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Sample Business ContractsHome: Sample Business Contracts:
ARTISTDIRECT RECORDS, LLC
SHORT FORM DISTRIBUTION AND FOREIGN LICENSE AGREEMENT
Reference is made to the short form equity agreement between BMG Music d/b/a BMG
Entertainment, having an office at 1540 Broadway, New York, NY 10036-4098
("BMG") and ARTISTdirect Recordings Inc. ("ARI") dated of even date herewith
whereby BMG shall purchase a five percent (5%) interest in ARTISTdirect Records,
LLC, a Delaware limited liability company, having an office at 56700 Wilshire
Boulevard, 2nd Floor, Los Angeles, CA 90036 ("Owner") (the "Equity Agreement").
Reference is also made to the standard form exclusive distribution agreement of
BMG Distribution, a unit of BMG attached hereto as Exhibit 1 (the "Standard
Agreement"). The Standard Agreement (to the extent incorporated herein) and this
Agreement shall constitute the basis for the agreement as set forth below
between BMG and Owner with respect to BMG's rendering distribution and foreign
license services to Owner.
This Agreement together with such provisions of the Standard Agreement as may be
incorporated herein by reference shall constitute the agreement between Owner
and BMG concerning the subject matter hereof until the Supplemental Agreement is
entered into. Owner and BMG agree to expeditiously prepare and execute one or
more formal agreements (collectively, the "Supplemental Agreement") and to
negotiate in good faith with respect to the additional provisions (other than
those provisions set forth in this Agreement which shall be deemed
non-negotiable (except as provided herein)) to be included therein. In the event
of any conflict between the Standard Agreement and this agreement, the
provisions described in this agreement shall control.
The Supplemental Agreement will include all the provisions of this Agreement and
the Standard Agreement (which have been incorporated herein by reference) and
shall otherwise be in the form of the Standard Agreement, or as Owner and BMG
shall negotiate in good faith. Owner and BMG further agree that the failure or
refusal of Owner or BMG to enter into the Supplemental Agreement shall not in
any manner impede or compromise the enforceability and effectiveness of this
agreement. In the negotiations relating to the Supplemental Agreement, BMG's
good faith negotiation shall be judged by reference to its business practices
regarding distribution and license agreements with companies which, taken as a
whole are as of the present date, of a size (including, without limitation, both
funding commitment and sales history) and stature similar to Owner, and in which
BMG has a similar equity interest. Unless specifically provided to the contrary
below, all terms defined in the Standard Agreement will have the same meanings
when used herein.
1. TERM
(a) The term of this agreement (hereinafter, the "Term") shall be
the initial period of two (2) Contract Years commencing on
October 1, 2001 and ending on September 31, 2003 (unless such
period is extended, or terminated as provided in this Agreement)
(the "Initial Period") plus any additional period in respect of
which BMG exercises the Option granted to BMG below.
Notwithstanding the foregoing, if no albums are released
hereunder prior to December 31, 2001, the Term shall be deemed
automatically extended so that the first Contract Year will be
deemed to commence on the first day of the calendar quarter in
which the first album is released hereunder. (By way of example,
if the first album to be released hereunder is released on
February 1, 2002, the first Contract Year will be deemed to
commence
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on January 1, 2002 and the Term shall run through December 31,
2003, unless otherwise extended or terminated as provided in
this Agreement.)
(b) Owner grants BMG one (1) option to extend the Term for one (1)
additional Contract Year (the "Option Period"). BMG shall
exercise such option, if at all, by giving Owner written notice
thereof at the address first written above no later than at the
end of the third month of the Second Contract Year of the Term.
If BMG exercises such option, the Option Period shall begin
immediately after the end of the Initial Period.
(c) As used herein, "Contract Year" means the annual period
beginning on the date of commencement of the Term, and each
subsequent annual period during the Term beginning on the
anniversary of that commencement date (as each such annual
period may be suspended, extended or terminated and those dates
postponed as expressly provided herein).
