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EXHIBIT 10.7
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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.
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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.
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"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).
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"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 ▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, 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
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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
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this Agreement or the other Transaction Documents to which such Person is a
party.
"Non-Competition Agreements" shall mean the non-competition agreements
of ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ 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.
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"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
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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 & ▇▇▇▇▇▇▇ or such other place as shall be mutually agreed to by the
parties hereto.
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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 ▇▇▇▇▇▇ and ▇▇▇▇▇▇ in respect of AD's 1997 Fiscal Year, (iii)
$75,000 will be used to return a capital contribution made by ▇▇▇▇▇▇ to AD, and
(iv) $50,000 will be paid to ▇▇▇▇▇▇ 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
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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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & 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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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 ▇▇▇▇ ▇▇▇▇▇▇
("▇▇▇▇▇▇") and ▇▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇▇") 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) ▇▇▇▇▇▇ or
▇▇▇▇▇▇ (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 ▇▇▇▇▇▇, ▇▇▇▇▇▇ 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
▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ and ▇▇▇▇▇▇ 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 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇. 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 ▇▇▇▇▇▇ and ▇▇▇▇▇▇ 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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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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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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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
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: ▇▇▇-▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
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If to UBL:
The Ultimate Band List, LLC
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
If to either Purchaser:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Constellation Ventures Management LLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Kramer, Levin, Naftalis & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
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 ▇▇▇▇▇▇ and ▇▇▇▇▇▇.
Each of ▇▇▇▇▇▇ and ▇▇▇▇▇▇ (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).
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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/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
THE ULTIMATE BAND LIST, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
CONSTELLATION VENTURE CAPITAL, L.P.
By: Constellation Ventures Management LLC,
as General Partner
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Member
CONSTELLATION VENTURES (BVI), INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President and Chief Executive Officer
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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/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Member
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▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ each hereby agrees to be bound by the
provisions of Section 5.1(h) and (m) and Article X of this Agreement.
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/s/ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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TABLE OF CONTENTS
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
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(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 ▇▇▇▇▇▇ and ▇▇▇▇▇▇.............30
10.13. Representations, Warranties and Agreements of ADNM..........................31
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