
warranties to each Company with respect to such Purchaser, each and all of which
shall survive the Closing hereunder:
3.1. Investment Intention. Purchaser is purchasing the Units for its
own account, for investment purposes and not with a view to the distribution
thereof. Purchaser will not, directly or indirectly, subdivide, offer or
Transfer any of the Units (or solicit any offers to buy, purchase, or otherwise
acquire any of the Units), except in compliance with the Securities Act.
3.2. Accredited Investor. Purchaser is an "accredited investor" (as
that term is defined in Rule 501 of Regulation D under the Securities Act) and
by reason of its business and financial experience, it has such knowledge,
sophistication and experience in business and financial matters as to be capable
of evaluating the merits and risks of the prospective investment, is able to
bear the economic risk of such investment and is able to afford a complete loss
of such investment.
3.3. Corporate Existence. Purchaser is a corporation or partnership, as
applicable, duly organized, validly existing and in good standing under the laws
of its jurisdiction of formation.
3.4. Power; Authorization; Enforceable Obligations. The execution,
delivery and performance by Purchaser of this Agreement and the other
Transaction Documents to which it is a party and the consummation of the
transactions contemplated by the foregoing: (i) are within Purchaser's power and
authority; (ii) have been duly authorized by all necessary or proper action;
(iii) are not in contravention (with or without the lapse of time or giving of
notice or both) of any provision of the limited partnership agreement or
Articles or By-Laws (as applicable) of Purchaser; and (iv) do not and will not
violate (with or without the lapse of time or giving of notice or both), any Law
or regulation, or any order or decree of any Governmental Authority. This
Agreement and the other Transaction Documents to which Purchaser is a party have
each been duly executed and delivered by Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
constitute the legal, valid and binding
-8-
<PAGE> 10
obligations of Purchaser, enforceable against it in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and to general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or in equity).
3.5 No Brokers. Purchaser does not have any liability or obligation to
pay any fees or commissions to any investment adviser, broker, finder, agent or
any other person with respect to the transactions contemplated by this
Agreement.
IV. COMPANY'S REPRESENTATIONS AND WARRANTIES
Each of the Companies, severally and not jointly, makes the following
representations and warranties to Purchasers, each and all of which shall
survive the Closing hereunder:
4.1. Capitalization. SCHEDULE 4.1 sets forth both prior to and after
giving effect to the Closing, the authorized equity capital of Company and each
of its Subsidiaries and the number of issued and outstanding securities of each
class of Equity Securities of Company and each of its Subsidiaries. All of the
issued and outstanding Equity Securities, including, the Units, are validly
issued, fully paid and non-assessable. SCHEDULE 4.1 hereto contains a complete
and correct list of all holders of Equity Securities of Company and each
Subsidiary and the number of securities owned by each. Except as set forth on
SCHEDULES 4.1 AND 4.9 or as contemplated by this Agreement or the agreements set
forth on such Schedules, there are (i) no existing options, warrants, calls,
commitments or other Contracts to which Company or any Subsidiary is a party
requiring, and no convertible securities of Company or any Subsidiary
outstanding which upon conversion would require, the issuance of any additional
Equity Securities of Company or any Subsidiary, or other securities convertible
into Equity Securities of Company or any Subsidiary, (ii) no Contracts to which
Company or any Subsidiary is a party or, to the knowledge of Company, to which
any holder of Equity Securities of Company or any Subsidiary is a party, with
respect to the voting or Transfer of such Equity Securities and (iii) no
shareholders' preemptive rights or rights of first refusal or other similar
rights with respect to the issuance of Equity Securities by Company or any
Subsidiary. True and correct copies of the Articles of Organization and the
Operating Agreement of Company and the organizational documents and operating
agreements of each Subsidiary have been delivered to Purchasers.
4.2. Authorization and Issuance of Units, Conversion Units and Options.
The issuance by Company of the Units and the Options have been duly authorized
by all necessary corporate action on the part of Company and, upon issuance in
accordance with the terms hereof, the Units will be validly issued, fully paid
and non-assessable, free and clear of all Liens. The issuance of the Conversion
Units of Company has been duly authorized by all necessary corporate action on
the part of Company and, when issued upon conversion in accordance with the
terms of the Operating Agreement of Company, such Conversion Units will have
been validly issued, fully paid and non-assessable, free and clear of all Liens.
The issuance of the Option Units and the Option Conversion Units of Company has
been duly authorized by all necessary corporate action on the part of Company
and, when issued (i) upon exercise of the Option (in the case of the Option
Units) or (ii) upon conversion (in the case of the Option Conversion Units) in
accordance with the terms of the Operating Agreement of Company, will have been
validly issued, fully paid and non-assessable, free and clear of all Liens.
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4.3. Securities Laws. In reliance on the investment representations
contained in Sections 3.1 and 3.2, the offer, issuance, sale and delivery of the
Securities, as provided in this Agreement, are exempt from the registration
requirements of the Securities Act and all applicable state securities Laws, and
are otherwise in compliance with such Laws. Neither Company nor, to its best
knowledge after due inquiry, any Person acting on its behalf has taken or will
take any action which might subject the offering, issuance or sale of the
Securities to the registration requirements of Section 5 of the Securities Act.
4.4. Corporate Existence; Compliance with Law. Company and each of its
Subsidiaries (i) is a limited liability company duly organized, validly existing
and in good standing under the laws of the applicable jurisdiction of
organization; (ii) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification (except for
jurisdictions in which the failure to so qualify or to be in good standing would
not have a Material Adverse Effect); (iii) has the requisite power and authority
and the legal right to own, pledge, mortgage or otherwise encumber and operate
its properties, to lease the property it operates under lease, and to conduct
its business as now being conducted; (iv) has all licenses, permits, consents or
approvals from or by, and has made all filings with, and has given all notices
to, all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation and conduct except where such failure would not have
or could not reasonably be expected to have, singly or in the aggregate, a
Material Adverse Effect; (v) is in compliance with its organizational documents
and operating agreements; and (vi) is in compliance with all applicable
provisions of Law, except for such noncompliance which would not have, or could
not reasonably be expected to have, a Material Adverse Effect.
4.5. Subsidiaries. (a) The sole Subsidiaries of AD and its Subsidiaries
(other than UBL) are ARTISTdirect New Media, LLC, ARTISTdirect Agency, LLC,
Kneeling Elephant Records, LLC, and ARTISTdirect Holdings, L.L.C. Except as
disclosed on SCHEDULE 4.5, neither AD nor any of its Subsidiaries (other than
UBL) holds any Equity Securities or other proprietary interest, directly or
indirectly, of any Person or has any agreement or arrangement to acquire any
Equity Securities or other proprietary interest other than the interests
described in this Section 4.5.
(b) There are no Subsidiaries of UBL. ARTISTdirect New Media, LLC
("ADNM") is the sole UBL Manager and the sole UBL Members are ADNM and ARI. ADNM
holds its membership interests in UBL free and clear of all Liens. Except as
disclosed on SCHEDULE 4.5, UBL does not hold any Equity Securities or other
proprietary interest, directly or indirectly, of any Person or have any
agreement or arrangement to acquire any Equity Securities or other proprietary
interest other than the interests described in this Section 4.5.
4.6. Corporate Power; Authorization; Enforceable Obligations. Except as
set forth in SCHEDULE 4.6 (a) the execution, delivery and performance by Company
of this Agreement, the other Transaction Documents to which it is a party and
all instruments and documents to be delivered by Company, the issuance and sale
by Company of the Securities and its Option and the consummation of the other
transactions contemplated by any of the foregoing: (i) are within Company's
power and authority; (ii) have been duly authorized by all necessary or proper
action; (iii) are not in contravention (with or without the lapse of time or
giving of notice
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or both) of any provision of Company's or any Subsidiary's organizational
documents or operating agreements; (iv) do not and will not violate (with or
without the lapse of time or giving of notice or both) any Law, or any order or
decree of any Governmental Authority; (v) do not and will not (with or without
the lapse of time or giving of notice or both) conflict with or result in the
breach or termination of, constitute a default under, accelerate any performance
required by, give rise to any right to increase the obligations or otherwise
modify the terms under, any Contract to which Company or any of its Subsidiaries
is a party or by which Company, any of its Subsidiaries or any of their
respective assets or property is bound; (vi) do not and will not (with or
without the lapse of time or giving of notice or both) result in the creation or
imposition of any Lien upon any of the assets or property of Company or any of
its Subsidiaries; and (vii) do not require the consent or approval of, or any
filing with, any Governmental Authority or any other Person, except in the case
of (iv), (v), (vi) and (vii) for such violations, conflicts, breaches,
terminations, defaults, accelerations, rights, modifications, Liens, consents,
approvals or filings which, singly or in the aggregate, would not have or could
not reasonably be expected to have, a Material Adverse Effect. Each of this
Agreement and the other Transaction Documents to which Company is a party has
been duly executed and delivered by Company and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto) each constitutes
a legal, valid and binding obligation of Company, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(b) Except as set forth on SCHEDULE 4.6, neither Company nor any
Subsidiary is a party to any Contract or covenant limiting the freedom of
Company or any Subsidiary to compete in any line of business or with any Person
in any geographic region within or outside of the United States of America.
4.7. Financial Statements. (a) The unaudited consolidated balance sheet
of Company as at December 31, 1997 (the "Balance Sheet") and the related
unaudited consolidated statements of income, retained earnings and cash flows
for the year then ended, with the opinion thereon of Arthur Andersen & Co. and
the unaudited consolidated balance sheet of Company as at March 31, 1998 and the
related consolidated unaudited statements of income, retained earnings and cash
flows for the three months then ended (collectively, the "Financials"), copies
of which have previously been delivered to Purchasers, have been prepared in
good faith from the books and records of Company, are complete and correct in
all material respects, and have been prepared in conformity with practices
consistently applied by Company throughout the periods involved and present
fairly in all material respects the consolidated financial position of Company
as at the dates thereof, and the consolidated results of its operations and cash
flows for the periods then ended. The Financials have been prepared in
conformity with GAAP. The books and records of Company from which the Financials
have been prepared are complete and correct.
(b) Except as set forth on SCHEDULE 4.7, neither Company nor any
of its Subsidiaries has any material obligations, contingent or otherwise which
are not reflected in the Balance Sheet, other than those incurred since the end
of Company's most recent Fiscal Year (the "Balance Sheet Date"), in the ordinary
course of business.
(c) Except as set forth on SCHEDULE 4.7, no dividends or other
distributions have
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been declared, paid or made upon any Equity Securities of Company, nor have any
Equity Securities of Company been redeemed, retired, purchased or otherwise
acquired for value by Company since the Balance Sheet Date.
4.8. Ownership of Property. (a) Neither Company nor any of its
Subsidiaries owns any real property. Each of Company and its Subsidiaries has
valid, marketable and insurable leasehold interests in the leases described in
SCHEDULE 4.8 hereto. All real property leased by Company and its Subsidiaries is
set forth on SCHEDULE 4.8. Each of such leases is valid and enforceable against
Company and, to Company's or any of its Subsidiary's knowledge, against the
other parties thereto in accordance with its terms and is in full force and
effect. Company has delivered to Purchaser true and complete copies of each of
such leases set forth on SCHEDULE 4.8 and all documents affecting the rights or
obligations of Company or any of its Subsidiaries.
(b) Except as disclosed on SCHEDULE 4.8, (i) neither Company nor
any of its Subsidiaries is obligated under or a party to, any option, right of
first refusal or any other contractual right to purchase, acquire, sell, assign
or dispose of any real property leased by Company or such Subsidiary and (ii) no
real property lease is subject to any lease, sublease, license or other Contract
granting to any other Person any right to the use, occupancy or enjoyment of the
real property lease or any part thereof.
(c) Each of Company and its Subsidiaries has good and marketable
title to, or valid leasehold interests in, all items of tangible personal
property owned or used by it, free and clear of all Liens, except for Liens (i)
for taxes that are not yet due and payable and that are not material to Company
or any Subsidiary and (ii) that would not have, or could not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect.
SCHEDULE 4.8 sets forth all leases of personal property involving annual
payments in excess of $25,000 relating to personal property used in the business
of Company or any Subsidiary or to which Company or any Subsidiary is a party or
by which Company, any Subsidiary or any of their respective properties or assets
is bound. Each of the personal property leases is in full force and effect and
is valid, binding and enforceable against Company and, to Company's or any of
its Subsidiary's knowledge, against the other parties thereto in accordance with
its terms. All items of tangible personal property which, individually or in the
aggregate, are material to the operation of the business of Company or any
Subsidiary are in good condition and in a state of good maintenance and repair
(ordinary wear and tear excepted) and are suitable for the purposes used for the
operation of the business of Company or such Subsidiary.
4.9. Material Contracts; Indebtedness. (a) Except as set forth on
SCHEDULE 4.9, neither Company nor any Subsidiary is a party to, nor are any of
their respective properties or assets bound by any (i) Contract not made in the
ordinary course of business; (ii) employment, consulting, management,
non-competition, severance, golden parachute or indemnification Contract
(including, in each case any Contract to which Company or any Subsidiary is a
party involving employees of Company or any Subsidiary); (iii) advertising,
public relations, franchise, distributorship or sales agency Contract; (iv)
Contract involving the commitment, payment or receipt in excess of $25,000 in
the aggregate or which extend for a term of more than one year from the date
hereof; (v) Contract granting a right of first refusal for the acquisition, sale
or lease of any assets or Equity Securities of Company; (vi) Contract with any
Person involving a sharing of profits; (vii) mortgage, pledge, conditional sales
contract, security
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agreement, factoring agreement or other similar Contract with respect to any
real or tangible personal property of Company; (viii) loan agreement, credit
agreement, deed of trust, promissory note, guarantee, subordination agreement,
letter of credit or any other similar type of Contract; (ix) Contract with any
Governmental Body; (x) Contract with respect to the discharge, storage or
removal of Hazardous Materials; (xi) retainer Contract with attorneys,
accountants, actuaries, appraisers, investment bankers or other professional
advisers; (xii) joint venture, partnership or similar Contract; (xiii) Contracts
between Company or any of its Subsidiaries on the one hand, and any of their
respective Affiliates on the other hand; or (xiv) commitment or agreement to
enter into any of the foregoing (collectively, the "Material Contracts").
(b) Company has delivered to Purchasers true, correct and complete
copies of each of the Contracts listed on SCHEDULE 4.9 (or in the case of
unwritten contracts, oral summaries thereof as included in such Schedule),
together with all amendments, modifications, supplements or side letters
affecting the obligations of any party thereunder. Each Material Contract is a
valid and binding agreement of Company or its Subsidiaries (as the case may be)
enforceable against Company and, to Company's or any of its Subsidiary's
knowledge, against the other parties thereto in accordance with its terms.
Company and each of its Subsidiaries has fulfilled all obligations required
pursuant to the Material Contract to have been performed by Company or such
Subsidiary on its part except where the failure to fulfill such obligations
would not have, or could not reasonably be expected to have, singly or in the
aggregate, a Material Adverse Effect. Except as set forth in SCHEDULE 4.9,
neither Company nor any of its Subsidiaries is (with or without the lapse of
time or the giving of notice, or both) in default or breach, nor to Company's or
such Subsidiary's knowledge is any third party (with or without the lapse of
time or the giving of notice, or both) in default or breach under or with
respect to any Material Contract, except for such defaults or breaches as would
not have or could not reasonably be expected to have a Material Adverse Effect.
No previous or current party to any Material Contract has given notice of or
made a claim with respect to any breach or default thereunder, except for such
defaults or breaches as would not have or could not reasonably be expected to
have a Material Adverse Effect. Except as set forth on SCHEDULE 4.9, since the
Balance Sheet Date, neither Company nor any of its Subsidiaries has incurred any
Indebtedness other than in the ordinary course of business and consistent with
past practice.
4.10. Environmental Protection. (a) Company and each of its
Subsidiaries are in compliance with Environmental Laws and Company and each of
its Subsidiaries have obtained and are in compliance with all necessary permits,
licenses, approvals and authorizations required under applicable Environmental
Laws, except for such noncompliance which would not have, or could not
reasonably be expected to have, singly or in the aggregate, a Material Adverse
Effect.
(b) Company has not, and to its best knowledge after due inquiry,
no third party has released Hazardous Materials at, from, on, in, to or under
the any of the properties or assets owned, leased or operated (or formerly owned
or operated) by Company or its Subsidiaries, and there are no underground
storage tanks, polychlorinated biphenyl-containing equipment or
asbestos-containing material at any of the properties or assets owned, leased or
operated (or formerly owned or operated) by Company or its Subsidiaries.
(c) There are no past, pending or, to its best knowledge,
threatened, claims, notices of violation, investigations, litigation,
administrative proceedings, orders, judgments against Company or any of its
Subsidiaries relating to Hazardous Materials, Environmental Laws
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<PAGE> 15
or relating to any other location where Hazardous Materials from Company or any
of its Subsidiaries, or to the knowledge of Company or any of its Subsidiaries,
any of its predecessors have been transported, stored, handled, disposed,
treated or have otherwise come to be located ("Environmental Claims") and
neither Company nor any of its Subsidiaries is aware of any facts, events,
conditions or circumstances which could reasonably be expected to form the basis
of any Environmental Claims against Company, any of its Subsidiaries, or
Purchasers.
4.11. Labor Matters. (a) There are no strikes, work stoppages,
slowdowns or other labor disputes against Company or any of its Subsidiaries nor
is any such strike, work stoppage, slowdown or other dispute pending or, to
Company's or its Subsidiaries' knowledge, threatened. All payments due from
Company and each of its Subsidiaries on account of employee health and welfare
insurance have been paid or accrued as a liability on the books of Company or
such Subsidiary. There is no organizing activity involving Company or any of its
Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened
by any labor union or group of employees. There are no representation
proceedings pending or, to Company's or its Subsidiaries' knowledge, threatened
with the National Labor Relations Board, and no labor organization or group of
employees of Company or its Subsidiaries has made a pending demand for
recognition. There are no complaints or charges against Company or any of its
Subsidiaries pending or, to Company's or its Subsidiaries' knowledge, threatened
to be filed with any Governmental Authority based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment by Company or any of its Subsidiaries of any individual. Neither
Company nor any Subsidiary has received notice of the intent of any Government
Authority responsible for the enforcement of labor or employment Laws to conduct
an investigation of Company or any Subsidiary, and to the knowledge of Company
or any Subsidiary, no such investigation is in progress.
(b) Neither Company nor any of its Subsidiaries is, or during the
five years preceding the date hereof was, a party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of Company or its Subsidiaries.
4.12. Investment Company. Company is not and, after giving effect to
the transactions contemplated by this Agreement and the other Transaction
Documents, will not be an "investment company" as defined in the Investment
Company Act of 1940.
4.13. Taxes. Except as set forth on SCHEDULE 4.13, all federal, state,
local and foreign tax returns, reports and statements required to be filed by
Company and its Subsidiaries have been timely filed with the appropriate
Governmental Authority and all such returns, reports and statements are true,
correct and complete in all material respects. All charges, Liens and other
impositions (including interest, penalties and other charges) due and payable by
the Company and its Subsidiaries for the periods covered by such returns,
reports and statements have been fully or adequately disclosed and fully
provided for in the books and financial statements of Company, except for such
charges, impositions and Liens which would not have, or could not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect. Proper
and accurate amounts have been withheld by Company and its Subsidiaries from its
employees for all periods in full compliance in all material respects with the
tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective governmental agencies.
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Neither Company nor any of its Subsidiaries has executed or filed with the IRS
or any other Governmental Authority any agreement or other document extending,
or having the effect of extending, the period for assessment or collection of
any charges. Neither the tax returns of Company nor any Subsidiary have been
audited by the IRS or other Governmental Authorities. Neither Company nor any
Subsidiary has received any notice that any tax audits or other administrative
or judicial proceedings are pending or threatened with regard to any charges for
which Company or any Subsidiary may be liable and, to its best knowledge, no
assessment of charges is proposed against Company or any Subsidiary. Neither
Company nor any of its Subsidiaries has agreed or has been requested to make any
adjustment under IRC Section 481(a) by reason of a change in accounting method
or otherwise. Neither Company nor any of its Subsidiaries has any obligation
under any written tax sharing agreement. The Company has consistently been
treated as a partnership for tax purposes, and no action has been taken or
election filed to the contrary.
4.14. No Litigation. Except as disclosed on SCHEDULE 4.14, no action,
claim or proceeding is now pending or, to the knowledge of Company or its
Subsidiaries, threatened against Company or any of its Subsidiaries, at law, in
equity or otherwise, before any court, board, commission, agency or
instrumentality of any Governmental Authority.
4.15. Brokers. Except as set forth on SCHEDULE 4.15, neither Company
nor any of its Subsidiaries has any liability or obligation to pay any fees
(other than legal fees) or commissions to any investment adviser, broker,
finder, agent or any other person with respect to the transactions contemplated
by this Agreement. Company is solely responsible for the payment of all such
finder's or brokerage fees.
4.16. Key-Man Life Insurance. Company has purchased key-man life
insurance policies for the benefit of Company on the lives of Marc Geiger
("Geiger") and Donald Muller ("Muller") in a face amount no less than $2,000,000
for each of them and such policies are in full force and effect. No party to any
such policy has given notice of or made a claim with respect to any breach or
default thereunder or has otherwise provided any notice to Company with respect
to the cancellation or termination of any such policy.
4.17. Patents, Trademarks, Copyrights and Licenses. Company and each of
its Subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use, free and clear of all Liens, all licenses, patents, patent
applications, copyrights, service marks, trademarks and registrations and
applications for registration thereof, trade names, common law trade names,
domain names, and all common law or statutory trade secrets, including know-how,
inventions, designs, processes and computer programs (including source codes)
necessary to continue to conduct its business as heretofore conducted by it and
now being conducted by it (collectively, "Intellectual Property"). Except as set
forth on SCHEDULE 4.17, to Company's knowledge, (a) Company and each of its
Subsidiaries conducts its businesses without infringement or claim of
infringement of any Intellectual Property of others, and neither Company nor any
Subsidiary has received notice (or has knowledge of any valid grounds) of any
such claim and (b) there is no infringement by others (including any employee or
former employee of Company) of any Intellectual Property of Company or any of
its Subsidiaries, except for such infringements or claims of infringement which
would not result in and could not reasonably be expected to result in a Material
Adverse Effect.
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4.18. No Material Adverse Effect. Except as set forth on SCHEDULE 4.18,
no event has occurred since March 31, 1998 which has had or could reasonably be
expected to have a Material Adverse Effect.
4.19. ERISA. Except as disclosed on SCHEDULE 4.19, (a) neither Company
nor any ERISA Affiliate (as defined below) maintains any Employee Benefit Plans.
"Employee Benefit Plan" means any "employee benefit plan" as defined in Section
3(3) of ERISA and any other plan, policy, program, practice, agreement,
understanding or arrangement (whether written or oral) providing benefits to any
current or former director, employee or independent contractor (or to any
dependent or beneficiary thereof) of Company or any ERISA Affiliate, which are
now or have ever been maintained by Company or any ERISA Affiliate or under
which Company or any ERISA Affiliate has any obligation or liability, whether
actual or contingent, including all incentive, bonus, deferred compensation,
vacation, holiday, medical, disability, stock appreciation rights, stock option,
stock purchase or other similar plans, policies, programs, practices,
agreements, understandings or arrangements. "ERISA Affiliate" means any entity
(whether or not incorporated) other than Company that, together with Company, is
or was a member of (i) a controlled group of corporations within the meaning of
Section 414(b) of the IRC, (ii) a group of trades or businesses under common
control within the meaning of Section 414(c) of the IRC, or (iii) an affiliated
service group within the meaning of Section 414(m) of the IRC.
(b) Company has neither proposed nor agreed to (i) the creation of
any new Employee Benefit Plans or (ii) the amendment or other modification to
any option plan.
4.20. Registration Under Exchange Act; Registration Rights. Neither
Company nor any of its Subsidiaries has registered any class of its securities
pursuant to Section 12 of the Exchange Act, and no such registration is required
by the Exchange Act. Except as disclosed in the documents listed on SCHEDULE 4.9
hereto and as provided in the Registration Rights Agreement, neither Company nor
any of its Subsidiaries is under any obligation to register, under the
Securities Act, any of its presently outstanding securities or any securities
which may hereafter be issued.
4.21. No Undisclosed Liabilities. Except to the extent set forth in the
Financials, (i) neither Company nor any Subsidiary has any material liabilities
and (ii) to its knowledge there is no basis for the assertion of any claim or
material liability of any nature against Company, except obligations under
Contracts described on SCHEDULE 4.9 or under Contracts that are not required to
be disclosed thereon as a result of dollar thresholds specified in Section 4.9.
4.22. Insurance. All policies of insurance are in full force and effect
and are adequate to cover risks of such types and in such amounts as is
customary for the industry in which Company or its Subsidiaries compete. All
policies of such insurance are binding and effective upon the issuers thereof
(each of whom is reputable and creditworthy) in accordance with their respective
terms. Neither Company nor any of its Subsidiaries has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that does not have a Material
Adverse Effect.
4.23. Accounts Receivable. All accounts receivable of Company and its
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Subsidiaries as shown on the Balance Sheet and all such receivables which have
arisen thereafter are collectible in the ordinary course of business by Company
or such Subsidiary, net of reserves for bad debts shown on the Balance Sheet
and, as to the period after the Balance Sheet Date, net of reserves established
consistent with prior practice in amount and nature.
4.24. Minute Books. The minute books of Company, as previously made
available to Purchasers, accurately reflect all meetings and other corporate
actions of the Members and the Manager of Company. The minute books of each
Subsidiary, as previously made available to Purchasers, accurately reflect all
meetings and other actions of its members and managers.
4.25. Year 2000 Systems. Company's and each Subsidiary's computer
systems and software that are material to its respective business are able to
accurately process date data, including calculating, comparing and sequencing
from, into and between the twentieth century (through year 1999), the year 2000
and the twenty-first century, including leap year calculations.
4.26. Full Disclosure. No information contained in this Agreement, any
other Transaction Document, the Financial Statements or any written statement
furnished by or on behalf of Company or any Subsidiary pursuant to the terms of
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which made.
4.27. Contribution Agreement. As of the date hereof, ADNM has not
breached or otherwise violated that certain representation contained in
subparagraph (b)(ii) of Section 6 of the Contribution Agreement.
V. COVENANTS
5.1. Affirmative Covenants. Each Company, severally but not jointly,
covenants and agrees that from and after the date hereof (except as otherwise
provided herein, or unless Purchasers shall have given their prior written
consent):
(a) Books and Records. Company shall, and shall cause its
Subsidiaries to, keep adequate records and books of account with respect to
their business activities, in which proper entries, reflecting all of their
financial transactions, are made in accordance with GAAP.
(b) Financial Statements. Until the earlier of a QIPO or such time
as Purchasers together with their Affiliates own in the aggregate directly or
indirectly, Common Units and/or Units of Company (on an as converted basis) in
an amount less than 1% (the "Information Threshold") of the issued and
outstanding Common Units of such Company, such Company shall deliver to
Purchasers the following information; provided, however, that if the Information
Threshold is not then met at the time any of the information in Sections
5.1(b)(i) through (iv) is required to be delivered by Company and Company is
otherwise delivering such information to any other Member (other than any Member
that receives such information on a confidential basis in connection with the
provision of services to Company or any of its Subsidiaries), then such
information shall also be delivered to Purchasers:
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5..(i) Monthly Statements. As soon as available, and in
any event within thirty (30) days after the end of each month, copies of
the consolidated and consolidating balance sheets of Company and its
Subsidiaries as of the end of such month, and statements of income and
retained earnings and statements of cash flows of Company and its
Subsidiaries for such month and for the portion of the Fiscal Year
ending with such month, in each case setting forth in comparative form
the figures for the corresponding period of the preceding Fiscal Year,
all in reasonable detail, and certified by the chief financial officer
of Company as being true and correct and as having been prepared in
accordance with GAAP, subject to year-end audit adjustments;
5..(ii) Quarterly Statements. As soon as available, and in
any event within forty-five (45) days after the end of each respective
quarterly fiscal period (except the last) of each Fiscal Year of
Company, copies of the consolidated and consolidating balance sheets of
Company and its Subsidiaries as of the end of such quarterly fiscal
period, and the respective statements of income and retained earnings
and statements of cash flows of Company and its Subsidiaries for such
quarterly fiscal period and for the portion of the Fiscal Year ending
with such period, in each case setting forth in comparative form the
figures for the corresponding period of the preceding Fiscal Year, all
in reasonable detail, and certified by the chief financial officer of
Company, as appropriate, as being true and correct and as having been
prepared in accordance with GAAP, subject to year-end audit adjustments;
5..(iii) Annual Statements. As soon as available and in
any event within ninety (90) days after the close of each respective
Fiscal Year of Company, copies of the audited consolidated and
consolidating balance sheets of Company as of the close of such Fiscal
Year and the respective audited statements of income and retained
earnings and statements of cash flows of Company for such Fiscal Year,
in each case, setting forth in comparative form the figures for the
preceding Fiscal Year, all in reasonable detail and accompanied by an
opinion thereon (which shall not be qualified by reason of any
limitation imposed by Company) of a "Big Six" (or comparable)
independent public accounting firm selected by Company and reasonably
satisfactory to Purchasers to the effect that such financial statements
have been prepared in accordance with GAAP and fairly present the
financial conditions and results of operations of Company and that the
examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, includes such tests of the accounting
records and such other auditing procedures as were considered necessary
in the circumstances;
5..(iv) Audit Reports. Within five (5) days of receipt
thereof, one copy of each written report submitted to Company by
independent accountants in any annual, quarterly or special audit made.
5..(v) Annual Operating Plan and Projections. Company will
deliver to Board within 30 days prior to the beginning of each quarter
and each Fiscal Year an operating plan with respect to such quarter or
Fiscal Year, as the case may be (each, an "Operating Plan"), and each
Operating Plan shall include with respect to Company and its
Subsidiaries projected consolidated balance sheets, projected
consolidated cash flow
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statements, including summary details of cash disbursements (including
for capital expenditures), and projected consolidated income statements,
in each case for any Fiscal Year on a quarterly basis with appropriate
supporting details, and each Operating Plan shall have been approved by
the audit committee of the Manager. To the extent practicable, Company
shall, and shall cause each of its Subsidiaries to, conduct its business
and operations in a manner that is consistent with the Operating Plan
that relates to such quarter or Fiscal Year.
5..(vi) Other Information. If requested by any Purchaser,
Company will deliver to such Purchaser such other information respecting
Company's or any of its Subsidiaries' business, financial condition or
prospects as such Purchaser may, from time to time, reasonably request.
(c) Transfer Tax. Company shall pay all sales, transfer, excise or
similar taxes (not including income or franchise taxes) in connection with the
issuance, sale, delivery or transfer by such Company to Purchasers of the Units,
the Options, the Conversion Units, the Option Units and the Option Conversion
Units.
(d) Maintenance of Existence and Conduct of Business. Company
shall, and shall cause its Subsidiaries to: (i) maintain insurance coverages and
their books, accounts and records in the ordinary course of business and
consistent with past practice; (ii) use its commercially reasonable best efforts
to comply in all material respects with all Laws applicable to Company; (iii)
maintain and keep their material properties and equipment in good repair,
working order and condition, ordinary wear and tear excepted; (iv) maintain,
preserve and protect all of its Intellectual Property; (v) pay and discharge
when payable all taxes, assessments and charges imposed upon its properties or
assets or upon the income or profits therefrom (in each case before the same
becomes delinquent and before penalties accrue thereon) and (vi) perform in all
material respects their obligations under all Material Contracts and commitments
to which any of them is a party or by which any of them or their respective
property or assets is bound, except where the failure to so perform would not
have a Material Adverse Effect.
(e) Access. For so long as the Information Threshold is met,
Company shall permit representatives of any Purchaser to visit and inspect any
of the properties of such Company, to examine the corporate books and records
and make copies or extracts therefrom and to discuss the affairs, finances and
accounts of such Company with the officers, employees, counsel, accountants,
independent auditors or other representatives of such Company, all at such
reasonable times, upon reasonable notice and as often as such Purchaser may
reasonably request.
(f) Intentionally omitted.
(g) Intentionally omitted.
(h) Tag-Along Rights.
5..(i) If at any time prior to a QIPO (or thereafter with
respect to any Transfer not involving a Public Market Sale) Geiger or
Muller (with respect to AD) or ADNM (with respect to UBL) or any direct
or indirect successor, assignee, heir, devisee,
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donee, legatee or transferee of any of them (each a "Transferor"),
proposes alone or with others to Transfer (directly or indirectly) any
Equity Securities (each, a "Subject Interest") in such Company which
comprise five percent (5%) or more of all then outstanding securities of
the class of Equity Securities which includes the Subject Interest (the
"Subject Interest Class") in a single transaction or series of
transactions and the Securities include (at such time or upon exercise,
conversion or exchange) any Equity Securities of the Subject Interest
Class, the would-be Transferor shall provide holders of the Securities
with not less than thirty (30) days' prior written notice of such
proposed sale, which notice shall include all of the material terms and
conditions of such proposed sale and which shall identify such purchaser
(the "Sale Notice"), and each such holder shall have the option,
exercisable by written notice to the Transferor within twenty (20) days
after the receipt of the Sale Notice, to participate in such transaction
pro rata with the Transferor at the same time as, and upon the same
terms and conditions as (including all direct or indirect consideration)
the Transferor Transfers his or her Equity Securities in Company. Each
such holder may sell all or any portion of the Securities held by such
holder (or issuable to such holder upon exercise, conversion or exchange
of any Security) which are of the class of Equity Securities which
includes the Subject Interest Class (the "Holder's Securities") equal to
the product obtained by multiplying (i) the Subject Interest by (ii) a
fraction, the numerator of which is the Holder's Securities and the
denominator of which is the total number of Equity Securities of the
Subject Interest Class then owned by the Transferor and such holder. To
the extent that one or more of such holders exercises such rights of
participation, the number of Equity Securities that the Transferor may
Transfer in the transaction shall be correspondingly reduced.
5..(ii) If any holder fails to exercise its option (each,
a "Non-Participant") to participate in such transaction as set forth in
Section 5.1(h)(i) above, the would-be Transferor shall provide notice of
such failure to the holders of the Securities that did exercise their
option to participate (the "Participants"). The Participants shall have
ten (10) days from the date such notice was given to agree to sell their
Pro Rata Share of the unsold portion which all Non-Participants in the
aggregate were entitled to sell pursuant to the provisions of Section
5.1(h)(i) but elected not to sell. For the purposes of this Section
5.1(h)(ii), the term "Pro Rata Share" shall equal the product obtained
by multiplying (i) the unsold portion by (ii) a fraction, the numerator
of which is Holder's Securities and the denominator of which is the
total number of Securities held by all Participants (or issuable to such
Participants upon exercise, conversion or exchange of any Security)
which are of the class of Equity Securities which includes the Subject
Interest Class.
(i) Non-Competition Agreements. Each of Geiger, Muller and the
employees listed on SCHEDULE 5.1 shall enter into non-competition agreements or
agreement containing covenants not to compete substantially in the form of
EXHIBIT C hereto.
(j) Right of First Offer. A Purchaser desiring to make a Transfer
(a "Selling Purchaser") pursuant to Section 12.9(c) of the UBL Operating
Agreement with respect to any Transfer of Securities of UBL or pursuant to
Section 12.9(c) of the AD Operating Agreement with respect to any Securities of
AD, shall be required to give advance notice thereof (a "Transfer Notice") to
such Company including in such Transfer Notice the quantity and nature of the
Securities, the price and the other terms and conditions upon which it is
willing to sell such
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Securities. Such Company shall have ten (10) Business Days from the date the
Transfer Notice is given (the "First Offer Exercise Period") to elect by notice
to the Selling Purchaser whether or not to purchase the entire quantity of
Securities so offered for the price and on the terms and conditions so
specified; provided, however, that if there is more than one Selling Purchaser,
the Company shall elect whether or not to purchase the entire quantity of
securities of all Selling Purchasers. In the event that Company elects to
purchase such Securities on the terms set forth in the Transfer Notices, Company
shall pay the price so specified on the terms so specified within ninety (90)
days of the date of the Transfer Notice(s), and the Selling Purchaser(s) shall
Transfer all such Securities to Company. If within the First Offer Exercise
Period Company does not give notice electing to purchase all of such Securities,
the Selling Purchaser(s) may Transfer all such Securities to any third party (an
"Outside Transferee") at any time after the expiration of the First Offer
Exercise Period, provided the purchase price for such Securities is no less than
the purchase price offered to Company, and the other terms offered to the
Outside Transferee are no more favorable than those set forth in the Transfer
Notice. If the Selling Purchaser(s), however, does not Transfer such Securities
as provided in the preceding sentence within 120 days after the expiration of
the First Offer Exercise Period, any Transfer by the Selling Purchaser(s) of its
Securities shall again be subject to the terms of this Section 5.1(j). Any
subsequent Transfer of Securities previously Transferred in accordance with the
provisions of this Section 5.1(j) shall not be subject to this Section 5.1(j).
(k) Conversion to C-Corporation. Upon the consummation of an
initial public offering of Company, such Company shall be combined (whether by
merger, consolidation, share exchange, transfer of assets or equity or
otherwise) with a newly formed Delaware corporation so as to convert such
Company into a Delaware corporation (in accordance with the provisions of such
Company's Operating Agreement) which shall be a Subchapter C corporation for
income tax purposes.
(l) Expenses. At the Closing, AD shall reimburse Purchasers for
the reasonable attorneys fees and expenses of Kramer, Levin, Naftalis and
Frankel in connection with negotiating and preparing the Transaction Documents
and consummating the transactions contemplated thereby up to an aggregate of
$35,000.
(m) Voting Agreements. Every eleven (11) months and from time to
time, upon the reasonable request of Purchasers, each of Geiger and Muller shall
execute and deliver (i) a new voting agreement and power of attorney in form and
substance substantially similar to Exhibit E hereto and (ii) such other
documents as may be necessary in the opinion of counsel to Purchasers to give
effect to the Founders Voting Agreement and Power of Attorney dated the date
hereof.
(n) Option Plans. Each of Purchasers shall be designated as "Other
Members" under (i) any option agreement (each of which agreement shall be
substantially in the form of the 1998 Unit Option Agreement attached to
Company's 1998 Unit Option Plan) entered into by Company pursuant to its 1998
Unit Option Plan or (ii) the respective Issuance, Noncompetition and
Nonsolicitation Agreements between AD and each of Keith Yokomoto, Steve Rennie
and Robert Morse. Company shall provide in any subsequent option plan or
agreement adopted by Company rights to Purchasers substantially similar to the
rights contemplated to be granted to Purchaser's as "Other Members" under the
form of 1998 Unit Option Agreement. The right of Purchasers to be so designated
"Other Members" pursuant to
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this Section 5.1(n) shall terminate with respect to Company upon the date the
Purchasers shall no longer satisfy the "Preemptive Threshold" as defined in such
Company's Operating Agreement.
VI. DOCUMENTS TO BE DELIVERED UPON EXECUTION OF THIS AGREEMENT
6.1. Documents to be Delivered by Company. On the Closing Date, each
Company shall deliver, or cause to be delivered, to Purchasers, the following:
(a) An opinion of legal counsel to Company, substantially in the
form attached hereto as EXHIBIT D.
(b) Resolutions of the Manager of Company, certified by the
Secretary or Assistant Secretary of the Manager, as of the Closing Date, to be
duly adopted and in full force and effect on such date, authorizing (i) the
consummation of each of the transactions contemplated by this Agreement and (ii)
specific officers to execute and deliver this Agreement and each other
Transaction Document to which it is a party.
(c) Certificates of good standing showing that Company and each
Subsidiary is organized and in good standing in the jurisdiction of its
organization.
(d) Copies of the organizational documents of Company and each
Subsidiary, certified, as applicable, as of a recent date by the applicable
Secretary of State of the jurisdiction of organization and copies of Company's
and each Subsidiary's operating agreement, certified by the Secretary or
Assistant Secretary of Company or the Subsidiary, as applicable, as true and
correct as of the Closing Date.
(e) The Registration Rights Agreements, Employment Agreements and
Non-competition Agreements each duly executed by the parties thereto.
(f) A Founders Voting Agreement and Power of Attorney executed by
each of Geiger and Muller substantially in the form of EXHIBIT E hereto.
(g) Certificates of the Secretary or an Assistant Secretary of
Company, dated the Closing Date, as to the incumbency and signatures of the
officers of Company executing this Agreement, each other Transaction Document to
which it is a party and any other certificate or other document to be delivered
pursuant hereto or thereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
6.2. Documents to be Delivered by Purchasers. (a) On the Closing Date,
each Purchaser shall deliver, or cause to be delivered, to each Company, the
following:
6..(i) Resolutions of Purchaser, certified by an executive
officer of Purchaser, or the general partner of Purchaser, certified by a
managing member of the general partner, (as applicable) as of the Closing Date,
to be duly adopted and in full force and effect on such date, authorizing (i)
the consummation of each of the transactions contemplated by this Agreement and
(ii) a specific officer to execute and deliver this Agreement and each other
Transaction Document to which Purchaser is a party.
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<PAGE> 24
6..(ii) Certificate of an executive officer of Purchaser, or
on officer of the managing member of the general partner (as applicable) dated
the Closing Date, as to the incumbency and signatures of the officer of
Purchaser or of the officer of the general partner of Purchaser (as applicable)
executing this Agreement on behalf of Purchaser, each other Transaction Document
to which Purchaser is a party and any other certificate or other document to be
delivered pursuant hereto or thereto, together with evidence of the incumbency
of the certifying officer.
6..(iii) Surrender of the cancelled Subordinated Secured
Convertible Bridge Note dated as of June 12, 1998 and UCC termination
statements.
(b) Upon exercise of the UBL Option and the AD Option by any Person
other than Constellation, Purchasers shall deliver to each Company a
Constellation Voting Agreement and Irrevocable Proxy substantially in the form
of EXHIBIT F hereto.
VII. SECURITIES LAW MATTERS
7.1. Legends. To the extent that any Securities are at any time held in
certificated form, each such certificate shall bear a legend substantially in
the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
THE ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES
AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
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<PAGE> 25
VIII. INDEMNIFICATION AND LIABILITY.
8.1. Indemnity. (a) Each Company, and ADNM with respect to Section
4.27, agrees to indemnify and hold harmless each Purchaser, its respective
Subsidiaries, any Affiliate of any of them and their respective officers,
directors and employees (collectively, the "Indemnified Parties") from and
against any liabilities, obligations, losses, damages, amounts paid in
settlement, penalties, actions, judgments, fines, suits, claims, costs,
attorneys' fees, expenses and disbursements of any kind ("Losses") which may be
imposed upon, incurred by or asserted against any Indemnified Party in any
manner relating to or arising out of any untrue representation, breach of
warranty or failure to perform any covenants or agreement by such Company
contained herein, in any other Transaction Document or in any certificate or
document delivered pursuant hereto. Company shall also advance expenses as
incurred to the fullest extent permitted under applicable law; provided,
however, that the Indemnified Party provides an undertaking to repay such
advances to Company if it is ultimately determined that such Indemnified Party
is not entitled to indemnification. Purchasers and Company will cooperate in the
defense of any such matter. The rights of the Indemnified Parties to
indemnification under this Article IX shall be their sole and exclusive remedy
with respect to any breach of any representation or warranty contained in this
Agreement. Notwithstanding anything to the contrary contained in this Agreement,
the amount to which any Indemnified Party shall be entitled pursuant to this
Section 8.1 shall be limited to the Losses actually sustained by such
Indemnified Party, net of any tax benefits derived by such Indemnified Party in
respect of such Losses.
(b) Indemnification Procedures. Any Indemnified Party seeking
indemnification pursuant to Section 8.1 with respect to a claim, action, suit or
proceeding by a Person who is not a Indemnified Party shall give prompt written
notice to Company of the assertion of any claim, or the commencement of any
action, suit or proceeding, in respect of which indemnity may be sought
hereunder, provided that the failure to give such notice shall not affect the
Indemnified Party's rights to indemnification hereunder unless such failure
shall prejudice in any material respect Company's ability to defend such claim,
action, suit or proceeding. Company shall have the right to assume the defense
of any such action, suit or proceeding at its expense; provided, however, that
(i) such claim, action, suit or proceeding seeks only monetary damages and, in
the reasonable judgment of the Indemnified Party, Company has adequate financial
and other resources to undertake such defense and satisfy any indemnifiable
Losses arising from such action, suit or proceeding and (ii) the selection of
counsel is approved by the Indemnified Party (which approval shall not be
unreasonably withheld or delayed). If such claim, action, suit or proceeding
seeks relief other than or in addition to monetary damages or if the Indemnified
Party so determines that Company does not have adequate resources, or Company
shall elect not to assume the defense of any such action, suit or proceeding, or
fails to make such an election within twenty (20) days after it receives such
notice pursuant to the first sentence of this Section 8.2, the Indemnified Party
may assume such defense with counsel of its choice and at the expense of Company
and shall defend such claim, action, suit or proceeding diligently and in good
faith. The Indemnified Party shall have the right to participate in (but not
control) the defense of an action, suit or proceeding defended by Company
hereunder and to retain its own counsel in connection with such action, suit or
proceeding, but the fees and expenses of such counsel shall be at the
Indemnified Party's expense; provided, however, that Company shall bear the
expenses as incurred of counsel to the Indemnified Party if (i) Company
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<PAGE> 26
and the Indemnified Party have mutually agreed in writing to the retention of
such counsel or (ii) the named parties in any such action, suit or proceeding
(including impleaded parties) include Company and the Indemnified Party, and
representation of Company and the Indemnified Party by the same counsel would,
in the opinion of counsel to the Indemnified Party, create a conflict; provided
further that, unless otherwise agreed by Company, if Company is obligated to pay
the fees and expenses of such counsel, Company shall be obligated to pay only
the fees and expenses associated with one attorney or law firm, as applicable,
for the Indemnified Party, as well as the fees and expenses associated with
local counsel. Company shall not be liable under Section 8.1 for any settlement
effected without its written consent, which consent will not be unreasonably
withheld or delayed, of any claim, action, suit or proceeding in respect of
which indemnity may be sought hereunder.
IX. EXPENSES
Except as provided in Section 5.1(l), the Companies and the Purchasers
shall each bear its own expenses incurred in connection with the negotiation and
execution of this Agreement and each other Transaction Document and the
transactions contemplated hereby and thereby.
X. MISCELLANEOUS. The Purchasers and each Company agree to the following
additional terms and provisions:
10.1. Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by another, or whenever any of the
parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged (including by recognized overnight
courier service) or by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy answerback addressed
as follows:
If to AD:
ARTISTdirect, LLC
17835 Ventura Boulevard
Suite 310
Encino, California 91316
Telecopy Number: 818-758-8722
with copies to:
Allen D. Lenard, Esq.
Lenard & Gonzalez, LLP
1900 Avenue of The Stars
25th Floor
Los Angeles, CA 90067
Telecopy Number: (310) 552-0740
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If to UBL:
The Ultimate Band List, LLC
17835 Ventura Boulevard
Suite 310
Encino, California 91316
Telecopy Number: (818) 758-8722
with copies to:
Allen D. Lenard, Esq.
Lenard & Gonzalez, LLP
1900 Avenue of The Stars
Los Angeles, CA 90067
Telecopy Number: (310) 552-0740
If to either Purchaser:
Clifford H. Friedman
Constellation Ventures Management LLC
575 Lexington Avenue
New York, NY 10022
Telecopy Number: (212) 272-7060
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Howard J. Rothman, Esq.
Telecopy Number: (212) 715-8000
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) Business Days after the same shall have been deposited with the United
States mail.
10.2. Binding Effect; Benefits. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties to
this Agreement and their respective successors and permitted assigns. Nothing in
this Agreement, express or implied, is intended or shall be construed to give
any Person other than the parties to this Agreement or their respective
successors or assigns any legal or equitable right, remedy or claim under or in
respect of any agreement or any provision contained herein. Company will require
any successor to Company or any permitted assignee thereof (each, a
"Successor"), whether direct or indirect, by purchase, merger, consolidation,
operation of law or otherwise, to expressly
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assume and agree to perform this Agreement in the same manner and to the same
extent that Company would be required to perform it if no such purchase,
succession or assignment had taken place. Upon any such purchase, succession or
assignment, the references in this Agreement to Company shall also apply to any
Successor unless the context otherwise requires. No such purchase, succession,
or assignment shall relieve Company of its obligations hereunder.
10.3. Amendment. No amendment or waiver of any provision of this
Agreement or any other Transaction Document nor consent to any departure by
Company therefrom shall in any event be effective unless the same shall be in
writing and signed by Company and Purchasers and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. No action taken pursuant to this Agreement, including, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action, of compliance with any representations,
warranties, covenants or agreements contained herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
either party to exercise any right or privilege hereunder shall be deemed a
waiver of such party's rights or privileges hereunder or shall be deemed a
waiver of such party's rights to exercise the same at any subsequent time or
times hereunder.
10.4. Successors and Assigns; Assignability. Neither this Agreement nor
any right, remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable by Company without the prior written consent of Purchasers.
Subject to compliance with Section 12.9 of the UBL Operating Agreement in the
case of UBL, or Section 12.9 of the AD Operating Agreement in the case of AD,
any right, remedy, obligation or liability arising hereunder or by reason hereof
(other than pursuant to Section 5.1(f)(1)) shall be assignable by either
Purchaser in connection with the Transfer of its Securities without the prior
written consent of Company; provided, however, that no such assignment shall
relieve such Purchaser of its obligations hereunder. The term "Purchaser" shall
refer to any (i) assignee of a Purchaser upon any assignment by such Purchaser
in accordance with this Section 10.4 and (ii) transferee of a Purchaser upon any
Transfer by such Purchaser of any Securities made in compliance with the
applicable provisions of the Operating Agreements.
10.5. Remedies. Except as provided in the penultimate sentence of
Section 8.1(a), (a) each Purchaser shall be entitled to specific performance,
injunctive relief or any other equitable remedy against Company, without the
posting of a bond, or proof of actual damages, in the event of breach or
threatened breach of any provision of this Agreement and (b) Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Agreement or where any provision hereof is validly asserted as a
defense, the successful party shall be entitled to recover reasonable attorneys
fees in addition to any other available remedy.
10.6. Section and Other Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
10.7. Severability. In the event that any one or more of the provisions
contained
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in this Agreement shall be determined to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision or provisions in every other respect and the remaining provisions
of this Agreement shall not be in any way impaired.
10.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
10.9. Publicity. Neither Purchasers nor Company shall issue any press
release or make any public disclosure regarding the transactions contemplated
hereby unless such press release or public disclosure is approved by the other
parties in advance. Notwithstanding the foregoing, each of the parties hereto
may, in documents required to be filed by it with the SEC or other regulatory
bodies, make such statements with respect to the transactions contemplated
hereby as each may be advised by counsel is legally necessary or advisable, and
may make such disclosure as it is advised by its counsel is required by law.
10.10. Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with, the laws of the State of California without
regard to the principles thereof relating to conflict of laws. Each of the
parties hereby submits to personal jurisdiction and waives any objection as to
venue in the County of Los Angeles, State of California. Service of process on
the parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 10.1 hereof. The
parties hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement.
10.11. Obligations of Company. Whenever this Agreement requires any
Subsidiary of Company to take any action, such requirement shall be deemed to
include any agreement on the part of Company to cause such Subsidiary to take
such action.
10.12. Representations, Warranties and Agreements of Geiger and Muller.
Each of Geiger and Muller (each a "Shareholder") hereby represent and warrant
that the execution, delivery and performance by such Shareholder of the Sections
of this Agreement with respect to which such Shareholder has agreed to be bound
and the consummation of transactions contemplated by such Sections of the
Agreement: (i) do not and will not violate (with or without the lapse of time or
giving of notice or both) any Law, or any order or decree of any Governmental
Authority; (ii) do not and will not (with or without the lapse of time or giving
of notice or both) conflict with or result in the breach or termination of,
constitute a default under, accelerate any performance required by, give rise to
any right to increase the obligations or otherwise modify the terms under, any
Contract to which such Shareholder is a party or by which such Shareholder's
assets or property is bound; (vi) do not and will not (with or without the lapse
of time or giving of notice or both) result in the creation or imposition of any
Lien upon any of such Shareholder's assets or property; and (vii) do not require
the consent or approval of, or any filing with, any Governmental Authority or
any other Person, except for such violations, conflicts, breaches, terminations,
defaults, accelerations, rights, modifications, Liens, consents, approvals or
filings which, singly or in the aggregate, would not have or could not
reasonably be expected to have, a material adverse effect on such Shareholder's
ability to consummate the transactions contemplated by the Sections of this
Agreement by which
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such Shareholder has agreed to be bound. This Agreement (with respect to the
Sections of this Agreement by which such Shareholder has agreed to be bound) has
been duly executed and delivered by such Shareholder and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
each constitutes a legal, valid and binding obligation of such Shareholder,
enforceable against such Shareholder in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).
10.13. Representations, Warranties and Agreements of ADNM. The
execution, delivery and performance by ADNM of the Sections of this Agreement
with respect to which ADNM has agreed to be bound and the consummation of
transactions contemplated by such Sections of the Agreement: (i) are within
ADNM's power and authority; (ii) have been duly authorized by all necessary or
proper action; (iii) are not in contravention (with or without the lapse of time
or giving of notice or both) of any provision of ADNM's or any of its
Subsidiary's organizational documents or operating agreements; (iv) do not and
will not violate (with or without the lapse of time or giving of notice or both)
any Law, or any order or decree of any Governmental Authority; (v) do not and
will not (with or without the lapse of time or giving of notice or both)
conflict with or result in the breach or termination of, constitute a default
under, accelerate any performance required by, give rise to any right to
increase the obligations or otherwise modify the terms under, any Contract to
which ADNM or any of its Subsidiaries is a party or by which ADNM, any of its
Subsidiaries or any of their respective assets or property is bound; (vi) do not
and will not (with or without the lapse of time or giving of notice or both)
result in the creation or imposition of any Lien upon any of the assets or
property of ADNM or any of its Subsidiaries; and (vii) do not require the
consent or approval of, or any filing with, any Governmental Authority or any
other Person, except in the case of (iv), (v), (vi) and (vii) for such
violations, conflicts, breaches, terminations, defaults, accelerations, rights,
modifications, Liens, consents, approvals or filings which, singly or in the
aggregate, would not have or could not reasonably be expected to have, a
material adverse effect on ADNM's ability to consummate the transactions
contemplated by the Sections of this Agreement by which ADNM has agreed to be
bound.. This Agreement (with respect to the Sections of this Agreement by which
ADNM has agreed to be bound) has been duly executed and delivered by ADNM and
(assuming the due authorization, execution and delivery by the other parties
hereto and thereto) each constitutes a legal, valid and binding obligation of
ADNM, enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
-29-
<PAGE> 31
IN WITNESS WHEREOF, each of the parties listed below has executed this
Agreement as of the day and year first above written.
ARTISTdirect, LLC
By: /s/ Donald P. Muller
--------------------------------
Name: Donald P. Muller
Title:
THE ULTIMATE BAND LIST, LLC
By: /s/ Marc P. Geiger
--------------------------------
Name: Marc P. Geiger
Title:
CONSTELLATION VENTURE CAPITAL, L.P.
By: Constellation Ventures Management LLC,
as General Partner
By: /s/ Clifford H. Friedman
--------------------------------
Clifford H. Friedman
Member
CONSTELLATION VENTURES (BVI), INC.
By: /s/ Clifford H. Friedman
--------------------------------
Clifford H. Friedman
President and Chief Executive Officer
<PAGE> 32
ARTISTdirect New Media, LLC hereby agrees to be bound by the provisions
of Section 4.27, Section 5.1(f) and (h), Section 8.1 and Article X of this
Agreement.
ARTISTdirect New Media, LLC
By: ARTISTdirect, LLC
By: /s/ Marc P. Geiger
--------------------------------
Name: Marc P. Geiger
Title: Member
By: /s/ Donald P. Muller
--------------------------------
Name: Donald P. Muller
Title: Member
<PAGE> 33
Marc Geiger and Donald Muller each hereby agrees to be bound by the
provisions of Section 5.1(h) and (m) and Article X of this Agreement.
MARC GEIGER
/s/ MARC GEIGER
--------------------------------
DONALD MULLER
/s/ DONALD MULLER
--------------------------------
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS..........................................................................1
II. THE PURCHASE OF SHARES AND OPTIONS; TRANSFERS........................................7
2.1. Purchase of Units. ..........................................................7
2.2. Closing.......................................................................8
2.3. Use of Proceeds...............................................................8
III. PURCHASERS' REPRESENTATIONS..........................................................8
3.1. Investment Intention..........................................................8
3.2. Accredited Investor...........................................................8
3.3. Corporate Existence...........................................................9
3.4. Power; Authorization; Enforceable Obligations.................................9
IV. COMPANY'S REPRESENTATIONS AND WARRANTIES............................................9
4.1. Capitalization................................................................9
4.2. Authorization and Issuance of Units, Conversion Units and Options............10
4.3. Securities Laws..............................................................10
4.4. Corporate Existence; Compliance with Law.....................................10
4.5. Subsidiaries.................................................................11
4.6. Corporate Power; Authorization; Enforceable Obligations......................11
4.7. Financial Statements.........................................................12
4.8. Ownership of Property........................................................12
4.9. Material Contracts; Indebtedness.............................................13
4.10. Environmental Protection.....................................................14
4.11. Labor Matters................................................................14
4.12. Investment Company...........................................................15
4.13. Taxes........................................................................15
4.14. No Litigation................................................................15
4.15. Brokers......................................................................16
4.16. Key-Man Life Insurance.......................................................16
4.17. Patents, Trademarks, Copyrights and Licenses.................................16
4.18. No Material Adverse Effect...................................................16
4.19. ERISA........................................................................16
4.20. Registration Under Exchange Act; Registration Rights.........................17
4.21. No Undisclosed Liabilities...................................................17
4.22. Insurance....................................................................17
4.23. Accounts Receivable..........................................................17
4.24. Minute Books.................................................................18
4.25. Year 2000 Systems............................................................18
4.26. Full Disclosure..............................................................18
V. COVENANTS...........................................................................18
5.1. Affirmative Covenants.........................................................18
</TABLE>
-i-
<PAGE> 35
<TABLE>
<S> <C>
(a) Books and Records.......................................................18
(b) Financial Statements....................................................18
(c) Transfer Tax............................................................20
(d) Maintenance of Existence and Conduct of Business........................20
(e) Access..................................................................20
(f) Appointment of Manager; Board Representation............................21
(g) Intentionally omitted...................................................21
(h) Tag-Along Rights........................................................21
(i) Non-Competition Agreements..............................................22
(j) Right of First Offer....................................................22
(k) Conversion to C-Corporation..............................................23
(l) Expenses................................................................23
(m) Voting Agreements........................................................23
(n) Option Plans............................................................23
VI. DOCUMENTS TO BE DELIVERED UPON EXECUTION OF THIS AGREEMENT..........................24
6.1. Documents to be Delivered by Company..........................................24
6.2. Documents to be Delivered by Purchasers.......................................24
VII. SECURITIES LAW MATTERS..............................................................25
7.1. Legends.......................................................................25
VIII. INDEMNIFICATION AND LIABILITY........................................................25
8.1. Indemnity.....................................................................25
(a) Indemnification Procedures............................................26
IX. EXPENSES............................................................................26
X. MISCELLANEOUS.......................................................................27
10.1. Notices......................................................................27
10.2. Binding Effect; Benefits.....................................................28
10.3. Amendment....................................................................28
10.4. Successors and Assigns; Assignability........................................29
10.5. Remedies.....................................................................29
10.6. Section and Other Headings...................................................29
10.7. Severability.................................................................29
10.8. Counterparts.................................................................30
10.9. Publicity....................................................................30
10.10. Governing Law...............................................................30
10.11. Obligations of Company......................................................30
10.12. Representations, Warranties and Agreements of Geiger and Muller.............30
10.13. Representations, Warranties and Agreements of ADNM..........................31
</TABLE>
-ii-
<PAGE> 1
EXHIBIT 10.9
THE ULTIMATE BAND LIST, LLC/ARTISTDIRECT, LLC
EXCHANGE, CONTRIBUTION AND DISTRIBUTION AGREEMENT
This Exchange, Contribution and Distribution Agreement (the "Agreement")
is made as of May 18, 1999 by and among ARTISTdirect, LLC, a California limited
liability company ("AD"), ARTISTdirect New Media, LLC, a California limited
liability company and indirectly wholly-owned subsidiary of AD ("ADNM"), The
Ultimate Band List, LLC, a California limited liability company (the "UBL"),
Marc Geiger ("Geiger"), Don Muller ("Muller") and each of the unitholders of the
UBL (other than ADNM) listed on the signature pages hereto (individually, a
"Unitholder," and collectively, the "Unitholders").
W I T N E S S E T H:
WHEREAS, each of AD, ADNM and the Unitholders have agreed that it is in
the best interests of all that (i) each of the Unitholders exchange their Common
Units ("UBL Common Units") and/or Series A Preferred Units ("UBL Series A
Preferred Units"), and all accrued and unpaid Preferred Return thereon, as
applicable, in the UBL (collectively, the "UBL Units") for Common Units ("AD
Common Units") and/or Series A Preferred Units ("AD Series A Preferred Units")
in AD (collectively, the "AD Units"), and an identical amount of accrued and
unpaid Preferred Return thereon, and (ii) ADNM convert its Series B Preferred
Units in the UBL ("UBL Series B Preferred Units") into UBL Common Units, and
then distribute such UBL Common Units, as well as its other UBL Common Units, to
AD and to ARTISTdirect Holdings, LLC, a California limited liability company and
direct wholly-owned subsidiary of AD ("AD Holdings"), such that upon
consummation of such distribution, AD and AD Holdings will hold a 99% and 1%
interest in the UBL, respectively, each of such transactions to occur on the
terms and conditions outlined in this Agreement; and
WHEREAS, to effect the foregoing, (i) the Unitholders have agreed to make
an aggregate capital contribution to AD in the form of 8,042,134.01 UBL Common
Units and 1,940,000 UBL Series A Preferred Units, and in exchange therefor, AD
has agreed to issue to the Unitholders, upon the terms and conditions provided
in this Agreement and in that certain Second Amended and Restated Operating
Agreement of ARTISTdirect, LLC to be entered into in connection herewith (as so
amended, the "Operating Agreement"), an aggregate of 15,469,494 AD Common Units
and an aggregate of 3,372,921 AD Series A Preferred Units, all as specified
further on the signature pages to this Agreement, (ii) in connection therewith,
all accrued and unpaid Preferred Return on such UBL Series A Preferred Units
shall become an identical amount of accrued and unpaid Preferred Return on the
AD Series A Preferred Units issued in exchange therefor, (iii) in order to
induce Rick Rubin ("Rubin") to exchange UBL Common Units for AD Common Units
hereunder and to cause the equalization of the ownership of Rubin, Geiger and
Muller, Geiger has agreed to contribute 491,467 AD Common Units to the capital
of AD, Muller has agreed to contribute 995,819 AD Common Units to the capital of
AD, and Rubin will receive an aggregate of 1,487,286 AD Common Units (which is
in excess of the number of AD Common Units which
<PAGE> 2
it would have otherwise received pursuant to the terms of this Agreement based
upon its proportionate ownership of its UBL Common Units otherwise to be
exchanged for AD Common Units), and (iv) ADNM has agreed to make an aggregate
distribution of 9,281,452 UBL Common Units to AD and 93,752 UBL Common Units to
AD Holdings.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Unitholders, AD, ADNM and the
UBL hereby agree as follows:
A G R E E M E N T:
Terms used herein which are not defined shall have such definitions as
are given to them in the Operating Agreement.
SECTION 1
The Exchange, Contribution and Distribution Transactions
1.1 Exchange Transaction. Subject to the terms and conditions set forth
in this Agreement and in the Operating Agreement, upon execution of this
Agreement, (a) each Unitholder agrees to exchange that number of UBL Common
Units and UBL Series A Preferred Units set forth after such Unitholder's name on
the signature pages to this Agreement in return for that portion of the AD
Common Units and AD Series A Preferred Units listed thereat, and AD agrees to
issue such AD Units to the Unitholders in exchange for such UBL Units, all as
specified further on the signature pages to this Agreement, and (b) in
connection with such exchange, the accrued and unpaid, Preferred Return on such
UBL Series A Preferred Units set forth after such Unitholder's name on the
signature pages to this Agreement shall become an identical amount of accrued
and unpaid Preferred Return on the AD Series A Preferred Units issued in
exchange therefor, and such UBL Units and the accrued and unpaid Preferred
Return on such UBL Series A Preferred Units shall be deemed cancelled.
1.2 Contribution Transaction. Subject to the terms and conditions set
forth in this Agreement and in the Operating Agreement, upon execution of this
Agreement, Geiger shall contribute 491,467 AD Common Units to the capital of AD,
Muller shall contribute 995,819 AD Common Units to the capital of AD, and Rubin
will receive an aggregate of 1,487,286 AD Common Units (which in excess of the
number of AD Common Units which he would have otherwise received pursuant to the
terms of this Agreement based upon his proportionate ownership of UBL Common
Units otherwise to be exchanged for AD Common Units) as set forth on the
signature pages to this Agreement, in order that the percentage ownership in AD
of each of Rubin, Geiger and Muller will be equal after giving effect to such
contribution and issuance and the other transactions contemplated by this
Agreement.
2.
<PAGE> 3
1.3 Distribution Transaction. Subject to the terms and conditions set
forth in this Agreement and in the Operating Agreement, upon execution of this
Agreement, ADNM agrees to convert all of its UBL Series B Preferred Units, and
all accrued and unpaid Preferred Return thereon, into UBL Common Units, and to
distribute such UBL Common Units, along with the 7,350,000 UBL Common Units that
it already owns, to AD and AD Holdings, as follows: ADNM will distribute
9,281,452 of such UBL Common Units to AD, and will distribute 93,752 of such UBL
Common Units to AD Holdings, so that after giving effect to such distributions,
AD and AD Holdings will hold a 99% and 1% interest in ADNM, respectively.
SECTION 2
Closing, Payment and Delivery
2.1 Closing Date and Place of Closing. The closing (the "Closing") shall
be held on May 18, 1999 (the "Closing Date") and shall be held at the offices of
Riordan & McKinzie, 300 S. Grand Avenue, 29th Floor, Los Angeles, California
90071-3109 or on such other date and at such other place as shall be mutually
agreed to by the parties hereto.