(d) Owner and BMG agree to enter into exclusive, good faith
negotiations to extend or renew this Agreement, for a period of
sixty (60) days, which period will commence six (6) months prior
to the termination of this Agreement provided that this
Agreement has been extended pursuant to subparagraph 1(b) above.
2. TERRITORY
(a) The "Domestic Territory" of this agreement is the fifty (50)
United States, its territories and possessions and Puerto Rico;
(b) The "Foreign Territory" of this Agreement is the universe except
for the Domestic Territory;
(c) As used herein, the "Territory" refers to the Domestic Territory
and the Foreign Territory combined.
3. BASIC DOMESTIC DISTRIBUTION RIGHTS AND SERVICES
(a) Terms used herein and not otherwise defined shall have the same
meaning as in the Standard Agreement except the following:
(i) "Gross Sales" means the total amount invoiced to BMG's
Customer(s) for Owner's Product(s) sold hereunder;
(ii) "Net Sales" means Gross Sales (i) less any and all
credits issued (including returns credits and any
applicable incentive/disincentive credits), and reserves
established pursuant to paragraph 7 hereof, in respect
of Customer(s) returns to BMG of Owner's Product(s) sold
hereunder, (ii) plus such reserves as are liquidated
pursuant to paragraph 7 hereof;
(iii) "Affiliate(s)" shall have the same meaning as in the
Standard Agreement, except that Affiliate shall not
include any person or entity solely because such
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person or entity owns, directly or indirectly, an equity
interest in ARTISTdirect, Inc. ("ADI") or any affiliate
thereof; and
(iv) Subject to the exclusions defined below, "Owner's
Product(s) means any and all so-called "audio Records"
including, without limitation, "Record(s)" configured as
enhanced and/or other types of compact discs ("CD(s)"),
"DVD(s)", cassettes, tapes, tape cartridges,
soundtracks, digital audio (and/or video), black vinyl
records and all other Record(s) forms, now or hereafter
known or developed, and "audio-visual Records", now or
hereafter known or developed, derived from "Master(s)"
owned or controlled, in whole or in part, directly or
indirectly by Owner and/or an Affiliate(s), currently or
at any time during the Term, including Ted Field
("Field"), but only to the extent that Owner, such
Affiliate(s) or Field actually controls such rights
during the Term. Notwithstanding the immediately
preceding sentence, if Field's employment is terminated
by Owner other than "for cause," then Field shall no
longer be bound by the exclusivity provision of this
Agreement.
(b) BMG shall have the exclusive right to distribute Owner's
Products in the Domestic Territory during the Term as set forth
in paragraph 2 of the Standard Agreement. Notwithstanding the
foregoing, the exclusive distribution rights granted by Owner to
BMG hereunder in the Domestic Territory will NOT include mail
order and direct response sales (including record clubs),
premium sales, and licenses of individual Master(s) for
compilation records and synchronization purposes; provided,
however, that during the Term, Owner shall grant BMG's record
club (BMG Direct, i.e., or any successor thereto) a license on
terms and conditions comparable to those Owner grants to
Columbia House (or any successor thereto), if indeed Owner has a
licensing agreement with Columbia House, and further provided
that during the Term Owner will give good faith consideration to
licensing opportunities from the BMG Special Products Unit (or
any successor thereto) and, Owner warrants represents and agrees
that if Owner avails itself of any licensing opportunities first
presented to Owner by BMG Special Products (or any successor
thereto), Owner shall not pursue such opportunities directly so
that BMG Special Products (or any successor thereto) does not
receive a fee for such services.
(c) The rights granted to BMG hereunder shall include the right to
distribute Owner's Products in any and all intangible digital
formats throughout the Territory ("Digital Distribution"),
except:
(i) Owner may grant ADI the right to Digitally Distribute
Owner's Product(s) directly to consumers in the
Territory without any financial obligation to BMG
provided, however, that the license between Owner and
ADI (or the applicable ADI subsidiary or Affiliate) in
connection therewith is negotiated on an arm's length
basis;
(ii) Owner may grant ADI (or ADI's subsidiaries and
Affiliates) the right to Digitally Distribute Owner's
Product(s) in connection with one (1) or more digital
services which ADI (or the applicable ADI subsidiary or
Affiliate) syndicates to or with third parties;
provided, however, Owner will pay to BMG a distribution
fee in connection with such uses equal to fifteen
percent (15%) of Owner's net royalty receipts (to be
defined) therefor and provided that the
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territory of any such grant shall either be for all or
part of the Domestic Territory or for the entire world.
