Exhibit 10.1

 

February 7, 2008

 

ARTISTdirect, Inc.
1601 Cloverfield Blvd., Suite 400
Santa Monica, CA 90404

 

Attention:

 

Mr. Neil McCarthy

 

 

Interim Chief Financial Officer

 

1.             THIS AGREEMENT (THE “AGREEMENT”) CONFIRMS THE ENGAGEMENT (THE
“ENGAGEMENT”) OF SALEM PARTNERS LLC (“SALEM PARTNERS”) ON AN EXCLUSIVE BASIS
(EXCEPT AS DESCRIBED BELOW) AS FINANCIAL ADVISOR TO ARTISTDIRECT, INC.
(“ARTISTDIRECT” OR THE “COMPANY”) IN CONNECTION WITH A POTENTIAL M&A TRANSACTION
INVOLVING THE COMPANY.  THE PARTIES ACKNOWLEDGE THE COMPANY’S ENGAGEMENT OF
LIBRA SECURITIES, LLC IN CONNECTION WITH SUCH POTENTIAL M&A TRANSACTION AND
RESTRUCTURING TRANSACTION SHALL NOT BE CONSIDERED A BREACH OR VIOLATION OF THIS
AGREEMENT.  FOR PURPOSES OF THE AGREEMENT, THE TERM “M&A TRANSACTION” SHALL MEAN
WHETHER EFFECTED IN ONE TRANSACTION OR A SERIES OF TRANSACTIONS, ANY SALE,
MERGER, CONSOLIDATION, REORGANIZATION OR OTHER BUSINESS COMBINATION PURSUANT TO
WHICH ALL OR ANY PORTION OF ASSETS OWNED BY THE COMPANY ARE SOLD OR OTHERWISE
TRANSFERRED TO, OR COMBINED WITH, A THIRD PARTY OR ONE OR MORE THIRD PARTIES
FORMED BY OR AFFILIATED WITH SUCH THIRD PARTY (COLLECTIVELY, A “PURCHASER”),
INCLUDING, WITHOUT LIMITATION, ANY JOINT VENTURE.  FOR PURPOSES OF THE
AGREEMENT, THE TERM “RESTRUCTURING TRANSACTION” SHALL MEAN ANY RESTRUCTURING OF
THE MATERIAL TERMS OF THE SENIOR NOTES OF THE COMPANY AND/OR THE SUBORDINATED
CONVERTIBLE NOTES OF THE COMPANY.  THE PARTIES ACKNOWLEDGE THAT BY ENTERING INTO
THE AGREEMENT, THE COMPANY HAS NOT OBLIGATED ITSELF TO ENGAGE IN ANY TRANSACTION
AND THE COMPANY MAY ACCEPT OR REJECT ANY PROPOSED TRANSACTION IN THE COMPANY’S
SOLE DISCRETION.

 

2.             IN CONNECTION WITH THE ENGAGEMENT, SALEM PARTNERS SHALL PERFORM
THE FOLLOWING SERVICES WITH RESPECT TO A POTENTIAL TRANSACTION:

 

(A)           REVIEW SELECTED DOCUMENTS AND OTHER INFORMATION PROVIDED BY THE
COMPANY;

 

(B)           ASSIST IN STRUCTURING, PLANNING AND NEGOTIATING A TRANSACTION.

 

(C)           ADVISE THE COMPANY WITH RESPECT TO A POTENTIAL TRANSACTION;

 

(D)           COMPLETE AND DELIVER A FAIRNESS OPINION (“OPINION”) REGARDING THE
M&A TRANSACTION OR RESTRUCTURING TRANSACTION TO THE BOARD OF DIRECTORS OF THE
COMPANY, IF REQUESTED BY THE BOARD OF DIRECTORS OF THE COMPANY.