2.2 Payment and Delivery. At the Closing, AD will deliver to each
Unitholder a fully executed copy of the Operating Agreement, whereby such
Unitholder shall become the holder of that number of AD Units set forth next to
such Unitholder's name on the signature pages hereto.
SECTION 3
Representations and Warranties of AD
AD hereby represents and warrants to the Unitholders that, except as set
forth on the "Schedule of Exceptions" attached as Exhibit A hereto which refers
specifically to the representations and warranties in this Agreement and which
reasonably identifies the basis for an exception thereto:
3.1 Capitalization. Exhibit A sets forth both prior to and after giving
effect to the Closing, the authorized equity capital of AD and the number of
issued and outstanding securities of each class of securities of AD. All of the
issued and outstanding securities, including the AD Units to be issued pursuant
to the terms of this Agreement, are validly issued, fully paid and
non-assessable. Except as set forth in the Operating Agreement or on Exhibit A,
there are (i) no existing options, warrants, calls, commitments or other
contracts to which AD is a party requiring, and no convertible securities of AD
outstanding which upon conversion would require, the issuance of any additional
securities of AD, or other securities convertible into securities of AD, (ii) no
contracts to which AD is a party, with respect to the voting or Transfer of such
securities and (iii) no shareholders' preemptive rights or rights of first
refusal or other similar
3.
<PAGE> 4
rights with respect to the issuance of securities by AD. True and correct copies
of the Articles of Organization of AD and the Operating Agreement have been
delivered to the Unitholders.
3.2 Authorization and Issuance of Units. The issuance by AD of the AD
Units has been duly authorized by all necessary action on the part of AD and,
upon issuance in accordance with the terms hereof, the AD Units will be validly
issued, fully paid and non-assessable, free and clear of all liens.
3.3 Securities Laws. In reliance on the investment representations
contained in Section 4.4 of this Agreement, and assuming that each of the
Unitholders resides at the address listed in Section 12.4 of this Agreement, the
offer, issuance, sale and delivery of the AD Units, as provided in this
Agreement, are exempt from the registration requirements of the Securities Act
and all California state securities laws, and are otherwise in compliance with
such laws. Neither AD nor any Person acting on its behalf has taken or will take
any action which might subject the offering, issuance or sale of the AD Units to
the registration requirements of Section 5 of the Securities Act.
3.4 Existence; Compliance with Law. AD (i) is a limited liability company
duly organized, validly existing and in good standing under the laws of its
applicable jurisdiction of organization; (ii) is duly qualified as a foreign
entity and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification (except for jurisdictions in which the failure to so qualify or to
be in good standing would not have a material adverse effect on the properties,
business, condition (financial or otherwise) or results of operations (a
"Material Adverse Effect") of AD; (iii) has the requisite power and authority
and the legal right to own, pledge, mortgage or otherwise encumber and operate
its properties, to lease the property it operates under lease, and to conduct
its business as now being conducted; (iv) has all licenses, permits, consents or
approvals from or by, and has made all filings with, and has given all notices
to, all governmental authorities having jurisdiction, to the extent required for
such ownership, operation and conduct except where such failure would not have
or could not reasonably be expected to have, singly or in the aggregate, a
Material Adverse Effect on AD; (v) is in compliance with its organizational
documents and operating agreements; and (vi) is in compliance with all
applicable provisions of law, except for such noncompliance which would not
have, or could not reasonably be expected to have, a Material Adverse Effect on
AD.
3.5 Subsidiaries. Except as disclosed on Exhibit A, there are no
subsidiaries of AD, and AD does not hold any securities or other proprietary
interest, directly or indirectly, of any Person or have any agreement or
arrangement to acquire any securities or other proprietary interest other than
the interests described in Exhibit A.
3.6 Power, Authorization; Enforceable Obligations. Except as set forth in
Exhibit A (a) the execution, delivery and performance by AD of this Agreement
and all agreements to be executed and delivered in connection herewith (the
"Ancillary Agreements") to which it is a party and all other instruments and
documents to be delivered by AD, the issuance by AD of the
4.
<PAGE> 5
AD Units and the consummation of the other transactions contemplated by any of
the foregoing: (i) are within AD's power and authority; (ii) have been duly
authorized by all necessary or proper action; (iii) are not in contravention
(with or without the lapse of time or giving of notice or both) of any provision
of AD's organizational documents or Operating Agreement; (iv) do not and will
not violate (with or without the lapse of time or giving of notice or both) any
law, or any order or decree of any governmental authority; (v) do not and will
not (with or without the lapse of time or giving of notice or both) conflict
with or result in the breach or termination of, constitute a default under,
accelerate any performance required by, give rise to any right to increase the
obligations or otherwise modify the terms under, any contract to which AD is a
party or by which AD or any of its assets or property is bound; (vi) do not and
will not (with or without the lapse of time or giving of notice or both) result
in the creation or imposition of any lien upon any of the assets or property of
AD; and (vii) do not require the consent or approval of, or any filing with, any
governmental authority or any other Person, except in the case of (iv), (v),
(vi) and (vii) for such violations, conflicts, breaches, terminations, defaults,
accelerations, rights, modifications, liens, consents, approvals or filings
which, singly or in the aggregate, would not have or could not reasonably be
expected to have, a Material Adverse Effect on AD. Each of this Agreement and
the other Ancillary Agreements to which AD is a party has been duly executed and
delivered by AD and, assuming the due authorization, execution and delivery by
the other parties hereto and thereto, each constitutes a legal, valid and
binding obligation of AD, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
3.7 Securities Act. It is acquiring the UBL Units for investment and not
with the current view to, or for resale in connection with, any distribution
thereof, other than in compliance with Federal and State securities laws. It is
an "accredited investor" within the meaning of the Securities Act and the rules
thereunder, and understands that the UBL Units have not been registered under
the Securities Act nor qualified under any State blue sky law by reason of
specified exemptions therefrom which depend upon, among other things, the bona
fide nature of the investment intent expressed herein. It acknowledges that the
UBL Units must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
3.8 Disclosure. The representations and warranties of AD contained in (i)
this Agreement and the exhibits attached hereto and (ii) any certificate
furnished or to be furnished to the Unitholders at the Closing, when read
together, do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances under which they were
made.
3.9 Investment Company. AD is not and, after giving effect to the
transactions contemplated by this Agreement and the Ancillary Agreements, will
not be an "investment company" as defined in the Investment Company Act of 1940.
5.
<PAGE> 6
SECTION 4
Representations and Warranties of Unitholders
Each Unitholder hereby represents and warrants to AD, individually and
not collectively, that:
4.1 Existence; Power and Authority. If not an individual, it (i) is a
limited liability company, partnership or corporation duly organized, validly
existing and in good standing under the laws of its applicable jurisdiction of
organization or formation, and (ii) is duly qualified as a foreign entity and in
good standing under the laws of each jurisdiction where its ownership or lease
of property or the conduct of its business requires such qualification (except
for jurisdictions in which the failure to so qualify or to be in good standing
would not have a Material Adverse Effect on such entity). Whether or not it is
an individual, it has all requisite power, authority and capacity to enter into
this Agreement and the Ancillary Agreements to which it is a party and all other
documents to be executed and delivered by it pursuant to the terms hereof, to
exchange the UBL Units to be exchanged by it, and to carry out and perform its
other obligations under such agreements and other documents
4.2 Authorization; No Conflicts. All action on the part of it necessary
for the authorization, execution, delivery and performance by it of this
Agreement and the Ancillary Agreements to which it is a party, and for the
consummation of the transactions contemplated herein, has been taken. This
Agreement and the Ancillary Agreements to which it is a party have been duly
executed and delivered by it, and assuming the due authorization, execution and
delivery by the other parties hereto, will be a valid and binding obligation of
it, enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity). The
execution, delivery and performance by it of this Agreement and the Ancillary
Agreements to which it is a party and compliance therewith will not result in
any violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, or require any consent under, (i) any
provision of state or federal law to which it is subject, or (ii) any mortgage,
indenture, agreement, instrument, judgment, decree, order, or, to the best
knowledge of it, any rule or regulation or other restriction to which it is a
party or by which it or any of its assets are bound.
4.3 Representations Regarding Exchange of UBL Units.
(a) It has good and valid title to the UBL Units being exchanged
by it pursuant to this Agreement, free and clear of all liens, encumbrances,
security interests and claims whatsoever;
6.
<PAGE> 7
(b) Upon exchange of its portion of the UBL Units, as provided
herein, at the Closing, it will convey to AD good and valid title to such UBL
Units, free and clear of all liens, encumbrances and security interests of any
kind; and
(c) No actions, suits or proceedings before or by any court or
governmental agency, body or authority, or arbitrator are pending or threatened
or contemplated, seeking to prevent the exchange of the UBL Units or the
consummation of the transactions contemplated by this Agreement.
4.4 Representations Regarding Receipt of AD Units. It:
(a) is acquiring the AD Units for its own account, for investment
purposes and not with a current view to the distribution thereof, and will not,
directly or indirectly, subdivide, offer or Transfer any of the AD Units (or
solicit any offers to buy, purchase, or otherwise acquire any of the AD Units),
other than in compliance with Federal and State securities laws and the terms of
the Operating Agreement and the Securities Purchase Agreement (as defined in
Section 11);
(b) is an "accredited investor" within the meaning of the
Securities Act and the rules thereunder, and understands that the AD Units have
not been registered under the Securities Act nor qualified under any State blue
sky law by reason of specified exemptions therefrom which depend upon, among
other things, the bona fide nature of the investment intent expressed herein;
(c) subject to the provisions of the Operating Agreement and the
Securities Purchase Agreement, acknowledges that the AD Units must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available; and
(d) is aware that AD has a short operating history, and that an
investment in the AD Units is highly speculative.
4.5 Disclosure. The representations and warranties of it contained in (i)
this Agreement and the exhibits attached hereto and (ii) any certificate
furnished or to be furnished to AD at the Closing, when read together, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
7.
<PAGE> 8
SECTION 5
Intentionally Omitted
SECTION 6
Conditions to Obligations of AD
The obligation of AD to issue the AD Units in exchange for the UBL Units,
and to consummate the other transactions contemplated by this Agreement and the
Ancillary Agreements, is subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties of
each of the Unitholders shall be true and correct in all respects on the Closing
Date.
6.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Unitholders on or prior
to the Closing Date shall have been performed or complied with in all respects.
6.3 Legal Issuance. At the time of the Closing, the exchange of the UBL
Units for the AD Units shall be legally permitted by all laws and regulations to
which the parties to this Agreement are subject.
6.4 Qualification. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and exchange of the UBL Units for the AD Units pursuant
to this Agreement shall have been duly obtained and shall be effective on and as
of the Closing.
6.5 Deliveries at Closing. At the Closing, the Unitholders will deliver
to AD, as applicable, the following documents:
(i) the Operating Agreement, in substantially the form attached
hereto as Exhibit B, duly executed by each Unitholder; and
(ii) the Amended and Restated Registration Rights Agreement of
AD, in substantially the form attached hereto as Exhibit C (the "Registration
Rights Agreement"), duly executed by each Unitholder that is a party thereto.
8.
<PAGE> 9
SECTION 7
Conditions to Obligations of the Unitholders
The obligations of the Unitholders to exchange their UBL Units for AD
Units, and to consummate the other transactions contemplated by this Agreement
and the Ancillary Agreements, is subject to the fulfillment on or prior to the
Closing Date of each of the following conditions:
7.1 Representations and Warranties. The representations and warranties
made by AD shall be true and correct in all respects on the Closing Date.
7.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by AD on or prior to the Closing
Date shall have been performed or complied with in all respects.
7.3 Legal Issuance. At the time of the Closing, the exchange of the UBL
Units for the AD Units shall be legally permitted by all laws and regulations to
which the parties to this Agreement are subject.
7.4 Qualification. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and exchange of the UBL Units for the AD Units pursuant
to this Agreement shall have been duly obtained and shall be effect on and as of
the Closing.
7.5 Deliveries at Closing. At the Closing, AD will deliver to the
Unitholders, as applicable, the following documents:
(i) the Operating Agreement, duly executed by AD;
(ii) the Registration Rights Agreement, duly executed by AD;
(iii) a long form certificate of good standing (with tax) showing
that AD is organized and in good standing in its jurisdiction of organization;
(iv) copies of the organizational documents of AD, certified as
of a recent date by the Secretary of State of the jurisdiction of its
organization; and
(v) a certificate or certificates executed by duly elected
officers of AD certifying that the representations and warranties of such entity
are true and correct in all respects on the Closing Date, that all covenants,
agreements and conditions contained in this Agreement to be performed or
complied with by it on or before the Closing Date shall have been so performed
or complied with, certifying the organizational documents of AD specified in
9.
<PAGE> 10
(iv) above, and further certifying the names and signatures of such individuals
authorized to sign this Agreement and such certificate and the Ancillary
Agreements.
SECTION 8
Intentionally Omitted
SECTION 9
Indemnification and Liability
9.1 Indemnity.
(a) Each Unitholder agrees, individually and not collectively, to
indemnify and hold harmless AD, its Affiliates and their respective officers,
directors and employees from and against any liabilities, obligations, losses,
damages, amounts paid in settlement, penalties, actions, judgments, fines,
suits, claims, costs, attorneys' fees, expenses and disbursements of any kind
("Losses") which may be imposed upon, incurred by or asserted against any such
party in any manner relating to or arising out of any untrue representation,
breach of warranty or failure to perform any covenants or agreement by such
party contained herein, in any other Ancillary Agreement or in any certificate
or document delivered pursuant hereto or thereto.
(b) AD agrees to indemnify and hold harmless the Unitholders from
and against any Losses which may be imposed upon, incurred by or asserted
against them in any manner relating to or arising out of any untrue
representation, breach of warranty or failure to perform any covenants or
agreement by AD contained herein or in any certificate or document delivered
pursuant hereto or thereto.
(c) Each indemnifying party (an "Indemnifying Party") also agrees
to advance expenses as incurred to the fullest extent permitted under applicable
law; provided, however, that the party being indemnified (the "Indemnified
Party") provides an undertaking to repay such advances to such party if it is
ultimately determined that such Indemnified Party is not entitled to
indemnification. Each of the Unitholders and AD will cooperate in the defense of
any such matter. The rights of the Indemnified Parties to indemnification under
this Section 9 shall be their sole and exclusive remedy with respect to any
breach of any representation or warranty contained in this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, the amount
to which any Indemnified Party shall be entitled pursuant to this Section 9.1
shall be limited to the Losses actually sustained by such Indemnified Party, net
of any tax benefits derived by such Indemnified Party in respect of such Losses.
9.2 Indemnification Procedures. Any Indemnified Party seeking
indemnification pursuant to Section 9.1 with respect to a claim, action, suit or
proceeding by a Person who is not
10.
<PAGE> 11
a Indemnified Party shall give prompt written notice to the Indemnifying Party
of the assertion of any claim, or the commencement of any action, suit or
proceeding, in respect of which indemnity may be sought hereunder, provided that
the failure to give such notice shall not affect the Indemnified Party's rights
to indemnification hereunder unless such failure shall prejudice in any material
respect the ability of the Indemnifying Party to defend such claim, action, suit
or proceeding. The Indemnifying Party shall have the right to assume the defense
of any such action, suit or proceeding at its expense; provided, however, that
(i) such claim, action, suit or proceeding seeks only monetary damages and, in
the reasonable judgment of the Indemnified Party, the Indemnifying Party has
adequate financial and other resources to undertake such defense and satisfy any
indemnifiable Losses arising from such action, suit or proceeding and (ii) the
selection of counsel is approved by the Indemnified Party (which approval shall
not be unreasonably withheld or delayed). If such claim, action, suit or
proceeding seeks relief other than or in addition to monetary damages or if the
Indemnified Party so determines that the Indemnifying Party does not have
adequate resources, or the Indemnifying Party shall elect not to assume the
defense of any such action, suit or proceeding, or fails to make such an
election within twenty (20) days after it receives such notice pursuant to the
first sentence of this Section 9.2, the Indemnified Party may assume such
defense with counsel of its choice and at the expense of the Indemnifying Party
and shall defend such claim, action, suit or proceeding diligently and in good
faith. The Indemnified Party shall have the right to participate in (but not
control) the defense of an action, suit or proceeding defended by the
Indemnifying Party hereunder and to retain its own counsel in connection with
such action, suit or proceeding, but the fees and expenses of such counsel shall
be at the Indemnified Party's expense; provided, however, that the Indemnifying
Party shall bear the expenses as incurred of counsel to the Indemnified Party if
(i) the Indemnifying Party and the Indemnified Party have mutually agreed in
writing to the retention of such counsel or (ii) the named parties in any such
action, suit or proceeding (including impleaded parties) include the
Indemnifying Party and the Indemnified Party, and representation of the
Indemnifying Party and the Indemnified Party by the same counsel would, in the
opinion of counsel to the Indemnified Party, create a conflict; provided further
that, unless otherwise agreed by the Indemnifying Party, if the Indemnifying
Party is obligated to pay the fees and expenses of such counsel, the
Indemnifying Party shall be obligated to pay only the fees and expenses
associated with one attorney or law firm, as applicable, for the Indemnified
Party, as well as the fees and expenses associated with local counsel. The
Indemnifying Party shall not be liable under Section 9.1 for any settlement
effected without its written consent, which consent will not be unreasonably
withheld or delayed, of any claim, action, suit or proceeding in respect of
which indemnity may be sought hereunder.
SECTION 10
Expenses
AD, ADNM, the UBL and the Unitholders shall each bear their own legal and
other expenses and costs incurred in connection with the negotiation and
execution of this Agreement and each other Ancillary Agreement and the
transactions contemplated hereby and thereby.
11.
<PAGE> 12
SECTION 11
Consent to Termination of Certain Agreements; Waivers of Rights
By execution of this Agreement, each of Geiger, Muller, ADNM, the UBL and
the Unitholders that are parties to such documents hereby consents to and agrees
that, concurrent with the Closing, (i) that certain Amended and Restated
Registration Rights Agreement dated as of October, 1998 by and among the UBL,
Constellation Venture Capital, L.P., Constellation Ventures (BVI), Inc.
(collectively, "Constellation") and Rubin, (ii) that certain Voting Agreement
and Irrevocable Proxy dated August 12, 1998 by and among Psilos Group Partners,
L.P. ("Psilos Group"), Constellation, Geiger and Muller, (iii) that certain
Voting Agreement and Irrevocable Proxy dated October 1, 1998, by and among
DreamMedia Internet Ventures, LLC ("Dream Media"), Constellation, Geiger and
Muller, (iii) that certain Voting Agreement and Irrevocable Proxy dated December
1, 1998, by and among Carl Kawabe ("Kawabe"), Constellation, Geiger and Muller
and (iv) that certain Voting Agreement and Irrevocable Proxy dated December 1,
1998, by and among CCP/Psilos UBL, LLC ("CCP", and together with Psilos Group,
"Psilos"), Constellation, Geiger and Muller, shall terminate and be of no
further force and effect. In addition, each of Geiger, Muller, ADNM, the UBL and
the Unitholders that may have certain rights, in connection with the
transactions contemplated by this Agreement, pursuant to (i) Section 5.1(h) and
Section 5.1(j) of that certain Securities Purchase Agreement dated as of July
28, 1998 by and among AD, the UBL and Constellation (as amended, the "Securities
Purchase Agreement"), (ii) Section 12 of that certain Amended and Restated
Operating Agreement of the UBL dated as of July 28, 1998, as amended, and (iii)
Section 3.8(d)(i) and Section 12 of the Amended and Restated Operating Agreement
of AD, as amended, hereby consents to and agrees to waive such rights solely in
connection with the transactions contemplated by this Agreement.
SECTION 12
Miscellaneous
12.1 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with, the laws of the State of California without regard
to the principles thereof relating to conflict of laws. Each of the parties
hereby submits to personal jurisdiction and waives any objection as to venue in
the County of Los Angeles, State of California. Service of process on the
parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 12.4 hereof. The
parties hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement.
12.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
12.
<PAGE> 13
12.3 Entire Agreement. This Agreement (including any Exhibits hereto) and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
12.4 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by another, or whenever any of the
parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged (including by recognized overnight
courier service) or by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy answerback addressed
as follows:
If to the UBL, AD, ARTISTdirect, LLC
ADNM, Geiger or The Ultimate Band List, LLC
Muller: ARTISTdirect New Media, LLC
17835 Ventura Boulevard, Suite 310
Encino, California 91316
Attention: Robert Morse
Telecopy: (818) 758-8722
Telephone: (818) 758-8700
in each case with copies to: Thomas M. Cleary, Esq.
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071-3109
Telecopy: (213) 229-8550
Telephone: (213) 229-8529
and to: Allen D. Lenard, Esq.
Lenard & Gonzalez LLP
1900 Avenue of the Stars, 25th Floor
Los Angeles, California 90067
Telecopy: (310) 552-0740
Telephone: (310) 282-8980
If to Rubin: Rick Rubin
c/o Alan S. Halfon
Alan S. Halfon & Company
9595 Wilshire Boulevard, Suite 505
Beverly Hills, CA 90212
Telephone: (310) 385-1341
Telecopy: (310) 388-9516
13.
<PAGE> 14
with copies to: Mitch Tenzer, Esq.
Ziffren, Brittenham, Branca & Fischer
2121 Avenue of the Stars, 32nd Floor
Los Angeles, California 90067
Telecopy: (310) 553-7068
and to: David L. Gersh, Esq.
Paul, Hastings, Janofsky & Walker
555 S. Flower Street, 23rd Floor
Los Angeles, California 90071-2371
Telecopy: (213) 617-0705
If to Constellation: Constellation Venture Capital, L.P. and
Constellation Venture (BVI), Inc.
c/o Constellation Ventures Management LLC
575 Lexington Avenue
New York, New York 10022
Attention: Clifford H. Friedman
Telecopy: (212) 272-7060
with a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Howard J. Rothman, Esq.
Telecopy: (212) 715-8000
Telephone: (212) 715-9100
If to Kawabe: Carl Kawabe
Donaldson, Lufkin & Jenrette
Securities Corporation
2121 Avenue of the Stars, 30th Floor
Los Angeles, California 90067
Telecopy: (310) 282-6178
If to Psilos Group: Psilos Group Partners, L.P.
or CCP/Psilos UBL, LLC
c/o Psilos Group
152 W. 57th Street, 33rd Floor
New York, New York 10019
Attention: Albert Waxman, Ph.D.
Telecopy: (212) 957-2013
14.
<PAGE> 15
with a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Howard J. Rothman, Esq.
Telecopy: (212) 715-8000
Telephone: (212) 715-9100
If to DreamMedia: DreamMedia Internet Ventures, LLC
108 5th Street S.E., Suite 304
Charlottesville, Virginia 22902
Attention: Chet Lyons
with a copy to: Foley Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: Bruce Kinn, Esq.
Telecopy: (617) 832-7000
Telephone: (617) 832-1137
If to Blum: Scott Blum
Imusic, Inc.
516 East Harrison
Seattle, Washington 98102
Telecopy: (206) 720-0101
Telephone: (206) 720-0100
with copies to: Paul Norris
Anderson Godwin de Regt
3930 Two Union Square
601 Union Street
Seattle, Washington 98101
Telecopy: (206) 628-3049
Telephone: (206) 625-0707
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) business days after the same shall have been deposited with the United
States mail.
12.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of another party under this Agreement, shall impair any such right,
power or remedy of such party nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any
15.
<PAGE> 16
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring.
12.6 Severability. In case any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected or impaired thereby and such
remaining provisions shall be given effect, as nearly as may be, to carry out
the intent of the parties.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.8 Amendment. No amendment or waiver of any provision of this Agreement
shall in any event be effective unless the same shall be in writing and signed
by AD and the Unitholders, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, that Dream Media, Kawabe, Scott Blum and Psilos hereby grant to
Constellation a limited irrevocable power of attorney to act as the agent and
attorney-in-fact for such Unitholder, without power of substitution, for the
sole purpose of approving any amendments to or waivers of this Agreement on
behalf of such Unitholder, but other than an amendment or waiver pertaining to
this Agreement which would amend the liability of such Unitholder for breaches
of representations and warranties under this Agreement, or the AD Units to be
issued to such Unitholder as specified on the signature page to this Agreement,
it being expressly understood and agreed that this limited, irrevocable power of
attorney is coupled with an interest. No action taken pursuant to this
Agreement, including, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action, of compliance
with any representations, warranties, covenants or agreements contained herein.
The waiver by any party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any preceding or succeeding
breach, and no failure by any party to exercise any right or privilege hereunder
shall be deemed a waiver of such party's rights or privileges hereunder or shall
be deemed a waiver of such party's rights to exercise the same at any subsequent
time or times hereunder.
12.9 Remedies. Except as provided in the penultimate sentence of Section
9.1, (a) AD and the Unitholders shall be entitled to specific performance,
injunctive relief or any other equitable remedy against the other, as
applicable, without the posting of a bond, or proof of actual damages, in the
event of breach or threatened breach of any provision of this Agreement and (b)
each of the parties to this Agreement agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement, and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate. In any
action or proceeding brought to enforce any provision of this Agreement or where
any provision hereof is validly asserted as a defense, the successful party
shall be entitled to recover reasonable attorneys fees in addition to any other
available remedy.
16.
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first written above.
AD:
ARTISTdirect, LLC
a California limited liability company
By: /s/ Marc Geiger
------------------------------------
Marc Geiger,
Co-Chief Executive Officer
UBL:
The Ultimate Band List, LLC,
a California limited liability company
By: /s/ Marc Geiger
------------------------------------
Marc Geiger,
Co-Chief Executive Officer
ADNM:
ARTISTdirect New Media, LLC,
a California limited liability company
By: /s/ Marc Geiger
------------------------------------
Name: Marc Geiger
Title:
GEIGER:
/s/ Marc Geiger
---------------------------------------
Marc Geiger
MULLER:
/s/ Donald Muller
---------------------------------------
Donald Muller
17.
<PAGE> 18
<TABLE>
<CAPTION>
Number of Amount of Number of
AD Series A Number of Accrued and UBL Series A Number of
Preferred AD Common Unpaid Preferred UBL Common
Units to Units to Preferred Units to be Units to be
be Issued be Issued Return Exchanged Exchanged Name and Signature
- ----------- --------- ----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
0 14,787,722 0 0 7,650,000 RUBIN: /s/ Rick Rubin
Rick Rubin
1,439,577 0 $66,786.42 828,000 0 Constellation Venture Capital, L.P.
By: Constellation Ventures Management
LLC,
as General Partner
By: /s/ Clifford H. Friedman
--------------------------
Clifford H. Friedman,
Member
646,766 0 $30,005.49 372,000 0 Constellation Ventures (BVI), Inc.
By: /s/ Clifford H. Friedman
--------------------------
Clifford H. Friedman,
President and Chief Executive Officer
521,586 0 $18,666.66 300,000 0 DreamMedia Internet Ventures, L.L.C.
By: /s/ Chester R. Lyons
----------------------------
Name: Chester R. Lyons
Title: General Partner
69,545 0 $1,808.21 40,000 0
/s/ Carl Kawabe
----------------------------------
Carl Kawabe
278,179 0 $5,865.94 160,000 0 CCP/Psilos UBL, LLC
By: Psilos Group Investors, LLC
Its: Managing Member
By: /s/ Albert S. Waxman
----------------------------
Albert S. Waxman, Ph.D.
Senior Managing Director
</TABLE>
18.
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C>
417,269 0 $18,262.06 240,000 0 Psilos Group Partners, L.P.
By: /s/ Albert S. Waxman
--------------------------
Albert S. Waxman, Ph.D.
Senior Managing Director
0 681,772 0 0 392,134.01
/s/ Scott Blum
---------------------------------
Scott Blum
</TABLE>
19.
<PAGE> 20
EXHIBIT INDEX
EXHIBIT A Schedule of Exceptions (AD)
EXHIBIT B Operating Agreement
EXHIBIT C Registration Rights Agreement
<PAGE> 21
EXHIBIT A
SCHEDULE OF EXCEPTIONS
(AD)
<PAGE> 22
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
See Tab 6
<PAGE> 23
EXHIBIT B
OPERATING AGREEMENT
See Tab 4
<PAGE> 1
EXHIBIT 10.10
THE ULTIMATE BAND LIST, LLC/ IMUSIC, INC.
EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement") is made as of February __, 1999
by and among Mr. Scott Blum, an individual ("Blum"), Mr. Eric Benjamin, an
individual ("Benjamin", and collectively with Blum, the "Shareholders") and The
Ultimate Band List, LLC, a California limited liability company (the "UBL").
W I T N E S S E T H:
WHEREAS, the Shareholders have agreed to make an aggregate capital
contribution to the UBL in the form of 545,455 shares (collectively, the
"Shares") of the issued and outstanding common stock, $.01 par value (the
"Common Stock"), of Imusic, Inc., a Washington corporation (the "Corporation"),
and in exchange therefore, the UBL has agreed to issue to the Shareholders, upon
the terms and conditions provided in this Agreement and in the Amended and
Restated Operating Agreement of the UBL made as of July 28, 1998 (as amended,
the "Operating Agreement"), (i) an aggregate of 392.13 UBL Common Units (the
"Units"), and (ii) $110,000 in cash (collectively, the "Consideration"), all as
specified further on the signature pages to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Shareholders and the UBL hereby
agree as follows:
A G R E E M E N T:
Terms used herein which are not defined shall have such definitions as
are given to them in the Operating Agreement.
SECTION 1
The Exchange Transaction
Subject to the terms and conditions set forth in this Agreement and in
the Operating Agreement, upon execution of this Agreement, each Shareholder
agrees to exchange the number of Shares set forth after such Shareholder's name
on the signature pages to this Agreement in return for that portion of the
Consideration listed thereat, and the UBL agrees to issue the Units and/or pay
the other portion of the Consideration to the Shareholders in exchange for such
Shares, all as specified further on the signature pages to this Agreement.
<PAGE> 2
SECTION 2
Closing, Payment and Delivery
2.1 Closing Date and Place of Closing. The closing (the "Closing") shall
be held on February __, 1999 (the "Closing Date") and shall be held at the
offices of Riordan & McKinzie, 300 S. Grand Avenue, 29th Floor, Los Angeles,
California 90071-3109 or on such other date and at such other place as shall be
mutually agreed to by the parties hereto.
2.2 Payment and Delivery.
(a) At the Closing, the UBL will (i) pay to each Shareholder, by
certified or bank check or wire funds transfer, the amount of cash set forth
next to such Shareholder's name on the signature pages hereto, and (ii) deliver
to Blum a fully executed copy of the Third Amendment (as defined), whereby such
Shareholder shall become the holder of that number of Units set forth next to
such Shareholder's name on the signature pages hereto.
(b) At the Closing, the Shareholders shall deliver to the UBL one
or more certificates representing the Shares being transferred by the
Shareholders pursuant to the terms of this Agreement, duly endorsed for
transfer, or with appropriate stock powers attached and properly signed; and
free and clear of any claims, liens, security interests, restrictions, pledges
and encumbrances of any kind (except for such restrictions on transfer as may
exist generally under applicable Federal and State securities laws).
SECTION 3
Representations and Warranties of Blum
Blum hereby represents and warrants to the UBL that, except as set forth
on the "Schedule of Exceptions" attached as Exhibit A hereto which refers
specifically to the representations and warranties in this Agreement and which
reasonably identifies the basis for an exception thereto:
3.1 Organization and Standing; Charter and Bylaws.
(a) The Corporation is duly organized, validly existing and in
good standing under the laws of its jurisdiction of formation. The Corporation
has all requisite corporate power and authority to own the properties owned by
it and to conduct the business as now being and as proposed to be conducted by
it.
(b) The Corporation is in good standing under the laws of, and is
qualified to do business in, the State of Washington, and in each other
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
2.
<PAGE> 3
(c) The Corporation has made available to the UBL and its counsel
true, correct and complete copies of its Articles of Incorporation and Bylaws
and all amendments thereto to date.
3.2 Power and Authority. Blum has all requisite power, authority and
capacity to enter into this Agreement and all agreements to be executed and
delivered by him pursuant to the terms hereof (collectively, the "Ancillary
Agreements"), to exchange the Shares, and to carry out and perform his other
obligations under such agreements, in each case as applicable.
3.3 Subsidiaries. The Corporation does not own of record or beneficially
any capital stock or equity interest or investment in any corporation,
partnership, association or other entity.
3.4 Capitalization. The Corporation's authorized capital stock consists
of 1,000,000 shares of Common Stock of which 545,455 shares are currently issued
and outstanding and held by the Shareholders, and 200,000 shares of Preferred
Stock, $.01 par value, of which 161,364 have been classified as Series A
Convertible Preferred Stock and are currently issued and outstanding and held by
the UBL (the "Series A Preferred Stock"). All such shares of capital stock have
been duly authorized and validly issued and are fully paid and non-assessable.
There are no outstanding preemptive, first refusal, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon the
Corporation or the Shareholders for the purchase or acquisition of any shares of
the Corporation's capital stock, other than 100,000 shares of Common Stock
reserved by the Corporation for issuance under its Nonstatutory Stock Option
Plan, none of which are currently subject to outstanding options.
3.5 Authorization; No Conflicts. All action on the part of Blum necessary
for the authorization, execution, delivery and performance by him of this
Agreement and the Ancillary Agreements, and for the consummation of the
transactions contemplated herein and therein, has been taken. This Agreement and
the Ancillary Agreements have each been duly executed and delivered by the
signatories thereto, and assuming the due authorization, execution and delivery
by the other parties hereto and thereto, are valid and binding obligations of
such parties, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). Except as set forth on Exhibit A, the execution, delivery and
performance by Blum of this Agreement and the Ancillary Agreements and
compliance therewith will not result in any violation of and will not conflict
with, or result in a breach of any of the terms of, or constitute a default
under, or require any consent under, (i) any provision of state or federal law
to which the Corporation or Blum is subject, (ii) the Corporation's Articles of
Incorporation, as amended, or Bylaws, as amended, or (iii) any mortgage,
indenture, agreement, instrument, judgment, decree, order, or, to the best
knowledge of Blum, any rule or regulation or other restriction to which the
Corporation or he is a party or by which the Corporation or he or any of his
assets are bound, or (iv) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the assets of the Corporation pursuant to any
such item, except, with respect to (iii) and (iv) above, such violations,
conflicts, breaches, defaults,
3.
<PAGE> 4
consents, mortgages, pledges, liens, encumbrances and charges which, singly or
in the aggregate, would not have or could not reasonably be expected to have a
material adverse effect on the properties, business, condition (financial or
otherwise), prospects or results of operations (a "Material Adverse Effect") on
the Corporation.
3.6 Financial Information. The Corporation has delivered to the UBL its
unaudited financial statements (profit and loss and balance sheet) as of and for
the nine months ended September 30, 1998, copies of which are also attached
hereto at Exhibit A. Such financial statements (the "Financial Statements")
fairly present the financial information contained therein as of the date
thereof. Except as set forth in the Financial Statements, the Corporation has no
material liabilities of any nature (matured or unmatured, fixed or contingent)
except those incurred in the ordinary course of business since the date of the
Financial Statements and obligations under the terms of the contracts,
agreements or leases set forth in Exhibit A.
3.7 Schedule of Contracts and Leases. The Corporation has not entered
into any material contract, agreement or lease other than those set forth in
Exhibit A hereto. The Corporation has made available to the UBL true and
complete copies of all such contracts, agreements and leases. All parties to the
contracts, agreements and leases set forth in Exhibit A are in material
compliance therewith and none are in default thereunder. Without limiting the
generality of the foregoing provisions of this Section, except as set forth in
Exhibit A, the Corporation is not, directly or indirectly, a party to or
otherwise bound by or obligated under, any agreement, obligation or commitment
of any kind or character providing for aggregate payments to or by the
Corporation in excess of $10,000: (a) to lease, rent, license or otherwise
occupy any plant, office space or other real property; (b) for personal
services; (c) for the distribution or sale of any products; (d) for advertising
or promotion; (e) for the purchase of equipment or capital goods; (f) for the
payment of any royalty, license fee, commission or other fee or compensation;
(g) granting or otherwise creating any license, right, title or interest in or
to any patent, trade secret or other asset of the Corporation; (h) for any loan
to or by the Corporation or the guarantee by the Corporation of any loan; or (i)
any lien or encumbrance upon any asset of the Corporation.
3.8 Material Liabilities; Absence of Changes. Except as set forth in the
Financial Statements and except for liabilities incurred in the ordinary course
of business since the date thereof, the Corporation has no material liability or
obligation, absolute or contingent (individually or in the aggregate), except
for the Corporation's obligations under the terms of the contracts, agreements
or leases set forth in Exhibit A. There has been no material adverse change in
the properties, business, condition (financial or otherwise), prospects or
results of operations of the Corporation since December 31, 1997, and there is
no existing condition, event or series of events which can reasonably be
expected to adversely affect the properties, business, condition (financial or
otherwise), prospects or results of operations of the Corporation, including but
not limited to (i) any loans made to any employee, officer or director of the
Corporation other than advances of expenses made in the ordinary course of
business; (ii) any material change in any compensation arrangement or agreement
with any key employee or executive officer of the Corporation or any material
change in the rate of pay of its existing employees as a group; or
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(iii) any change or amendment to any material contract or arrangement by which
the Corporation is bound or to which it or any of its assets are subject.
3.9 Representations Regarding Exchange of Common Stock.
(a) Blum has good and valid title to the Shares being exchanged
by him pursuant to this Agreement, free and clear of all liens, encumbrances,
security interests and claims whatsoever;
(b) Upon exchange of his portion of the Shares, as provided
herein, at the Closing, Blum will convey to the UBL good and valid title to such
shares of Common Stock, free and clear of all liens, encumbrances and security
interests of any kind; and
(c) No actions, suits or proceedings before or by any court or
governmental agency, body or authority, or arbitrator are pending or threatened
or contemplated, seeking to prevent the exchange of the Shares or the
consummation of the transactions contemplated by this Agreement.
3.10 Representations Regarding Receipt of UBL Common Units. Blum,
(a) is acquiring the Units for his own account, for investment
purposes and not with a current view to the distribution thereof, and will not,
directly or indirectly, subdivide, offer or Transfer any of the Units (or
solicit any offers to buy, purchase, or otherwise acquire any of the Units),
other than in compliance with Federal and State securities laws and the terms of
the Operating Agreement;
(b) is an "accredited investor" within the meaning of the
Securities Act and the rules thereunder, and understands that such Units have
not been registered under the Securities Act nor qualified under any State blue
sky law by reason of specified exemptions therefrom which depend upon, among
other things, the bona fide nature of the investment intent expressed herein;
(c) subject to the provisions of Section 3.13 of the Operating
Agreement, acknowledges that the Units must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available; and
(d) is aware that the UBL has a short operating history, and that
an investment in the Units is highly speculative.
3.11 Title to Properties; Liens and Encumbrances. The Corporation has
good and marketable title to all its properties and assets, free from all
mortgages, pledges, liens, security interests, conditional sale agreements,
encumbrances or charges.
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3.12 Litigation. There are no legal actions, suits, arbitrations, or
other legal, administrative or other governmental proceedings pending or
threatened against the Corporation, its properties, assets or business, and Blum
is not aware of any facts which might result in or form the basis for any such
action, suit or other proceeding. The Corporation is not in default with respect
to any judgment, order or decree of any court of any government agency or
instrumentality. Without limiting the generality of the foregoing, Blum has no
knowledge or belief that there is pending or threatened any claim or litigation
against or affecting the Corporation contesting its right to provide services,
or to sell or use any product planned to be sold or used by the Corporation in
connection with the operations of the Corporation.
3.13 Intangible Assets. To the best knowledge of Blum, after reasonable
inquiry, the Corporation (i) owns or has the right to use, free and clear of all
liens, claims and restrictions, all patents, trademarks, service marks, trade
names, copyrights, licenses and rights with respect to the foregoing, to be used
in the conduct of its business, without infringing upon or otherwise acting
adversely to the right or claimed right of any person under or with respect to
any of the foregoing, and (ii) is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any patent, trademark, trade name,
copyright or other intangible asset with respect to the use thereof or in
connection with the conduct of its business or otherwise. Neither the
Corporation nor Blum has received any communications alleging that the
Corporation has violated, or by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity.
3.14 Year 2000 Systems. The computer systems and software of the
Corporation that are material to its business are able to accurately process
date data, including calculating, comparing and sequencing from, into and
between the twentieth century (through year 1999), the year 2000 and the
twenty-first century, including leap year calculations, except for such
inabilities to process such data that are fixable by normal, ongoing
maintenance.
3.15 Compliance with Other Instruments. The Corporation is not in
violation of any term of its Articles of Incorporation, as amended, or Bylaws,
as amended. The Corporation is not in violation of any term of any mortgage,
indenture, contract, agreement, instrument, judgment, decree, order, or, to the
best knowledge of Blum, any statute, rule or regulation to which the Corporation
is subject, and a violation of which would have a Material Adverse Effect on the
Corporation.
3.16 Employees. To the best knowledge of Blum, no employee of the
Corporation is, or is now expected to be, in violation of any term of any
employment contract, invention assignment or non-disclosure agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant relating to the right of any such employee to be employed by the
Corporation because of the nature of the business conducted or proposed to be
conducted by the Corporation or to the use of trade secrets or proprietary
information of others, and the employment of the Corporation's employees does
not subject the Corporation or the UBL to any
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liability arising by reason of any such contract, agreement or restrictive
covenant or by reason of trade secret or unfair competition laws.
3.17 Licenses. To the best knowledge of Blum, the Corporation possesses
from the appropriate agency, commission, board and governmental body and
authority, whether state, local or federal, all licenses, permits,
authorizations, approvals, franchises and rights as are necessary for the
Corporation to engage in the business proposed to be conducted by it, and to the
best knowledge of Blum, all such licenses, permits, authorizations and rights
have been lawfully and validly issued, are in full force and effect, and will
not be revoked, canceled, withdrawn, terminated or suspended.
3.18 Registration Rights. Except as provided with respect to its Series A
Preferred Stock, the Corporation is not under any obligation to register any of
its securities under the Securities Act.
3.19 Disclosure. The representations and warranties of Blum contained in
(i) this Agreement and the exhibits attached hereto and (ii) any certificate
furnished or to be furnished to the UBL at the Closing, when read together, do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
3.20 No Conflict of Interest. Except as disclosed in Exhibit A, the
Corporation is not indebted, directly or indirectly, to any officer, director or
stockholder of the Corporation or to his or her respective spouse or children,
in any amount whatsoever; none of said officers, directors or stockholders, or
any members of their immediate families, is indebted to the Corporation or has
any direct or indirect ownership interest in any firm or corporation with which
the Corporation is affiliated or with which the Corporation has a business
relationship, or any firm or corporation that competes with the Corporation,
except that officers, directors and/or stockholders of the Corporation may own
stock in publicly-traded companies that may have a business relationship with or
compete with the Corporation. To the best knowledge of Blum, other than as set
forth in or contemplated by this Agreement and the Ancillary Agreements, no such
officer, director or stockholder, or any member of his or her immediate family,
is, directly or indirectly, interested in any material contract with the
Corporation. The Corporation is not a guarantor or indemnitor of any
indebtedness.
3.21 Minute Books. The minutes of the proceedings of the stockholders and
directors of the Corporation, copies of which have been made available to the
UBL, are correct and complete and reflect all such proceedings to the date
thereof.
3.22 Labor Agreements and Actions. The Corporation is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of Blum,
has sought to represent any of the employees, representatives or agents of the
Corporation.
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3.23 Employee Benefit Plans. The Corporation does not have any Employee
Benefit Plan as described in Section 3(2)(a) or Section 3(2)(b) of the Employee
Retirement Income Security Act of 1974.
3.24 Voting Agreements. The Corporation is not a party or subject to any
agreement or understanding, and to the knowledge of Blum, there are no
outstanding agreements, voting trusts, proxies or other arrangements or
understandings among any persons and/or entities, which affect or relate to the
voting or giving of written consents with respect to any security, or by a
director, of the Corporation.
3.25 Tax Returns and Payments. The Corporation has filed all tax returns
and reports as required by law. These returns and reports are true and correct
in all material respects. The Corporation has paid all taxes and other
assessments due prior to the time material penalties would accrue thereon. The
provisions for taxes of the Corporation, if any, as shown in the Financial
Statements are adequate for taxes due or accrued as of each date thereof. None
of the Corporation's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns has ever been audited by governmental
authorities. The Corporation has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories to the extent such are now payable.
SECTION 4
Representations and Warranties of Benjamin
Benjamin hereby represents and warrants to the UBL that, except as set
forth on the "Schedule of Exceptions" attached as Exhibit B hereto which refers
specifically to the representations and warranties in this Agreement and which
reasonably identifies the basis for an exception thereto:
4.1 Power and Authority. Benjamin has all requisite power, authority and
capacity to enter into this Agreement and all other documents to be executed and
delivered by him pursuant to the terms hereof, to exchange the Shares, and to
carry out and perform his other obligations under such agreements and other
documents
4.2 Authorization; No Conflicts. All action on the part of Benjamin
necessary for the authorization, execution, delivery and performance by him of
this Agreement, and for the consummation of the transactions contemplated
herein, has been taken. This Agreement has been duly executed and delivered by
Benjamin, and assuming the due authorization, execution and delivery by the
other parties hereto, will be a valid and binding obligation of Benjamin,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency,
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reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as set forth
on Exhibit B, the execution, delivery and performance by Benjamin of this
Agreement and compliance therewith will not result in any violation of and will
not conflict with, or result in a breach of any of the terms of, or constitute a
default under, or require any consent under, (i) any provision of state or
federal law to which Benjamin is subject, or (ii) any mortgage, indenture,
agreement, instrument, judgment, decree, order, or, to the best knowledge of
Benjamin, any rule or regulation or other restriction to which he is a party or
by which he or any of his assets are bound.
4.3 Representations Regarding Exchange of Common Stock.
(a) Benjamin has good and valid title to the Shares being
exchanged by him pursuant to this Agreement, free and clear of all liens,
encumbrances, security interests and claims whatsoever;
(b) Upon exchange of his portion of the Shares, as provided
herein, at the Closing, Benjamin will convey to the UBL good and valid title to
such shares of Common Stock, free and clear of all liens, encumbrances and
security interests of any kind; and
(c) No actions, suits or proceedings before or by any court or
governmental agency, body or authority, or arbitrator are pending or threatened
or contemplated, seeking to prevent the exchange of the Shares or the
consummation of the transactions contemplated by this Agreement.
SECTION 5
Representations and Warranties of the UBL
The UBL hereby represents and warrants to the Shareholders that, except
as set forth on the "Schedule of Exceptions" attached as Exhibit C hereto which
refers specifically to the representations and warranties in this Agreement and
which reasonably identifies the basis for an exception thereto:
5.1 Capitalization. Exhibit C sets forth both prior to and after giving
effect to the Closing, the authorized equity capital of the UBL and the number
of issued and outstanding securities of each class of securities of the UBL. All
of the issued and outstanding securities, including the Units to be issued
pursuant to the terms of this Agreement, are validly issued, fully paid and
non-assessable. Except as set forth on Exhibit C, there are (i) no existing
options, warrants, calls, commitments or other contracts to which the UBL is a
party requiring, and no convertible securities of the UBL outstanding which upon
conversion would require, the issuance of any additional securities of the UBL,
or other securities convertible into securities of the UBL, (ii) no contracts to
which the UBL is a party, with respect to the voting or Transfer of such
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securities and (iii) no shareholders' preemptive rights or rights of first
refusal or other similar rights with respect to the issuance of securities by
the UBL. True and correct copies of the Articles of Organization and the
Operating Agreement of the UBL have been delivered to the Shareholders.
5.2 Authorization and Issuance of Units. The issuance by the UBL of the
Units has been duly authorized by all necessary action on the part of the UBL
and, upon issuance in accordance with the terms hereof, the Units will be
validly issued, fully paid and non-assessable, free and clear of all liens.
5.3 Securities Laws. In reliance on the investment representations
contained in Section 3.10 of this Agreement, and assuming that Blum resides at
the address listed on the signature pages to this Agreement, the offer,
issuance, sale and delivery of the Units, as provided in this Agreement, are
exempt from the registration requirements of the Securities Act and all
California state securities laws, and are otherwise in compliance with such
laws. Neither the UBL nor any Person acting on its behalf has taken or will take
any action which might subject the offering, issuance or sale of the Units to
the registration requirements of Section 5 of the Securities Act.
5.4 Existence; Compliance with Law. The UBL (i) is a limited liability
company duly organized, validly existing and in good standing under the laws of
its applicable jurisdiction of organization; (ii) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification (except for jurisdictions in which the failure to so qualify or to
be in good standing would not have a Material Adverse Effect on the UBL; (iii)
has the requisite power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now being conducted;
(iv) has all licenses, permits, consents or approvals from or by, and has made
all filings with, and has given all notices to, all governmental authorities
having jurisdiction, to the extent required for such ownership, operation and
conduct except where such failure would not have or could not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect on the
UBL; (v) is in compliance with its organizational documents and operating
agreements; and (vi) is in compliance with all applicable provisions of law,
except for such noncompliance which would not have, or could not reasonably be
expected to have, a Material Adverse Effect on the UBL.
5.5 Subsidiaries. There are no subsidiaries of the UBL. ARTISTdirect New
Media, LLC ("ADNM") is the sole UBL Manager. Except as disclosed on Exhibit C,
and except for the shares of the Series A Preferred Stock, the UBL does not hold
any securities or other proprietary interest, directly or indirectly, of any
Person or have any agreement or arrangement to acquire any securities or other
proprietary interest other than the interests described in this Section 5.5.
5.6 Power, Authorization; Enforceable Obligations. Except as set forth in
Exhibit C (a) the execution, delivery and performance by the UBL of this
Agreement, the other Ancillary
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Agreements to which it is a party and all instruments and documents to be
delivered by the UBL, the issuance by the UBL of the Units and the consummation
of the other transactions contemplated by any of the foregoing: (i) are within
the UBL's power and authority; (ii) have been duly authorized by all necessary
or proper action; (iii) are not in contravention (with or without the lapse of
time or giving of notice or both) of any provision of the UBL's organizational
documents or Operating Agreement; (iv) do not and will not violate (with or
without the lapse of time or giving of notice or both) any law, or any order or
decree of any governmental authority; (v) do not and will not (with or without
the lapse of time or giving of notice or both) conflict with or result in the
breach or termination of, constitute a default under, accelerate any performance
required by, give rise to any right to increase the obligations or otherwise
modify the terms under, any contract to which the UBL is a party or by which the
UBL or any of its assets or property is bound; (vi) do not and will not (with or
without the lapse of time or giving of notice or both) result in the creation or
imposition of any lien upon any of the assets or property of the UBL; and (vii)
do not require the consent or approval of, or any filing with, any governmental
authority or any other Person, except in the case of (iv), (v), (vi) and (vii)
for such violations, conflicts, breaches, terminations, defaults, accelerations,
rights, modifications, liens, consents, approvals or filings which, singly or in
the aggregate, would not have or could not reasonably be expected to have, a
Material Adverse Effect on the UBL. Each of this Agreement and the other
Ancillary Agreements to which the UBL is a party has been duly executed and
delivered by the UBL and, assuming the due authorization, execution and delivery
by the other parties hereto and thereto, each constitutes a legal, valid and
binding obligation of the UBL, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
5.7 Securities Act. It is acquiring the Shares for investment and not
with the current view to, or for resale in connection with, any distribution
thereof, other than in compliance with Federal and State securities laws. It is
an "accredited investor" within the meaning of the Securities Act and the rules
thereunder, and understands that the Shares have not been registered under the
Securities Act nor qualified under any State blue sky law by reason of specified
exemptions therefrom which depend upon, among other things, the bona fide nature
of the investment intent expressed herein. It acknowledges that the Shares must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
5.8 Speculative Investment. It is aware that the Corporation has a short
operating history, and that its possession of the Shares is highly speculative.
5.9 Disclosure. The representations and warranties of the UBL contained
in (i) this Agreement and the exhibits attached hereto and (ii) any certificate
furnished or to be furnished to the Shareholders at the Closing, when read
together, do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances under which they were
made.
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5.10 Investment Company. The UBL is not and, after giving effect to the
transactions contemplated by this Agreement and the Ancillary Agreements, will
not be an "investment company" as defined in the Investment Company Act of 1940.
SECTION 6
Conditions to Obligations of the UBL
The obligation of the UBL to issue the Units and pay the other portion of
the Consideration in exchange for the Shares, and to consummate the other
transactions contemplated by this Agreement and the Ancillary Agreements, is
subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
6.1 Representations and Warranties. The representations and warranties of
the Shareholders shall be true and correct in all respects on the Closing Date.
6.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Shareholders on or prior
to the Closing Date shall have been performed or complied with in all respects.
6.3 Legal Issuance. At the time of the Closing, the exchange of the
Shares for the Units and the other portion of the Consideration shall be legally
permitted by all laws and regulations to which the parties to this Agreement and
the Corporation are subject.
6.4 Qualification. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and exchange of the Shares for the Units pursuant to
this Agreement shall have been duly obtained and shall be effective on and as of
the Closing.
6.5 Due Diligence, Proceedings and Documents. The UBL shall have had a
reasonable opportunity to complete its examination of the affairs of the
Corporation, including verifying current website traffic and estimating website
hosting requirements and cost, and shall be satisfied with the results thereof.
All corporate and other proceedings in connection with the transactions
contemplated hereby and all documents and instruments incident to such
transactions shall be satisfactory in form and substance to the UBL and its
counsel.
6.6 Deliveries at Closing. At the Closing, the Shareholders will deliver
to the UBL, as applicable, the following documents:
(i) the Contingent (Tax) Loan Agreement in substantially the form
attached hereto as Exhibit D (the "Loan Agreement"), duly executed by Blum;
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(ii) the Employment Agreement to be entered into by and between
the Corporation and Scott Blum in substantially the form attached hereto as
Exhibit E (the "Blum Employment Agreement"), duly executed by Blum;
(iii) the Employment Agreement to be entered into by and between
the Corporation and Robert Scheu in substantially the form attached hereto as
Exhibit F (the "Scheu Employment Agreement"), duly executed by Robert Scheu;
(iv) the Third Amendment to the Operating Agreement of the UBL in
substantially the form attached hereto as Exhibit G (the "Third Amendment"),
duly executed by Blum;
(v) an executed copy of the Amendment to the Amended and Restated
Articles of Incorporation of the Corporation in substantially the form attached
hereto as Exhibit H, certified as filed as of the date of this Agreement by the
Secretary of State of the State of Washington (the "Amended Articles");
(vi) certificates representing the Shares, duly endorsed for
transfer, or with appropriate stock powers attached and properly signed, and
other good and sufficient instruments of transfer reasonably satisfactory in
form and substance to the UBL as shall be effective to vest in the UBL all of
the Shareholders' right, title and interest in and to such Shares, free and
clear of all claims, liens, security interests, restrictions, pledges and
encumbrances of any kind;
(vii) certificates of good standing (with tax) showing that the
Corporation is organized and in good standing in its jurisdiction of
organization;
(viii) copies of the organizational documents of the Corporation
certified by the Secretary of State of the State of Washington (and including
the Amended Articles);
(ix) a certificate or certificates executed by the Shareholders,
certifying that the representations and warranties of such individuals are true
and correct in all respects on the Closing Date, that all covenants, agreements
and conditions contained in this Agreement to be performed or complied with by
each on or before the Closing Date shall have been so performed or complied
with, certifying the organizational documents of the Corporation specified in
(viii) above, and further certifying the names and signatures of such
individuals authorized to sign this Agreement and such certificate and the
Ancillary Agreements;
(x) copies of the release of claims statements (in each case with
executed receipts), each in the form attached hereto as Exhibit I, duly executed
by each of Dave Allen, Tyrone Noble, Alex Mayer, Molly Sullivan and Robert
Scheu; and
(xi) executed copies of receipts evidencing each of such
Shareholder's receipt from the UBL of that amount of cash set forth next to such
Shareholder's name on the signature page hereto.
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SECTION 7
Conditions to Obligations of the Shareholders
The obligations of the Shareholders to exchange the Shares for the
Consideration, and to consummate the other transactions contemplated by this
Agreement and the Ancillary Agreements, is subject to the fulfillment on or
prior to the Closing Date of each of the following conditions:
7.1 Representations and Warranties. The representations and warranties
made by the UBL shall be true and correct in all respects on the Closing Date,.
7.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the UBL on or prior to the
Closing Date shall have been performed or complied with in all respects.
7.3 Legal Issuance. At the time of the Closing, the exchange of the
Shares for the Units and the other portion of the Consideration shall be legally
permitted by all laws and regulations to which the parties to this Agreement and
the Corporation are subject.
7.4 Qualification. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and exchange of the Shares for the Units pursuant to
this Agreement shall have been duly obtained and shall be effect on and as of
the Closing.
7.5 Deliveries at Closing. At the Closing, the UBL will deliver to the
Shareholders, as applicable, the following documents:
(i) the Loan Agreement, duly executed by the UBL;
(ii) the Blum Employment Agreement, duly executed by the
Corporation;
(iii) the Scheu Employment Agreement, duly executed by the
Corporation;
(iv) the Third Amendment, duly executed by the UBL and all other
parties thereto;
(v) the cash portion of the Consideration, by bank or cashier's
check or wire funds transfer;
(vi) long form certificates of good standing (with tax) showing
that the UBL is organized and in good standing in its jurisdiction of
organization;
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(vii) copies of the organizational documents of the UBL certified
as of a recent date by the Secretary of State of the jurisdiction of its
organization; and
(viii) a certificate or certificates executed by duly elected
officers of the UBL certifying that the representations and warranties of such
entity are true and correct in all respects on the Closing Date, that all
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by it on or before the Closing Date shall have been so
performed or complied with, certifying the organizational documents of the UBL
specified in (vii) above, and further certifying the names and signatures of
such individuals authorized to sign this Agreement and such certificate and the
Ancillary Agreements.
SECTION 8
Covenant to Pay Employee Bonuses
The UBL hereby covenants that, in the event that Blum elects to exercise
the Blum Redemption Right contained in Section 3.13 of the Operating Agreement,
then, the UBL will cause the Corporation to pay out, simultaneously with the
UBL's payment to Blum of the Blum Redemption Price, an aggregate of $200,000 in
bonus compensation to one or more employees of the Corporation, such employees
to be mutually agreed to by Blum and the UBL. Notwithstanding the foregoing, the
UBL hereby agrees that Robert Scheu will be eligible for all or a portion of
such bonus compensation, in any event in the sole discretion of Blum, and
whether or not Blum or Scheu is an employee of the Corporation at the time such
bonus is to be paid.
SECTION 9
Indemnification and Liability
9.1 Indemnity.
(a) Blum agrees to indemnify and hold harmless the UBL, its
Affiliates and their respective officers, directors and employees from and
against any liabilities, obligations, losses, damages, amounts paid in
settlement, penalties, actions, judgments, fines, suits, claims, costs,
attorneys' fees, expenses and disbursements of any kind ("Losses") which may be
imposed upon, incurred by or asserted against any such party in any manner
relating to or arising out of (i) any untrue representation, breach of warranty
or failure to perform any covenants or agreement by such party contained herein,
in any other Ancillary Agreement or in any certificate or document delivered
pursuant hereto or thereto or (ii) any and all claims, actions, suits or other
proceedings brought by or on behalf of any former employee or shareholder of the
Corporation, or any other person, which are related to the transactions
contemplated by this Agreement and the Ancillary Agreements.
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(b) Benjamin agrees to indemnify and hold harmless the UBL, its
Affiliates and their respective officers, directors and employees from and
against any Losses which may be imposed upon, incurred by or asserted against
any such party in any manner relating to or arising out of any untrue
representation, breach of warranty or failure to perform any covenants or
agreement by such party contained herein, in any other Ancillary Agreement or in
any certificate or document delivered pursuant hereto or thereto.
(c) The UBL agrees to indemnify and hold harmless the
Shareholders from and against any Losses which may be imposed upon, incurred by
or asserted against them in any manner relating to or arising out of any untrue
representation, breach of warranty or failure to perform any covenants or
agreement by the UBL contained herein or in any certificate or document
delivered pursuant hereto or thereto.
(d) Each indemnifying party (an "Indemnifying Party") also agrees
to advance expenses as incurred to the fullest extent permitted under applicable
law; provided, however, that the party being indemnified (the "Indemnified
Party") provides an undertaking to repay such advances to such party if it is
ultimately determined that such Indemnified Party is not entitled to
indemnification. Each of Blum, Benjamin and the UBL will cooperate in the
defense of any such matter. The rights of the Indemnified Parties to
indemnification under this Section 9 shall be their sole and exclusive remedy
with respect to any breach of any representation or warranty contained in this
Agreement. Notwithstanding anything to the contrary contained in this Agreement,
the amount to which any Indemnified Party shall be entitled pursuant to this
Section 9.1 shall be limited to the Losses actually sustained by such
Indemnified Party, net of any tax benefits derived by such Indemnified Party in
respect of such Losses.
9.2 Indemnification Procedures. Any Indemnified Party seeking
indemnification pursuant to Section 9.1 with respect to a claim, action, suit or
proceeding by a Person who is not a Indemnified Party shall give prompt written
notice to the Indemnifying Party of the assertion of any claim, or the
commencement of any action, suit or proceeding, in respect of which indemnity
may be sought hereunder, provided that the failure to give such notice shall not
affect the Indemnified Party's rights to indemnification hereunder unless such
failure shall prejudice in any material respect the ability of the Indemnifying
Party to defend such claim, action, suit or proceeding. The Indemnifying Party
shall have the right to assume the defense of any such action, suit or
proceeding at its expense; provided, however, that (i) such claim, action, suit
or proceeding seeks only monetary damages and, in the reasonable judgment of the
Indemnified Party, the Indemnifying Party has adequate financial and other
resources to undertake such defense and satisfy any indemnifiable Losses arising
from such action, suit or proceeding and (ii) the selection of counsel is
approved by the Indemnified Party (which approval shall not be unreasonably
withheld or delayed). If such claim, action, suit or proceeding seeks relief
other than or in addition to monetary damages or if the Indemnified Party so
determines that the Indemnifying Party does not have adequate resources, or the
Indemnifying Party shall elect not to assume the defense of any such action,
suit or proceeding, or fails to make such an election within twenty (20) days
after it receives such notice pursuant to the first sentence of this Section
9.2, the Indemnified Party may assume such defense with counsel of its choice
and at the
16.
<PAGE> 17
expense of the Indemnifying Party and shall defend such claim, action, suit or
proceeding diligently and in good faith. The Indemnified Party shall have the
right to participate in (but not control) the defense of an action, suit or
proceeding defended by the Indemnifying Party hereunder and to retain its own
counsel in connection with such action, suit or proceeding, but the fees and
expenses of such counsel shall be at the Indemnified Party's expense; provided,
however, that the Indemnifying Party shall bear the expenses as incurred of
counsel to the Indemnified Party if (i) the Indemnifying Party and the
Indemnified Party have mutually agreed in writing to the retention of such
counsel or (ii) the named parties in any such action, suit or proceeding
(including impleaded parties) include the Indemnifying Party and the Indemnified
Party, and representation of the Indemnifying Party and the Indemnified Party by
the same counsel would, in the opinion of counsel to the Indemnified Party,
create a conflict; provided further that, unless otherwise agreed by the
Indemnifying Party, if the Indemnifying Party is obligated to pay the fees and
expenses of such counsel, the Indemnifying Party shall be obligated to pay only
the fees and expenses associated with one attorney or law firm, as applicable,
for the Indemnified Party, as well as the fees and expenses associated with
local counsel. The Indemnifying Party shall not be liable under Section 9.1 for
any settlement effected without its written consent, which consent will not be
unreasonably withheld or delayed, of any claim, action, suit or proceeding in
respect of which indemnity may be sought hereunder.
SECTION 10
Expenses
The UBL and the Shareholders shall each bear their own legal and other
expenses and costs incurred in connection with the negotiation and execution of
this Agreement and each other Ancillary Agreement and the transactions
contemplated hereby and thereby; provided, that the Corporation may reimburse
the Shareholders for up to $15,000 of such expenses and costs.
SECTION 11
Consent to Transaction
By execution of this Agreement, each of the Shareholders and the UBL
hereby consents to the transaction contemplated by this Agreement and the
Amended Articles pursuant to Sections 23B.07.040 and 23B.08.210 of the
Washington Business Corporation Act.
17.
<PAGE> 18
SECTION 12
Miscellaneous
12.1 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with, the laws of the State of California without regard
to the principles thereof relating to conflict of laws. Each of the parties
hereby submits to personal jurisdiction and waives any objection as to venue in
the County of Los Angeles, State of California. Service of process on the
parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 12.4 hereof. The
parties hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement.
12.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
12.3 Entire Agreement. This Agreement (including any Exhibits hereto) and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
12.4 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by another, or whenever any of the
parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged (including by recognized overnight
courier service) or by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy answerback addressed
as follows:
If to the Corporation or Blum:
Scott Blum
Imusic, Inc.
516 East Harrison
Seattle, Washington 98102
Telecopy: (206) 720-0101
Telephone: (206) 720-0100
18.
<PAGE> 19
with copies to:
Paul Norris
Anderson Godwin de Regt
3930 Two Union Square
601 Union Street
Seattle, Washington 98101
Telecopy: (206) 628-3049
Telephone: (206) 625-0707
If to Benjamin:
Eric Benjamin
3719 BC Grant Road
Baldwin, Georgia 30511
Telecopy: (706) 778-1930
Telephone: (706) 776-2566
with copies to:
Gary Lisker, Esq.
337 Herrington Drive
Atlanta, Georgia 30342
Telecopy: (404) 255-4309
Telephone: (404) 256-4284
If to the UBL:
The Ultimate Band List, LLC
17835 Ventura Boulevard, Suite 310
Encino, California 91316
Attention: Robert Morse
Telecopy: (818) 758-8722
Telephone: (818) 758-8700
with copies to:
Thomas M. Cleary, Esq.
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071-3109
Telecopy: (213) 229-8550
Telephone: (213) 229-8529
19.
<PAGE> 20
and to:
Adam M. Klotz, Esq.
