Exhibit 10.15
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement") is made as of July 28,
2005 (the "Effective Date") by and among ARTISTDIRECT, INC., a Delaware
corporation (the "Company"), WNT07 HOLDINGS, LLC, a Delaware limited liability
company ("Advisor"), ERIC PULIER ("Pulier"), and TEYMOUR BOUTROS-GHALI
("Boutros-Ghali", and together with Pulier, the "Managers", and each a
"Manager").
RECITALS
A. The Company has engaged Advisor to provide the services of the Managers
with respect to the Company's business activities on an advisory basis to
advise, aid and assist the Company.
B. In consideration of Advisor making the services of the Managers
available to the Company, the Company has issued to Advisor shares of common
stock, par value $0.01 per share of the Company that will be subject to certain
restrictions as set forth herein (the "Restricted Shares").
C. The Managers are the managers of Advisor.
D. As a condition to the Company issuing the Restricted Shares to Advisor,
the Company requires that Advisor and the Managers to enter into this Agreement.
AGREEMENT
In consideration of the above recitals and of the mutual covenants and
conditions contained in this Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. COVENANT NOT TO COMPETE OR SOLICIT.
(a) Non-Competition. Beginning on the Effective Date and ending on the
earlier of: (i) April 1, 2007, or (ii) the date of termination of Advisor's
services with the Company by the Company (the "Non-Competition Period"), Advisor
and Managers shall not (other than on behalf of the Company), without the prior
written consent of the Company, engage in a Competitive Business Activity (as
defined below) anywhere in the Restricted Territory (as defined below). For all
purposes hereof, the term "Competitive Business Activity" shall mean: (i)
engaging in, or managing or directing persons engaged in any business in
competition with the Company's Media Defender business of on-line piracy
protection for music and/or movies; (ii) acquiring or having an ownership
interest in any entity that derives revenues from any business in competition
with the Competitive
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Business Activity (except for passive ownership of three percent (3%) or less of
any entity whose securities are publicly traded on a national securities
exchange or market or five percent (5%) or less of any entity whose securities
are not publicly traded on a national securities exchange or market); or (iii)
participating in the operation or control of any firm, partnership, corporation,
entity or business (each, an "Entity") described in clause (ii) of this
sentence; provided, however, that Advisor or the Managers shall not be deemed to
be engaging in a Competitive Business Activity solely because Advisor or a
Manager is employed by, serves as an independent contractor to, is a partner of
a venture capital fund, or is otherwise associated with an Entity that engages
in a Competitive Business Activity if (i) Advisor or a Manager is employed in,
serves as an independent contractor to or is otherwise associated with a
division of such Entity other than the division engaged in a Competitive
Business Activity (a "Competing Division"), (ii) the Advisor or a Manager does
not provide technical, marketing or other assistance to a Competing Division, or
(iii) a Manager is a partner of a venture capital fund that may invest in an
Entity engaged in a Competitive Business Activity (although a Manager shall not,
individually, participate in the management of such investment on behalf of the
venture fund (such as, by way of example, serving as a director or manager of
the entity in which the venture fund invested). For all purposes hereof, the
term "Restricted Territory" shall mean in any State of the United States of
America, or in any foreign country in which the Company or an affiliate or
subsidiary of the Company is conducting such Competitive Business Activity.
(b) Non-Solicitation. During the Non-Competition Period, neither Advisor
nor the Managers shall solicit, encourage or take any other action which is
intended to induce or encourage, or could reasonably be expected to have the
effect of inducing or encouraging, any employee of the Company or any of its
subsidiaries to terminate his or her employment with the Company or its
subsidiaries; provided, however, that any general solicitation of employees not
specifically targeted to the Company's employees shall not be deemed a violation
of this Section 1(b).
(c) Scope/Severabilty. The covenants contained in Section 1(a) hereof
shall be construed as a series of separate covenants, one for each country,
province, state, city or other political subdivision of the Restricted
Territory. The parties acknowledge that the Competitive Business Activity is and
will be national and international in scope and thus the covenants in this
Section 1 would be particularly ineffective if the covenants were to be limited
to a particular geographic area of the United States. If any court of competent
jurisdiction at any time deems the Non-Competition Term unreasonably lengthy, or
the Restricted Territory unreasonably extensive, or any of the covenants set
forth in Section 1 not fully enforceable, the other provisions of Section 1, and
this Agreement in general, will nevertheless stand and to the fullest extent
consistent with law continue in full force and effect, and it is the intention
and desire of the parties that the court treat any provisions of this Agreement
which are not fully enforceable as having been modified to the extent deemed
necessary by the court to render them reasonable and enforceable and that the
court enforce them to such extent (for example, that the Restricted Term be
deemed to be the longest period permissible by law, but not in excess of the
length provided for in Section 1(a), and the Restricted Territory be deemed to
comprise the
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largest territory permissible by law under the circumstances, but not in excess
of the territory provided for in Section 1(a)).
