ADNM Merchandiser Agreement - Giant Merchandising and ARTISTdirect New Media LLC
ADNM MERCHANDISER AGREEMENT
THIS AGREEMENT, dated as of April 1, 1999, between Giant Merchandising
("Merchandiser"), 5655 Union Pacific Avenue, Commerce, CA 90022, and
ARTISTdirect New Media, LLC ("ADNM"), 17835 Ventura Blvd., Suite 310, Encino, CA
91316, is being entered into in light of the following:
A. Merchandiser is in the business of acquiring the right to use the
names, photographs and other likenesses, biographical material and other
personal identification (collectively, "Personal Identification") of musical
artists in connection with the manufacture and sale of merchandise and the
licensing of such rights to third parties.
B. ADNM is in the business of developing and operating Internet retail
storefronts for musical artists ("Artist Stores") that, among other things, sell
merchandise containing the Personal Identification of the applicable artist.
C. Merchandiser and ADNM are entering into this Agreement in order to
set forth the terms and conditions upon which Merchandiser has agreed to
accommodate ADNM in respect of developing and opening new Artist Stores
featuring Merchandiser Artists (as defined below) and in the operation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
benefits contained herein, the parties hereto agree as follows:
1. Term: The term of this Agreement (the "Term") shall be four (4) years
commencing on the date of this Agreement.
2. Signing Procedures:
(a) As used herein, "Merchandiser Artist" shall mean, individually
and collectively, each and every musical recording artist in respect of which
Merchandiser from time to time has the exclusive right to manufacture
merchandise utilizing such artist's Personal Identification and to sell such
merchandise for distribution through retail channels, including to retailers who
solely or primarily sell merchandise via the Internet (collectively, the
"Rights"). Merchandiser represents and warrants that attached hereto as Exhibit
A is a true and complete list of Merchandiser Artists as of the execution of
this Agreement, as well as the territory of the Rights in respect of each such
Merchandiser Artist.
(b) During the Term, Merchandiser agrees that, promptly upon
Merchandiser entering into an agreement to obtain Rights in respect of a
Merchandiser Artist, Merchandiser shall notify ADNM of the applicable artist
name(s) as well as the territory of the Rights. Upon Merchandiser's entering
into such agreement, the applicable Merchandiser Artist shall be deemed added to
said Exhibit A.
(c) Merchandiser agrees to promptly notify ADNM if any of the
information on said Exhibit A should change during the Term, or if the Rights in
respect of a particular Merchandiser Artist shall have terminated and/or the
"sell-off" provisions
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of Merchandiser's agreement with the applicable Merchandiser Artist have
become operative (after which such artist shall be deemed deleted from said
Exhibit A.)
(d) Said Exhibit A indicates with an asterisk (*) those Merchandiser
Artists in respect of which ADNM desires to enter into a Store Agreement as of
the execution of this Agreement. ADNM shall have the right from time to time
during the Term to notify Merchandiser that it desires to enter into a Store
Agreement with any other Merchandiser Artists. Each such Merchandiser Artist
shall be referred to herein as an "Accepted Artist." ADNM and Merchandiser shall
use their collective commercially reasonable efforts to cause the applicable
Merchandiser Artist to enter into an agreement with ADNM (each such agreement,
along with any extensions or renewals thereof, is sometimes referred to herein
as a "Store Agreement") substantially in the form attached hereto as Exhibit B.
ADNM agrees to provide Merchandiser with copies of each such Store Agreement
promptly after the complete execution thereof during the Term.
(e) Merchandiser acknowledges that, prior to the execution hereof,
ADNM entered into a Store Agreement with respect to the Merchandiser Artist
professionally known as [***] and that all Merchandiser Product sold under said
Store Agreement after the date hereof ("[***] Merchandise") shall be subject to
the terms of this Agreement, except as set forth below in this paragraph 2(e).
ADNM agrees to use best efforts to cause [***] to agree that the License Fee (as
defined in paragraph 6 below) shall be payable to Merchandiser hereunder (rather
than to [***]) in respect of all [***] Merchandise. In the event [***]
nevertheless refuses to so agree, ADNM shall pay Merchandiser the following
product consignment charges in respect of all [***] Merchandise, computed as if
the License Fee had been actually paid to Merchandiser hereunder, as follows:
(i) an amount equal to that portion of the otherwise applicable License Fee that
Merchandiser would have been entitled to retain for its sole account under its
agreement with [***] (e.g., as opposed to any portion thereof that Merchandiser
would be obligated to credit to [***] royalty account), plus (ii) the amount
of the Consignment Charge, if any, that would have been applicable under
paragraph 6(c) below.
3. Product Supply:
(a) As used herein:
(i) "Merchandiser Product" means all merchandise containing the
Personal Identification of a Merchandiser Artist and sold pursuant to a Store
Agreement (whether through the applicable Artist Store or the UBL Store), that
is provided by or on behalf of Merchandiser or a Sublicensee pursuant to the
Merchandiser Terms;
(ii) "Artist Product" means all merchandise and other products or
services sold pursuant to a Store Agreement (whether through the applicable
Artist Store or the UBL Store) other than Merchandiser Product (e.g., records,
concert tickets, advertisement space, and merchandise supplied by a Sublicensee
other than pursuant to the Merchandiser Terms); and
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(iii) "Merchandiser Terms" means that payment for the applicable
merchandise shall not become due until the date [***] after the applicable
merchandise has arrived at ADNM's fulfillment center(s) (the "Center"), it being
understood that ADNM shall have the right to return any such merchandise to
Merchandiser for a full credit within said [***] period (provided the applicable
returned merchandise arrives at Merchandiser's warehouse no later than [***]
after the expiration of said [***] period). For purposes of this paragraph
3(a)(iii), merchandise shall be deemed to have "arrived at the Center" at such
time as the vehicle delivering such merchandise arrives at the Center,
regardless of the date on which such merchandise is unloaded.
(b) During the term of each Store Agreement (but only as long as
Merchandiser has the Rights in respect of the applicable Merchandiser Artist),
Merchandiser agrees to sell merchandise manufactured by or under the control of
Merchandiser to ADNM for resale under the applicable Store Agreement upon the
following terms:
(i) All such sales shall be subject to the Merchandiser Terms.
(ii) All such sales shall be at Merchandiser's standard wholesale
prices (i.e., the prices that Merchandiser generally charges its other wholesale
customers, subject to Merchandiser's customary volume discounts). Merchandiser
represents and warrants that attached hereto as Exhibit C are Merchandiser's
standard wholesale prices as of the execution of this Agreement. Merchandiser
shall notify ADNM of any changes to its standard wholesale prices, which changes
shall only apply to Merchandiser Product ordered by ADNM after its receipt of
such notice from Merchandiser. Notwithstanding the foregoing, the parties agree
and acknowledge that Merchandiser may not have standard wholesale prices for
certain Collectibles (as defined in paragraph 6(b)(v) below), in which case the
wholesale price shall be reasonably determined by Merchandiser.
(iii) ADNM and Merchandiser shall in their good faith business
judgment mutually determine on an item-by-item basis the applicable minimum and
maximum inventory levels to be carried by ADNM, and Merchandiser agrees to use
commercially reasonable efforts to ship merchandise on a timely basis consistent
therewith.
(iv) ADNM shall pay all costs (including all associated freight
and insurance costs) of shipping the products to the Center and returning any
unsold merchandise from the Center to Merchandiser's warehouse.
(c) Merchandiser shall use reasonable efforts to cause each person or
entity who manufactures and distributes merchandise under license from
Merchandiser (a "Sublicensee") to sell merchandise to ADNM hereunder upon the
foregoing terms (e.g., in accordance with the Merchandiser Terms and at no more
than the
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Sublicensee's standard wholesale prices). If a Sublicensee is unwilling
to do so, Merchandiser may elect (in its discretion) to purchase the applicable
merchandise from such Sublicensee and sell same to ADNM pursuant to the
Merchandiser Terms.
(d) For the avoidance of doubt, Merchandiser agrees and acknowledges
that Artist Product will be sold on the Artist Stores and the UBL Store
and that no License Fee shall be payable to Merchandiser in respect of any
Artist Product.
(e) After the expiration of the [***] period described in paragraph
3(a)(iii) above, ADNM shall have the right to return (not for credit) to
Merchandiser any unsold merchandise hereunder. Merchandiser agrees to use its
commercially reasonably efforts to promptly sell such returned product at
liquidation prices (subject to Merchandiser's commercially reasonable efforts to
maximize the liquidation proceeds) and to remit to ADNM, within [***] after each
such sale, [***] of the net proceeds thereof. As used in this paragraph 3(e),
the term "net proceeds" shall mean the gross amount payable or credited to
Merchandiser from such sales, less Merchandiser's verifiable direct third party
out-of-pocket costs in connection with such sales.
4. UBL Store: Merchandiser agrees and acknowledges that ADNM may elect
to make available for sale on an Internet on-line store (the "UBL Store")
operated by a company affiliated with ADNM certain items of Merchandiser Product
offered for sale through an Artist Store. ADNM agrees that its books and records
shall clearly distinguish Merchandiser Product sold through an Artist Store from
Merchandiser Product sold through the UBL Store, and ADNM shall, for the
avoidance of doubt, at no time credit a sale that took place through an Artist
Store as a sale through the UBL Store.
5. Grant of Rights: With respect to each Store Agreement (and subject to
the terms and conditions set forth therein), Merchandiser shall be deemed to
have granted to ADNM, in consideration for the License Fee, the following
rights, but only insofar as Merchandiser has such Rights and for the territory
Merchandiser has such Rights, during the term of such Store Agreement (but only
as long as Merchandiser has the Rights in respect of the applicable Merchandiser
Artist): (a) the exclusive right and license to develop and operate the only
"official" Internet store for the applicable Merchandiser Artist, and (b) the
non-exclusive (subject to paragraph 11 below) right and license to utilize such
Merchandiser Artist's Personal Identification in connection with the applicable
Artist Store. Notwithstanding the foregoing, ADNM acknowledges that such uses of
the Merchandiser Artist's Personal Identification may be subject to the approval
of the applicable Merchandiser Artist under Merchandiser's agreement with such
Merchandiser Artist; in this regard, Merchandiser hereby authorizes ADNM to seek
to obtain such approvals directly from the applicable Merchandiser Artist.
6. License Fee:
(a) In consideration for the rights licensed pursuant to paragraph 5
above and Merchandiser's agreement to supply Merchandiser Product to ADNM
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pursuant to the Merchandiser Terms, ADNM agrees to pay Merchandiser a License
Fee with respect to all Merchandiser Product sold at any time (including after
the Term).