 

3.             THE COMPANY AGREES TO PROVIDE SALEM PARTNERS WITH SUCH FINANCIAL
AND OTHER AVAILABLE INFORMATION CONCERNING THE COMPANY AS IS REASONABLY REQUIRED
FOR SALEM PARTNERS TO RENDER THE SERVICES PERFORMED OR TO BE PERFORMED
HEREUNDER.  IN PROVIDING ITS SERVICES HEREUNDER, SALEM PARTNERS WILL NOT ASSUME
ANY RESPONSIBILITY TO INDEPENDENTLY VERIFY THE ACCURACY OR COMPLETENESS OF
INFORMATION FURNISHED BY OR ON BEHALF OF THE COMPANY OR BY ANY RELEVANT THIRD
PARTIES BUT WILL RELY ON THE ACCURACY AND COMPLETENESS OF SUCH INFORMATION IN
ALL RESPECTS.  SALEM PARTNERS WILL NOT ASSUME RESPONSIBILITY TO PERFORM (OR BE
REQUIRED TO RETAIN ANY PERSONS TO PERFORM) ANY INDEPENDENT VALUATIONS OR
APPRAISALS OF THE COMPANY’S ASSETS.  IN ADDITION, SALEM PARTNERS (I) SHALL BE
ENTITLED TO ASSUME THAT ANY FORECASTS AND PROJECTIONS SUPPLIED TO SALEM PARTNERS
BY OR ON BEHALF OF THE COMPANY OR BY ANY RELEVANT THIRD PARTIES REPRESENT THE
BEST CURRENT JUDGMENTS OF THE COMPANY OR SUCH PERSONS, AS APPLICABLE, AS TO THE
FUTURE FINANCIAL PERFORMANCE OF THE ENTITIES INVOLVED, AND THAT SUCH FORECASTS
AND PROJECTIONS HAVE BEEN REASONABLY PREPARED BASED ON SUCH CURRENT JUDGMENT OF
THE COMPANY OR

 

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SUCH PERSONS, AS APPLICABLE, (II) SHALL NOT BE OBLIGATED TO ATTEMPT
INDEPENDENTLY TO VERIFY, OR UNDERTAKE ANY OBLIGATION TO VERIFY, SUCH FORECASTS
AND PROJECTIONS AND (III) SHALL NOT ASSUME RESPONSIBILITY FOR, NOR SHALL IT
EXPRESS A VIEW AS TO, SUCH FORECASTS OR PROJECTIONS OR THE ASSUMPTIONS ON WHICH
THEY WERE BASED.  THE COMPANY WILL PROMPTLY NOTIFY SALEM PARTNERS IF IT LEARNS
OF A MATERIAL INACCURACY OR MISSTATEMENT IN, OR MATERIAL OMISSION FROM, ANY
INFORMATION DELIVERED BY OR ON BEHALF OF THE COMPANY OR BY ANY RELEVANT THIRD
PARTIES TO SALEM PARTNERS.

 

4.             AS COMPENSATION FOR ITS SERVICES RENDERED PURSUANT TO THIS
ENGAGEMENT, SALEM PARTNERS SHALL BE PAID (A) A RETAINER FEE OF $50,000 PER
MONTH, FOR THE FIRST FOUR MONTHS OF SERVICE, WITH THE FIRST THREE MONTHS PAYABLE
IN CASH UPON THE EXECUTION OF THIS ENGAGEMENT LETTER (AND THE PAYMENT FOR THE
FOURTH MONTH DUE ON THE THREE MONTH ANNIVERSARY OF THE EXECUTION OF THIS
ENGAGEMENT LETTER) AND NON-CONTINGENT OF A TRANSACTION OR TERMINATION OF THIS
AGREEMENT, WHICH FEE SHALL BE CREDITED AGAINST THE M&A TRANSACTION FEE PAYABLE
TO SALEM PURSUANT TO THIS ENGAGEMENT, PLUS A CASH FEE OF THE GREATER OF (X) 2.0%
OF THE PORTION OF THE AGGREGATE CONSIDERATION OF AN M&A TRANSACTION, DESCRIBED
IN SECTION 1(A) HEREOF, AND (Y) $1 MILLION, PAYABLE UPON THE CLOSING OF AN M&A
TRANSACTION  (TOGETHER THE “M&A TRANSACTION FEES”), PLUS (B) A CASH FEE OF
$300,000 DUE UPON THE COMPLETION AND DELIVERY OF AN OPINION REGARDING THE M&A
TRANSACTION, IF REQUESTED BY THE BOARD OF DIRECTORS OF THE COMPANY, REGARDLESS
OF THE CONCLUSIONS OF THE OPINION; PLUS (C) A CASH FEE OF $300,000 IN THE CASE
OF A RESTRUCTURING TRANSACTION FOR WHICH SALEM PARTNERS DELIVERS AN OPINION, DUE
UPON THE COMPLETION AND DELIVERY OF AN OPINION, REGARDLESS OF THE CONCLUSIONS OF
THE OPINION; PLUS (D) $150,000 IN THE CASE OF A RESTRUCTURING TRANSACTION FOR
WHICH SALEM PARTNERS DOES NOT DELIVER AN OPINION.

