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CUSIP NO. 04315D400 13D PAGE 8 OF 8
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--- EXHIBIT B ---
September 24, 2008
ARTISTdirect, Inc.
1601 Cloverfield Boulevard, Suite 400 South
Santa Monica, California
Ladies and Gentlemen:
This non-binding letter of intent (the "LOI") sets forth the principal
terms and conditions of a potential transaction (the "Transaction") among
ARTISTdirect, Inc. and/or its subsidiaries (the "Company") and Coghill Capital
Management, LLC through one or more of its affiliates or designees
(the "Investor"), whereby the Investor would acquire the media and e-commerce
business operations of the Company, as further described below.
The Transaction:
1. The Acquisition
a. Structure. The Transaction will be accomplished through the execution of a
Definitive Agreement (defined below) that contemplates an acquisition of all
of the media and e-commerce business operations of the Company, including,
but not limited to, all of the business and assets (including, without
limitation, accounts receivables) of ARTISTdirect Internet Group, Inc.
(collectively, the "Business") subject to assumption of disclosed, ordinary
course accounts payable of the Business (other than the payables and
obligations equal to $312,500 in the aggregate, which shall be retained and
paid by the Company). The Transaction will not include the business and
assets of MediaDefender Inc.
b. Purchase Price. Based upon the financial and other information provided to
Investor as of the date hereof, the aggregate purchase price for the Business
is expected to be $2,860,000 (inclusive of expected working capital of the
Company as of the Closing date). If the Investor's due diligence
investigation indicates or reveals information that differs from the material
previously provided to the Investor, the terms and conditions of the proposal
set forth herein could be affected and would be subject to change.
c. Closing. The closing of the Transaction (the "Closing") would take place on
the earliest practicable date after (i) satisfactory completion of Investor's
due diligence, and (ii) execution of a Definitive Agreement.
2. Definitive Agreement.
A purchasing entity ("Purchase") established by Investor would acquire the
Business pursuant to the terms of a mutually acceptable purchase agreement
that would contain representations and warranties, covenants, conditions,
indemnities, and other provisions customary for transactions of this nature
(the "Definitive Agreement"). Among other things, the Definitive Agreement
will contain:
a. Representations and Warranties of the Company. Full customary
representations and warranties regarding the Company covering among other
things: (i) the Company's title to the assets of the Business, free and clear
of all liens, claims and encumbrances; (ii) compliance in all material
respects with all laws and governmental regulations applicable to the
Company's business and operations; (iii) no material pending or threatened
litigation and the absence of undisclosed claims, litigation, infringement
and contract defaults; and (iv) accuracy of historical financial statements.
b. Interim Operations. Customary covenants obligating the Company to maintain
the Business as currently conducted, not encumbering the assets of the
Business and prohibiting the Company from engaging in transactions outside
the ordinary course of the Business prior to the Closing without the
Investor's prior written consent. In addition, from the date hereof until
the earlier of (i) the Closing, and (ii) expiration of this LOI pursuant to
Section 9 below, the Company hereby covenants to maintain the Business as
currently conducted and operate in the ordinary course, will not encumber
the assets of the Business, shall not accelerate the collection of accounts
receivable or delay the payment of accounts payable, shall not make any
material expenditures or engage in any transactions outside the ordinary
course of the Business, without Investor's prior written consent.
c. Transition Services. From the Closing until three (3) months following such
Closing, the Company will, at no cost to Purchaser, provide all services as
currently provided and which Purchaser deems necessary or desirable in
operating the Business and to ensure a smooth transition of the Business
to Purchaser, the estimated value of such services not to exceed $120,000.
d. Sub-Lease of Company Headquarters. Purchaser will sub-lease the Company
headquarters located in Santa Monica, CA subject to the Company obtaining
any necessary landlord consents; provided however, the Company will, from
the Closing until (3) months following such Closing, waive any rights to
receive any rent under such sub-lease from Purchaser.
e. "No-Shop" and Break-Up Fee Provisions. Customary "No-Shop" and break-up fee
provisions consistent with those in this letter.