Lenard & Gonzalez LLP
1900 Avenue of the Stars, 25th Floor
Los Angeles, California 90067
Telecopy: (310) 552-0740
Telephone: (310) 282-8980
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) business days after the same shall have been deposited with the United
States mail.
12.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of another party under this Agreement, shall impair any such right,
power or remedy of such party nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring.
12.6 Severability. In case any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected or impaired thereby and such
remaining provisions shall be given effect, as nearly as may be, to carry out
the intent of the parties.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.8 Amendment. No amendment or waiver of any provision of this Agreement
shall in any event be effective unless the same shall be in writing and signed
by the UBL and the Shareholders, and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, that Benjamin hereby grants to Blum a limited
irrevocable power of attorney to act as the agent and attorney-in-fact for such
Shareholder, without power of substitution, for the sole purpose of approving
any amendments to or waivers of this Agreement on behalf of such Shareholder,
but other than an amendment or waiver pertaining to this Agreement which would
amend the liability of such Shareholder for breaches of representations and
warranties under this Agreement, or the Consideration to be paid to such
Shareholder as specified on the signature page to this Agreement, it being
expressly understood and agreed that this limited, irrevocable power of attorney
is coupled with an interest. No action taken pursuant to this Agreement,
including, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action, of compliance with
20.
<PAGE> 21
any representations, warranties, covenants or agreements contained herein. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any preceding or succeeding breach,
and no failure by any party to exercise any right or privilege hereunder shall
be deemed a waiver of such party's rights or privileges hereunder or shall be
deemed a waiver of such party's rights to exercise the same at any subsequent
time or times hereunder.
12.9 Remedies. Except as provided in the penultimate sentence of Section
9.1, (a) the UBL and the Shareholders shall be entitled to specific performance,
injunctive relief or any other equitable remedy against the other, as
applicable, without the posting of a bond, or proof of actual damages, in the
event of breach or threatened breach of any provision of this Agreement and (b)
each of the parties to this Agreement agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement, and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate. In any
action or proceeding brought to enforce any provision of this Agreement or where
any provision hereof is validly asserted as a defense, the successful party
shall be entitled to recover reasonable attorneys fees in addition to any other
available remedy.
21.
<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first written above.
UBL:
THE ULTIMATE BAND LIST, LLC,
a California limited liability company
By:
---------------------------------------
Marc Geiger, Co-Chief Executive Officer
<TABLE>
<CAPTION>
Number Cash Shares
of Units Consideration Exchanged Signature, Name and Address
- --------- ------------- --------- ---------------------------
<S> <C> <C> <C>
392.13 $70,000 540,000 BLUM:
/s/ Scott Blum
--------------------------------------
Scott Blum
Imusic, Inc.
516 East Harrison
Seattle, Washington 98102
None $40,000 5,455 BENJAMIN:
/s/ Eric Benjamin
--------------------------------------
Eric Benjamin
3719 BC Grant Road
Baldwin, Georgia 30511
</TABLE>
22.
<PAGE> 23
EXHIBIT INDEX
EXHIBIT A Schedule of Exceptions (Blum)/Financial Information
EXHIBIT B Schedule of Exceptions (Benjamin)
EXHIBIT C Schedule of Exceptions (UBL)
EXHIBIT D Loan Agreement
EXHIBIT E Blum Employment Agreement
EXHIBIT F Scheu Employment Agreement
EXHIBIT G Third Amendment
EXHIBIT H Amended Articles
EXHIBIT I Release Statements
<PAGE> 24
EXHIBIT A
SCHEDULE OF EXCEPTIONS
(BLUM)
3.6 Financial Information. See Section 3.19 of this Schedule of
Exceptions. In addition, the Corporation has certain contractual
responsibilities, obligations and rights in connection with the following:
(a) a $10,000 line of credit with U.S. Bank of Washington
(approximately $7,000 outstanding and payable as of the date hereof);
(b) contracts with ASCAP, BMI, ADAUCTION.COM and FLYCAST; and
(c) letters of intent and other agreements with TVMV AD SALES and
CDNOW.
3.7 Contracts and Leases. See Sections 3.6 and 3.19 of this
Schedule of Exceptions.
3.8 Material Liabilities; Absence of Changes. See Sections 3.6 and
3.19 of this Schedule of Exceptions. In addition:
(a) the Corporation may have certain contingent liability to its
former law firm for legal services, the amount of which liability is currently
unknown (but is not anticipated to exceed $30,000.00).
(b) the Corporation is in the process of negotiating and
executing a three year lease (with option to renew for one year) for
approximately 2,180 square feet of office space in Seattle, Washington,
approximately $16.30 per square foot plus parking and maintenance charges.
3.20 No Conflict of Interest. As disclosed in its financial statements,
the Corporation's founding shareholder, Scott Blum, has made certain loans to
the Corporation in the approximate aggregate principal amount of $50,000.
24.
<PAGE> 25
EXHIBIT B
SCHEDULE OF EXCEPTIONS
(BENJAMIN)
None.
25.
<PAGE> 1
EXHIBIT 10.11
CONTINGENT LOAN AGREEMENT
THIS CONTINGENT LOAN AGREEMENT (this "Agreement") is made as of
February __, 1999 by and between Scott Blum (the "Borrower") and The Ultimate
Band List, LLC, a California limited liability company (the "Lender").
R E C I T A L S:
A. Borrower desires to make an aggregate capital contribution to
Lender in the form of shares of the issued and outstanding common stock, $.01
par value (the "Common Stock"), of Imusic, Inc., a Washington corporation
("Imusic"), in exchange for 392.13 common units of Lender (the "Units") pursuant
to that certain Exchange Agreement made on even date herewith by and among
Borrower, Lender and others (the "Exchange Agreement").
B. In order to induce Borrower to enter into the Exchange Agreement,
Lender has agreed to make loans (the "Loan") on the terms and conditions set
forth in this Agreement for the purpose of helping Borrower to pay his federal
and state income tax liabilities which may be incurred as a result of the
allocation of taxable income to Borrower (the "Certain Tax Liabilities") under
either (i) Section 704(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), in connection with the liquidation of Imusic or taxable disposition or
other transfer of the Common Stock or (ii) Section 737 of the Code in connection
with a distribution of property by Lender to Borrower, which does not involve
the distribution of sufficient cash or marketable securities not subject to
restrictions on sale for Borrower to pay such federal and state income tax
liabilities thereon.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
agreements, representations, warranties and covenants set forth herein, the
parties hereto agree as follows:
1. Commitment. Under the terms and conditions of the Loan described
herein, Lender agrees to make loans at an annual interest rate equal to the
lowest applicable federal rate in effect for purposes of Section 1274(d) of the
Code as of the effective date of each such loan, up to an aggregate principal
amount of Borrower's Certain Tax Liabilities less aggregate Distributions (as
such term is hereinafter defined) made to Borrower through the date of such
loan. Such loans shall be made from time to time as requested by Borrower to
provide funds as needed to pay the Certain Tax Liabilities (each such loan or
advance, an "Advance"), on any business day during the period from the date
hereof until the Maturity Date (as such term is hereinafter defined) of the
Loan. For purposes of this Agreement, the term "Maturity Date" shall be the
earlier of the date that (a) Borrower exercises his redemption right pursuant to
Section 3.13 of that certain Amended and Restated Operating Agreement made as of
July 28, 1998, as amended (the "Operating Agreement"), (b) except with respect
to any sale of Units pursuant to Section 12.10 of the Operating Agreement,
<PAGE> 2
Borrower sells, transfers or otherwise disposes of all or any portion of his
Units, (c) Borrower sells all (or the remaining portion) of his Units pursuant
to Section 12.10 of the Operating Agreement, or (d) Lender makes aggregate
Distributions (as such term is hereinafter defined) to Borrower sufficient in
amount to pay the Certain Tax Liabilities of Borrower on the taxable disposition
of the Common Stock. For purposes of this Agreement, the term "Distributions"
shall mean the aggregate amount of all distributions of cash or marketable
securities not subject to restrictions on sale with respect to the Units in
excess of the amount of distributions with respect to the Units which are
necessary to pay all federal and state income taxes imposed upon Borrower as a
result of all income allocated or to be allocated by Lender with respect to the
Units through the date of the Advance (other than with respect to the Certain
Tax Liabilities).
2. Use of Proceeds; Timing. The proceeds of each Advance will be
used by Borrower only for the purpose of paying the Certain Tax Liabilities of
Borrower. Each Advance shall be made by Lender no earlier than ten (10) days
from the due date of the Certain Tax Liabilities underlying Borrower's request
for such Advance.
3. Conditions Precedent to Advances. The obligation of Lender to
make any Advance shall be subject to the following conditions precedent: (a)
receipt by Lender of a Secured Promissory Note (each, a "Note"), in the form of
Exhibit A, in like amount dated as of the expected date of the Advance and duly
executed by Borrower and in full force and effect; (b) the pledge of the Units
prescribed in Section 4 below has been duly executed by Borrower and remains in
full force and effect; and (c) upon the request of Lender, Borrower shall
provide Lender with all documentation reasonably necessary to substantiate the
Certain Tax Liabilities for which such Advance shall be used to pay and the
amount of federal and state income taxes imposed upon Borrower as a result of
income allocated or to be allocated by Lender with respect to the Units through
the date of the Advance.
4. Security for Performance. Borrower and Lender hereby acknowledge
and agree that:
(a) prior to the first Advance and until the Notes and all
other payment obligations of Borrower hereunder are paid in full, Borrower will
pledge 196.07 Units (the "Collateral Units") to secure the payment of all
obligations existing under the Notes whether for principal, interest, fees,
expenses or otherwise and/or to ensure Borrower's compliance with the terms and
conditions of this Agreement and the Unit Pledge Agreement, in the form of
Exhibit B (the "Pledge Agreement"), and
(b) that in connection with such pledge, Borrower shall enter
into the Pledge Agreement as of the date of the first Advance hereunder
requiring that Collateral Units be held by Lender as security for the payment of
all obligations existing under the Notes, whether for principal, interest, fees,
expenses or otherwise, and for Borrower's compliance with the terms and
conditions of this Agreement and the Pledge Agreement. The Notes and the Pledge
Agreement are hereinafter sometimes referred to collectively as the "Loan
Documents."
2
<PAGE> 3
5. Repayment of Notes. Borrower shall pay Lender the outstanding
principal balance, plus any other amounts (including, without limitation,
interest) owed by Borrower, under any outstanding Note on or before the Maturity
Date. Upon a sale of Units pursuant to Section 12.10 of the Operating Agreement,
Borrower shall immediately prepay an amount of the principal, plus any accrued
and unpaid interest thereon, due under the Notes equal to the proceeds of such
sale. Borrower may prepay any amount of the principal due under the Notes
without penalty. Each such payment shall be made in U.S. Dollars at the address
of Lender set forth in Section 11(b) below or in such other manner and at such
location as Lender shall designate in writing.
6. Offset. Borrower hereby acknowledges and agrees that the amount
of principal, interest, fees, and expenses otherwise payable to Lender may be
offset, deducted and withheld from any amounts due and payable to Borrower under
the Operating Agreement with respect to the Units or under the Exchange
Agreement, including, without limitation, the Redemption Price (as such term is
defined in the Operating Agreement) payable in connection with the redemption of
the Units.
7. Events of Default. The occurrence of any one or more of the
following events, acts or occurrences shall constitute an event of default (an
"Event of Default") hereunder:
(a) Failure to Make Payments. Borrower shall fail to pay (i)
when due any principal, any interest or premium outstanding under any Note, or
(ii) after the date when due under any Note, if applicable, or, after five (5)
business days' notice to Borrower, any fees, costs, expenses or other amounts
payable hereunder;
(b) Breach of Covenants. Borrower shall fail duly and
punctually to perform, comply with or observe any agreement, covenant or
obligation to be performed, observed or complied with by Borrower under this
Agreement or the other Loan Documents;
(c) Breach of Warranty. Any representation or warranty or
certification made or furnished by Borrower under this Agreement, any other Loan
Document, or any agreement, instrument or document contemplated hereby or
thereby, or otherwise in connection with the transactions contemplated by this
Agreement or the other Loan Documents shall, at any time, prove to have been
false or incorrect in any material respect when made; or
(d) Bankruptcy; Appointment of Receiver, Etc. The filing by
Borrower of a voluntary petition in bankruptcy; the commencement of a bankruptcy
or insolvency proceeding against Borrower (unless stayed or dismissed within
forty-five (45) days); the filing by Borrower of an assignment for the benefit
of creditors; or the attachment, execution or judicial seizure, whether by
enforcement of money judgment, writ or warrant of attachment or any other
process, of all or substantially all of the assets of Borrower which is not
released within sixty (60) days after such action.
3
<PAGE> 4
8. Remedies. Upon the occurrence of an Event of Default or, if such
default is of a nature that is curable within thirty (30) days, upon failure by
Borrower to cure such default within thirty (30) days following delivery of
written notice from Lender of the Event of Default, Lender may declare the
unpaid principal amount of a Note to be, and the same shall thereupon become,
due and payable together with the accrued interest thereon, without presentment,
demand, protest, any additional notice whatsoever or other requirements of any
kind (all of which are hereby expressly waived by Borrower, except as otherwise
provided in this Agreement or by applicable law), and Lender may exercise any
rights or remedies under this Agreement and under any other Loan Document.
9. Expenses. Lender and Borrower shall each pay or cause to be paid
its respective expenses relating to the transactions contemplated hereby;
provided, however, that Borrower shall pay on demand by Lender any and all costs
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements and out-of-pocket costs of settlement) incurred by Lender in any
workout, restructuring or similar arrangements or after an Event of Default in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of Lender's rights hereunder or under any other Loan
Document and instruments contemplated hereby and thereby or in connection with
any foreclosure, collection or bankruptcy proceedings.
10. Further Assurances. At any time or from time to time upon the
request of the Lender, Borrower covenants and agrees to, from the effective date
hereof until the Notes and all other payment obligations of Borrower hereunder
are paid in full, execute such further documents and do such other acts as
Lender may reasonably request in order to effect fully the purposes of this
Agreement and the other Loan Documents and to provide for payment of the Notes
and all other amounts owing to Lender under this Agreement.
11. Miscellaneous.
(a) Waivers; Written Modifications.
(i) The rights and remedies provided for under this Agreement
and in the other Loan Documents are cumulative and are not exclusive of any
rights and remedies that may be available to Lender at law, in equity, or
otherwise. No amendment, modification, supplement, termination, consent or
waiver of this Agreement or any other Loan Document to which Borrower is a party
shall in any event be effective unless the same shall be in writing and signed
by Lender.
(ii) Any waiver of any provision of this Agreement or any
other Loan Document to which Borrower is a party shall be effective only in the
specific instance and for the specific purpose for which given. No notice to or
demand on Borrower in any case shall entitle Borrower to any other or further
notice or demand in similar or other circumstances.
(b) Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any
4
<PAGE> 5
of the parties by another, or whenever any of the parties desires to give or
serve upon another any such communication with respect to this Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person with
receipt acknowledged (including by recognized overnight courier service) or by
registered or certified mail, return receipt requested, postage prepaid, or by
telecopy and confirmed by telecopy answer back addressed as follows:
If to Borrower: Scott Blum
c/o Imusic, Inc.
516 East Harrison
Seattle, Washington 98102
Telecopy: (206) 720-0101
Telephone: (206) 720-0100
with copies to: Paul Norris
Anderson Godwin de Regt
3930 Two Union Square
601 Union Street
Seattle, Washington 98101
Telecopy: (206) 628-3049
Telephone: (206) 625-0707
If to Lender: The Ultimate Band List, LLC
17835 Ventura Boulevard, Suite 310
Encino, California 91316
Attention: Robert Morse
Telecopy: (818) 758-8722
Telephone: (818) 758-8700
with copies to: Thomas M. Cleary, Esq.
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071-3109
Telecopy: (213) 229-8550
Telephone: (213) 229-8529
and to: Allen D. Lenard, Esq.
Lenard & Gonzalez LLP
1900 Avenue of the Stars, 25th Floor
Los Angeles, California 90067
Telecopy: (310) 552-0740
Telephone: (310) 282-8990
5
<PAGE> 6
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answer back, or
three (3) business days after the same shall have been deposited with the United
States mail.
(c) Assignment by Borrower. Borrower may not assign or grant a
participation in its rights or obligations under this Agreement or any of the
other Loan Documents without the prior written consent of Lender.
(d) Severability of Provisions. Any provision of this Agreement that
is illegal, invalid, prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such illegality,
invalidity, prohibition or unenforceability without invalidating or impairing
the remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
(e) Limitation of Liability. Neither Lender nor any of its
affiliates, employees, agents or attorneys shall be liable to Borrower, for any
action taken, or omitted to be taken, by it or them or any of them under any
Loan Document or in connection therewith.
(f) Amendments Must Be Written. No modification, amendment or waiver
of any provisions of this Agreement and no consent to any departure by Borrower
herefrom, shall be effective unless the same shall be in writing and signed by
Borrower and Lender.
(g) Survival of Agreements, Representations and Warranties. All
agreements, representations, and warranties made herein shall survive the
execution and delivery of this Agreement, the execution and delivery of any Note
and the making of the Loan evidenced thereby, and shall continue until one year
after repayment of all of the Notes.
(h) Headings. Section headings used in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or affect the construction of this Agreement.
(i) Construction. Unless the context of this Agreement clearly
requires otherwise, references herein to the plural include the singular, the
singular includes the plural, the part includes the whole, and the word
"including" is not limiting. The words "hereof," "herein" and "hereby," refer to
this Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, and exhibit references are to this Agreement unless
otherwise specified.
(j) Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which counterparts, when
6
<PAGE> 7
so executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Agreement.
(k) Complete Agreement. This Agreement, together with the exhibits
to this Agreement, together with the other Loan Documents, is intended by the
parties as a final expression of their agreement.
(l) Exhibits. All of the exhibits attached to this Agreement shall
be deemed incorporated herein by reference.
(m) Governing Law; Venue and Jurisdiction. The validity of this
Agreement and the other Loan Documents, the construction, interpretation and
enforcement hereof and thereof and the rights of the parties hereto and thereto
shall be determined under, governed by, and construed in accordance with the
internal laws of the State of California, without giving effect to conflict of
laws principles thereof.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first set forth above.
"Borrower"
/s/ Scott Blum
--------------------------------------------------
Scott Blum
"Lender" THE ULTIMATE BAND LIST, LLC, a California limited
liability company
By: /s/ Marc P. Geiger
--------------------------------------------
Name:
--------------------------------------------
Its: Co-Chief Executive Officer
8
<PAGE> 9
EXHIBIT 2.02A
UNSECURED PROMISSORY NOTE
Los Angeles, California
$________________ _________, 1999
FOR VALUE RECEIVED, the undersigned ARTISTdirect, Inc. ("Borrower")
hereby promises to pay to the order of Rick Rubin, an individual ("Payee"), the
principal sum of [the Rubin Preferred Return (net of the sum of the Rubin Common
Capital Bond and any Distributions made to Rubin in excess of the Rubin Common
Capital Bond in respect of the Rubin Preferred Return)] ($__________) together
with interest on the unpaid balance of such principal amount from the date
hereof at the rate of interest equal to the [lowest applicable federal rate for
this Note in effect for purposes of Section 1274(d) of the Internal Revenue Code
of 1986, as amended (the "Code"), as of the effective date hereof per annum
(computed on a basis of a 365-day year).] Accrued interest to be paid on this
Unsecured Promissory Note (this "Promissory Note") shall be payable annually in
arrears commencing on the last day of the first December subsequent to the date
hereof and continuing on the last day of each succeeding December thereafter
until paid in full.
The principal balance of, and all accrued and unpaid interest on,
this Promissory Note shall be payable in full by Borrower to Payee on [To come].
Payments of principal and interest on this Promissory Note shall be
made in legal tender of the United States of America and shall be made at such
place as Payee shall have designated to Borrower. If the date set for any
payment of principal or interest on this Promissory Note is a Saturday, Sunday
or legal holiday, then such payment shall be due on the next succeeding business
day.
The principal balance of, and accrued and unpaid interest on, this
Promissory Note may be prepaid at any time, in whole or in part, without premium
or penalty. Upon [to come], Borrower shall immediately prepay the principal
balance, plus any accrued and unpaid interest thereon, under this Note. [Any
such prepayment shall be first applied to the payment of any accrued and unpaid
interest and then to the unpaid balance of the principal amount.]
The occurrence of any one or more of the following events, acts or
occurrences shall constitute an event of default (an "Event of Default")
hereunder: (a) Borrower shall fail to pay (i) when due any principal, any
interest or premium outstanding under this Promissory Note, or (ii) after the
date when due under this Promissory Note, if applicable, or, after five (5)
business days' notice to Borrower, any fees, costs, expenses or other amounts
payable hereunder; or (b) the filing by Borrower of a voluntary petition in
bankruptcy; the commencement of a bankruptcy or insolvency
A-1
<PAGE> 10
proceeding against Borrower (unless stayed or dismissed within forty-five (45)
days); the filing by Borrower of an assignment for the benefit of creditors; or
the attachment, executing or judicial seizure, whether by enforcement of money
judgment, writ or warrant of attachment or any other process, of all or
substantially all of the assets of Borrower which is not released within sixty
(60) days after such action.
Upon the occurrence of any Event of Default, Payee may accelerate
this Promissory Note and declare the entire unpaid principal amount of this
Promissory Note and all accrued and unpaid interest hereon to be immediately due
and payable and, thereupon, the unpaid principal amount and all such accrued and
unpaid interest shall become and be immediately due and payable, without notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, or other notices or demands of any kind (all of which are hereby
expressly waived by Borrower). The failure of Payee to accelerate this
Promissory Note shall not constitute a waiver of any of Payee's rights under
this Promissory Note as long as Borrower's default under this Promissory Note
continues.
The provisions of this Promissory Note shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law rules thereof. In the event that Payee is required to
take any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such reasonable attorneys' fees, court costs and other
expenses as Payee may incur as a result thereof, whether or not suit is
commenced.
The terms and provisions of this Promissory Note shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of the parties hereto and the successors and assigns of
Payee and any assignee or transferee of this Promissory Note. In the event of
such transfer or assignment, the rights and privileges conferred upon Payee
shall automatically extend to and be vested in such assignee or transferee, all
subject to the terms and conditions hereof. Borrower's obligations, rights or
any interest hereunder may not be delegated or assigned without the written
consent of Payee.
All notices, requests, demands or other communications under this
Promissory Note shall or may be given to or served upon any of the parties by
another, or whenever any of the parties desires to give or serve upon another
any such communication with respect to this Promissory Note, each such notice,
demand, request, or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged (including by recognized overnight
courier service) or by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy answer back addressed
as follows:
A-2
<PAGE> 11
If to Borrower: ARTISTdirect, Inc.
17835 Ventura Boulevard, Suite 310
Encino, CA 91316
Telecopy: (818) 758-8700
Telephone: (818) 758-8722
with copies to: Thomas M. Cleary, Esq.
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, CA 90071
Telecopy: (213) 229-8550
Telephone: (213) 229-8529
and to: Allen D. Lenard, Esq.
Lenard & Gonzalez LLP
1900 Avenue of the Stars, 25th Floor
Los Angeles, CA 90067
Telecopy: (310) 552-0740
Telephone: (310) 282-8900
If to Rubin: Rick Rubin
c/o American Recordings, Inc.
c/o Provident Financial Management
10345 Olympic Boulevard
Los Angeles, California 90064
Attention: Michael S. Harris
Telecopy: (310) 282-5178
Telephone: _______________
with copies to: Mitch Tenzer, Esq.
Ziffren, Brittenham, Branca & Fischer
2121 Avenue of the Stars, 32nd Floor
Los Angeles, California 90067
Telecopy: (310) 553-7068
Telephone: _______________
and to: David L. Gersh, Esq.
Paul, Hastings, Janofsky & Walker
555 S. Flower Street, 23rd Floor
Los Angeles, California 90071-2371
Telecopy: (213) 617-0705
Telephone: _______________
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice.
A-3
<PAGE> 12
Every notice, demand, request, or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answer back, or
three (3) business days after the same shall have been deposited with the United
States mail.
A-4
<PAGE> 13
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
ARTISTdirect, Inc.
-----------------------------------------
Marc P. Geiger,
Co-Chief Executive Officer
A-5
<PAGE> 14
EXHIBIT 2.02B
UNSECURED PROMISSORY NOTE
Los Angeles, California
$________________ _________, 1999
FOR VALUE RECEIVED, the undersigned ARTISTdirect, Inc. ("Borrower")
hereby promises to pay to the order of Marc P. Geiger, an individual ("Payee"),
the principal sum of [Two Hundred Seventy-Five Thousand Dollars (net of any
Distributions made to Geiger pursuant to Section 8.4(b) of the Operating
Agreement.)] ($__________) together with interest on the unpaid balance of such
principal amount from the date hereof at the rate of interest equal to the
[lowest applicable federal rate for this Note in effect for purposes of Section
1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), as of the
effective date hereof per annum (computed on a basis of a 365-day year).]
Accrued interest to be paid on this Unsecured Promissory Note (this "Promissory
Note") shall be payable annually in arrears commencing on the last day of the
first December subsequent to the date hereof and continuing on the last day of
each succeeding December thereafter until paid in full.
The principal balance of, and all accrued and unpaid interest on,
this Promissory Note shall be payable in full by Borrower to Payee on [To come].
Payments of principal and interest on this Promissory Note shall be
made in legal tender of the United States of America and shall be made at such
place as Payee shall have designated to Borrower. If the date set for any
payment of principal or interest on this Promissory Note is a Saturday, Sunday
or legal holiday, then such payment shall be due on the next succeeding business
day.
The principal balance of, and accrued and unpaid interest on, this
Promissory Note may be prepaid at any time, in whole or in part, without premium
or penalty. Upon [to come], Borrower shall immediately prepay the principal
balance, plus any accrued and unpaid interest thereon, under this Note. [Any
such prepayment shall be first applied to the payment of any accrued and unpaid
interest and then to the unpaid balance of the principal amount.]
The occurrence of any one or more of the following events, acts or
occurrences shall constitute an event of default (an "Event of Default")
hereunder: (a) Borrower shall fail to pay (i) when due any principal, any
interest or premium outstanding under this Promissory Note, or (ii) after the
date when due under this Promissory Note, if applicable, or, after five (5)
business days' notice to Borrower, any fees, costs, expenses or other amounts
payable hereunder; or (b) the filing by Borrower of a voluntary petition in
bankruptcy; the commencement of a bankruptcy or insolvency
B-1
<PAGE> 15
proceeding against Borrower (unless stayed or dismissed within forty-five (45)
days); the filing by Borrower of an assignment for the benefit of creditors; or
the attachment, executing or judicial seizure, whether by enforcement of money
judgment, writ or warrant of attachment or any other process, of all or
substantially all of the assets of Borrower which is not released within sixty
(60) days after such action.
Upon the occurrence of any Event of Default, Payee may accelerate
this Promissory Note and declare the entire unpaid principal amount of this
Promissory Note and all accrued and unpaid interest hereon to be immediately due
and payable and, thereupon, the unpaid principal amount and all such accrued and
unpaid interest shall become and be immediately due and payable, without notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, or other notices or demands of any kind (all of which are hereby
expressly waived by Borrower). The failure of Payee to accelerate this
Promissory Note shall not constitute a waiver of any of Payee's rights under
this Promissory Note as long as Borrower's default under this Promissory Note
continues.
The provisions of this Promissory Note shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law rules thereof. In the event that Payee is required to
take any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such reasonable attorneys' fees, court costs and other
expenses as Payee may incur as a result thereof, whether or not suit is
commenced.
The terms and provisions of this Promissory Note shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of the parties hereto and the successors and assigns of
Payee and any assignee or transferee of this Promissory Note. In the event of
such transfer or assignment, the rights and privileges conferred upon Payee
shall automatically extend to and be vested in such assignee or transferee, all
subject to the terms and conditions hereof. Borrower's obligations, rights or
any interest hereunder may not be delegated or assigned without the written
consent of Payee.
All notices, requests, demands or other communications under this
Promissory Note shall or may be given to or served upon any of the parties by
another, or whenever any of the parties desires to give or serve upon another
any such communication with respect to this Promissory Note, each such notice,
demand, request, or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged (including by recognized overnight
courier service) or by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy answer back addressed
as follows:
B-2
<PAGE> 16
If to Borrower: ARTISTdirect, Inc.
17835 Ventura Boulevard, Suite 310
Encino, CA 91316
Telecopy: (818) 758-8700
Telephone: (818) 758-8722
with copies to: Thomas M. Cleary, Esq.
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, CA 90071
Telecopy: (213) 229-8550
Telephone: (213) 229-8529
and to: Allen D. Lenard, Esq.
Lenard & Gonzalez LLP
1900 Avenue of the Stars, 25th Floor
Los Angeles, CA 90067
Telecopy: (310) 552-0740
Telephone: (310) 282-8900
If to Geiger: Marc P. Geiger
c/o ARTISTdirect, Inc.
17835 Ventura Boulevard, Suite 310
Encino, CA 91316
Telecopy: (818) 758-8700
Telephone: (818) 758-8722
with copies to: Mitch Tenzer, Esq.
Ziffren, Brittenham, Branca & Fischer
2121 Avenue of the Stars, 32nd Floor
Los Angeles, California 90067
Telecopy: (310) 553-7068
Telephone: _______________
and to: David L. Gersh, Esq.
Paul, Hastings, Janofsky & Walker
555 S. Flower Street, 23rd Floor
Los Angeles, California 90071-2371
Telecopy: (213) 617-0705
Telephone: _______________
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request, or
other communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged, telecopied
B-3
<PAGE> 17
and confirmed by telecopy answer back, or three (3) business days after the same
shall have been deposited with the United States mail.
B-4
<PAGE> 18
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
ARTISTdirect, Inc.
-----------------------------------------
David P. Muller,
Co-Chief Executive Officer
B-5
<PAGE> 19
EXHIBIT 2.02C
UNSECURED PROMISSORY NOTE
Los Angeles, California
$________________ _________, 1999
FOR VALUE RECEIVED, the undersigned ARTISTdirect, Inc. ("Borrower")
hereby promises to pay to the order of Donald P. Muller, an individual
("Payee"), the principal sum of [Two Hundred Seventy-Five Thousand Dollars (net
of any Distributions made to Geiger pursuant to Section 8.4(b) of the Operating
Agreement.)] ($__________) together with interest on the unpaid balance of such
principal amount from the date hereof at the rate of interest equal to the
[lowest applicable federal rate for this Note in effect for purposes of Section
1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), as of the
effective date hereof per annum (computed on a basis of a 365-day year).]
Accrued interest to be paid on this Unsecured Promissory Note (this "Promissory
Note") shall be payable annually in arrears commencing on the last day of the
first December subsequent to the date hereof and continuing on the last day of
each succeeding December thereafter until paid in full.
The principal balance of, and all accrued and unpaid interest on,
this Promissory Note shall be payable in full by Borrower to Payee on [To come].
Payments of principal and interest on this Promissory Note shall be
made in legal tender of the United States of America and shall be made at such
place as Payee shall have designated to Borrower. If the date set for any
payment of principal or interest on this Promissory Note is a Saturday, Sunday
or legal holiday, then such payment shall be due on the next succeeding business
day.
The principal balance of, and accrued and unpaid interest on, this
Promissory Note may be prepaid at any time, in whole or in part, without premium
or penalty. Upon [to come], Borrower shall immediately prepay the principal
balance, plus any accrued and unpaid interest thereon, under this Note. [Any
such prepayment shall be first applied to the payment of any accrued and unpaid
interest and then to the unpaid balance of the principal amount.]
The occurrence of any one or more of the following events, acts or
occurrences shall constitute an event of default (an "Event of Default")
hereunder: (a) Borrower shall fail to pay (i) when due any principal, any
interest or premium outstanding under this Promissory Note, or (ii) after the
date when due under this Promissory Note, if applicable, or, after five (5)
business days' notice to Borrower, any fees, costs, expenses or other amounts
payable hereunder; or (b) the filing by Borrower of a voluntary petition in
bankruptcy; the commencement of a bankruptcy or insolvency
C-1
<PAGE> 20
proceeding against Borrower (unless stayed or dismissed within forty-five (45)
days); the filing by Borrower of an assignment for the benefit of creditors; or
the attachment, executing or judicial seizure, whether by enforcement of money
judgment, writ or warrant of attachment or any other process, of all or
substantially all of the assets of Borrower which is not released within sixty
(60) days after such action.
Upon the occurrence of any Event of Default, Payee may accelerate
this Promissory Note and declare the entire unpaid principal amount of this
Promissory Note and all accrued and unpaid interest hereon to be immediately due
and payable and, thereupon, the unpaid principal amount and all such accrued and
unpaid interest shall become and be immediately due and payable, without notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, or other notices or demands of any kind (all of which are hereby
expressly waived by Borrower). The failure of Payee to accelerate this
Promissory Note shall not constitute a waiver of any of Payee's rights under
this Promissory Note as long as Borrower's default under this Promissory Note
continues.
The provisions of this Promissory Note shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law rules thereof. In the event that Payee is required to
take any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such reasonable attorneys' fees, court costs and other
expenses as Payee may incur as a result thereof, whether or not suit is
commenced.
The terms and provisions of this Promissory Note shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of the parties hereto and the successors and assigns of
Payee and any assignee or transferee of this Promissory Note. In the event of
such transfer or assignment, the rights and privileges conferred upon Payee
shall automatically extend to and be vested in such assignee or transferee, all
subject to the terms and conditions hereof. Borrower's obligations, rights or
any interest hereunder may not be delegated or assigned without the written
consent of Payee.
All notices, requests, demands or other communications under this
Promissory Note shall or may be given to or served upon any of the parties by
another, or whenever any of the parties desires to give or serve upon another
any such communication with respect to this Promissory Note, each such notice,
demand, request, or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged (including by recognized overnight
courier service) or by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy answer back addressed
as follows:
C-2
<PAGE> 21
If to Borrower: ARTISTdirect, Inc.
17835 Ventura Boulevard, Suite 310
Encino, CA 91316
Telecopy: (818) 758-8700
Telephone: (818) 758-8722
with copies to: Thomas M. Cleary, Esq.
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, CA 90071
Telecopy: (213) 229-8550
Telephone: (213) 229-8529
and to: Allen D. Lenard, Esq.
Lenard & Gonzalez LLP
1900 Avenue of the Stars, 25th Floor
Los Angeles, CA 90067
Telecopy: (310) 552-0740
Telephone: (310) 282-8900
If to Muller: David P. Muller
c/o ARTISTdirect, Inc.
17835 Ventura Boulevard, Suite 310
Encino, CA 91316
Telecopy: (818) 758-8700
Telephone: (818) 758-8722
with copies to: Mitch Tenzer, Esq.
Ziffren, Brittenham, Branca & Fischer
2121 Avenue of the Stars, 32nd Floor
Los Angeles, California 90067
Telecopy: (310) 553-7068
Telephone: _______________
and to: David L. Gersh, Esq.
Paul, Hastings, Janofsky & Walker
555 S. Flower Street, 23rd Floor
Los Angeles, California 90071-2371
Telecopy: (213) 617-0705
Telephone: _______________
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request, or
other communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged, telecopied
C-3
<PAGE> 22
and confirmed by telecopy answer back, or three (3) business days after the same
shall have been deposited with the United States mail.
C-4
<PAGE> 23
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
ARTISTdirect, Inc.
-----------------------------------------
Marc C. Geiger
Co-Chief Executive Officer
C-5
<PAGE> 1
EXHIBIT 10.12
February 17, 1999
Mr. Scott Blum
c/o Imusic, Inc.
516 East Harrison
Seattle, Washington 98102
Re: Bonus Agreement
Dear Scott:
Effective as of the date of this letter, you have entered into that
certain Employment Agreement ("Employment Agreement") with Imusic, Inc., a
Washington corporation ("Imusic"), which sets forth the terms and conditions
pursuant to which you will provide your employment services to Imusic and The
Ultimate Band List, LLC, a California limited liability company ("UBL"). In
order to induce you to enter into the Employment Agreement, UBL hereby agrees to
pay cash payments (the "Bonus Payments") in an amount equal to the quotient of
(i) any accrued interest with respect to one or more Secured Promissory Notes
(each, a "Note") executed by you in connection with that certain Contingent Loan
Agreement (the "Loan Agreement") made as of February __, 1999, by and between
you and UBL divided by (ii) one less the sum of (A) your marginal federal income
tax rate (expressed as a decimal) in the tax year of such interest payment plus
(B) your marginal state income tax rate (expressed as a decimal) then in effect,
net of any tax benefit received from the deductibility of such state tax
liability against your federal income tax liability, if any. UBL shall deduct
and withhold all required federal and state income and employment taxes from
each Bonus Payment.
The Bonus Payments shall be made no earlier than ten (10) days from the
due date of the applicable interest payment as provided in each Note. UBL, at
its option, may offset the Bonus Payments against any interest payments due and
payable to UBL or the then current holder under each Note.
Notwithstanding the foregoing, so long as there shall exist an Event of
Default (as such term is defined in the Loan Agreement), UBL shall not be
obligated to make any Bonus
<PAGE> 2
Mr. Scott Blum
February __, 1999
Page 2
Payment, provided, however, UBL's failure to pay any Bonus Payment hereunder
shall not constitute an Event of Default pursuant to Section 7(a)(i) of the Loan
Agreement.
You hereby acknowledge and agree that your employment with Imusic is
governed by the Employment Agreement, and this letter shall not confer upon you
any right to employment or continuance of the performance of services for UBL
or Imusic or any affiliated entity. Accordingly, the provisions of the
Employment Agreement shall remain in full force and effect, unmodified hereby.
If you agree to the foregoing, please counter-execute this letter below and
return the same to the undersigned, whereupon this letter shall be binding upon
you and UBL. No right or obligation referred to herein or created herein shall
be assignable. This letter may be executed in counterparts, each of which shall
be an original and all of which taken together shall constitute one and the same
letter.
Sincerely,
THE ULTIMATE BAND LIST, LLC, a
California limited liability company
By: /s/ Marc P. Geiger
--------------------------------------
Name:
------------------------------------
Its: Co-Chief Executive Officer
AGREED AND ACCEPTED:
Dated: February __, 1999
/s/ Scott Blum
- ----------------------------
Scott Blum
<PAGE> 1
EXHIBIT 10.13
ISSUANCE, NONCOMPETITION AND NONSOLICITATION AGREEMENT
This ISSUANCE, NONCOMPETITION AND NONSOLICITATION AGREEMENT (this
"Agreement") is made as of January 1, 1998 (the "Effective Date") between
ARTISTdirect, LLC, a California limited liability company (the "Company"), and
Keith Yokomoto ("Yokomoto"). Any capitalized term used but not defined herein
shall have the meaning ascribed to it in that certain Operating Agreement of the
Company dated as of September 1, 1996 (the "Operating Agreement").
R E C I T A L S
WHEREAS, Yokomoto is an employee of the Company pursuant to an employment
agreement dated July 28, 1998 (the "Employment Agreement");
WHEREAS, as partial compensation for the services rendered and to be
rendered by Yokomoto pursuant to the Employment Agreement, the Company wishes to
issue to Yokomoto 114,942.53 Units (the "Issued Units"), representing a 10.10%
Percentage as of the Effective Date, and Yokomoto wishes to be issued the Issued
Units, pursuant to the terms hereof;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby expressly acknowledged, the Company and Yokomoto
hereby agree as follows:
A G R E E M E N T
1. Issuance of the Issued Units. The Company hereby issues the Issued Units to
Yokomoto, subject to the conditions and restrictions contained in this
Agreement. Yokomoto shall be considered a Member of the Company as of the
Effective Date. The Issued Units shall entitle Yokomoto to a share of the
profits and losses of the Company after the Effective Date, and all
distributions made with respect thereto, but shall not entitle Yokomoto to any
interest in the capital of the Company as of the Effective Date, which capital
Yokomoto and the Company hereby agree has a fair market value equal to One
Million Nine Hundred Eighty Thousand Dollars ($1,980,000) as of the Effective
Date.
2. Antidilution Protection. The Percentage represented by the Issued Units shall
not be diluted below 10% with respect to: (a) any issuance of Units by the
Company to the person hired to serve as the chief financial officer of the
Company; (b) any issuance of Units by the Company to the person hired to serve
as president of The Ultimate Band List, LLC (the "UBL"); or (c) the first Five
Million Dollars ($5,000,000) of additional capital contributions made following
the Effective Date to the Company or any of its subsidiaries, including, without
limitation, the UBL; provided that such additional capital contributions (other
than by Intel Corporation) are made either (i) based upon a valuation of the
applicable entity that is no less than the valuation upon which any prior
capital contribution was made, or (ii) pursuant to the exercise of an option or
warrant the exercise price of which on the date of grant was not based upon a
valuation of the applicable entity that was less than the valuation upon which
any capital contribution prior to the date of the grant was made.
<PAGE> 2
3. Noncompetition. In recognition of the considerations described herein,
Yokomoto agrees that for so long as Yokomoto is employed by the Company, and
until the "Noncompetition Expiration Date" (as defined below), Yokomoto shall
not, directly or indirectly:
(a) enter into the employ of, or render any services to, any person, firm
or business entity engaged in any "Competitive Business," which shall mean any
Internet business that at that time is competitive with the business of the
Company or any of its subsidiaries or affiliates (each, a Subsidiary"), and
which shall include, without limitation, any internet business that, anywhere in
the world: (i) operates a meta-music index or search engine on the World Wide
Web; or (ii) sells or offers to sell through a World Wide Web site music-related
products or services, including, without limitation, any devices or other means,
whether utilizing technology existing as of the date hereof or devised
hereafter, on or by which sound may be recorded, transmitted or reproduced, with
or without a visual reproduction, primarily for home and/or consumer use,
including, without limitation, analog disc records, analog tape cassettes,
compact discs, mini-discs, digital audio tapes, video cassettes, laser discs,
and downloading via the Internet;
(b) engage in any Competitive Business for Yokomoto's own account;
(c) become interested in any Competitive Business as an individual,
partner, shareholder (other than as described below), creditor, director,
officer, principal, agent, employee, trustee, consultant, advisor, franchisee or
in any other relationship or capacity; or
(d) authorize his name or reputation to be used by any Competitive
Business;
provided, however, that nothing contained in this Section 3 shall be deemed to
prohibit Yokomoto from acquiring or holding, solely for investment, publicly
traded securities of any corporation some of the activities of which are
competitive with the business of the Company so long as such securities, in the
aggregate, constitute less than five percent (5%) of any class or series of
outstanding securities of such corporation. Notwithstanding anything to the
contrary contained herein, the prohibition contained in Section 3(a) above shall
not apply if the function performed by Yokomoto does not substantially and
directly involve the development, maintenance or operation of a Competitive
Business. For purposes of this Section 3, the "Noncompetition Expiration Date"
shall mean the date of expiration of the full duration of the then current
period of the term of Yokomoto's employment with the Company under the
Employment Agreement; provided, however, that in the case of the Company's
termination of Yokomoto's employment other than for "Cause" (as defined in the
Employment Agreement), the "Noncompetition Expiration Date" shall mean the
effective date of the termination of Yokomoto's employment.
4. Nonsolicitation. In recognition of the considerations described herein,
Yokomoto agrees that for so long as Yokomoto is employed by the Company, and
until the "Nonsolicitation Expiration Date" (as defined below), Yokomoto shall
not, directly or indirectly:
(a) contact or solicit, or attempt to contact or solicit, for Yokomoto's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity that was a client or customer of the Company or any
Subsidiary within the six (6)-month period preceding the effective date of the
termination of Yokomoto's employment;
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<PAGE> 3
(b) contact or solicit, or attempt to contact or solicit, for Yokomoto's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity that has been contacted, orally or in writing, by the
Company or any affiliated entity of the Company as a potential customer or
client within the six (6)-month period preceding the effective date of the
termination of Yokomoto's employment; or
(c) hire, subcontract, employ or engage, or contact or solicit, or attempt
to contact or solicit, for the purpose of hiring, contracting, employing or
engaging, for Yokomoto`s own account or any account other than that of the
Company or any Subsidiary, any person or entity (other than Yokomoto's personal
assistant) who was an employee or exclusive subcontractor of the Company or any
affiliated entity of the Company at any time during the six (6)-month period
preceding the effective date of the termination of Yokomoto's employment.
For purposes of this Section 4, the "Nonsolicitation Expiration Date" shall mean
the date one (1) year following the expiration of the full duration of the then
current period of the term of Yokomoto's employment with the Company under the
Employment Agreement.
6. Drag Along Obligation. If the Founders find a third party buyer for all or
any portion of their Units (whether such sale is by way of purchase of assets or
Units, merger, recapitalization or other form of transaction), then, at the
request of the Founders, Yokomoto shall sell the same percentage of the Units
then held by him to such third party on the same terms and conditions as apply
to the sale by the Founders. Yokomoto agrees timely to take such other actions
as the Founders may reasonably request in connection with the approval of the
consummation of such sale, including, without limitation, voting all Units in
favor of such sale and waiving any dissenters' rights, executing such
agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary or desirable to consummate such sale, and, in
the event that such sale is structured as a recapitalization, transferring and
retaining such percentages of Units as may be requested by the Founders. The
foregoing obligation shall survive the Company's initial public offering.
7. Investment Representations.
(a) The Company represents and warrants to Yokomoto that the issuance of
the Issued Units has been duly and validly authorized and will not violate the
terms of any agreement to which the Company is a party.
(b) Yokomoto represents and warrants to the Company as follows:
(i) Yokomoto is acquiring the Issued Units for Yokomoto's own
account and not with a view to or for sale in connection with any distribution
thereof.
(ii) Yokomoto (A) is familiar with the business of the Company, (B)
has had an opportunity to discuss with representatives of the Company the
condition of and prospects for the continued operation and financing of the
Company and such other matters as Yokomoto has deemed appropriate in considering
whether to invest in the Issued Units, and (C) has been provided access to all
available information about the Company requested by Yokomoto.
(iii) Yokomoto understands that the Issued Units have not been
registered under the Securities Act of 1933 (the "Act") or registered or
qualified under the securities laws of any state and that Yokomoto may not sell,
assign, dispose, or otherwise transfer the Issued
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<PAGE> 4
Units unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption from
such registration and qualification is available.
(iv) Yokomoto has the right to enter into this Agreement and to
grant the rights granted by him herein.
(v) The provisions of this Agreement do not violate any other
contracts or agreements to which Yokomoto is a party and that would adversely
affect his ability to perform his obligations hereunder.
8. Condition Precedent to Issuance. The issuance of the Issued Units shall not
be effective until Yokomoto shall have agreed to be bound by the terms of the
Operating Agreement.
9. Covenants Reasonable as to Time and Territory. Yokomoto and the Company have
considered carefully the nature and extent of the restrictions set forth in this
Agreement and the rights and remedies conferred upon the Company under this
Agreement, and hereby acknowledge and agree that (i) the same are reasonable in
time and territory (ii) and that the consideration provided to Yokomoto
hereunder is sufficient to compensate Yokomoto for the restrictions contained in
this Agreement.
10. Remedies. Any material breach, violation or evasion by Employee of the terms
of this Agreement, including specifically, but not limited to, Sections 3 and 4
above, would result in immediate and irreparable injury and harm to the Company,
and would cause damage to the Company in amounts difficult to ascertain and for
which Company's remedies and defenses at law would be inadequate. Accordingly,
in the event of any such breach or threatened breach, the Company shall be
entitled to, and Employee hereby consents to the entry of, the remedies or
injunction and specific performance, or either of such remedies, as well as all
other remedies to which the Company may be entitled, at law, in equity or
otherwise.
11. Entire Agreement. This Agreement, the Employment Agreement and the Operating
Agreement together constitute the entire agreement and understanding among the
parties pertaining to the subject matter hereof and supersede any and all prior
agreements, whether written or oral, relating thereto.
12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
choice of laws) of the State of California.
13. Costs. If either party brings any legal action against the other to enforce
its rights under this Agreement, the prevailing party in such dispute shall be
entitled to recover from the other party all reasonable fees, costs and expenses
actually incurred in enforcing its rights under this Agreement including,
without limitation, the reasonable fees and expenses of attorneys, accountants
and expert witnesses, which shall include, without limitation, all fees, costs
and expenses of appeals and of enforcement.
14. Amendments. This Agreement may be amended only by a written agreement
executed by all of the parties hereto.
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15. Assignment. This Agreement and the rights and obligations of the Company and
Yokomoto hereunder are not assignable without the written consent of the other
party.
16. Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above-written.
"YOKOMOTO" "COMPANY"
/s/ Keith Yokomoto ARTISTdirect, LLC
- ------------------------------
Keith Yokomoto
By: /s/ Marc Geiger
--------------------------------
Marc Geiger
Its: Member
By: /s/ Donald Muller
--------------------------------
Donald Muller
Its: Member
5
<PAGE> 1
EXHIBIT 10.14
ISSUANCE AGREEMENT
This ISSUANCE AGREEMENT (this "Agreement") is made as of January 1,
1998 (the "Effective Date") by and among ARTISTdirect, LLC, a California limited
liability company (the "Company"), Marc Geiger, an individual ("Geiger"), Donald
Muller ("Muller") and L&G Associates, a California general partnership ("L&G").
Any capitalized term used but not defined herein shall have the meaning ascribed
to it in that certain Operating Agreement of the Company dated as of September
1, 1996 (the "Operating Agreement").
R E C I T A L S
WHEREAS, Geiger and Muller are the sole Members of the Company;
WHEREAS, L&G is a provider of consulting services to the Company and
its affiliates, including, without limitation, Geiger and Muller;
WHEREAS, to compensate L&G for the services rendered and to be rendered
to the Company and its affiliates, the Company wishes to issue to L&G 34,482.76
Units (the "Issued Units"), representing a 3.03% Percentage as of the Effective
Date, and L&G wishes to be issued the Issued Units, pursuant to the terms
hereof;
WHEREAS, the Company, Geiger and Muller wish for Geiger to bear the
dilution suffered as a result of the issuance of 11,494.25 of the Issued Units
to L&G (the "Assigned Units");
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby expressly acknowledged, the parties hereto hereby
agree as follows:
A G R E E M E N T
1. Contribution of Units Held by Geiger. As of the Effective Date, Geiger shall
contribute 11,494.25 of the Units held by Geiger to the Company. Accordingly,
immediately after such contribution, there shall be 11,494.25 fewer Units
outstanding.
2. Issuance of the Issued Units. As of the Effective Date, effective immediately
following the contribution described in Section 1 above, the Company shall issue
the Issued Units to L&G, subject to the conditions and restrictions contained in
this Agreement. L&G shall be considered a Member of the Company as of the
Effective Date. The Issued Units shall entitle L&G to a share of the profits and
losses of the Company after the Effective Date, and all distributions made with
respect thereto, but shall not entitle L&G to any interest in the capital of the
Company as of the Effective Date, which capital L&G and the Company hereby agree
has a fair market value equal to One Million Nine Hundred Eighty Thousand
Dollars ($1,980,000) as of the Effective Date.
3. Antidilution Protection. The Percentage represented by the Issued Units shall
not be diluted below 3% with respect to: (a) any issuance of Units by the
Company to the person hired to serve as the chief financial officer of the
Company; (b) any issuance of Units by the Company to the person hired to serve
as president of The Ultimate Band List, LLC (the "UBL"); or (c) the first Five
Million Dollars ($5,000,000) of additional capital contributions made following
the Effective Date to the Company or any of its subsidiaries, including, without
limitation, the UBL; provided that such additional capital contributions (other
than by Intel Corporation) are made either (i) based upon a valuation of the
applicable entity that is no less than the valuation upon which any prior
capital contribution was made, or (ii) pursuant to the exercise of an option
<PAGE> 2
or warrant the exercise price of which on the date of grant was not based upon a
valuation of the applicable entity that was less than the valuation upon which
any capital contribution prior to the date of the grant was made.
4. Drag Along Obligation. If the Founders find a third party buyer for all or
any portion of their Units (whether such sale is by way of purchase of assets or
Units, merger, recapitalization or other form of transaction), then, at the
request of the Founders, L&G shall sell the same percentage of the Units then
held by it to such third party on the same terms and conditions as apply to the
sale by the Founders. L&G agrees timely to take such other actions as the
Founders may reasonably request in connection with the approval of the
consummation of such sale, including, without limitation, voting all Units in
favor of such sale and waiving any dissenters' rights, executing such
agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary or desirable to consummate such sale, and, in
the event that such sale is structured as a recapitalization, transferring and
retaining such percentages of Units as may be requested by the Founders. The
foregoing obligation shall survive the Company's initial public offering.
5. Investment Representations.
(a) The Company represents and warrants to L&G that the issuance of the
Issued Units has been duly and validly authorized and will not violate the terms
of any agreement to which the Company is a party.
(b) L&G represents and warrants to the Company as follows:
(i) L&G is acquiring the Issued Units for L&G's own account and not
with a view to or for sale in connection with any distribution thereof.
(ii) L&G (A) is familiar with the business of the Company, (B) has
had an opportunity to discuss with representatives of the Company the condition
of and prospects for the continued operation and financing of the Company and
such other matters as L&G has deemed appropriate in considering whether to
invest in the Issued Units, and (C) has been provided access to all available
information about the Company requested by L&G.
(iii) L&G understands that the Issued Units have not been
registered under the Securities Act of 1933 (the "Act") or registered or
qualified under the securities laws of any state and that L&G may not sell,
assign, dispose, or otherwise transfer the Issued Units or the Assigned Units
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption from
such registration and qualification is available.
(iv) L&G has the right to enter into this Agreement and to grant
the rights granted by L&G herein.
6. Condition Precedent to Issuance. The issuance of the Issued Units shall not
be effective until L&G shall have agreed to be bound by the terms of the
Operating Agreement.
7. Entire Agreement. This Agreement and the Operating Agreement together
constitute the entire agreement and understanding among the parties pertaining
to the subject matter hereof and supersede any and all prior agreements, whether
written or oral, relating thereto.
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8. Governing Law. This Agreement shall be governed by and construed and enforced
in accordance with the internal substantive laws (and not the laws of choice of
laws) of the State of California.
9. Costs. If either party brings any legal action against the other to enforce
its rights under this Agreement, the prevailing party in such dispute shall be
entitled to recover from the other party all reasonable fees, costs and expenses
actually incurred in enforcing its rights under this Agreement including,
without limitation, the reasonable fees and expenses of attorneys, accountants
and expert witnesses, which shall include, without limitation, all fees, costs
and expenses of appeals and of enforcement.
10. Amendments. This Agreement may be amended only by a written agreement
executed by all of the parties hereto.
11. Governing Law. This Agreement shall be interpreted, construed and governed
by the laws of the State of California, excluding its laws and principles
relating to the conflict of laws.
12. Assignment. This Agreement and the rights and obligations of the Company and
L&G hereunder are not assignable without the written consent of the other
parties.
13. Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be an original, but all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above-written.
"L&G" "COMPANY"
L&G Associates ARTISTdirect, LLC
By: /s/ Allen D. Lenard By: /s/ Marc Geiger
--------------------------- ---------------------------
Allen D. Lenard Marc Geiger
Its: Member
"GEIGER"
/s/ Marc Geiger By: /s/ Donald Muller
- ------------------------------- ---------------------------
Marc Geiger Donald Muller
Its: Member
"MULLER"
/s/ Donald Muller
- -------------------------------
Donald Muller
<PAGE> 1
EXHIBIT 10.15
ISSUANCE, NONCOMPETITION AND NONSOLICITATION AGREEMENT
This ISSUANCE, NONCOMPETITION AND NONSOLICITATION AGREEMENT (this
"Agreement") is made as of June 30, 1998 (the "Effective Date") between
ARTISTdirect, LLC, a California limited liability company (the "Company"), and
Steve Rennie ("Rennie"). Any capitalized term used but not defined herein shall
have the meaning ascribed to it in that certain Operating Agreement of the
Company dated as of September 1, 1996, as amended (the "Operating Agreement").
R E C I T A L S
WHEREAS, Rennie is an employee of The Ultimate Band List, LLC, an
indirect subsidiary of the Company (the "UBL"), pursuant to an employment
agreement dated as of April 1, 1998 (the "Employment Agreement");
WHEREAS, as partial compensation for the services rendered and to be
rendered by Rennie pursuant to the Employment Agreement, the Company wishes to
issue to Rennie 45,977.01 Units (the "Issued Units"), representing a 4.04%
Percentage as of the Effective Date, and Rennie wishes to be issued the Issued
Units, pursuant to the terms hereof;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby expressly acknowledged, the Company and Rennie
hereby agree as follows:
A G R E E M E N T
1. Issuance of the Issued Units. The Company hereby issues the Issued Units to
Rennie, subject to the conditions and restrictions contained in this Agreement.
Rennie shall be considered a Member of the Company as of the Effective Date. The
Issued Units shall entitle Rennie to a share of the profits and losses of the
Company after the Effective Date, and all distributions made with respect
thereto, but shall not entitle Rennie to any interest in the capital of the
Company as of the Effective Date, which capital Rennie and the Company hereby
agree has a fair market value equal to Twelve Million, Two Hundred Twenty-six
Thousand Five Hundred Dollars ($12,226,500) as of the Effective Date.
2. Antidilution Protection. The Percentage represented by the Issued Units shall
not be diluted below 4% with respect to: (a) any issuance of Units by the
Company to the person hired to serve as the chief financial officer of the
Company; or (b) the first Five Million Dollars ($5,000,000) of additional
capital contributions made following the Effective Date to the Company or any of
its subsidiaries, including, without limitation, the UBL; provided that such
additional capital contributions (other than by Intel Corporation) are made
either (i) based upon a valuation of the applicable entity that is no less than
the valuation upon which any prior capital contribution was made, or (ii)
pursuant to the exercise of an option or warrant the exercise price of which on
the date of grant was not based upon a valuation of the applicable entity that
was less than the valuation upon which any capital contribution prior to the
date of the grant was made.
<PAGE> 2
3. Noncompetition. In recognition of the considerations described herein, Rennie
agrees that for so long as Rennie is employed by the UBL, and until the
"Noncompetition Expiration Date" (as defined below), Rennie shall not, directly
or indirectly:
(a) enter into the employ of, or render any services to, any person,
firm or business entity engaged in any "Competitive Business," which shall mean
any Internet business that at that time is competitive with the business of the
UBL or any of its subsidiaries (each, a "Subsidiary"), and which shall include,
without limitation, any internet business that, anywhere in the world: (i)
operates a meta-music index or search engine on the World Wide Web; or (ii)
sells or offers to sell through a World Wide Web site music-related products or
services, including, without limitation, any devices or other means, whether
utilizing technology existing as of the date hereof or devised hereafter, on or
by which sound may be recorded, transmitted or reproduced, with or without a
visual reproduction, primarily for home and/or consumer use, including, without
limitation, analog disc records, analog tape cassettes, compact discs,
mini-discs, digital audio tapes, video cassettes, laser discs, and downloading
via the Internet;
(b) engage in any Competitive Business for Rennie's own account;
(c) become interested in any Competitive Business as an individual,
partner, shareholder (other than as described below), creditor, director,
officer, principal, agent, employee, trustee, consultant, advisor, franchisee or
in any other relationship or capacity; or
(d) authorize his name or reputation to be used by any Competitive
Business; provided, however, that nothing contained in this Section 3 shall be
deemed to prohibit Rennie from acquiring or holding, solely for investment,
publicly traded securities of any corporation some of the activities of which
are competitive with the business of the Company so long as such securities, in
the aggregate, constitute less than five percent (5%) of any class or series of
outstanding securities of such corporation. Notwithstanding anything to the
contrary contained herein, the prohibition contained in Section 3(a) above shall
not apply if the function performed by Rennie does not substantially and
directly involve the development, maintenance or operation of a Competitive
Business. For purposes of this Section 3, the "Noncompetition Expiration Date"
shall mean March 31, 2001; provided, however, that in the case of the UBL's
termination of Rennie's employment other than for "Cause" (as defined in the
Employment Agreement), the "Noncompetition Expiration Date" shall mean the
effective date of the termination of Rennie's employment.
4. Nonsolicitation. In recognition of the considerations described herein,
Rennie agrees that for so long as Rennie is employed by the UBL, and until the
"Nonsolicitation Expiration Date" (as defined below), Rennie shall not, directly
or indirectly:
(a) contact or solicit, or attempt to contact or solicit, for Rennie's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity that was a client or customer of the Company or any
Subsidiary within the six (6)-month period preceding the effective date of the
termination of Rennie's employment;
(b) contact or solicit, or attempt to contact or solicit, for Rennie's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity that has been contacted, orally or in writing, by the
Company or any affiliated entity of the Company
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<PAGE> 3
as a potential customer or client within the six (6)-month period preceding the
effective date of the termination of Rennie's employment; or
(c) hire, subcontract, employ or engage, or contact or solicit, or
attempt to contact or solicit, for the purpose of hiring, contracting, employing
or engaging, for Rennie's own account or any account other than that of the
Company or any Subsidiary, any person or entity (other than Rennie's personal
assistant) who was an employee or exclusive subcontractor of the Company or any
affiliated entity of the Company at any time during the six (6)-month period
preceding the effective date of the termination of Rennie's employment.
For purposes of this Section 4, the "Nonsolicitation Expiration Date" shall mean
March 31, 2002.
5. Possible Divestiture of the Issued Units. The Issued Units shall be subject
to divestiture in accordance with the following terms and conditions:
(a) 100% of the Issued Units shall be subject to divestiture if
Rennie's employment is terminated prior to March 31, 1999 by the UBL for "Cause"
(as defined in the Employment Agreement) or by Rennie (any such termination, a
"Covered Termination").
(b) 50% of the Issued Units shall be subject to divestiture upon the
occurrence of a Covered Termination prior to the earlier of (i) March 31, 2000
or (ii) UBL's having received, during any twelve (12)-month period, Five Million
Dollars ($5,000,000) or more in gross revenues (excluding sales taxes and credit
card fees) in respect of sales of product through or in connection with its
Internet web site located at www.ubl.com.
Any divestiture of the Issued Units contemplated above shall occur automatically
upon the occurrence of a Covered Termination, and the effectiveness of such
divestiture shall not depend upon any further action by either the Company or
Rennie. Rennie agrees to execute any and all documents reasonably requested by
the Company to evidence such divestiture. Such divestiture shall be made without
any payment whatsoever to Rennie, and shall be effective for all purposes from
the date of the event giving rise to such divestiture. In no event shall such
divestiture be deemed a "forfeiture," but rather the possibility of such
divestiture is part of the bargained-for consideration to the Company in
entering into this Agreement and to the UBL in entering into the Employment
Agreement; it being understood and acknowledged that Rennie's satisfactory
performance of services pursuant to, and for the term of, the Employment
Agreement is the consideration to be provided by Rennie to the Company for the
Issued Units.
6. Call Option upon Termination.
(a) In the event of a Covered Termination prior to March 31, 2001, the
UBL shall notify Marc Geiger and Donald Muller (the "Founders"), the Company and
each "Other Member" (as defined below) of such termination within thirty (30)
days. The Founders shall each have the right, but not the obligation (a "Founder
Right"), to purchase one half of all of the Units held by Rennie (the "Subject
Units") at the price and on the terms specified in this Section 6. Within sixty
(60) days after the date of such termination, each Founder shall notify Rennie,
the Company and all Other Members whether and to what extent such Founder
intends to exercise his Founder Right (a "Founder Notice"). If either Founder
fails to exercise his Founder Right as to all of his one-half share of the
Subject Units, then the other Founder shall have the
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<PAGE> 4
right to purchase the Subject Units that such other Founder has elected not to
purchase by amending his Founder Notice within five (5) days after the date that
he receives notice that the other Founder has so declined to exercise his
Founder Right in full. Failure to deliver a Founder Notice within the applicable
periods shall constitute a waiver of the applicable Founder Right.
(b) In the event that the Founders do not exercise the Founder Rights
as to all of the Subject Units, the Company, to the extent permitted by law,
shall have the right, but not the obligation (the "Company Right"), to purchase
all of the Subject Units that the Founders did not elect to purchase, at the
same price and on the terms that the Founders could have purchased such Subject
Units pursuant to Section 6(a), by notifying Rennie, the Founders and all Other
Members in writing (the "Company Notice") within thirty (30) days after the date
of the last timely Founder Notice, including any timely amendment thereto (or,
if there should be no such notice, then within ninety (90) days after the date
of termination), whether and to what extent the Company intends to exercise the
Company Right (the "Company Notice"). Failure to deliver the Company Notice
within such period shall constitute a waiver of the Company Right.
(c) In the event that the Founders and the Company do not exercise the
Founder Rights and the Company Right as to all of the Subject Units, each other
Member designated from time to time by Company, in its sole discretion (an
"Other Member"), shall have the right, but not the obligation (the "Other Member
Right"), to purchase such Other Member's pro rata share of all of the Subject
Units that neither the Founders nor the Company elected to purchase, at the same
price and on the terms that the Founders could have purchased such Subject Units
pursuant to Section 6(a) above, by notifying Rennie, the Founders, the Company
and the Other Members in writing (the "Other Member Notice") within thirty (30)
days after the date of the Company Notice (or, if there should be no such
notice, then within one hundred twenty (120) days after the date of
termination), whether and to what extent such Other Member intends to exercise
the Other Member Right. For purposes of this Section 6(c), "pro rata share"
shall mean the product obtained by multiplying (i) the unpurchased portion by
(ii) a fraction, the numerator of which is the applicable Other Member's
Percentage and the denominator of which is the aggregate of all Other Members'
Percentages who did elect to purchase a portion of the Subject Units. If any
Other Member fails to exercise the Other Member Right as to all of its pro rata
share of the Subject Units, then any of the Other Members shall have the right
to purchase the Subject Units that such Other Member has elected not to purchase
by amending its respective Other Member Notice within five (5) days after the
date that it receives notice that any Other Member has so declined to exercise
the Other Member Right in full. Failure to deliver the Other Member Notice
within the applicable periods shall constitute a waiver of such Other Member's
purchase right as to the Subject Units.