(b) As used herein:
(i) "License Fee" shall mean, subject to paragraph 6(c) below,
the amount by which the following amounts exceed the wholesale purchase price
payable by ADNM for all applicable Merchandiser Product, provided that the
License Fee otherwise payable shall be further reduced by any third party
marketing and rights clearance costs incurred by ADNM, with the approval of
Merchandiser (which approval may be withheld by Merchandiser for any reason) and
the applicable Merchandiser Artist, and attributable to Merchandiser Product (it
being understood that any such costs not specifically attributable to
Merchandiser Product shall be allocated reasonably by ADNM between Merchandiser
and the applicable Merchandiser Artist, taking into account whether the
applicable costs related to Merchandiser Product and/or Artist Product:
(A) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Merchandiser Product (other than Collectibles) sold through an Artist
Store and with respect to Collectibles sold through the UBL Store (or through
any other source other than an Artist Store);
(B) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Merchandiser Product (other than Collectibles) sold through the UBL
Store (or through any other source other than an Artist Store); and
(C) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Collectibles sold through an Artist Store.
(ii) "Adjusted Gross Merchandiser Product Revenue" shall mean Gross
Merchandiser Product Revenue less the Deductible Amounts.
(iii) "Gross Merchandiser Product Revenue" shall mean the amount
actually received by ADNM (including shipping and handling revenues) in respect
of Merchandiser Product.
(iv) "Deductible Amounts" shall mean all of the following costs paid
by ADNM and specifically attributable to Merchandiser Product: all amounts paid
under paragraph 3(b)(iv) above; all actual packaging and shipping costs paid to
third parties (not to exceed the associated shipping and handling revenues
referred to in paragraph 6(b)(iii) above); all third party fulfillment fees and
related charges; sales, use and value-added taxes actually paid; credit card
fees; and any credits for returns, rebates, cancellations and exchanges. ADNM
shall not deduct any fulfillment fees or related charges to the extent they
exceed such amounts as Merchandiser has approved; Merchandiser hereby
pre-approves the applicable amounts set forth on Exhibit D attached hereto. To
the extent ADNM is unable to identify a particular item of cost as being
attributable to either Merchandiser Product or Artist Product, only a portion
thereof shall be deemed a "Deductible Amount" hereunder, such portion to be
determined reasonably by ADNM, taking into account the total amount of Gross
Merchandiser Product Revenues as compared to the total amount of other
applicable revenues during the applicable accounting period. Notwithstanding
anything to the contrary contained herein, as between ADNM and Merchandiser,
ADNM shall be solely responsible for all customer bad debts in respect of
Merchandiser Product shipped by ADNM (or its designee), including all associated
Deductible Amounts.
(v) "Collectibles" means any single item of Merchandiser Product
bearing a wholesale price in excess of [***].
(c) Within ten (10) business days after the date ADNM notifies
Merchandiser of each new Accepted Artist pursuant to paragraph 2(d) above (or
within ten (10) business days after the complete execution of this Agreement, in
respect of any
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Accepted Artist indicated on Exhibit A as of the execution hereof), Merchandiser
shall have the right to notify ADNM of the percentage of the applicable License
Fees hereunder that Merchandiser is obligated to pay to, or credit to the
account of, the applicable Accepted Artist or its furnishing company (the
"Artist Percentage"), if such Artist Percentage exceeds [***]. In such event,
notwithstanding anything to the contrary contained herein, ADNM shall pay to
Merchandiser a product consignment charge (the "Consignment Charge") equal to
[***] of the Adjusted Gross Merchandiser Product Revenue with respect to such
Accepted Artist for each [***] by which such Artist Percentage exceeds [***].
For purposes of illustration, in the event that Merchandiser has properly
notified ADNM that the Artist Percentage with respect to a particular Accepted
Artist equals [***], then with respect to such Accepted Artist, ADNM shall pay
to Merchandiser a Consignment Charge equal to [***] of the Adjusted Gross
Merchandiser Product Revenue with respect to such Accepted Artist. For the
avoidance of doubt, no Consignment Charge shall be applicable with respect to
any Merchandiser Artist for which Merchandiser does not timely notify ADNM of
the Artist Percentage as provided in this paragraph 6(c).
(d) Attached hereto as Exhibit E are certain example computations of
the License Fee.
7. Artist Store Advertising Revenues. In respect of any amounts received
by ADNM during the Term in consideration of the placement of hyperlinks, banners
and other advertisements contained on an Artist Store ("Artist Store Advertising
Revenues"), ADNM agrees to pay Merchandiser [***] of the amount by which such
Artist Store Advertising Revenues exceed all agent commissions related thereto.
The parties acknowledge that all such hyperlinks, banners and other
advertisements may be subject to the approval of the applicable Accepted Artist.
8. Artist Store Customer Databases. During the Term, subject to the
consent of the applicable Merchandiser Artist, ADNM shall provide Merchandiser
with customer database information from the Artist Stores, [***] , to be used by
Merchandiser solely for purposes of promoting the Artist Stores and
Merchandiser's business in connection with the applicable Merchandiser Artist to
which the database relates. Merchandiser specifically acknowledges and agrees
that it shall have no right to sell, distribute, sublicense or otherwise dispose
of the customer database information provided to Merchandiser hereunder or any
portion thereof.
9. ARTISTdirect Warrant. In further consideration of Merchandiser's
entering into and fully performing its obligations under this Agreement, and in
exchange for the payment by Merchandiser to ARTISTdirect, LLC ("AD") of one
dollar ($1.00), upon the consummation of the transaction that currently is
contemplated to occur whereby AD will become the beneficial owner of one hundred
percent (100%) of the outstanding membership interests of The Ultimate Band
List, LLC (the "Rollup"), ADNM shall cause AD to grant to Merchandiser a warrant
to acquire Common Units of ARTISTdirect, LLC
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representing approximately two percent (2%) of AD's outstanding membership
interests for an aggregate exercise price not to exceed One Million Seven
Hundred Twenty-Four Thousand Dollars ($1,724,000) which warrant shall be subject
to the terms generally set forth in Exhibit F attached hereto; provided,
however, that if the Rollup shall not occur prior to July 31, 1999, then ADNM
shall then cause AD to grant to Merchandiser a warrant substantially in the form
of Exhibit F attached hereto.
10. Accountings:
(a) ADNM shall compute the License Fee, any Consignment Charges and
Merchandiser's applicable share of any Artist Store Advertising Revenues,
payable to Merchandiser and render an accounting statement to Merchandiser
within thirty (30) days after March 31, June 30, September 30 and December 31
for the three-month period preceding March 31, June 30, September 30 or December
31, as the case may be. Each such statement shall include an itemized breakdown
of the sources of the applicable revenue, Deductible Amounts and all other
reductions in computing the License Fee and share of Artist Store Advertising
Revenues, and shall be accompanied by the payment of the amounts, if any, earned
by Merchandiser during the accounting period to which the statement relates.
(b) Merchandiser or a certified public accountant on Merchandiser's
behalf may, at ADNM's offices and at Merchandiser's expense, examine ADNM's
books and records relevant to the calculation of the License Fee solely for the
purposes of verifying the accuracy of statements rendered by ADNM to
Merchandiser. Such books and records may be examined as aforesaid only (i)
during ADNM's normal business hours, (ii) upon reasonable notice to ADNM, and
(iii) within two years after the date a statement is due hereunder. Further,
Merchandiser shall not have the right to examine such books and records more
frequently than once in any twelve month period or more than once with respect
to any particular statement. Each statement shall be deemed final and binding
upon Merchandiser as an account stated and shall not be subject to any claim or
objection by Merchandiser (A) unless Merchandiser notifies ADNM of
Merchandiser's specific written objection to the applicable statement, stating
the basis thereof in reasonable detail within two (2) years after the date such
statement is due hereunder, and (B) unless, within said two (2)-year period,
Merchandiser make proper service of process upon ADNM in a suit instituted in a
court of proper jurisdiction.
11. Exclusivity: Insofar as ADNM is concerned, Merchandiser shall have
the right to sell and authorize others to sell merchandise containing a
Merchandiser Artist's Personal Identification over the Internet. However, during
the Term, Merchandiser shall not, without ADNM's consent, develop or maintain a
web site, or license or otherwise authorize any other web site provider to
develop or maintain a web site, that is identified solely with a single
Merchandiser Artist (e.g., a web site that is the "official" merchandise web
site for a Merchandiser Artist). The foregoing is not intended to prohibit
Merchandiser from operating a web site relating to multiple artists, with
certain pages or sections thereof devoted solely or primarily to a particular
Merchandiser Artist, and to
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sell merchandise on such web site; provided the appearance of such web site is
not designed so as to give the consumer the impression that the merchandise is
being purchased directly from the Merchandiser Artist, rather than from
Merchandiser (or its licensee). [For the avoidance of doubt, the operation of
any such web site by Merchandiser shall not in any way affect ADNM's rights
hereunder or otherwise to develop and operate the "official" web site of the
applicable Artist (e.g., an Artist Store).]
12. Tour Merchandising and Sublicensing Rights: During the Term and for
a period of one (1) year thereafter, ADNM agrees that it and its affiliates
shall refrain from seeking from any artist (a) tour merchandising rights, or (b)
the right to sublicense merchandising rights to third parties, or (c) the right
to manufacture merchandise containing such artist's Personal Identification.
13. First Opportunity to Manufacture Merchandise for Outside Artists: As
used herein, the term "Outside Artist" shall mean an artist who is not a
Merchandiser Artist, who is then subject to a store agreement with ADNM, and who
is not then subject to an agreement pursuant to which the Rights with respect to
such artist are held by a third party (e.g., another merchandising company).
During the Term, ADNM shall not arrange for the manufacture of merchandise
containing the Personal Identification of an Outside Artist with anyone other
than Merchandiser without first affording Merchandiser the opportunity to
manufacture such merchandise. In such event, ADNM and Merchandiser shall
negotiate in good faith the terms pursuant to which Merchandiser will
manufacture and supply such merchandise to ADNM. If ADNM and Merchandiser are
unable to agree on such terms, then, insofar as Merchandiser is concerned, ADNM
may make an arrangement with anyone else to manufacture and supply such
merchandise. Notwithstanding the foregoing, Merchandiser agrees and
acknowledges that the applicable Outside Artist shall not be bound by the
foregoing and shall, accordingly, have the right, insofar as Merchandiser is
concerned, to cause anyone else to manufacture and supply to ADNM such
merchandise. For the avoidence of doubt, no License Fee shall be payable under
this Agreement with respect to any merchandise containing the Personal
Identification of an Outside Artist.
14. Representations and Warranties; Indemnity:
(a) Each party hereto represents and warrants that: (i) it has the
full right, power and authority to enter into and to perform this Agreement;
(ii) it is not under any restriction or obligation that may or will impair such
party's full performance of this Agreement; and (iii) it shall not at any time
do or authorize any person or entity to do anything inconsistent with, or
anything that might diminish, impair or interfere with any of the other party's
rights hereunder.
(b) Merchandiser agrees to indemnify and hold ADNM and its members,
employees, attorneys, agents, successors, affiliates, assigns and licensees
harmless against any claim, liability, cost and expenses (including attorneys'
and accountants' fees reasonably incurred) in connection with any breach or
alleged breach of this Agreement by Merchandiser. In this regard, ADNM shall not
settle any claim without first notifying Merchandiser of the terms of any
proposed settlement and obtaining Merchandiser's consent thereto.