 

“Aggregate Consideration” for the purposes of calculating the compensation
payable pursuant to paragraph 4 above shall be:  (i) the total consideration
paid or to be paid in cash or cash equivalents or in any form of equity (valued
at fair market value) or debt in a Transaction (including without limitation
amounts received by holders of warrants, options or convertible securities);
plus (ii) the principal amount of indebtedness for borrowed money assumed
directly or indirectly by the Purchaser.  In the event an agreement for a
Transaction provides for escrowed payments, the applicable M&A Transaction Fees
will be payable upon closing of the Transaction and due upon release of escrow. 
The Company will make a good faith effort to ensure such payments are directly
held in escrow for Salem Partners upon closing of the Transaction.  In the event
an agreement for a Sale Transaction provides for contingent payments, the
present value of any contingent payments (discounted at LIBOR and based upon
reasonable projections developed in connection with the proposed Sale
Transaction), shall be included in Aggregate Consideration for purposes of this
paragraph 4.

 

5.             IN ADDITION TO THE FEES PAYABLE UNDER PARAGRAPH 4, WHETHER OR NOT
A TRANSACTION IS CONSUMMATED, THE COMPANY SHALL REIMBURSE SALEM PARTNERS ON A
MONTHLY BASIS FOR ITS REASONABLE OUT-OF-POCKET TRAVEL AND OTHER EXPENSES
(INCLUDING, WITHOUT LIMITATION, LODGING, WORD PROCESSING, GRAPHICS AND
COMMUNICATION CHARGES, RESEARCH COSTS, COURIER SERVICES AND REASONABLE
ATTORNEYS’ FEES AND EXPENSES) IN CONNECTION WITH THE ENGAGEMENT AND THE SERVICES
HEREUNDER, PROVIDED THAT ANY SUCH EXPENSES IN EXCESS OF TWO THOUSAND FIVE
HUNDRED DOLLARS ($2,500) PER MONTH SHALL REQUIRE THE APPROVAL OF THE COMPANY, IN
ITS SOLE DISCRETION.  IN ADDITION, IN THE EVENT THAT SALEM PARTNERS IS REQUESTED
TO APPEAR AS A WITNESS TO ANY LITIGATION OR OTHER PROCEEDINGS RELATING TO A
TRANSACTION OR THE ENGAGEMENT OR SERVICES HEREUNDER, THE COMPANY SHALL PAY SALEM
PARTNERS A FEE OF U.S. $5,000 FOR EACH DAY OR FRACTION OF A DAY FOR EACH PERSON
APPEARING IN ADDITION TO ITS REASONABLE OUT-OF-POCKET TRAVEL AND OTHER EXPENSES
(INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND EXPENSES).  THE
PROVISIONS OF THIS PARAGRAPH 5 SHALL NOT LIMIT OR RESTRICT THE INDEMNIFICATION
AND CONTRIBUTION PROVISIONS SET FORTH IN PARAGRAPH 10 HEREOF.  THE COMPANY
AGREES THAT AT THE CLOSING OF THE TRANSACTION IT WILL EFFECT A WIRE TRANSFER TO
SALEM PARTNERS OF ALL FEES PAYABLE TO SALEM PARTNERS UNDER THE AGREEMENT THAT
HAVE NOT PREVIOUSLY BEEN PAID, AS WELL AS ALL OUT-OF-POCKET TRAVEL AND OTHER
EXPENSES INCURRED BY SALEM PARTNERS THROUGH THE CLOSING DATE IN CONNECTION WITH
ITS SERVICES RENDERED HEREUNDER WHICH HAVE NOT PREVIOUSLY BEEN REIMBURSED BY THE
COMPANY.