2. FORFEITURE RESTRICTIONS. Advisor agrees it may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of any of the Restricted Shares
(collectively, the "Forfeiture Restrictions"), before the termination or lapse
of the Non-Competition Period.
3. REMEDIES. Advisor agrees that if either Advisor or a Manager were to breach
any provisions of this Agreement, the Company would suffer damages that are not
readily ascertainable. Accordingly, in addition to and without limiting any
remedies in law or in equity that may be available to the Company for the breach
of this Agreement, including, but not limited to, injunctive and other equitable
relief, Advisor agrees that in the event of a material breach of this Agreement
by Advisor or a Manager, as reasonably determined by the Board of Directors of
the Company, the Company shall have, on the date of such breach of any material
provisions of this Agreement (the "Termination Date"), an irrevocable, exclusive
option (the "Forfeiture Repurchase Option"), for a period of ninety (90) days
from the Termination Date (the "Forfeiture Repurchase Period"), to repurchase up
to all of the Restricted Shares on the Termination Date at the original purchase
price per share (the "Repurchase Price"). The Forfeiture Repurchase Option shall
be exercisable by written notice delivered to Advisor before the expiration of
the Forfeiture Repurchase Period. The notice shall indicate the number of the
Restricted Shares to be repurchased and the date on which the repurchase is to
be effected, such date to be not later than fifteen (15) days after the
expiration of the Forfeiture Repurchase Period. On the date of the repurchase,
the Company shall pay to Advisor by a certified check of the Company, an amount
equal to the Repurchase Price for each of the Restricted Shares that is to be
repurchased from Advisor. Upon such payment to Advisor, the Company shall become
the legal and beneficial owner of the Restricted Shares being repurchased and
all rights and interests therein or related thereto, and the Company shall have
the right to transfer to its own name the Restricted Shares being forfeited and
repurchased without any further action of Advisor. The parties expressly agree
that these provisions governing the forfeiture and repurchase of the Restricted
Shares shall be specifically enforceable by the Company in a court of equity or
law. Advisor acknowledges and agrees that the exercise by the Company of the
Forfeiture Repurchase Option is a reasonable forecast of the damages likely to
result from such breach and is not a penalty of any kind.
4. TAX CONSEQUENCES. Advisor understands that Section 83 of the Internal Revenue
Code of 1986, as amended (which, including any amendments and successor
provisions to any section referenced herein and any Treasury regulations
promulgated under such section, is hereinafter referred to as the "Code"), taxes
as ordinary income the difference between the purchase price for the Restricted
Shares and the fair market value of the Restricted Shares as of the date any
substantial risk of forfeiture imposed on the Restricted Shares terminates or
lapses or the Restricted Shares become transferable. Advisor understands that,
regardless of any substantial risk of forfeiture, it may elect to be taxed at
the time the Restricted Shares are granted, rather than when and as any
substantial risk of forfeiture terminates or lapses, by filing an election under
Section 83(b) of the Code with the Internal Revenue Service within thirty (30)
days from the
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Effective Date. Advisor acknowledges that it is its sole responsibility (and not
the Company's) to file timely the election under Section 83(b), even if Advisor
requests the Company or its representatives to make that filing on his behalf.
Notwithstanding the foregoing, the Company makes no representation that the
Restrictions constitute a substantial risk of forfeiture under Section 83 of the
Code.
5. MISCELLANEOUS.
(a) Governing Law; Consent to Personal Jurisdiction. This Agreement shall
be governed by the laws of the State of California without reference to rules of
conflicts of law. Advisor and the Managers hereby consent to the personal
jurisdiction of the state and Federal courts located in California for any
action or proceeding arising from or relating to this Agreement or relating to
any arbitration in which the parties are participants.