(c) ADNM agrees to indemnify and hold Merchandiser and its members,
employees, attorneys, agents, successors, affiliates, assigns and licensees
harmless against any claim, liability, cost and expenses (including attorneys'
and accountants' fees reasonably incurred) in connection with any breach or
alleged breach of this Agreement by ADNM and/or in connection with the breach by
ADNM of any Store Agreement. In this regard, Merchandiser shall not settle any
claim without first notifying ADNM of the terms of any proposed settlement and
obtaining ADNM's consent thereto.
(d) Merchandiser acknowledges that ADNM is making no representations
and warranties concerning anticipated success of the Stores, the amount of
compensation payable to Merchandiser hereunder, and/or the current or future
value of ADNM or the warrants described in paragraph 8 above. Likewise, ADNM
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acknowledges that Merchandiser is making no representations and warranties
concerning anticipated success of the Stores or the amount of compensation
payable to ADNM with respect thereto.
15. Notices; Approvals:
(a) All notices and payments to either party hereto shall be sent to
such party's address first mentioned herein, or such other address as a party
hereto may hereafter designate by notice to the other. All notices sent under
this Agreement must be in writing to be effective, and must be sent by a third
party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or through a
telegraph office. The date of personal delivery, of mailing or faxing, or the
date of delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to notices
of change of address, the date of which will be the date of receipt by the
receiving party). Until ADNM notifies Merchandiser otherwise, a copy of all
notices hereunder to ADNM shall be simultaneously sent as aforesaid to Lenard &
Gonzalez LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, CA 90067;
Attention: Allen D. Lenard, Esq. Until Merchandiser notifies ADNM otherwise, a
copy of all notices hereunder to Merchandiser shall be simultaneously sent as
aforesaid to Warner Music Group Inc., 3400 Riverside Drive, 6th Floor, Burbank,
CA 91505; Attention: Legal Department.
(b) No failure by a party hereto to perform any of its obligations
hereunder shall be deemed a breach of this Agreement, unless the party claiming
a breach has given the other party hereto notice of such alleged breach in
reasonable detail and such alleged breach is not cured within fifteen (15)
business days [ten (10) business days for non-payments] after the giving of such
notice, provided this sentence shall not apply to breaches incapable of being
cured (e.g., representations and warranties).
(c) No consent or approval under this Agreement shall be unreasonably
withheld or delayed. With respect to consents and approvals required under this
Agreement, the applicable party may elect to request such consent by notice to
the other. If the party whose consent or approval is required does not respond
to such notice within ten (10) business days thereafter, the party seeking to
obtain such consent or approval may give the other party a second notice making
such request, and the applicable party's consent or approval shall be deemed
granted unless it notifies the other party to the contrary, stating in
reasonable detail the basis thereof, within ten (10) business days after such
second notice.
16. Miscellaneous:
(a) All references to "this Agreement," "hereof," "herein" and words
of similar connotation include all exhibits attached hereto, unless specified
otherwise. This Agreement is intended by the parties hereto as a final
expression of their understanding and agreement with respect to the subject
matter hereof and as a complete and exclusive statement of the terms thereof;
this Agreement supersedes all prior and contemporaneous negotiations,
understandings, and agreements between the parties
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hereto with respect to the subject matter hereof. The parties acknowledge and
agree that neither party hereto has made any representations or promises in
connection with this Agreement or the subject matter hereof not contained
herein. Nothing in this Agreement shall be construed to require the commission
of any act contrary to law, and wherever there is a conflict between any
provisions of this Agreement and any statute, law, ordinance, order or
regulation contrary to which the parties hereto have no legal right to contract,
such statute, law, ordinance, order or regulation shall prevail; provided that,
in such event, (a) the provision of this Agreement so affected shall be limited
only to the extent necessary to permit the compliance with the minimum legal
requirements, (b) no other provisions of this Agreement shall be affected
thereby, and (c) all such other provisions shall remain in full force and
effect. The parties hereto shall negotiate in good faith to replace any invalid,
illegal or unenforceable provision (the "Invalid Provision") with a valid
provision, the effect of which comes as close as possible to that of the Invalid
Provision. This Agreement cannot be canceled, modified, amended or waived, in
part or in full, in any manner except by an instrument in writing signed by the
party to be charged. No waiver by ADNM, whether expressed or implied, of any
provision of this Agreement or default hereunder shall affect ADNM's right to
thereafter enforce such provision or to exercise the right or remedy set forth
in this Agreement in the event of any other default, whether or not similar.
Words in the singular number shall include the plural, and vice versa. Whenever
examples are used in this Agreement with the words "including," "for example,"
"e.g.," "such as," "etc." or any derivation thereof, such examples are intended
to be illustrative and not in limitation thereof. The paragraph headings herein
are used solely for convenience and shall not be used in the interpretation or
construction of this Agreement.
(b) In entering into this Agreement and providing services pursuant hereto,
Merchandiser and ADNM each have and shall have the status of independent
contractors. Nothing herein contained shall contemplate or constitute either
party being an agent or employee of the other party, and nothing herein shall
constitute a partnership, joint venture or fiduciary relationship between the
parties.
(c) Neither party hereto shall, without the prior written consent of the other
party, assign this Agreement, in whole or in part, to any person or entity other
than a subsidiary, affiliated or controlling entity, or to any person or entity
owning or acquiring a substantial portion of the stock or assets of such party
hereto.
(d) This Agreement shall be deemed to have been entered into in the State of
California and the validity, interpretation and legal affect of this Agreement
shall be governed by the laws of the State of California applicable to contracts
entered into and performed entirely within the State of California. The courts
located in the County of Los Angeles, California (state and federal), only, will
have jurisdiction of any controversy regarding this Agreement; any action or
other proceeding which involves such a controversy will be brought in those
courts, in California and not elsewhere.
ARTISTdirect New Media, LLC GIANT MERCHANDISING
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By: ______/s/ Marc P. Geiger________ By: ________/s/ [Illegible]_______
(an authorized signatory) (an authorized signatory)
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EXHIBIT A
MERCHANDISER'S ARTISTS
Artist Agreement Territory
-----------------------------------------------------------------------------
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GIANT MERCHANDISING
Music Roster
Bryan Adams Presidents of the United States
Aerosmith of America
Bad Religion Rage Against the Machine
Bauhaus Rancid
Clint Black Red Hot Chili Peppers
Bush Savage Garden
Candlebox Smashing Pumpkins
The Chieftains Social Distortion
Kurt Cobain Speedealer
C.O.C. (Corrosion of Conformity) Sponge
Crystal Method Testament
Days of the New Third Eye Blind
Def Leppard Tool
Deftones The Vandals
Bryan Ferry Veruca Salt
Flaming Lips The Wallflowers
Fu Manchu Weezer
Goldfinger
Green Day
Don Henley
Lauryn Hill
Hole
Hootie & The Blowfish
Korn
Lenny Kravitz
L7
Limp Bizkit
Love And Rockets
Marcy Playground
Matchbox 20
Megadeth
Metallica
Mudhoney
My Life With The Thrill Kill Kult
Mike Ness
The Offspring
Orgy
Porno For Pyros
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EXHIBIT B
ON-LINE STORE AGREEMENT
THIS AGREEMENT, dated as of ____________, 19__, by and between ARTISTdirect New
Media, LLC ("ADNM"), 17835 Ventura Blvd., Suite 310, Encino, CA 91316, and
[Company Name] ("you"), c/o __________________________ is being entered into in
consideration of the mutual benefits and covenants contained in this Agreement.
1. PURPOSE: Subject to your approval rights in this Agreement, ADNM will
develop, maintain and operate an Internet web site for you relating to the
musical group professionally known as "[ArtistName]" ("Artist") and the members
of Artist, to be known as "The Official [ArtistName] Superstore" (the "Store").
The Store will provide Internet and other online access for online and offline
distribution of products and services ("Product"). It is intended that the
Product will include records, digital downloads (subject to the consent of
Artist's record company), merchandise, tickets, tour memorabilia, collectible
items and special or limited edition items not available from any other source,
and special bundled packages including any or all of the foregoing items.
2. TERM: The term of this Agreement (the "Term") shall commence on the date set
forth above and shall extend for an initial contract period ending five (5)
years after the official launch of the Store. After the initial contract period,
the Term shall automatically continue for additional one (1) year contract
periods, subject to the following sentence. At any time between sixty (60) and
thirty (30) days prior to the expiration of any contract period of the Term,
either party may by notice to the other terminate the Term effective as of the
end of the then-current contract period.
3. MERCHANDISER AGREEMENTS.
(a) You are presently party to an agreement (the
"Artist/Merchandiser Agreement") with Winterland Concessions Company
("Merchandiser") pursuant to which you have granted Merchandiser the exclusive
right to manufacture (and license the manufacture of) merchandise bearing the
name, likenesses, biographical material and other personal identification of
Artist (collectively, "Personal Identification") for sale through retail
channels, including the right to sell such merchandise to retailers who solely
or primarily sell merchandise via the Internet (the "Rights").
(b) ADNM represents and warrants that it is party to an agreement
with Merchandiser pursuant to which Merchandiser has (i) granted to ADNM any
consents and licenses that may be required from Merchandiser as a result of the
Artist/Merchandiser Agreement in connection with the sale of Product hereunder,
and (ii) agreed to supply (or cause the supply of) merchandise on a consignment
basis to ADNM for resale on the Store (the "ADNM/Merchandiser Agreement"). You
acknowledge that certain Product items may be manufactured by or under the
control of Merchandiser's sublicensees, and that Merchandiser may or may not be
able to offer such Product items to ADNM on a consignment basis. All Product
supplied to ADNM by Merchandiser (or its sublicensees) on a consignment basis is
sometimes
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referred to herein as "Merchandiser Product"; all other Product is sometimes
referred to herein as "Artist Product."
(c) If you (or Artist) enter into any agreement during the Term
(of this Agreement) pursuant to which you grant the Rights to any third party,
you shall cause such third party to grant to ADNM any consents and licenses that
may be required from such third party in connection with the sales of Product
hereunder. For the avoidance of doubt, no termination or expiration of the
Artist/Merchandiser Agreement or of the ADNM/Merchandiser Agreement shall affect
the Term (of this Agreement) or the rights granted to ADNM hereunder.
Accordingly, the only effect of either such termination or expiration will be
that the terms of this Agreement relating to Merchandiser Product will no longer
apply, and the terms of this Agreement relating to Artist Product will
thereafter apply to all Product hereunder.
4. DEVELOPMENT; HOSTING; CUSTOMER SERVICE:
(a) ADNM will design and develop the Store, including the source
code, the Product catalog, and the commerce system, and will be solely
responsible for the costs of such design and development. You shall have the
right to approve the design of the Store, including its "look and feel." The
parties hereto agree to use commercially reasonable best efforts (i) to cause
the beta version of the Store to be completed within 60 days after the complete
execution of this Agreement, and (ii) to officially launch the Store within 90
days after such execution.