 

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6.             THE COMPANY EXPRESSLY ACKNOWLEDGES AND AGREES THAT SALEM PARTNERS
HAS BEEN RETAINED SOLELY AS FINANCIAL ADVISOR TO THE COMPANY AND NOT AS
FINANCIAL ADVISOR TO OR AGENT OF ANY OTHER PERSON.  IN SUCH CAPACITY, SALEM
PARTNERS SHALL ACT AS AN INDEPENDENT CONTRACTOR AND THE ENGAGEMENT OF SALEM
PARTNERS BY THE COMPANY IS NOT INTENDED TO CONFER RIGHTS UPON ANY PERSONS NOT A
PARTY HERETO (INCLUDING SECURITYHOLDERS, EMPLOYEES, CREDITORS OR OTHER INTEREST
OR STAKE HOLDERS OF THE COMPANY) AS AGAINST SALEM PARTNERS OR ANY SUBSIDIARY,
AFFILIATE, PARTNER, MEMBER, STOCKHOLDER, DIRECTOR, OFFICER, EMPLOYEE, AGENT,
REPRESENTATIVE, ADVISOR OR CONTROLLING PERSON OF SALEM PARTNERS.  THE ADVICE
(ORAL OR WRITTEN) RENDERED BY SALEM PARTNERS PURSUANT TO THE ENGAGEMENT IS
INTENDED SOLELY FOR THE BENEFIT AND USE OF THE COMPANY (AND ITS BOARD OF
DIRECTORS) IN CONSIDERING THE MATTERS TO WHICH THE ENGAGEMENT RELATES, AND THE
COMPANY AGREES THAT SUCH ADVICE MAY NOT BE RELIED UPON BY ANY OTHER PERSON, USED
FOR ANY OTHER PURPOSE, DISSEMINATED/DISCLOSED PUBLICLY OR MADE AVAILABLE TO
THIRD PARTIES, OR QUOTED OR REFERRED TO AT ANY TIME, WITHOUT THE PRIOR WRITTEN
CONSENT OF SALEM PARTNERS.  THE COMPANY FURTHER EXPRESSLY ACKNOWLEDGES THAT, IN
THE ORDINARY COURSE OF BUSINESS IN ITS REPRESENTATION OF CERTAIN THIRD PARTY
CLIENTS, SALEM PARTNERS OR ITS AFFILIATES MAY AT ANY TIME RECEIVE INFORMATION
CONCERNING THE COMPANY, ITS OFFICERS, DIRECTORS, EMPLOYEES, CUSTOMERS, CREDITORS
OR OTHER SIMILAR PERSONS FROM SUCH THIRD PARTY CLIENTS, SOME OR ALL OF WHICH MAY
BE MATERIAL AND/OR NON-PUBLIC, AND SALEM PARTNERS SHALL HAVE NO OBLIGATION TO
DISCLOSE SUCH INFORMATION TO THE COMPANY OR USE SUCH INFORMATION IN THE
PERFORMANCE OF ITS SERVICES HEREUNDER.