(d) The price for the Subject Units to be purchased pursuant to this
Section 6 shall be their "Fair Market Value" as of the effective date of the
termination of Rennie's employment, which shall mean the value that would be
obtained in an arm's length transaction for ownership of the Subject Units for
cash between an informed and willing seller and an informed and willing
purchaser, each with an adequate understanding of the facts and under no
compulsion to buy or sell. The Fair Market Value of the Subject Units shall be
determined by an independent appraiser mutually approved by the Company and
Rennie. If the Company and Rennie are unable to agree upon a single appraiser,
they shall each select an appraiser. If one appraisal is less than (or equal to)
ten percent (10%) higher than the other appraisal, the Fair Market Value shall
be the average of each of the appraisals. If one appraisal is more than ten
percent (10%) higher than the other appraisal, those two appraisers shall
appoint a third appraiser, and the Fair Market Value shall be equal to the value
determined by the third appraiser. The fees of all
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<PAGE> 5
such appraisers shall be borne by the Company. The Company and Rennie shall use
sound business practice to ensure that the fees of any appraiser to be retained
are appropriate and competitively priced. The Purchase Price shall be paid in
cash, in immediately available funds, or such other consideration as Rennie and
the applicable purchaser(s) may agree.
(e) If the Founders, the Company and/or the Other Members shall not
purchase all of the Subject Units, this Section 6 shall not apply. Unless Rennie
and the applicable Founder(s), the Company and/or the Other Members, as the case
may be, agree otherwise, the closing for any purchase of the Subject Units by
the Founder(s), the Company and/or any Other Members pursuant to this Section 6
shall occur no later than the one hundred eightieth (180th) day after the date
of the date of the termination of Rennie's employment, or the Founder Rights,
the Company Right and any Other Member Right shall each be deemed to have
expired.
(f) The call option set forth in this Section 6 does not apply in
connection with, and terminates upon the occurrence of, the Company's initial
public offering.
7. Drag Along Obligation. If the Founders find a third party buyer for all or
any portion of their Units (whether such sale is by way of purchase of assets or
Units, merger, recapitalization or other form of transaction), then, at the
request of the Founders, Rennie shall sell the same percentage of the Units then
held by him to such third party on the same terms and conditions as apply to the
sale by the Founders. Rennie agrees timely to take such other actions as the
Founders may reasonably request in connection with the approval of the
consummation of such sale, including, without limitation, voting all Units in
favor of such sale and waiving any dissenters' rights, executing such
agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary or desirable to consummate such sale, and, in
the event that such sale is structured as a recapitalization, transferring and
retaining such percentages of Units as may be requested by the Founders. The
foregoing obligation shall survive the Company's initial public offering.
8. Investment Representations.
(a) The Company represents and warrants to Rennie that the issuance of
the Issued Units has been duly and validly authorized and will not violate the
terms of any agreement to which the Company is a party.
(b) Rennie represents and warrants to the Company as follows:
(i) Rennie is acquiring the Issued Units for Rennie's own account
and not with a view to or for sale in connection with any distribution thereof.
(ii) Rennie (A) is familiar with the business of the Company, (B)
has had an opportunity to discuss with representatives of the Company the
condition of and prospects for the continued operation and financing of the
Company and such other matters as Rennie has deemed appropriate in considering
whether to invest in the Issued Units, and (C) has been provided access to all
available information about the Company requested by Rennie.
(iii) Rennie understands that the Issued Units have not been
registered under the Securities Act of 1933 (the "Act") or registered or
qualified under the securities laws of any state and that Rennie may not sell,
assign, dispose, or otherwise transfer the Issued Units unless they are
subsequently registered under the Act and registered or qualified under
5
<PAGE> 6
applicable state securities laws, or unless an exemption from such registration
and qualification is available.
(iv) Rennie has the right to enter into this Agreement and to grant
the rights granted by him herein.
(v) The provisions of this Agreement do not violate any other
contracts or agreements to which Rennie is a party and that would adversely
affect his ability to perform his obligations hereunder.
9. Condition Precedent to Issuance. The issuance of the Issued Units shall not
be effective until Rennie shall have agreed to be bound by the terms of the
Operating Agreement.
10. Covenants Reasonable as to Time and Territory. Rennie and the Company have
considered carefully the nature and extent of the restrictions set forth in this
Agreement and the rights and remedies conferred upon the Company under this
Agreement, and hereby acknowledge and agree that (i) the same are reasonable in
time and territory (ii) and that the consideration provided to Rennie hereunder
is sufficient to compensate Rennie for the restrictions contained in this
Agreement.
11. Remedies. Any material breach, violation or evasion by Employee of the terms
of this Agreement, including specifically, but not limited to, Sections 3 and 4
above, would result in immediate and irreparable injury and harm to the Company,
and would cause damage to the Company in amounts difficult to ascertain and for
which Company's remedies and defenses at law would be inadequate. Accordingly,
in the event of any such breach or threatened breach, the Company shall be
entitled to, and Employee hereby consents to the entry of, the remedies or
injunction and specific performance, or either of such remedies, as well as all
other remedies to which the Company may be entitled, at law, in equity or
otherwise.
12. Entire Agreement. This Agreement, the Employment Agreement and the Operating
Agreement together constitute the entire agreement and understanding among the
parties pertaining to the subject matter hereof and supersede any and all prior
agreements, whether written or oral, relating thereto.
13. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
choice of laws) of the State of California.
14. Costs. If either party brings any legal action against the other to enforce
its rights under this Agreement, the prevailing party in such dispute shall be
entitled to recover from the other party all reasonable fees, costs and expenses
actually incurred in enforcing its rights under this Agreement including,
without limitation, the reasonable fees and expenses of attorneys, accountants
and expert witnesses, which shall include, without limitation, all fees, costs
and expenses of appeals and of enforcement.
15. Amendments. This Agreement may be amended only by a written agreement
executed by all of the parties hereto.
16. Assignment. This Agreement and the rights and obligations of the Company and
Rennie hereunder are not assignable without the written consent of the other
party.
6
<PAGE> 7
17. Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above-written.
"RENNIE" "COMPANY"
ARTISTdirect, LLC
/s/ Steve Rennie By: /s/ Marc Geiger
- ------------------------------- ---------------------------
Steve Rennie Marc Geiger
Its: Member
By: /s/ Donald Miller
---------------------------
Donald Muller
Its: Member
7
<PAGE> 1
EXHIBIT 10.16
Deferred Compensation Agreement
This Agreement is made as of the 1st day of April, 1998 between ArtistDirect,
LLC, a California limited liability company (the "Company") and Keith Yokomoto
("Employee").
WHEREAS, the Company is operated under the terms and provisions of its
Operating Agreement (the "Operating Agreement"), as the same may be modified or
amended by its Members (the "Members") in accordance therewith;
WHEREAS, the Company believes that the services of Employee will be
instrumental in stabilizing and increasing the value of the Company;
WHEREAS, the Company believes that in order to induce Employee to
continue to provide services to the Company, additional variable compensation is
necessary;
WHEREAS, the Company desires to make a special one-time payment to
Employee of this additional variable compensation (the "Compensation") in the
amount, at the time, and upon the terms and conditions set forth in this
Agreement for the services of Employee to the Company and to defer the payment
of such amount as described herein; and
WHEREAS, certain Members are willing to have their capital account (the
"Capital Account") determined under the Operating Agreement charged with the
payment of the Compensation.
1.
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
1. (a) Subject to the provisions of this Agreement, the amount of
the Compensation to be paid hereunder shall be equal to the product of (i) a
fraction, the numerator of which is the Fair Market Value (as defined below) of
the Company on the applicable Payment Date (as defined below) and the
denominator of which is $1,980,000 and (ii) $200,000; provided, however, that
the amount of the Compensation shall not exceed $200,000.
(b) "Fair Market Value" means the value that would be obtained
for the assets of the Company, taking into account all liabilities and
restrictions against those assets, if those assets were available for sale on
the open market in an arm's length transaction for cash between an informed and
willing seller and an informed and willing purchaser, each with an adequate
understanding of the facts and under no compulsion to buy or sell. For purposes
hereof, Fair Market Value shall be determined as of the applicable Payment Date
(as defined below) by the Company, acting in good faith, taking into account all
relevant facts and circumstances, including any current appraisals. Fair Market
Value shall not give effect to the Compensation due hereunder or under other
similar agreements with Employees. Notwithstanding anything to the contrary
herein, upon the occurrence of a Capital Event (as defined below) with respect
to all or a portion of the assets of the Company, Fair Market Value shall not
exceed the amount of proceeds received by the Company from such Capital Event
(including the amount of any assumed liabilities) less a proportionate share of
the unassumed liabilities of the Company.
2.
<PAGE> 3
2. The payment to Employee of the Compensation shall be made upon the
first to occur of the following events (the "Payment Date");
(a) Sale or redemption of Employee's entire membership interest
in the Company; provided that in the event of a sale or other disposition to a
party other than the Company (including a disposition to a corporation formed to
operate the business of the Company), Employee may sell or dispose of a
membership interest in the Company which includes a right, under the Operating
Agreement, of the transferee to a Capital Account equal to the then fair market
value of such membership interest, if, in such sale or other disposition, the
portion of the consideration which does not represent the amount of Capital
Account of such membership interest of Employee (up to the amount of the
Compensation due hereunder) shall be deemed paid first to the Company for the
benefit of the Members agreeing herein to have their Capital Accounts charged
for the Compensation hereunder, and then next being deemed paid as the
Compensation to Employee under the terms of this Agreement;
(b) The occurrence of a Capital Event (as hereinafter defined);
or
(c) On or after the seventh anniversary of this Agreement,
provided that Employee shall request payment at such time, and the Company shall
then consent to make such payment, which consent shall be in the sole discretion
of the Company.
(d) As used herein, "Capital Event" shall mean an event giving
rise to the distribution to Members of proceeds received by the Company from the
following sources: (i) insurance proceeds or damage recoveries with respect to
the damage of destruction or
3.
<PAGE> 4
condemnation of all or substantially all of the assets of the Company; (ii)
financing or refinancing proceeds for any indebtedness secured by any assets of
the Company; or (iii) proceeds from the sale or any exchange, transfer,
assignment or other disposition of all or substantially all of the assets of the
Company.
3. In the event that payment of the Compensation is made pursuant to
Section 2(b), above, but the operations of the Company continue and subsequently
there is one or more additional Capital Events, or Employee's interest is
purchased or redeemed upon one of the events specified in Section 2(a), above,
additional payments of the Compensation shall be made to Employee hereunder. The
amount to be paid shall be equal to the applicable amount of the Compensation
determined in accordance with Section 1, above, with respect to such Capital
Event, sale or redemption (determined on an event-by-event basis), but in no
case shall the total aggregate amounts received hereunder for all such events
exceed the amount of the Compensation determined under Section 1 hereof as of
the respective Payment Date:
4. (a) The deduction in determining Net Profit and Net Loss under
the Operating Agreement (as defined under such Operating Agreement) for payment
of the Compensation or deemed payment under Section 1 shall be specially
allocated to the Members set forth on the signature page hereto as agreeing to
have their Capital Accounts so charged in the amounts and percentages as
indicated.
(b) The Compensation shall be paid in cash, except other forms of
consideration may be used by the Company if such form of consideration is used
in the sale or
4.
<PAGE> 5
redemption or a Capital Event, as the case may be. All payments shall be
delivered in person or mailed to the last address of Employee (or, in the case
of the death of Employee, to that of Employee's estate or of Employee's
designated beneficiary, whichever is applicable). Employee shall be responsible
for furnishing the Company with his or her current address and that of his
beneficiary (if applicable).
(c) Notwithstanding any other provision in this Agreement to the
contrary, no payment of the Compensation shall be made if such payment would
conflict with, or result in a breach of, any terms, conditions, restrictions, or
provisions of, or would constitute a default under, any bond, note, or other
evidence of indebtedness or any contract, lease, loan agreement or other credit
agreement or instrument to which the Company is a party or by which the Company
may be bound. In addition, the Company has the right to defer the date on which
any amount is payable or to modify the time or manner of the payment of the
amount as it deems necessary because of its operations (e.g., cash flow needs),
provided that any such determination shall be made in good faith by the Company.
(d) Any amount of the Compensation payable under this Agreement
shall not be deemed salary or other compensation to Employee for the purpose of
computing benefits to which Employee may be entitled under any vacation,
disability, profit sharing, pension plan or other arrangement of the Company for
the benefit of its employees.
5. In the event of Employee's death, all amounts which shall become due
hereunder to Employee shall be paid to the executors or administrators of his
estate.
5.
<PAGE> 6
6. Payments of the Compensation made or deemed made by Company
hereunder are subject to withholding or payroll taxes and to such other
deductions as shall, at the time of such payment, be required under any income
tax or other law, whether of the United States or any other jurisdiction, and
the amount of the Compensation paid shall be so reduced by such withholding,
payroll taxes or other deductions. In the case of payments to the executors or
administrators of the estate of Employee, payment of the Compensation is subject
to the delivery to the Company of all necessary tax waivers, letters
testamentary and other documents
7. Nothing contained herein shall require the Company to continue
Employee in its employ, or require Employee to continue in the employ of the
Company.
8. The sole interest of Employee hereunder shall be to receive the
benefits provided herein as and when the same shall become due and payable in
accordance with the terms hereof, and neither Employee nor the executors or
administrators of his estate shall have any right, title or interest in or to
any of the assets of the Company.
9. All amounts payable hereunder with respect to Employee shall be
unfunded deferred compensation payable, when due, solely from the general assets
of the Company and no member of the Company shall be liable for the payment
thereof. The Company shall not maintain any legally separate fund or account to
provide any benefits provided hereunder.
10. This Agreement shall inure to the benefit of, and be enforceable
only by the
6.
<PAGE> 7
parties hereto, their heirs, executors, administrators, legal representatives,
successors and permitted assigns. The rights of Employee pursuant to this
Agreement shall not be assigned, transferred, pledged or hypothecated in any way
(whether by operation of law or otherwise) and any attempted disposition
contrary to the terms hereof shall be null and void and without effect. The
Company may assign its rights, together with its obligations, hereunder in
connection with any sale, transfer or other disposition of all or a substantial
portion of the assets of the Company.
11. This Agreement shall be governed by and construed in accordance
with the laws of California.
12. No modification, amendment, extension or alleged waiver of this
Agreement or any provision thereof will be binding upon Employee or the Company
unless in writing and signed by Employee and the Company; provided that any
amendment to Section 4(a) or the signature page hereof shall require the
approval of all Members. This Agreement constitutes the entire Agreement between
Employee and the Company relating to the subject matter hereof and, except as
otherwise specifically provided herein, supersedes and replaces any and all
prior agreements and understandings, written or oral, relative to such matters.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
"EMPLOYEE"
/s/ Keith Yokomoto
----------------------------------------
Keith Yokomoto
7.
<PAGE> 8
"COMPANY"
ARTISTdirect, LLC
By: /s/ Marc P. Geiger
-----------------------------------
Marc P. Geiger
Its: Member
By: /s/ Donald P. Muller
-----------------------------------
Donald P. Muller
Its: Member
8.
<PAGE> 9
Charges to Capital Accounts of Other Members
<TABLE>
<CAPTION>
Maximum Amount Percentage of
of Compensation Compensation
Name to be Charged to be charged Accepted and Agreed
---- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Marc P. Geiger $100,000 50% /s/ Marc P. Geiger
---------------------
Marc P. Geiger
Donald P. Muller $100,000 50% /s/ Donald P. Muller
---------------------
Donald P. Muller
</TABLE>
9.
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of January 1,
1998 (the "Effective Date") and is entered into between ARTISTdirect, LLC, a
California limited liability company (the "Company") and Keith Yokomoto
("Employee").
R E C I T A L S
WHEREAS, the Company desires to employ Employee to serve the Company and
its subsidiaries and Employee desires to be so employed by the Company, on the
terms and subject to the conditions hereinafter set forth.
A G R E E M E N T
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment and Duties. Subject to the other terms and conditions set
forth herein, the Company hereby employs Employee, and Employee agrees to be
employed by the Company, as Chief Operating Officer and Vice President, Business
Development of the Company and all of its subsidiaries, including, without
limitation, The Ultimate Band List, LLC. Employee shall report to Marc Geiger,
Donald Muller, and/or such other executives of the Company and/or its
subsidiaries as the Company may designate from time to time.
2. Devotion. During the Term, Employee shall faithfully perform to the
best of his ability and in a satisfactory manner all services and acts necessary
or advisable as both (i) are consistent with his title and position and (ii) may
reasonably be assigned to him by any of the persons described in Section 1
above. In addition, during the Term, Employee shall devote his business time,
skill and energies exclusively to the business of the Company and its
subsidiaries and affiliates from time to time (the "Subsidiaries").
3. Principal Place of Employment. During the Term, Employee's place of
employment shall be at the principal offices of the Company in the Los Angeles
area; provided, however, it is agreed that Employee will be expected to travel
from time to time at the Company's expense in accordance with the provisions of
Section 6(c) below.
4. Term. The term of Employee's employment (the "Term") shall commence
on the Effective Date and continue until December 31, 2000, unless terminated
sooner as provided in Section 7 below (the "Initial Period"). The Company shall
have the option (the "First Option"), exercisable by written notice to Employee
at any time prior to the date sixty (60) days prior to the end of the Initial
Period, to extend the Term for an additional one (1) year period (the "First
Option Period"), subject to earlier termination in accordance with Section 7
below. If the Company exercises the First Option, the Company shall have an
additional option, exercisable by written notice to Employee at any time prior
to the date sixty (60) days prior to the end of the First Option Period, to
extend the Term for an additional one (1) year period (the "Second Option
Period), subject to earlier termination in accordance with Section 7 below.
<PAGE> 2
5. Compensation. For all services to be rendered by Employee hereunder,
and for all rights granted the Company hereunder, Employee shall be paid by the
Company the amounts set forth in this Section 5.
(a) Base Salary. The Company shall pay Employee a base salary at
the annual rate of: (i) ONE HUNDRED THOUSAND DOLLARS ($100,000) for the first
five (5) months of the Term, (ii) ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000)
for the balance of the first twelve (12)-month period of the Term and (iii) ONE
HUNDRED FIFTY THOUSAND DOLLARS ($150,000) for the second, third, fourth (if any)
and fifth (if any) twelve (12)-month periods of the Term, in each case prorated
for any portion thereof and payable in accordance with the Company's standard
payment schedule for employees.
(b) Guaranteed Bonuses. The Company shall pay Employee the following
guaranteed bonuses: (a) FIFTY THOUSAND DOLLARS ($50,000) for the second twelve
(12)-month period of the Term; (b) ONE HUNDRED THOUSAND DOLLARS ($100,000) for
each of the third, fourth (if any) and fifth (if any) twelve (12)-month periods
of the Term, in each case prorated for any portion thereof and payable in
arrears at the end of each three (3)-month period during the applicable twelve
(12)-month period of the Term.
Amounts payable to Employee pursuant to this Section 5 shall be subject to
required withholdings and reviewed for any increases annually by the
compensation committee of the Board of Directors of the Company (the "Company
Board") or, if none, the Company Board (the "Committee"), provided that any
adjustments shall be in the sole discretion of the Committee.
6. Employee Benefits; Reimbursement for Expenses.
(a) Employee shall be entitled to participate in such Company
retirement, profit sharing and pension plans and life and other insurance
programs, as well as other benefits programs, which are available to other
similarly situated employees of the Company, subject to the Company's policies
with respect to all of such benefits or insurance programs or plans; provided,
however, that notwithstanding anything herein to the contrary, the Company shall
not be obligated to institute or maintain any particular benefit or insurance
program or plan or aspect thereof.
(b) Employee shall be entitled to not less than three (3) weeks
vacation during each year of the Term hereof to be scheduled at mutually
agreeable times and accrued and taken in accordance with Company policy.
(c) During the Term, the Company agrees to reimburse Employee for
such reasonable, ordinary, necessary and authorized actual out-of-pocket
expenses incurred by Employee in the performing of assigned duties subject to
approval by the Company or the Company's designated agent, including but not
limited to for business-related travel, hotel, meals, telephone calls and
entertainment. As an additional condition to the reimbursement of such expenses
by the Company to Employee, Employee shall provide the Company with copies of
all available invoices and receipts, and otherwise account to the Company in
sufficient detail and with adequate documentation to allow the Company to
confirm the business nature of the expenses and claim an income tax deduction
for such paid items, if such items are deductible. The obligations of the
Company to make the reimbursements specified hereunder shall survive any
termination of the Term.
2
<PAGE> 3
7. Termination.
(a) The Company may terminate Employee's employment hereunder
after the occurrence and during the continuance of any "Disability" (as defined
below) of Employee, upon thirty (30) days' prior written notice to Employee. For
purposes of this Agreement, "Disability" means Employee's incapacity to perform
substantially all of his then current duties as required hereunder for one
hundred eighty (180) days or more within any period of three hundred sixty-five
(365) consecutive days because of mental or physical condition, illness or
injury, consistent with applicable state and federal law. In the event of any
dispute regarding the existence of Employee's Disability, the matter will be
resolved by the determination of a physician qualified to practice medicine in
the State of California, selected by the Company and reasonably approved by
Employee. For this purpose, Employee will submit to appropriate medical
examinations.
(b) The Company may terminate Employee's employment hereunder for
"Cause." For the purposes of this Agreement, "Cause" shall mean Employee shall
have (i) committed fraud, embezzlement or material dishonesty against the
Company or any of its Subsidiaries or an act of moral turpitude; (ii) engaged in
gross negligence or willful misconduct in the performance of Employee's duties
hereunder; (iii) been convicted of, or pleaded nolo contendere to, any felony;
(iv) breached any material provision hereof or failed to perform any material
duty assigned to Employee; or (v) materially misappropriated for his own purpose
and benefit any property or opportunity of the Company, or any Subsidiary or
other affiliated entity of Company. Notwithstanding anything to the contrary
contained herein, none of the foregoing events or circumstances (other than
clause (iii) above) shall constitute "Cause" for purposes of this Agreement
unless the Company gives Employee written notice delineating the claimed event
or circumstance and setting forth the Company's intention to terminate
Employee's employment if such claimed event or circumstance is not capable of
remedy or is not duly remedied within thirty (30) days following such notice, if
capable of remedy, and Employee fails to remedy such event or circumstance
within such thirty (30)-day period.
(c) The employment of Employee hereunder shall be automatically
terminated on the date of Employee's death.
(d) If Employee's employment is terminated pursuant to this
Section 7, Employee shall be entitled to, and the Company's obligation hereunder
shall be limited to, (i) the payment of the compensation (including, without
limitation, guaranteed bonus) accrued under Section 5 above to the effective
date of such termination; (ii) any approved unreimbursed expenses and other
accrued employee benefits (as described above) through the date of termination;
and (iii) the additional compensation provided in Section 7(e) below, if any.
(e) If Employee's employment is terminated:
(i) by the Company pursuant to 7(a) above, Employee will
receive the benefit of any Company disability plans; or
(ii) by the Company other than pursuant to Sections 7(a),
7(b) or 7(c) above, the Company shall continue to pay to Employee Employee's
salary in equal monthly installments, and Employee's guaranteed bonuses in equal
quarterly installments, in each case at the annualized levels being paid to
Employee pursuant to Section 5 above at the time of such termination, less
required withholdings, and for a period (the "Payment Period") equal to the
lesser of (A) twelve (12) consecutive months after the effective date of such
termination and (B) the
3
<PAGE> 4
number of months (rounded to the nearest whole number) remaining in the
applicable period of the Term (i.e., the Initial Period, the First Option Period
or the Second Option Period) during which such termination occurs. In addition,
during the Payment Period, Employee shall be entitled to continued participation
in all of the Company's employee benefit plans, including, without limitation,
continued accrual for retirement benefits and continued coverage under any
Company medical, hospitalization, or life insurance plan; provided, however,
that the Company may, at its option, in lieu of continuing Employee's
participation in any or all such benefit plans, pay Employee a lump sum equal to
the aggregate cost to the Company of Employee's participation in the benefit
plan in which Employee shall no longer participate, which lump sum shall be
calculated based upon the cost to the Company of Employee's participation in
such benefit plan immediately prior to the termination of Employee's employment.
Amounts payable by the Company pursuant to this Section 7(e)(ii) shall be
subject to Employee's duty to mitigate his damages by using reasonable efforts
to seek other comparable employment. Compensation (in whatever form) payable to
Employee on account of other employment during the unexpired Term shall reduce
Company's obligations hereunder. Employee shall promptly notify the Company of
such other employment and the terms thereof. The parties hereto agree that the
payments set forth in this Section 7(e)(ii) constitute fair compensation and the
sole remedy for damages for any termination by the Company other than pursuant
to Section 7(a), 7(b) or 7(c) above.
(f) Nothing in this Agreement shall be deemed a release or waiver
of right to any medical or other employee benefits available to Employee on or
after the effective date of termination of the executive's employment by the
Company under any federal, state or local law that provides for the continuation
of any medical or other employee benefits after employment.
8. Rights to Works. In return for the consideration described herein,
Employee agrees as follows:
(a) All programs, inventions, recordings and work product of any
nature made pursuant to this Agreement or otherwise in the course of Employee's
services and Employee's contributions thereto (hereinafter referred to as
"Works") shall belong solely and exclusively to the Company. The Company shall
have the perpetual and exclusive right to use, exhibit, distribute, or license
throughout the universe, any Work or part thereof in which Employee's services
are utilized by all forms of audio, visual, textual, digital, electronic or
other distribution that are now known or may hereafter exist, and otherwise
exploit such Works in such media, forums and for such uses throughout the
universe as it deems appropriate; provided, however, that no likeness or quote
of Employee shall be used without Employee's written consent. All revenues
derived by the Company from the use, exhibition, distribution, licensing, or
other exploitation of such Works shall be the sole and exclusive property of the
Company.
(b) To the extent that the Works are considered: (i)
contributions to collective works and/or (ii) as parts or components of
audiovisual works, the parties hereby expressly agree that the Works shall be
considered "works made for hire" under the United States Copyright Act of 1976,
as amended (17 U.S.C. Section 101 et seq.). In accordance therewith, the sole
right of copyright in and to the Works shall belong exclusively to the Company
in perpetuity. To the extent that the Works are deemed works other than
contributions to collective works and/or parts or components of audiovisual
works, Employee hereby assigns to the Company all rights, title and interest in
and to the copyrights of such Works and all renewals and extensions of the
copyrights that may be secured under the laws now or hereafter in force and
effect in the United States of America or any other country or countries. At the
Company's reasonable written request and sole expense, Employee shall execute,
verify, acknowledge, deliver and file any and all formal assignments,
4
<PAGE> 5
recordations and any and all other documents that the Company may prepare and
reasonably call for to give effect to the provisions of this Agreement. If
Employee fails to execute any such document or instrument, or perform any such
act, within ten (10) business days, Employee shall be deemed to have irrevocably
constituted and appointed the Company, with full power of substitution, to be
Employee's true and lawful attorney, in Employee's name, place, and stead, to
execute, acknowledge, swear to, and file all instruments, conveyances,
certificates, agreements, and other documents, and to take any action which may
be necessary or appropriate to effect the provisions of this Section 8. The
powers of attorney granted herein shall be deemed to be coupled with an interest
and shall be irrevocable.
(c) It is understood that the rights granted to the Company in
this Section 8 shall continue in effect after the termination or expiration of
this Agreement to the extent necessary for the Company's full enjoyment of such
rights.
(d) All provisions of this Agreement relating to the assignment
by Employee of any invention or innovation are subject to the provisions of
California Labor Code Sections 2870, 2871 and 2872. In accordance with Section
2870 of the California Labor Code, the obligation to assign as provided in this
Agreement does not apply to an invention or innovation that Employee developed
entirely on his own time without using the Company's equipment, supplies,
facilities, or trade secret information except for those inventions that either:
(i) relate to either (A) the business of the Company or any of its Subsidiaries
at the time of conception or reduction to practice of the invention, or (B)
actual or demonstrably anticipated research or development of the Company or any
of its Subsidiaries; or (ii) result from any work performed by Employee for the
Company or any of its Subsidiaries.
(e) Employee shall disclose all inventions and innovations to the
Company, even if Employee does not believe that he or she is required under this
Agreement, or pursuant to California Labor Code Section 2870, to assign his
interest in such invention or innovation to the Company. If the Company and
Employee disagree as to whether or not an invention or innovation is included
within the terms of this Agreement, it will be the responsibility of Employee to
prove that it is not included.
9. Trade Secrets. During the term of this Agreement and at all times
thereafter, Employee shall hold in secrecy all trade secrets and confidential
information relating to the Company's (and its affiliates') business and affairs
that may come to his knowledge or have come to his knowledge while employed by
the Company (excluding information that is or becomes publicly known or
available for use through no fault of Employee), including but not limited to:
(a) matters of a business nature, such as confidential information about costs,
profits, markets, sales, lists of customers, lists of clients and other
information of a similar nature, (b) confidential plans or strategies for
development of the business of the Company and (c) confidential matters of a
technical nature. Except as required in the performance of his duties to the
Company under this Agreement, Employee shall not use for his own benefit or
disclose to any person, directly or indirectly, such matters unless such use or
disclosure has been specifically authorized in writing by the Company in
advance.
10. Employee's Representations. Employee hereby represents and warrants
that: (a) he has the right to enter into this Agreement and to grant the rights
granted by him herein, (b) the provisions of this Agreement do not violate any
other contracts or agreements to which he is a party and that would adversely
affect his ability to perform his obligations hereunder, and (c) he
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will comply with all policies of the Company of which he has notice, provided
they are consistent with applicable laws.
11. The Company's Representations. The Company hereby represents and
warrants that: (a) it has the right, power and authority to enter into this
Agreement and to incur the obligations incurred by it herein, (b) this Agreement
has been duly and validly authorized by the Company, and (c) the provisions of
this Agreement do not violate any other contracts or agreements to which it is a
party that would adversely affect its ability to perform its obligations
hereunder.
12. Indemnification. The Company agrees that Employee shall be entitled
to indemnification and payment or reimbursement of expenses (including, without
limitation, attorneys' fees and expenses) to the fullest extent provided to
employees in the Company's Operating Agreement, as in effect on the date hereof,
and as it may be amended (but in no event on terms less favorable to Employee
than those in effect on the date hereof), for all damages, losses and expenses
incurred by Employee in connection with any third-party claim, action, suit or
proceeding that arises from Employee's services and/or activities (other than
Employee's gross negligence or willful misconduct) as an officer and/or employee
of the Company or any affiliate thereof. This Section 12 shall survive any
termination of the Term.
13. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
choice of laws) of the State of California.
14. Entire Agreement. This Agreement constitutes the whole agreement of
the parties hereto in reference to any employment of Employee by the Company and
in reference to the subject matter hereof, and all prior agreements, promises,
representations and understandings relative thereto are merged herein.
15. Assignability.
(a) The services to be performed by Employee hereunder are
personal in nature and, accordingly, Employee may not, without the prior consent
of the Company, assign or transfer this Agreement or any rights or obligations
hereunder.
(b) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
16. Remedies. Any material breach, violation or evasion by Employee of
the terms of this Agreement, including specifically, but not limited to,
Sections 8 and 9 above, would result in immediate and irreparable injury and
harm to the Company, and will cause damage to the Company in amounts difficult
to ascertain and for which Company's remedies and defenses at law would be
inadequate. Accordingly, in the event of any such breach or threatened breach,
the Company shall be entitled to, and Employee hereby consents to the entry of,
the remedies or injunction and specific performance, or either of such remedies,
as well as all other remedies to which the Company may be entitled, at law, in
equity or otherwise.
17. Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a
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written instrument executed by the parties hereto or, in the case of a waiver,
by the party waiving compliance. Any amendment to a material term of this
Agreement shall require the approval of the Committee. The failure of any party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
18. Notice. All notices, consents, requests and other communications
hereunder shall be in writing and, if given by personal delivery, shall be
deemed to have been validly served, given or delivered upon actual delivery and,
if mailed or delivered by overnight courier, shall be deemed to have been
validly served, given or delivered when deposited in the United States mail, as
registered or certified mail, with proper postage prepaid, or when deposited
with the courier service, and addressed to the party or parties to be notified,
at the following addresses (or such other address(es) as a party may designate
for itself by like notice):
If to Employee: Keith Yokomoto
1746 Havemeyer Lane
Redondo Beach, CA 90278
If to the Company: ARTISTdirect, LLC
17835 Ventura Blvd.
Suite 310
Encino, California 91316
With a copy to: Lenard & Gonzalez LLP
1900 Avenue of the Stars
Twenty-Fifth Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
19. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
20. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"EMPLOYEE" "COMPANY"
ARTISTdirect, LLC
/s/ Keith Yokomoto
- --------------------
Keith Yokomoto
By: /s/ Marc Geiger
---------------------
Marc Geiger
Its: Member
By: /s/ Donald Muller
---------------------
Donald Muller
Its: Member
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of April 1, 1998
(the "Effective Date") and is entered into between The Ultimate Band List, LLC,
a California limited liability company (the "Company") and Steve Rennie
("Employee").
R E C I T A L S
WHEREAS, the Company desires to employ Employee to serve the Company and
its subsidiaries and Employee desires to be so employed by the Company, on the
terms and subject to the conditions hereinafter set forth.
A G R E E M E N T
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment and Duties. Subject to the other terms and conditions set forth
herein, the Company hereby employs Employee, and Employee agrees to be employed
by the Company, as the President of the Company. Employee shall report to Marc
Geiger, Donald Muller, and/or such other executives of the Company or
ARTISTdirect New Media, LLC, the Manager of the Company ("ADNM") as the Company
may designate from time to time. Subject to supervision by such persons,
Employee shall have responsibility over the day-to-day operations of the
Company.
2. Devotion.
(a) Subject to the terms of Section 2(b) below, during the Term, Employee
shall faithfully perform to the best of his ability and in a satisfactory manner
all services and acts necessary or advisable as both (i) are consistent with his
title and position and (ii) may reasonably be assigned to him by any of the
persons described in Section 1 above. In addition, during the Term, Employee
shall devote his business time, skill and energies exclusively to the business
of the Company and its subsidiaries and affiliates from time to time (the
"Subsidiaries").
(b) Provided his so doing does not materially interfere with the
fulfillment of Employee's obligations to Company under this Agreement, Employee
shall be entitled to spend a reasonable amount of time co-managing the recording
artist professionally known as "Incubus." Employee shall be entitled to retain
for his own account the proceeds earned by Employee from such co-management.
3. Principal Place of Employment. During the Term, Employee's place of
employment shall be at the principal offices of the Company in the Los Angeles
area; provided, however, it is agreed that Employee will be expected to travel
from time to time at the Company's expense in accordance with the provisions of
Section 6(c) below.
4. Term. The term of Employee's employment (the "Term") shall commence on the
Effective Date and continue until March 31, 2001, unless terminated sooner in
accordance with Section 7 below.
<PAGE> 2
5. Compensation. For all services to be rendered by Employee hereunder, and for
all rights granted the Company hereunder, Employee shall be paid by the Company
the amounts set forth in this Section 5.
(a) Base Salary. The Company shall pay Employee a base salary at the
annual rate of: (a) ONE HUNDRED THOUSAND DOLLARS ($100,000) for the first twelve
(12)-month period of the Term; (b) ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000)
for the second and third twelve (12)-month periods of the Term, in each case
prorated for any portion thereof and payable in accordance with the Company's
standard payment schedule for employees.
(b) Guaranteed Bonuses. The Company shall pay Employee the following
guaranteed bonuses: (a) FIFTY THOUSAND DOLLARS ($50,000) for the second twelve
(12)-month period of the Term; and (b) ONE HUNDRED THOUSAND DOLLARS ($100,000)
for the third (12)-month period of the Term, in each case prorated for any
portion thereof and payable in arrears at the end of each three (3)-month period
during the applicable twelve (12)-month period of the Term.
Amounts payable to Employee pursuant to this Section 5 shall be subject
to required withholdings and reviewed for any increases annually by the Company,
provided that any adjustments shall be in the sole discretion of the Company.
6. Employee Benefits; Reimbursement for Expenses.
(a) Employee shall be entitled to participate in such Company
retirement, profit sharing and pension plans and life and other insurance
programs, as well as other benefits programs, which are available to other
similarly situated employees of the Company, subject to the Company's policies
with respect to all of such benefits or insurance programs or plans; provided,
however, that notwithstanding anything herein to the contrary, the Company shall
not be obligated to institute or maintain any particular benefit or insurance
program or plan or aspect thereof.
(b) Employee shall be entitled to not less than three (3) weeks vacation
during each year of the Term hereof to be scheduled at mutually agreeable times
and accrued and taken in accordance with Company policy.
(c) During the Term, the Company agrees to reimburse Employee for such
reasonable, ordinary, necessary and authorized actual out-of-pocket expenses
incurred by Employee in the performing of assigned duties subject to approval by
the Company or the Company's designated agent, including but not limited to for
business-related travel, hotel, meals, telephone calls and entertainment. As an
additional condition to the reimbursement of such expenses by the Company to
Employee, Employee shall provide the Company with copies of all available
invoices and receipts, and otherwise account to the Company in sufficient detail
and with adequate documentation to allow the Company to confirm the business
nature of the expenses and claim an income tax deduction for such paid items, if
such items are deductible. The obligations of the Company to make the
reimbursements specified hereunder shall survive any termination of the Term.
7. Termination.
(a) The Company may terminate Employee's employment hereunder after the
occurrence and during the continuance of any "Disability" (as defined below) of
Employee, upon
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<PAGE> 3
thirty (30) days' prior written notice to Employee. For purposes
of this Agreement, "Disability" means Employee's incapacity to perform
substantially all of his then current duties as required hereunder for one
hundred eighty (180) days or more within any period of three hundred sixty-five
(365) consecutive days because of mental or physical condition, illness or
injury, consistent with applicable state and federal law. In the event of any
dispute regarding the existence of Employee's Disability, the matter will be
resolved by the determination of a physician qualified to practice medicine in
the State of California, selected by the Company and reasonably approved by
Employee. For this purpose, Employee will submit to appropriate medical
examinations.
(b) The Company may terminate Employee's employment hereunder for
"Cause." For the purposes of this Agreement, "Cause" shall mean Employee shall
have (i) committed fraud, embezzlement or material dishonesty against the
Company or any of its Subsidiaries or an act of moral turpitude; (ii) engaged in
gross negligence or willful misconduct in the performance of Employee's duties
hereunder; (iii) been convicted of, or pleaded nolo contendere to, any felony;
(iv) breached any material provision hereof or failed to perform any material
duty assigned to Employee; or (v) materially misappropriated for his own purpose
and benefit any property or opportunity of the Company, or any Subsidiary or
other affiliated entity of Company. Notwithstanding anything to the contrary
contained herein, none of the foregoing events or circumstances (other than
clause (iii) above) shall constitute "Cause" for purposes of this Agreement
unless the Company gives Employee written notice delineating the claimed event
or circumstance and setting forth the Company's intention to terminate
Employee's employment if such claimed event or circumstance is not capable of
remedy or is not duly remedied within thirty (30) days following such notice, if
capable of remedy, and Employee fails to remedy such event or circumstance
within such thirty (30)-day period.
(c) The employment of Employee hereunder shall be automatically
terminated on the date of Employee's death.
(d) If Employee's employment is terminated pursuant to this Section 7,
Employee shall be entitled to, and the Company's obligation hereunder shall be
limited to, (i) the payment of the compensation (including, without limitation,
guaranteed bonus) accrued under Section 5 above to the effective date of such
termination; (ii) any approved unreimbursed expenses and other accrued employee
benefits (as described above) through the date of termination; and (iii) the
additional compensation provided in Section 7(e) below, if any.
(e) If Employee's employment is terminated:
(i) by the Company pursuant to 7(a) above, Employee will receive
the benefit of any Company disability plans; or
(ii) by the Company other than pursuant to Sections 7(a), 7(b) or
7(c) above, the Company shall continue to pay to Employee Employee's salary in
equal monthly installments, and Employee's guaranteed bonuses in equal quarterly
installments, in each case at the annualized levels being paid to Employee
pursuant to Section 5 above at the time of such termination, less required
withholdings, and for a period (the "Payment Period") equal to the lesser of (A)
twelve (12) consecutive months after the effective date of such termination and
(B) the number of months (rounded to the nearest whole number) remaining in the
Term. In addition, during the Payment Period, Employee shall be entitled to
continued participation in all of the Company's employee benefit plans,
including, without limitation, continued accrual for retirement benefits and
continued coverage under any Company medical, hospitalization, or life insurance
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<PAGE> 4
plan; provided, however, that the Company may, at its option, in lieu of
continuing Employee's participation in any or all such benefit plans, pay
Employee a lump sum equal to the aggregate cost to the Company of Employee's
participation in the benefit plan in which Employee shall no longer participate,
which lump sum shall be calculated based upon the cost to the Company of
Employee's participation in such benefit plan immediately prior to the
termination of Employee's employment. Amounts payable by the Company pursuant to
this Section 7(e)(ii) shall be subject to Employee's duty to mitigate his
damages by using reasonable efforts to seek other comparable employment.
Compensation (in whatever form) payable to Employee on account of other
employment during the unexpired Term shall reduce Company's obligations
hereunder. Employee shall promptly notify the Company of such other employment
and the terms thereof. The parties hereto agree that the payments set forth in
this Section 7(e)(ii) constitute fair compensation and the sole remedy for
damages for any termination by the Company other than pursuant to Section 7(a),
7(b) or 7(c) above.
(f) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to Employee on or
after the effective date of termination of the executive's employment by the
Company under any federal, state or local law that provides for the continuation
of any medical or other employee benefits after employment.
8. Rights to Works. In return for the consideration described
herein, Employee agrees as follows:
(a) All programs, inventions, recordings and work product of any nature
made pursuant to this Agreement or otherwise in the course of Employee's
services and Employee's contributions thereto (hereinafter referred to as
"Works") shall belong solely and exclusively to the Company. The Company shall
have the perpetual and exclusive right to use, exhibit, distribute, or license
throughout the universe, any Work or part thereof in which Employee's services
are utilized by all forms of audio, visual, textual, digital, electronic or
other distribution that are now known or may hereafter exist, and otherwise
exploit such Works in such media, forums and for such uses throughout the
universe as it deems appropriate; provided, however, that no likeness or quote
of Employee shall be used without Employee's written consent. All revenues
derived by the Company from the use, exhibition, distribution, licensing, or
other exploitation of such Works shall be the sole and exclusive property of the
Company.
(b) To the extent that the Works are considered: (i) contributions to
collective works and/or (ii) as parts or components of audiovisual works, the
parties hereby expressly agree that the Works shall be considered "works made
for hire" under the United States Copyright Act of 1976, as amended (17 U.S.C.
Section 101 et seq.). In accordance therewith, the sole right of copyright in
and to the Works shall belong exclusively to the Company in perpetuity. To the
extent that the Works are deemed works other than contributions to collective
works and/or parts or components of audiovisual works, Employee hereby assigns
to the Company all rights, title and interest in and to the copyrights of such
Works and all renewals and extensions of the copyrights that may be secured
under the laws now or hereafter in force and effect in the United States of
America or any other country or countries. At the Company's reasonable written
request and sole expense, Employee shall execute, verify, acknowledge, deliver
and file any and all formal assignments, recordations and any and all other
documents that the Company may prepare and reasonably call for to give effect to
the provisions of this Agreement. If Employee fails to execute any such document
or instrument, or perform any such act, within ten (10) business days, Employee
shall be deemed to have irrevocably constituted and appointed the Company, with
full power of substitution, to be Employee's true and lawful attorney, in
Employee's name, place, and stead, to
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<PAGE> 5
execute, acknowledge, swear to, and file all instruments, conveyances,
certificates, agreements, and other documents, and to take any action which may
be necessary or appropriate to effect the provisions of this Section 8. The
powers of attorney granted herein shall be deemed to be coupled with an interest
and shall be irrevocable.
(c) It is understood that the rights granted to the Company in this
Section 8 shall continue in effect after the termination or expiration of this
Agreement to the extent necessary for the Company's full enjoyment of such
rights.
(d) All provisions of this Agreement relating to the assignment by
Employee of any invention or innovation are subject to the provisions of
California Labor Code Sections 2870, 2871 and 2872. In accordance with Section
2870 of the California Labor Code, the obligation to assign as provided in this
Agreement does not apply to an invention or innovation that Employee developed
entirely on his own time without using the Company's equipment, supplies,
facilities, or trade secret information except for those inventions that either:
(i) relate to either (A) the business of the Company or any of its Subsidiaries
at the time of conception or reduction to practice of the invention, or (B)
actual or demonstrably anticipated research or development of the Company or any
of its Subsidiaries; or (ii) result from any work performed by Employee for the
Company or any of its Subsidiaries.
(e) Employee shall disclose all inventions and innovations to the
Company, even if Employee does not believe that he or she is required under this
Agreement, or pursuant to California Labor Code Section 2870, to assign his
interest in such invention or innovation to the Company. If the Company and
Employee disagree as to whether or not an invention or innovation is included
within the terms of this Agreement, it will be the responsibility of Employee to
prove that it is not included.
9. Trade Secrets. During the term of this Agreement and at all times
thereafter, Employee shall hold in secrecy all trade secrets and confidential
information relating to the Company's (and its affiliates') business and affairs
that may come to his knowledge or have come to his knowledge while employed by
the Company (excluding information that is or becomes publicly known or
available for use through no fault of Employee), including but not limited to:
(a) matters of a business nature, such as confidential information about costs,
profits, markets, sales, lists of customers, lists of clients and other
information of a similar nature, (b) confidential plans or strategies for
development of the business of the Company and (c) confidential matters of a
technical nature. Except as required in the performance of his duties to the
Company under this Agreement, Employee shall not use for his own benefit or
disclose to any person, directly or indirectly, such matters unless such use or
disclosure has been specifically authorized in writing by the Company in
advance.
10. Employee's Representations. Employee hereby represents and warrants
that: (a) he has the right to enter into this Agreement and to grant the rights
granted by him herein, (b) the provisions of this Agreement do not violate any
other contracts or agreements to which he is a party and that would adversely
affect his ability to perform his obligations hereunder, and (c) he will comply
with all policies of the Company of which he has notice, provided they are
consistent with applicable laws.
11. The Company's Representations. The Company hereby represents and
warrants that: (a) it has the right, power and authority to enter into this
Agreement and to incur the obligations incurred by it herein, (b) this Agreement
has been duly and validly authorized by the Company,
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<PAGE> 6
and (c) the provisions of this Agreement do not violate any other contracts or
agreements to which it is a party that would adversely affect its ability to
perform its obligations hereunder.
12. Indemnification. The Company agrees that Employee shall be entitled to
indemnification and payment or reimbursement of expenses (including, without
limitation, attorneys' fees and expenses) to the fullest extent provided to
employees in the Company's Operating Agreement, as in effect on the date hereof,
and as it may be amended (but in no event on terms less favorable to Employee
than those in effect on the date hereof), for all damages, losses and expenses
incurred by Employee in connection with any third-party claim, action, suit or
proceeding that arises from Employee's services and/or activities (other than
Employee's gross negligence or willful misconduct) as an officer and/or employee
of the Company or any affiliate thereof. This Section 12 shall survive any
termination of the Term.
13. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
choice of laws) of the State of California.
14. Entire Agreement. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of Employee by the Company and in
reference to the subject matter hereof, and all prior agreements, promises,
representations and understandings relative thereto are merged herein.
16. Assignability.
(a) The services to be performed by Employee hereunder are personal in
nature and, accordingly, Employee may not, without the prior consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder.
(b) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
17. Remedies. Any material breach, violation or evasion by Employee of the
terms of this Agreement, including specifically, but not limited to, Sections 8
and 9 above, would result in immediate and irreparable injury and harm to the
Company, and will cause damage to the Company in amounts difficult to ascertain
and for which Company's remedies and defenses at law would be inadequate.
Accordingly, in the event of any such breach or threatened breach, the Company
shall be entitled to, and Employee hereby consents to the entry of, the remedies
or injunction and specific performance, or either of such remedies, as well as
all other remedies to which the Company may be entitled, at law, in equity or
otherwise.
18. Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
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<PAGE> 7
19. Notice. All notices, consents, requests and other communications
hereunder shall be in writing and, if given by personal delivery, shall be
deemed to have been validly served, given or delivered upon actual delivery and,
if mailed or delivered by overnight courier, shall be deemed to have been
validly served, given or delivered when deposited in the United States mail, as
registered or certified mail, with proper postage prepaid, or when deposited
with the courier service, and addressed to the party or parties to be notified,
at the following addresses (or such other address(es) as a party may designate
for itself by like notice):
If to Employee: Steve Rennie
1125 Coldwater Canyon
Beverly Hills, California 90210
With a copy to: David Wohlberg, Esq.
Troy & Gould Professional Corporation
1801 Century Park East
16th Floor
Los Angeles, California 90067
If to the Company: The Ultimate Band List, LLC
17835 Ventura Blvd.
Suite 310
Encino, California 91316
With a copy to: Lenard & Gonzalez LLP
1900 Avenue of the Stars
Twenty-Fifth Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
20. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
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<PAGE> 8
21. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed an original and both of which together shall be deemed
one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"EMPLOYEE" "COMPANY"
THE ULTIMATE BAND LIST, LLC
/s/ Steve Rennie
- --------------------
Steve Rennie
By: ARTISTdirect New Media, LLC
Its: Manager
By: ARTISTdirect, LLC
Its: Member
By: /s/ Marc Geiger
-------------------------
Marc Geiger
Its: Member
By: /s/ Donald Muller
-------------------------
Donald Muller
Its: Member
8
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of July 28,
1998 (the "Effective Date") and is entered into between ARTISTdirect, LLC a
California limited liability company (the "Company") and Marc Geiger
("Employee").
R E C I T A L S
WHEREAS, the Company desires to employ Employee to serve the Company and
its subsidiaries, and Employee desires to be so employed by the Company, on the
terms and subject to the conditions hereinafter set forth.
WHEREAS, the execution of this Agreement is a condition to the closing
of the transactions contemplated in that certain Securities Purchase Agreement
dated of even date herewith by and among the Company, The Ultimate Band List,
LLC, a California limited liability company (the "UBL"), Constellation Venture
Capital, L.P., a Delaware limited partnership, and Constellation Ventures (BVI),
Inc., a British Virgin Islands corporation.
A G R E E M E N T
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment and Duties. Subject to the other terms and conditions set forth
herein, the Company hereby employs Employee, and Employee agrees to be employed
by the Company, as Co-Chief Executive Officer of the Company and all of its
subsidiaries, including, without limitation, the UBL. As long as there is
another Co-Chief Executive Officer of the Company or a particular subsidiary of
the Company, Employee and such other Co-Chief Executive Officer shall be the
most senior executives of the Company or such subsidiary, as applicable. At all
times during the Term, if there is no other Co-Chief Executive Officer of the
Company or a particular subsidiary of the Company, then Employee, alone, shall
be the most senior executive of the Company or such subsidiary of the Company,
as applicable. Employee shall report solely and directly to the "Company Board"
(as defined below). For purposes of this Agreement, "Company Board" shall mean
the Board of Directors of the Company, or, if none, the members of the Company.
Subject to supervision by the Company Board and to the provisions of the
Operating Agreement of the Company dated of even date herewith, as the same may
be amended from time to time, Employee and the other Co-Chief Executive Officer
of the Company shall have full authority over the day-to-day operations of the
Company and all of its subsidiaries and over all officers and employees of the
Company and/or its subsidiaries (other than the other Co- Chief Executive
Officer of the Company and its subsidiaries) including the power to hire and,
subject to contractual commitments and/or any required approvals of the
compensation committee of the Company Board, or, if none, the Company Board (the
"Committee"), fire employees.
2. Devotion. During the Term, Employee shall faithfully perform to the best of
his ability and in a satisfactory manner all services and acts necessary or
advisable as both (i) are consistent with his title and position and (ii) may
reasonably be assigned to him by the Company Board. In addition, during the
Term, Employee shall devote his business time, skill and energies exclusively to
the business of the Company and its subsidiaries and affiliates from time to
time (the "Subsidiaries").
<PAGE> 2
3. Principal Place of Employment. During the Term, Employee's place of
employment shall be at the principal offices of the Company in the Los Angeles
area; provided, however, it is agreed that Employee will be expected to travel
from time to time at the Company's expense in accordance with the provisions of
Section 6(c) below.
4. Term. The term of Employee's employment (the "Term") shall commence on the
Effective Date and continue for an initial period until July 27, 2001 (the
"Initial Period"), unless terminated sooner as provided in Section 7 below.
Beginning July 28, 2001 and upon each successive one (1) year anniversary
thereof, the Term shall extend automatically for an additional one (1)-year
period unless either the Company gives Employee or Employee gives Company
written notice not less than ninety (90) and not more than one hundred twenty
(120) days prior to the end of the then-current period of its or his intention
not to extend the Term; provided, however, that the Term may terminate earlier
as provided in Section 7 below.
5. Compensation. For all services to be rendered by Employee hereunder, and for
all rights granted the Company hereunder, Employee shall be paid by the Company
the amounts set forth in this Section 5.
(a) Base Salary. The Company shall pay Employee a base salary at the
annual rate of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) for each twelve
(12)-month period of the Term, prorated for any portion thereof, payable in
accordance with the Company's standard payment schedule for employees.
(b) Guaranteed Bonuses. During each twelve (12)-month period of the
Term, the Company shall pay Employee a guaranteed bonus in an amount equal to
ONE HUNDRED THOUSAND DOLLARS ($100,000), prorated for any portion thereof,
payable in arrears at the end of each three (3)-month period during such twelve
(12)-month period of the Term.
Amounts payable to Employee pursuant to this Section 5 shall be subject to
required withholdings and reviewed for any increases annually by the Committee,
provided that any adjustments shall be in the sole discretion of the Committee.
6. Employee Benefits; Reimbursement for Expenses.
(a) Employee shall be entitled to participate in such Company
retirement, profit sharing and pension plans and life and other insurance
programs, as well as other benefits programs, which are available to other
similarly situated employees of the Company at not less than the level generally
afforded to the other most senior executives of the Company, subject to the
Company's policies with respect to all of such benefits or insurance programs or
plans; provided, however, that notwithstanding anything herein to the contrary,
the Company shall not be obligated to institute or maintain any particular
benefit or insurance program or plan or aspect thereof.
(b) Employee shall be entitled to not less than three (3) weeks vacation
during each year of the Term hereof to be scheduled at mutually agreeable times
and accrued and taken in accordance with Company policy.
(c) During the Term, the Company agrees to reimburse Employee for such
reasonable, ordinary, necessary and authorized actual out-of-pocket expenses
incurred by Employee in the performing of assigned duties subject to approval by
the Company or the Company's designated agent, including but not limited to for
business-related travel (business class, or, if unavailable, first class),
hotel, meals, automobile allowance of $750 per month
<PAGE> 3
before taxes, telephone calls, buy-sell insurance premiums and entertainment. As
an additional condition to the reimbursement of such expenses by the Company to
Employee, Employee shall provide the Company with copies of all available
invoices and receipts, and otherwise account to the Company in sufficient detail
and with adequate documentation to allow the Company to confirm the business
nature of the expenses and claim an income tax deduction for such paid items, if
such items are deductible. The obligations of the Company to make the
reimbursements specified hereunder shall survive any termination of the Term.
7. Termination.
(a) The Company may terminate Employee's employment hereunder after the
occurrence and during the continuance of any "Disability" (as defined below) of
Employee, upon thirty (30) days' prior written notice to Employee. For purposes
of this Agreement, "Disability" means Employee's incapacity to perform
substantially all of his then current duties as required hereunder for one
hundred eighty (180) days or more within any period of three hundred sixty-five
(365) consecutive days because of mental or physical condition, illness or
injury, consistent with applicable state and federal law. In the event of any
dispute regarding the existence of Employee's Disability, the matter will be
resolved by the determination of a physician qualified to practice medicine in
the State of California, selected by Employee and reasonably approved by the
Company, or, failing such approval, by a majority of three physicians qualified
to practice medicine in the State of California, one to be selected by the
Company, one to be selected by Employee and the third to be selected by the two
designated physicians. For this purpose, Employee will submit to appropriate
medical examinations.
(b) The Company may terminate Employee's employment hereunder for
"Cause." For the purposes of this Agreement, "Cause" shall mean Employee shall
have (i) committed fraud, embezzlement or material dishonesty against the
Company or any of its Subsidiaries or an act of moral turpitude; (ii) engaged in
gross negligence or willful misconduct in the performance of Employee's duties
hereunder; (iii) been convicted of, or pleaded nolo contendere to, any felony;
(iv) breached any material provision hereof or failed to perform any material
duty assigned to Employee in accordance with the terms hereof; or (v) materially
misappropriated for his own purpose and benefit any property or opportunity of
the Company, or any Subsidiary or other affiliated entity of Company.
Notwithstanding anything to the contrary contained herein, none of the foregoing
events or circumstances (other than clause (iii) above) shall constitute "Cause"
for purposes of this Agreement unless the Company gives Employee written notice
delineating the claimed event or circumstance and setting forth the Company's
intention to terminate Employee's employment if such claimed event or
circumstance is not capable of remedy or is not duly remedied within a
reasonable period following such notice (not to exceed sixty (60) days), if
capable of remedy, and Employee fails to remedy such event or circumstance
within such reasonable period.
(c) The employment of Employee hereunder shall be automatically
terminated on the date of Employee's death.
(d) Employee may terminate his employment hereunder forthwith at any
time for "Good Reason" (as hereinafter defined) upon written notice to the
Company. For purposes of this Section 7(d), "Good Reason" shall mean the
occurrence of any of the following: (i) a material reduction or adverse change
in, or a change that is materially inconsistent with, Employee's
responsibilities, duties, authority, reporting, power, functions, title, working
conditions or status; (ii) a reassignment of Employee to a geographic location
in excess of thirty-five (35) miles from the Company's current principal
offices; or (iii) a material breach by the Company of any of its obligations to
Employee hereunder. Notwithstanding anything to the
<PAGE> 4
contrary contained herein, none of the foregoing events or circumstances) shall
constitute "Good Reason" for purposes of this Agreement unless the Employee
gives Company written notice delineating the claimed event or circumstance and
setting forth the Employee's intention to terminate Employee's employment if
such claimed event or circumstance is not capable of remedy or is not duly
remedied within a reasonable period following such notice (not to exceed sixty
(60) days), if capable of remedy, and Company fails to remedy such event or
circumstance within such reasonable period.
(e) If Employee's employment is terminated pursuant to this Section 7,
Employee shall be entitled to, and the Company's obligation hereunder shall be
limited to, (i) the payment of the compensation (including, without limitation,
guaranteed bonus) accrued under Section 5 above to the effective date of such
termination and (for any termination other than pursuant to Section 7(b) above)
a pro rata portion of (A) any bonuses or incentive compensation payable with
respect to any period commencing prior to the termination date but not expired
as of the termination date, or (B) if no such bonuses or incentive compensation
is payable with respect to such period, so long as the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") during the fiscal year
of the Company prior to the fiscal year in which the termination occurs was not
more than 150% higher than the EBITDA of the Company during the fiscal year in
which the termination occurs, any bonus or incentive compensation paid to
Employee with respect to the prior Contract Year; (ii) any approved unreimbursed
expenses and other accrued employee benefits (as described above) through the
date of termination; and (iii) the additional compensation provided in Section
7(f) below, if any.
(f) If Employee's employment is terminated:
(i) by the Company pursuant to 7(a) above, Employee will receive the
benefit of any Company disability plans; or
(ii) (A) by the Company other than pursuant to Sections 7(a), 7(b)
or 7(c) above, or (B) by Employee pursuant to Section 7(d) above, the Company
shall continue to pay to Employee Employee's salary in equal monthly
installments, and Employee's guaranteed bonuses in equal quarterly installments,
in each case at the annualized levels being paid to Employee pursuant to Section
5 above at the time of such termination, for a period of twelve (12) consecutive
months after the effective date of such termination, and less required
withholdings. In addition, during such twelve (12)-month period, Employee shall
be entitled to continued participation in all of the Company's employee benefit
plans, including, without limitation, continued accrual for retirement benefits
and continued coverage under any Company medical, hospitalization, or life
insurance plan; provided, however, that the Company may, at its option, in lieu
of continuing Employee's participation in any or all such benefit plans, pay
Employee a lump sum equal to the aggregate cost to the Company of Employee's
participation in the benefit plan in which Employee shall no longer participate,
which lump sum shall be calculated based upon the cost to the Company of
Employee's participation in such benefit plan immediately prior to the
termination of Employee's employment. The parties hereto agree that the payments
set forth in this Section 7(f)(ii) constitute fair compensation and the sole
remedy for damages for any termination by the Company other than pursuant to
Section 7(a), 7(b) or 7(c) above, or by Employee pursuant to Section 7(d) above.
(g) Employee shall have no duty of mitigation and shall not be subject
to any right of offset with respect to any compensation received by Employee on
or after the termination of his employment.
<PAGE> 5
(h) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to Employee on or
after the effective date of termination of the executive's employment by the
Company under any federal, state or local law that provides for the continuation
of any medical or other employee benefits after employment.
8. Rights to Works. In return for the consideration described herein, Employee
agrees as follows:
(a) All programs, inventions, recordings and work product of any nature
made pursuant to this Agreement or otherwise in the course of Employee's
services and Employee's contributions thereto (hereinafter referred to as
"Works") shall belong solely and exclusively to the Company. The Company shall
have the perpetual and exclusive right to use, exhibit, distribute, or license
throughout the universe, any Work or part thereof in which Employee's services
are utilized by all forms of audio, visual, textual, digital, electronic or
other distribution that are now known or may hereafter exist, and otherwise
exploit such Works in such media, forums and for such uses throughout the
universe as it deems appropriate; provided, however, that no likeness or quote
of Employee shall be used without Employee's written consent. All revenues
derived by the Company from the use, exhibition, distribution, licensing, or
other exploitation of such Works shall be the sole and exclusive property of the
Company.
(b) To the extent that the Works are considered: (i) contributions to
collective works and/or (ii) as parts or components of audiovisual works, the
parties hereby expressly agree that the Works shall be considered "works made
for hire" under the United States Copyright Act of 1976, as amended (17 U.S.C.
Section 101 et seq.). In accordance therewith, the sole right of copyright in
and to the Works shall belong exclusively to the Company in perpetuity. To the
extent that the Works are deemed works other than contributions to collective
works and/or parts or components of audiovisual works, Employee hereby assigns
to the Company all rights, title and interest in and to the copyrights of such
Works and all renewals and extensions of the copyrights that may be secured
under the laws now or hereafter in force and effect in the United States of
America or any other country or countries. At the Company's reasonable written
request and sole expense, Employee shall execute, verify, acknowledge, deliver
and file any and all formal assignments, recordations and any and all other
documents that the Company may prepare and reasonably call for to give effect to
the provisions of this Agreement. If Employee fails to execute any such document
or instrument, or perform any such act, within ten (10) business days, Employee
shall be deemed to have irrevocably constituted and appointed the Company, with
full power of substitution, to be Employee's true and lawful attorney, in
Employee's name, place, and stead, to execute, acknowledge, swear to, and file
all instruments, conveyances, certificates, agreements, and other documents, and
to take any action which may be necessary or appropriate to effect the
provisions of this Section 8. The powers of attorney granted herein shall be
deemed to be coupled with an interest and shall be irrevocable.
(c) It is understood that the rights granted to the Company in this
Section 8 shall continue in effect after the termination or expiration of this
Agreement to the extent necessary for the Company's full enjoyment of such
rights.
(d) All provisions of this Agreement relating to the assignment by
Employee of any invention or innovation are subject to the provisions of
California Labor Code Sections 2870, 2871 and 2872. In accordance with Section
2870 of the California Labor Code, the obligation to assign as provided in this
Agreement does not apply to an invention or innovation that Employee developed
entirely on his own time without using the Company's equipment, supplies,
facilities, or trade secret information except for those inventions that either:
(i) relate to
<PAGE> 6
either (A) the business of the Company or any of its Subsidiaries at the time of
conception or reduction to practice of the invention, or (B) actual or
demonstrably anticipated research or development of the Company or any of its
Subsidiaries; or (ii) result from any work performed by Employee for the Company
or any of its Subsidiaries.
(e) Employee shall disclose all inventions and innovations to the
Company, even if Employee does not believe that he or she is required under this
Agreement, or pursuant to California Labor Code Section 2870, to assign his
interest in such invention or innovation to the Company. If the Company and
Employee disagree as to whether or not an invention or innovation is included
within the terms of this Agreement, it will be the responsibility of Employee to
prove that it is not included.
9. Noncompetition; Nonsolicitation. In recognition of the considerations
described herein, Employee agrees that for so long as Employee is employed by
the Company, and until the "Expiration Date" (as defined below), Employee will
not, directly or indirectly, without the prior written consent of the Company:
(a) enter into the employ of, or render any services to, any person,
firm or business entity engaged in any business that at that time is competitive
with the business of the Company or any Subsidiary (a "Competitive Business"),
including, without limitation, any business that:
(i) anywhere in the world: (A) operates a meta-music index or search
engine on the World Wide Web; or (B) sells or offers to sell through a World
Wide Web site music-related products or services, including, without limitation,
any devices or other means, whether utilizing technology existing as of the date
hereof or devised hereafter, on or by which sound may be recorded, transmitted
or reproduced, with or without a visual reproduction, primarily for home and/or
consumer use, including, without limitation, analog disc records, analog tape
cassettes, compact discs, mini-discs, digital audio tapes, video cassettes,
laser discs, and downloading via the internet ("Records"); or
(b) within a fifty (50) mile radius of the principal office of the
Company or the relevant Subsidiary: (A) plans, develops, produces, and/or
promotes live musical or new media events; (B) represents musical artists for
personal appearance tours and live concerts, and/or clients involved in new
media endeavors; or (B) engages in the creation, distribution, marketing and/or
promotion of Records;
(c) engage in any Competitive Business for Employee's own account;
(d) become interested in any Competitive Business as an individual,
partner, shareholder (other than as described below), creditor, director,
officer, principal, agent, employee, trustee, consultant, advisor, franchisee or
in any other relationship or capacity;
(e) authorize his name or reputation to be used by any Competitive
Business;
(f) contact or solicit, or attempt to contact or solicit, for Employee's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity that was a client or customer of the Company or any
Subsidiary within the six (6)-month period preceding the effective date of the
termination of Employee's employment;
(g) contact or solicit, or attempt to contact or solicit, for Employee's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity
<PAGE> 7
that has been contacted, orally or in writing, by the Company or any affiliated
entity of the Company as a potential customer or client within the six (6)-month
period preceding the effective date of the termination of Employee's employment;
or
(h) hire, subcontract, employ or engage, or contact or solicit, or
attempt to contact or solicit, for the purpose of hiring, contracting, employing
or engaging, for Employee's own account or any account other than that of the
Company or any Subsidiary, any person or entity (other than Employee's personal
assistant) who was an employee or exclusive subcontractor of the Company or any
affiliated entity of the Company at any time during the six (6)-month period
preceding the effective date of the termination of Employee's employment;
provided, however, that nothing contained in this Section 9 shall be deemed to
prohibit Employee from acquiring or holding, solely for investment, publicly
traded securities of any corporation some of the activities of which are
competitive with the business of the Company so long as such securities, in the
aggregate, constitute less than five percent (5%) of any class or series of
outstanding securities of such corporation. For purposes of this Section 9, the
"Expiration Date" shall mean the later of (i) the expiration of the then current
period of the Term and (ii) the date one (1) year after the effective date of
the termination of Employee's employment pursuant to Section 7 above; provided,
however, that in the case of either the Company's termination of Employee's
employment other than pursuant to Sections 7(a) or 7(b) above or Employee's
voluntary resignation pursuant to Section 7(d) above, the "Expiration Date"
shall mean the effective date of the termination of Employee's employment.