(b) During the Term, ADNM will host (i.e., provide the server
for) and maintain the Store, including by providing periodic source code
programming updates and improvements in accordance with your reasonable
requests. In this regard, ADNM will use its commercially reasonable best efforts
to correct any material "bug" or defect as soon as reasonably possible after
ADNM becomes aware of such material "bug" or defect.
(c) ADNM shall handle all customer orders and inquiries, provide
all necessary credit card accounting and processing services and develop
payment, delivery and refund policies. To effect the foregoing, ADNM shall also
provide an on-line and toll-free telephone service center that will take orders
and respond to customer inquiries. On-line inquiries will be responded to within
24 hours of receipt and the telephone service will be operational Mondays
through Fridays from 9:00 a.m. to 7:00 p.m. Pacific Time (excluding holidays)
and will enable customers who prefer not to place orders on-line to place orders
by facsimile or telephone.
(d) Unless you and ADNM agree otherwise in writing, ADNM (or its
designee) shall process orders received from the Store and arrange to have the
ordered Product shipped to the customer (subject to Product availability).
5. PRODUCT SUPPLY AND INVENTORY:
(a) You will have the right to approve the Products that are to
be sold through the Store and the retail price of each Product item.
(b) You and ADNM agree to cooperate with each other and use their
commercially reasonable best efforts to make the necessary arrangements with the
manufacturers, distributors and providers of Product ("Suppliers"), on mutually
acceptable terms, to ensure the
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timely supply of Product in sufficient quantities to fulfill Store customer
orders. You will be responsible for purchasing all Product from the Suppliers
and paying all related costs (including directly associated freight and
insurance costs) ("Product Costs"). If ADNM should nevertheless pay any Product
Costs on your behalf (which ADNM is not obligated to do), all such Product Costs
will be deducted from any and all monies otherwise payable to you hereunder and,
to the extent ADNM is at any time unable to do so, you agree to promptly
reimburse ADNM for the excess upon demand. In order to assist you with regard to
the foregoing, ADNM will provide inventory management services, taking into
account such inventory levels as you and ADNM may have mutually approved.
As between you and ADNM, you shall own and be solely responsible for all
Artist Product inventory. However, ADNM shall maintain (or cause the applicable
fulfillment center to maintain) at all times during the Term insurance to
protect you and ADNM from losses related to Artist Product inventory damaged or
otherwise lost while in the fulfillment center's possession. The coverage terms
of the insurance policy currently in effect are set forth on Exhibit 1 attached
to this Agreement.
(c) Upon the expiration of the Term, all Artist Product inventory
for which you have paid the Product Costs shall be shipped, at your sole cost
and expense, to a location designated or approved by you, which inventory shall
be free and clear of any encumbrances by ADNM or any third party deriving rights
through ADNM.
6. PRODUCT SALES AND STORE REVENUES:
(a) Merchandiser Product: Attached hereto as Exhibit 2 is an extract of
the ADNM/Merchandiser Agreement setting forth the license fee payable by ADNM to
Merchandiser in respect of Merchandiser Product sold hereunder. Company
acknowledges and agrees that it shall look solely to Merchandiser, and not to
ADNM, with respect to all monies due Company and/or Artist in respect of
Merchandiser Product sold hereunder.
(b) Artist Product:
(i) Upon ADNM's receipt of a verified order for a particular item of
Artist Product, ADNM shall purchase such item of Product from you. Upon such
purchase, title to such Product shall pass to ADNM and, as between you and ADNM,
ADNM will thereafter be responsible for the inventory of such Product item.
(ii) ADNM shall pay you a purchase price equal to [***] of the "Gross
Artist Product Revenue," which means the amount actually received by ADNM in
respect of Artist Product sold through the Store, less all related Deductible
Amounts. The term "Deductible Amounts" means all shipping and handling charges;
third party fulfillment fees and related charges; sales, use and value-added
taxes; credit card and other third party service fees; and any credits for
returns, rebates, cancellations and exchanges. A schedule setting forth the
fulfillment fees charged by the fulfillment center as of the date hereof is set
forth on Exhibit 1 attached hereto.
(iii) Notwithstanding anything to the contrary contained herein, as
between ADNM and you, [***] shall be solely responsible for all Product Costs
and Deductible Amounts
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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associated with customer bad debts in respect of Product hereunder shipped by
ADNM (or its designee).
(c) Records: Notwithstanding paragraphs 5(c) and 6(b) above,
phonorecords that are supplied by ADNM's designated fulfillment center for sale
through the Store ("Records") shall be purchased by ADNM directly from such
fulfillment center, and ADNM (or the fulfillment center) shall be solely
responsible for all related Product Costs (subject to the next sentence) and
inventory. ADNM shall pay you [***] of the "Net Record Revenue, which means all
Gross Record Revenue less all Product Costs incurred for Records. The term
"Gross Record Revenue" means the amount actually received by ADNM in respect of
Records sold through the Store, less all related Deductible Amounts.
(d) UBL Store: ADNM may elect to make certain items of Product available
for sale on an Internet on-line store (the "UBL Store") operated by a company
affiliated with ADNM (the "UBL Affiliate"). To the extent any merchandise
offered for sale on the UBL Store is readily available in the Store inventory,
ADNM agrees to cause the UBL Affiliate to utilize such inventory to fulfill
orders for such merchandise placed on the UBL Store, rather than order such
merchandise from any third party source. However, for the avoidance of doubt, no
merchandise or other products (e.g. Records) that are obtained by the UBL
Affiliate from third party sources (i.e., other than from the Store's inventory)
and sold on the Store shall be deemed to constitute Product subject to this
Agreement. ADNM shall account to you pursuant to the terms of this Agreement
with respect to all Artist Product sold through the UBL Store, except that ADNM
(or the UBL Affiliate) shall purchase such Product for a price equal to [***] of
the applicable Gross Artist Product Revenue shall be computed "at the source"
(i.e., based upon the amount actually received by the UBL Affiliate, rather than
the amount actually received by ADNM), and shall be deemed received by ADNM for
purposes of paragraph 6(g) below within 30 days after it is received by the UBL
Affiliate.
(e) Database: As between ADNM and you, you will own the customer
database as specifically identified with the Store (the "Database"). However,
ADNM will have the exclusive right during the Term, subject to your consent in
each instance, to administer and license any third party uses of the Database,
and to collect all monies relating thereto accrued during the Term, regardless
of when payable, ADNM shall pay you [***] of the "Gross Database Revenue," which
means the amount actually received by ADNM in respect of sales and other
exploitations of the Database, less all related Deductible Amounts.
(f) Other Revenues: The term "Gross Exploitation Revenue" means the
amount actually received by ADNM in respect of activities contemplated in this
Agreement and not set forth above in this paragraph 6 including, for example,
income in respect of advertising contained on the Store (e.g., hyperlinks to,
and banners and other advertisements for, other Internet web sites), less all
agent commissions and other related Deductible Amounts. You shall have the right
to approve all such advertising and other activities. ADNM shall pay
Merchandiser [***] of the Gross Exploitation Revenue received by ADNM during the
term of the Artist/Merchandiser Agreement (and you agree to look solely to
Merchandiser, and not to ADNM, with respect to all monies, due you and/or Artist
in respect of such Gross Exploitation Revenue) and shall pay you [***] of the
Gross Exploitation Revenue received by ADNM after the expiration of the term or
the Artist/Merchandiser Agreement.
(g) Accounting: The term "Gross Income" means, individually and
collectively, Gross Artist Product, Revenue Gross Record Revenue, Gross Database
Revenue and Gross Exploitation Revenue. ADNM shall compute your share of Gross
Income and render statements thereof to you within 60 days after March 31, June
30, September 30 and December 31 for the preceding three-
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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month period. ADNM shall deduct from your share of Gross Income all chargeable
amounts under this Agreement. Each such statement shall include an itemized
breakdown of the sources of the applicable revenue and shall be accompanied by
the payment of the amount of monies, if any, earned by you during the accounting
period to which the statement relates. ADNM shall be entitled from time to time
to withhold from payments otherwise due reserves against anticipated returns,
rebates, credits, cancellations and exchanges, provided that such reserves shall
be liquidated within two accounting periods following their establishment. You
or a certified public accountant on your behalf may, at ADNM's offices and at
your expense, examine ADNM's books and records relevant to the calculation of
your share of Gross Income solely for the purposes of verifying the accuracy of
statements rendered by ADNM to you. Such books and records may be examined as
aforesaid only (i) during ADNM's normal business hours, (ii) upon reasonable
notice to ADNM, and (iii) within two years after the date a statement is due
hereunder. Further, you shall not have the right to examine such books and
records more frequently than once in any twelve month period or more than once
with respect to any particular statement. Each statement shall be deemed final
and binding upon you as an account stated and shall not be subject to any claim
or objection by you (A) unless you notify ADNM of your specific written
objection to the applicable statement, stating the basis thereof in reasonable
detail within two years after the date such statement is due hereunder, and (B)
unless, within said two year period, you make proper service of process upon
ADNM in a suit instituted in a court of proper jurisdiction.
7. MARKETING.
(a) During the Term, ADNM shall cause the Ultimate Band List Internet
web site, located at www.ubl.com (the "UBL"), to contain a featured hyperlink
to, and prominently placed advertising for, the Store. Also, ADNM may include on
the Store a featured hyperlink to, and prominently placed advertising for the
UBL at no charge to the UBL Affiliate or ADNM. Other marketing activities in
respect of the Store shall be subject to your approval, and may involve the
development of strategic relationships with, for example, other Internet web
sites and/or Artist's record you to create Store hyperlinks. Any third party
marketing costs incurred with your approval shall be deducted from any monies
otherwise payable to you hereunder (except to the extent deducted from monies
otherwise payable by ADNM to Merchandiser, it being understood that all
marketing costs shall be subject to allocation by ADNM, in ADNM's reasonable
business judgment, between you and Merchandiser taking into account whether the
applicable costs related to Merchandiser Product and/or Artist Product).
(b) You agree to use your commercially reasonable best efforts to:
(i) Keep ADNM apprised of Artist's professional activities (e.g.,
touring and recording) and provide ADNM reasonable access to
Artist's professional relationships (e.g., with tour promoters
and record labels);
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(i) Cause the URL of the Store to be included on all
advertisements for Artist records released during the Term or for concerts to be
performed during the Term, and on the liner notes of Artist's records and
concert programs;
(ii) Cause on-line events and/or sites featuring Artist or any
member of Artist (e.g., the official Internet web site of Artist's fan club, any
official Internet web site relating to any member of Artist, any on-line "chats"
featuring Artist or any member(s) of Artist, cybercasts of Artist's live
performances, interviews or other audiovisal programs featuring Artist or any
member(s) of Artist) to prominently feature, on both the front and main event
page(s), a hyperlink to, and banner advertising for, the Store; and
(iii) Subject to Artist's other professional commitments, cause
Artist to be reasonably available during the Term for on-line "chats" hosted by
the Store.