 

7.             THE AGREEMENT SHALL CONTINUE IN EFFECT UNTIL THE EARLIER OF
(X) 12 MONTHS OR (Y) 30 DAYS FOLLOWING NOTICE OF TERMINATION BY EITHER THE
COMPANY OR SALEM PARTNERS.  THE PROVISIONS OF PARAGRAPHS 3 (OTHER THAN THE FIRST
SENTENCE THEREOF), 4, 5, 6, 7, 8, 9, 10 AND 11 HEREOF SHALL SURVIVE ANY
TERMINATION OF THE AGREEMENT.  IN ADDITION, IN THE EVENT THAT A TRANSACTION IS
ENTERED INTO WITHIN 12 MONTHS FOLLOWING THE TERMINATION OF THE AGREEMENT, WITH A
PARTY WHICH CONDUCTS DISCUSSIONS WITH THE COMPANY IN WHICH SALEM PARTNERS
PARTICIPATES OR IS SUBSTANTIALLY INVOLVED DURING THE TERM OF THE AGREEMENT, THE
COMPANY SHALL PAY SALEM PARTNERS THE COMPENSATION DESCRIBED IN PARAGRAPH 4 UPON
THE CONSUMMATION THEREOF.

 

8.             FOLLOWING THE COMPLETION OF A TRANSACTION, SALEM PARTNERS SHALL
BE PERMITTED, AT ITS OWN EXPENSE, TO PLACE TOMBSTONE ADVERTISEMENTS DESCRIBING
ITS SERVICES TO THE COMPANY IN FINANCIAL AND OTHER NEWSPAPERS AND JOURNALS.

 

9.             SALEM PARTNERS AGREES THAT ALL INFORMATION FURNISHED, WHETHER
BEFORE OR AFTER THE DATE OF THIS AGREEMENT, BY OR ON BEHALF OF THE COMPANY TO
SALEM PARTNERS OR ANY OF ITS AGENTS OR REPRESENTATIVES IN CONNECTION WITH THE
SERVICES PROVIDED HEREUNDER OR THE MATTERS DESCRIBED HEREIN (REGARDLESS OF THE
MANNER IN WHICH IT IS FURNISHED, INCLUDING, WITHOUT LIMITATION, IN ELECTRONIC
FORMAT, AND REGARDLESS OF WHETHER IN THE FORM ORIGINALLY FURNISHED BY OR ON
BEHALF OF THE COMPANY OR INCORPORATED OR REFLECTED IN ANY DOCUMENT OR RECORD
PREPARED BY SALEM PARTNERS OR ITS REPRESENTATIVES), INCLUDING INFORMATION
RELATING TO THE FUNDING, CAPITALIZATION, DEBT RESTRUCTURING, OR ANY OTHER
NEGOTIATION, ENGAGEMENT OR AGREEMENT RELATING TO THE RESTRUCTURING TRANSACTION
OR THE OPERATIONS OF THE COMPANY (COLLECTIVELY, “CONFIDENTIAL INFORMATION”) WILL
BE TREATED AS CONFIDENTIAL BY SALEM PARTNERS, AND EXCEPT AS MAY BE REQUIRED BY
LAW, WILL NOT BE DISCLOSED BY SALEM PARTNERS TO ANY THIRD PARTY WITHOUT THE
PRIOR WRITTEN APPROVAL OF THE COMPANY.  THE TERM “CONFIDENTIAL INFORMATION” DOES
NOT INCLUDE INFORMATION WHICH (I) IS OR BECOMES GENERALLY AVAILABLE TO THE
PUBLIC OTHER THAN AS A RESULT OF AN UNAUTHORIZED DISCLOSURE THEREOF BY SALEM
PARTNERS PURSUANT TO THE TERMS HEREOF; (II) WAS AVAILABLE ON A NON-CONFIDENTIAL
BASIS PRIOR TO ITS DISCLOSURE; OR (III) BECOMES AVAILABLE ON A NON-CONFIDENTIAL
BASIS FROM A THIRD PARTY SOURCE WHO IS NOT KNOWN TO BE UNDER A CONFIDENTIALITY
OBLIGATION.  SALEM PARTNERS AGREES NOT TO USE ANY CONFIDENTIAL INFORMATION FOR
ANY PURPOSE OTHER THAN THE RENDERING OF SERVICES IN ACCORDANCE WITH THIS
AGREEMENT.  IF THE COMPANY, IN ITS SOLE DISCRETION, SO REQUESTS, SALEM PARTNERS
WILL, PROMPTLY EITHER DELIVER TO THE COMPANY OR DESTROY (AT THE COMPANY’S
ELECTION) ALL DOCUMENTS AND RECORDS IN SALEM PARTNERS’ POSSESSION OR CONTROL
CONTAINING CONFIDENTIAL INFORMATION.