10. Trade Secrets. During the term of this Agreement and at all times
thereafter, Employee shall hold in secrecy all trade secrets and confidential
information relating to the Company's (and its affiliates') business and affairs
that may come to his knowledge or have come to his knowledge while employed by
the Company (excluding information that is or becomes publicly known or
available for use through no fault of Employee), including but not limited to:
(a) matters of a business nature, such as confidential information about costs,
profits, markets, sales, lists of customers, lists of clients and other
information of a similar nature, (b) confidential plans or strategies for
development of the business of the Company and (c) confidential matters of a
technical nature. Except as required in the performance of his duties to the
Company under this Agreement, Employee shall not use for his own benefit or
disclose to any person, directly or indirectly, such matters unless such use or
disclosure has been specifically authorized in writing by the Company in
advance.
11. Employee's Representations. Employee hereby represents and warrants that:
(a) he has the right to enter into this Agreement and to grant the rights
granted by him herein, (b) the provisions of this Agreement do not violate any
other contracts or agreements to which he is a party and that would adversely
affect his ability to perform his obligations hereunder, and (c) he will comply
with all policies of the Company of which he has notice, provided they are
consistent with applicable laws.
12. The Company's Representations. The Company hereby represents and warrants
that: (a) it has the right, power and authority to enter into this Agreement and
to incur the obligations incurred by it herein, (b) this Agreement has been duly
and validly authorized by the Company, and (c) the provisions of this Agreement
do not violate any other contracts or agreements to which it is a party that
would adversely affect its ability to perform its obligations hereunder.
13. Indemnification. The Company agrees that Employee shall be entitled to
indemnification and payment or reimbursement of expenses (including, without
limitation, attorneys' fees and expenses) to the fullest extent provided to
employees in the Company's Operating Agreement,
<PAGE> 8
as in effect on the date hereof, and as it may be amended (but in no event on
terms less favorable to Employee than those in effect on the date hereof), for
all damages, losses and expenses incurred by Employee in connection with any
third-party claim, action, suit or proceeding that arises from Employee's
services and/or activities (other than Employee's gross negligence or willful
misconduct) as an officer and/or employee of the Company or any affiliate
thereof. This Section 13 shall survive any termination of the Term.
14. Voting Agreement. In consideration of the Company's execution and delivery
of this Agreement, Employee shall execute and deliver a Voting Agreement and
Power of Attorney substantially in the form attached hereto as Exhibit A.
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
choice of laws) of the State of California.
16. Costs. If either party brings any legal action against the other to enforce
its rights under this Agreement, the prevailing party in such dispute shall be
entitled to recover from the other party all reasonable fees, costs and expenses
actually incurred in enforcing its rights under this Agreement including,
without limitation, the reasonable fees and expenses of attorneys, accountants
and expert witnesses, which shall include, without limitation, all fees, costs
and expenses of appeals and of enforcement.
17. Entire Agreement. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of Employee by the Company and in
reference to the subject matter hereof, and all prior agreements, promises,
representations and understandings relative thereto are merged herein.
18. Assignability.
(a) In the event that the Company shall merge or consolidate with any
other corporation, partnership or business entity or all or substantially all
the Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, such successor shall thereupon
succeed to, and be subject to, all rights, interests, duties and obligations of,
and shall thereafter be deemed for all purposes hereof to be, the Company
hereunder and the Company shall obtain a written assumption agreement from such
successor prior to completion of any such merger, consolidation or sale of
assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 18(a) above.
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
19. Remedies. Any material breach, violation or evasion by Employee of the terms
of this Agreement, including specifically, but not limited to, Sections 8, 9 and
10 above, would result in immediate and irreparable injury and harm to the
Company, and would cause damage to the Company in amounts difficult to ascertain
and for which Company's remedies and defenses at law would be inadequate.
Accordingly, in the event of any such breach or threatened breach, the Company
shall be entitled to, and Employee hereby consents to the entry of, the remedies
<PAGE> 9
or injunction and specific performance, or either of such remedies, as well as
all other remedies to which the Company may be entitled, at law, in equity or
otherwise.
20. Covenants Reasonable as to Time and Territory. Employee and the Company have
considered carefully the nature and extent of the restrictions set forth in this
Agreement and the rights and remedies conferred upon the Company under this
Agreement, and hereby acknowledge and agree that (i) the same are reasonable in
time and territory (ii) and that the consideration provided to the Employee
hereunder is sufficient to compensate the Employee for the restrictions
contained in this Agreement.
21. Amendments; Waivers. This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived
only by a written instrument executed by the parties hereto or, in the case of a
waiver, by the party waiving compliance. Any amendment to a material term of
this Agreement shall require the approval of the Committee. The failure of any
party at any time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce the same. No waiver by
any party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
22. Notice. All notices, consents, requests and other communications hereunder
shall be in writing and, if given by personal delivery, shall be deemed to have
been validly served, given or delivered upon actual delivery and, if mailed or
delivered by overnight courier, shall be deemed to have been validly served,
given or delivered when deposited in the United States mail, as registered or
certified mail, with proper postage prepaid, or when deposited with the courier
<PAGE> 10
service, and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
If to Employee: Marc Geiger
3378 Alginet Drive
Encino, California 91436-4122
If to the Company: Artist Direct, LLC
17835 Ventura Blvd.
Suite 310
Encino, California 91316
With a copy to: Lenard & Gonzalez LLP
1900 Avenue of the Stars
Twenty-Fifth Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
23. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
24. Counterparts. This Agreement may be executed in two counterparts, each of
which shall be deemed an original and both of which together shall be deemed one
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"EMPLOYEE" "COMPANY"
/s/ Marc Geiger ARTISTdirect, LLC
- ------------------------------
Marc Geiger
By: /s/ Illegible
----------------
Its: Member
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of July 28, 1998
(the "Effective Date") and is entered into between ARTISTdirect, LLC a
California limited liability company (the "Company") and Donald Muller
("Employee").
R E C I T A L S
WHEREAS, the Company desires to employ Employee to serve the Company and
its subsidiaries, and Employee desires to be so employed by the Company, on the
terms and subject to the conditions hereinafter set forth.
WHEREAS, the execution of this Agreement is a condition to the closing of
the transactions contemplated in that certain Securities Purchase Agreement
dated of even date herewith by and among the Company, The Ultimate Band List,
LLC, a California limited liability company (the "UBL"), Constellation Venture
Capital, L.P., a Delaware limited partnership, and Constellation Ventures (BVI),
Inc., a British Virgin Islands corporation.
A G R E E M E N T
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment and Duties. Subject to the other terms and conditions set forth
herein, the Company hereby employs Employee, and Employee agrees to be employed
by the Company, as Co-Chief Executive Officer of the Company and all of its
subsidiaries, including, without limitation, the UBL. As long as there is
another Co-Chief Executive Officer of the Company or a particular subsidiary of
the Company, Employee and such other Co-Chief Executive Officer shall be the
most senior executives of the Company or such subsidiary, as applicable. At all
times during the Term, if there is no other Co-Chief Executive Officer of the
Company or a particular subsidiary of the Company, then Employee, alone, shall
be the most senior executive of the Company or such subsidiary of the Company,
as applicable. Employee shall report solely and directly to the "Company Board"
(as defined below). For purposes of this Agreement, "Company Board" shall mean
the Board of Directors of the Company, or, if none, the members of the Company.
Subject to supervision by the Company Board and to the provisions of the
Operating Agreement of the Company dated of even date herewith, as the same may
be amended from time to time, Employee and the other Co-Chief Executive Officer
of the Company shall have full authority over the day-to-day operations of the
Company and all of its subsidiaries and over all officers and employees of the
Company and/or its subsidiaries (other than the other Co- Chief Executive
Officer of the Company and its subsidiaries) including the power to hire and,
subject to contractual commitments and/or any required approvals of the
compensation committee of the Company Board, or, if none, the Company Board (the
"Committee"), fire employees.
2. Devotion. During the Term, Employee shall faithfully perform to the best of
his ability and in a satisfactory manner all services and acts necessary or
advisable as both (i) are consistent with his title and position and (ii) may be
reasonably assigned to him by the Company Board. In addition, during the Term,
Employee shall devote his business time, skill and energies exclusively to the
business of the Company and its subsidiaries and affiliates from time to time
(the "Subsidiaries").
<PAGE> 2
3. Principal Place of Employment. During the Term, Employee's place of
employment shall be at the principal offices of the Company in the Los Angeles
area; provided, however, it is agreed that Employee will be expected to travel
from time to time at the Company's expense in accordance with the provisions of
Section 6(c) below.
4. Term. The term of Employee's employment (the "Term") shall commence on the
Effective Date and continue for an initial period until July 27, 2001 (the
"Initial Period"), unless terminated sooner as provided in Section 7 below.
Beginning July 28, 2001 and upon each successive one (1) year anniversary
thereof, the Term shall extend automatically for an additional one (1)-year
period unless either the Company gives Employee or Employee gives Company
written notice not less than ninety (90) and not more than one hundred twenty
(120) days prior to the end of the then-current period of its or his intention
not to extend the Term; provided, however, that the Term may terminate earlier
as provided in Section 7 below.
5. Compensation. For all services to be rendered by Employee hereunder, and for
all rights granted the Company hereunder, Employee shall be paid by the Company
the amounts set forth in this Section 5.
(a) Base Salary. The Company shall pay Employee a base salary at the
annual rate of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) for each twelve
(12)-month period of the Term, prorated for any portion thereof, payable in
accordance with the Company's standard payment schedule for employees.
(b) Guaranteed Bonuses. During each twelve (12)-month period of the Term,
the Company shall pay Employee a guaranteed bonus in an amount equal to ONE
HUNDRED THOUSAND DOLLARS ($100,000), prorated for any portion thereof, payable
in arrears at the end of each three (3)-month period during such twelve
(12)-month period of the Term.
Amounts payable to Employee pursuant to this Section 5 shall be subject to
required withholdings and reviewed for any increases annually by the Committee,
provided that any adjustments shall be in the sole discretion of the Committee.
6. Employee Benefits; Reimbursement for Expenses.
(a) Employee shall be entitled to participate in such Company retirement,
profit sharing and pension plans and life and other insurance programs, as well
as other benefits programs, which are available to other similarly situated
employees of the Company at not less than the level generally afforded to the
other most senior executives of the Company, subject to the Company's policies
with respect to all of such benefits or insurance programs or plans; provided,
however, that notwithstanding anything herein to the contrary, the Company shall
not be obligated to institute or maintain any particular benefit or insurance
program or plan or aspect thereof.
(b) Employee shall be entitled to not less than three (3) weeks vacation
during each year of the Term hereof to be scheduled at mutually agreeable times
and accrued and taken in accordance with Company policy.
(c) During the Term, the Company agrees to reimburse Employee for such
reasonable, ordinary, necessary and authorized actual out-of-pocket expenses
incurred by Employee in the performing of assigned duties subject to approval by
the Company or the Company's designated agent, including but not limited to for
business-related travel (business class, or, if unavailable, first class),
hotel, meals, automobile allowance of $750 per month
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<PAGE> 3
before taxes, telephone calls, buy-sell insurance premiums and entertainment. As
an additional condition to the reimbursement of such expenses by the Company to
Employee, Employee shall provide the Company with copies of all available
invoices and receipts, and otherwise account to the Company in sufficient detail
and with adequate documentation to allow the Company to confirm the business
nature of the expenses and claim an income tax deduction for such paid items, if
such items are deductible. The obligations of the Company to make the
reimbursements specified hereunder shall survive any termination of the Term.
7. Termination.
(a) The Company may terminate Employee's employment hereunder after the
occurrence and during the continuance of any "Disability" (as defined below) of
Employee, upon thirty (30) days' prior written notice to Employee. For purposes
of this Agreement, "Disability" means Employee's incapacity to perform
substantially all of his then current duties as required hereunder for one
hundred eighty (180) days or more within any period of three hundred sixty-five
(365) consecutive days because of mental or physical condition, illness or
injury, consistent with applicable state and federal law. In the event of any
dispute regarding the existence of Employee's Disability, the matter will be
resolved by the determination of a physician qualified to practice medicine in
the State of California, selected by Employee and reasonably approved by the
Company, or, failing such approval, by a majority of three physicians qualified
to practice medicine in the State of California, one to be selected by the
Company, one to be selected by Employee and the third to be selected by the two
designated physicians. For this purpose, Employee will submit to appropriate
medical examinations.
(b) The Company may terminate Employee's employment hereunder for "Cause."
For the purposes of this Agreement, "Cause" shall mean Employee shall have (i)
committed fraud, embezzlement or material dishonesty against the Company or any
of its Subsidiaries or an act of moral turpitude; (ii) engaged in gross
negligence or willful misconduct in the performance of Employee's duties
hereunder; (iii) been convicted of, or pleaded nolo contendere to, any felony;
(iv) breached any material provision hereof or failed to perform any material
duty assigned to Employee in accordance with the terms hereof; or (v) materially
misappropriated for his own purpose and benefit any property or opportunity of
the Company, or any Subsidiary or other affiliated entity of Company.
Notwithstanding anything to the contrary contained herein, none of the foregoing
events or circumstances (other than clause (iii) above) shall constitute "Cause"
for purposes of this Agreement unless the Company gives Employee written notice
delineating the claimed event or circumstance and setting forth the Company's
intention to terminate Employee's employment if such claimed event or
circumstance is not capable of remedy or is not duly remedied within a
reasonable period following such notice (not to exceed sixty (60) days), if
capable of remedy, and Employee fails to remedy such event or circumstance
within such reasonable period.
(c) The employment of Employee hereunder shall be automatically terminated
on the date of Employee's death.
(d) Employee may terminate his employment hereunder forthwith at any time
for "Good Reason" (as hereinafter defined) upon written notice to the Company.
For purposes of this Section 7(d), "Good Reason" shall mean the occurrence of
any of the following: (i) a material reduction or adverse change in, or a change
that is materially inconsistent with, Employee's responsibilities, duties,
authority, reporting, power, functions, title, working conditions or status;
(ii) a reassignment of Employee to a geographic location in excess of
thirty-five (35) miles from the Company's current principal offices; or (iii) a
material breach by the Company of any of its obligations to Employee hereunder.
Notwithstanding anything to the
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<PAGE> 4
contrary contained herein, none of the foregoing events or circumstances shall
constitute "Good Reason" for purposes of this Agreement unless the Employee
gives Company written notice delineating the claimed event or circumstance and
setting forth the Employee's intention to terminate Employee's employment if
such claimed event or circumstance is not capable of remedy or is not duly
remedied within a reasonable period following such notice (not to exceed sixty
(60) days), if capable of remedy, and Company fails to remedy such event or
circumstance within such reasonable period.
(e) If Employee's employment is terminated pursuant to this Section 7,
Employee shall be entitled to, and the Company's obligation hereunder shall be
limited to, (i) the payment of the compensation (including, without limitation,
guaranteed bonus) accrued under Section 5 above to the effective date of such
termination and (for any termination other than pursuant to Section 7(b) above)
a pro rata portion of (A) any bonuses or incentive compensation payable with
respect to any period commencing prior to the termination date but not expired
as of the termination date, or (B) if no such bonuses or incentive compensation
is payable with respect to such period, so long as the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") during the fiscal year
of the Company prior to the fiscal year in which the termination occurs was not
more than 150% higher than the EBITDA of the Company during the fiscal year in
which the termination occurs, any bonus or incentive compensation paid to
Employee with respect to the prior Contract Year; (ii) any approved unreimbursed
expenses and other accrued employee benefits (as described above) through the
date of termination; and (iii) the additional compensation provided in Section
7(f) below, if any.
(f) If Employee's employment is terminated:
(i) by the Company pursuant to 7(a) above, Employee will receive the
benefit of any Company disability plans; or
(ii) (A) by the Company other than pursuant to Sections 7(a), 7(b)
or 7(c) above, or (B) by Employee pursuant to Section 7(d) above, the Company
shall continue to pay to Employee Employee's salary in equal monthly
installments, and Employee's guaranteed bonuses in equal quarterly installments,
in each case at the annualized levels being paid to Employee pursuant to Section
5 above at the time of such termination, for a period of twelve (12) consecutive
months after the effective date of such termination, and less required
withholdings. In addition, during such twelve (12)-month period, Employee shall
be entitled to continued participation in all of the Company's employee benefit
plans, including, without limitation, continued accrual for retirement benefits
and continued coverage under any Company medical, hospitalization, or life
insurance plan; provided, however, that the Company may, at its option, in lieu
of continuing Employee's participation in any or all such benefit plans, pay
Employee a lump sum equal to the aggregate cost to the Company of Employee's
participation in the benefit plan in which Employee shall no longer participate,
which lump sum shall be calculated based upon the cost to the Company of
Employee's participation in such benefit plan immediately prior to the
termination of Employee's employment. The parties hereto agree that the payments
set forth in this Section 7(f)(ii) constitute fair compensation and the sole
remedy for damages for any termination by the Company other than pursuant to
Section 7(a), 7(b) or 7(c) above, or by Employee pursuant to Section 7(d) above.
(g) Employee shall have no duty of mitigation and shall not be subject to
any right of offset with respect to any compensation received by Employee on or
after the termination of his employment.
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<PAGE> 5
(h) Nothing in this Agreement shall be deemed a release or waiver of right
to any medical or other employee benefits available to Employee on or after the
effective date of termination of the executive's employment by the Company under
any federal, state or local law that provides for the continuation of any
medical or other employee benefits after employment.
8. Rights to Works. In return for the consideration described herein, Employee
agrees as follows:
(a) All programs, inventions, recordings and work product of any nature
made pursuant to this Agreement or otherwise in the course of Employee's
services and Employee's contributions thereto (hereinafter referred to as
"Works") shall belong solely and exclusively to the Company. The Company shall
have the perpetual and exclusive right to use, exhibit, distribute, or license
throughout the universe, any Work or part thereof in which Employee's services
are utilized by all forms of audio, visual, textual, digital, electronic or
other distribution that are now known or may hereafter exist, and otherwise
exploit such Works in such media, forums and for such uses throughout the
universe as it deems appropriate; provided, however, that no likeness or quote
of Employee shall be used without Employee's written consent. All revenues
derived by the Company from the use, exhibition, distribution, licensing, or
other exploitation of such Works shall be the sole and exclusive property of the
Company.
(b) To the extent that the Works are considered: (i) contributions to
collective works and/or (ii) as parts or components of audiovisual works, the
parties hereby expressly agree that the Works shall be considered "works made
for hire" under the United States Copyright Act of 1976, as amended (17 U.S.C.
Section 101 et seq.). In accordance therewith, the sole right of copyright in
and to the Works shall belong exclusively to the Company in perpetuity. To the
extent that the Works are deemed works other than contributions to collective
works and/or parts or components of audiovisual works, Employee hereby assigns
to the Company all rights, title and interest in and to the copyrights of such
Works and all renewals and extensions of the copyrights that may be secured
under the laws now or hereafter in force and effect in the United States of
America or any other country or countries. At the Company's reasonable written
request and sole expense, Employee shall execute, verify, acknowledge, deliver
and file any and all formal assignments, recordations and any and all other
documents that the Company may prepare and reasonably call for to give effect to
the provisions of this Agreement. If Employee fails to execute any such document
or instrument, or perform any such act, within ten (10) business days, Employee
shall be deemed to have irrevocably constituted and appointed the Company, with
full power of substitution, to be Employee's true and lawful attorney, in
Employee's name, place, and stead, to execute, acknowledge, swear to, and file
all instruments, conveyances, certificates, agreements, and other documents, and
to take any action which may be necessary or appropriate to effect the
provisions of this Section 8. The powers of attorney granted herein shall be
deemed to be coupled with an interest and shall be irrevocable.
(c) It is understood that the rights granted to the Company in this
Section 8 shall continue in effect after the termination or expiration of this
Agreement to the extent necessary for the Company's full enjoyment of such
rights.
(d) All provisions of this Agreement relating to the assignment by
Employee of any invention or innovation are subject to the provisions of
California Labor Code Sections 2870, 2871 and 2872. In accordance with Section
2870 of the California Labor Code, the obligation to assign as provided in this
Agreement does not apply to an invention or innovation that Employee developed
entirely on his own time without using the Company's equipment, supplies,
facilities, or trade secret information except for those inventions that either:
(i) relate to
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<PAGE> 6
either (A) the business of the Company or any of its Subsidiaries at the time of
conception or reduction to practice of the invention, or (B) actual or
demonstrably anticipated research or development of the Company or any of its
Subsidiaries; or (ii) result from any work performed by Employee for the Company
or any of its Subsidiaries.
(e) Employee shall disclose all inventions and innovations to the Company,
even if Employee does not believe that he or she is required under this
Agreement, or pursuant to California Labor Code Section 2870, to assign his
interest in such invention or innovation to the Company. If the Company and
Employee disagree as to whether or not an invention or innovation is included
within the terms of this Agreement, it will be the responsibility of Employee to
prove that it is not included.
9. Noncompetition; Nonsolicitation. In recognition of the considerations
described herein, Employee agrees that for so long as Employee is employed by
the Company, and until the "Expiration Date" (as defined below), Employee will
not, directly or indirectly, without the prior written consent of the Company:
(a) enter into the employ of, or render any services to, any person, firm
or business entity engaged in any business that at that time is competitive with
the business of the Company or any Subsidiary (a "Competitive Business"),
including, without limitation, any business that:
(i) anywhere in the world: (A) operates a meta-music index or search
engine on the World Wide Web; or (B) sells or offers to sell through a World
Wide Web site music-related products or services, including, without limitation,
any devices or other means, whether utilizing technology existing as of the date
hereof or devised hereafter, on or by which sound may be recorded, transmitted
or reproduced, with or without a visual reproduction, primarily for home and/or
consumer use, including, without limitation, analog disc records, analog tape
cassettes, compact discs, mini-discs, digital audio tapes, video cassettes,
laser discs, and downloading via the internet ("Records"); or
(ii) within a fifty (50) mile radius of the principal office of the
Company or the relevant Subsidiary: (A) plans, develops, produces, and/or
promotes live musical or new media events; (B) represents musical artists for
personal appearance tours and live concerts, and/or clients involved in new
media endeavors; or (B) engages in the creation, distribution, marketing and/or
promotion of Records;
(b) engage in any Competitive Business for Employee's own account;
(c) become interested in any Competitive Business as an individual,
partner, shareholder (other than as described below), creditor, director,
officer, principal, agent, employee, trustee, consultant, advisor, franchisee or
in any other relationship or capacity;
(d) authorize his name or reputation to be used by any Competitive
Business;
(e) contact or solicit, or attempt to contact or solicit, for Employee's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity that was a client or customer of the Company or any
Subsidiary within the six (6)-month period preceding the effective date of the
termination of Employee's employment;
(f) contact or solicit, or attempt to contact or solicit, for Employee's
own account or any account other than that of the Company or any Subsidiary, any
person or business entity
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<PAGE> 7
that has been contacted, orally or in writing, by the Company or any affiliated
entity of the Company as a potential customer or client within the six (6)-month
period preceding the effective date of the termination of Employee's employment;
or
(g) hire, subcontract, employ or engage, or contact or solicit, or attempt
to contact or solicit, for the purpose of hiring, contracting, employing or
engaging, for Employee's own account or any account other than that of the
Company or any Subsidiary, any person or entity (other than Employee's personal
assistant) who was an employee or exclusive subcontractor of the Company or any
affiliated entity of the Company at any time during the six (6)-month period
preceding the effective date of the termination of Employee's employment;
provided, however, that nothing contained in this Section 9 shall be deemed to
prohibit Employee from acquiring or holding, solely for investment, publicly
traded securities of any corporation some of the activities of which are
competitive with the business of the Company so long as such securities, in the
aggregate, constitute less than five percent (5%) of any class or series of
outstanding securities of such corporation. For purposes of this Section 9, the
"Expiration Date" shall mean the later of (i) the expiration of the then current
period of the Term and (ii) the date one (1) year after the effective date of
the termination of Employee's employment pursuant to Section 7 above; provided,
however, that in the case of either the Company's termination of Employee's
employment other than pursuant to Sections 7(a) or 7(b) above or Employee's
voluntary resignation pursuant to Section 7(d) above, the "Expiration Date"
shall mean the effective date of the termination of Employee's employment.
10. Trade Secrets. During the term of this Agreement and at all times
thereafter, Employee shall hold in secrecy all trade secrets and confidential
information relating to the Company's (and its affiliates') business and affairs
that may come to his knowledge or have come to his knowledge while employed by
the Company (excluding information that is or becomes publicly known or
available for use through no fault of Employee), including but not limited to:
(a) matters of a business nature, such as confidential information about costs,
profits, markets, sales, lists of customers, lists of clients and other
information of a similar nature, (b) confidential plans or strategies for
development of the business of the Company and (c) confidential matters of a
technical nature. Except as required in the performance of his duties to the
Company under this Agreement, Employee shall not use for his own benefit or
disclose to any person, directly or indirectly, such matters unless such use or
disclosure has been specifically authorized in writing by the Company in
advance.
11. Employee's Representations. Employee hereby represents and warrants that:
(a) he has the right to enter into this Agreement and to grant the rights
granted by him herein, (b) the provisions of this Agreement do not violate any
other contracts or agreements to which he is a party and that would adversely
affect his ability to perform his obligations hereunder, and (c) he will comply
with all policies of the Company of which he has notice, provided they are
consistent with applicable laws.
12. The Company's Representations. The Company hereby represents and warrants
that: (a) it has the right, power and authority to enter into this Agreement and
to incur the obligations incurred by it herein, (b) this Agreement has been duly
and validly authorized by the Company, and (c) the provisions of this Agreement
do not violate any other contracts or agreements to which it is a party that
would adversely affect its ability to perform its obligations hereunder.
13. Indemnification. The Company agrees that Employee shall be entitled to
indemnification and payment or reimbursement of expenses (including, without
limitation, attorneys' fees and expenses) to the fullest extent provided to
employees in the Company's Operating Agreement,
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<PAGE> 8
as in effect on the date hereof, and as it may be amended (but in no event on
terms less favorable to Employee than those in effect on the date hereof), for
all damages, losses and expenses incurred by Employee in connection with any
third-party claim, action, suit or proceeding that arises from Employee's
services and/or activities (other than Employee's gross negligence or willful
misconduct) as an officer and/or employee of the Company or any affiliate
thereof. This Section 13 shall survive any termination of the Term.
14. Voting Agreement. In consideration of the Company's execution and delivery
of this Agreement, Employee shall execute and deliver a Voting Agreement and
Power of Attorney substantially in the form attached hereto as Exhibit A.
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal substantive laws (and not the laws of
choice of laws) of the State of California.
16. Costs. If either party brings any legal action against the other to enforce
its rights under this Agreement, the prevailing party in such dispute shall be
entitled to recover from the other party all reasonable fees, costs and expenses
actually incurred in enforcing its rights under this Agreement including,
without limitation, the reasonable fees and expenses of attorneys, accountants
and expert witnesses, which shall include, without limitation, all fees, costs
and expenses of appeals and of enforcement.
17. Entire Agreement. This Agreement constitutes the whole agreement of the
parties hereto in reference to any employment of Employee by the Company and in
reference to the subject matter hereof, and all prior agreements, promises,
representations and understandings relative thereto are merged herein.
18. Assignability.
(a) In the event that the Company shall merge or consolidate with any
other corporation, partnership or business entity or all or substantially all
the Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, such successor shall thereupon
succeed to, and be subject to, all rights, interests, duties and obligations of,
and shall thereafter be deemed for all purposes hereof to be, the Company
hereunder and the Company shall obtain a written assumption agreement from such
successor prior to completion of any such merger, consolidation or sale of
assets.
(b) This Agreement is personal in nature and neither of the parties hereto
shall, without the written consent of the other party hereto, assign or transfer
this Agreement or any rights or obligations hereunder, except by operation of
law or pursuant to the terms of Section 18(a) above.
(c) Nothing expressed or implied herein is intended or shall be construed
to confer upon or give to any person, other than the parties hereto, any right,
remedy or claim under or by reason of this Agreement or of any term, covenant or
condition hereof.
19. Remedies. Any material breach, violation or evasion by Employee of the terms
of this Agreement, including specifically, but not limited to, Sections 8, 9 and
10 above, would result in immediate and irreparable injury and harm to the
Company, and would cause damage to the Company in amounts difficult to ascertain
and for which Company's remedies and defenses at law would be inadequate.
Accordingly, in the event of any such breach or threatened breach, the Company
shall be entitled to, and Employee hereby consents to the entry of, the remedies
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<PAGE> 9
or injunction and specific performance, or either of such remedies, as well as
all other remedies to which the Company may be entitled, at law, in equity or
otherwise.
20. Covenants Reasonable as to Time and Territory. Employee and the Company have
considered carefully the nature and extent of the restrictions set forth in this
Agreement and the rights and remedies conferred upon the Company under this
Agreement, and hereby acknowledge and agree that (i) the same are reasonable in
time and territory (ii) and that the consideration provided to the Employee
hereunder is sufficient to compensate the Employee for the restrictions
contained in this Agreement.
21. Amendments; Waivers. This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived
only by a written instrument executed by the parties hereto or, in the case of a
waiver, by the party waiving compliance. Any amendment to a material term of
this Agreement shall require the approval of the Committee. The failure of any
party at any time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce the same. No waiver by
any party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
22. Notice. All notices, consents, requests and other communications hereunder
shall be in writing and, if given by personal delivery, shall be deemed to have
been validly served, given or delivered upon actual delivery and, if mailed or
delivered by overnight courier, shall be deemed to have been validly served,
given or delivered when deposited in the United States mail, as registered or
certified mail, with proper postage prepaid, or when deposited with the courier
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service, and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
If to Employee: Donald Muller
20324 Howard Ct.
Woodland Hills, CA 91364
If to the Company: Artist Direct, LLC
17835 Ventura Blvd.
Suite 310
Encino, California 91316
With a copy to: Lenard & Gonzalez LLP
1900 Avenue of the Stars
Twenty-Fifth Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
23. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
24. Counterparts. This Agreement may be executed in two counterparts, each of
which shall be deemed an original and both of which together shall be deemed one
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"EMPLOYEE" "COMPANY"
/s/ Donald Muller ARTISTdirect, LLC
- ------------------------------
Donald Muller
By: /s/ Marc Geiger
--------------------------------
Marc Geiger
Its: Member
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<PAGE> 1
EXHIBIT 10.25
PANDESIC AGREEMENT
ORDER FORM
<TABLE>
<CAPTION>
CONTRACT DATE: April 15, 1999 CONTRACT NUMBER:
----------------------- ---------------------------
MERCHANT INFORMATION
- -------------------------------------------------------------------------------------------
<S> <C>
COMPANY NAME: ARTISTdirect, LLC CONTACT NAME: PASCAL DESMARETS
----------------------- -----------------------------
BILLING ADDRESS: 17835 VENTURA BLVD. PHONE: 818-758-8700
-------------------- ------------------------------------
SUITE 310 FAX: 818-758-8722
- ------------------------------------- --------------------------------------
ENCINO, CA 91316 E-MAIL: [email protected]
- ------------------------------------- -----------------------------------
BILLING CONTACT: BOB MORSE TECHNICAL CONTACT: MORGAN PORTER
--------------------- -------------------------
PHONE: 818-758-8700 PHONE: 818-758-8700
------------------------------ ------------------------------------
FAX: 818-758-8722 FAX: 818-758-8722
-------------------------------- ------------------------------------
E-MAIL: [email protected] E-MAIL: [email protected]
----------------------------- ------------------------------------
</TABLE>
Merchant hereby orders the Pandesic E-Business Solution Service from PANDESIC
LLC ("PANDESIC"). This Order Form and Exhibit A to this Order Form Additional
Services is subject to the Terms and Conditions and the Pandesic reference
documents referred to herein (collectively, the "Agreement"). This Agreement is
valid when accepted by an authorized representative of PANDESIC.
The Pandesic E-Business Solution Service consists of (i) the installation,
implementation, hosting and administration of Merchant's e-commerce web site
(the "Hosting Services") on computers and system software (the "Pandesic
Equipment") operated by PANDESIC or its hosting partner (the "Hosting Partner"),
and (ii) licenses of associated Pandesic and third party ("Supplier")
application software (the "Software") for such purposes.
Other services provided hereunder include (i) training on the operation of the
Pandesic E-Business Solution Service, and (ii) maintenance and support services
(the "Maintenance Services"), all as described from time to time in PANDESIC
reference documents. The Pandesic E-Business Solution Service and the other
services are referred to collectively as the "Services."
MERCHANT HAS READ AND AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF THIS
AGREEMENT. MERCHANT AND PANDESIC AGREE THAT THE TERMS AND CONDITIONS OF THIS
AGREEMENT REPLACE AND SUPERSEDE ALL PROPOSALS, WRITTEN OR ORAL, AS WELL AS OTHER
COMMUNICATIONS BETWEEN MERCHANT AND PANDESIC RELATING TO THIS AGREEMENT.
<TABLE>
<CAPTION>
ACCEPTANCE
- -------------------------------------------------------------------------------------------
<S> <C>
ACCEPTED BY MERCHANT: ACCEPTED BY PANDESIC LLC:
SIGNATURE: /s/ Marc P. Geiger SIGNATURE: /s/ Peter Wolcott
--------------------------- --------------------------------
PRINT NAME: Marc P. Geiger PRINT NAME: Peter Wolcott
-------------------------- -------------------------------
TITLE: CHIEF EXECUTIVE OFFICER TITLE: President
------------------------------ -----------------------------------
DATE: April 15, 1999 DATE: 5/2/99
------------------------------ -----------------------------------
</TABLE>
Page 1
<PAGE> 2
PANDESIC AGREEMENT
RATE SHEET
INITIAL SET-UP CHARGE
- - Merchant shall pay an initial set-up charge of [***], payable within
[***] days of acceptance of this Agreement.
MONTHLY TRANSACTION FEES
- - The Monthly Base Fee shall be [***].
- - Monthly Transaction Fees will be calculated using the Monthly Base
Fee plus a percentage of monthly revenue (defined as [***] generated
by the sale or other distribution of products
- - Monthly Transaction Fees commence upon the Technical Installation
(the date that the Pandesic software is loaded on the servers and the
servers are ready to accept Merchant's configuration and functional
installation of its products), at the site of Pandesic's Hosting
Partner ("Digex").
FEE SCHEDULE
Monthly Transaction Fee shall be determined in accordance with the following
table:
<TABLE>
<CAPTION>
<S> <C> <C>
MERCHANT MONTHLY SALES MONTHLY TRANSACTION FEE
From To Base Fee Incremental Transaction %
- --------------------- ------------------------ -------------------------
[***] [***] [***] [***]
[***] [***] [***] [***]
</TABLE>
For example, a merchant that transacts [***] of monthly gross sales and [***] of
freight revenue would be responsible for a Monthly Transaction Fee of [***].
Monthly Base Fee for [***] in Monthly Sales [***]
[***] [***]
Total owed to Pandesic [***]
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[***] Confidential treatment has been requested for the bracketed portion. The
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Pandesic Agreement
Rate Sheet
ACCEPTANCE
ACCEPTED BY MERCHANT: ACCEPTED BY PANDESIC LLC:
SIGNATURE: /s/ Marc P. Geiger SIGNATURE: /s/ Peter Wolcott
------------------------------ ---------------------------
PRINT NAME: Marc P. Geiger PRINT NAME: Peter Wolcott
----------------------------- --------------------------
TITLE: CHIEF EXECUTIVE OFFICER TITLE: President
--------------------------------- ------------------------------
DATE: April 15, 1999 DATE: 5/2/99
--------------------------------- ------------------------------
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
The following terms and conditions (these "Terms") govern the provisions by
Pandesic LLC ("Pandesic") of the Services described on the Pandesic E-Business
Solution Service Order Form ("Order Form") to the company ("Merchant")
identified on the Order Form.
1. OBLIGATIONS OF PANDESIC
1.1 Pandesic will provide, deploy, support and maintain the
Pandesic E-Business Solution Service.
1.2 Pandesic hereby grants to Merchant a non-exclusive and
non-assignable license to use the Software in the United
States for the purpose of conducting business over the
Internet throughout the world.
2. OBLIGATIONS OF MERCHANT
2.1 Merchant shall comply with all of the terms of this Agreement,
including but not limited to, the Acceptable Use Policy (the
"Use Policy"), as the Use Policy may be modified from time to
time during the term of this Agreement
2.2 Merchant may use the Services for the purpose of conducting
electronic commerce activities, as well as processing third
party data, solely in connection with products and services
offered via Merchant's website. Subject to the foregoing
Merchant shall not offer, for a fee or free of charge,
services consisting of the processing of data through the use
of the Services for, or for the benefit of, any person other
than Merchant.
3. PAYMENT
3.1 Merchant shall pay the fees set out in the Rate Sheet,
attached hereto.
3.2 All payments shall be made in U.S. Dollars. In all cases,
payments are due upon receipt by Merchant of the applicable
monthly invoices.
3.3 Payments and any additional charges, including, but not
limited to, any early cancellation charges, accrued interest
and late fees shall be invoiced in arrears and shall appear on
the monthly invoices for Services or separate invoices, as
determined by Pandesic in its sole discretion.
3.4 In addition to any other remedies that may be available to
Pandesic under this Agreement (including, but not limited to,
those in connection with the termination of this Agreement
pursuant to Section 13 below) or applicable law, invoices that
are not paid in full [***] after receipt by Merchant (a
"Payment Default") will be subject to interest charges of the
lesser of [***] per month or portion thereof and the highest
amount permitted by law, which interest shall accrue daily.
3.5 Subject to Section 13.3 of this Agreement, Merchant shall be
liable for all amounts owed to Pandesic pursuant to this
Agreement, irrespective of the termination of this Agreement
Merchant also shall pay to Pandesic all expenses incurred by
Pandesic in exercising any of its rights under this Agreement
or applicable law with respect to the collection of a Payment
Default, including, but not limited to, reasonable attorneys'
fees and the fees of any collection agency retained by
Pandesic.
3.6 Merchant shall be liable for, and shall reimburse Pandesic and
indemnify and hold Pandesic harmless from all local, state,
federal and non-United States taxes or similar assessments or
charges (including any interest and penalties imposed
thereon), other than taxes based on the net income of
Pandesic, arising out of or relating to this Agreement or the
provision of the Services hereunder.
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
4. MAINTENANCE
4.1 Pandesic designates time periods ("Scheduled Maintenance
Windows") during which it may limit or suspend the
availability of the Pandesic Equipment and/or Software
involved in providing its Services (an "Outage") to perform
necessary maintenance or updates. Scheduled Maintenance
Windows currently are each Tuesday and Friday between the
hours of 4:00 a.m. and 8:00 a.m. and the third Saturday of
each month between the hours of 4:00 a.m. and 12 noon Pacific
Standard Time.
4.2 If planned maintenance has the possibility of making the
Pandesic Equipment used by Merchant inaccessible to the
Internet during a Scheduled Maintenance Window, Pandesic will
provide not less than twenty-four (24) hours prior electronic
mail or other notice to Merchant of the Scheduled Maintenance
Window during which the Outage is planned.
4.3 In addition, Pandesic reserves the right to perform any
required maintenance work or updates outside of the Scheduled
Maintenance Window with a minimum of seven (7) days prior
notice to Merchant. Pandesic also may perform at any time any
maintenance or updates it believes is necessary to preserve
the integrity of Pandesic's network and services offered
regardless of whether it has provided any notice to Merchant
thereof. Pandesic shall perform any upgrades to the Software
at times mutually acceptable to both parties.
4.4 Merchant agrees that Pandesic, its Hosting Partner and its
third party service providers shall have access to its
internet commerce system and web site for the purposes
contemplated in this Agreement.
5. CONFIDENTIALITY
5.1 In the course of business dealing, both parties will be
releasing valuable trade secrets and other confidential
information to the other including, in Pandesic's case,
information about the Services and Software provided by
Pandesic, Hosting Partner and Suppliers, and in Merchant's
case, its customer business data. Each party recognizes that
such information constitutes valuable trade secrets of the
other.
5.2 Accordingly, each party agrees that (i) the provisions of this
Agreement (ii) any information whatsoever with respect to the
Services and the Software, (iii) the course of dealing between
Pandesic and Merchant hereunder, (iv) Merchant's data, and (v)
all other non-public information (whether technical or
otherwise) made available or disclosed to such party (the
"recipient") by the other (the "disclosing party")
(collectively, the "Confidential Information") shall be
treated by recipient on a confidential basis and shall not be
reproduced, reduced to writing, or disclosed to any employee
or contractor except as necessary to provide or use the
Services, or to any other person or entity without the prior
written consent of disclosing party.
5.3 Upon termination of this Agreement, any documentation
reflecting any Confidential Information of the other party
shall be returned promptly to such party. Disclosure of
information pursuant to applicable statutes or regulations
(collectively, 'Laws') shall be excepted from the provisions
of this Section 5; provided, however, that prior to any
disclosure by the recipient pursuant to any Laws, recipient
will assert the confidential nature of the Confidential
Information and will cooperate fully with the disclosing
party, at the disclosing party's expense, in protecting
against any such disclosure including, but not limited to,
obtaining a protective order or similar order narrowing the
scope of such disclosure of the Confidential Information. In
the event such protection is not obtained, the recipient shall
disclose the Confidential Information only to the extent
necessary to comply with the Laws.
6. PROPRIETARY RIGHTS INDEMNIFICATION
6.1 Merchant agrees to indemnify and hold harmless Pandesic, all
individuals or entities controlling, controlled by or under
common control with Pandesic (each, a "Pandesic Affiliate"),
Hosting Partner, and the officers, directors and employees of
Pandesic, Pandesic Affiliates and Hosting Partner (an
"Indemnified Party") against any losses, claims, damages,
liabilities, penalties, actions,
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
proceedings or judgments (collectively "Losses") to which an
Indemnified Party may become subject related to or arising out
of any infringement or misappropriation or alleged
infringement or misappropriation of any United States
copyright, trade secret or other proprietary right related to
any hardware or software (other than the Pandesic Equipment
and the Software) utilized by Merchant in connection with any
of the Services or to any Merchant data distributed via the
Pandesic E-Business Solution Service and will reimburse such
Indemnified Party for all legal and other direct expenses,
including reasonable attorneys' fees incurred by such
Indemnified Party in connection with investigating, defending
or settling any Loss, whether or not in connection with
pending or threatened litigation in which such Indemnified
Party is a party.
6.2 Pandesic agrees to indemnify and hold harmless Merchant
against any Losses to which Merchant may become subject,
related to or arising out of any infringement or
misappropriation or alleged infringement or misappropriation
of any United States patent, copyright, trade secret or other
proprietary right related to the Pandesic Equipment or the
Software and will reimburse Merchant for all legal and other
direct expenses, including reasonable attorneys' fees incurred
by Merchant in connection with investigating, defending or
settling any Loss, whether or not in connection with pending
or threatened litigation in which Merchant is a party. This
indemnification does not relate to the Merchant data or
matters that arise from Merchant data or conduct. The
provisions of this Agreement relating to indemnification shall
survive termination of this Agreement.
6.3 In the event of any claim of infringement or misappropriation
under paragraph 6.2 above, Pandesic shall use its best
efforts, at its option and expense to either (i) procure for
Merchant the right to continue using the Pandesic Equipment or
the Software, (ii) replace such Pandesic Equipment or Software
with non-infringing equipment or software, or (iii) modify the
same so as to make it non-infringing, and thereafter, (iv)
terminate the Agreement as to the infringing Pandesic
Equipment or Software and refund to Merchant any of the unused
portion of the fees paid for Services prior to such
termination.
7. INDEMNIFICATION
7.1 In addition to other indemnification provided herein,
including without limitation Indemnification provided in
Section 8.3 of this Agreement from the date of any such breach
of warranty, notwithstanding any cure period, and except as to
matters covered by paragraph 6.2 above, Merchant agrees to
indemnify and hold harmless Pandesic, Pandesic Affiliates,
Hosting Partner, and the officers, directors and employees of
Pandesic, Pandesic Affiliates, and Hosting Partner (each an
"Indemnified Party") against any Losses to which an
Indemnified Party may become subject and which Losses arise
out of, or relate to Merchants breach of this Agreement in
connection with Its use of the Services under or related to
this Agreement, and will reimburse an Indemnified Party for
all legal and other expenses, including reasonable attorneys'
fees Incurred by such Indemnified Party in connection with
investigating, defending or settling any Loss whether or not
in connection with pending or threatened litigation in which
such Indemnified Party is a party.
8. OTHER MERCHANT ASSURANCES
8.1 During any time period when Merchant is provided access to any
facilities, hardware or other property owned or leased by, or
otherwise under the control of Pandesic or Hosting Partner
(collectively "Pandesic Property") pursuant to this Agreement
Merchant shall (i)maintain insurance, with Pandesic and
Hosting Partner as a named payee, covering any damage or
destruction to Pandesic Property (collectively "'Damage"); (i)
reimburse Pandesic for all expenses incurred by Pandesic in
replacing or repairing, as the case may be, any Damage caused
by Merchant, other than normal wear and tear on Pandesic
Property.
8.2 Merchant shall not attempt to copy, modify, alter,
disassemble, decompile, translate or convert Into human
readable form, or reverse engineer, all or any part of the
Software and shall not use the Software to develop any
derivative works or any functionally compatible or competitive
software, except to the extent permitted under applicable law.
However, Merchant may create interfaces to the Software or
modify the provided interfaces to permit interfacing with
Merchant's legacy database systems solely for Merchant's use
in connection with the Services provided pursuant to this
Agreement. Merchant shall not. separate the Software into its
component parts, nor
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
incorporate any component files into any product, nor shall it
remove any proprietary, trademark or copyright markings or
confidentiality legends within the Software.
8.3 Merchant shall not use the Services in any manner which
violates any law or regulation, is for a fraudulent purpose,
contravenes public policy, or may cause Pandesic or its
Suppliers to be subject to prosecution or legal action.
Merchant shall only use the Services to process sales
transactions which, to the best of its knowledge, are genuine
and do not arise out of fraudulent or illegal activities in
the sale of goods, information or services. Merchant agrees,
represents and warrants that Merchant's web site shall not
contain any content or materials that infringe on the rights
of any other party or violate any applicable law or regulation
or any proprietary, contract, moral, privacy or other third
party right, or which would expose Pandesic, its Hosting
Partner or its Suppliers to any civil or criminal liability or
otherwise would affect Pandesic's or its Hosting Partner's
business; provided however, that in the event of any such
Infringement, Merchant shall have a period of fifteen (15)
business days from any such infringement to take any steps
required to cure any such breach of the warranty provided
herein with respect to such content or materials. Merchant
shall indemnify and save Pandesic, Pandesic Affiliates,
Hosting Partner, and the officers, directors and employees of
Pandesic harmless (each an "Indemnified Party") against any
claim, liabilities and costs by which an Indemnified Party may
become subject to and which arise out of, or relate to any
content contained on Merchants web site or which result from
the use of the Services in contravention of this section.
Merchant shall (a) acquire all authorizations necessary in
respect of any hyperlinks by its commerce web site, and upon
reasonable request by Pandesic, (b) provide Pandesic and its
Hosting Partner with accurate information concerning
descriptive claims, warranties, guarantees, nature of its
business and the addresses where its business is conducted.
8.4 Merchant appoints Pandesic as its agent to accept customer
relationships with certain of its Suppliers [***] as more
fully described In the reference documents.
9. USE OF MERCHANT'S NAME
9.1 Pandesic shall be permitted to use Merchant's name in a manner
mutually agreed to by the parties and in compliance with any
trademark usage guidelines provided by Merchant to Pandesic,
in connection with proposals to prospective merchants and
otherwise in print and in electronic form for marketing or
other purposes, including, but not limited to, use in
connection with (i) compliance with applicable laws or
regulations; and (ii) the protection of any rights relating to
Pandesic or its business.
10. USE OF PANDESIC'S NAME
10.1 Merchant may use the name "PANDESIC" in connection with the
Services or otherwise only with the prior written consent of
Pandesic. Pandesic shall be permitted to place an image of its
logo on Merchant's web site in order to identify Pandesic as
the e-business solution provider to Merchant. The parties
shall jointly agree the size and location of such logo.
10.2 Except as set forth herein, neither party shall have the right
to use or display the trademarks of the other party (including
with respect to consent of Pandesic, Pandesic's Hosting
Partner and Suppliers) in connection with the Services or
otherwise without prior written consent of the other party.
11. USE OF PANDESIC'S NAME
11.1 Subject to Section 4, Pandesic will use its reasonable
commercial best efforts to assure that the Services will be
available twenty-four (24) hours a day, seven (7) days a week.
If the Services are unavailable for more than a total of 4
hours in any week, other than as a result of the maintenance
activities described in Section 4, Merchant's sole and
exclusive remedy shall be that, in the event the Fees are
below the Monthly Base Fee in the month of availability, the
fees shall be waived on a pro rata basis for the period of
unavailability.
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
11.2 For purposes of this Agreement, a week shall be considered to
run from Sunday to Saturday and the Services shall be deemed
to be unavailable if (i) the system network is incapable of
transmitting data (subject to Section 15 below); or (ii)
Pandesic's standard hardware; software, or operating system is
functioning in a manner that prevents http, ftp, or mail
access to the Internet server or the software is unable to
process standard functions of the Pandesic E-Business Solution
Service ("Unavailability").
11.3 Notwithstanding the foregoing, Pandesic shall not be in breach
of this warranty for any period of unavailability which
results from Merchant' s action or inaction, including, but
not limited to, Merchants use of Merchant owned, non-standard,
or unsupported hardware and/or software installed by the
Merchant (or by Pandesic at the Merchant's request).
11.4 Pandesic warrants that the Maintenance Services will be
performed in accordance with generally accepted industry
standards for comparable services. Merchant's sole and
exclusive remedy for any breach of the foregoing warranty
shall be to provide Pandesic with notice of such nonconformity
within [***] of the defective performance and Pandesic shall
re-perform such Maintenance Services.
11.5 YEAR 2000 COMPLIANCE
11.5.1 The Pandesic-owned portion of the Software shall be
Year 2000 Compliant as of September 30, 1999.
11.5.2 In this regard, "Year 2000 Compliant" shall mean that
the software shall continue to function before, during
and after January 1, 2000 without error related to, or
the product of, date data which represents or
references different centuries, and, more specifically,
(a) correctly manages and manipulates data involving
dates, including single-century formulae and
multi-century formulae, (b) correctly identifies the
year 2000 as a leap year, (c) does not include any
information other than a specific date, and (d) uses
four digits to indicate the year in storage, use and
communication of all date data date-related functions.
11.5.3 The Software also includes third party Software. In
some cases, the Year 2000 capabilities of such third
party Software are unwarranted by the Suppliers of such
Software. Pandesic shall test the third party Software
for Year 2000 Compliance and shall use its reasonable
commercial best efforts to cause such Software to be
made Year 2000 Compliant by their Suppliers.
11.5.4 Provided that Pandesic takes reasonable steps to test
the third party Software as provided in Section 11.5.3
of this Agreement, Pandesic is not responsible for
errors resulting from third-party systems or devices,
which directly access the database and overwrite the
database date fields or from the improper integration
of non-Year 2000 Compliant systems by Merchant.
11.6 EXCEPT AS SET FORTH HEREIN, PANDESIC, HOSTING PARTNER AND
SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11.7 PANDESIC DOES NOT WARRANT THE ACCURACY OF THE TAX DATA AND
OTHER TAX CALCULATIONS MADE BY THE SOFTWARE. MERCHANT BEARS
FULL RESPONSIBILITY FOR THE DETERMINATION OF THE ACCURACY AND
APPLICABILITY OF THE OUTPUT FROM THE SOFTWARE AND ACKNOWLEDGES
AND UNDERSTANDS THAT TAX CALCULATIONS OFTEN INVOLVE
INTERPRETATIONS AND THAT THE DATA OF MANY JURISDICTIONS CAN
CHANGE RAPIDLY. MERCHANT UNDERSTANDS THAT PANDESIC IS
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
NOT PROVIDING SPECIFIC TAX, LEGAL, ACCOUNTING OR OTHER EXPERT ADVICE AND
MERCHANT SHOULD OBTAIN THE ADVICE OF QUALIFIED PROFESSIONALS IN THE AREA.
12. LIMITATION OF LIABILITY
12.1 NEITHER MERCHANT NOR PANDESIC, HOSTING PARTNER AND SUPPLIERS
SHALL BE LIABLE FOR (i) ANY INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR EXEMPLARY DAMAGES, OR FOR ANY LOSS OF
PROFITS, LOSS OF REVENUE OR BUSINESS INTERRUPTION OR LOSS OF
BUSINESS INFORMATION RESULTING FROM THE SERVICES, THE PANDESIC
EQUIPMENT OR THE SOFTWARE EVEN IF PANDESIC OR MERCHANT HAS
BEEN ADVISED OF THE POSSIBILITY THEREOF OR (II) ANY LOSS OF
DATA RESULTING FROM DELAYS, NON-DELIVERIES, MIS-DELIVERIES OR
SERVICE INTERRUPTIONS CAUSED BY PANDESIC OR MERCHANT. In no
event shall Merchant or Pandesic's aggregate cumulative
liability for any damages whatsoever to Merchant or Pandesic,
their employees, officers, directors, agents or contractors
arising out of or related to this Agreement exceed the amount
paid by Merchant or Pandesic, during the term, with respect to
the Services.
12.2 Neither Pandesic nor any of its officers, directors,
employees, contractors or agents shall be liable for any
damage or destruction of equipment or other materials
belonging to, leased by, or otherwise under the control of
Merchant, whether or not any such equipment or Materials are
at any time located in facilities owned or operated by
Pandesic, except where such damage or destruction is a direct
result of the gross negligence, recklessness or willful
misconduct of Pandesic or any of its officers, directors,
employees, contractors and agents.
12.3 The limitations of liability provided in this section shall
inure to the benefit of Merchant and Pandesic, Pandesic
Affiliates, Hosting Partner, Suppliers and to all of the
respective officers, directors, employees and agents of
Merchant and Pandesic and such other entities ("Limited
Liability Parties").
12.4 The limitations of liability in this Agreement shall apply
whether (i) the action in which recovery is sought is based in
contract, tort (including, but not limited to, negligence or
strict liability), statute or otherwise; or (ii) a Limited
Liability Party is alleged to be liable jointly with one or
more parties or otherwise.
13. TERM AND TERMINATION
13.1 The initial term of this Agreement shall commence on the
Contract Date and shall continue for twenty-four (24) months
from the date that the Pandesic software is loaded on the
servers and the servers are ready to accept Merchant's
configuration and functional installation of its products,
("Technical Installation"), following which it shall
automatically renew for successive twenty-four (24)-month
terms at the charges in effect at the commencement of each
such terms, unless written notice of non-renewal by either
party is delivered to the other party at least ninety (90)
days prior to the end of the then-current term.
13.2 TERMINATION BY PANDESIC
13.2.1 In addition to any other rights it may have under this
Agreement or applicable law, Pandesic may, at its
option, immediately terminate this Agreement, upon (i)
a Payment Default, which is not cured within [***] of
notice of such default (ii) Merchants failure to comply
with any other material obligation of Merchant under
this Agreement including, but not limited to, its
failure to comply with any of the terms of the Use
Policy, which is not cured within [***] of notice of
such default (iii) Merchant ceasing to do business in
the normal course, becoming or being declared insolvent
or bankrupt, being the subject of any proceeding
relating to liquidation or insolvency which is not
dismissed [***] or making an assignment for the benefit
of its creditors, (iv) any attempt that is prohibited
under this Agreement by Merchant to derive any source
code from the Software, (v) breach of
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
Merchant's obligations under Section 5 hereto, or (vi)
Pandesic, Hosting Partner or any Supplier becomes the
subject of an investigation by a law enforcement agency
not withdrawn within [***] or threatened with
prosecution as a result of Merchant's use of the
Services.
13.2.2 Pandesic may, at its option, terminate this Agreement
and retain the initial set-up charge paid by Merchant
in the event that Merchant does not complete its
pre-work obligations to permit deployment of the
Pandesic E-Business Solution Service by Pandesic within
six (6) months of the Contract Date.
13.3 TERMINATION BY MERCHANT
13.3.1 Merchant may terminate this Agreement in the event of a
material breach by Pandesic of its obligations under
this Agreement which breach is not cured within [***]
after written notice thereof is received by Pandesic (a
"Permissible Termination") other than breaches that
have defined remedies associated therewith. In the
event of a Permissible Termination, Merchant shall pay
a pro-rated Monthly Transaction Fee based on the number
of days Pandesic provided Services prior to the date of
termination of this Agreement by Merchant under this
Section 13.3, if the level of Fees for such month would
fall within the Monthly Base Fee.
13.3.2 If Merchant terminates this Agreement other than in a
Permissible Termination, Merchant agrees that it would
be impractical and/or extremely difficult to fix or
establish the actual damage sustained by Pandesic as a
result of such termination and agrees that Merchant
shall pay to Pandesic as liquidated damages an amount
equal to [***].
13.3.3 Merchant may also terminate this Agreement in the event
that Pandesic (i) becomes insolvent, or files or has
filed against it any proceeding in bankruptcy or for
reorganization under any federal bankruptcy law or
similar state law, or has any receiver appointed for
all or a substantial part of Pandesic's assets or
business, or makes any assignment for the benefit of
its creditors, or enters into any other proceeding for
debt relief and such proceeding is not dismissed within
[***] after it has begun; or (ii) ceases to do business
or institutes any proceedings for the liquidation or
winding up of its business or for the termination of
its corporate charter. Within thirty (30) days of
termination by Merchant pursuant to (i) or (ii) above,
Pandesic shall provide the Source Code and the compiled
executables to Merchant. For purposes of this Section
13.3.3 only, Source Code shall be defined as one copy
of the source code and related documents which pertain
to the Pandesic-owned portion of the Software only,
without updates. In the event that the Source Code is
released to Merchant pursuant to (i) or (ii) above,
Pandesic hereby grants Merchant the royalty-free right
to use such Source Code solely for the purpose of
maintaining its object code version of the
Pandesic-owned portion of the Software as of the date
this Agreement terminates in accordance with this
Section 13 of this Agreement and for no other reason
whatsoever.
13.4 Upon termination of this Agreement, Pandesic and Merchant
shall have no obligations to each other except as provided in
this Agreement. Upon termination of this Agreement, Merchant
shall (i) pay all amounts due and owing to Pandesic, (ii)
remove from Pandesic's and Hosting Partner's premises all
property owned by Merchant in respect of the Services
provided, and (iii) return to Pandesic all equipment,
documentation, software, access keys and any other property
provided to Merchant by Pandesic under this Agreement. Any
property of Merchant not removed from Pandesic's and Hosting
Partner's premises. Within ten (10) days after such
termination shall become the property of Pandesic, which may,
among other things, dispose of such property without the
payment of any compensation to Merchant. Pandesic shall return
to Merchant all of its data residing on the Pandesic Equipment
provided, however, that in the event that Merchant gives
Pandesic written notice that Merchant can not immediately
provide for the receipt of Merchants data residing on the
Pandesic Equipment, this Agreement will continue in effect
until such data is
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returned, Pandesic agrees to continue to host such data for up
to sixty (60) days from the date of such notice, and Merchant
agrees to continue to pay Pandesic and provided for in this
Agreement The rights and obligations of the parties hereto
which by their nature would continue beyond the termination or
cancellation of this Agreement (Including, without limitation,
those relating to confidentiality, payment of charges,
limitations of liability and indemnification) shall survive
any such termination or cancellation.
14. DISPUTE RESOLUTION
14.1 If a dispute or difference of any kind whatsoever (a
"Dispute") shall arise between Pandesic and Merchant in
connection with, relating to or arising out of this Agreement,
including the interpretation, performance, non-performance, or
termination hereof, the parties shall attempt to settle such
Dispute in the first instance by mutual discussions. If such
Dispute has not been resolved within thirty (30) days by
mutual discussions, the parties shall endeavor to settle the
Dispute by mediation under the Mediation Rules of the American
Arbitration Association prior to any recourse to arbitration
pursuant to Section 14.2 below.
14.2 If such Dispute cannot be settled within thirty (30) days
after submission to mediation pursuant to Section 14.1 above
(the "Mediation Period"), such Dispute shall be settled by an
arbitral tribunal (the "Tribunal") under the Arbitration Rules
of the American Arbitration Association (the "Arbitration
Rules"). Each party shall appoint an arbitrator within thirty
(30) days after the expiration of the Mediation Period, which
arbitrators shall then jointly appoint a third arbitrator
within thirty (30) days after the appointment of the first two
arbitrators, to act as president of the Tribunal. Arbitrators
not so appointed shall be appointed pursuant to the
Arbitration Rules. The costs of the arbitration shall be borne
by the parties as determined by the Tribunal. The award
rendered in any arbitration commenced hereunder shall be final
and conclusive and judgment thereon may be entered in any
court having jurisdiction for its enforcement. Neither party
shall (i) appeal to any court from the decision of the
Tribunal; or (ii) have any right to commence or maintain any
suit or legal proceeding concerning a Dispute until such
Dispute has been determined in accordance with the arbitration
procedure provided for herein, and then only for enforcement
of the award rendered in such arbitration.
14.3 Notwithstanding the foregoing, nothing in Sections 14.1 or
14.2 shall be deemed as preventing either party from seeking
injunctive relief from the courts pursuant to Section 14.4
below. All mediation and arbitration proceedings -pursuant to
this Agreement shall take place in Santa Clara County,
California.
14.4 Notwithstanding the foregoing, each party acknowledges that
violation of Section 5.2 will cause irreparable harm to the
other not adequately compensable by monetary damages. In
addition to other relief, each party agrees that injunctive
relief shall be available to the other in the event of such
violations without necessity of posting bond to prevent any
actual or threatened violation of such section.
15. GENERAL
15.1 Neither Merchant nor Pandesic shall be deemed to be in default
of any provision of this Agreement or be liable for any delay,
failure of performance of obligations or interruption of the
provision of Services under this Agreement resulting, directly
or indirectly, from any (i) weather conditions, natural
disasters or other acts of God, (ii) action of any
governmental or military authority, (iii) failure caused by
telecommunication or other Internet provider (but not
including Hosting Partner), or (iv) any other force or
occurrence beyond its control, including any termination of
the agreement between Pandesic and the Hosting Partner.
15.2 Hosting Partner and Suppliers are third-party beneficiaries to
this Agreement to the extent that this Agreement contains
provisions which relate to Merchants use of Hosting Partner's
services or the Supplier Software. Such provisions are made
for the benefit of such third parties and are enforceable by
them in addition to Pandesic.
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
15.3 Unless otherwise specified herein, any notices or other
communications required or permitted hereunder shall be
sufficiently given if in writing and delivered personally or
sent by facsimile transmission, email, internationally
recognized overnight courier, registered or certified mail
(postage prepaid with return receipt requested), to the
address or facsimile number of Merchant as set forth in the
Order Form or Pandesic as set forth below. In addition to the
obligations set forth herein, in the event that Pandesic sends
to Merchant any notice or other communication of Merchants
material breach of this Agreement, Pandesic shall provide any
such notice to Michelle Katz, Esq., Lenard and Gonzales, 1900
Avenue of the Stars, 25th Floor, Los Angeles, CA 90067. Such
notices or other communications shall be deemed received (i)
on the date delivered, if delivered personally, (ii) on the
date that return confirmation is received, if sent by
facsimile; (iii) on the business day after being sent by an
internationally recognized overnight air courier, or (iv) five
(5) days after being sent, if sent by first class registered
mail, return receipt requested.
Pandesic LLC
990 Almanor Avenue
Sunnyvale, California 94086
Attention: Director of Law & Corporate Affairs
Facsimile Number (408) 616-1920
15.4 Any claims arising out of or related to this Agreement must be
brought no later than one year after it has accrued.
15.5 Nothing in this Agreement or in the course of dealing between
Pandesic and Merchant pursuant hereto shall be deemed to
create between Pandesic and Merchant (including their
respective directors, officers, employees and agents) a
partnership, joint venture, association, employment
relationship or any other relationship other than that of
independent contractors with respect to each other.
15.6 This Agreement shall be governed by and construed in
accordance with the laws of the State of California without
regard to choice of law provisions that would cause the
application of the law of another jurisdiction.
15.7 Failure by either Pandesic or Merchant to enforce any of the
provisions of this Agreement or any rights with respect hereto
shall not be considered to be waiver of such provisions or
rights, or to in any way affect the validity of this
Agreement.
15.8 If one or more of the provisions contained in this Agreement
are found to be invalid, illegal or unenforceable in any
respect the validity, legality and enforceability of the
remaining provisions shall not be affected.
15.9 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.10 Pandesic may change its Hosting Partner at any time in its
sole discretion.
15.11 Upon reasonable notice and in a manner which does not unduly
interfere with Merchants operations, Pandesic shall have the
right to audit and inspect Merchant's use of the Pandesic
E-Business Solution Service and the sales records associated
therewith in order to verify compliance with the terms of this
Agreement In the event there is a discrepancy of [***], or
more in the accounts, Merchant shall be responsible for and
shall pay the reasonable costs of such audit to Pandesic.
15.12 Pandesic, as part of its E-Business Solutions Services
provides certain equipment to Merchant for use in connection
with the said Services. Merchant holds such equipment subject
and subordinate to the rights of Pandesic. Merchant will keep
such equipment free from any liens or encumbrances whatsoever
and will indemnify and hold Pandesic harmless from it failure
to do so. Merchant will
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
use commercially reasonable efforts to maintain such equipment
in good operating order, protect such from deterioration other
than normal wear and tear and will not use such for any
purposes other than contemplated herein.