8. Ownership; Grant of Rights; Post-Term Rights:
(a) Artist Content: As between you and ADNM, any and all artwork,
trademarks, logos, graphics, video, sound recordings, musical compositions,
text, data and other materials supplied by you to ADNM in connection with this
Agreement, as well as the URL and the domain name or names assigned to the Store
and/or the Artist Site (collectively, the "Artist Content"), shall remain your
sole and exclusive property. You hereby grant to ADNM during the Term and
throughout the universe (the "Territory") a non-exclusive, royalty-free license
to use, copy, modify (with your prior consent), distribute, publicly perform and
display and otherwise exploit the Artist Content in connection with the
development, maintenance and operation of the Store and/or the Artist Site and
the advertising and promotion of the Store and/or the Artist Site and of ADNM in
connection with the Store and/or the Artist Site.
(b) Developed Content: As between you and ADNM, any and all text,
graphics, audio, video, artwork and designs created by ADNM or its employees or
agents during the Term for use solely on the Store and/or the Artist Site,
including any additions to or modifications of Artist Content made by ADNM or
its employees or agents, (collectively, the "Developed Content"), shall be your
sole and exclusive property. All Developed Content shall be deemed included in
the license granted by you under paragraph 8(a) above.
(c) ADNM Content: As between you and ADNM, any and all commerce
technology, HTML formatting code, source and object code, programming code and
software, as well as all text, graphics, audio, video, artwork and designs
provided by ADNM in connection with this Agreement which does not constitute
Developed Content (collectively, the "ADNM Content") shall be ADNM's sole and
exclusive property. Notwithstanding the foregoing, upon the expiration of the
Term and provided you are not in breach of this Agreement, ADNM shall grant to
you a perpetual non-exclusive license throughout the Territory to use, modify,
publicly perform and display all ADNM Content used in the Store and owned and
controlled by ADNM, solely in connection with operating and maintaining the
Store. In consideration of such license, if you elect to so utilize any such
ADNM Content in connection with the Store after the Term,
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you agree to pay, or cause your licensee to pay, ADNM a royalty equal to [***]
of the gross revenues earned in connection with the Store after the expiration
of the Term, but only for as long as you continue to use any such ADNM Content.
In this regard, you shall account in the same fashion and within the same time
periods, and ADNM shall be accorded the same examination rights and be subject
to the same limitations and restrictions, as apply with respect to your
accountings under paragraph 6(g) above. Nothing contained in this Agreement
shall impose upon ADNM any obligation whatsoever to provide you with updates,
hosting, maintenance or support with respect to the Store or such ADNM Content
after the expiration of the Term. You shall not be entitled to use any name,
trademark or service mark of ADNM or its affiliates in any manner whatsoever
without obtaining the prior written consent of ADNM or the applicable affiliate
of ADNM.
(c) Artist Identification: You hereby grant to ADNM the non-exclusive
right during the Term throughout the Territory to use the names of Artist and
Artist's tours, and the names and approved photographs and other approved
likenesses of the members of Artist, on the Store and in advertisements and
promotions of the Store and of ADNM in connection with the Store. In this
regard, at no cost to ADNM, you agree to provide ADNM with all photographs,
graphics, logos and similar items reasonably required by ADNM to create the
Store and readily available to you promptly following ADNM's request.
(d) Inducement Terms and Guarantee: You shall cause the members of
Artist to execute the Inducement Terms and Guarantee attached to this Agreement
as Exhibit 3 concurrently with the execution of this Agreement.
9. THIRD PARTY CLEARANCES: You shall obtain all necessary third-party
clearances in connection with all Artist Content and Product (including the
payment of any associated fees, royalties and other costs). Without limiting the
generality of the foregoing, with respect to all uses of musical compositions,
sound recordings and audiovisual productions in connection with the Store, you
agree to grant or cause Artist and/or any applicable third parties (e.g., music
publishers, record companies and performing rights societies) to grant to ADNM
any and all required rights. However, ADNM shall not use any particular sound
recording, musical composition or audiovisual production on the Store, or
provide access to any feature or service on the Store which entails the public
performance of music (e.g., live audio streaming), except at your request or
with your approval. If ADNM nevertheless shall pay, with your approval, any
third party clearance cost relating to the Store (which ADNM is not obligated to
do), all such amounts shall be deducted from any and all monies otherwise
payable to you under this Agreement (except to the extent deducted from monies
otherwise payable by ADNM to Merchandiser, it being understood that such costs
shall be subject to allocation by ADNM, in ADNM's reasonable business judgment,
between you and Merchandiser taking into account whether the applicable costs
related to Merchandiser Product and/or Artist Product).
10. REPRESENTATIONS AND WARRANTIES: INDEMNITY:
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
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(a) You represent and warrant as follows:
(i) You have the full right, power and authority to enter into and to
perform this Agreement and to grant to ADNM all rights and licenses set forth in
this Agreement. Neither you nor Artist are under any restriction or obligation
which may or will impair your full performance of this Agreement. No Artist
Content or the exploitation or use thereof or the sale of any Product shall
violate or infringe upon any common law or statutory rights of any party,
including contractual rights, copyrights, and rights of privacy or publicity or
shall defame any person or entity; and
(ii) ADNM shall have the exclusive right during the Term throughout the
Territory to develop and operate the only "official" Artist on-line store (i.e.,
the only Internet web site authorized by Artist with respect to products
relating primarily to Artist and/or any members of Artist. Accordingly, during
the Term, neither you, Artist nor any member of Artist shall grant any other
person or entity the right to develop and/or operate a web site that (A)
pertains primarily to Artist and/or one or more members of Artist and (B) sells
products using the mane of Artist and/or the names and likenesses of members of
Artist.
(b) You agree to indemnify and hold ADNM and its members, employees,
attorneys, agents, successors, assigns and licensees harmless against any claim,
liability, cost and expenses (including attorneys' and accountants' fees
reasonably incurred) in connection with any breach or alleged breach of this
Agreement by you. In this regard, ADNM shall not settle any claim without first
notifying you of the terms of any proposed settlement and obtaining your consent
thereto, provided you post within ten days after such notice, a bond,
satisfactory to ADNM in its reasonable discretion, to assure ADNM of
reimbursement for all damages, liabilities, costs and expenses (including legal
expenses and counsel fees reasonably incurred) that ADNM, in its reasonable
business judgment, incur as a result of such a claim. If you fail to post such a
bond, you shall be deemed to have consented to ADNM's settlement. You shall,
upon demand, pay the person or entity being indemnified hereunder for any
payment made or required to be made by such person or entity at any time
(including after the Term) in respect of any liability, damage, or expense to
which the foregoing indemnity relates. Without waiving any right or remedy
available to ADNM, if any such claim is made, ADNM shall have the right to
withhold monies otherwise payable to you under this Agreement in an amount
reasonably related to such claim and to deduct therefrom payments required under
this paragraph. ADNM shall not withhold monies otherwise payable to you after
you post a bond meeting the above-described conditions.
(c) You acknowledge that ADNM is making no representations and
warranties concerning anticipated success of the Store and/or the amount of
compensation payable to you hereunder. You warrant, represent and agree that
neither you nor Artist nor any third party shall make any claim, nor shall any
liability be imposed upon ADNM based upon any claim, that more sales could have
been made or better business could have been done in connection with the Store
than was actually made or done. You agree that ADNM shall not be liable for any
special, consequential, incidental or indirect damages in connection with or
arising out of this Agreement, however caused, under any theory of liability.
11. NOTICES; APPROVALS:
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(a) All notices, accounting statements and payments to either party
shall be sent to such party's address first mentioned in this Agreement, or such
other address as a party to this Agreement may hereafter designate by notice to
the other. All notices sent under this Agreement must be in writing to be
effective, and, except for statements and payments, must be sent by a third
party messenger, by air courier service with a written acknowledgment of
receipt, by registered or certified mail, return receipt requested, or through a
telegraph office. The date of personal delivery, of mailing or faxing, or the
date of delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to notices
of change of address, the date of which will be the date of receipt by the
receiving party). Until ADNM notifies you otherwise, a copy of all notices
hereunder to ADNM shall be simultaneously sent as aforesaid to Lenard & Gonzalez
LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, CA 90067; Attention:
Allen D. Lenard, Esq.
(b) No failure by any party to this Agreement to perform any of its
obligations hereunder shall be deemed a breach of this Agreement, unless the
other party has given notice of such alleged breach in reasonable detail and
such alleged breach is not cured within 30 days after the giving of such notice.
(c) No consent or approval under this Agreement shall be unreasonably
withheld or delayed. ADNM may elect to request a consent or approval by notice
to you, or may send you a notice reflecting the availability of a test site of
the Store embodying the materials for which approval is sought. In each
instance, your consent or approval shall be deemed granted unless you notify
ADNM to the contrary within five (5) business days after ADNM sends the
aforesaid notice to you. No inadvertent failure by ADNM to obtain your consent
or approval shall be deemed a breach by ADNM of this Agreement, provided ADNM
shall use reasonable efforts to rectify such failure on a prospective basis
following receipt of notice from you specifying such failure. Notwithstanding
the provisions of paragraph 11(a) above, any notice described in this paragraph
11(c) may be sent by telecopier or electronic mail.
12. MISCELLANEOUS:
(a) This Agreement is intended by the parties hereto as a final
expression of their understanding and agreement with respect to the subject
matter hereof and as a complete and exclusive statement of the terms thereof;
this Agreement supersedes all prior and contemporaneous negotiations,
understandings, and agreements between the parties hereto with respect to the
subject matter hereof. The parties acknowledge and agree that neither party
hereto has made any representations or promises in connection with this
Agreement or the subject matter hereof not contained herein. The parties hereto
shall negotiate in good faith to replace any invalid, illegal or unenforceable
provision (the "Invalid Provision") with a valid provision, the effect of which
comes as close as possible to that of the Invalid Provision. This Agreement
cannot be canceled, modified, amended or waived, in part or in full, in any
manner except by an instrument in writing signed by the party to be charged. No
waiver by either party hereto, whether expressed or implied, of any provision of
this Agreement or default hereunder shall affect such party's right to
thereafter enforce such provision or to exercise the right or remedy set forth
in this Agreement in the event of any other default, whether or not similar.
Words in the singular number shall include the plural, and vice versa. Whenever
examples are used in this Agreement with the words "including," "for example,"
"e.g.," "such as," "etc." or any derivation thereof, such
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examples are intended to be illustrative and not in limitation thereof. The
paragraph headings herein are used solely for convenience and shall not be used
in the interpretation or construction of this Agreement. All exhibits attached
hereto are incorporated into this Agreement by reference.
(b) In entering into this Agreement and providing services pursuant
hereto, you and ADNM each have and shall have the status of independent
contractors. Nothing herein contained shall contemplate or constitute either
party being an agent or employee of the other party, and nothing herein shall
constitute a partnership, joint venture or fiduciary relationship between the
parties.