f. Closing Conditions of the Transaction. Customary conditions to the
obligations of Investor to consummate the Transaction, which shall include,
without limitation (i) the accuracy in all material respects of the Company's
representations and warranties; (ii) compliance by the Company in all
material respects with all covenants contained in the Definitive Agreement;
(iii) receipt of all necessary consents and approvals of third parties,
including any required approval by debt holders of the Company and landlords;
(iv) if requested by the Investor, the execution of a transition services
agreement whereby current officers and/or employees of the Company assist in
transitioning management of the Business to Purchaser; and (v) if effectuated
through a sale under section 363 of the Bankruptcy Code, entry of (A) an order
scheduling a hearing on approval of the Transaction, including bidding
procedures, and (B) a final order approving the Transaction, each that is
satisfactory to Investor in all respects.
3. Due Diligence Review.
As discussed above, Investor's willingness to proceed with the Transaction
is subject to the satisfactory completion of a due diligence review by
Investor of the business, financial and legal affairs of the Company. Such
review shall include:
i. Retention of outside accountants to perform a review of the Company's
financial statements, and other financial, accounting and tax records;
ii. Retention of legal counsel to perform legal due diligence;
iii. Review of applicable licenses and contracts, including but not limited to
loan agreements, leases, insurance contracts, vendor contracts, employment
agreements, distributor agreements and franchise agreements; and
iv. Interviews with key management personnel, vendors, distributors and retail
accounts.
4. Exclusivity.
It is understood that following execution of this LOI, the Company shall not,
directly or indirectly, through any representative or otherwise, solicit or
entertain offers from, negotiate with or in any manner encourage, discuss,
accept or consider any proposal or offer that constitutes, or may reasonably
be expected to lead to, any material business transaction that would prevent
it from consummating the Transaction (a "Competing Transaction"); provided,
however, that the foregoing shall not prohibit the Company, after giving
advance written notice to Investor, from furnishing information concerning
the Company or its properties or assets pursuant to any appropriate and
customary confidentiality agreement to a third party who has made an
unsolicited written proposal for a Competing Transaction after the date
hereof, or engaging in discussions or negotiations with a third party who has
made any such unsolicited proposals after the date hereof but only if and to
the extent that the Board of Directors of the Company shall have concluded in
good faith, after consulting with financial advisors and considering the
advice of outside counsel, that such action is required by the Board of
Directors of the Company in the exercise of its fiduciary duties to the
shareholders of the Company.
The Company shall immediately advise Investor in writing of the receipt by
the Company or any of its Representatives of any inquiries, proposals or
offers relating to a Competing Transaction, which notice shall include the
terms of such Competing Transaction.
5. Break-Up Fee.
In the event (i) the Company enters into a definitive agreement with respect
to a Competing Transaction prior to the expiration of this letter, (ii) this
letter expires prior to the execution of the Definitive Agreement (other than
by reason of Investor having either (x) advised the Company in writing that it
no longer wished to pursue the Transaction, or (y) not proceeded expeditiously
and in good faith with its due diligence review or the negotiation of the
Definitive Agreement) and within six (6) months after such expiration, the
Company enters into a definitive agreement with respect to a Competing
Transaction, or (iii) the Company does not use all commercially reasonable
efforts to proceed with the Transaction under the terms and conditions
hereunder, provided however, that Investor is willing to proceed with such
Transaction, then, in each case, the Company shall pay to Investor a break-up
fee equal to $140,000 (the "Break-Up Fee") to cover Investor's costs, fees
and expenses (including legal fees and expenses) reasonably incurred in
connection with this LOI, the proposed Transaction and under the Definitive
Agreement (the "Expense Reimbursement").
6. Press Releases, Etc.
Except as and to the extent required by law (including, without limitation,
Section 13 of the Securities and Exchange Act of 1934, as amended) or in
connection with any inquiries from government officials or regulators, neither
party shall make any press release, public announcement or statement or other
communication with respect to, or otherwise disclose or permit the disclosure
of any of the terms of the Transaction without the prior written consent of
the other party. If any party is required by law to make any such disclosure,
it shall first provide to the other party the content of the proposed
disclosure, the reasons that such disclosure is required by law and the time
and place that the disclosure will be made.