15.13 This Agreement constitutes the entire agreement of the parties
and supersedes all oral negotiations and prior writings with
respect thereto. Except as set forth in Section 13 above, this
Agreement may not be amended, modified or terminated unless it
is in writing signed by both parties hereto.
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PANDESIC AGREEMENT
TERMS AND CONDITIONS
ACCEPTANCE
ACCEPTED BY MERCHANT: ACCEPTED BY PANDESIC LLC:
SIGNATURE: /s/ Marc P. Geiger SIGNATURE: /s/ Peter Wolcott
------------------------------ ------------------------------
PRINT NAME: Marc P. Geiger PRINT NAME: Peter Wolcott
------------------------------ ------------------------------
TITLE: CHIEF EXECUTIVE OFFICER TITLE: President
------------------------------ ------------------------------
DATE: April 15, 1999 DATE: 5/2/99
------------------------------ ------------------------------
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EXHIBIT A
ADDITIONAL SERVICES
Artist Direct/Ultimate Band List (UBL.com)
Per discussions between Pascal Desmarets and Harold Hughes and Rob
Vickery held on April 14, 1999 at Artist Direct headquarters on behalf
of Merchant and Pandesic, respectively, Merchant and Pandesic agree to
the following:
1. Pandesic agrees to make a standalone FI/CO instance and such services as
the parties mutually agree available to Merchant for the duration of the
agreement. Merchant agrees to make an expert (or any equivalent
consultant services) in the FI/CO modules of SAP R/3 available to
Pandesic for the term of the FI/CO installation project.
2. Pandesic will operate Artist Direct and UBL stores on the same
installation of Pandesic 3.0.
3. Pandesic will use its best efforts to deploy initial Artist Direct
stores within 6 weeks of the date of technical install. Pandesic will
make best efforts to condense this effort to 4 weeks but makes no
commitments that any such deployment will be made in less than 6 weeks
from the date of technical install.
4. Pandesic will commit to Cybersource fraud detection and payment
integration for Romeo. Transaction fees associated with all Cybersource
services will be the complete responsibility of Merchant.
5. Pandesic will deliver procurement functionality as part of the Romeo
release. Until the Romeo release, Merchant will utilize the procurement
processes utilized by DVD Express.
6. Fulfillment with Alliance Entertainment is completely the responsibility
of Merchant. Should Pandesic be required to provide any personnel for
implementation and/or testing, these personnel will be billable at
[***]. Pandesic will ensure that the fulfillment API functions as
documented.
7. Wholesale Orders - Pandesic will provide a "work around" to handle
multiple shipments/line item. Pandesic will use its best efforts to
provide the functionality within R/3 for Romeo to handle multiple
shipments/line item.
8. Pandesic will allow Merchant to use the I/Pro Agent on Pandesic servers
provided that any such use does not negatively impact Pandesic services.
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<PAGE> 1
EXHIBIT 10.26
ADNM MERCHANDISER AGREEMENT
THIS AGREEMENT, dated as of April 1, 1999, between Giant Merchandising
("Merchandiser"), 5655 Union Pacific Avenue, Commerce, CA 90022, and
ARTISTdirect New Media, LLC ("ADNM"), 17835 Ventura Blvd., Suite 310, Encino, CA
91316, is being entered into in light of the following:
A. Merchandiser is in the business of acquiring the right to use the
names, photographs and other likenesses, biographical material and other
personal identification (collectively, "Personal Identification") of musical
artists in connection with the manufacture and sale of merchandise and the
licensing of such rights to third parties.
B. ADNM is in the business of developing and operating Internet retail
storefronts for musical artists ("Artist Stores") that, among other things, sell
merchandise containing the Personal Identification of the applicable artist.
C. Merchandiser and ADNM are entering into this Agreement in order to
set forth the terms and conditions upon which Merchandiser has agreed to
accommodate ADNM in respect of developing and opening new Artist Stores
featuring Merchandiser Artists (as defined below) and in the operation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
benefits contained herein, the parties hereto agree as follows:
1. Term: The term of this Agreement (the "Term") shall be four (4) years
commencing on the date of this Agreement.
2. Signing Procedures:
(a) As used herein, "Merchandiser Artist" shall mean, individually
and collectively, each and every musical recording artist in respect of which
Merchandiser from time to time has the exclusive right to manufacture
merchandise utilizing such artist's Personal Identification and to sell such
merchandise for distribution through retail channels, including to retailers who
solely or primarily sell merchandise via the Internet (collectively, the
"Rights"). Merchandiser represents and warrants that attached hereto as Exhibit
A is a true and complete list of Merchandiser Artists as of the execution of
this Agreement, as well as the territory of the Rights in respect of each such
Merchandiser Artist.
(b) During the Term, Merchandiser agrees that, promptly upon
Merchandiser entering into an agreement to obtain Rights in respect of a
Merchandiser Artist, Merchandiser shall notify ADNM of the applicable artist
name(s) as well as the territory of the Rights. Upon Merchandiser's entering
into such agreement, the applicable Merchandiser Artist shall be deemed added to
said Exhibit A.
(c) Merchandiser agrees to promptly notify ADNM if any of the
information on said Exhibit A should change during the Term, or if the Rights in
respect of a particular Merchandiser Artist shall have terminated and/or the
"sell-off" provisions
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of Merchandiser's agreement with the applicable Merchandiser Artist have
become operative (after which such artist shall be deemed deleted from said
Exhibit A.)
(d) Said Exhibit A indicates with an asterisk (*) those Merchandiser
Artists in respect of which ADNM desires to enter into a Store Agreement as of
the execution of this Agreement. ADNM shall have the right from time to time
during the Term to notify Merchandiser that it desires to enter into a Store
Agreement with any other Merchandiser Artists. Each such Merchandiser Artist
shall be referred to herein as an "Accepted Artist." ADNM and Merchandiser shall
use their collective commercially reasonable efforts to cause the applicable
Merchandiser Artist to enter into an agreement with ADNM (each such agreement,
along with any extensions or renewals thereof, is sometimes referred to herein
as a "Store Agreement") substantially in the form attached hereto as Exhibit B.
ADNM agrees to provide Merchandiser with copies of each such Store Agreement
promptly after the complete execution thereof during the Term.
(e) Merchandiser acknowledges that, prior to the execution hereof,
ADNM entered into a Store Agreement with respect to the Merchandiser Artist
professionally known as [***] and that all Merchandiser Product sold under said
Store Agreement after the date hereof ("[***] Merchandise") shall be subject to
the terms of this Agreement, except as set forth below in this paragraph 2(e).
ADNM agrees to use best efforts to cause [***] to agree that the License Fee (as
defined in paragraph 6 below) shall be payable to Merchandiser hereunder (rather
than to [***]) in respect of all [***] Merchandise. In the event [***]
nevertheless refuses to so agree, ADNM shall pay Merchandiser the following
product consignment charges in respect of all [***] Merchandise, computed as if
the License Fee had been actually paid to Merchandiser hereunder, as follows:
[***].
3. Product Supply:
(a) As used herein:
(i) "Merchandiser Product" means all merchandise containing the
Personal Identification of a Merchandiser Artist and sold pursuant to a Store
Agreement (whether through the applicable Artist Store or the UBL Store), that
is provided by or on behalf of Merchandiser or a Sublicensee pursuant to the
Merchandiser Terms;
(ii) "Artist Product" means all merchandise and other products or
services sold pursuant to a Store Agreement (whether through the applicable
Artist Store or the UBL Store) other than Merchandiser Product (e.g., records,
concert tickets, advertisement space, and merchandise supplied by a Sublicensee
other than pursuant to the Merchandiser Terms); and
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(iii) "Merchandiser Terms" means that payment for the applicable
merchandise shall not become due until the date [***] after the applicable
merchandise has arrived at ADNM's fulfillment center(s) (the "Center"), it being
understood that ADNM shall have the right to return any such merchandise to
Merchandiser for a full credit within said [***] period (provided the applicable
returned merchandise arrives at Merchandiser's warehouse no later than [***]
after the expiration of said [***] period). For purposes of this paragraph
3(a)(iii), merchandise shall be deemed to have "arrived at the Center" at such
time as the vehicle delivering such merchandise arrives at the Center,
regardless of the date on which such merchandise is unloaded.
(b) During the term of each Store Agreement (but only as long as
Merchandiser has the Rights in respect of the applicable Merchandiser Artist),
Merchandiser agrees to sell merchandise manufactured by or under the control of
Merchandiser to ADNM for resale under the applicable Store Agreement upon the
following terms:
(i) All such sales shall be subject to the Merchandiser Terms.
(ii) All such sales shall be at Merchandiser's standard wholesale
prices (i.e., the prices that Merchandiser generally charges its other wholesale
customers, subject to Merchandiser's customary volume discounts). Merchandiser
represents and warrants that attached hereto as Exhibit C are Merchandiser's
standard wholesale prices as of the execution of this Agreement. Merchandiser
shall notify ADNM of any changes to its standard wholesale prices, which changes
shall only apply to Merchandiser Product ordered by ADNM after its receipt of
such notice from Merchandiser. Notwithstanding the foregoing, the parties agree
and acknowledge that Merchandiser may not have standard wholesale prices for
certain Collectibles (as defined in paragraph 6(b)(v) below), in which case the
wholesale price shall be reasonably determined by Merchandiser.
(iii) ADNM and Merchandiser shall in their good faith business
judgment mutually determine on an item-by-item basis the applicable minimum and
maximum inventory levels to be carried by ADNM, and Merchandiser agrees to use
commercially reasonable efforts to ship merchandise on a timely basis consistent
therewith.
(iv) [***] shall pay all costs (including all associated freight
and insurance costs) of shipping the products to the Center and returning any
unsold merchandise from the Center to Merchandiser's warehouse.
(c) Merchandiser shall use reasonable efforts to cause each person or
entity who manufactures and distributes merchandise under license from
Merchandiser (a "Sublicensee") to sell merchandise to ADNM hereunder upon the
foregoing terms (e.g., in accordance with the Merchandiser Terms and at no more
than the
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Sublicensee's standard wholesale prices). If a Sublicensee is unwilling
to do so, Merchandiser may elect (in its discretion) to purchase the applicable
merchandise from such Sublicensee and sell same to ADNM pursuant to the
Merchandiser Terms.
(d) For the avoidance of doubt, Merchandiser agrees and acknowledges
that Artist Product will be sold on the Artist Stores and the UBL Store
and that no License Fee shall be payable to Merchandiser in respect of any
Artist Product.
(e) After the expiration of the [***] period described in paragraph
3(a)(iii) above, ADNM shall have the right to return (not for credit) to
Merchandiser any unsold merchandise hereunder. Merchandiser agrees to use its
commercially reasonably efforts to promptly sell such returned product at
liquidation prices (subject to Merchandiser's commercially reasonable efforts to
maximize the liquidation proceeds) and to remit to ADNM, within [***] after each
such sale, [***] of the net proceeds thereof. As used in this paragraph 3(e),
the term "net proceeds" shall mean the [***].
4. UBL Store: Merchandiser agrees and acknowledges that ADNM may elect
to make available for sale on an Internet on-line store (the "UBL Store")
operated by a company affiliated with ADNM certain items of Merchandiser Product
offered for sale through an Artist Store. ADNM agrees that its books and records
shall clearly distinguish Merchandiser Product sold through an Artist Store from
Merchandiser Product sold through the UBL Store, and ADNM shall, for the
avoidance of doubt, at no time credit a sale that took place through an Artist
Store as a sale through the UBL Store.
5. Grant of Rights: With respect to each Store Agreement (and subject to
the terms and conditions set forth therein), Merchandiser shall be deemed to
have granted to ADNM, in consideration for the License Fee, the following
rights, but only insofar as Merchandiser has such Rights and for the territory
Merchandiser has such Rights, during the term of such Store Agreement (but only
as long as Merchandiser has the Rights in respect of the applicable Merchandiser
Artist): (a) the exclusive right and license to develop and operate the only
"official" Internet store for the applicable Merchandiser Artist, and (b) the
non-exclusive (subject to paragraph 11 below) right and license to utilize such
Merchandiser Artist's Personal Identification in connection with the applicable
Artist Store. Notwithstanding the foregoing, ADNM acknowledges that such uses of
the Merchandiser Artist's Personal Identification may be subject to the approval
of the applicable Merchandiser Artist under Merchandiser's agreement with such
Merchandiser Artist; in this regard, Merchandiser hereby authorizes ADNM to seek
to obtain such approvals directly from the applicable Merchandiser Artist.
6. License Fee:
(a) In consideration for the rights licensed pursuant to paragraph 5
above and Merchandiser's agreement to supply Merchandiser Product to ADNM
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pursuant to the Merchandiser Terms, ADNM agrees to pay Merchandiser a License
Fee with respect to all Merchandiser Product sold at any time (including after
the Term).
(b) As used herein:
(i) "License Fee" shall mean, subject to paragraph 6(c) below,
the [***].
(A) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Merchandiser Product (other than Collectibles) sold through an Artist
Store and with respect to Collectibles sold through the UBL Store (or through
any other source other than an Artist Store);
(B) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Merchandiser Product (other than Collectibles) sold through the UBL
Store (or through any other source other than an Artist Store); and
(C) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Collectibles sold through an Artist Store.
(ii) "Adjusted Gross Merchandiser Product Revenue" shall mean [***].
(iii) "Gross Merchandiser Product Revenue" shall mean the [***].
(iv) "Deductible Amounts" shall mean all of the following costs paid
by ADNM and specifically attributable to Merchandiser Product: [***]. ADNM shall
not deduct any fulfillment fees or related charges to the extent they exceed
such amounts as Merchandiser has approved; Merchandiser hereby pre-approves the
applicable amounts set forth on Exhibit D attached hereto. To the extent ADNM is
unable to identify a particular item of cost as being attributable to either
Merchandiser Product or Artist Product, only a portion thereof shall be deemed a
"Deductible Amount" hereunder, such portion to be determined reasonably by ADNM,
taking into account the total amount of Gross Merchandiser Product Revenues as
compared to the total amount of other applicable revenues during the applicable
accounting period. Notwithstanding anything to the contrary contained herein, as
between ADNM and Merchandiser, [ADNM]* shall be solely responsible for all
customer bad debts in respect of Merchandiser Product shipped by ADNM (or its
designee), including all associated Deductible Amounts.
(v) "Collectibles" means any single item of Merchandiser Product
bearing a wholesale price in excess of [***].
(c) Within ten (10) business days after the date ADNM notifies
Merchandiser of each new Accepted Artist pursuant to paragraph 2(d) above (or
within ten (10) business days after the complete execution of this Agreement, in
respect of any
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Accepted Artist indicated on Exhibit A as of the execution hereof), Merchandiser
shall have the right to notify ADNM of the percentage of the applicable License
Fees hereunder that Merchandiser is obligated to pay to, or credit to the
account of, the applicable Accepted Artist or its furnishing company (the
"Artist Percentage"), if such Artist Percentage exceeds [***]. In such event,
notwithstanding anything to the contrary contained herein, ADNM shall pay to
Merchandiser a product consignment charge (the "Consignment Charge") equal to
[***] of the Adjusted Gross Merchandiser Product Revenue with respect to such
Accepted Artist for each [***] by which such Artist Percentage exceeds [***].
For purposes of illustration, in the event that Merchandiser has properly
notified ADNM that the Artist Percentage with respect to a particular Accepted
Artist equals [***], then with respect to such Accepted Artist, ADNM shall pay
to Merchandiser a Consignment Charge equal to [***] of the Adjusted Gross
Merchandiser Product Revenue with respect to such Accepted Artist. For the
avoidance of doubt, no Consignment Charge shall be applicable with respect to
any Merchandiser Artist for which Merchandiser does not timely notify ADNM of
the Artist Percentage as provided in this paragraph 6(c).
(d) Attached hereto as Exhibit E are certain example computations of
the License Fee.
7. Artist Store Advertising Revenues. In respect of any amounts received
by ADNM during the Term in consideration of the placement of hyperlinks, banners
and other advertisements contained on an Artist Store ("Artist Store Advertising
Revenues"), ADNM agrees to pay Merchandiser [***] of the amount by which such
Artist Store Advertising Revenues exceed all agent commissions related thereto.
The parties acknowledge that all such hyperlinks, banners and other
advertisements may be subject to the approval of the applicable Accepted Artist.
8. Artist Store Customer Databases. During the Term, subject to the
consent of the applicable Merchandiser Artist, ADNM shall provide Merchandiser
with customer database information from the Artist Stores, [***] , to be used by
Merchandiser solely for purposes of promoting the Artist Stores and
Merchandiser's business in connection with the applicable Merchandiser Artist to
which the database relates. Merchandiser specifically acknowledges and agrees
that it shall have no right to sell, distribute, sublicense or otherwise dispose
of the customer database information provided to Merchandiser hereunder or any
portion thereof.
9. ARTISTdirect Warrant. In further consideration of Merchandiser's
entering into and fully performing its obligations under this Agreement, and in
exchange for the payment by Merchandiser to ARTISTdirect, LLC ("AD") of one
dollar ($1.00), upon the consummation of the transaction that currently is
contemplated to occur whereby AD will become the beneficial owner of one hundred
percent (100%) of the outstanding membership interests of The Ultimate Band
List, LLC (the "Rollup"), ADNM shall cause AD to grant to Merchandiser a warrant
to acquire Common Units of ARTISTdirect, LLC
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representing [***] of AD's outstanding membership interests for an aggregate
exercise price [***] which warrant shall be subject to the terms generally set
forth in Exhibit F attached hereto; provided, however, that if the Rollup shall
not occur prior to July 31, 1999, then ADNM shall then cause AD to grant to
Merchandiser a warrant substantially in the form of Exhibit F attached hereto.
10. Accountings:
(a) ADNM shall compute the License Fee, any Consignment Charges and
Merchandiser's applicable share of any Artist Store Advertising Revenues,
payable to Merchandiser and render an accounting statement to Merchandiser
within thirty (30) days after March 31, June 30, September 30 and December 31
for the three-month period preceding March 31, June 30, September 30 or December
31, as the case may be. Each such statement shall include an itemized breakdown
of the sources of the applicable revenue, Deductible Amounts and all other
reductions in computing the License Fee and share of Artist Store Advertising
Revenues, and shall be accompanied by the payment of the amounts, if any, earned
by Merchandiser during the accounting period to which the statement relates.
(b) Merchandiser or a certified public accountant on Merchandiser's
behalf may, at ADNM's offices and at Merchandiser's expense, examine ADNM's
books and records relevant to the calculation of the License Fee solely for the
purposes of verifying the accuracy of statements rendered by ADNM to
Merchandiser. Such books and records may be examined as aforesaid only (i)
during ADNM's normal business hours, (ii) upon reasonable notice to ADNM, and
(iii) within two years after the date a statement is due hereunder. Further,
Merchandiser shall not have the right to examine such books and records more
frequently than once in any twelve month period or more than once with respect
to any particular statement. Each statement shall be deemed final and binding
upon Merchandiser as an account stated and shall not be subject to any claim or
objection by Merchandiser (A) unless Merchandiser notifies ADNM of
Merchandiser's specific written objection to the applicable statement, stating
the basis thereof in reasonable detail within two (2) years after the date such
statement is due hereunder, and (B) unless, within said two (2)-year period,
Merchandiser make proper service of process upon ADNM in a suit instituted in a
court of proper jurisdiction.
11. Exclusivity: Insofar as ADNM is concerned, Merchandiser shall have
the right to sell and authorize others to sell merchandise containing a
Merchandiser Artist's Personal Identification over the Internet. However, during
the Term, Merchandiser shall not, without ADNM's consent, develop or maintain a
web site, or license or otherwise authorize any other web site provider to
develop or maintain a web site, that is identified solely with a single
Merchandiser Artist (e.g., a web site that is the "official" merchandise web
site for a Merchandiser Artist). The foregoing is not intended to prohibit
Merchandiser from operating a web site relating to multiple artists, with
certain pages or sections thereof devoted solely or primarily to a particular
Merchandiser Artist, and to
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confidential redacted portion has been omitted and filed separately with the
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sell merchandise on such web site; provided the appearance of such web site is
not designed so as to give the consumer the impression that the merchandise is
being purchased directly from the Merchandiser Artist, rather than from
Merchandiser (or its licensee). [For the avoidance of doubt, the operation of
any such web site by Merchandiser shall not in any way affect ADNM's rights
hereunder or otherwise to develop and operate the "official" web site of the
applicable Artist (e.g., an Artist Store).]
12. Tour Merchandising and Sublicensing Rights: During the Term and for
a period of one (1) year thereafter, [***].
13. [***]: As used herein, the term "Outside Artist" shall mean an
artist who is not a Merchandiser Artist, who is then subject to a store
agreement with ADNM, and who is not then subject to an agreement pursuant to
which the Rights with respect to such artist are held by a third party (e.g.,
another merchandising company). During the Term, [***].
14. Representations and Warranties; Indemnity:
(a) Each party hereto represents and warrants that: (i) it has the
full right, power and authority to enter into and to perform this Agreement;
(ii) it is not under any restriction or obligation that may or will impair such
party's full performance of this Agreement; and (iii) it shall not at any time
do or authorize any person or entity to do anything inconsistent with, or
anything that might diminish, impair or interfere with any of the other party's
rights hereunder.
(b) Merchandiser agrees to indemnify and hold ADNM and its members,
employees, attorneys, agents, successors, affiliates, assigns and licensees
harmless against any claim, liability, cost and expenses (including attorneys'
and accountants' fees reasonably incurred) in connection with any breach or
alleged breach of this Agreement by Merchandiser. In this regard, ADNM shall not
settle any claim without first notifying Merchandiser of the terms of any
proposed settlement and obtaining Merchandiser's consent thereto.
(c) ADNM agrees to indemnify and hold Merchandiser and its members,
employees, attorneys, agents, successors, affiliates, assigns and licensees
harmless against any claim, liability, cost and expenses (including attorneys'
and accountants' fees reasonably incurred) in connection with any breach or
alleged breach of this Agreement by ADNM and/or in connection with the breach by
ADNM of any Store Agreement. In this regard, Merchandiser shall not settle any
claim without first notifying ADNM of the terms of any proposed settlement and
obtaining ADNM's consent thereto.
(d) Merchandiser acknowledges that ADNM is making no representations
and warranties concerning anticipated success of the Stores, the amount of
compensation payable to Merchandiser hereunder, and/or the current or future
value of ADNM or the warrants described in paragraph 8 above. Likewise, ADNM
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 9
acknowledges that Merchandiser is making no representations and warranties
concerning anticipated success of the Stores or the amount of compensation
payable to ADNM with respect thereto.
15. Notices; Approvals:
(a) All notices and payments to either party hereto shall be sent to
such party's address first mentioned herein, or such other address as a party
hereto may hereafter designate by notice to the other. All notices sent under
this Agreement must be in writing to be effective, and must be sent by a third
party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or through a
telegraph office. The date of personal delivery, of mailing or faxing, or the
date of delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to notices
of change of address, the date of which will be the date of receipt by the
receiving party). Until ADNM notifies Merchandiser otherwise, a copy of all
notices hereunder to ADNM shall be simultaneously sent as aforesaid to Lenard &
Gonzalez LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, CA 90067;
Attention: Allen D. Lenard, Esq. Until Merchandiser notifies ADNM otherwise, a
copy of all notices hereunder to Merchandiser shall be simultaneously sent as
aforesaid to Warner Music Group Inc., 3400 Riverside Drive, 6th Floor, Burbank,
CA 91505; Attention: Legal Department.
(b) No failure by a party hereto to perform any of its obligations
hereunder shall be deemed a breach of this Agreement, unless the party claiming
a breach has given the other party hereto notice of such alleged breach in
reasonable detail and such alleged breach is not cured within fifteen (15)
business days [ten (10) business days for non-payments] after the giving of such
notice, provided this sentence shall not apply to breaches incapable of being
cured (e.g., representations and warranties).
(c) No consent or approval under this Agreement shall be unreasonably
withheld or delayed. With respect to consents and approvals required under this
Agreement, the applicable party may elect to request such consent by notice to
the other. If the party whose consent or approval is required does not respond
to such notice within ten (10) business days thereafter, the party seeking to
obtain such consent or approval may give the other party a second notice making
such request, and the applicable party's consent or approval shall be deemed
granted unless it notifies the other party to the contrary, stating in
reasonable detail the basis thereof, within ten (10) business days after such
second notice.
16. Miscellaneous:
(a) All references to "this Agreement," "hereof," "herein" and words
of similar connotation include all exhibits attached hereto, unless specified
otherwise. This Agreement is intended by the parties hereto as a final
expression of their understanding and agreement with respect to the subject
matter hereof and as a complete and exclusive statement of the terms thereof;
this Agreement supersedes all prior and contemporaneous negotiations,
understandings, and agreements between the parties
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<PAGE> 10
hereto with respect to the subject matter hereof. The parties acknowledge and
agree that neither party hereto has made any representations or promises in
connection with this Agreement or the subject matter hereof not contained
herein. Nothing in this Agreement shall be construed to require the commission
of any act contrary to law, and wherever there is a conflict between any
provisions of this Agreement and any statute, law, ordinance, order or
regulation contrary to which the parties hereto have no legal right to contract,
such statute, law, ordinance, order or regulation shall prevail; provided that,
in such event, (a) the provision of this Agreement so affected shall be limited
only to the extent necessary to permit the compliance with the minimum legal
requirements, (b) no other provisions of this Agreement shall be affected
thereby, and (c) all such other provisions shall remain in full force and
effect. The parties hereto shall negotiate in good faith to replace any invalid,
illegal or unenforceable provision (the "Invalid Provision") with a valid
provision, the effect of which comes as close as possible to that of the Invalid
Provision. This Agreement cannot be canceled, modified, amended or waived, in
part or in full, in any manner except by an instrument in writing signed by the
party to be charged. No waiver by ADNM, whether expressed or implied, of any
provision of this Agreement or default hereunder shall affect ADNM's right to
thereafter enforce such provision or to exercise the right or remedy set forth
in this Agreement in the event of any other default, whether or not similar.
Words in the singular number shall include the plural, and vice versa. Whenever
examples are used in this Agreement with the words "including," "for example,"
"e.g.," "such as," "etc." or any derivation thereof, such examples are intended
to be illustrative and not in limitation thereof. The paragraph headings herein
are used solely for convenience and shall not be used in the interpretation or
construction of this Agreement.
(b) In entering into this Agreement and providing services pursuant hereto,
Merchandiser and ADNM each have and shall have the status of independent
contractors. Nothing herein contained shall contemplate or constitute either
party being an agent or employee of the other party, and nothing herein shall
constitute a partnership, joint venture or fiduciary relationship between the
parties.
(c) Neither party hereto shall, without the prior written consent of the other
party, assign this Agreement, in whole or in part, to any person or entity other
than a subsidiary, affiliated or controlling entity, or to any person or entity
owning or acquiring a substantial portion of the stock or assets of such party
hereto.
(d) This Agreement shall be deemed to have been entered into in the State of
California and the validity, interpretation and legal affect of this Agreement
shall be governed by the laws of the State of California applicable to contracts
entered into and performed entirely within the State of California. The courts
located in the County of Los Angeles, California (state and federal), only, will
have jurisdiction of any controversy regarding this Agreement; any action or
other proceeding which involves such a controversy will be brought in those
courts, in California and not elsewhere.
ARTISTdirect New Media, LLC GIANT MERCHANDISING
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<PAGE> 11
By: ______/s/ Marc P. Geiger________ By: ________/s/ [Illegible]_______
(an authorized signatory) (an authorized signatory)
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<PAGE> 12
EXHIBIT A
MERCHANDISER'S ARTISTS
Artist Agreement Territory
- -----------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GIANT MERCHANDISING
Music Roster
<S> <C>
[***] [***]
Aerosmith [***]
[***] Rage Against
[***] the Machine
[***] Rancid
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
Crystal Method [***]
[***] [***]
Def Leppard [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***]
[***]
[***]
[***]
[***]
Korn
[***]
[***]
Limp Bizkit
[***]
[***]
[***]
[***]
Metallica
[***]
[***]
[***]
The Offspring
[***]
</TABLE>
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[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 13
EXHIBIT B
ON-LINE STORE AGREEMENT
THIS AGREEMENT, dated as of ____________, 19__, by and between ARTISTdirect New
Media, LLC ("ADNM"), 17835 Ventura Blvd., Suite 310, Encino, CA 91316, and
[Company Name] ("you"), c/o __________________________ is being entered into in
consideration of the mutual benefits and covenants contained in this Agreement.
1. PURPOSE: Subject to your approval rights in this Agreement, ADNM will
develop, maintain and operate an Internet web site for you relating to the
musical group professionally known as "[ArtistName]" ("Artist") and the members
of Artist, to be known as "The Official [ArtistName] Superstore" (the "Store").
The Store will provide Internet and other online access for online and offline
distribution of products and services ("Product"). It is intended that the
Product will include records, digital downloads (subject to the consent of
Artist's record company), merchandise, tickets, tour memorabilia, collectible
items and special or limited edition items not available from any other source,
and special bundled packages including any or all of the foregoing items.
2. TERM: The term of this Agreement (the "Term") shall commence on the date set
forth above and shall extend for an initial contract period ending five (5)
years after the official launch of the Store. After the initial contract period,
the Term shall automatically continue for additional one (1) year contract
periods, subject to the following sentence. At any time between sixty (60) and
thirty (30) days prior to the expiration of any contract period of the Term,
either party may by notice to the other terminate the Term effective as of the
end of the then-current contract period.
3. MERCHANDISER AGREEMENTS.
(a) You are presently party to an agreement (the
"Artist/Merchandiser Agreement") with Winterland Concessions Company
("Merchandiser") pursuant to which you have granted Merchandiser the exclusive
right to manufacture (and license the manufacture of) merchandise bearing the
name, likenesses, biographical material and other personal identification of
Artist (collectively, "Personal Identification") for sale through retail
channels, including the right to sell such merchandise to retailers who solely
or primarily sell merchandise via the Internet (the "Rights").
(b) ADNM represents and warrants that it is party to an agreement
with Merchandiser pursuant to which Merchandiser has (i) granted to ADNM any
consents and licenses that may be required from Merchandiser as a result of the
Artist/Merchandiser Agreement in connection with the sale of Product hereunder,
and (ii) agreed to supply (or cause the supply of) merchandise on a consignment
basis to ADNM for resale on the Store (the "ADNM/Merchandiser Agreement"). You
acknowledge that certain Product items may be manufactured by or under the
control of Merchandiser's sublicensees, and that Merchandiser may or may not be
able to offer such Product items to ADNM on a consignment basis. All Product
supplied to ADNM by Merchandiser (or its sublicensees) on a consignment basis is
sometimes
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<PAGE> 14
referred to herein as "Merchandiser Product"; all other Product is sometimes
referred to herein as "Artist Product."
(c) If you (or Artist) enter into any agreement during the Term
(of this Agreement) pursuant to which you grant the Rights to any third party,
you shall cause such third party to grant to ADNM any consents and licenses that
may be required from such third party in connection with the sales of Product
hereunder. For the avoidance of doubt, no termination or expiration of the
Artist/Merchandiser Agreement or of the ADNM/Merchandiser Agreement shall affect
the Term (of this Agreement) or the rights granted to ADNM hereunder.
Accordingly, the only effect of either such termination or expiration will be
that the terms of this Agreement relating to Merchandiser Product will no longer
apply, and the terms of this Agreement relating to Artist Product will
thereafter apply to all Product hereunder.
4. DEVELOPMENT; HOSTING; CUSTOMER SERVICE:
(a) ADNM will design and develop the Store, including the source
code, the Product catalog, and the commerce system, and will be solely
responsible for the costs of such design and development. You shall have the
right to approve the design of the Store, including its "look and feel." The
parties hereto agree to use commercially reasonable best efforts (i) to cause
the beta version of the Store to be completed within 60 days after the complete
execution of this Agreement, and (ii) to officially launch the Store within 90
days after such execution.
(b) During the Term, ADNM will host (i.e., provide the server
for) and maintain the Store, including by providing periodic source code
programming updates and improvements in accordance with your reasonable
requests. In this regard, ADNM will use its commercially reasonable best efforts
to correct any material "bug" or defect as soon as reasonably possible after
ADNM becomes aware of such material "bug" or defect.
(c) ADNM shall handle all customer orders and inquiries, provide
all necessary credit card accounting and processing services and develop
payment, delivery and refund policies. To effect the foregoing, ADNM shall also
provide an on-line and toll-free telephone service center that will take orders
and respond to customer inquiries. On-line inquiries will be responded to within
24 hours of receipt and the telephone service will be operational Mondays
through Fridays from 9:00 a.m. to 7:00 p.m. Pacific Time (excluding holidays)
and will enable customers who prefer not to place orders on-line to place orders
by facsimile or telephone.
(d) Unless you and ADNM agree otherwise in writing, ADNM (or its
designee) shall process orders received from the Store and arrange to have the
ordered Product shipped to the customer (subject to Product availability).
5. PRODUCT SUPPLY AND INVENTORY:
(a) You will have the right to approve the Products that are to
be sold through the Store and the retail price of each Product item.
(b) You and ADNM agree to cooperate with each other and use their
commercially reasonable best efforts to make the necessary arrangements with the
manufacturers, distributors and providers of Product ("Suppliers"), on mutually
acceptable terms, to ensure the
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<PAGE> 15
timely supply of Product in sufficient quantities to fulfill Store customer
orders. You will be responsible for purchasing all Product from the Suppliers
and paying all related costs (including directly associated freight and
insurance costs) ("Product Costs"). If ADNM should nevertheless pay any Product
Costs on your behalf (which ADNM is not obligated to do), all such Product Costs
will be deducted from any and all monies otherwise payable to you hereunder and,
to the extent ADNM is at any time unable to do so, you agree to promptly
reimburse ADNM for the excess upon demand. In order to assist you with regard to
the foregoing, ADNM will provide inventory management services, taking into
account such inventory levels as you and ADNM may have mutually approved.
As between you and ADNM, you shall own and be solely responsible for all
Artist Product inventory. However, ADNM shall maintain (or cause the applicable
fulfillment center to maintain) at all times during the Term insurance to
protect you and ADNM from losses related to Artist Product inventory damaged or
otherwise lost while in the fulfillment center's possession. The coverage terms
of the insurance policy currently in effect are set forth on Exhibit 1 attached
to this Agreement.
(c) Upon the expiration of the Term, all Artist Product inventory
for which you have paid the Product Costs shall be shipped, at your sole cost
and expense, to a location designated or approved by you, which inventory shall
be free and clear of any encumbrances by ADNM or any third party deriving rights
through ADNM.
6. PRODUCT SALES AND STORE REVENUES:
(a) Merchandiser Product: Attached hereto as Exhibit 2 is an extract of
the ADNM/Merchandiser Agreement setting forth the license fee payable by ADNM to
Merchandiser in respect of Merchandiser Product sold hereunder. Company
acknowledges and agrees that it shall look solely to Merchandiser, and not to
ADNM, with respect to all monies due Company and/or Artist in respect of
Merchandiser Product sold hereunder.
(b) Artist Product:
(i) Upon ADNM's receipt of a verified order for a particular item of
Artist Product, ADNM shall purchase such item of Product from you. Upon such
purchase, title to such Product shall pass to ADNM and, as between you and ADNM,
ADNM will thereafter be responsible for the inventory of such Product item.
(ii) ADNM shall pay you a purchase price equal to [***] of the "Gross
Artist Product Revenue," which means the amount [***]. The term "Deductible
Amounts" means [***]. A schedule setting forth the fulfillment fees charged by
the fulfillment center as of the date hereof is set forth on Exhibit 1 attached
hereto.
(iii) Notwithstanding anything to the contrary contained herein, as
between ADNM and you, [***] shall be solely responsible for all Product Costs
and Deductible Amounts
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[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 16
associated with customer bad debts in respect of Product hereunder shipped by
ADNM (or its designee).
(c) Records: Notwithstanding paragraphs 5(c) and 6(b) above,
phonorecords that are supplied by ADNM's designated fulfillment center for sale
through the Store ("Records") shall be purchased by ADNM directly from such
fulfillment center, and ADNM (or the fulfillment center) shall be solely
responsible for all related Product Costs (subject to the next sentence) and
inventory. ADNM shall pay you [***] of the "Net Record Revenue, which means all
[***]. The term "Gross Record Revenue" means the [***].
(d) UBL Store: ADNM may elect to make certain items of Product available
for sale on an Internet on-line store (the "UBL Store") operated by a company
affiliated with ADNM (the "UBL Affiliate"). To the extent any merchandise
offered for sale on the UBL Store is readily available in the Store inventory,
ADNM agrees to cause the UBL Affiliate to utilize such inventory to fulfill
orders for such merchandise placed on the UBL Store, rather than order such
merchandise from any third party source. However, for the avoidance of doubt, no
merchandise or other products (e.g. Records) that are obtained by the UBL
Affiliate from third party sources (i.e., other than from the Store's inventory)
and sold on the Store shall be deemed to constitute Product subject to this
Agreement. ADNM shall account to you pursuant to the terms of this Agreement
with respect to all Artist Product sold through the UBL Store, except that ADNM
(or the UBL Affiliate) shall purchase such Product for a price equal to [***] of
the applicable Gross Artist Product Revenue shall be computed "at the source"
(i.e., [***]), and shall be deemed received by ADNM for purposes of paragraph
6(g) below within 30 days after it is received by the UBL Affiliate.
(e) Database: As between ADNM and you, you will own the customer
database as specifically identified with the Store (the "Database"). However,
ADNM will have the exclusive right during the Term, subject to your consent in
each instance, to administer and license any third party uses of the Database,
and to collect all monies relating thereto accrued during the Term, regardless
of when payable, ADNM shall pay you [***] of the "Gross Database Revenue," which
means the amount [***].
(f) Other Revenues: The term "Gross Exploitation Revenue" means the
[***]. You shall have the right to approve all such advertising and other
activities. ADNM shall pay Merchandiser [***] of the Gross Exploitation Revenue
received by ADNM during the term of the Artist/Merchandiser Agreement (and you
agree to look solely to Merchandiser, and not to ADNM, with respect to all
monies, due you and/or Artist in respect of such Gross Exploitation Revenue) and
shall pay you [***] of the Gross Exploitation Revenue received by ADNM after the
expiration of the term or the Artist/Merchandiser Agreement.
(g) Accounting: The term "Gross Income" means, individually and
collectively, [***]. ADNM shall compute your share of Gross Income and render
statements thereof to you within 60 days after March 31, June 30, September 30
and December 31 for the preceding three-
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
16
<PAGE> 17
month period. ADNM shall deduct from your share of Gross Income all chargeable
amounts under this Agreement. Each such statement shall include an itemized
breakdown of the sources of the applicable revenue and shall be accompanied by
the payment of the amount of monies, if any, earned by you during the accounting
period to which the statement relates. ADNM shall be entitled from time to time
to withhold from payments otherwise due reserves against anticipated returns,
rebates, credits, cancellations and exchanges, provided that such reserves shall
be liquidated within two accounting periods following their establishment. You
or a certified public accountant on your behalf may, at ADNM's offices and at
your expense, examine ADNM's books and records relevant to the calculation of
your share of Gross Income solely for the purposes of verifying the accuracy of
statements rendered by ADNM to you. Such books and records may be examined as
aforesaid only (i) during ADNM's normal business hours, (ii) upon reasonable
notice to ADNM, and (iii) within two years after the date a statement is due
hereunder. Further, you shall not have the right to examine such books and
records more frequently than once in any twelve month period or more than once
with respect to any particular statement. Each statement shall be deemed final
and binding upon you as an account stated and shall not be subject to any claim
or objection by you (A) unless you notify ADNM of your specific written
objection to the applicable statement, stating the basis thereof in reasonable
detail within two years after the date such statement is due hereunder, and (B)
unless, within said two year period, you make proper service of process upon
ADNM in a suit instituted in a court of proper jurisdiction.
7. MARKETING.
(a) During the Term, ADNM shall cause the Ultimate Band List Internet
web site, located at www.ubl.com (the "UBL"), to contain a featured hyperlink
to, and prominently placed advertising for, the Store. Also, ADNM may include on
the Store a featured hyperlink to, and prominently placed advertising for the
UBL [***]. Other marketing activities in respect of the Store shall be subject
to your approval, and may involve the development of strategic relationships
with, for example, other Internet web sites and/or Artist's record you to create
Store hyperlinks. Any third party marketing costs incurred with your approval
shall be deducted from any monies otherwise payable to you hereunder (except to
the extent deducted from monies otherwise payable by ADNM to Merchandiser, it
being understood that all marketing costs shall be subject to allocation by
ADNM, in ADNM's reasonable business judgment, between you and Merchandiser
taking into account whether the applicable costs related to Merchandiser Product
and/or Artist Product).
(b) You agree to use your commercially reasonable best efforts to:
(i) Keep ADNM apprised of Artist's professional activities (e.g.,
touring and recording) and provide ADNM reasonable access to
Artist's professional relationships (e.g., with tour promoters
and record labels);
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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(i) Cause the URL of the Store to be included on all
advertisements for Artist records released during the Term or for concerts to be
performed during the Term, and on the liner notes of Artist's records and
concert programs;
(ii) Cause on-line events and/or sites featuring Artist or any
member of Artist (e.g., the official Internet web site of Artist's fan club, any
official Internet web site relating to any member of Artist, any on-line "chats"
featuring Artist or any member(s) of Artist, cybercasts of Artist's live
performances, interviews or other audiovisal programs featuring Artist or any
member(s) of Artist) to prominently feature, on both the front and main event
page(s), a hyperlink to, and banner advertising for, the Store; and
(iii) Subject to Artist's other professional commitments, cause
Artist to be reasonably available during the Term for on-line "chats" hosted by
the Store.
8. Ownership; Grant of Rights; Post-Term Rights:
(a) Artist Content: As between you and ADNM, any and all artwork,
trademarks, logos, graphics, video, sound recordings, musical compositions,
text, data and other materials supplied by you to ADNM in connection with this
Agreement, as well as the URL and the domain name or names assigned to the Store
and/or the Artist Site (collectively, the "Artist Content"), shall remain your
sole and exclusive property. You hereby grant to ADNM during the Term and
throughout the universe (the "Territory") a non-exclusive, royalty-free license
to use, copy, modify (with your prior consent), distribute, publicly perform and
display and otherwise exploit the Artist Content in connection with the
development, maintenance and operation of the Store and/or the Artist Site and
the advertising and promotion of the Store and/or the Artist Site and of ADNM in
connection with the Store and/or the Artist Site.
(b) Developed Content: As between you and ADNM, any and all text,
graphics, audio, video, artwork and designs created by ADNM or its employees or
agents during the Term for use solely on the Store and/or the Artist Site,
including any additions to or modifications of Artist Content made by ADNM or
its employees or agents, (collectively, the "Developed Content"), shall be your
sole and exclusive property. All Developed Content shall be deemed included in
the license granted by you under paragraph 8(a) above.
(c) ADNM Content: As between you and ADNM, any and all commerce
technology, HTML formatting code, source and object code, programming code and
software, as well as all text, graphics, audio, video, artwork and designs
provided by ADNM in connection with this Agreement which does not constitute
Developed Content (collectively, the "ADNM Content") shall be ADNM's sole and
exclusive property. Notwithstanding the foregoing, upon the expiration of the
Term and provided you are not in breach of this Agreement, ADNM shall grant to
you a perpetual non-exclusive license throughout the Territory to use, modify,
publicly perform and display all ADNM Content used in the Store and owned and
controlled by ADNM, solely in connection with operating and maintaining the
Store. In consideration of such license, if you elect to so utilize any such
ADNM Content in connection with the Store after the Term,
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you agree to pay, or cause your licensee to pay, ADNM a royalty equal to [***]
of the gross revenues earned in connection with the Store after the expiration
of the Term, but only for as long as you continue to use any such ADNM Content.
In this regard, you shall account in the same fashion and within the same time
periods, and ADNM shall be accorded the same examination rights and be subject
to the same limitations and restrictions, as apply with respect to your
accountings under paragraph 6(g) above. Nothing contained in this Agreement
shall impose upon ADNM any obligation whatsoever to provide you with updates,
hosting, maintenance or support with respect to the Store or such ADNM Content
after the expiration of the Term. You shall not be entitled to use any name,
trademark or service mark of ADNM or its affiliates in any manner whatsoever
without obtaining the prior written consent of ADNM or the applicable affiliate
of ADNM.
(c) Artist Identification: You hereby grant to ADNM the non-exclusive
right during the Term throughout the Territory to use the names of Artist and
Artist's tours, and the names and approved photographs and other approved
likenesses of the members of Artist, on the Store and in advertisements and
promotions of the Store and of ADNM in connection with the Store. In this
regard, at no cost to ADNM, you agree to provide ADNM with all photographs,
graphics, logos and similar items reasonably required by ADNM to create the
Store and readily available to you promptly following ADNM's request.
(d) Inducement Terms and Guarantee: You shall cause the members of
Artist to execute the Inducement Terms and Guarantee attached to this Agreement
as Exhibit 3 concurrently with the execution of this Agreement.
9. THIRD PARTY CLEARANCES: You shall obtain all necessary third-party
clearances in connection with all Artist Content and Product (including the
payment of any associated fees, royalties and other costs). Without limiting the
generality of the foregoing, with respect to all uses of musical compositions,
sound recordings and audiovisual productions in connection with the Store, you
agree to grant or cause Artist and/or any applicable third parties (e.g., music
publishers, record companies and performing rights societies) to grant to ADNM
any and all required rights. However, ADNM shall not use any particular sound
recording, musical composition or audiovisual production on the Store, or
provide access to any feature or service on the Store which entails the public
performance of music (e.g., live audio streaming), except at your request or
with your approval. If ADNM nevertheless shall pay, with your approval, any
third party clearance cost relating to the Store (which ADNM is not obligated to
do), all such amounts shall be deducted from any and all monies otherwise
payable to you under this Agreement (except to the extent deducted from monies
otherwise payable by ADNM to Merchandiser, it being understood that such costs
shall be subject to allocation by ADNM, in ADNM's reasonable business judgment,
between you and Merchandiser taking into account whether the applicable costs
related to Merchandiser Product and/or Artist Product).
10. REPRESENTATIONS AND WARRANTIES: INDEMNITY:
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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(a) You represent and warrant as follows:
(i) You have the full right, power and authority to enter into and to
perform this Agreement and to grant to ADNM all rights and licenses set forth in
this Agreement. Neither you nor Artist are under any restriction or obligation
which may or will impair your full performance of this Agreement. No Artist
Content or the exploitation or use thereof or the sale of any Product shall
violate or infringe upon any common law or statutory rights of any party,
including contractual rights, copyrights, and rights of privacy or publicity or
shall defame any person or entity; and
(ii) ADNM shall have the exclusive right during the Term throughout the
Territory to develop and operate the only "official" Artist on-line store (i.e.,
the only Internet web site authorized by Artist with respect to products
relating primarily to Artist and/or any members of Artist. Accordingly, during
the Term, neither you, Artist nor any member of Artist shall grant any other
person or entity the right to develop and/or operate a web site that (A)
pertains primarily to Artist and/or one or more members of Artist and (B) sells
products using the mane of Artist and/or the names and likenesses of members of
Artist.
(b) You agree to indemnify and hold ADNM and its members, employees,
attorneys, agents, successors, assigns and licensees harmless against any claim,
liability, cost and expenses (including attorneys' and accountants' fees
reasonably incurred) in connection with any breach or alleged breach of this
Agreement by you. In this regard, ADNM shall not settle any claim without first
notifying you of the terms of any proposed settlement and obtaining your consent
thereto, provided you post within ten days after such notice, a bond,
satisfactory to ADNM in its reasonable discretion, to assure ADNM of
reimbursement for all damages, liabilities, costs and expenses (including legal
expenses and counsel fees reasonably incurred) that ADNM, in its reasonable
business judgment, incur as a result of such a claim, If you fail to post such a
bond, you shall be deemed to have consented to ADNM's settlement. You shall,
upon demand, pay the person or entity being indemnified hereunder for any
payment made or required to be made by such person or entity at any time
(including after the Term) in respect of any liability, damage, or expense to
which the foregoing indemnity relates. Without waiving any right or remedy
available to ADNM, if any such claim is made, ADNM shall have the right to
withhold monies otherwise payable to you under this Agreement in an amount
reasonably related to such claim and to deduct therefrom payments required under
this paragraph. ADNM shall not withhold monies otherwise payable to you after
you post a bond meeting the above-described conditions.
(c) You acknowledge that ADNM is making no representations and
warranties concerning anticipated success of the Store and/or the amount of
compensation payable to you hereunder. You warrant, represent and agree that
neither you nor Artist nor any third party shall make any claim, nor shall any
liability be imposed upon ADNM based upon any claim, that more sales could have
been made or better business could have been done in connection with the Store
than was actually made or done. You agree that ADNM shall not be liable for any
special, consequential, incidental or indirect damages in connection with or
arising out of this Agreement, however caused, under any theory of liability.
11. NOTICES; APPROVALS:
20
<PAGE> 21
(a) All notices, accounting statements and payments to either party
shall be sent to such party's address first mentioned in this Agreement, or such
other address as a party to this Agreement may hereafter designate by notice to
the other. All notices sent under this Agreement must be in writing to be
effective, and, except for statements and payments, must be sent by a third
party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or through a
telegraph office. The date of personal delivery, of mailing or faxing, or the
date of delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to notices
of change of address, the date of which will be the date of receipt by the
receiving party). Until ADNM notifies you otherwise, a copy of all notices
hereunder to ADNM shall be simultaneously sent as aforesaid to Lenard & Gonzalez
LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, CA 90067; Attention:
Allen D. Lenard, Esq.
(b) No failure by any party to this Agreement to perform any of its
obligations hereunder shall be deemed a breach of this Agreement, unless the
other party has given notice of such alleged breach in reasonable detail and
such alleged breach is not cured within 30 days after the giving of such notice.
(c) No consent or approval under this Agreement shall be unreasonably
withheld or delayed. ADNM may elect to request a consent or approval by notice
to you, or may send you a notice reflecting the availability of a test site of
the Store embodying the materials for which approval is sought. In each
instance, your consent or approval shall be deemed granted unless you notify
ADNM to the contrary within five (5) business days after ADNM sends the
aforesaid notice to you. No inadvertent failure by ADNM to obtain your consent
or approval shall be deemed a breach by ADNM of this Agreement, provided ADNM
shall use reasonable efforts to rectify such failure on a prospective basis
following receipt of notice from you specifying such failure. Notwithstanding
the provisions of paragraph 11(a) above, any notice described in this paragraph
11(c) may be sent by telecopier or electronic mail.
12. MISCELLANEOUS:
(a) This Agreement is intended by the parties hereto as a final
expression of their understanding and agreement with respect to the subject
matter hereof and as a complete and exclusive statement of the terms thereof;
this Agreement supersedes all prior and contemporaneous negotiations,
understandings, and agreements between the parties hereto with respect to the
subject matter hereof. The parties acknowledge and agree that neither party
hereto has made any representations or promises in connection with this
Agreement or the subject matter hereof not contained herein. The parties hereto
shall negotiate in good faith to replace any invalid, illegal or unenforceable
provision (the "Invalid Provision") with a valid provision, the effect of which
comes as close as possible to that of the Invalid Provision. This Agreement
cannot be canceled, modified, amended or waived, in part or in full, in any
manner except by an instrument in writing signed by the party to be charged. No
waiver by either party hereto, whether expressed or implied, of any provision of
this Agreement or default hereunder shall affect such party's right to
thereafter enforce such provision or to exercise the right or remedy set forth
in this Agreement in the event of any other default, whether or not similar.
Words in the singular number shall include the plural, and vice versa. Whenever
examples are used in this Agreement with the words "including," "for example,"
"e.g.," "such as," "etc." or any derivation thereof, such
21
<PAGE> 22
examples are intended to be illustrative and not in limitation thereof. The
paragraph headings herein are used solely for convenience and shall not be used
in the interpretation or construction of this Agreement. All exhibits attached
hereto are incorporated into this Agreement by reference.
(b) In entering into this Agreement and providing services pursuant
hereto, you and ADNM each have and shall have the status of independent
contractors. Nothing herein contained shall contemplate or constitute either
party being an agent or employee of the other party, and nothing herein shall
constitute a partnership, joint venture or fiduciary relationship between the
parties.
(c) This Agreement shall be deemed to have been entered into in the
State of California and the validity, interpretation and legal affect of this
Agreement shall be governed by the laws of the State of California applicable to
contracts entered into and performed entirely within the State of California.
The courts located in California (state and federal), only, will have
jurisdiction of any controversy regarding this Agreement; any action or other
proceeding which involves such a controversy will be brought in those courts, in
California and not elsewhere.
ARTISTDIRECT NEW MEDIA, LLC COMPANY NAME
A CALIFORNIA LIMITED LIABILITY COMPANY A CORPORATION
--------------
By : ARTISTdirect, LLC
Its: Member
By : /s/ Marc Geiger By:
------------------------------ -----------------------
Marc Geiger Its:
Its: Co-Chief Executive Officer -----------------------
By :
------------------------------
Don Muller
Its: Co-Chief Executive Officer
22
<PAGE> 23
EXHIBIT 1
SCHEDULE OF FULFILLMENT FEES
<TABLE>
<CAPTION>
Item Retail Price Fulfillment Fee
----------------- ---------------
<S> <C> <C>
[***] [***]
[***] [***]
[***] [***]
[***] [***]
In addition, the following packaging costs are applicable:
Box Size Packaging Cost
-------- --------------
[***] [***]
[***] [***]
[***] [***]
</TABLE>
SCHEDULE OF INSURANCE COVERAGE
ADNM currently carries property insurance with respect to all
inventory at the fulfillment center, covering up to $1,000,000 in damages
(subject to adjustments from time to time in accordance with then-current
inventory value), with a $5,000 deductible (except with respect to wind damage,
for which the deductible is $100,000). ADNM shall cause you to be named an
additional insured under said policy and provide you with a certificate of
insurance to such effect.
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
12
<PAGE> 24
EXHIBIT 2
[ADNM/MERCHANDISE AGREEMENT - LICENSE FEE]
13
<PAGE> 25
EXHIBIT 3
INDUCEMENT TERMS AND GUARANTEE
The undersigned hereby acknowledge that they have read and
understand all of the terms and conditions set forth in the agreement dated as
of ______ ___, 19__ (the "Agreement") by and between ARTISTdirect New Media, LLC
("ADNM") and CompanyName ("Company") to which these inducement Terms and
Guarantee are attached.
In consideration of Company's execution and delivery of the
Agreement, the benefit of which runs to the undersigned, undersigned hereby
represent, warrant and agree, jointly and severally that:
1. Company has the rights, insofar as the undersigned are
concerned, to enter into the Agreement and to assume all of the obligations,
warranties and undertakings to Company on the part of the undersigned contained
therein, and Company shall continue to have those rights until all of those
obligations, warranties and undertakings shall have been fully performed and
discharged.
2. All of the representations, warranties and agreements on the
part of Company contained in the Agreement that concern Company and/or the
undersigned are and shall remain true and correct.
3. The undersigned shall fully and to the best of their abilities
perform and discharge all of the obligations, warranties and undertakings
contained in the Agreement insofar as the same are required of the undersigned
and to the extent Company has undertaken to cause the performance and discharge
by the undersigned of those obligations and undertakings, and the undersigned
further guarantee the full and faithful performance of all other obligations of
Company under the Agreement, it being agreed and acknowledged that such
guarantee shall be applicable regardless of whether, for any reason whatsoever,
notwithstanding the provisions of paragraph 1 above, Company shall cease to have
the right to perform the obligations, warranties and undertakings to ADNM on the
part of Company contained in the Agreement.
4. The undersigned agree to look solely to Company (and not to
ADNM) with respect to all monies payable to the undersigned in connection with
the Agreement.
5. ADNM may, in its own name, institute any action or proceeding
against the undersigned to enforce its rights under the Agreement and/or this
agreement, and ADNM shall be entitled to equitable relief, including injunctive
relief, to enforce the provisions of said agreements, without the necessity of
first resorting to or exhausting any rights or remedies against Company.
Dated as of ______ ____, 19__
- -------------------------------- ---------------------------
1
<PAGE> 26
EXHIBIT C
MERCHANDISER'S STANDARD WHOLESALE PRICE LIST
Giant Merchandising
Wholesale Price List
April 1, 1999
Music
<TABLE>
<CAPTION>
Description Color Unit Price
- --------------------------------------------------------------
<S> <C> <C>
Basic 1-Sided White [***]
Basic 1-Sided Lights [***]
Basic 1-Sided Darks [***]
Basic 1-Sided Black [***]
Basic 2-Sided White [***]
Basic 2-Sided Lights [***]
Basic 2-Sided Darks [***]
Basic 2-Sided Black [***]
High Roy 1-Sided White [***]
High Roy 1-Sided Lights [***]
High Roy 1-Sided Darks [***]
High Roy 1-Sided Black [***]
High Roy 2-Sided White [***]
High Roy 2-Sided Lights [***]
High Roy 2-Sided Darks [***]
High Roy 2-Sided Black [***]
</TABLE>
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
1
<PAGE> 27
EXHIBIT D
FULFILLMENT FEE
<TABLE>
<CAPTION>
Item Retail Price Fulfillment Fee
----------------- ---------------
<S> <C> <C>
[***] [***]
[***] [***]
[***] [***]
[***] [***]
b. In addition, the following packaging costs are applicable:
Box Size Packaging Cost
[***] [***]
[***] [***]
[***] [***]
</TABLE>
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
1
<PAGE> 28
EXHIBIT E
<TABLE>
<CAPTION>
<S> <C>
Example I - T-shirt L/XL U.S. Priority Mail
Retail Price (sales tax excluded) [***]
Shipping/handling charge [***]
-------------
Gross Merchandiser Product Revenue [***]
-------------
Shipping cost [***]
Fulfillment fee/Packaging Cost [***]
Credit card fee [***] [***]
-------------
Deductible Amounts [***]
-------------
-------------
Adjusted GMPR [***]
-------------
License Fee Base [***] [***]
Wholesale price [***]
-------------
License Fee [***]
=============
Example II - Pocket Logo Mesh V Neck: 2nd Day Air
Retail Price (sales tax excluded) [***]
Shipping/handling charge [***]
-------------
Gross Merchandiser Product Revenue [***]
-------------
Shipping cost [***]
Fulfillment fee/Packaging Cost [***]
Credit card fee [***] [***]
-------------
Deductible Amounts [***]
-------------
-------------
Adjusted GMPR [***]
-------------
License Fee Base [***] [***]
Wholesale price [***]
-------------
License Fee [***]
=============
</TABLE>
1
<PAGE> 29
EXHIBIT F
ARTISTDIRECT, LLC
WARRANT TO PURCHASE [***] COMMON UNITS
WARRANT NO. 1999-1
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT IS FURTHER SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER CONTAINED HEREIN AND IN THAT CERTAIN AMENDED AND RESTATED OPERATING
AGREEMENT OF ARTISTDIRECT, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, DATED
JULY 28, 1998, AS AMENDED.
WARRANT TO PURCHASE
LIMITED LIABILITY COMPANY COMMON UNITS
This certifies that Giant Merchandising ("Merchandiser") is
entitled, on or after April 1 1999, to become a Member in ARTISTdirect, LLC, a
California limited liability company (the "Company"), on and subject to the
terms and conditions contained herein and in the "Operating Agreement" (as
defined below), with the number of Common Units in the Company set forth in
Section 1 below, in return for a capital contribution by Merchandiser to the
Company of cash consideration in an amount equal to [***] per Common Unit
(subject to adjustment as hereinafter provided, the "Warrant Price").
Except as otherwise specifically provided herein, terms used but
not otherwise defined herein shall have those meanings as set forth in that
certain Amended and Restated Operating Agreement of ARTISTdirect, LLC, dated
July 28, 1998, as amended (the "Operating Agreement"). A true and correct copy
of the Operating Agreement is attached hereto.
This Warrant is subject to the following terms and conditions:
1. Common Units Subject to Warrant Vesting.
(a) Definitions.
(i) "ADNM" means ARTISTdirect New Media, LLC, a Subsidiary of the
Company;
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
2
<PAGE> 30
(ii) "Determination Date" means April 30, 2003;
(iii) "Merchandiser Agreement" means that certain Merchandiser
Agreement dated as of April 1, 1999 between ADNM and
Merchandiser;
(iv) "Artist Store," "Merchandiser Artist," "Merchandiser
Product," "Merchandiser Terms," "Personal Identification,"
"Rights," "Store Agreement," and "Sublicensee" each have
the meaning ascribed thereto in the Merchandiser
Agreement;
(v) "Qualifying Revenue" means the "Adjusted Gross
Merchandiser Product Revenue" (as defined in the
Merchandiser Agreement); provided, however, that, for
purposes of this Warrant:
(a) Qualifying Revenue shall not include any amounts
received in respect of any merchandise sold through the
UBL Store.
(b) if Merchandiser's Rights to a particular Merchandiser
Artist terminate during the term of the Merchandiser
Agreement, then Qualifying Revenue shall nonetheless be
computed by deeming Merchandiser Product to include all
merchandise containing the Personal Identification of that
Merchandiser Artist and sold after such termination
through the applicable Artist Store, regardless of whether
such merchandise is provided by or on behalf of
Merchandiser or a Sublicensee, and regardless of whether
such merchandise is provided pursuant to the Merchandiser
Terms.
(vi) "Highest Sales" means the greatest Qualifying Revenue
during any period of twelve (12) consecutive calendar
months during the term of the Merchandiser Agreement
(i.e., between April 1, 1999 and March 31, 2003).
(b) This Warrant may be exercised with respect to:
(i) [***] Common Units at any time on or before March 31,
2004; and
(ii) an additional [***] Common Units for each full [***] in
Highest Sales in excess of [***]; provided that the number
of additional Common Units that may be acquired pursuant
to this Section 1(b)(ii) shall be subject to a maximum of
[***] (i.e., for Highest Sales of [***] or more).
On or before the Determination Date, the Company shall notify Merchandiser of
the Highest Sales.
- ----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE> 31
2. Term. Except for the rights conferred upon the Company pursuant to
Section 8 below, this Warrant, and Merchandiser's right to exercise this
Warrant, shall terminate immediately upon the first to occur of the
following:
(a) the close of business (i.e., 5:00 p.m., Los Angeles time) on
April 30, 2008;
(b) the termination of the Merchandiser Agreement prior to the
expiration of the full term thereof either i) by ADNM due to a
material breach thereof by Merchandiser, which breach remains
uncured for the period specified in Section 15(b) of the
Merchandiser Agreement, or (ii) by Merchandiser other than due to
a material breach thereof by ADNM, which breach remains uncured
for the period specified in Section 15(b) of the Merchandiser
Agreement; or
(c) the breach by Merchandiser of any material provision of this
Warrant.
3. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange. This Warrant may be exercised by Merchandiser, in whole or in
part, by the surrender of this Warrant, properly endorsed, at the
principal office of the Company at 17835 Ventura Blvd., Suite 310,
Encino, CA 91316 (or at such other location within the State of
California or the State of New York as the Company may advise
Merchandiser in writing), and by (a) payment to the Company in cash or
immediately available funds of the Warrant Price of the Common Units
being purchased, and (b) delivery to the Company of a customary
investment letter executed by Merchandiser, representing and warranting
that the Common Units are being acquired for Merchandiser's own account,
for investment purposes only, and not with a view to the distribution,
resale or other distribution thereof in violation of applicable
securities laws, and acknowledging the issuance and transfer of the
Common Units are subject to the requirements of federal and state
securities laws. Merchandiser, in lieu of exercising this Warrant for a
specified number of Common Units (the "Exercised Units") and paying the
aggregate exercise price therefor (the "Exercise Price"), may elect to
receive a number of Common Units equal to the number of Exercised Units,
minus a number of Common Units having an aggregate "Fair Market Value"
(as defined below) equal to the Exercise Price. After any such election,
the number of Common Units covered by this Warrant shall be deemed
automatically reduced by the number of Exercised Shares. For purposes of
this Warrant, "Fair Market Value" means (a) if the Common Units are then
publicly traded, the closing sale price of the Common Units on its
principal stock exchange or market system (or the average of the closing
bid and asked prices, if closing sales prices are not reported) for the
ten (10) consecutive trading days immediately prior to the date of any
such "net exercise," or (b) in all other cases, as determined by the
Managers in their sole, good faith discretion. In the event of any
exercise, or any such "net exercise," of less than all of the rights
represented by this Warrant, the Company shall issue to Merchandiser a
new warrant evidencing the ability of Merchandiser to purchase the
balance of the number of Common Units from the Company, and shall
deliver such warrant to Merchandiser promptly following such partial
exercise. The Company agrees that the Common Units issuable to
Merchandiser upon exercise of this Warrant shall be issued to
Merchandiser as of the close of business on the date on which all of the
above-described conditions to exercise have be satisfied. Merchandiser
hereby covenants and agrees that, upon
4
<PAGE> 32
Merchandiser's exercise of all or a portion of this Warrant and
Merchandiser's making the applicable payment to the Company in respect
thereof, Merchandiser and the Common Units issued to Merchandiser with
respect to such exercise shall become subject to the terms and
conditions of the Operating Agreement, including without limitation, the
obligation to sell Common Units and the restrictions on transfer of
Common Units contained therein. In this regard, Merchandiser
acknowledges that it shall only become a Member and be entitled to the
rights as a Member once Merchandiser validly exercises this Warrant in
accordance with the terms hereof and executes a signature page to the
Operating Agreement whereby it agrees to be bound by all of the terms
thereof, excluding the non-competition covenant contained in Section
3.10 thereof, from which Merchandiser shall be exempted.
4. Due Authorization and Issuance. The Company covenants and agrees that
any and all of the Common Units issued to Merchandiser in accordance
with the terms hereof will, upon such issuance, be duly authorized,
validly issued and free from all preemptive rights of any holder of
Common Units in the Company, free and clear of all taxes, liens and
charges with respect to such issuance. The Company further covenants and
agrees that, during the period within which this Warrant may be
exercised, the Company will take no action that would prohibit the
issuance of Common Units required to be issued in accordance with the
terms and conditions hereof on such exercise.