 

10.           THE COMPANY AGREES TO INDEMNIFY AND HOLD SALEM PARTNERS HARMLESS
FROM AND AGAINST ANY LIABILITIES, LOSSES, CLAIMS, DAMAGES, FEES, FINES, COSTS,
DEFICIENCIES, EXPENSES AND OBLIGATIONS OF ANY NATURE (INCLUDING, WITHOUT
LIMITATION, THOSE ARISING OUT OF ANY ACTION, SUIT, CLAIM, ARBITRATION,
INVESTIGATION, PROCEEDING

 

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OR OTHERWISE BY ANY PARTY, INCLUDING ACTIONS BY SECURITYHOLDERS), WHETHER KNOWN
OR UNKNOWN, ABSOLUTE, ACCRUED, CONTINGENT OR OTHERWISE (“LOSSES”) RELATED TO OR
ARISING OUT OF SALEM PARTNERS’ ENGAGEMENT OR ITS SERVICES HEREUNDER, OR ITS ROLE
IN CONNECTION THEREWITH OR HEREWITH, EXCEPT FOR ANY LOSSES WHICH ARE FINALLY
JUDICIALLY DETERMINED TO HAVE RESULTED FROM THE GROSS NEGLIGENCE, FRAUD OR
WILLFUL MISCONDUCT OF SALEM PARTNERS.  THE COMPANY FURTHER AGREES, EXCEPT AS
OTHERWISE SPECIFIED BELOW, TO REIMBURSE SALEM PARTNERS FOR ALL REASONABLE OUT OF
POCKET EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND
EXPENSES) AS AND WHEN ACTUALLY INCURRED BY SALEM PARTNERS IN CONNECTION WITH
INVESTIGATING, PREPARING FOR OR DEFENDING ANY ACTION, SUIT, CLAIM, ARBITRATION,
INVESTIGATION, PROCEEDING OR OTHER SIMILAR ACTION RELATED TO OR ARISING OUT OF
SALEM PARTNERS’ ENGAGEMENT OR ITS SERVICES HEREUNDER, WHETHER OR NOT IN
CONNECTION WITH PENDING OR THREATENED LITIGATION IN WHICH SALEM PARTNERS IS A
PARTY.  THE COMPANY ALSO AGREES THAT SALEM PARTNERS SHALL NOT HAVE ANY LIABILITY
(WHETHER DIRECT OR INDIRECT, IN CONTRACT OR TORT OR OTHERWISE) TO THE COMPANY
FOR OR IN CONNECTION WITH THE ENGAGEMENT OR ITS SERVICES HEREUNDER, EXCEPT FOR
ANY SUCH LIABILITY FOR LOSSES INCURRED BY THE COMPANY THAT ARE FINALLY
JUDICIALLY DETERMINED TO HAVE RESULTED FROM THE WILLFUL MISCONDUCT, FRAUD OR
GROSS NEGLIGENCE OF SALEM PARTNERS.  IN THE EVENT THAT THE COMPANY SHALL HAVE
REIMBURSED EXPENSES TO SALEM PARTNERS OR ANY OTHER INDEMNIFIED PERSON IN
CIRCUMSTANCES IN WHICH SALEM PARTNERS OR SUCH OTHER INDEMNIFIED PERSONS WOULD
NOT BE ENTITLED TO INDEMNIFICATION AS PROVIDED HEREIN, SALEM PARTNERS SHALL
PROMPTLY REPAY SUCH EXPENSES TO THE COMPANY.  IN THE EVENT THAT THE FOREGOING
INDEMNITY IS UNAVAILABLE OR INSUFFICIENT (EXCEPT BY REASON OF WILLFUL
MISCONDUCT, FRAUD OR GROSS NEGLIGENCE OF SALEM PARTNERS AS PROVIDED HEREIN),
THEN THE COMPANY SHALL CONTRIBUTE TO AMOUNTS PAID OR PAYABLE BY SALEM PARTNERS
IN RESPECT OF ITS LOSSES IN SUCH PROPORTION AS APPROPRIATELY REFLECTS THE
RELATIVE BENEFITS RECEIVED BY, AND FAULT OF, THE COMPANY AND SALEM PARTNERS IN
CONNECTION WITH THE MATTERS AS TO WHICH SUCH LOSSES RELATE AND TAKING INTO
CONSIDERATION OTHER EQUITABLE CONSIDERATIONS; PROVIDED, HOWEVER, THAT IN NO
EVENT SHALL THE AMOUNT TO BE PAID OR CONTRIBUTED BY SALEM PARTNERS EXCEED THE
AMOUNT OF THE FEE ACTUALLY RECEIVED BY SALEM PARTNERS UNDER THE ENGAGEMENT
(EXCEPT BY REASON OF WILLFUL MISCONDUCT, FRAUD OR GROSS NEGLIGENCE OF SALEM