(c) This Agreement shall be deemed to have been entered into in the
State of California and the validity, interpretation and legal affect of this
Agreement shall be governed by the laws of the State of California applicable to
contracts entered into and performed entirely within the State of California.
The courts located in California (state and federal), only, will have
jurisdiction of any controversy regarding this Agreement; any action or other
proceeding which involves such a controversy will be brought in those courts, in
California and not elsewhere.
ARTISTDIRECT NEW MEDIA, LLC COMPANY NAME
A CALIFORNIA LIMITED LIABILITY COMPANY A CORPORATION
--------------
By : ARTISTdirect, LLC
Its: Member
By : /s/ Marc Geiger By:
------------------------------ -----------------------
Marc Geiger Its:
Its: Co-Chief Executive Officer -----------------------
By :
------------------------------
Don Muller
Its: Co-Chief Executive Officer
22
<PAGE> 23
EXHIBIT 1
SCHEDULE OF FULFILLMENT FEES
Item Retail Price Fulfillment Fee
----------------- ---------------
[***] [***]
[***] [***]
[***] [***]
[***] [***]
In addition, the following packaging costs are applicable:
Box Size Packaging Cost
-------- --------------
[***] [***]
[***] [***]
[***] [***]
SCHEDULE OF INSURANCE COVERAGE
ADNM currently carries property insurance with respect to all
inventory at the fulfillment center, covering up to $1,000,000 in damages
(subject to adjustments from time to time in accordance with then-current
inventory value), with a $5,000 deductible (except with respect to wind damage,
for which the deductible is $100,000). ADNM shall cause you to be named an
additional insured under said policy and provide you with a certificate of
insurance to such effect.
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
12
<PAGE> 24
EXHIBIT 2
[ADNM/MERCHANDISE AGREEMENT - LICENSE FEE]
6. License Fee:
(a) In consideration for the rights licensed pursuant to paragraph 5
above and Merchandiser's agreement to supply Merchandiser Product to ADNM
pursuant to the Merchandiser Terms, ADNM agrees to pay Merchandiser a License
Fee with respect to all Merchandiser Product sold at any time (including after
the Term).
(b) As used herein:
(i) "License Fee" shall mean, subject to paragraph 6(c) below,
the amount by which the following amounts exceed the wholesale purchase price
payable by ADNM for all applicable Merchandiser Product, provided that the
License Fee otherwise payable shall be further reduced by any third party
marketing and rights clearance costs incurred by ADNM, with the approval of
Merchandiser (which approval may be withheld by Merchandiser for any reason) and
the applicable Merchandiser Artist, and attributable to Merchandiser Product (it
being understood that any such costs not specifically attributable to
Merchandiser Product shall be allocated reasonably by ADNM between Merchandiser
and the applicable Merchandiser Artist, taking into account whether the
applicable costs related to Merchandiser Product and/or Artist Product):
(A) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Merchandiser Product (other than Collectibles) sold through an Artist
Store and with respect to Collectibles sold through the UBL Store (or through
any other source other than an Artist Store);
(B) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Merchandiser Product (other than Collectibles) sold through the UBL
Store (or through any other source other than an Artist Store); and
(C) [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to Collectibles sold through an Artist Store.
(ii) "Adjusted Gross Merchandiser Product Revenue" shall mean Gross
Merchandiser Product Revenue less the Deductible Amounts.
(iii) "Gross Merchandiser Product Revenue" shall mean the amount
actually received by ADNM (including shipping and handling revenues) in respect
of Merchandiser Product.
(iv) "Deductible Amounts" shall mean all of the following costs paid
by ADNM and specifically attributable to Merchandiser Product: all amounts paid
under paragraph 3(b)(iv) above; all actual packaging and shipping costs paid to
third parties (not to exceed the associated shipping and handling revenues
referred to in paragraph 6(b)(iii) above); all third party fulfillment fees and
related charges; sales, use and value-added taxes actually paid; credit card
fees; and any credits for returns, rebates, cancellations and exchanges. ADNM
shall not deduct any fulfillment fees or related charges to the extent they
exceed such amounts as Merchandiser has approved; Merchandiser hereby
pre-approves the applicable amounts set forth on Exhibit D attached hereto. To
the extent ADNM is unable to identify a particular item of cost as being
attributable to either Merchandiser Product or Artist Product, only a portion
thereof shall be deemed a "Deductible Amount" hereunder, such portion to be
determined reasonably by ADNM, taking into account the total amount of Gross
Merchandiser Product Revenues as compared to the total amount of other
applicable revenues during the applicable accounting period. Notwithstanding
anything to the contrary contained herein, as between ADNM and Merchandiser,
[***] shall be solely responsible for all customer bad debts in respect of
Merchandiser Product shipped by ADNM (or its designee), including all associated
Deductible Amounts.
(v) "Collectibles" means any single item of Merchandiser Product
bearing a wholesale price in excess of [***].
(c) Within ten (10) business days after the date ADNM notifies
Merchandiser of each new Accepted Artist pursuant to paragraph 2(d) above (or
within ten (10) business days after the complete execution of this Agreement, in
respect of any Accepted Artist indicated on Exhibit A as of the execution
hereof), Merchandiser shall have the right to notify ADNM of the percentage of
the applicable License Fees hereunder that Merchandiser is obligated to pay to,
or credit to the account of, the applicable Accepted Artist or its furnishing
company (the "Artist Percentage"), if such Artist Percentage exceeds [***]. In
such event, notwithstanding anything to the contrary contained herein, ADNM
shall pay to Merchandiser a product consignment charge (the "Consignment
Charge") equal to [***] of the Adjusted Gross Merchandiser Product Revenue with
respect to such Accepted Artist for each [***] by which such Artist Percentage
exceeds [***]. For purposes of illustration, in the event that Merchandiser has
properly notified ADNM that the Artist Percentage with respect to a particular
Accepted Artist equals [***], then with respect to such Accepted Artist, ADNM
shall pay to Merchandiser a Consignment Charge equal to [***] of the Adjusted
Gross Merchandiser Product Revenue with respect to such Accepted Artist. For the
avoidance of doubt, no Consignment Charge shall be applicable with respect to
any Merchandiser Artist for which Merchandiser does not timely notify ADNM of
the Artist Percentage as provided in this paragraph 6(c).
(d) Attached hereto as Exhibit E are certain example computations of
the License Fee.
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
13
<PAGE> 25
EXHIBIT 3
INDUCEMENT TERMS AND GUARANTEE
The undersigned hereby acknowledge that they have read and
understand all of the terms and conditions set forth in the agreement dated as
of ______ ___, 19__ (the "Agreement") by and between ARTISTdirect New Media, LLC
("ADNM") and CompanyName ("Company") to which these inducement Terms and
Guarantee are attached.
In consideration of Company's execution and delivery of the
Agreement, the benefit of which runs to the undersigned, undersigned hereby
represent, warrant and agree, jointly and severally that:
1. Company has the rights, insofar as the undersigned are
concerned, to enter into the Agreement and to assume all of the obligations,
warranties and undertakings to Company on the part of the undersigned contained
therein, and Company shall continue to have those rights until all of those
obligations, warranties and undertakings shall have been fully performed and
discharged.
2. All of the representations, warranties and agreements on the
part of Company contained in the Agreement that concern Company and/or the
undersigned are and shall remain true and correct.
3. The undersigned shall fully and to the best of their abilities
perform and discharge all of the obligations, warranties and undertakings
contained in the Agreement insofar as the same are required of the undersigned
and to the extent Company has undertaken to cause the performance and discharge
by the undersigned of those obligations and undertakings, and the undersigned
further guarantee the full and faithful performance of all other obligations of
Company under the Agreement, it being agreed and acknowledged that such
guarantee shall be applicable regardless of whether, for any reason whatsoever,
notwithstanding the provisions of paragraph 1 above, Company shall cease to have
the right to perform the obligations, warranties and undertakings to ADNM on the
part of Company contained in the Agreement.
4. The undersigned agree to look solely to Company (and not to
ADNM) with respect to all monies payable to the undersigned in connection with
the Agreement.
5. ADNM may, in its own name, institute any action or proceeding
against the undersigned to enforce its rights under the Agreement and/or this
agreement, and ADNM shall be entitled to equitable relief, including injunctive
relief, to enforce the provisions of said agreements, without the necessity of
first resorting to or exhausting any rights or remedies against Company.
Dated as of ______ ____, 19__
-------------------------------- ---------------------------
1
<PAGE> 26
EXHIBIT C
MERCHANDISER'S STANDARD WHOLESALE PRICE LIST
Giant Merchandising
Wholesale Price List
April 1, 1999
Music
Description Color Unit Price
--------------------------------------------------------------
Basic 1-Sided White [***]
Basic 1-Sided Lights [***]
Basic 1-Sided Darks [***]
Basic 1-Sided Black [***]
Basic 2-Sided White [***]
Basic 2-Sided Lights [***]
Basic 2-Sided Darks [***]
Basic 2-Sided Black [***]
High Roy 1-Sided White [***]
High Roy 1-Sided Lights [***]
High Roy 1-Sided Darks [***]
High Roy 1-Sided Black [***]
High Roy 2-Sided White [***]
High Roy 2-Sided Lights [***]
High Roy 2-Sided Darks [***]
High Roy 2-Sided Black [***]
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
1
<PAGE> 27
EXHIBIT D
FULFILLMENT FEE
Item Retail Price Fulfillment Fee
----------------- ---------------
[***] [***]
[***] [***]
[***] [***]
[***] [***]
b. In addition, the following packaging costs are applicable:
Box Size Packaging Cost
[***] [***]
[***] [***]
[***] [***]
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
1
<PAGE> 28
EXHIBIT E
Example I - T-shirt L/XL U.S. Priority Mail
Retail Price (sales tax excluded) [***]
Shipping/handling charge [***]
-------------
Gross Merchandiser Product Revenue [***]
-------------
Shipping cost [***]
Fulfillment fee/Packaging Cost [***]
Credit card fee [***] [***]
-------------
Deductible Amounts [***]
-------------
-------------
Adjusted GMPR [***]
-------------
License Fee Base [***] [***]
Wholesale price [***]
-------------
License Fee [***]
=============
Example II - Pocket Logo Mesh V Neck: 2nd Day Air
Retail Price (sales tax excluded) [***]
Shipping/handling charge [***]
-------------
Gross Merchandiser Product Revenue [***]
-------------
Shipping cost [***]
Fulfillment fee/Packaging Cost [***]
Credit card fee [***] [***]
-------------
Deductible Amounts [***]
-------------
-------------
Adjusted GMPR [***]
-------------
License Fee Base [***] [***]
Wholesale price [***]
-------------
License Fee [***]
=============
----------------
[***] Confidential treatment has been requested for the bracketed portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
1
<PAGE> 29
EXHIBIT F
ARTISTDIRECT, LLC
WARRANT TO PURCHASE 50,000 COMMON UNITS
WARRANT NO. 1999-1
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS
WARRANT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT IS FURTHER SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER CONTAINED HEREIN AND IN THAT CERTAIN AMENDED AND RESTATED OPERATING
AGREEMENT OF ARTISTDIRECT, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, DATED
JULY 28, 1998, AS AMENDED.