5. Fractional Common Units. No fractional Common Units shall be issued in
connection with any exercise hereunder but in lieu of such fractional
Common Units, the Company shall make a cash payment therefor upon the
basis of the fair market value of the Common Units, as determined by the
Managers in their sole, good faith discretion.
6. Certain Adjustments.
(a) If the outstanding Common Units are changed into or exchanged
for a different number or kind of securities of the Company or a
successor entity (including a "C-corporation" that becomes the
successor or parent of the Company in connection with a roll-up
or similar exchange transaction in connection with an initial
public offering) through a capital reorganization or
reclassification, or if the number of outstanding Common Units
is changed through a split of Common Units, reverse split of
Common Units or issuance of a Common Unit dividend, then a
reasonable and appropriate adjustment shall be made by the
Company in (i) the number or kind of Common Units that may be
purchased pursuant to the exercise of this Warrant, and (ii) the
number, exercise price, or kind of securities subject to this
Warrant. Any such adjustment in this Warrant, however, shall be
made without a change in the total price applicable to the
unexercised portion of this Warrant but with a corresponding
adjustment in the price for each Common Unit covered by this
Warrant. In making such adjustments, or in determining that no
such adjustments are necessary, the Company may rely upon the
advice of counsel and accountants to the Company, and the
reasonable determination of the Company shall be binding.
5
<PAGE> 33
(b) Upon (i) the dissolution, liquidation, or sale of all or
substantially all of the business, properties and assets of the
Company, (ii) any reorganization, merger, consolidation, sale or
exchange of securities in which the Company does not survive,
(iii) any reorganization, merger, consolidation, sale or
exchange of securities in which the Company does survive and any
of the Company's members have the opportunity to receive cash,
securities of another entity and/or other property in exchange
for their Common Units (other than a "roll-up" or similar
exchange transaction in connection with an initial public
offering), or (iv) any acquisition by any person or group (as
defined in Section 13(d) of the Securities Exchange Act of 1934,
as amended), of beneficial ownership of more than fifty percent
(50%) of the Company's then outstanding Common Units (each of
the events described in clauses (i), (ii), (iii), or (iv) is
referred to herein as an "Extraordinary Event"), this Warrant
shall terminate unless it survives the Extraordinary Event
pursuant to Section 6(d) below.
(c) Merchandiser shall have the right until ten (10) days before the
effective date of any Extraordinary, Event to exercise, in whole
or in part, this Warrant, but only to the extent to which it is
exercisable pursuant to the provisions hereof. In this regard,
the Company shall notify Merchandiser in writing of the
Company's intent to engage in any Extraordinary Event on or
before the date (the "Notice Date") that is no less than thirty
(30) days before the effective date of such Extraordinary Event.
In addition, notwithstanding anything to the contrary contained
herein, if an Extraordinary Event shall occur during the term of
the Merchandiser Agreement, then, solely for purposes of
determining the extent to which this Warrant is exercisable in
accordance with this Section 6(c), Highest Sales shall be
determined either (i) with reference to each period of twelve
(12) consecutive calendar months of the term of the Merchandiser
Agreement prior to the Notice Date; or (ii) if fewer than twelve
(12) months have elapsed since the commencement of the term of
the Merchandiser Agreement, on an annualized basis.
(d) If an Extraordinary Event occurs during the term of the
Merchandiser Agreement, then the Company shall be obligated to
either, in its sole discretion: (i) cause this Warrant to
survive such Extraordinary Event or (ii) cause the surviving
entity (which may be the Company), or any other entity that,
after giving effect to the Extraordinary Event, owns, directly
or indirectly, fifty percent (50%) or more of the Company's then
outstanding Common Units, to tender to Merchandiser a substitute
warrant to purchase units or other equity interests in such
entity containing terms and provisions substantially preserving,
in the reasonable, good faith discretion of the Company, the
rights and benefits of this Warrant to the extent then
outstanding (a "Substitute Warrant"). If an Extraordinary Event
occurs after the term of the Merchandiser Agreement, in its sole
and absolute discretion, the Company may permit this Warrant to
survive such Extraordinary Event. In addition, if an
Extraordinary Event occurs after the term of the Merchandiser
Agreement, in its sole and absolute discretion, the surviving
entity (which may be the Company), or another entity, may, but
shall not be so obligated, tender to Merchandiser a Substitute
Warrant.
6
<PAGE> 34
(e) The grant of this Warrant shall not affect in any way the right
or power of the Company to make adjustments, reclassification or
changes in its capital or business structures or to merge,
consolidate, dissolve, or liquidate or to sell or transfer all
or any part of its business or assets or undertake any other
permitted limited liability company action.
(f) Upon the occurrence of each adjustment of this Warrant pursuant
to this Section 6, the Company at its expense shall promptly
compute such adjustment or readjustment in accordance with the
terms hereof and furnish to Merchandiser a certificate setting
forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request of Merchandiser, furnish
or cause to be furnished to Merchandiser a like certificate
setting forth: (i) such adjustments and readjustments; (ii) the
applicable Exercise Price at the time in effect; and (iii) the
number of Common Units, if any, and the amount, if any, of other
securities or property that at the time would be received upon
the exercise of this Warrant.
(g) Other Action Affecting Common Units. The Company will not, by
amendment of its Articles of Organization or the Operating
Agreement, or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, dividend or other distribution of cash or
property, or any other voluntary action, avoid or seek to avoid
the rights granted to Merchandiser hereunder or the observance
or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions hereof, and in
the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Merchandiser as
set forth herein against impairment.
7. Payment of Taxes. The Company will pay all taxes (other than taxes based
upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of Common Units upon exercise of this
Warrant.
8. Drag-Along Obligation.
(a) Definition of Equity Securities. For purposes of this Warrant,
"Equity Securities" shall mean all (i) Units, all rights,
options or warrants to purchase Units, all securities of any
type, whatsoever that are convertible into or exchangeable for
Units, and all rights, options or warrants to purchase
securities that are convertible into or exchangeable for Units
and (ii) all shares, options, warrants, general or limited
partnership interests, limited liability company membership
interests, participations or other equivalents (regardless of
how designated) of or in a corporation, partnership, limited
liability company or equivalent entity that are issued in
exchange for any of the items described in the preceding clause
(ii).
(b) The Obligation. Notwithstanding anything to the contrary
contained herein, if the Managers find an acquirer for all or
any portion of their interest in the Company (whether such
acquisition is by way of purchase of assets or Common Units,
7
<PAGE> 35
merger, recapitalization or other form of transaction, and
including, without limitation, a roll-up transaction that is for
the purpose of a reorganization among the Company and its
Affiliates), then, at the request of the Managers, Merchandiser
shall sell or otherwise transfer a corresponding portion of any
Common Units (or successor Equity Securities) then held by
Merchandiser to such acquirer on the same terms and conditions
as apply to the sale or other transfer by the Managers. \
Merchandiser further agrees timely to take such other actions as
the Managers may reasonably request in connection with the
approval of the consummation of such sale or other transfer,
including, without limitation, voting in favor of such sale or
other transfer and waiving any dissenters' rights, executing
such agreements, powers of attorney, voting proxies or other
documents and instruments as may be necessary or desirable to
consummate such sale or other transfer, and, in the event that
such sale or other transfer is structured as a recapitalization,
transferring and retaining such portion of Common Units (or
successor Equity Securities) and rights under this Warrant as
may be requested by the Managers.
9. Tag-along Right.
(a) Definition of Excluded Transferee. For purposes of this Warrant,
"Excluded Transferee" shall mean: (i) Marc Geiger; (ii) Donald
Muller; (iii) a spouse, descendant or parent of Marc Geiger or
Donald Muller; (iv) a descendant of any Person listed in clauses
(i), (ii) or (iii) above; (v) a trust for the sole benefit of
any one or more of the Persons listed in clauses (i), (ii),
(iii) or (iv) above; or (vi) any Affiliate of any Person listed
in clauses (i), (ii), (iii), (iv) or (v) above.
(b) The Right. If Marc Geiger, Donald Muller, or any direct or
indirect successor, assignee, heir, devisee, donee, legatee or
transferee of either of them (each a "Transferor'), proposes
alone or with others to Transfer, directly or indirectly, to any
Person that is not an Excluded Transferee, any Equity Securities
(each, a "Subject Interest') that represent a fully-diluted
Percentage of thirty percent (30%) or more, in a single
transaction or series of transactions, and the Common Units (or
substitute Equity Securities) issued to Merchandiser pursuant to
this (or any successor) Warrant (the "Securities") include (at
such time or upon exercise, conversion or exchange) any Equity
Securities of the same class as the Subject Interest (the
"Subject Interest Class"), the would-be Transferor shall provide
Merchandiser with not less than thirty (30) days' prior written
notice of such proposed sale, which notice shall include all of
the material terms and conditions of such proposed sale and
which shall identify such purchaser (the "Sale Notice"), and
Merchandiser shall have the option, exercisable by written
notice to the Transferor within twenty (20) days after the
receipt of the Sale Notice, to participate in such transaction
pro rata with the Transferor at the same time as, and upon the
same terms and conditions as (including all direct or indirect
consideration) the Transferor Transfers his Equity Securities in
the Company. Merchandiser may sell all or any portion of the
Securities held by Merchandiser (or issuable to Merchandiser
upon exercise, conversion or exchange of any of the Securities)
that are of the class of Equity Securities that includes the
Subject
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Interest Class (the "Merchandiser's Securities") equal to the
product obtained by multiplying (i) the Subject Interest by (ii)
a fraction, the numerator of which is Merchandiser's Securities
and the denominator of which is the total number of Equity
Securities of the Subject Interest Class then owned by the
Transferor, Merchandiser, and any other Person that has
tag-along rights with respect to the proposed Transfer by
Transferor. To the extent Merchandiser, or any other Person that
has tag-along rights with respect to the proposed Transfer by
Transferor, shall exercise its tag-along right, the number of
Equity Securities that the Transferor may Transfer in the
transaction shall be correspondingly reduced.
(c) Expenses. In any transaction in which Merchandiser sells or
otherwise disposes of any of the Merchandiser's Securities
pursuant to this Section 9, Merchandiser shall bear its pro rata
share of the reasonable expenses incurred by the Transferor in
connection with the sale of the Subject Interest.
(d) Exempt Sales. The rights and obligations set forth in this
Section 9 shall not apply to any sale of Equity Securities made
in connection with or following an initial public offering of
common stock of the corporate successor of the Company.
10. Transferability of Warrant.
(a) Except as set forth in Section 10(b) below, this Warrant may not
be sold, conveyed, transferred, alienated, donated, encumbered
or otherwise disposed of by Merchandiser and, accordingly, any
purported such transaction in violation of this Section 10 shall
be void ab initio, of no force or effect.
(b) Notwithstanding Section 10(a) above, but subject to applicable
securities laws, Merchandiser may transfer all, but not less
than all, of this Warrant, to any Affiliate of Merchandiser,
provided that no such transfer shall be effective until the
transferee agrees in writing to be bound by all of the
provisions of this Warrant, including Section 8 above.
11. Investment Representation. Merchandiser represents and warrants to the
Company that Merchandiser is acquiring this Warrant for Merchandiser's
own account for investment and not with a view to, or for resale in
connection with, any distribution thereof. Merchandiser acknowledges
that this Warrant and the Common Units that may be purchased under this
Warrant have not been registered under the Securities Act, by reason of
a specific exemption from the registration provisions of the Securities
Act that depends upon, among other things, the bona fide nature of the
investment intent of Merchandiser as expressed herein.
12. Amendment and Waiver; Successors. This Warrant may only be amended or
supplemented, and any waiver or departure from the provisions hereof may
only be given, with the consent of the Managers and Merchandiser. All of
the covenants and provisions of this Warrant by or for the benefit of
the Company and Merchandiser shall
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bind and inure to the benefit of them and their respective permitted successors
and assigns hereunder.
13. Notices. All notices required by this Warrant to Merchandiser shall be
sent to Giant Merchandising, 5655 Union Pacific Avenue, Commerce, CA
90022, or such other address as Merchandiser may hereafter designate by
notice to the Company. All notices sent under this Agreement to the
Company or the Managers shall be sent to the address indicated in
Section 3 above. All notices required by this Warrant must be in writing
to be effective, and must be sent by a third party messenger, by air
courier service with a written acknowledgement of receipt, by registered
or certified mail, return receipt requested, or through a telegraph
office. The date of personal delivery, of mailing, or the date of
delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to
notices of change of address, the date of which will be the date of
receipt by the receiving party). Until the Company notifies Merchandiser
otherwise, a copy of all notices hereunder to the Company shall be
simultaneously sent as aforesaid to Lenard & Gonzalez LLP, 1900 Avenue
of the Stars, 25th Floor, Los Angeles, CA 90067; Attention: Allen D.
Lenard, Esq.
14. Descriptive Headings and Governing Law. The descriptive headings of the
several paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of California.
15. Lost Warrant. The Managers and the Company represent and warrant to
Merchandiser that upon receipt of evidence reasonably satisfactory to
the Managers and the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction upon receipt of an indemnity reasonably satisfactory to the
Managers and the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Managers and the Company
will make and deliver a new Warrant in lieu of the lost, stolen,
destroyed or mutilated Warrant.
IN WITNESS WHEREOF, Merchandiser, the Company and the Managers
have caused this Warrant to be duly executed and issued by their respective
officers thereunto duly authorized as of the 1st day of April, 1999.
"COMPANY" "MERCHANDISER"
ARTISTdirect, LLC Giant Merchandising
By: /s/ Marc Geiger By:
--------------------------------- -----------------------------
Its: Co-Chief Executive Officer (an authorized signatory)
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"MANAGERS"
By: /s/ Marc Geiger
--------------------------------------
Marc Geiger
By:
--------------------------------------
Donald Muller
11
<PAGE> 1
REDACTED
EXHIBIT 10.27
ADNM MERCHANDISER AGREEMENT
This Agreement, dated as of June 7, 1999, between Winterland
Concessions Company, a California corporation, doing business as "Winterland"
("Merchandiser"), 1951 Fairway Drive, San Leandro, CA 94577, and ARTISTdirect
New Media, LLC ("ADNM"), 17835 Ventura Blvd., Suite 310, Encino, CA 91316, is
being entered into in light of the following:
A. Merchandiser is in the business of acquiring the right to use the
names, photographs and other likenesses, biographical material and other
personal identification (collectively, "Personal Identification") of musical
artists in connection with the manufacture and sale of merchandise and the
licensing of such rights to third parties.
B. ADNM is in the business of developing and operating Internet retail
storefronts for musical artists ("Artist Stores") that, among other things, sell
merchandise containing the Personal Identification of the applicable artist.
C. Merchandiser and ADNM are entering into this Agreement in order to
set forth the terms and conditions upon which Merchandiser has agreed to
accommodate ADNM in respect of developing and opening new Artist Stores
featuring Merchandiser Artists (as defined below) and in the operation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
benefits contained herein, the parties hereto agree as follows:
1. Term: The term of this Agreement (the "Term") shall be three (3)
years commencing on the date of this Agreement.
2. Signing Procedures:
(a) As used herein, "Merchandiser Artist" shall mean,
individually and collectively, each and every artist in respect of which
Merchandiser has the exclusive right (sometimes referred to herein as the
"Rights") to manufacture merchandise utilizing such artist's Personal
Identification (including any entity furnishing the Personal Identification of
such an artist). Merchandiser represents and warrants that (A) attached hereto
as Exhibit A is a true and complete list of Merchandiser Artists as of the
execution of this Agreement; and (B) the territory and duration of the Rights
set forth on said Exhibit A are true and complete.
(b) During the Term, Merchandiser agrees that, within a
reasonable period of time after Merchandiser enters into an agreement with
respect to a new Merchandiser Artist, Merchandiser shall notify ADNM of the
applicable artist name(s), territory and duration of Rights, if any. Upon such
notice, the applicable Merchandiser Artist shall be deemed added to said Exhibit
A.
(c) Merchandiser agrees to promptly notify ADNM if any of the
information on said Exhibit A should change during the Term, as well as soon as
the Rights in respect of an artist end (after which such artist shall be deemed
deleted from said Exhibit A.)
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(d) Said Exhibit A indicates with an asterisk (*) those
Merchandiser Artists in respect of which ADNM desires to enter into a Store
Agreement as of the execution of this Agreement. ADNM shall have the right from
time to time during the Term to notify Merchandiser that it desires to enter
into a Store Agreement with any other Merchandiser Artists. ADNM and
Merchandiser shall use their collective commercially reasonable efforts to cause
the applicable Merchandiser Artist to enter into an agreement with ADNM
substantially in the form attached hereto as Exhibit B, subject to any
modifications as the parties may mutually agree upon prior to the execution
thereof (a "Store Agreement").
(e) Merchandiser acknowledges that, prior to the execution
hereof, ADNM entered into agreements in respect of the development and operation
of Artist Stores for the artists set forth on Schedule A attached hereto
(individually and collectively, "Excluded Artists"). In respect of each Excluded
Artist, Merchandiser agrees (i) to continue to sell to ADNM (or the applicable
Excluded Artist or its furnishing company), for resale on the applicable Artist
Store and the UBL Store (as defined in paragraph 6 below), merchandise featuring
the Personal Identification of the applicable Excluded Artist on terms no less
favorable to ADNM than [***] terms; (ii) that [***] shall be payable with
respect to any such merchandise; (iii) that to the extent any Rights are needed
from Merchandiser to operate the applicable Artist Store, such Rights shall be
deemed granted to ADNM in consideration of ADNM entering into this Agreement;
and (iv) the Excluded Artists shall not be subject to this Agreement.
3. Sale of Merchandise Manufactured By or Under the Control of
Merchandiser: As used herein, the term "Merchandiser Product" means all
merchandise sold pursuant to a Store Agreement (whether through the applicable
Artist Store or the UBL Store) that is provided by or on behalf of Merchandiser
or a Sublicensee, as well as any "limited edition" or "one-of-a-kind" items of
merchandise sold pursuant to a Store Agreement (whether or not actually provided
by or on behalf or Merchandiser or a Sublicensee). During the term of each Store
Agreement (but only as long as Merchandiser has the Rights in respect of the
applicable Merchandiser Artist), Merchandiser agrees to sell to ADNM (or the
applicable Merchandiser Artist), for resale under the applicable Store
Agreement, Merchandiser Product manufactured by or under the control of
Merchandiser that contains the Personal Identification of the applicable
Merchandiser Artist upon the following terms:
(a) Merchandiser agrees to sell all such merchandise to ADNM at
[***]. Merchandiser represents and warrants that attached hereto as Exhibit C
are Merchandiser's [***] as of the execution of this Agreement. Upon notice from
Merchandiser to ADNM, Merchandiser shall have the right to change its [***]
hereunder, provided such changes apply to all of Merchandiser's customers and
that such changes shall only apply to Merchandiser Product ordered by ADNM after
its receipt of such notice from Merchandiser.
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portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
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Notwithstanding the foregoing, the parties agree and acknowledge that
Merchandiser may not have [***] for certain collectibles and limited edition
items, in which case the [***] shall be negotiated in good faith.
(b) Subject to paragraph 4 below, all such sales shall be on a
consignment basis [i.e., the applicable Merchandiser Product shall not be deemed
sold to ADNM until ADNM has received a verified order therefor from a customer
of an Artist Store (or the UBL Store), and ADNM shall have the right to return
to Merchandiser, for a full credit, any Merchandiser Product that is unsold or
has been returned by such a customer in accordance with the return policies of
the Artist Store (or the UBL Store, as applicable)]. Payment to Merchandiser
shall be made within [***] after the end of the month during which ADNM has sold
the applicable item of Merchandiser Product.
(c) ADNM and Merchandiser shall in their good faith business
judgment mutually determine on an item-by-item basis the amount of inventory
that Merchandiser will ship to the ADNM's fulfillment center(s) (the "Center").
In this regard, Merchandiser agrees that it will ship on a timely basis an
amount of Merchandiser Product reasonably sufficient to cover the anticipated
orders through the applicable Store. During the Term, ADNM agrees to provide
Merchandiser within [***] after the last day of each month (and at such other
times as Merchandiser reasonably requests, but no more frequently than [***]
during any [***] period of the Term), with a computer run of the inventory held
as of the end of the preceding month at the Center of Merchandiser Product
supplied by Merchandiser. Merchandiser shall have the right from time to time to
require ADNM to return inventory of Merchandiser Product that exceeds the
inventory level deemed likely to be sold within a reasonable period of time, as
mutually agreed among the parties.
(d) [***] shall pay all third party costs (including all
associated freight and insurance costs) of shipping the Merchandiser Product
supplied by Merchandiser to the Centers and returning any such unsold
Merchandiser Product from the Center to Merchandiser's closest warehouse to the
Center.
4. Sale of Merchandise Manufactured By or Under the Control of a
Sublicensee: As used herein, the term "Sublicensee" means any person or entity
who has obtained prior to the date of this Agreement, or during the Term
obtains, from Merchandiser the right to manufacture and distribute merchandise
bearing the Personal Identification of a Merchandiser Artist.
(a) During the term of each Store Agreement, Merchandiser shall
use its commercially reasonable efforts to cause each Sublicensee to sell on a
timely basis to ADNM (or the applicable Merchandiser Artist), for resale under
the applicable Store Agreement, Merchandiser Product manufactured by such
Sublicensee at no more than the Sublicensee's standard wholesale prices and
otherwise in accordance with the terms of paragraph 2(e) above (e.g., on a
consignment basis). Subject to paragraph 4(b) below, if, despite Merchandiser's
commercially reasonable efforts, a Sublicensee refuses to sell Merchandiser
Product on a consignment basis, Merchandiser shall use its commercially
reasonable efforts to cause such
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portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
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Sublicensee to agree that payment for the applicable Merchandiser Product will
not be due until at least [***] after the applicable Merchandiser Product is
received at the Center from the Sublicensee. Subject to paragraph 4(b) below,
if, despite Merchandiser's commercially reasonable efforts, a Sublicensee
refuses to sell Merchandiser Product on [***] terms, Merchandiser shall use its
commercially reasonable efforts to cause such Sublicensee to agree that payment
for the applicable Merchandiser Product will not be due until at least [***]
after the applicable Merchandiser Product is received at the Center from the
Sublicensee.
(b) If a Sublicensee refuses to sell Merchandiser Product to
ADNM (or the applicable Merchandiser Artist) on terms acceptable to ADNM,
Merchandiser may elect to purchase such Merchandiser Product from the
Sublicensee and sell such Merchandiser Product to ADNM in accordance with the
terms set forth in paragraph 3(b) above. If the Sublicensee or Merchandiser
furnishes a Sublicensee's merchandise to ADNM (or the applicable Merchandiser
Artist) on a consignment basis, then the License Fee with respect to such
Merchandiser Product shall be paid by ADNM to Merchandiser. If such Merchandise
Product is not supplied on a consignment basis (i.e., ADNM and/or the applicable
Merchandiser Artist do not have the right to return such Product against a full
credit), then, notwithstanding anything contained in this Agreement to the
contrary, the License Fee with respect to such Merchandiser Product shall be
paid by ADNM to the applicable Merchandiser Artist under the applicable Store
Agreement.
5. Winterland Store:
(a) During the Term, ADNM will design, develop, maintain and
operate for Merchandiser an Internet retail storefront for the sale of
merchandise containing the Personal Identification of certain Merchandiser
Artists to be mutually selected by ADNM and Merchandiser (the "Winterland
Store"), to be integrated with Merchandiser's web site currently located at
www.winterland.com (the "Winterland Site"). ADNM will design and develop the
Winterland Store pursuant to a mutually approved design concept. ADNM shall be
solely responsible for all costs incurred by ADNM in connection with developing
the Winterland Store; however, Merchandiser agrees to cooperate with ADNM,
including by providing technical assistance and such other resources as may be
reasonably required, to integrate the Winterland Store into the existing
Winterland Site. Merchandiser shall provide ADNM with all photographs, graphics,
logos and similar items reasonably required by ADNM to create the Winterland
Store and readily available to Merchandiser promptly following ADNM's request
and at no cost to ADNM.
(b) During the Term, ADNM will host (i.e., provide the server
for) and maintain the Winterland Store, including by providing periodic source
code programming updates and improvements. In this regard, ADNM will use its
commercially reasonable efforts to correct any material "bug" or defect as soon
as reasonably possible after ADNM becomes aware of such material "bug" or
defect.
(c) ADNM and Merchandiser shall mutually approve the merchandise
to be sold over the Winterland Store. Merchandiser shall have the right to
approve the retail price of
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[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
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<PAGE> 5
merchandise sold over the Winterland Store. ADNM (or its designee) shall process
all orders received from the Winterland Store and arrange to have the ordered
merchandise shipped to the customer (subject to availability).
(d) All merchandise to be offered for sale on the Winterland
Store shall be supplied to ADNM in accordance with the terms of paragraphs 2(e)
and 4 above. In addition, with respect to merchandise supplied by Merchandiser
or a Sublicensee and sold over the Winterland Store, ADNM agrees to account to
Merchandiser in the same manner as ADNM accounts to Merchandiser for
Merchandiser Product sold over an Artist Store (i.e., pursuant to paragraphs
8(b)(i)(A) and 8(b)(i)(C) below, but subject to the last sentence of paragraph
4(b) above). However, any merchandise containing the Personal Identification of
a Merchandiser Artist who is not subject to a Store Agreement that is offered
for sale on the Winterland Store and sold through the UBL Store shall not be
deemed a sale under this Agreement (i.e., shall not be subject to the License
Fee). Rather such sale shall be deemed a sale under the UBL Merchandiser
Agreement between Merchandiser and The Ultimate Band List, LLC being entered
into concurrently herewith (the "UBL Agreement").
(e) During the Term, ADNM shall handle all customer orders and
inquiries in respect of the Winterland Store, provide all necessary credit card
accounting and processing services and develop payment, delivery and refund
policies. To effect the foregoing, ADNM shall also provide an on-line and
toll-free telephone service center that will take orders and respond to customer
inquiries. On-line inquiries will be responded to within 24 hours of receipt and
the telephone service will be operational Mondays through Fridays from 9:00 a.m.
to 7:00 p.m. Pacific Time (excluding holidays) and will enable customers who
prefer not to place orders on-line to place orders by facsimile or telephone.
(f) As between ADNM and Merchandiser, Merchandiser will own the
customer database specifically identified with the Winterland Store (the
"Winterland Database"). However, ADNM will have the exclusive right during the
Term, subject to Merchandiser's consent in each instance, to administer and
license any third party uses of the Winterland Database, and to collect all
monies relating thereto accrued during the Term, regardless of when payable.
ADNM shall pay Merchandiser [***] of the "Gross Database Revenue," which means
the amount actually received by ADNM in respect of sales and other exploitations
of the Winterland Database, less all related Deductible Amounts.
(g) ADNM shall pay Merchandiser [***] of the "Gross Exploitation
Revenue," which means the amount actually received by ADNM in respect of
ancillary income from the Winterland Store, for example, income in respect of
advertising contained on the Winterland Store (e.g., hyperlinks to, and banners
and other advertisements for, other Internet web sites), less all agent
commissions and other related Deductible Amounts. Merchandiser shall have the
right to approve all such ancillary activities.
(h) As between ADNM and Merchandiser, Merchandiser shall be
solely responsible for all costs of marketing the Winterland Store, and ADNM
shall not incur any such
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[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
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<PAGE> 6
costs without Merchandiser's written approval. If ADNM incurs any marketing
costs with Merchandiser's written approval, such costs shall be recoupable out
of all monies payable to Merchandiser under this Agreement, other than (i) the
wholesale purchase price for the Merchandiser Product and merchandise purchased
for sale through the Winterland Store and (ii) the monies payable under
paragraph 3(d) above.
(i) As between Merchandiser and ADNM, any and all artwork,
trademarks, logos, graphics, video, sound recordings, musical compositions,
text, data and other materials supplied by Merchandiser to ADNM in connection
with the Winterland Store, as well as the URL and the domain name or names
assigned to the Winterland Store (collectively, the "Winterland Content"), shall
remain Merchandiser's sole and exclusive property. Merchandiser hereby grants to
ADNM during the Term and throughout the universe a non-exclusive, royalty-free
license to use, copy, modify (with Merchandiser's consent), distribute, publicly
perform and display and otherwise exploit the Winterland Content and the
Personal Identification of each applicable Merchandiser Artist in connection
with the development, maintenance and operation of the Winterland Store and the
advertising and promotion thereof and of ADNM in connection with the Winterland
Store. No Winterland Content or the exploitation or use thereof or the sale of
any Merchandiser Product shall violate or infringe upon any common law or
statutory rights of any party, including contractual rights, copyrights, and
rights of privacy or publicity or shall defame any person or entity.
(j) As between Merchandiser and ADNM, any and all text,
graphics, audio, video, artwork and designs created by ADNM or its employees or
agents during the Term for use solely on the Winterland Store, including any
additions to or modifications of Winterland Content made by ADNM or its
employees or agents, (collectively, the "Developed Content"), shall be
Winterland's sole and exclusive property. All Developed Content shall be deemed
included in the license granted by Merchandiser under paragraph 5(i) above. Upon
Merchandiser's reasonable request and at Merchandiser's sole expense, ADNM shall
assist Merchandiser in the procurement and maintenance of Merchandiser's rights
in the Developed Content (including all intellectual property rights, whether
recognized currently or in the future).
(k) As between Merchandiser and ADNM, any and all commerce
technology, HTML formatting code, source and object code, programming code and
software, as well as all text, graphics, audio, video, artwork and designs
provided by ADNM in connection with this Agreement which does not constitute
Developed Content (collectively, the "ADNM Content") shall be ADNM's sole and
exclusive property. Notwithstanding the foregoing, upon the expiration of the
Term and provided Merchandiser is not in breach of this Agreement, ADNM shall
grant to Merchandiser a perpetual non-exclusive license throughout the universe
to use, modify, publicly perform and display all ADNM Content used in the
Winterland Store and owned and controlled by ADNM, solely in connection with
operating and maintaining the Winterland Store. In consideration of such
license, if Merchandiser elects to so utilize any such ADNM Content in
connection with the Winterland Store after the Term, Merchandiser agrees to pay,
or cause its licensee(s) to pay, ADNM a royalty equal to [***] of the gross
revenues earned in connection with the Winterland Store after the expiration of
the Term, but only for as long as
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[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
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Merchandiser continue to use any such ADNM Content. In this regard, Merchandiser
shall account in the same fashion and within the same time periods, and ADNM
shall be accorded the same examination rights and be subject to the same
limitations and restrictions, as apply with respect to Merchandiser's
accountings under paragraph 11 below. Nothing contained in this Agreement shall
impose upon ADNM any obligation whatsoever to provide Merchandiser with updates,
hosting, maintenance or support with respect to the Winterland Store or such
ADNM Content after the Term. Merchandiser shall not be entitled to use any name,
trademark or service mark of ADNM or its affiliates in any manner whatsoever
without obtaining the prior written consent of ADNM or the applicable affiliate
of ADNM.
(l) Merchandiser shall obtain all necessary third-party
clearances in connection with all Winterland Content and merchandise offered for
sale on the Winterland Store (including the payment of any associated fees,
royalties and other costs). If ADNM nevertheless shall pay, with Merchandiser's
approval, any third party clearance cost relating to the Winterland Store (which
ADNM is not obligated to do), all such amounts shall be deducted from any and
all monies otherwise payable to Merchandiser under this Agreement.
(m) ADNM represents and warrants that no exploitation or use by
ADNM or Merchandiser of the ADNM Content or Developed Content in accordance with
the terms of this Agreement shall violate or infringe upon any common law or
statutory rights of any party, including contractual rights, copyrights, and
rights of privacy or publicity. ADNM shall indemnify Merchandiser in accordance
with the terms of paragraph 14(c) below in respect of any claim contrary to the
foregoing; other than with respect to any claim subject to the foregoing
indemnity obligation, Merchandiser agrees that ADNM shall not be liable for any
special, consequential, incidental or indirect damages in connection with the
development or operation of the Winterland Store, however caused, under any
theory of liability.
6. UBL Store: Merchandiser agrees and acknowledges that ADNM may elect
to make available for sale on an Internet on-line store (the "UBL Store")
operated by a company affiliated with ADNM certain items of Merchandiser Product
offered for sale through an Artist Store.
7. Grant of Rights: With respect to each Store Agreement (and subject to
the terms and conditions set forth therein), Merchandiser shall be deemed to
have granted to ADNM, in consideration for the License Fee, the irrevocable
right and license, insofar as Merchandiser has such Rights and for the territory
Merchandiser has such Rights, during the term of such Store Agreement (but only
as long as Merchandiser has the Rights in respect of the applicable Merchandiser
Artist), to develop and operate the only "official" Internet store for the
applicable Merchandiser Artist, and the non-exclusive (subject to paragraph 12
below) right and license to utilize such Merchandiser Artist's Personal
Identification in connection with the applicable Artist Store.
8. License Fee:
(a) Unless otherwise provided in the applicable Store Agreement,
in consideration for the rights licensed pursuant to paragraph 7 above, ADNM
agrees to pay Merchandiser a License Fee with respect to all Merchandiser
Product sold at any time (including after the Term) under a Store Agreement,
subject to the last sentence of paragraph 4(b) above.
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<PAGE> 8
(b) As used herein:
(i) "License Fee" shall mean [***] :
(A) [***] of the Adjusted Gross Merchandiser
Product Revenue with respect to Merchandiser Product (other than High-End
Collectibles) sold through an Artist Store and with respect to High-End
Collectibles sold through the UBL Store;
(B) [***] of the Adjusted Gross Merchandiser
Product Revenue with respect to Merchandiser Product (other than High-End
Collectibles) sold through the UBL Store; and
(C) [***] of the Adjusted Gross Merchandiser
Product Revenue with respect to High-End Collectibles sold through an Artist
Store.
(ii) "Adjusted Gross Merchandiser Product Revenue" shall
mean [***].
(iii) "Deductible Amounts" shall mean [***].
Merchandiser shall have the right to approve the amount of (A) third party
fulfillment fees (but only if such fees are in excess of the fees set forth on
Exhibit D attached hereto, (B) the third party service fees (other than credit
card fees), and (C) agent commissions, provided that once such approval is given
with respect to a particular artist, ADNM will not be obligated to obtain
Merchandiser's approval of any other third party fulfillment fees, third party
service fees or agent commissions for such Merchandiser Artist or any other
Merchandiser Artist so long as such fees or commissions, as the case my be, are
not in excess of the fees and commissions previously approved by Merchandiser.
Notwithstanding anything to the contrary contained herein, as between ADNM and
Merchandiser, [***] shall be solely responsible for all customer bad debts in
respect of Merchandiser Product shipped by ADNM (or its designee), including all
associated Deductible Amounts.
(iv) "High-End Collectibles" means any single item of
Merchandiser Product sold pursuant to a Store Agreement (whether through the
applicable Artist Store or the UBL Store) for a retail price in excess of [***].
(c) For the avoidance of doubt, Merchandiser agrees and
acknowledges that Artist Product will be sold on the Artist Stores and that no
License Fee shall be payable to Merchandiser in respect of any Artist Product.
As used herein, "Artist Product" means all merchandise and other products sold
pursuant to a Store Agreement (whether through the applicable Artist Store or
the UBL Store) other than Merchandiser Product (e.g., records, concert tickets,
etc.). During the period Merchandiser has the Rights to a particular
Merchandiser Artist that is party to a Store Agreement, ADNM shall advise
Merchandiser of ADNM's intention to sell on the applicable Artist Store any
Artist Product (other than records and concert tickets) within a reasonable
period of time prior to the intended sale.
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
8
<PAGE> 9
9. ARTISTdirect Warrant: In further consideration for Merchandiser
entering into and fully performing its obligations undertaken by Merchandiser in
this Agreement and under the UBL Agreement, promptly following the execution
hereof, ADNM shall cause ARTISTdirect, LLC to grant to Merchandiser a warrant
substantially in the form of Exhibit E attached hereto in exchange for the
payment by Merchandiser to ARTISTdirect, LLC of one hundred dollars ($100.00).
10. Execution Payment: In consideration of the rights granted and other
covenants and agreements made by Merchandiser in this Agreement and in the UBL
Agreement, ADNM agrees to pay to Merchandiser, upon the complete execution of
both this Agreement and the UBL Agreement, a one-time, non-returnable,
non-recoupable fee of [***].
11. Accountings:
(a) ADNM shall compute the License Fee payable to Merchandiser
and render an accounting statement to Merchandiser within thirty (30) days after
March 31, June 30, September 30 and December 31 for the three-month period
preceding March 31, June 30, September 30 or December 31, as the case may be.
Each such statement shall include an itemized breakdown of the sources of the
applicable revenue, Deductible Amounts and all other reductions in computing the
License Fee and shall be accompanied by the payment of the amount of the License
Fees, if any, earned by Merchandiser during the accounting period to which the
statement relates. With respect to the last two (2) accounting periods before
the end of the Term, ADNM shall be entitled to withhold from payments otherwise
due reasonable reserves against anticipated returns, rebates, credits,
cancellations and exchanges related to the Winterland Store, provided that such
reserves shall consistent with the average amount of actual returns, rebates,
credits, cancellations and exchanges during the accounting period concerned, and
provided further that all such reserves shall be liquidated with the first
accounting period after the Term.
(b) Merchandiser or a certified public accountant on
Merchandiser's behalf may, at ADNM's offices and at Merchandiser's expense,
examine ADNM's books and records relevant to the calculation of the License Fee
solely for the purposes of verifying the accuracy of statements rendered by ADNM
to Merchandiser. Such books and records may be examined as aforesaid only (i)
during ADNM's normal business hours, (ii) upon reasonable notice to ADNM, and
(iii) within two years after the date a statement is due hereunder. Further,
Merchandiser shall not have the right to examine such books and records more
frequently than once in any twelve month period or more than once with respect
to any particular statement. Each statement shall be deemed final and binding
upon Merchandiser as an account stated and shall not be subject to any claim or
objection by Merchandiser (A) unless Merchandiser notifies ADNM of
Merchandiser's specific written objection to the applicable statement, stating
the basis thereof in reasonable detail within two (2) years after the date such
statement is due hereunder, and (B) unless, within said two (2)-year period,
Merchandiser make proper service of process upon ADNM in a suit instituted in a
court of proper jurisdiction.
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
9
<PAGE> 10
12. Exclusivity:
(a) Insofar as ADNM is concerned, Merchandiser shall have the
right to sell and authorize others to sell merchandise containing a Merchandiser
Artist's Personal Identification over the Internet. However, during the Term,
Merchandiser shall not, without ADNM's consent, develop or maintain a web site,
or license or otherwise authorize any other web site provider to develop or
maintain a web site, that is identified solely with a single Merchandiser Artist
(e.g., a web site that is the "official" merchandise web site for a Merchandiser
Artist).
(b) Except with respect to collectibles and limited edition
items supplied by the Merchandiser Artist, records, and concert tickets, ADNM
agrees that, so long as Merchandiser has the Rights, ADNM shall not purchase
within the territory of Merchandiser's exclusivity merchandise bearing the
Personal Identification of a Merchandiser Artist from anyone other than
Merchandiser or a Sublicensee; provided that Merchandiser will consider in good
faith each request by ADNM and/or a Merchandiser Artist who is party to a Store
Agreement to manufacture, or cause the manufacture by a Sublicensee, of
merchandise not otherwise manufactured by Merchandiser or a Sublicensee. If
Merchandiser is unable to timely supply sufficient quantities of any item of
merchandise manufactured by or under the control of Merchandiser (it being
understood that merchandise manufactured by a Sublicensee shall not be deemed
manufactured under the control of Merchandiser) for sixty (60) consecutive days
then, without limiting any other right or remedy available to ADNM, ADNM shall
be entitled to make arrangements with another manufacturer for the manufacture
of such merchandise.
13. Tour Merchandising and Sublicensing Rights: During the Term, ADNM
agrees that it and its affiliates shall refrain from seeking from any artist (a)
tour merchandising rights, or (b) the right to sublicense merchandising rights
to third parties, or (c) the right to manufacture merchandise containing such
artist's Personal Identification.
14. Representations and Warranties; Indemnity:
(a) Each party hereto represents and warrants that: (i) it has
the full right, power and authority to enter into and to perform this Agreement;
(ii) it is not under any restriction or obligation that may or will impair such
party's full performance of this Agreement; and (iii) it shall not at any time
do or authorize any person or entity to do anything inconsistent with, or
anything that might diminish, impair or interfere with any of the other party's
rights hereunder.
(b) Merchandiser agrees to indemnify and hold ADNM and its
members, employees, attorneys, agents, successors, affiliates, assigns and
licensees harmless against any claim, liability, cost and expenses (including
attorneys' and accountants' fees reasonably incurred) in connection with any
breach or alleged breach of this Agreement by Merchandiser. In this regard, ADNM
shall not settle any claim without first notifying Merchandiser of the terms of
any proposed settlement and obtaining Merchandiser's consent thereto.
(c) ADNM agrees to indemnify and hold Merchandiser and its
members, employees, attorneys, agents, successors, affiliates, assigns and
licensees harmless against any claim, liability, cost and expenses (including
attorneys' and accountants' fees reasonably incurred) in connection with any
breach or alleged breach of this Agreement by ADNM. In this
10
<PAGE> 11
regard, Merchandiser shall not settle any claim without first notifying ADNM of
the terms of any proposed settlement and obtaining ADNM's consent thereto.
(d) Merchandiser acknowledges that ADNM is making no
representations and warranties concerning anticipated success of the Stores or
the Winterland Store, the amount of compensation payable to Merchandiser
hereunder, and/or the current or future value of ADNM or the warrants described
in paragraph 9 above. Likewise, ADNM acknowledges that Merchandiser is making no
representations and warranties concerning anticipated success of the Stores or
the Winterland Stores or the amount of compensation payable to ADNM with respect
thereto.
15. [***]
16. Notices; Approvals:
(a) All notices and payments to either party hereto shall be
sent to such party's address first mentioned herein, or such other address as a
party hereto may hereafter designate by notice to the other. All notices sent
under this Agreement must be in writing to be effective, and must be sent by a
third party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or by
facsimile provided receipt is confirmed by telephone call to the recipient. The
date of personal delivery or faxing, or the date of delivery to a telegraph
office, as the case may be, of any such notice shall be deemed the date of the
giving thereof; and the date two (2) days following deposit with any air courier
service, or five (5) days following deposit with the United States Postal
Service, of any such notice shall be deemed the date of the giving thereof
(except, with respect to notices of change of address, the date of which will be
the date of receipt by the receiving party). Until ADNM notifies Merchandiser
otherwise, a copy of all notices hereunder to ADNM shall be simultaneously sent
as aforesaid to Lenard & Gonzalez LLP, 1900 Avenue of the Stars, 25th Floor, Los
Angeles, CA 90067; Attention: Allen D. Lenard, Esq.
(b) No failure by a party hereto to perform any of its
obligations hereunder shall be deemed a breach of this Agreement, unless the
party claiming a breach has given the other party hereto notice of such alleged
breach in reasonable detail and such alleged breach is not cured within fifteen
(15) business days [five (5) business days for non-payments] after the giving of
such notice, provided that if it is not reasonably possible to cure such breach
within such time period, then such failure shall not be deemed a breach if
within such period such party commences the curing of such breach and cures such
breach within a reasonable period of time thereafter. The foregoing provisions
of this paragraph shall not delay or prohibit either party from seeking and
obtaining injunctive and other equitable relief.
(c) No consent or approval under this Agreement shall be
unreasonably withheld or delayed. With respect to consents and approvals of
Merchandiser required under this Agreement, ADNM may elect to request such
consent by notice to Merchandiser. If Merchandiser does not respond to such
notice within ten (10) business days thereafter, ADNM may give Merchandiser a
second notice making such request, and Merchandiser's consent or
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
11
<PAGE> 12
approval shall be deemed granted unless Merchandiser notifies ADNM to the
contrary, stating in reasonable detail the basis thereof, within five (5)
business days after such second notice.
17. Miscellaneous:
(a) All references to "this Agreement," "hereof," "herein" and
words of similar connotation include all exhibits attached hereto, unless
specified otherwise. This Agreement is intended by the parties hereto as a final
expression of their understanding and agreement with respect to the subject
matter hereof and as a complete and exclusive statement of the terms thereof;
this Agreement supersedes all prior and contemporaneous negotiations,
understandings, and agreements between the parties hereto with respect to the
subject matter hereof. The parties acknowledge and agree that neither party
hereto has made any representations or promises in connection with this
Agreement or the subject matter hereof not contained herein. Nothing in this
Agreement shall be construed to require the commission of any act contrary to
law, and wherever there is a conflict between any provisions of this Agreement
and any statute, law, ordinance, order or regulation contrary to which the
parties hereto have no legal right to contract, such statute, law, ordinance,
order or regulation shall prevail; provided that, in such event, (a) the
provision of this Agreement so affected shall be limited only to the extent
necessary to permit the compliance with the minimum legal requirements, (b) no
other provisions of this Agreement shall be affected thereby, and (c) all such
other provisions shall remain in full force and effect. The parties hereto shall
negotiate in good faith to replace any invalid, illegal or unenforceable
provision (the "Invalid Provision") with a valid provision, the effect of which
comes as close as possible to that of the Invalid Provision. This Agreement
cannot be canceled, modified, amended or waived, in part or in full, in any
manner except by an instrument in writing signed by the party to be charged. No
waiver by either party, whether expressed or implied, of any provision of this
Agreement or default hereunder shall affect such party's right to thereafter
enforce such provision or to exercise the right or remedy set forth in this
Agreement in the event of any other default, whether or not similar. Words in
the singular number shall include the plural, and vice versa. Whenever examples
are used in this Agreement with the words "including," "for example," "e.g.,"
"such as," "etc." or any derivation thereof, such examples are intended to be
illustrative and not in limitation thereof. The paragraph headings herein are
used solely for convenience and shall not be used in the interpretation or
construction of this Agreement.
(b) In entering into this Agreement and providing services
pursuant hereto, Merchandiser and ADNM each have and shall have the status of
independent contractors. Nothing herein contained shall contemplate or
constitute either party being an agent or employee of the other party, and
nothing herein shall constitute a partnership, joint venture or fiduciary
relationship between the parties.
(c) Neither party hereto shall, without the prior written
consent of the other party (not to be unreasonably withheld), assign this
Agreement, in whole or in part, to any person or entity other than a subsidiary,
affiliated or controlling entity, or to any person or entity owning or acquiring
a substantial portion of the stock or assets of such party hereto.
(d) This Agreement shall be deemed to have been entered into in
the State of California and the validity, interpretation and legal affect of
this Agreement shall be governed by the laws of the State of California
applicable to contracts entered into and performed entirely
12
<PAGE> 13
within the State of California. The courts located in the County of Los Angeles,
California (state and federal), only, will have jurisdiction of any controversy
regarding this Agreement; any action or other proceeding which involves such a
controversy will be brought in those courts, in California and not elsewhere.
18. (a) Each party to this Agreement expressly undertakes to retain in
confidence, and to require and cause its subsidiaries and affiliates and its and
their respective employees, contractors and agents to retain in confidence, all
information and know how transmitted to such party (the "Receiving Party") (i)
which the disclosing party hereunder (the "Disclosing Party") has identified in
writing as being proprietary and/or confidential or (ii) which the Receiving
Party reasonably should know, based upon the nature of the information being
disclosed, ought to be treated as confidential (collectively "Confidential
Information"). The Receiving Party will make no use of such Confidential
Information except as expressly authorized under this Agreement. Either party
may, however, disclose Confidential Information if required by law or legal
process, provided such party shall undertake to give the other reasonable notice
prior to such disclosure and shall comply with any applicable protective order
or equivalent.
(b) ADNM hereby specifically acknowledges and agrees that the terms
of the Rights applicable to each Merchandiser Artist constitute Confidential
Information of Merchandiser under this Agreement.
(c) Both parties acknowledge that unauthorized disclosure or use of
Confidential Information could cause irreparable harm and significant injury
which may be difficult to ascertain. Accordingly, both parties agree that the
aggrieved party will have the right to seek and obtain injunctive relief from
breaches of this paragraph 18, in addition to any other rights and remedies it
may have. Both parties agree that each has and shall retain ownership rights to
its own Confidential Information, and that upon expiration or termination of the
Term each party shall return and shall not retain the Confidential Information
of the other party.
(d) Notwithstanding anything in this paragraph 18 to the contrary,
Confidential Information shall not be construed to mean any information which
the Receiving Party can show: (i) is, or subsequently becomes, publicly
available other than as a result of the Receiving Party's breach of any
obligation owed to the Disclosing Party or a third party; (ii) became known to
the Receiving Party prior to the Disclosing Party's disclosure of such
information to the Receiving Party, (iii) became known to the Receiving Party
from a source other than the Disclosing Party other than as a result of such
source's breach of an obligation of confidentiality owed to the Disclosing
Party, (iv) is independently developed by the Receiving Party, or (v) has been
authorized for disclosure by the Disclosing Party.
(e) The provisions of this paragraph 18 shall survive termination
or expiration of the Term.
ARTISTdirect New Media, LLC Winterland Concessions Company,
a California corporation, doing
business as
"Winterland"
By: /s/ Marc P. Geiger
---------------------------------
(an authorized signatory)
13
<PAGE> 14
By: /s/ [Illegible]
---------------------------------
(an authorized signatory)
14
<PAGE> 15
SCHEDULE A
EXCLUDED ARTISTS
Backstreet Boys
Led Zeppelin
Marilyn Manson
Pantera
Primus
Rob Zombie
Slayer
Stabbing Westward
Tom Petty
15
<PAGE> 16
EXHIBIT A
MERCHANDISER'S ARTISTS
<TABLE>
<CAPTION>
Term of
Artist Agreement Territory Merchandiser's Rights
------ --------- --------- ---------------------
<S> <C> <C> <C>
</TABLE>
- ----------
* Artists with whom ARTISTdirect Stores, LLC desires to enter a Store Agreement.
x Artists for whom Winterland does not have the Rights.
16
<PAGE> 17
EXHIBIT B
ONLINE STORE AGREEMENT
THIS AGREEMENT, dated as of ____________, 19__, by and between ARTISTdirect New
Media, LLC ("ADNM"), 17835 Ventura Blvd., Suite 310, Encino, CA 91316, and
[Company Name] ("you"), c/o __________________________ is being entered into in
consideration of the mutual benefits and covenants contained in this Agreement.
1. Purpose: Subject to your approval rights in this Agreement, ADNM will
develop, maintain and operate an Internet web site for you relating to the
musical group professionally known as "[ArtistName]" ("Artist") and the members
of Artist, to be known as "The Official [ArtistName] Superstore" (the "Store").
The Store will provide Internet and other online access for online and offline
distribution of products and services ("Product"). It is intended that the
Product will include records, digital downloads (subject to the consent of
Artist's record company), merchandise, tickets, tour memorabilia, collectible
items and special or limited edition items not available from any other source,
and special bundled packages including any or all of the foregoing items.
2. Term: The term of this Agreement (the "Term") shall commence on the date set
forth above and shall extend for an initial contract period ending three (3)
years after the official launch of the Store. After the initial contract period,
the Term shall automatically continue for additional one (1) year contract
periods, subject to the following sentence. At any time between ninety (90) and
thirty (30) days prior to the expiration of any contract period of the Term,
either party may by notice to the other terminate the Term effective as of the
end of the then-current contract period.
3. Merchandiser Agreements.
(a) You are presently party to an agreement (the "Artist/Merchandiser
Agreement") with Winterland Concessions Company ("Merchandiser") pursuant to
which you have granted Merchandiser the exclusive right to manufacture (and
license the manufacture of) merchandise bearing the name, likenesses,
biographical material and other personal identification of Artist (collectively,
"Personal Identification") for sale through retail channels, including the right
to sell such merchandise to retailers who solely or primarily sell merchandise
via the Internet (the "Rights").
(b) ADNM represents and warrants that it is party to an agreement with
Merchandiser pursuant to which Merchandiser has (i) granted to ADNM any consents
and licenses that may be required from Merchandiser as a result of the
Artist/Merchandiser Agreement in connection with the sale of Product hereunder,
and (ii) agreed to supply (or cause the supply of) merchandise on a consignment
basis to ADNM for resale on the Store (the "ADNM/Merchandiser Agreement"). You
acknowledge that certain Product items may be manufactured by or under the
control of Merchandiser's sublicensees, and that Merchandiser may or may not be
able to offer such Product items to ADNM on a consignment basis. All Product
supplied to ADNM by
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<PAGE> 18
Merchandiser (or its sublicensees) on a consignment basis is sometimes referred
to herein as "Merchandiser Product"; all other Product is sometimes referred to
herein as "Artist Product."
(c) If you (or Artist) enter into any agreement during the Term (of this
Agreement) pursuant to which you grant the Rights to any third party, you shall
cause such third party to grant to ADNM any consents and licenses that may be
required from such third party in connection with the sales of Product
hereunder. For the avoidance of doubt, no termination or expiration of the
Artist/Merchandiser Agreement or of the ADNM/Merchandiser Agreement shall affect
the Term (of this Agreement) or the rights granted to ADNM hereunder.
Accordingly, the only effect of either such termination or expiration will be
that the terms of this Agreement relating to Merchandiser Product will no longer
apply, and the terms of this Agreement relating to Artist Product will
thereafter apply to all Product hereunder.
4. Development; Hosting; Customer Service:
(a) ADNM will design and develop the Store, including the source code,
the Product catalog, and the commerce system, and will be solely responsible for
the costs of such design and development. You shall have the right to approve
the design of the Store, including its "look and feel." The parties hereto agree
to use commercially reasonable best efforts (i) to cause the beta version of the
Store to be completed within 60 days after the complete execution of this
Agreement, and (ii) to officially launch the Store within 90 days after such
execution.
(b) During the Term, ADNM will host (i.e., provide the server for) and
maintain the Store, including by providing periodic source code programming
updates and improvements in accordance with your reasonable requests. In this
regard, ADNM will use its commercially reasonable best efforts to correct any
material "bug" or defect as soon as reasonably possible after ADNM becomes aware
of such material "bug" or defect.
(c) ADNM shall handle all customer orders and inquiries, provide all
necessary credit card accounting and processing services and develop payment,
delivery and refund policies. To effect the foregoing, ADNM shall also provide
an on-line and toll-free telephone service center that will take orders and
respond to customer inquiries. On-line inquiries will be responded to within 24
hours of receipt and the telephone service will be operational Mondays through
Fridays from 9:00 a.m. to 7:00 p.m. Pacific Time (excluding holidays) and will
enable customers who prefer not to place orders on-line to place orders by
facsimile or telephone.
(d) Unless you and ADNM agree otherwise in writing, ADNM (or its
designee) shall process orders received from the Store and arrange to have the
ordered Product shipped to the customer (subject to Product availability).
(e) Within a reasonable time after your written request during the Term,
ADNM will, [***] design and develop a non-commerce Internet web site solely
related to Artist (the "Artist Site"), including the source code, or, if the
Artist Site already exists, ADNM will redesign and
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
2
<PAGE> 19
redevelop it for you. [***] will be solely responsible for the costs of such
design and development. You shall have the right to approve the design of the
Artist Site, including its "look and feel." During the Term, ADNM will host and
maintain the Artist Site, including by providing periodic source code
programming updates and improvements in accordance with your reasonable
requests.
5. Product Supply and Inventory:
(a) Product Selection: You will have the right to approve the Products
that are to be sold through the Store and the retail price of each Product item.
(b) Merchandiser Product: ADNM will be responsible for purchasing all
Merchandiser Product from Merchandiser and paying all related costs (including
directly associated freight and insurance costs) ("Product Costs"). As between
you and ADNM, ADNM will be solely responsible for all inventory of Merchandiser
Product.
(c) Artist Product:
(i) You and ADNM agree to cooperate with each other and use
their commercially reasonable best efforts to make the necessary arrangements
with the manufacturers, distributors and providers manufacturers, distributors
and providers of Artist Product ("Suppliers"), on mutually acceptable terms, to
ensure the timely supply of Artist Product in sufficient quantities to fulfill
Store customer orders. You will be responsible for purchasing all Artist Product
from the Suppliers and paying all related Product Costs. If ADNM should
nevertheless pay any Product Costs on your behalf (which ADNM is not obligated
to do), all such Product Costs will be deducted from any and all monies
otherwise payable to you hereunder and, to the extent ADNM is at any time unable
to do so, you agree to promptly reimburse ADNM for the excess upon demand. In
order to assist you with regard to the foregoing, ADNM will provide inventory
management services, taking into account such inventory levels as you and ADNM
may have mutually approved.
(ii) As between you and ADNM, you shall own and be solely
responsible for all Artist Product inventory. However, ADNM shall maintain (or
cause the applicable fulfillment center to maintain) at all times during the
Term insurance to protect you and ADNM from losses related to Artist Product
inventory damaged or otherwise lost while in the fulfillment center's
possession. The coverage terms of the insurance policy currently in effect are
set forth on Exhibit 1 attached to this Agreement.
(d) Upon the expiration of the Term, all Artist Product inventory for
which you have paid the Product Costs shall be shipped, at your sole cost and
expense, to a location designated or approved by you, which inventory shall be
free and clear of any encumbrances by ADNM or any third party deriving rights
through ADNM.
6. Product Sales and Store Revenues:
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
3
<PAGE> 20
(a) Merchandiser Product: Attached hereto as Exhibit 2 is an extract of
the ADNM/Merchandiser Agreement setting forth the license fee payable by ADNM to
Merchandiser in respect of Merchandiser Product sold hereunder. Company
acknowledges and agrees that it shall look solely to Merchandiser, and not to
ADNM, with respect to all monies due Company and/or Artist in respect of
Merchandiser Product sold hereunder.
(b) Artist Product:
(i) Upon ADNM's receipt of a verified order for a particular
item of Artist Product, ADNM shall purchase such item of Product from you. Upon
such purchase, title to such Product shall pass to ADNM and, as between you and
ADNM, ADNM will thereafter be responsible for the inventory of such Product
item.
(ii) ADNM shall pay you a purchase price equal to [***]of the
"Gross Artist Product Revenue," which means the amount [***]. The term
"Deductible Amounts" means [***]. A schedule setting forth the fulfillment fees
charged by the fulfillment center as of the date hereof is set forth on Exhibit
1 attached hereto.
(iii) Notwithstanding anything to the contrary contained herein,
as between ADNM and you, [***] shall be solely responsible for all Product Costs
and Deductible Amounts associated with customer bad debts in respect of Product
hereunder shipped by ADNM (or its designee).
(c) Records: Notwithstanding paragraphs 5(c) and 6(b) above,
phonorecords that are supplied by ADNM's designated fulfillment center for sale
through the Store ("Records") shall be purchased by ADNM directly from such
fulfillment center, and ADNM (or the fulfillment center) shall be solely
responsible for all related Product Costs (subject to the next sentence) and
inventory. ADNM shall pay you [***] of the "Net Record Revenue, which means
[***]. The term "Gross Record Revenue" means the [***]. For the avoidance of
doubt, if you elect to supply phonorecords directly to ADNM for sale through the
Store, such phonorecords shall be subject to paragraphs 5(c) and 6(b) above
rather than this paragraph 6(c).
(d) UBL Store: To the extent any merchandise offered for sale on an
Internet on-line store (the "UBL Store") operated by a company affiliated with
ADNM (the "UBL Affiliate") is readily available in the Store inventory, ADNM
agrees to cause the UBL Affiliate to utilize such inventory to fulfill orders
for such merchandise placed on the UBL Store. ADNM shall account to you pursuant
to the terms of this Agreement with respect to all such Artist Product sold
through the UBL Store, except that ADNM (or the UBL Affiliate) shall purchase
such Artist Product for a price equal to [***] of the applicable Gross Artist
Product Revenue, rather than the price set forth in paragraph 6(b)(ii) above.
Such Artist Product Revenue shall be computed "at the source" (i.e., [***]), and
shall be deemed received by ADNM for purposes of paragraph 6(g) below within 30
days after it is received by the UBL Affiliate. For the avoidance of doubt, no
merchandise or other products (including Records) that are obtained by the UBL
Affiliate from
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
4
<PAGE> 21
third party sources (i.e., other than from the Store's inventory) and sold on
the UBL Store shall be deemed to constitute Product subject to this Agreement.
(e) Database: As between ADNM and you, you will own the customer
database as specifically identified with the Store (the "Store Database"). ADNM
will maintain and update the Store Database during the Term, including by
inputting additional names and associated data compiled from contests and
similar activities of the Store. ADNM will also input into the Store Database
any supplemental data about the persons contained in the Store Database (such as
demographic and lifestyle information) that may be included, in other databases
owned, controlled or accessed by ADNM or the UBL Affiliate (collectively, the
"ADNM Database"), and may also seek to obtain such supplemental information
through data sharing arrangements with third parties. ADNM will attempt to
develop revenue sources in respect of the Store Database during the Term,
subject to your consent in each instance, and shall pay you [***] of the
associated "Gross Database Revenue" (i.e., [***]). ADNM will make the ADNM
Database available for mutually approved Store promotions during the Term, in
exchange for which you agree that ADNM may supplement the ADNM Database with
names and associated data (but specifically excluding any references to you,
Artist or the Store) derived from the Store Database. Neither you nor Artist
shall have any interest in and to the ADNM Database or any revenues that may be
generated in respect thereof.
(f) Other Revenues: ADNM shall pay you [***] of the "Gross Exploitation
Revenue," which means [***]. You shall have the right to approve all such
advertising and other activities.
(g) Accounting: The term "Gross Income" means, individually and
collectively, [***]. ADNM shall compute your share of Gross Income and render
statements thereof to you within 60 days after March 31, June 30, September 30
and December 31 for the preceding three-month period. ADNM shall deduct from
your share of Gross Income all chargeable amounts under this Agreement. Each
such statement shall include an itemized breakdown of the sources of the
applicable revenue and shall be accompanied by the payment of the amount of
monies, if any, earned by you during the accounting period to which the
statement relates. ADNM shall be entitled from time to time to withhold from
payments otherwise due reasonable reserves against anticipated returns, rebates,
credits, cancellations and exchanges, provided that such reserves shall be
liquidated within two accounting periods following their establishment. You or a
certified public accountant on your behalf may, at ADNM's offices and at your
expense, examine ADNM's books and records relevant to the calculation of your
share of Gross Income solely for the purposes of verifying the accuracy of
statements rendered by ADNM to you. Such books and records may be examined as
aforesaid only (i) during ADNM's normal business hours, (ii) upon reasonable
notice to ADNM, and (iii) within two years after the date a statement is
rendered hereunder. Further, you shall not have the right to examine such books
and records more frequently than once in any twelve month period or more than
once with respect to any particular statement. Each statement shall be deemed
final and binding upon you as an account stated and shall not be subject to any
claim or objection by you (A) unless you notify ADNM of
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
5
<PAGE> 22
your specific written objection to the applicable statement, stating the basis
thereof in reasonable detail within two years after the date such statement is
rendered hereunder, and (B) unless, within said two year period, you make proper
service of process upon ADNM in a suit instituted in a court of proper
jurisdiction.
7. Marketing.
(a) During the Term, ADNM shall cause the Ultimate Band List Internet
web site, located at www.ubl.com (the "UBL"), to contain a featured hyperlink
to, and prominently placed advertising for, the Store. Similarly, you agree that
ADNM may include on the Store a featured hyperlink to, and prominently placed
advertising for the UBL at no charge. Other marketing activities in respect of
the Store shall be subject to your approval, and may involve the development of
strategic relationships with, for example, other Internet web sites and/or
Artist's record company to create Store hyperlinks. Any third party marketing
costs incurred with your approval shall be deducted from any monies otherwise
payable to you hereunder (except to the extent deducted from monies otherwise
payable by ADNM to Merchandiser, it being understood that all marketing costs
shall be subject to allocation by ADNM, in ADNM's reasonable business judgment,
between you and Merchandiser taking into account whether the applicable costs
related to Merchandiser Product and/or Artist Product).
(b) You agree to use your commercially reasonable efforts to:
(i) Keep ADNM apprised of Artist's professional activities
(e.g., touring and recording) and provide ADNM reasonable access to Artist's
professional relationships (e.g., with tour promoters and record labels);
(ii) Cause the URL of the Store to be included on all
advertisements for Artist records released during the Term or for concerts to be
performed during the Term, and on the liner notes of Artist's records and
concert programs;
(iii) Provide ADNM with a minimum of [***] complimentary tickets
to each concert held by Artist during the Term to be given away in connection
with Store promotions;
(iv) Cause a minimum of [***] special or limited edition
Products to be the manufactured and supplied during the course of the Term for
sale exclusively on the Store, and not through any other source;
(v) Cause a minimum of [***] unique and/or collectible items of
Product to be sold through auctions conducted auctioned on the Store;
(vi) Cause Artist to autograph records from time to time for
sale or promotional use on the Store, provided Artist shall not be required to
autograph more than [***] records in the aggregate during the Term;
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
6
<PAGE> 23
(vii) Cause on-line events and/or sites featuring Artist or any
member of Artist (e.g., the official Internet web site of Artist's fan club, any
official Internet web site relating to any member of Artist, any on-line "chats"
featuring Artist or any member(s) of Artist, cybercasts of Artist's live
performances, interviews or other audiovisual programs featuring Artist or any
member(s) of Artist) to prominently feature, on both the front and main event
page(s), a hyperlink to, and banner advertising for, the Store;
(viii) Subject to Artist's other professional commitments, cause
Artist to be reasonably available during the Term for on-line "chats" hosted by
the Store.
8. Ownership; Grant of Rights; Post-Term Rights:
(a) Artist Content: As between you and ADNM, any and all artwork,
trademarks, logos, graphics, video, sound recordings, musical compositions,
text, data and other materials supplied by you to ADNM in connection with this
Agreement, as well as the URL and the domain name or names assigned to the Store
and/or the Artist Site (collectively, the "Artist Content"), shall remain your
sole and exclusive property. You hereby grant to ADNM during the Term and
throughout the universe (the "Territory") a non-exclusive, royalty-free license
to use, copy, modify (with your prior consent), distribute, publicly perform and
display and otherwise exploit the Artist Content in connection with the
development, maintenance and operation of the Store and/or the Artist Site and
the advertising and promotion of the Store and/or the Artist Site and of ADNM in
connection with the Store and/or the Artist Site.