7. Effect of this Agreement.
This letter is a statement of the intentions of the parties and, except for
the provisions of paragraphs 2b, 4, 5, 6, 8, 9, 10 and this paragraph 7
(which are intended to be binding legal agreements and which shall survive
the termination of this LOI), is not intended to be a legally binding
agreement or to create rights in favor of either party with respect to the
proposed Transaction or the other transactions contemplated hereby. The
obligations of the parties to consummate the transactions contemplated hereby
shall be subject in all respects to the negotiation, execution and delivery
of the Definitive Agreement referred to above and to the satisfaction of the
conditions contained therein, and neither of the parties hereto shall have any
liability to the other except as set forth in Section 5 or for any breach of
paragraphs 2b, 4, 6, 10 or this paragraph 7 if the parties fail for any reason
to execute a Definitive Agreement. In the event that the parties do not
execute a Definitive Agreement, except as provided in paragraph 5 hereof, each
party will bear its own fees and expenses incurred in connection with this LOI
and the proposed Transaction including all legal, accounting and financial
advisory fees and expenses.
8. Governing Law.
This letter, the rights and obligations of the parties hereto, and any claims
or disputes relating thereto, shall be governed by and construed in accordance
with the laws of the State of New York. The parties consent to the
jurisdiction of the state and federal courts located in New York County, New
York.
9. Expiration.
This letter shall expire and be of no further force and effect on the first to
occur of (i) October 8, 2008, provided that, any Break-Up Fee and Expense
Reimbursement payable to Investor under Section 5 herein shall have been paid,
(ii) the execution of a Definitive Agreement, or (iii) the date, if any, that
Investor advises the Company in writing that it no longer has an interest in
pursuing the Transaction.
10. Confidentiality.
Each of the parties shall use the Confidential Information (as defined below)
solely for the purpose of evaluating and consummating the Transaction, and
except as and to the extent required by applicable law, neither party will
(a) disclose any Confidential Information to any third party except for
disclosures to members, partners, shareholders, directors, managers, officers,
employees, agents, representatives and advisors (collectively,
"Representatives") of such party who need to know such Confidential
Information in connection with the Transaction, or (b) use any Confidential
Information to the detriment of or in competition with the other party or any
affiliate thereof, and each party will direct its respective Representatives
not to disclose or use any Confidential Information except as expressly
permitted herein. For purposes of this paragraph, "Confidential Information"
means any information about a party or any affiliate thereof related to
proprietary information, research, product development or design, product or
material costs, sales or sales strategies or prospects, trading strategies,
pricing or pricing strategies, advertising or promotional programs, product
information, know how, designs, specifications, techniques, methods, concepts,
inventions, developments, discoveries, mailing or customer lists, finances,
including prices, costs, and revenues, and other business arrangements, plans,
procedures and strategies unless (i) such information is already known to the
receiving party or its Representatives or to others not known by the receiving
party to be bound by a duty of confidentiality or such information becomes
within the public domain through no fault of the receiving party or its
Representatives, (ii) such information is or was independently developed by or
on behalf of the receiving party without use of any Confidential Information,
(iii) such information is or becomes rightfully available to the receiving
party from any third party, or (iv) the furnishing or use of such information
is necessary to establish a party's rights under this LOI. Notwithstanding
the foregoing, a party may disclose the tax treatment and tax structure of the
Transaction and all materials of any kind (including opinions or other tax
analyses) that are provided to it relating to such tax treatment and tax
structure. If the Transaction is not consummated, upon the written request
of the other, each party will promptly return to the other or destroy any
Confidential Information in its possession and certify in writing to such
other Party that it has done so.
[-SIGNATURE PAGE FOLLOWS-]
The terms of this LOI are confidential and shall not be disclosed to any other
party other than to indicate that the offer for the Business contemplated
hereunder is higher than any other offer. If the Company is prepared to
proceed on the basis of this letter, please execute the enclosed copy in the
space indicated below and return it to the undersigned. The terms of this
letter will expire unless it is accepted by 10:00 PM EDT on September 24,
2008.
Sincerely,
COGHILL CAPITAL MANAGEMENT,LLC
/S/ Clint D. Coghill
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Clint D. Coghill
President and CIO
Agreed and Accepted:
ARTISTDIRECT, INC.
/S/ Dimitri Villard
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Dimitri Villard
Interim CEO
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