WARRANT TO PURCHASE
LIMITED LIABILITY COMPANY COMMON UNITS
This certifies that Giant Merchandising ("Merchandiser") is
entitled, on or after April 1 1999, to become a Member in ARTISTdirect, LLC, a
California limited liability company (the "Company"), on and subject to the
terms and conditions contained herein and in the "Operating Agreement" (as
defined below), with the number of Common Units in the Company set forth in
Section 1 below, in return for a capital contribution by Merchandiser to the
Company of cash consideration in an amount equal to Thirty-Four and 48/100
Dollars ($34.48) per Common Unit (subject to adjustment as hereinafter provided,
the "Warrant Price").
Except as otherwise specifically provided herein, terms used but
not otherwise defined herein shall have those meanings as set forth in that
certain Amended and Restated Operating Agreement of ARTISTdirect, LLC, dated
July 28, 1998, as amended (the "Operating Agreement"). A true and correct copy
of the Operating Agreement is attached hereto.
This Warrant is subject to the following terms and conditions:
1. Common Units Subject to Warrant Vesting.
(a) Definitions.
(i) "ADNM" means ARTISTdirect New Media, LLC, a Subsidiary of the
Company;
2
<PAGE> 30
(ii) "Determination Date" means April 30, 2003;
(iii) "Merchandiser Agreement" means that certain Merchandiser
Agreement dated as of April 1, 1999 between ADNM and
Merchandiser;
(iv) "Artist Store," "Merchandiser Artist," "Merchandiser
Product," "Merchandiser Terms," "Personal Identification,"
"Rights," "Store Agreement," and "Sublicensee" each have
the meaning ascribed thereto in the Merchandiser
Agreement;
(v) "Qualifying Revenue" means the "Adjusted Gross
Merchandiser Product Revenue" (as defined in the
Merchandiser Agreement); provided, however, that, for
purposes of this Warrant:
(a) Qualifying Revenue shall not include any amounts
received in respect of any merchandise sold through the
UBL Store.
(b) if Merchandiser's Rights to a particular Merchandiser
Artist terminate during the term of the Merchandiser
Agreement, then Qualifying Revenue shall nonetheless be
computed by deeming Merchandiser Product to include all
merchandise containing the Personal Identification of that
Merchandiser Artist and sold after such termination
through the applicable Artist Store, regardless of whether
such merchandise is provided by or on behalf of
Merchandiser or a Sublicensee, and regardless of whether
such merchandise is provided pursuant to the Merchandiser
Terms.
(vi) "Highest Sales" means the greatest Qualifying Revenue
during any period of twelve (12) consecutive calendar
months during the term of the Merchandiser Agreement
(i.e., between April 1, 1999 and March 31, 2003).
(b) This Warrant may be exercised with respect to:
(i) 5,000 Common Units at any time on or before March 31,
2004; and
(ii) an additional 5,000 Common Units for each full Five
Hundred Thousand Dollars ($500,000) in Highest Sales in
excess of Five Hundred Thousand Dollars ($500,000);
provided that the number of additional Common Units that
may be acquired pursuant to this Section 1(b)(ii) shall be
subject to a maximum of 45,000 (i.e., for Highest Sales of
Five Million Dollars ($5,000,000 or more).
On or before the Determination Date, the Company shall notify Merchandiser of
the Highest Sales.
3
<PAGE> 31
2. Term. Except for the rights conferred upon the Company pursuant to
Section 8 below, this Warrant, and Merchandiser's right to exercise this
Warrant, shall terminate immediately upon the first to occur of the
following:
(a) the close of business (i.e., 5:00 p.m., Los Angeles time) on
April 30, 2008;
(b) the termination of the Merchandiser Agreement prior to the
expiration of the full term thereof either i) by ADNM due to a
material breach thereof by Merchandiser, which breach remains
uncured for the period specified in Section 15(b) of the
Merchandiser Agreement, or (ii) by Merchandiser other than due to
a material breach thereof by ADNM, which breach remains uncured
for the period specified in Section 15(b) of the Merchandiser
Agreement; or
(c) the breach by Merchandiser of any material provision of this
Warrant.
3. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange. This Warrant may be exercised by Merchandiser, in whole or in
part, by the surrender of this Warrant, properly endorsed, at the
principal office of the Company at 17835 Ventura Blvd., Suite 310,
Encino, CA 91316 (or at such other location within the State of
California or the State of New York as the Company may advise
Merchandiser in writing), and by (a) payment to the Company in cash or
immediately available funds of the Warrant Price of the Common Units
being purchased, and (b) delivery to the Company of a customary
investment letter executed by Merchandiser, representing and warranting
that the Common Units are being acquired for Merchandiser's own account,
for investment purposes only, and not with a view to the distribution,
resale or other distribution thereof in violation of applicable
securities laws, and acknowledging the issuance and transfer of the
Common Units are subject to the requirements of federal and state
securities laws. Merchandiser, in lieu of exercising this Warrant for a
specified number of Common Units (the "Exercised Units") and paying the
aggregate exercise price therefor (the "Exercise Price"), may elect to
receive a number of Common Units equal to the number of Exercised Units,
minus a number of Common Units having an aggregate "Fair Market Value"
(as defined below) equal to the Exercise Price. After any such election,
the number of Common Units covered by this Warrant shall be deemed
automatically reduced by the number of Exercised Shares. For purposes of
this Warrant, "Fair Market Value" means (a) if the Common Units are then
publicly traded, the closing sale price of the Common Units on its
principal stock exchange or market system (or the average of the closing
bid and asked prices, if closing sales prices are not reported) for the
ten (10) consecutive trading days immediately prior to the date of any
such "net exercise," or (b) in all other cases, as determined by the
Managers in their sole, good faith discretion. In the event of any
exercise, or any such "net exercise," of less than all of the rights
represented by this Warrant, the Company shall issue to Merchandiser a
new warrant evidencing the ability of Merchandiser to purchase the
balance of the number of Common Units from the Company, and shall
deliver such warrant to Merchandiser promptly following such partial
exercise. The Company agrees that the Common Units issuable to
Merchandiser upon exercise of this Warrant shall be issued to
Merchandiser as of the close of business on the date on which all of the
above-described conditions to exercise have be satisfied. Merchandiser
hereby covenants and agrees that, upon
4
<PAGE> 32
Merchandiser's exercise of all or a portion of this Warrant and
Merchandiser's making the applicable payment to the Company in respect
thereof, Merchandiser and the Common Units issued to Merchandiser with
respect to such exercise shall become subject to the terms and
conditions of the Operating Agreement, including without limitation, the
obligation to sell Common Units and the restrictions on transfer of
Common Units contained therein. In this regard, Merchandiser
acknowledges that it shall only become a Member and be entitled to the
rights as a Member once Merchandiser validly exercises this Warrant in
accordance with the terms hereof and executes a signature page to the
Operating Agreement whereby it agrees to be bound by all of the terms
thereof, excluding the non-competition covenant contained in Section
3.10 thereof, from which Merchandiser shall be exempted.
4. Due Authorization and Issuance. The Company covenants and agrees that
any and all of the Common Units issued to Merchandiser in accordance
with the terms hereof will, upon such issuance, be duly authorized,
validly issued and free from all preemptive rights of any holder of
Common Units in the Company, free and clear of all taxes, liens and
charges with respect to such issuance. The Company further covenants and
agrees that, during the period within which this Warrant may be
exercised, the Company will take no action that would prohibit the
issuance of Common Units required to be issued in accordance with the
terms and conditions hereof on such exercise.
5. Fractional Common Units. No fractional Common Units shall be issued in
connection with any exercise hereunder but in lieu of such fractional
Common Units, the Company shall make a cash payment therefor upon the
basis of the fair market value of the Common Units, as determined by the
Managers in their sole, good faith discretion.
6. Certain Adjustments.
(a) If the outstanding Common Units are changed into or exchanged
for a different number or kind of securities of the Company or a
successor entity (including a "C-corporation" that becomes the
successor or parent of the Company in connection with a roll-up
or similar exchange transaction in connection with an initial
public offering) through a capital reorganization or
reclassification, or if the number of outstanding Common Units
is changed through a split of Common Units, reverse split of
Common Units or issuance of a Common Unit dividend, then a
reasonable and appropriate adjustment shall be made by the
Company in (i) the number or kind of Common Units that may be
purchased pursuant to the exercise of this Warrant, and (ii) the
number, exercise price, or kind of securities subject to this
Warrant. Any such adjustment in this Warrant, however, shall be
made without a change in the total price applicable to the
unexercised portion of this Warrant but with a corresponding
adjustment in the price for each Common Unit covered by this
Warrant. In making such adjustments, or in determining that no
such adjustments are necessary, the Company may rely upon the
advice of counsel and accountants to the Company, and the
reasonable determination of the Company shall be binding.
5
<PAGE> 33
(b) Upon (i) the dissolution, liquidation, or sale of all or
substantially all of the business, properties and assets of the
Company, (ii) any reorganization, merger, consolidation, sale or
exchange of securities in which the Company does not survive,
(iii) any reorganization, merger, consolidation, sale or
exchange of securities in which the Company does survive and any
of the Company's members have the opportunity to receive cash,
securities of another entity and/or other property in exchange
for their Common Units (other than a "roll-up" or similar
exchange transaction in connection with an initial public
offering), or (iv) any acquisition by any person or group (as
defined in Section 13(d) of the Securities Exchange Act of 1934,
as amended), of beneficial ownership of more than fifty percent
(50%) of the Company's then outstanding Common Units (each of
the events described in clauses (i), (ii), (iii), or (iv) is
referred to herein as an "Extraordinary Event"), this Warrant
shall terminate unless it survives the Extraordinary Event
pursuant to Section 6(d) below.
(c) Merchandiser shall have the right until ten (10) days before the
effective date of any Extraordinary, Event to exercise, in whole
or in part, this Warrant, but only to the extent to which it is
exercisable pursuant to the provisions hereof. In this regard,
the Company shall notify Merchandiser in writing of the
Company's intent to engage in any Extraordinary Event on or
before the date (the "Notice Date") that is no less than thirty
(30) days before the effective date of such Extraordinary Event.
In addition, notwithstanding anything to the contrary contained
herein, if an Extraordinary Event shall occur during the term of
the Merchandiser Agreement, then, solely for purposes of
determining the extent to which this Warrant is exercisable in
accordance with this Section 6(c), Highest Sales shall be
determined either (i) with reference to each period of twelve
(12) consecutive calendar months of the term of the Merchandiser
Agreement prior to the Notice Date; or (ii) if fewer than twelve
(12) months have elapsed since the commencement of the term of
the Merchandiser Agreement, on an annualized basis.