(b) Developed Content: As between you and ADNM, any and all text,
graphics, audio, video, artwork and designs created by ADNM or its employees or
agents during the Term for use solely on the Store and/or the Artist Site,
including any additions to or modifications of Artist Content made by ADNM or
its employees or agents, (collectively, the "Developed Content"), shall be your
sole and exclusive property. All Developed Content shall be deemed included in
the license granted by you under paragraph 8(a) above.
(c) ADNM Content: As between you and ADNM, any and all commerce
technology, HTML formatting code, source and object code, programming code and
software, as well as all text, graphics, audio, video, artwork and designs
provided by ADNM in connection with this Agreement which does not constitute
Developed Content (collectively, the "ADNM Content") shall be ADNM's sole and
exclusive property.
(d) Post-Term Rights: Upon expiration of the Term, you shall continue to
have the ownership of or right to use, as applicable, the Artist Content and
Developed Content in accordance with the terms of this paragraph 8 free and
clear of any claim or encumbrance by ADNM or any third party deriving rights
through ADNM. Upon your request after the expiration of the Term, ADNM will
negotiate with you in good faith to: (i) license certain ADNM Content to you;
(ii) assist you in the transition of the Store and the Artist Site from any
third-party vendors or licensors used by ADNM to any entity or entities of your
choice to provide the same functions for you; and (iii) provide you with
updates, hosting, maintenance or support with respect to the Store or the Artist
Site. For the avoidance of doubt, you shall not be entitled to use any name,
trademark or service mark of ADNM or its affiliates in any manner
7
<PAGE> 24
whatsoever without obtaining the prior written consent of ADNM or the applicable
affiliate of ADNM.
(e) Artist Identification: You hereby grant to ADNM the non-exclusive
right during the Term throughout the Territory to use the names of Artist and
Artist's tours, and the names and approved photographs and other approved
likenesses of the members of Artist, and any trademark or service mark owned by
you, Artist or any of your respective Affiliates ("Artist Identification"),
solely on the Store and/or the Artist Site and in advertisements and promotions
of the Store and for the Artist Site, and of ADNM in connection with the Store
and/or the Artist Site. In this regard, at no cost to ADNM, you agree to provide
ADNM with all photographs, graphics, logos and similar items reasonably required
by ADNM to create the Store and/or the Artist Site, and readily available to you
promptly following ADNM's request. For the avoidance of doubt, ADNM shall not
use the Artist Identification in any manner whatsoever after the Term without
obtaining your prior written consent.
(f) Inducement Terms and Guarantee: You shall cause the members of
Artist to execute the Inducement Terms and Guarantee attached to this Agreement
as Exhibit 3 concurrently with the execution of this Agreement.
9. Third Party Clearances: You shall obtain all necessary third-party clearances
in connection with all Artist Content and Product (including the payment of any
associated fees, royalties and other costs). Without limiting the generality of
the foregoing, with respect to all uses of musical compositions, sound
recordings and audiovisual productions in connection with the Store, you agree
to grant or cause Artist and/or any applicable third parties (e.g., music
publishers, record companies and performing rights societies) to grant to ADNM
any and all required rights. However, ADNM shall not use any particular sound
recording, musical composition or audiovisual production on the Store or the
Artist Site, or provide access to any feature or service on the Store or the
Artist Site which entails the public performance of music (e.g., live audio
streaming), except at your request or with your approval. If ADNM nevertheless
shall pay, with your approval, any third party clearance cost relating to the
Store and/or the Artist Site (which ADNM is not obligated to do), all such
amounts shall be deducted from any and all monies otherwise payable to you under
this Agreement (except to the extent deducted from monies otherwise payable by
ADNM to Merchandiser, it being understood that such costs shall be subject to
allocation by ADNM, in ADNM's reasonable business judgment, between you and
Merchandiser taking into account whether the applicable costs related to
Merchandiser Product and/or Artist Product).
10. Representations and Warranties: Indemnity:
(a) You represent and warrant as follows:
(i) You have the full right, power and authority to enter into
and to perform this Agreement and to grant to ADNM all rights and licenses set
forth in this Agreement. Neither you nor Artist are under any restriction or
obligation which may or will impair your full performance of this Agreement. No
Artist Content or the exploitation or use thereof or the sale of any Product
shall violate or infringe upon any common law or statutory rights of any party,
8
<PAGE> 25
including contractual rights, copyrights, and rights of privacy or publicity or
shall defame any person or entity; and
(ii) ADNM shall have the exclusive right during the Term
throughout the Territory to develop and operate the only "official" Artist
on-line store (i.e., the only Internet web site authorized by Artist with
respect to products relating primarily to Artist and/or any member(s) of Artist
(acting in the capacity of Artist members, rather than in connection with any
member's professional endeavors unrelated to Artist). Accordingly, during the
Term, neither you, Artist nor any member of Artist shall grant any other person
or entity the right to develop and/or operate a web site that (A) pertains
primarily to Artist (B) sells products featuring the Artist identification and
(C) is promoted or otherwise officially sanctioned by Artist (e.g., by featuring
a hyperlink to such web site on the Artist Site).
(b) ADNM represents and warrants as follows: It has the full right,
power and authority to enter into and to perform this Agreement and to grant to
you all rights and licenses set forth in this agreement. No ADNM Content or
Developed Content, or the exploitation or use thereof in accordance with the
terms of this Agreement shall violate or infringe upon any common law or
statutory rights of any party, including contractual rights, copyrights, and
rights of privacy or publicity.
(c) You agree to indemnify and hold ADNM and its members, employees,
attorneys, agents, successors, assigns and licensees harmless against any claim,
liability, cost and expenses (including attorneys' and accountants' fees
reasonably incurred) in connection with any breach or alleged breach of this
Agreement by you. In this regard, ADNM shall not settle any claim without first
notifying you of the terms of any proposed settlement and obtaining your consent
thereto, provided you post within ten days after such notice, a bond,
satisfactory to ADNM in its reasonable discretion, to assure ADNM of
reimbursement for all damages, liabilities, costs and expenses (including legal
expenses and counsel fees reasonably incurred) that ADNM, in its reasonable
business judgment, incur as a result of such a claim. If you fail to post such a
bond, you shall be deemed to have consented to ADNM's settlement. You shall,
upon demand, pay the person or entity being indemnified hereunder for any
payment made or required to be made by such person or entity at any time
(including after the Term) in respect of any liability, damage, or expense to
which the foregoing indemnity relates. Without waiving any right or remedy
available to ADNM, if any such claim is made, ADNM shall have the right to
withhold monies otherwise payable to you under this Agreement in an amount
reasonably related to such claim and to deduct therefrom payments required under
this paragraph. ADNM shall not withhold monies otherwise payable to you after
you post a bond meeting the above-described conditions.
(d) (i) You acknowledge that ADNM is making no representations and
warranties concerning the anticipated success of the Store, the Artist Site
and/or the amount of compensation payable to you hereunder. You warrant,
represent and agree that neither you nor Artist nor any third party shall make
any claim, nor shall any liability be imposed upon ADNM based upon any claim,
that more sales could have been made or better business could have been done in
connection with the Store and/or the Artist Site than was actually made or done.
Except as may be specifically set forth herein, ADNM disclaims all other
warranties, whether express, implied or statutory, including the implied
warranties of merchantability and fitness for a
9
<PAGE> 26
particular purpose. ADNM does not warrant that the Store, the Artist Site and/or
services herein will be error-free or without interruption.
(ii) You agree that ADNM shall not be liable for any special,
consequential, incidental or indirect damages in connection with or arising out
of this Agreement, however caused, under any theory of liability, including (i)
any loss of profits or loss of revenue resulting from the use of ADNM's services
and/or ADNM Content even if ADNM has been advised of the possibility thereof,
and/or (ii) any loss of data resulting from delays, non-deliveries,
mis-deliveries or service interruptions caused by either party.
11. Notices; Approvals:
(a) All notices, accounting statements and payments to either party
shall be sent to such party's address first mentioned in this Agreement, or such
other address as a party to this Agreement may hereafter designate by notice to
the other. All notices sent under this Agreement must be in writing to be
effective, and, except for statements and payments, must be sent by a third
party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or through a
telegraph office. The date of personal delivery, of mailing or faxing, or the
date of delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to notices
of change of address, the date of which will be the date of receipt by the
receiving party). Until ADNM notifies you otherwise, a copy of all notices
hereunder to ADNM shall be simultaneously sent as aforesaid to Lenard & Gonzalez
LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, CA 90067; Attention:
Allen D. Lenard, Esq.
(b) No failure by any party to this Agreement to perform any of its
obligations hereunder shall be deemed a breach of this Agreement, unless the
other party has given notice of such alleged breach in reasonable detail and
such alleged breach is not cured within 30 days after the giving of such notice.
(c) No consent or approval under this Agreement shall be unreasonably
withheld or delayed. ADNM may elect to request a consent or approval by notice
to you, or may send you a notice reflecting the availability of a test site of
the Store embodying the materials for which approval is sought. In each
instance, your consent or approval shall be deemed granted unless you notify
ADNM to the contrary within five (5) business days after ADNM's sends the
aforesaid notice to you. No inadvertent failure by ADNM to obtain your consent
or approval shall be deemed a breach by ADNM of this Agreement, provided ADNM
shall use reasonable efforts to rectify such failure on a prospective basis
following receipt of notice from you specifying such failure. Notwithstanding
the provisions of paragraph 11(a) above, any notice described in this paragraph
11(c) may be sent by telecopier or electronic mail.
12. Miscellaneous:
(a) This Agreement is intended by the parties hereto as a final
expression of their understanding and agreement with respect to the subject
matter hereof and as a complete and exclusive statement of the terms thereof,
this Agreement supersedes all prior and contemporaneous negotiations,
understandings, and agreements between the parties hereto with
10
<PAGE> 27
respect to the subject matter hereof. The parties acknowledge and agree that
neither party hereto has made any representations or promises in connection with
this Agreement or the subject matter hereof not contained herein. The parties
hereto shall negotiate in good faith to replace any invalid, illegal or
unenforceable provision (the "Invalid Provision") with a valid provision, the
effect of which comes as close as possible to that of the Invalid Provision.
This Agreement cannot be canceled, modified, amended or waived, in part or in
full, in any manner except by an instrument in writing signed by the party to be
charged. No waiver by either party hereto, whether expressed or implied, of any
provision of this Agreement or default hereunder shall affect such party's right
to thereafter enforce such provision or to exercise the right or remedy set
forth in this Agreement in the event of any other default, whether or not
similar. Words in the singular number shall include the plural, and vice versa.
Whenever examples are used in this Agreement with the words "including," `for
example," "e.g.," "such as," "etc." or any derivation thereof, such examples are
intended to be illustrative and not in limitation thereof. The paragraph
headings herein are used solely for convenience and shall not be used in the
interpretation or construction of this Agreement. All exhibits attached hereto
are incorporated into this Agreement by reference.
(b) In entering into this Agreement and providing services pursuant
hereto, you and ADNM each have and shall have the status of independent
contractors. Nothing herein contained shall contemplate or constitute either
party being an agent or employee of the other party, and nothing herein shall
constitute a partnership, joint venture or fiduciary relationship between the
parties.
(c) This Agreement shall be deemed to have been entered into in the
State of California and the validity, interpretation and legal affect of this
Agreement shall be governed by the laws of the State of California applicable to
contracts entered into and performed entirely within the State of California.
The courts located in California (state and federal), only, will have
jurisdiction of any controversy regarding this Agreement; any action or other
proceeding which involves such a controversy will be brought in those courts, in
California and not elsewhere.
ARTISTdirect New Media, LLC
a California limited liability company
By: ARTISTdirect, LLC [Company Name]
Its: Member a __________ Corporation
By: ___________________________
Its: ___________________________
By: ___________________________
Marc Geiger
Its: Co-Chief Executive Officer
11
<PAGE> 28
By: ___________________________
Don Muller
Its: Co-Chief Executive Officer
12
<PAGE> 29
EXHIBIT 1
SCHEDULE OF FULFILLMENT FEES
<TABLE>
<CAPTION>
--------------------------------------- ---------------------------------------
Item Retail Price Fulfillment Fee
--------------------------------------- ---------------------------------------
<S> <C>
[***] [***]
[***] [***]
[***] [***]
[***] [***]
--------------------------------------- ---------------------------------------
</TABLE>
In addition, the following packaging costs are applicable:
<TABLE>
<CAPTION>
--------------------------------------- ---------------------------------------
Box Size Packaging Cost
--------------------------------------- ---------------------------------------
<S> <C>
[***] [***]
[***] [***]
[***] [***]
--------------------------------------- ---------------------------------------
</TABLE>
SCHEDULE OF INSURANCE COVERAGE
ADNM currently carries property insurance with respect to all inventory
at the fulfillment center, covering up to $1,000,000 in damages (subject to
adjustments from time to time in accordance with then-current inventory value),
with a $5,000 deductible (except with respect to wind damage, for which the
deductible is $100,000). ADNM shall cause you to be named an additional insured
under said policy and provide you with a certificate of insurance to such
effect.
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 30
EXHIBIT 2
[ADNM/MERCHANDISE AGREEMENT - LICENSE FEE]
<PAGE> 31
EXHIBIT 3
INDUCEMENT TERMS AND GUARANTEE
The undersigned hereby acknowledge that they have read and understand
all of the terms and conditions set forth in the agreement dated as of _________
___, 19___, by and (the "Agreement") by and between ARTISTdirect New Media, LLC
("ADNM") and [CompanyName] ("Company"), to which these Inducement Terms and
Guarantee are attached.
In consideration of Company's execution and delivery of the Agreement,
the benefit of which runs to the undersigned, the undersigned hereby represent,
warrant and agree, jointly and severally that:
1. Company has the right, insofar as the undersigned are concerned, to
enter into the Agreement and to assume all of the obligations, warranties and
undertakings to Company on the part of the undersigned contained therein, and
Company shall continue to have those rights until all of those obligations,
warranties and undertakings shall have been fully performed and discharged.
2. All of the representations, warranties and agreements on the part of
Company contained in the Agreement that concern Company and/or the undersigned
are and shall remain true and correct.
3. The undersigned shall fully and to the best of their abilities
perform and discharge all of the obligations, warranties and undertakings
contained in the Agreement insofar as the same are required of the undersigned
and to the extent Company has undertaken to cause the performance and discharge
by the undersigned of those obligations and undertakings, and the undersigned
further guarantee the full and faithful performance of all other obligations of
Company under the Agreement, it being agreed and acknowledged that such
guarantee shall be applicable regardless of whether, for any reason whatsoever,
notwithstanding the provisions of paragraph 1 above, Company shall cease to have
the right to perform the obligations, warranties and undertakings to ADNM on the
part of Company contained in the Agreement.
4. The undersigned agree to look solely to Company (and not to ADNM)
with respect to all monies payable to the undersigned in connection with the
Agreement.
5. ADNM may, in its own name, institute any action or proceeding against
the undersigned to enforce its rights under the Agreement and/or this agreement,
and ADNM shall be entitled to equitable relief, including injunctive relief, to
enforce the provisions of said agreements, without the necessity of first
resorting to or exhausting any rights or remedies against Company.
Dated as of _______ ___, 19___, by and
______________________
______________________
<PAGE> 32
EXHIBIT C
MERCHANDISER'S STANDARD WHOLESALE PRICE LIST
MERCHANDISER'S STANDARD
WHOLESALE PRICE LIST
(as of June 11, 1999)
<TABLE>
<CAPTION>
--------------------------------- ----------------
ITEM PRICE
--------------------------------- ----------------
<S> <C>
T-shirt (adult) [***]
--------------------------------- ----------------
T-shirt (youth) [***]
--------------------------------- ----------------
Baby T [***]
--------------------------------- ----------------
Tank top (women's) [***]
--------------------------------- ----------------
Long-sleeve shirt [***]
(men's/women's)
--------------------------------- ----------------
Football jersey [***]
--------------------------------- ----------------
Tie-dye shirt [***]
--------------------------------- ----------------
Baseball jersey (men's) [***]
--------------------------------- ----------------
Baseball jersey (women's) [***]
--------------------------------- ----------------
Poly T (women's) [***]
--------------------------------- ----------------
Hats [***]
--------------------------------- ----------------
</TABLE>
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
1
<PAGE> 33
EXHIBIT D
PRE-APPROVED FULFILLMENT FEES
<TABLE>
<CAPTION>
--------------------------------------- -----------------------------------
Item Retail Price Fulfillment Fee
--------------------------------------- -----------------------------------
<S> <C>
[***] [***]
[***] [***]
[***] [***]
[***] [***]
--------------------------------------- -----------------------------------
</TABLE>
IN ADDITION, THE FOLLOWING PACKAGING COSTS ARE APPLICABLE:
<TABLE>
<CAPTION>
--------------------------------------- -----------------------------------
Box Size Packaging Cost
--------------------------------------- -----------------------------------
<S> <C>
[***] [***]
[***] [***]
[***] [***]
--------------------------------------- -----------------------------------
</TABLE>
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
1
<PAGE> 34
EXHIBIT E
ARTISTDIRECT, LLC
WARRANT TO PURCHASE [***] COMMON UNITS
WARRANT NO. 1999-3
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT IS FURTHER SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER CONTAINED HEREIN AND IN THAT CERTAIN SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF ARTISTDIRECT, LLC, A CALIFORNIA LIMITED LIABILITY
COMPANY, DATED MAY 18, 1999, AS THE SAME MAY BE AMENDED FROM TIME TO TIME.
WARRANT TO PURCHASE
LIMITED LIABILITY COMPANY COMMON UNITS
This certifies that Winterland Concessions Company, a California
corporation, doing business as "Winterland" ("Merchandiser) is entitled, on or
after the date hereof, to become a Member in ARTISTdirect, LLC, a California
limited liability company (the "Company"), on and subject to the terms and
conditions contained herein and in the "Operating Agreement" (as defined below),
with the number of Common, Units in the Company set forth in Section 1 below, in
return for a capital contribution by Merchandiser to the Company of cash
consideration in an amount equal to One Dollar ($1.00) per Common Unit (subject
to adjustment as hereinafter provided, the "Warrant Price").
Except as otherwise specifically provided herein, terms used but not
otherwise defined herein shall have those meanings as set forth in that certain
Second Amended and Restated Operating Agreement of ARTISTdirect, LLC, dated May
18, 1999, as the same may be amended from time to time (the "Operating
Agreement"). A true and correct copy of the Operating Agreement is attached
hereto.
This Warrant is subject to the following terms and conditions:
1. Common Units Subject to Warrant: Vesting.
- ----------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
2
<PAGE> 35
(a) Definitions.
(i) "ADNM" means ARTISTdirect New Media, LLC, a Subsidiary of
the Company;
(ii) "ADNM Merchandiser Agreement" means that certain
Merchandiser Agreement dated June 7, 1999 between ADNM and Merchandiser,
(iii) "ADNM Qualifying Revenue" means the "Adjusted Gross
Merchandiser Product Revenue" (as defined in the ADNM Merchandiser
Agreement), excluding, however, all amounts received in respect of
"Merchandiser Product" (as defined in the ADNM Merchandiser Agreement)
sold in respect of orders placed through the UBL Store.
(iv) "UBL" means The Ultimate Band List, LLC, a Subsidiary of
the Company;
(v) "UBL Merchandiser Agreement" means that certain Merchandiser
Agreement dated June 7, 1999 between UBL and Merchandiser;
(vi)"UBL Store" has the meaning ascribed thereto in the ADNM
Merchandiser Agreement;
(vii) "UBL Qualifying Terms" means on a consignment basis or on
terms requiring payment no earlier than the date ninety (90) days after
the receipt by UBL's fulfillment center(s) of the applicable product
items and UBL's receipt of an invoice from Merchandiser therefor;
(viii) "UBL Merchandiser Product" means merchandise provided to
UBL on UBL Qualifying Terms by either Merchandiser or any "Sublicensee"
(as defined in the UBL Merchandiser Agreement);
(ix) "UBL Gross Merchandiser Product Revenue" means the amount
actually received by UBL in respect of UBL Merchandiser Product sold to
customers who place orders through the UBL Store, including any directly
related shipping and handling revenues collected by UBL from such
customers;
(x) "UBL Deductible Amounts" means all third party costs
(including all associated freight and insurance costs) of shipping the
applicable merchandise to UBL's fulfillment center(s); all third party
fulfillment fees, third party warehouse charges and third party related
charges (e.g., box charges and return processing fees); sales, use and
value-added taxes; credit card and other third party service fees; agent
commissions; and any credits for returns, cancellations and exchanges;
provided, however that, in order for any of the foregoing to constitute
a "UBL Deductible Amount," it must be approved by Merchandiser in
accordance with the provisions of Section 8(b)(iii) of the ADNM
Merchandiser Agreement, if applicable.
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<PAGE> 36
(xi) "UBL Qualifying Revenue" means UBL Gross Merchandiser
Product Revenue less the UBL Deductible Amounts; and
(xii) "Highest Sales" means the greatest aggregate ADNM
Qualifying Revenue and UBL Qualifying Revenue during any period of
twelve (12) consecutive calendar months of the term of each of the ADNM
Merchandiser Agreement and the UBL Merchandiser Agreement between June
7, 1999 and June 6, 2002);
(b) This Warrant may be exercised with respect to:
(i) [***] Common Units at any time on or before June 6, 2004;
and
(ii) an additional [***] Common Units if Highest Sales equal or
exceed [***]. In this regard, the Company shall notify Merchandiser
within sixty (60) days following the date upon which such level of
Highest Sales is achieved, if at all.
2. Term. Except for the rights conferred upon the Company pursuant to Section
7(a) below, this Warrant, and Merchandiser's right to exercise this Warrant,
shall terminate immediately upon the first to occur of the following:
(a) the close of business (i.e., 5:00 p.m., Los Angeles time) on June 6,
2007;
(b) the termination of the ADNM Merchandiser Agreement prior to the
expiration of the full term thereof either (i) by ADNM due to a material breach
thereof by Merchandiser, which breach remains uncured for the period specified
in Section 16(b) of the ADNM Merchandiser Agreement, or (ii) by Merchandiser
other than due to a material breach thereof by ADNM, which breach remains
uncured for the period specified in Section 16(b) of the ADNM Merchandiser
Agreement;
(c) the termination of the UBL Merchandiser Agreement prior to the
expiration of the full term thereof either (i) by UBL due to a material breach
thereof by Merchandiser, which breach remains uncured for the period specified
in Section 4(b) of the UBL Merchandiser Agreement, or (ii) by Merchandiser other
than due to a material breach thereof by UBL, which breach remains uncured for
the period specified in Section 4(b) of the UBL Merchandiser Agreement; or
(d) the breach by Merchandiser of any material provision of this
Warrant.
3. Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.
This Warrant may be exercised by Merchandiser, in whole or in part, by the
surrender of this Warrant, properly endorsed, at the principal office of the
Company at 17835 Ventura Blvd., Suite 310, Encino, CA 91316 (or at such other
location as the Company may advise Merchandiser in writing), and by (a) payment
to the Company in cash or immediately available funds of the Warrant Price of
the Common Units being purchased, and (b) delivery to the Company of a customary
investment letter executed by Merchandiser, representing and warranting that the
Common Units are being acquired for Merchandiser's own account, for investment
purposes only, and not with a view to the distribution, resale or other
distribution thereof, and acknowledging the issuance and transfer of the Common
Units are subject to the requirements of
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<PAGE> 37
federal and state securities laws. Merchandiser, in lieu of exercising this
Warrant for a specified number of Common Units (the "Exercised Units") and
paying the aggregate exercise price therefor (the "Exercise Price"), may elect
to receive a number of Common Units equal to the number of Exercised Units,
minus a number of Common Units having an aggregate "Fair Market Value" (as
defined below) equal to the Exercise Price. After any such election, the number
of Common Units covered by this Warrant shall be deemed automatically reduced by
the number of Exercised Units. For purposes of this Warrant, "Fair Market Value"
means (a) if the Common Units are then publicly traded, the closing sale price
of the Common Units on its principal stock exchange or market system (or the
average of the closing bid and asked prices, if closing sales prices are not
reported) for the ten (10) consecutive trading days immediately prior to the
date of any such "net exercise," or (b) in all other cases, as determined by the
Managers in their sole, good faith discretion. In the event of any exercise, or
any such "net exercise," of less than all of the rights represented by this
Warrant, the Company shall issue to Merchandiser a new warrant evidencing the
ability of Merchandiser to purchase the balance of the number of Common Units
from the Company, and shall deliver such warrant to Merchandiser promptly
following such partial exercise. The Company agrees that the Common Units
issuable to Merchandiser upon exercise of this Warrant shall be issued to
Merchandiser as of the close of business on the date on which all of the
above-described conditions to exercise have be satisfied. Merchandiser hereby
covenants and agrees that, upon Merchandiser's exercise of all or a portion of
this Warrant and Merchandisers making the applicable payment to the Company in
respect thereof, Merchandiser and the Common Units issued to Merchandiser with
respect to such exercise shall become subject to the terms and conditions of the
Operating Agreement, including without limitation, the obligation to sell Common
Units and the restrictions on transfer of Common Units contained therein. In
this regard, Merchandiser acknowledges that it shall only become a Member and be
entitled to the rights as a Member once Merchandiser validly exercises this
Warrant in accordance with the terms hereof and executes a signature page to the
Operating Agreement whereby it agrees to be bound by all of the terms thereof,
excluding the non-competition covenant contained in Section 3.10 thereof, from
which Merchandiser shall be exempted.
4. Due Authorization and Issuance. The Company covenants and agrees that any and
all of the Common Units issued to Merchandiser in accordance with the terms
hereof will, upon such issuance, be duly authorized, validly issued and free
from all preemptive rights of any holder of Common Units in the Company, free
and clear of all taxes, liens and charges with respect to such issuance. The
Company further covenants and agrees that, during the period within which this
Warrant may be exercised, the Company will take no action that would prohibit
the issuance of Common Units required to be issued in accordance with the terms
and conditions hereof on such exercise. The Company hereby represents and
warrants that, as of May 18, 1999, 1,370,558 Common Units represented a
fully-diluted Percentage equal to one and one-half percent (1.5%).
5. Fractional Common Units. No fractional Common Units shall be issued in
connection with any exercise hereunder but in lieu of such fractional Common
Units, the Company shall make a cash payment therefor upon the basis of the fair
market value of the Common Units, as determined by the Managers in their sole,
good faith discretion.
6. Certain Adjustments.
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<PAGE> 38
(a) If the outstanding Common Units are changed into or exchanged for a
different number or kind of securities of the Company or a successor entity
(including a `C-corporation" that becomes the successor or parent of the Company
in connection with a roll-up or similar exchange transaction in connection with
an initial public offering) through a capital reorganization or
reclassification, or if the number of outstanding Common Units is changed
through a split of Common Units, reverse split of Common Units or issuance of a
Common Unit dividend, then an appropriate adjustment shall be made by the
Company in (i) the number or kind of Common Units that may be purchased pursuant
to the exercise of this Warrant, and (ii) the number, exercise price, or kind of
securities subject to this Warrant. Any such adjustment in this Warrant,
however, shall be made without a change in the total price applicable to the
unexercised portion of this Warrant but with a corresponding adjustment in the
price for each Common Unit covered by this Warrant. In making such adjustments,
or in determining that no such adjustments are necessary, the Company may rely
upon the advice of counsel and accountants to the Company, and the determination
of the Company shall be binding.
(b) Upon (i) the dissolution, liquidation, or sale of all or
substantially all of the business, properties and assets of the Company, (ii)
any reorganization, merger, consolidation, sale or exchange of securities in
which the Company does not survive, (iii) any reorganization, merger,
consolidation, sale or exchange of securities in which the Company does survive
and any of the Company's members have the opportunity to receive cash,
securities of another entity and/or other property in exchange for their Common
Units (other than a "roll-up" or similar exchange transaction in connection with
an initial public offering), or (iv) any acquisition by any person or group (as
defined in Section 13(d)) of the Securities Exchange Act of 1934, as amended),
of beneficial ownership of more than fifty percent (50%) of the Company's then
outstanding Common Units (each of the events described in clauses (i), (ii),
(iii), or (iv) is referred to herein as an "Extraordinary Event"), this Warrant
shall terminate unless it survives the Extraordinary Event pursuant to Section
6(d) below.
(c) Merchandiser shall have the right until ten (10) days before the
effective date of any Extraordinary Event to exercise, in whole or in part, this
Warrant, but only to the extent to which it is exercisable pursuant to the
provisions hereof. In this regard, the Company shall notify Merchandiser in
writing of the Company's intent to engage in any Extraordinary Event on or
before the date (the "Notice Date") that is no less than twenty (20) days before
the effective date of such Extraordinary Event. In addition, notwithstanding
anything to the contrary contained herein, if an Extraordinary Event shall occur
during the term of the Merchandiser Agreement, then, solely for purposes of
determining the extent to which this Warrant is exercisable in accordance with
this Section 6(c), Highest Sales shall be determined either: (i) with reference
to each period of twelve (12) consecutive calendar months of the term of the
Merchandiser Agreement prior to the Notice Date; or (ii) if fewer than twelve
(12) months have elapsed since the commencement of the term of the Merchandiser
Agreement, on an annualized basis.
(d) If an Extraordinary Event occurs during the term of the Merchandiser
Agreement, then the Company shall be obligated to either, in its sole
discretion: (i) cause this Warrant to survive such Extraordinary Event or (ii)
cause the surviving entity (which may be the Company), or any other entity that,
after giving effect to the Extraordinary Event, owns, directly or indirectly,
fifty percent (50%) or more of the Company's then outstanding Common Units, to
tender to Merchandiser a substitute warrant to purchase units or other equity
interests in such
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<PAGE> 39
entity containing terms and provisions substantially preserving, in the sole and
absolute, good faith discretion of the Company, the rights and benefits of this
Warrant to the extent then outstanding (a "Substitute Warrant"). If an
Extraordinary Event occurs after the term of the Merchandiser Agreement, in its
sole and absolute discretion, the Company may permit this Warrant to survive
such Extraordinary Event. In addition, if an Extraordinary Event occurs after
the term of the Merchandiser Agreement, in its sole and absolute discretion, the
surviving entity (which may be the Company), or another entity, may, but shall
not be so obligated, tender to Merchandiser a Substitute Warrant.
(e) The grant of this Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassification or changes in its
capital or business structures or to merge, consolidate, dissolve, or liquidate
or to sell or transfer all or any part of its business or assets or undertake
any other permitted limited liability company action.
(f) Upon the occurrence of each adjustment of this Warrant pursuant to
this Section 6, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
Merchandiser a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request of Merchandiser, furnish or cause to
be furnished to Merchandiser a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the applicable Exercise Price at the time in
effect; and (iii) the number of Common Units, if any, and the amount, if any, of
other securities or property that at the time would be received upon the
exercise of this Warrant.
7. Payment of Taxes. The Company will pay all taxes (other than taxes based upon
income) and other governmental charges that may be imposed with respect to the
issue or delivery of Common Units upon exercise of this Warrant.
(a) Drag-Along Obligation. Notwithstanding anything to the contrary
contained herein, if the Managers find an acquirer for all or any portion of
their interest in the Company (whether such acquisition is by way of purchase of
assets or Common Units or successor equity securities, merger, recapitalization
or other form of transaction, and including, without limitation, a roll-up
transaction that is for the purpose of a reorganization among the Company and
its Affiliates), then, at the request of the Managers, Merchandiser shall sell
or otherwise transfer a corresponding portion of any Common Units (or successor
equity securities) then held by Merchandiser to such acquirer on the same terms
and conditions as apply to the sale or other transfer by the Managers.
Merchandiser further agrees timely to take such other actions as the Managers
may reasonably request in connection with the approval of the consummation of
such sale or other transfer, including, without limitation, voting in favor of
such sale or other transfer and waiving any dissenters' rights, executing such
agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary or desirable to consummate such sale or other
transfer, and, in the event that such sale or other transfer is structured as a
recapitalization, transferring and retaining such portion of Common Units (or
successor equity securities) and rights under this Warrant as may be requested
by the Managers.
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<PAGE> 40
8. Transferability of Warrant. This Warrant may not be sold, conveyed,
transferred, alienated, donated, encumbered or otherwise disposed of by
Merchandiser and, accordingly, any purported such transaction shall be void ab
initio, of no force or effect.
9. Investment Representation. Merchandiser represents and warrants to the
Company that Merchandiser is acquiring this Warrant for Merchandiser's own
account for investment and not with a view to, or for resale in connection with
any distribution thereof. Merchandiser acknowledges that this Warrant and the
Common Units that may be purchased under this Warrant have not been registered
under the Securities Act, by reason of a specific exemption from the
registration provisions of the Securities Act that depends upon, among other
things, the bona fide nature of the investment intent of Merchandiser as
expressed herein.
10. Amendment and Waiver; Successors. This Warrant may only be amended or
supplemented, and any waiver or departure from the provisions hereof may only be
given, with the consent of the Managers and Merchandiser. All of the covenants
and provisions of this Warrant by or for the benefit of the Company and
Merchandiser shall bind and inure to the benefit of them and their respective
permitted successors and assigns hereunder.
11. Notices. All notices required by this Warrant to Merchandiser shall be sent
to Winterland Concessions Company, 1951 Fairway Drive, San Leandro, CA 94577, or
such other address as Merchandiser may hereafter designate by notice to the
Company. All notices sent under this Agreement to the Company or the Managers
shall be sent to the address indicated in Section 3 above. All notices required
by this Warrant must be in writing to be effective, and must be sent by a third
party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or through a
telegraph office. The date of personal delivery, of mailing, or the date of
delivery to a telegraph office, as the case may be, of any such notice shall be
deemed the date of the giving thereof (except, with respect to notices of change
of address, the date of which will be the date of receipt by the receiving
party). Until the Company notifies Merchandiser otherwise, a copy of all notices
hereunder to the Company shall be simultaneously sent as aforesaid to Lenard &
Gonzalez LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, CA 90067;
Attention: Allen D. Lenard, Esq.
12. Descriptive Headings and Governing Law. The descriptive headings of the
several paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of California.
13. Lost Warrant. The Managers and the Company represent and warrant to
Merchandiser that upon receipt of evidence reasonably satisfactory to the
Managers and the Company of the loss, theft, destruction, or mutilation of this
Warrant and, in the case of any such loss, theft or destruction upon receipt of
an indemnity reasonably satisfactory to the Managers and the Company, or in the
case of any such mutilation upon surrender and cancellation of such Warrant, the
Managers and the Company will make and deliver a new Warrant in lieu of the
lost, stolen, destroyed or mutilated Warrant.
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<PAGE> 41
IN WITNESS WHEREOF, Merchandiser, the Company and the Managers have
caused this Warrant to be duly executed and issued as of June 7, 1999.
"COMPANY" "MERCHANDISER"
ARTISTdirect, LLC Winterland Concessions Company, a
California corporation, doing
business as "Winterland"
By: __________________________
Its: Co-Chief Executive Officer
By: ______________________________
(an authorized signatory)
"MANAGERS"
__________________________________
Marc Geiger
__________________________________
Donald Muller
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<PAGE> 1
EXHIBIT 10.28
UBL MERCHANDISER AGREEMENT
This Agreement, dated as of April 1, 1999, between Giant Merchandising
("Merchandiser"), 5655 Union Pacific Avenue, Commerce, CA 90022, and The
Ultimate Band List, LLC ("UBL"), 17835 Ventura Blvd., Suite 310, Encino, CA
91316, is being entered into in light of the following:
A. Merchandiser is in the business of manufacturing and selling
merchandise containing the names, photographs and other likenesses, biographical
material and other personal identification (collectively, "Personal
Identification") of artists.
B. UBL is in the business of operating an Internet web site (the "UBL
Store") that, among other things, sells merchandise containing the Personal
Identification of the various artists.
C. Merchandiser and UBL are entering into this Agreement in order to set
forth the terms and conditions upon which Merchandiser has agreed to sell
merchandise to UBL for resale over the UBL Site.
NOW, THEREFORE, in consideration of the foregoing and the mutual
benefits contained herein, the parties hereto agree as follows:
1. Term: The term of this Agreement (the "Term") shall be four (4) years
commencing on the date of this Agreement.
2. Merchandise Sales:
(a) Merchandiser agrees to sell to UBL during the Term, for resale
over the UBL Site upon the terms and conditions set forth below, all merchandise
manufactured by or under the control of Merchandiser, except to the extent
Merchandiser does not have the right to sell such merchandise to web site retail
outlets. Merchandiser agrees to use reasonable efforts to diligently and timely
fulfill UBL's orders of merchandise under this Agreement.
(b) Merchandiser agrees to sell all such merchandise to UBL at
Merchandiser's [***]. Merchandiser represents and warrants that attached hereto
as Exhibit A are Merchandiser's [***] as of the execution of this Agreement.
Merchandiser shall notify UBL of any changes to its [***], which changes shall
only apply to merchandise ordered by UBL after its receipt of such notice from
Merchandiser. Notwithstanding the foregoing, the parties agree and acknowledge
that Merchandiser may not have [***] for certain collectible or limited edition
items, in which case the [***] shall be reasonably determined by Merchandiser.
(c) UBL shall remit payment to Merchandiser for all product
purchased from Merchandiser under this Agreement pursuant to invoices therefor
rendered to UBL, it being
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<PAGE> 2
understood that payment shall not be due earlier than the date [***] after the
arrival at the Center of the applicable product items and UBL's receipt of an
invoice from Merchandiser therefor.
(d) Merchandiser shall use reasonable efforts to cause each person
or entity who manufactures and distributes product under license from
Merchandiser (a "Sublicensee") to sell merchandise to UBL hereunder upon [***]
payment terms and at no more than the Sublicensee's standard wholesale prices.
If a Sublicensee is unwilling to do so, Merchandiser may elect (in its
discretion) to purchase the applicable merchandise from such Sublicensee and
sell same to UBL pursuant to [***] payment terms, provided that the purchase
price charged by Merchandiser to UBL shall not be greater than the lesser of (i)
the price Merchandiser paid for such merchandise, or (ii) the lowest price the
applicable Sublicensee offered the merchandise to UBL.
(e) Merchandiser agrees that UBL may at any time return (not for
credit) to Merchandiser any unsold products sold to UBL by Merchandiser or a
Sublicensee. [***] shall pay all costs (including all associated freight and
insurance costs) of returning any unsold products from the Center to
Merchandiser's warehouse. Merchandiser agrees to use its commercially reasonably
efforts to promptly sell such returned product at liquidation prices (subject to
Merchandiser's commercially reasonable efforts to maximize the liquidation
proceeds) and to remit to UBL, within [***] after each such sale, [***] of the
net proceeds thereof. As used in this paragraph 2(e), the term "net proceeds"
shall mean [***].
(f) Notwithstanding anything to the contrary contained herein, any
"Merchandiser Product" sold on the UBL Site pursuant to a particular "Store
Agreement" [as such terms are defined in the agreement between Merchandiser and
ARTISTdirect New Media, LLC, of even date herewith (the "ADMN Agreement")] shall
not be subject to this Agreement, it being the intention of the parties that all
such Merchandiser Product shall be subject to the terms and conditions of the
ADMN Agreement and the applicable Store Agreement.
3. Warrant. In further consideration of Merchandiser's entering into and
fully performing its obligations under this Agreement, and in exchange for the
payment by Merchandiser to ARTISTdirect, LLC ("AD") of one dollar ($1.00), upon
the consummation of the transaction that currently is contemplated to occur
whereby AD will become the beneficial owner of one hundred percent [***] of the
outstanding membership interests of UBL (the "Rollup"), UBL shall cause AD to
grant to Merchandiser a warrant to acquire common units of AD representing
approximately [***] of AD's outstanding membership interests for an aggregate
exercise price not to exceed [***], which warrant shall be subject to the terms
generally set forth in Exhibit B attached hereto; provided, however, that if the
Rollup shall not occur prior to July 31, 1999, then UBL shall then grant to
Merchandiser a warrant substantially in the form of Exhibit B attached hereto.
4. Representations and Warranties; Indemnity:
- --------------------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 3
(a) Each party hereto represents and warrants that: (i) it has the
full right, power and authority to enter into and to perform this Agreement;
(ii) it is not under any restriction or obligation that may or will impair such
party's full performance of this Agreement; and (iii) it shall not at any time
do or authorize any person or entity to do anything inconsistent with, or
anything that might diminish, impair or interfere with any of the other party's
rights hereunder.
(b) Each party hereto agrees to indemnify and hold the other and its
members, employees, attorneys, agents, successors, affiliates, assigns and
licensees harmless against any claim, liability, cost and expenses (including
attorneys' and accountants' fees reasonably incurred) in connection with any
breach or alleged breach of this Agreement the indemnifying party. In this
regard, the indemnified party shall not settle any claim without first notifying
the indemnifying party of the terms of any proposed settlement and obtaining its
consent thereto.
(c) Merchandiser acknowledges that UBL is making no representations
and warranties concerning anticipated success of the UBL Store, the amount of
compensation payable to Merchandiser hereunder, and/or the current or future
value of UBL or the warrants described in paragraph 3 above. Likewise, UBL
acknowledges that Merchandiser is making no representations and warranties
concerning anticipated success of the UBL Store or the amount of compensation
payable to UBL with respect thereto.
5. Notices:
(a) All notices and payments to either party hereto shall be sent to
such party's address first mentioned herein, or such other address as a party
hereto may hereafter designate by notice to the other. All notices sent under
this Agreement must be in writing to be effective, and must be sent by a third
party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or through a
telegraph office. The date of personal delivery, of mailing or faxing, or the
date of delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to notices
of change of address, the date of which will be the date of receipt by the
receiving party). Until UBL notifies Merchandiser otherwise, a copy of all
notices hereunder to UBL shall be simultaneously sent as aforesaid to Lenard &
Gonzalez LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, CA 90067;
Attention: Allen D. Lenard, Esq. Until Merchandiser notifies UBL otherwise, a
copy of all notices hereunder to Merchandiser shall be simultaneously sent as
aforesaid to Warner Music Group Inc., 3400 Riverside Drive, 6th Floor, Burbank,
CA 91505; Attention: Legal Department.
(b) No failure by a party hereto to perform any of its obligations
hereunder shall be deemed a breach of this Agreement, unless the party claiming
a breach has given the other party hereto notice of such alleged breach in
reasonable detail and such alleged breach is not cured within fifteen (15)
business days [ten (10) business days for non-payments] after the giving of such
notice, provided this sentence shall not apply to breaches incapable of being
cured (e.g., representations and warranties).
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<PAGE> 4
6. Miscellaneous:
(a) All references to "this Agreement," "hereof," "herein" and words
of similar connotation include all exhibits attached hereto, unless specified
otherwise. This Agreement is intended by the parties hereto as a final
expression of their understanding and agreement with respect to the subject
matter hereof and as a complete and exclusive statement of the terms thereof;
this Agreement supersedes all prior and contemporaneous negotiations,
understandings, and agreements between the parties hereto with respect to the
subject matter hereof. The parties acknowledge and agree that neither party
hereto has made any representations or promises in connection with this
Agreement or the subject matter hereof not contained herein. Nothing in this
Agreement shall be construed to require the commission of any act contrary to
law, and wherever there is a conflict between any provisions of this Agreement
and any statute, law, ordinance, order or regulation contrary to which the
parties hereto have no legal right to contract, such statute, law, ordinance,
order or regulation shall prevail; provided that, in such event, (a) the
provision of this Agreement so affected shall be limited only to the extent
necessary to permit the compliance with the minimum legal requirements, (b) no
other provisions of this Agreement shall be affected thereby, and (c) all such
other provisions shall remain in full force and effect. The parties hereto shall
negotiate in good faith to replace any invalid, illegal or unenforceable
provision (the "Invalid Provision") with a valid provision, the effect of which
comes as close as possible to that of the Invalid Provision. This Agreement
cannot be canceled, modified, amended or waived, in part or in full, in any
manner except by an instrument in writing signed by the party to be charged. No
waiver by UBL, whether expressed or implied, of any provision of this Agreement
or default hereunder shall affect UBL's right to thereafter enforce such
provision or to exercise the right or remedy set forth in this Agreement in the
event of any other default, whether or not similar. Words in the singular number
shall include the plural, and vice versa. Whenever examples are used in this
Agreement with the words "including," "for example," "e.g.," "such as," "etc."
or any derivation thereof, such examples are intended to be illustrative and not
in limitation thereof. The paragraph headings herein are used solely for
convenience and shall not be used in the interpretation or construction of this
Agreement.
(b) In entering into this Agreement and providing services pursuant
hereto, Merchandiser and UBL each have and shall have the status of independent
contractors. Nothing herein contained shall contemplate or constitute either
party being an agent or employee of the other party, and nothing herein shall
constitute a partnership, joint venture or fiduciary relationship between the
parties.
(c) This Agreement shall be deemed to have been entered into in the
State of California and the validity, interpretation and legal affect of this
Agreement shall be governed by the laws of the State of California applicable to
contracts entered into and performed entirely within the State of California.
The courts located in the County of Los Angeles, California (state and federal),
only, will have jurisdiction of any controversy regarding this Agreement; any
action or other proceeding which involves such a controversy will be brought in
those courts, in California and not elsewhere.
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THE ULTIMATE BAND LIST, LLC GIANT MERCHANDISING
By: /s/ Marc P. Geiger By: /s/ [Illegible]
------------------------- -------------------------
(an authorized signatory) (an authorized signatory)
(i)
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EXHIBIT A
MERCHANDISER'S STANDARD WHOLESALE PRICE LIST
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<PAGE> 7
EXHIBIT B
THE ULTIMATE BAND LIST, LLC
WARRANT TO PURCHASE [***] COMMON UNITS
WARRANT NO. 1999-1
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT IS FURTHER SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER CONTAINED HEREIN AND IN THAT CERTAIN AMENDED AND RESTATED OPERATING
AGREEMENT OF THE ULTIMATE BAND LIST, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY
DATED JULY 28, 1998, AS AMENDED.
WARRANT TO PURCHASE
LIMITED LIABILITY COMPANY COMMON UNITS
This certifies that Giant Merchandising ("Merchandiser") is entitled, on
or after April 1, 1999, to become a Member in The Ultimate Band List, LLC, a
California limited liability company (the "Company"), on and subject to the
terms and conditions contained herein and in the "Operating Agreement" (as
defined below), with the number of Common Units in the Company set forth in
Section 1 below, in return for a capital contribution by Merchandiser to the
Company of cash consideration in an amount equal to [***] per Common Unit
(subject to adjustment as hereinafter provided, the "Warrant Price").
Except as otherwise specifically provided herein, terms used by not
otherwise defined herein shall have those meanings as set forth in that certain
Amended and Restated Operating Agreement of The Ultimate Band List, LLC, a
California limited liability company dated July 28, 1998, as amended (the
"Operating Agreement"). A true and correct copy of the Operating Agreement is
attached hereto.
This Warrant is subject to the following terms and conditions:
1. Common Units Subject to Warrant: Vesting.
(a) Definitions.
(i) "Determination Date" means April 30, 2003;
- --------------------------
[***] Confidential treatment has been requested for the bracketed
portion. The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
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(ii) "Merchandiser Agreement" means that certain Merchandiser
Agreement dated as of April 1, 1999 between the Company and Merchandiser;
(iii) "Qualifying Terms" means on a consignment basis or on terms
requiring payment no earlier than the date [***] after the receipt by the
"Center" (as defined in the Merchandiser Agreement) of the applicable product
items;
(iv) "Merchandiser Product" means merchandise provided to the
Company on Qualifying Terms by either Merchandiser or any "Sublicensee" (as
defined in the Merchandiser Agreement);
(v) "Gross Merchandiser Product Revenue" shall mean the amount
actually received by the Company in respect of Merchandiser Product sold to
customers who place orders through the "UBL Store" (as defined in the
Merchandiser Agreement), including any directly related shipping and handling
revenues collected by the Company from such customers;
(vi) "Deductible Amounts" shall mean all shipping and handling
costs; third party fulfillment fees, warehouse charges and related charges;
sales, use and value-added taxes; credit card and other third party service
fees; agent commissions; and any credits for returns, rebates, cancellations and
exchanges;
(vii) "Adjusted Gross Merchandiser Product Revenue" shall mean Gross
Merchandiser Product Revenue less the Deductible Amounts; and
(viii) "Highest Sales" means the greatest Adjusted Gross
Merchandiser Product Revenue during any period of twelve (12) consecutive
calendar months of the term of the Merchandiser Agreement (i.e., between April
1, 1999 and March 31, 2003).
(b) This Warrant may be exercised with respect to:
(i) [***] Common Units at any time on or before March 31, 2004; and
(ii) an additional [***] Common Units for each full [***] in Highest
Sales in excess of [***]; provided that the number of additional Common Units
that may be acquired pursuant to this Section 1(b)(ii) shall be subject to a
maximum of [***] (i.e., for Highest Sales of [***] or more).
On or before the Determination Date, the Company shall notify Merchandiser of
the Highest Sales.
2. Term. Except for the rights conferred upon the Company pursuant to
Section 8 below, this Warrant, and Merchandiser's right to exercise this
Warrant, shall terminate immediately upon the first to occur of the
following:
- --------------------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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(a) the close of business (i.e., 5:00 p.m., Los Angeles time) on April
30, 2008;
(b) the termination of the Merchandiser Agreement prior to the
expiration of the full term thereof either (i) by the Company due to a material
breach thereof by Merchandiser, which breach remains uncured for the period
specified in Section 5(b) of the Merchandiser Agreement or (ii) by Merchandiser
other than due to a material breach thereof by the Company, which breach remains
uncured for the period specified in Section 5(b) of the Merchandiser Agreement;
or
(c) the breach by Merchandiser of any material provision of this
Warrant.
3. Method of Exercise; Payment; Issuance of New Warrant: Transfer and
Exchange. This Warrant may be exercised by Merchandiser, in whole or in
part, by the surrender of this Warrant, properly endorsed, at the
principal office of the Company at 17835 Ventura Blvd., Suite 310,
Encino, CA 91316 (or at such other location within the State of
California or the State of New York as the Manager may advise
Merchandiser in writing), and by (a) payment to the Company in cash or
immediately available funds of the Warrant Price of the Common Units
being purchased, and (b) delivery to the Company of a customary
investment letter executed by Merchandiser, representing and warranting
that the Common Units are being acquired for Merchandiser's own account,
for investment purposes only, and not with a view to the distribution,
resale or other distribution thereof in violation of applicable
securities laws, and acknowledging the issuance and transfer of the
Common Units are subject to the requirements of federal and state
securities laws. Merchandiser, in lieu of exercising this Warrant for a
specified number of Common Units (the "Exercised Units") and paying the
aggregate exercise price therefor (the "Exercise Price"), may elect to
receive a number of Common Units equal to the number of Exercised Units,
minus a number of Common Units having an aggregate "Fair Market Value"
(as defined below) equal to the Exercise Price. After any such election,
the number of Common Units covered by this Warrant shall be deemed
automatically reduced by the number of Exercised Shares. For purposes of
this Warrant, "Fair Market Value" means (a) if the Common Units are then
publicly traded, the closing sale price of the Common Units on its
principal stock exchange or market system (or the average of the closing
bid and asked prices, if closing sales prices are not reported) for the
ten (10) consecutive trading days immediately prior to the date of any
such "net exercise," or (b) in all other cases, as determined by the
Manager in its sole, good faith discretion. In the event of any
exercise, or any such "net exercise," of less than all of the rights
represented by this Warrant, the Company shall issue to Merchandiser a
new warrant evidencing the ability of Merchandiser to purchase the
balance of the number of Common Units from the Company, and shall
deliver such warrant to Merchandiser promptly following such partial
exercise. The Company agrees that the Common Units issuable to
Merchandiser upon exercise of this Warrant and Merchandiser's making the
applicable payment to the Company in respect thereof, Merchandiser and
the Common Units issued to Merchandiser with respect to such exercise
shall become subject to the terms and conditions of the Operating
Agreement, including without limitation, the obligation to sell Common
Units and the restrictions on transfer of Common Units contained
therein. In this regard, Merchandiser acknowledges that it shall only
become a Member and be entitled to the rights as a Member once
Merchandiser validly exercises
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<PAGE> 10
this Warrant in accordance with the terms hereof and executes a
signature page to the Operating Agreement whereby it agrees to be bound
by all of the terms thereof, excluding the non-competition covenant
contained in Section 3.10 thereof, from which Merchandiser shall be
exempted.
4. Due Authorization and Issuance. The Company covenants and agrees that
any and all of the Common Units issued to Merchandiser in accordance
with the terms hereof will, upon such issuance, be duly authorized,
validly issued and free from all preemptive rights of any holder of
Common Units in the Company, free and clear of all taxes, liens and
charges with respect to such issuance. The Company further covenants and
agrees that, during the period within which this Warrant may be
exercised, the Company will take no action that would prohibit the
issuance of Common Units required to be issued in accordance with the
terms and conditions hereof on such exercise.
5. Fractional Common Units. No fractional Common Units shall be issued in
connection with any exercise hereunder but in lieu of such fractional
Common Units, the Company shall make a cash payment therefor upon the
basis of the fair market value of the Common Units, as determined by the
Manager in its sole, good faith discretion.
6. Certain Adjustments.
(a) If the outstanding Common Units are changed into or exchanged for a
different number or kind of securities of the Company or a successor entity
(including a "C-corporation" that becomes the successor or parent of the Company
in connection with a roll-up or similar exchange transaction in connection with
an initial public offering) through a capital reorganization or
reclassification, or if the number of outstanding Common Units is changed
through a split of Common Units, reverse split of Common Units or issuance of a
Common Unit dividend, then a reasonable and appropriate adjustment shall be made
by the Company in (i) the number or kind of Common Units that may be purchased
pursuant to the exercise of this Warrant, and (ii) the number, exercise price,
or kind of securities subject to this Warrant. Any such adjustment in this
Warrant, however, shall be made without a change in the total price applicable
to the unexercised portion of this Warrant but with a corresponding adjustment
in the price for each Common Unit covered by this Warrant. In making such
adjustments, or in determining that no such adjustments are necessary, the
Company may rely upon the advice of counsel and accountants to the Company, and
the reasonable determination of the Company shall be binding.
(b) Upon (i) the dissolution, liquidation, or sale of all or
substantially all of the business, properties and assets of the Company, (ii)
any reorganization, merger, consolidation, sale or exchange of securities in
which the Company does not survive, (iii) any reorganization, merger,
consolidation, sale or exchange of securities in which the Company does survive
and any of the Company's members have the opportunity to receive cash,
securities of another' entity and/or other property in exchange for their Common
Units (other than a "roll-up" or similar exchange transaction in connection with
an initial public offering), or (iv) any acquisition by any person or group (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as amended), of
beneficial ownership of more than fifty percent (50%) of the Company's then
outstanding Common Units (each of the events described in clauses (i), (ii),
(iii), or (iv) is
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<PAGE> 11
referred to herein as an "Extraordinary Event"), this Warrant shall terminate
unless it survives the Extraordinary Event pursuant to Section 6(d) below.
(c) Merchandiser shall have the right until ten (10) days before the
effective date of any Extraordinary Event to exercise, in whole or in part, this
Warrant, but only to the extent to which it is exercisable pursuant to the
provisions hereof. In this regard, the Company shall notify Merchandiser in
writing of the Company's intent to engage in any Extraordinary Event on or
before the date (the "Notice Date") that is no less than thirty (30) days before
the effective date of such Extraordinary Event. In addition, notwithstanding
anything to the contrary contained herein, if an Extraordinary Event shall occur
during the term of the Merchandiser Agreement, then, solely for purposes of
determining the extent to which this Warrant is exercisable in accordance with
this Section 6(c), Highest Sales shall be determined either: (i) with reference
to each period of twelve (12) consecutive calendar months of the term of the
Merchandiser Agreement prior to the Notice Date; or (ii) if fewer than twelve
(12) months have elapsed since the commencement of the term of the Merchandiser
Agreement, on an annualized basis.
(d) If an Extraordinary Event occurs during the term of the Merchandiser
Agreement, then the Company shall be obligated to either, in its sole
discretion: (i) cause this Warrant to survive such Extraordinary Event or (ii)
cause the surviving entity (which may be the Company), or any other entity that,
after giving effect to the Extraordinary Event, owns, directly or indirectly,
fifty percent (50%) or more of the Company's then outstanding Common Units, to
tender to Merchandiser a substitute warrant to purchase units or other equity
interests in such entity containing terms and provisions substantially
preserving, in the reasonable, good faith discretion of the Company, the rights
and benefits of this Warrant to the extent then outstanding (a "Substitute
Warrant"). If an Extraordinary Event occurs after the term of the Merchandiser
Agreement, in its sole and absolute discretion, the Company may permit this
Warrant to survive such Extraordinary Event. In addition, if an Extraordinary
Event occurs after the term of the Merchandiser Agreement, in its sole and
absolute discretion, the surviving entity (which may be the Company), or another
entity, may, but shall not be so obligated, tender to Merchandiser a Substitute
Warrant.
(e) The grant of this Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassification or changes in its
capital or business structures or to merge, consolidate, dissolve, or liquidate
or to sell or transfer all or any part of its business or assets or undertake
any other permitted limited liability company action.
(f) Upon the occurrence of each adjustment of this Warrant pursuant to
this Section 6, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
Merchandiser a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request of Merchandiser, furnish or cause to
be furnished to Merchandiser a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the applicable Exercise Price at the time in
effect; and (iii) the number of Common Units, if any, and the amount, if any, of
other securities or property that at the time would be received upon the
exercise of this Warrant.
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<PAGE> 12
(g) Other Action Affecting Common Units. The Company will not, by
amendment of its Articles of Organization or the Operating Agreement, or through
any reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, dividend or other distribution of cash
or property, or any other voluntary action, avoid or seek to,: avoid the rights
granted to Merchandiser hereunder or the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions hereof, and
in the taking of all such actions as may be necessary or appropriate in order to
protect the rights of Merchandiser as set forth herein against impairment.
7. Payment of Taxes. The Company will pay all taxes (other than taxes based
upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of Common Units upon exercise of this
Warrant.
8. Drag-Along Obligation.
(a) Definition of Equity Securities. For purposes of this Warrant,
"Equity Securities" shall mean all (i) Units, all rights, options or warrants to
purchase Units, all securities of any type whatsoever that are convertible into
or exchangeable for Units, and all rights, options or warrants to purchase
securities that are convertible into or exchangeable for Units and (ii) all
shares, options, warrants, general or limited partnership interests, limited
liability company membership interests, participations or other equivalents
(regardless of how designated) of or in a corporation, partnership, limited
liability company or equivalent entity that are issued in exchange for any of
the items described in the preceding clause (ii).
(b) The Obligation. Notwithstanding anything to the contrary contained
herein, if the Manager finds an acquirer for all or any portion of its interest
in the Company (whether such acquisition is by way of purchase of assets, Common
Units or successor Equity SECURITIES, merger, recapitalization or other form of
transaction, and including, without limitation, a roll-up transaction that is
for the purpose of a reorganization among the Company and its Affiliates), then,
at the request of the Manager, Merchandiser shall sell or otherwise transfer a
corresponding portion of any Common Units (or successor Equity Securities) then
held by Merchandiser to such acquirer on the same terms and conditions as apply
to the sale or other transfer by the Manager. Merchandiser to such acquirer on
the same terms and conditions as apply to the sale or other transfer by the
Manager. Merchandiser further agrees timely to take such other actions as the
Manager may reasonably request in connection with the approval of the
consummation of such sale or other transfer, including, without limitation,
voting in favor of such sale or other transfer and waiving any dissenters'
rights, executing such agreements, powers of attorney, voting proxies or other
documents and instruments as may. be necessary or desirable to consummate such
sale or other transfer, and, in the event that such sale or other transfer is
structured as a recapitalization, transferring and retaining such portion of
Common Units (or successor Equity Securities) and rights under this Warrant as
may be requested by the Manager.
9. Tag-along Right.
(a) Definition of Excluded Transferee. For purposes of this Warrant,
"Excluded Transferee" shall mean: (i) Marc Geiger; (ii) Donald Muller; (iii) a
spouse, descendant or parent
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of Marc Geiger or Donald Muller; (iv) a descendant of any Person listed in
clauses (i), (ii) or (iii) above; (v) a trust for the sole benefit of any one or
more of the Persons listed in clauses (i), (ii), (iii) or (iv) above; (vi)
ARTISTdirect New Media, LLC ("ADNM"); or (vii) any Affiliate of any Person
listed in clauses (i), (ii), (iii), (iv), (v) or (vi) above.
(b) The Right. If ADNM, or any direct or indirect successor, assignee or
transferee of ADNM (each a "Transferor"), proposes alone or with others to
Transfer, directly or indirectly, to any Person that is not an Excluded
Transferee, any Equity Securities (each, a "Subject Interest") that represent a
fully-diluted Percentage of twenty percent (20%) or more, in a single
transaction or series of transactions, and the Common Units (or substitute
Equity Securities) issued to Merchandiser) pursuant to this (or any successor)
Warrant (the "Securities") include (at such time or upon exercise, conversion or
exchange) any Equity Securities of the same class as the Subject Interest (the
"Subject Interest Class"), the would-be Transferor shall provide Merchandiser
with not less than thirty (30) days' prior written notice of such proposed sale,
which notice shall include all of the material terms and conditions of such
proposed sale and which shall identify such purchaser (the "Sale Notice"), and
Merchandiser shall have the option, exercisable by written notice to the
Transferor within twenty (20) days after the receipt of the Sale Notice, to
participate in such transaction pro rata with the Transferor at the same time
as, and upon the same terms and conditions as (including all direct or indirect
consideration) the Transferor Transfers his Equity Securities in the Company.
Merchandiser may sell all or any portion of the Securities held by Merchandiser
(or issuable to Merchandiser upon exercise, conversion or exchange of any of the
Securities) that are of the class of Equity Securities that includes the Subject
Interest Class (the "Merchandiser's Securities") equal to the product obtained
by multiplying (i) the Subject Interest by (ii) a fraction, the numerator of
which is Merchandiser's Securities and the denominator of which is the total
number of Equity Securities of the Subject Interest Class then owned by the
Transferor, Merchandiser, and any other Person that has tag-along rights with
respect to the proposed Transfer by Transferor. To the extent that Merchandiser,
or any other Person that has tag-along rights with respect to the proposed
Transfer by Transferor, shall exercise its tag-along right, the number of Equity
Securities that the Transferor may Transfer in the transaction shall be
correspondingly reduced.
(c) Expenses. In any transaction in which Merchandiser sells or
otherwise disposes of any of the Merchandiser's Securities pursuant to this
Section 9, Merchandiser shall bear its pro rata share of the reasonable expenses
incurred by the Transferor in connection with the sale of the Subject Interest.
(d) Exempt Sales. The rights and obligations set forth in this Section 9
shall not apply to any sale of Equity Securities made in connection with or
following an initial public offering of common stock of the corporate successor
of the Company.
10. Transferability of Warrant.
(a) Except as set forth in Section 10(b) below, this Warrant may not be
sold, conveyed, transferred, alienated, donated, encumbered or otherwise
disposed of by Merchandiser and, accordingly, any purported such transaction in
violation of this Section 10 shall be void ab initio, of no force or effect.
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(b) Notwithstanding Section 10(a) above, but subject to applicable
securities laws, Merchandiser may transfer all, but not less than all, of this
Warrant, to any Affiliate of Merchandiser, provided that no such transfer shall
be effective until the transferee agrees in writing to be bound by all of the
provisions of this Warrant, including Section 8 above.
11. Investment Representation. Merchandiser represents and warrants to the
Company that Merchandiser is acquiring this Warrant for Merchandiser's
own account for investment and not with a view to, or for resale in
connection with, any distribution thereof. Merchandiser acknowledges
that this Warrant and the Common Units that may be purchased under this
Warrant have not been, registered under the Securities Act, by reason of
a specific exemption from the registration provisions of the Securities
Act that depends upon, among other things, the bona fide nature of the
investment intent of Merchandiser as expressed herein.
12. Representation Regarding Exercise Price. The Company hereby represents
and warrants to Merchandiser that the Exercise Price was calculated by
applying a value of the Company that does not exceed the value of the
Company that applied in the Company's most recent issuance of Common
Units to an unrelated third party.
13. Amendment and Waiver; Successors. This Warrant may only be amended or
supplemented, and any waiver or departure from the provisions hereof may
only be given, with the consent of the Manager and Merchandiser. All of
the covenants and provisions of this Warrant by or for the benefit of
the Company and Merchandiser shall bind and inure to the benefit of them
and their respective permitted successors and assigns hereunder.
14. Notices. All notices required by this Warrant to merchandiser shall be
sent to Giant Merchandising, 5655 Union Pacific Avenue, Commerce, CA
90022, or such other address as Merchandiser may hereafter designate by
notice to the Company. All notices sent under this Agreement to the
Company or the Manager shall be sent to the address indicated in Section
3 above. All notices required by this Warrant must be in writing to be
effective, and must be sent by a third party messenger, by air courier
service with a written acknowledgment of receipt, by registered or
certified mail, return receipt requested, or through a telegraph office.
The date of personal delivery, of mailing, or the date of delivery to a
telegraph office. The date of any such notice shall be deemed the date
of the giving thereof (except, with respect to notices of change of
address, the date of which will be the date of receipt by the receiving
party). Until the Company notifies Merchandiser otherwise, a copy of all
notice hereunder to the Company shall be simultaneously sent as
aforesaid to Lenard & Gonzalez LLP, 1900 Avenue of the Stars, 25th
Floor, Los Angeles, CA 90067; Attention: Allen D. Lenard, Esq.
15. Descriptive Headings and Governing Law. The descriptive headings of the
several paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of California.
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16. Lost Warrant. The Manager and the Company represent and warrant to
Merchandiser that upon receipt of evidence reasonably satisfactory to
the Manager and the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction upon receipt of an indemnity reasonably satisfactory to the
Manager and the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Manager and the Company
will make and deliver a new Warrant in lieu of the lost, stolen,
destroyed or mutilated Warrant.
IN WITNESS WHEREOF, Merchandiser, the Company and the Manager
have caused this Warrant to be duly executed and issued by their respective
officers thereunto duly authorized as of the 1st day of April, 1999.
"COMPANY" "MERCHANDISER"
THE ULTIMATE BAND LIST, LLC Giant Merchandising
By: /s/ Marc P. Geiger By:
------------------------------- ------------------------------
Its: Co-Chief Executive Officer (an authorized signatory)
"MANAGER"
ARTISTdirect New Media, LLC
By: /s/ Marc P. Geiger
-------------------------------
Its: Co-Chief Executive Officer
9
