Exhibit 4.1
FORBEARANCE AND CONSENT
AGREEMENT
This FORBEARANCE AND CONSENT
AGREEMENT (this “ Agreement ”), is entered into
as of April 17, 2007 by and among ARTISTdirect, Inc., a
Delaware corporation and its subsidiaries and affiliates
(collectively, the “ Company ”), U.S. Bank
National Association, as Collateral Agent under the Note and
Warrant Purchase Agreement (as defined below) (in such capacity,
“ Collateral Agent ”) and the senior lenders
signatories hereto (“ Initial Purchasers
”).
Recitals
A.
Company, Initial Purchasers and
Collateral Agent are parties to that certain Note and Warrant
Purchase Agreement, dated as of July 28, 2005 (the “
Senior Financing Agreement ”), among Company, the
investors party thereto, as Initial Purchasers, and Collateral
Agent. The Senior Financing Agreement, together with the
other Transaction Documents (as defined in the Senior Financing
Agreement) as such documents have been amended from time to time,
are collectively referred to herein as the “ Senior
Financing Documents .”
B.
Company is in default and may
trigger additional defaults under certain provisions of the Senior
Financing Documents and such defaults are expected to
continue.
C.
The Existing Senior Defaults (as
defined herein) constitute “Events of Default” for
purposes hereof that entitle Collateral Agent and Initial
Purchasers to enforce their rights and remedies under the Senior
Financing Documents.
D.
Company has requested, subject to
the conditions contained herein, that Collateral Agent and Initial
Purchasers forbear from the exercise of their rights and remedies
relating to the Existing Senior Defaults and any other additional
Events of Default for the purpose of affording a period of time for
Company to obtain funds to pay the obligations under the Senior
Financing Documents or to restructure its capital
structure.
E.
Subject to the terms contained
herein, Collateral Agent and Initial Purchasers are willing to
agree to forbear from the exercise of their rights and remedies
relating to the Existing Senior Defaults and any other additional
Events of Default.
Agreement
For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1.
Definitions
. Capitalized terms used
herein but not defined herein shall have the meanings ascribed to
them in the Senior Financing Agreement. The following terms
as used in this Agreement shall have the meanings set forth
below:
“ Existing Senior
Defaults ” means the existing Senior Events of Default
described on Schedule I hereto.
“ Forbearance Period
” means the period commencing on the date hereof and ending
on the earliest to occur of the following: (i) May 31,
2007 (as such date may be extended pursuant to the terms of this
Agreement); or (ii) any material representation or warranty
made by Company in this Agreement proves to be materially false as
of the date when made.
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“ Senior Event of
Default ” means an Event of Default under the Senior
Financing Agreement.
2.
Agreement to Forbear
.
(a)
Subject to the conditions set forth
in Section 3 below, during the Forbearance Period, and subject
to the terms hereof, Collateral Agent and Initial Purchasers hereby
agree to forbear from exercising any of their rights and remedies
under the Senior Financing Documents existing during the
Forbearance Period.
(b)
Nothing in this Section 2 shall
be construed to be a waiver of or acquiescence in any Existing
Senior Default, and all such Existing Senior Defaults shall
continue in existence, subject only to the written agreement of
Collateral Agent and Initial Purchasers, as set forth herein, to
forbear during the Forbearance Period from exercising any of their
rights and remedies under the Senior Financing Documents.
Collateral Agent and Initial Purchasers expressly reserve all of
their rights and remedies under the Senior Financing Documents and
under applicable law with respect to such Existing Senior Defaults,
except as expressly limited in this Agreement. Nothing in
this Section 2 shall act as a waiver of the accrual of any default
interest due under section 2(b) of the Senior Financing Agreement
during the Forbearance Period.
(c)
Company shall have the option to
extend the Forbearance Period through June 30, 2007 by notifying
the Initial Purchasers in writing prior to May 31, 2007 of its
exercise of such option and delivering an additional payment of One
Hundred Twenty-Five Thousand Dollars ($125,000) to the Initial
Purchasers on a pro rata basis on or before May 31, 2007
(the ”Extension Payment”). The Extension
Payment shall be applied in full against all Registration Delay
Payments (as hereafter defined), or any other fees and costs in
favor of Initial Purchasers. In the event that Company makes
the Extension Payment, Initial Purchasers shall immediately provide
Collateral Agent with the certificate required under Section 2(e)
and provide a copy to Company.
(d)
Upon expiration of the Forbearance
Period, Collateral Agent and Initial Purchasers shall have all the
rights and remedies available to them under the Senior Financing
Documents, applicable law and otherwise.
(e)
Collateral Agent may assume without
inquiry that the Forbearance Period expires on May 31, 2007, unless
it receives from the Initial Purchasers a certificate specifying
another date and setting forth the provisions of this Agreement
pursuant to which alternative Forbearance Period termination date
was established.
3.
Conditions to
Effectiveness . The
Initial Purchasers’ agreement to forbear for the Forbearance
Period shall be subject to the following conditions being fully
satisfied:
(a)
The execution and delivery to
Collateral Agent of a counterpart of this Agreement by Collateral
Agent, each Initial Purchaser and Company.
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(b)
All representations and warranties
set forth in this Agreement shall be true and correct as of the
date hereof in all material respects.
(c)
Company agrees to pay to the Initial
Purchasers on a pro rata basis concurrent with the full execution
of this Agreement, the sum of Two Hundred Fifty Thousand Dollars
($250,000) which shall be applied in full against all Registration
Delay Payments accruing under the Registration Rights Agreement
dated as of July 28, 2005, as amended, by and among the
Company and the Initial Purchasers, or any other fees and costs in
favor of Initial Purchasers.
(d)
Company (i) shall comply with its
obligations under the Subordination Agreement and (ii) shall not
declare or pay any dividends or make any other payments not
required or allowed under the Senior Financing Documents or the
Securities Purchase Documents on account of any equity interests in
the Company.
(e)
The Company shall pay Collateral
Agent’s reasonable fees and expenses, including the fees of
its counsel incurred in connection with the negotiation, execution
and delivery of this Agreement, as well as Collateral Agent’s
ongoing fees and expenses to which it is entitled under any of the
Senior Financing Documents, in accordance with the Senior Financing
Documents.
4.
Termination
. Initial Purchasers’
agreement to so forbear shall automatically terminate, without
further act or instrument, upon the occurrence of any of the
following events:
(a)
Bankruptcy
.
(i)
The Company or any of its
Subsidiaries pursuant to or under or within the meaning of any
Bankruptcy Code:
(1)
commences a voluntary case or
proceeding;
(2)
consents to the entry of an order
for relief against it in an involuntary case or
proceeding;
(3)
consents to the appointment of a
Custodian of it or for all or substantially all of its