PARTNERS AS PROVIDED HEREIN).  THE FOREGOING SHALL BE IN ADDITION TO ANY RIGHTS
THAT SALEM PARTNERS OR ANY OTHER INDEMNIFIED PERSON MAY HAVE AT COMMON LAW OR
OTHERWISE AND SHALL EXTEND TO AND INURE TO THE BENEFIT OF ANY SUBSIDIARY,
AFFILIATE, PARTNER, DIRECTOR, OFFICER, MEMBER, STOCKHOLDER, EMPLOYEE, AGENT,
REPRESENTATIVE, ADVISOR OR CONTROLLING PERSON OF SALEM PARTNERS.  PROMPTLY AFTER
RECEIPT BY SALEM PARTNERS OR ANY OTHER INDEMNIFIED PERSON OF NOTICE OF ANY
COMPLAINT OR THE COMMENCEMENT OF ANY PROCEEDING WITH RESPECT TO WHICH
INDEMNIFICATION IS BEING SOUGHT HEREUNDER, SUCH INDEMNIFIED PERSON SHALL NOTIFY
THE COMPANY OF SUCH COMPLAINT OR OF THE COMMENCEMENT OF SUCH PROCEEDING.  THE
FAILURE TO SO NOTIFY THE COMPANY WILL NOT RELIEVE THE COMPANY FROM ANY LIABILITY
WHICH THE COMPANY MAY HAVE HEREUNDER, EXCEPT TO THE EXTENT THAT SUCH FAILURE
MATERIALLY PREJUDICES THE COMPANY’S DEFENSE OF SUCH PROCEEDING (AND ONLY TO THE
EXTENT THEREOF).  THE COMPANY SHALL UNDERTAKE, CONDUCT AND CONTROL, THROUGH
COUNSEL OF ITS OWN CHOOSING AND AT ITS OWN EXPENSE, THE SETTLEMENT OR DEFENSE OF
ANY PENDING OR THREATENED CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THE
ENGAGEMENT OR ANY ACTUAL OR PROPOSED TRANSACTION OR OTHER CONDUCT IN CONNECTION
THEREWITH AND SALEM PARTNERS AND THE OTHER INDEMNIFIED PARTIES SHALL
(1) COOPERATE FULLY WITH THE COMPANY IN DEFENDING SALEM PARTNERS IN RESPECT OF
ANY CLAIM OR DAMAGE MADE AGAINST ANY OF THEM IN RESPECT OF WHICH IT IS SEEKING
AND ENTITLED TO INDEMNIFICATION FROM THE COMPANY HEREUNDER (2) HAVE THE RIGHT TO
PARTICIPATE IN THE DEFENSE OF SUCH CLAIM AT THEIR OWN EXPENSE, EXCEPT WHERE THE
COMPANY WOULD OTHERWISE BE RESPONSIBLE FOR SUCH FEES AND EXPENSES AS PROVIDED
HEREIN AND (3) BE BOUND BY ANY SETTLEMENT, COMPROMISE OR ENTRY OF JUDGMENT
OBTAINED IN GOOD FAITH BY THE COMPANY AND CONSENTED TO BY SALEM PARTNERS AS
SUBJECT TO THE CONDITIONS PROVIDED HEREIN.  NOTWITHSTANDING THE FOREGOING, SALEM
PARTNERS AND THE OTHER INDEMNIFIED PARTIES, AS A GROUP, SHALL HAVE THE RIGHT TO
EMPLOY SEPARATE COUNSEL AT THE COMPANY’S EXPENSE IF SUCH PARTIES SHALL HAVE BEEN
ADVISED BY COUNSEL THAT A CONFLICT OF INTEREST IS LIKELY TO EXIST IF THE SAME
COUNSEL WERE TO REPRESENT BOTH THE COMPANY, ON THE ONE HAND, AND SALEM PARTNERS
AND THE OTHER INDEMNIFIED PARTIES, ON THE OTHER HAND; PROVIDED THAT IN NO EVENT
WILL THE COMPANY BE RESPONSIBLE FOR THE FEES AND EXPENSES OF MORE THAN ONE
COUNSEL FOR SALEM PARTNERS AND THE OTHER INDEMNIFIED PARTIES.  THE COMPANY
AGREES THAT IT WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF SALEM PARTNERS
(WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD) SETTLE, COMPROMISE OR CONSENT
TO THE ENTRY OF ANY JUDGMENT IN ANY PENDING OR THREATENED CLAIM, ACTION OR
PROCEEDING OR INVESTIGATION IN RESPECT OF WHICH INDEMNIFICATION OR CONTRIBUTION
COULD BE SOUGHT HEREUNDER (WHETHER OR NOT SALEM PARTNERS OR ANY INDEMNIFIED
PARTY IS A PARTY TO SUCH CLAIM OR