(b) Specific Performance; Injunctive Relief. The parties acknowledge that
the Company will be irreparably harmed and that there will be no adequate remedy
at law for a violation of any of the covenants or agreements of Advisor and the
Managers set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to the Company upon any such violation, the
Company shall have the right to seek enforcement of such covenants and
agreements by specific performance, injunctive relief or by any other means
available to the Company at law or in equity.
(c) Severability. If any portion of this Agreement is held by an
arbitrator or a court of competent jurisdiction to conflict with any Federal,
state or local law, or to be otherwise invalid or unenforceable, such portion of
this Agreement shall be of no force or effect and this Agreement shall otherwise
remain in full force and effect and be construed as if such portion had not been
included in this Agreement.
(d) No Assignment. Because the nature of the Agreement is specific to the
actions of Advisor and the Managers, Advisor and the Managers may not assign
this Agreement. This Agreement shall inure to the benefit of the Company and its
successors and assigns.
(e) Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service, or delivered by telecopy (if a duplicate
copy is also contemporaneously sent by any other means of delivery provided
herein) to the following addresses, or such other address as any party hereto
designates by written notice to any other party hereto, and shall be deemed to
have been given upon delivery, if delivered personally, three days after
mailing, if mailed, one business day after delivery to the courier, if delivered
by overnight courier service, or on the date of delivery, if given by telecopy
prior to 12:00 p.m. (based on the local time of the recipient) and a duplicate
copy is sent by any other means of delivery as provided herein (or, if such
telecopy shall be delivered after 12:00 p.m., on the day after delivery
thereof):
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(i) if to The Company, to:
ARTISTdirect, Inc.
10900 Wilshire Boulevard
Suite 1400
Los Angeles, CA 90024
Telephone No.: (310) 443-5360
Facsimile No.: (310) 443-5361
(ii) if to Advisor or the Managers, to:
WNT07 Holdings, LLC
c/o Larry Wayne, CPA
Wayne, Gaynor, Umanoff & Pollack, LLP
6100 Center Drive, Suite 950
Los Angeles, CA 90045
Telephone No. (310) 846-5770
Facsimile No.: (310) 846-5771
(f) Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties and supersedes all prior discussions, agreements
and understandings relating to the subject matter hereof. This Agreement may not
be changed or modified, except by an agreement in writing executed by the
Company, Advisor and the Managers. Nothing in this Agreement shall limit, modify
or impair any statutory or common law duty or obligation that the Managers may
have to the Company, or any duty or obligation arising under any of the existing
policies and procedures of the Company that apply to its officers and/or
directors generally.
(g) Waiver of Breach. The waiver of a breach of any term or provision of
this Agreement, which must be in writing, shall not operate as or be construed
to be a waiver of any other previous or subsequent breach of this Agreement.
(h) Headings. All captions and section headings used in this Agreement are
for convenience only and do not form a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the parties.
(j) Delivery by Facsimile. This Agreement,, and each other agreement or
instrument entered into in connection herewith or therewith or contemplated
hereby or thereby, and any amendments hereto or thereto, to the extent signed
and delivered by means of a facsimile machine, shall be treated in all manner
and respects and for all purposes as an original agreement or instrument and
shall be considered to have the same binding legal effect as if it
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were the original signed version thereof delivered in person. At the request of
any party hereto or to any such agreement or instrument, each other party hereto
or thereto shall re-execute original forms thereof and deliver them to all other
parties. No party hereto or to any such agreement or instrument shall raise the
use of a facsimile machine to deliver a signature or the fact that any signature
or agreement or instrument was transmitted or communicated through the use of a
facsimile machine as a defense to the formation or enforceability of a contract
and each such party forever waives any such defense.
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SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
THE COMPANY:
ARTISTDIRECT, INC., A DELAWARE CORPORATION
By: /s/ Robert Weingarten
------------------------
Name: Robert Weingarten
Its: Chief Financial Officer
ADVISOR:
WNT07 HOLDINGS, LLC, A DELAWARE LIMITED
LIABILITY COMPANY
By: /s/ Eric Pulier
---------------
Name: Eric Pulier
Its: Manager
By: /s/Teymour Boutros-Ghali
-----------------------------
Name: Teymour Boutros-Ghali
Its: Manager
MANAGERS:
/s/ Eric Pulier
---------------
ERIC PULIER
/s/ Teymour Boutros-Ghali
-------------------------
TEYMOUR BOUTROS-GHALI
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