(d) If an Extraordinary Event occurs during the term of the
Merchandiser Agreement, then the Company shall be obligated to
either, in its sole discretion: (i) cause this Warrant to
survive such Extraordinary Event or (ii) cause the surviving
entity (which may be the Company), or any other entity that,
after giving effect to the Extraordinary Event, owns, directly
or indirectly, fifty percent (50%) or more of the Company's then
outstanding Common Units, to tender to Merchandiser a substitute
warrant to purchase units or other equity interests in such
entity containing terms and provisions substantially preserving,
in the reasonable, good faith discretion of the Company, the
rights and benefits of this Warrant to the extent then
outstanding (a "Substitute Warrant"). If an Extraordinary Event
occurs after the term of the Merchandiser Agreement, in its sole
and absolute discretion, the Company may permit this Warrant to
survive such Extraordinary Event. In addition, if an
Extraordinary Event occurs after the term of the Merchandiser
Agreement, in its sole and absolute discretion, the surviving
entity (which may be the Company), or another entity, may, but
shall not be so obligated, tender to Merchandiser a Substitute
Warrant.
6
<PAGE> 34
(e) The grant of this Warrant shall not affect in any way the right
or power of the Company to make adjustments, reclassification or
changes in its capital or business structures or to merge,
consolidate, dissolve, or liquidate or to sell or transfer all
or any part of its business or assets or undertake any other
permitted limited liability company action.
(f) Upon the occurrence of each adjustment of this Warrant pursuant
to this Section 6, the Company at its expense shall promptly
compute such adjustment or readjustment in accordance with the
terms hereof and furnish to Merchandiser a certificate setting
forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request of Merchandiser, furnish
or cause to be furnished to Merchandiser a like certificate
setting forth: (i) such adjustments and readjustments; (ii) the
applicable Exercise Price at the time in effect; and (iii) the
number of Common Units, if any, and the amount, if any, of other
securities or property that at the time would be received upon
the exercise of this Warrant.
(g) Other Action Affecting Common Units. The Company will not, by
amendment of its Articles of Organization or the Operating
Agreement, or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, dividend or other distribution of cash or
property, or any other voluntary action, avoid or seek to avoid
the rights granted to Merchandiser hereunder or the observance
or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions hereof, and in
the taking of all such actions as may be necessary or
appropriate in order to protect the rights of Merchandiser as
set forth herein against impairment.
7. Payment of Taxes. The Company will pay all taxes (other than taxes based
upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of Common Units upon exercise of this
Warrant.
8. Drag-Along Obligation.
(a) Definition of Equity Securities. For purposes of this Warrant,
"Equity Securities" shall mean all (i) Units, all rights,
options or warrants to purchase Units, all securities of any
type, whatsoever that are convertible into or exchangeable for
Units, and all rights, options or warrants to purchase
securities that are convertible into or exchangeable for Units
and (ii) all shares, options, warrants, general or limited
partnership interests, limited liability company membership
interests, participations or other equivalents (regardless of
how designated) of or in a corporation, partnership, limited
liability company or equivalent entity that are issued in
exchange for any of the items described in the preceding clause
(ii).
(b) The Obligation. Notwithstanding anything to the contrary
contained herein, if the Managers find an acquirer for all or
any portion of their interest in the Company (whether such
acquisition is by way of purchase of assets or Common Units,
7
<PAGE> 35
merger, recapitalization or other form of transaction, and
including, without limitation, a roll-up transaction that is for
the purpose of a reorganization among the Company and its
Affiliates), then, at the request of the Managers, Merchandiser
shall sell or otherwise transfer a corresponding portion of any
Common Units (or successor Equity Securities) then held by
Merchandiser to such acquirer on the same terms and conditions
as apply to the sale or other transfer by the Managers. \
Merchandiser further agrees timely to take such other actions as
the Managers may reasonably request in connection with the
approval of the consummation of such sale or other transfer,
including, without limitation, voting in favor of such sale or
other transfer and waiving any dissenters' rights, executing
such agreements, powers of attorney, voting proxies or other
documents and instruments as may be necessary or desirable to
consummate such sale or other transfer, and, in the event that
such sale or other transfer is structured as a recapitalization,
transferring and retaining such portion of Common Units (or
successor Equity Securities) and rights under this Warrant as
may be requested by the Managers.
9. Tag-along Right.
(a) Definition of Excluded Transferee. For purposes of this Warrant,
"Excluded Transferee" shall mean: (i) Marc Geiger; (ii) Donald
Muller; (iii) a spouse, descendant or parent of Marc Geiger or
Donald Muller; (iv) a descendant of any Person listed in clauses
(i), (ii) or (iii) above; (v) a trust for the sole benefit of
any one or more of the Persons listed in clauses (i), (ii),
(iii) or (iv) above; or (vi) any Affiliate of any Person listed
in clauses (i), (ii), (iii), (iv) or (v) above.
(b) The Right. If Marc Geiger, Donald Muller, or any direct or
indirect successor, assignee, heir, devisee, donee, legatee or
transferee of either of them (each a "Transferor'), proposes
alone or with others to Transfer, directly or indirectly, to any
Person that is not an Excluded Transferee, any Equity Securities
(each, a "Subject Interest') that represent a fully-diluted
Percentage of thirty percent (30%) or more, in a single
transaction or series of transactions, and the Common Units (or
substitute Equity Securities) issued to Merchandiser pursuant to
this (or any successor) Warrant (the "Securities") include (at
such time or upon exercise, conversion or exchange) any Equity
Securities of the same class as the Subject Interest (the
"Subject Interest Class"), the would-be Transferor shall provide
Merchandiser with not less than thirty (30) days' prior written
notice of such proposed sale, which notice shall include all of
the material terms and conditions of such proposed sale and
which shall identify such purchaser (the "Sale Notice"), and
Merchandiser shall have the option, exercisable by written
notice to the Transferor within twenty (20) days after the
receipt of the Sale Notice, to participate in such transaction
pro rata with the Transferor at the same time as, and upon the
same terms and conditions as (including all direct or indirect
consideration) the Transferor Transfers his Equity Securities in
the Company. Merchandiser may sell all or any portion of the
Securities held by Merchandiser (or issuable to Merchandiser
upon exercise, conversion or exchange of any of the Securities)
that are of the class of Equity Securities that includes the
Subject
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Interest Class (the "Merchandiser's Securities") equal to the
product obtained by multiplying (i) the Subject Interest by (ii)
a fraction, the numerator of which is Merchandiser's Securities
and the denominator of which is the total number of Equity
Securities of the Subject Interest Class then owned by the
Transferor, Merchandiser, and any other Person that has
tag-along rights with respect to the proposed Transfer by
Transferor. To the extent Merchandiser, or any other Person that
has tag-along rights with respect to the proposed Transfer by
Transferor, shall exercise its tag-along right, the number of
Equity Securities that the Transferor may Transfer in the
transaction shall be correspondingly reduced.
(c) Expenses. In any transaction in which Merchandiser sells or
otherwise disposes of any of the Merchandiser's Securities
pursuant to this Section 9, Merchandiser shall bear its pro rata
share of the reasonable expenses incurred by the Transferor in
connection with the sale of the Subject Interest.
(d) Exempt Sales. The rights and obligations set forth in this
Section 9 shall not apply to any sale of Equity Securities made
in connection with or following an initial public offering of
common stock of the corporate successor of the Company.
10. Transferability of Warrant.
(a) Except as set forth in Section 10(b) below, this Warrant may not
be sold, conveyed, transferred, alienated, donated, encumbered
or otherwise disposed of by Merchandiser and, accordingly, any
purported such transaction in violation of this Section 10 shall
be void ab initio, of no force or effect.
(b) Notwithstanding Section 10(a) above, but subject to applicable
securities laws, Merchandiser may transfer all, but not less
than all, of this Warrant, to any Affiliate of Merchandiser,
provided that no such transfer shall be effective until the
transferee agrees in writing to be bound by all of the
provisions of this Warrant, including Section 8 above.
11. Investment Representation. Merchandiser represents and warrants to the
Company that Merchandiser is acquiring this Warrant for Merchandiser's
own account for investment and not with a view to, or for resale in
connection with, any distribution thereof. Merchandiser acknowledges
that this Warrant and the Common Units that may be purchased under this
Warrant have not been registered under the Securities Act, by reason of
a specific exemption from the registration provisions of the Securities
Act that depends upon, among other things, the bona fide nature of the
investment intent of Merchandiser as expressed herein.
12. Amendment and Waiver; Successors. This Warrant may only be amended or
supplemented, and any waiver or departure from the provisions hereof may
only be given, with the consent of the Managers and Merchandiser. All of
the covenants and provisions of this Warrant by or for the benefit of
the Company and Merchandiser shall
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bind and inure to the benefit of them and their respective permitted successors
and assigns hereunder.
13. Notices. All notices required by this Warrant to Merchandiser shall be
sent to Giant Merchandising, 5655 Union Pacific Avenue, Commerce, CA
90022, or such other address as Merchandiser may hereafter designate by
notice to the Company. All notices sent under this Agreement to the
Company or the Managers shall be sent to the address indicated in
Section 3 above. All notices required by this Warrant must be in writing
to be effective, and must be sent by a third party messenger, by air
courier service with a written acknowledgement of receipt, by registered
or certified mail, return receipt requested, or through a telegraph
office. The date of personal delivery, of mailing, or the date of
delivery to a telegraph office, as the case may be, of any such notice
shall be deemed the date of the giving thereof (except, with respect to
notices of change of address, the date of which will be the date of
receipt by the receiving party). Until the Company notifies Merchandiser
otherwise, a copy of all notices hereunder to the Company shall be
simultaneously sent as aforesaid to Lenard & Gonzalez LLP, 1900 Avenue
of the Stars, 25th Floor, Los Angeles, CA 90067; Attention: Allen D.
Lenard, Esq.
14. Descriptive Headings and Governing Law. The descriptive headings of the
several paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of California.
15. Lost Warrant. The Managers and the Company represent and warrant to
Merchandiser that upon receipt of evidence reasonably satisfactory to
the Managers and the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction upon receipt of an indemnity reasonably satisfactory to the
Managers and the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Managers and the Company
will make and deliver a new Warrant in lieu of the lost, stolen,
destroyed or mutilated Warrant.
IN WITNESS WHEREOF, Merchandiser, the Company and the Managers
have caused this Warrant to be duly executed and issued by their respective
officers thereunto duly authorized as of the 1st day of April, 1999.
"COMPANY" "MERCHANDISER"
ARTISTdirect, LLC Giant Merchandising
By: /s/ Marc Geiger By:
--------------------------------- -----------------------------
Its: Co-Chief Executive Officer (an authorized signatory)
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"MANAGERS"
By: /s/ Marc Geiger
--------------------------------------
Marc Geiger
By:
--------------------------------------
Donald Muller
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