 

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PROCEEDING) UNLESS SUCH SETTLEMENT INCLUDES A PROVISION UNCONDITIONALLY
RELEASING SALEM PARTNERS AND EACH OTHER INDEMNIFIED PARTY FROM ANY AND ALL
LIABILITY IN RESPECT OF SUCH CLAIMS.

 

11.           THE AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH
OF WHICH SHALL BE DEEMED AN ORIGINAL AND ALL OF WHICH WHEN TAKEN TOGETHER SHALL
BE ONE AND THE SAME INSTRUMENT.  THE PROVISIONS HEREOF SHALL INURE TO THE
BENEFIT OF AND BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF THE COMPANY, SALEM
PARTNERS AND EACH INDEMNIFIED PARTY.  THE AGREEMENT MAY NOT BE AMENDED OR
MODIFIED EXCEPT IN WRITING AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, EXCEPT WITH RESPECT TO CONFLICT OF
LAWS PROVISIONS THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION.  ANY RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
PROCEEDING RELATED TO, OR ARISING OUT OF, THE AGREEMENT, THE ENGAGEMENT OR ANY
TRANSACTION OR CONDUCT IN CONNECTION HEREWITH, IS WAIVED.

 

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Please confirm that the foregoing is in accordance with your understanding and
agreement by signing where indicated below and returning to us the duplicate of
the Agreement enclosed herewith, whereupon the Agreement will constitute our
binding agreement with respect to the matters set forth herein.

 

 

Very truly yours,

 

 

 

SALEM PARTNERS LLC

 

 

 

 

 

By:

 

 

 

Name:

Stephen Prough

 

 

Title:

Managing Director

 

 

 

CONFIRMED AND AGREED:

 

 

 

 

 

ARTISTDIRECT, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

Neil McCarthy

 

 

 

Title:

Interim Chief Financial Officer

 

 

 

 

 

 

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