(iii) Owner shall have the right to grant licenses to
Digitally Distribute Owner's Product(s) to third parties
(including, without limitation, PressPlay and MusicNet)
for so-called on-line digital "subscription" services
without any financial obligation to BMG, provided that
the territory of any such license shall either be for
all or part of the Domestic Territory or for the entire
world. Owner will consult with BMG regarding the terms
and conditions of any such third party license agreement
prior to entering into such agreement; provided, Owner's
inadvertent non-repetitive failure to so consult shall
not constitute a breach hereof. Upon BMG's request,
Owner shall grant a non-exclusive license to MusicNet
for its subscription service on commercial terms to be
negotiated in good faith.
(d) Additional exclusions;
(i) Owner's Product(s) shall not include Record(s) derived
from Master(s): (A) which constitute the assets related
to a "significant acquisition" of an entity by Owner,
ADI or an Affiliate (i.e., an entity which is acquired
(in whole or in part) by Owner, ADI or an Affiliate for
a purchase price of more than ten million dollars
($10,000,000); provided, however, that those
acquisitions for a purchase price in excess of ten
million dollars ($10,000,000) shall nonetheless be
subject to the terms of this agreement if: (x) such
acquisition is of an individual artist, or (y) such
acquisition is funded in substantial part by the amounts
which ARI is required to fund Owner pursuant to Article
5 of the Operating Agreement of Owner, dated May 31,
2001). Notwithstanding the foregoing, with respect to
any acquisition (other than of an individual artist) for
a purchase price in excess of ten million dollars
($10,000,000) funded in substantial part by the amounts
which ARI is required to fund Owner pursuant to Article
5 of the Operating Agreement, Owner may grant a third
party a license for the Foreign Territory only subject
to a right of first negotiation and matching right to
BMG; (B) of an entity into which or with which ADI or
ARI is merged, or which acquires ADI after the date
hereof; (C) acquired by ARI, ADI, an Affiliate or Field
which are subject to a pre-existing agreement with a
third party for the exclusive distribution in the
Domestic Territory or exploitation in the Foreign
Territory of such Record(s); provided, however, as such
third party's right(s) expire, such Record(s) shall be
subject to all of the provisions of this Agreement; and
(D) which constitute soundtracks of motion pictures and
which would otherwise be deemed Owner's Product solely
because such motion picture is produced by Field or an
affiliate of Field, provided, however, that during the
Term neither Field nor an entity controlled by Field
will establish a separate Soundtrack Label (as defined
in the next sentence). For purposes of this paragraph, a
Soundtrack Label will be a label created for the purpose
of creating and releasing (either through its own or
third party distribution) more than one (1) motion
picture soundtrack album. (For purposes of
clarification, to the extent that Owner or ADI own or
control the soundtrack album rights for a motion
picture, such soundtrack album(s) shall be an Owner's
Product hereunder).
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(ii) Owner's Product(s) shall not include Record(s) of
"heritage" type recording artists released on the ADI
owned record label currently known as "ARTISTdirect
Digital".
4. DISTRIBUTION FEE
(a) For the Distribution Services rendered hereunder, BMG will
retain a distribution fee of [***]* ("Distribution Fee") of "Net
Sales" (as defined herein).
(b) Notwithstanding the foregoing, for Net Sales that are in excess
of [***]* in the aggregate, BMG will retain a Distribution Fee
of [***]*.
(c) Notwithstanding the foregoing, Net Sales that are in excess of
[***]* in the aggregate, BMG will retain a Distribution Fee of
[***]*.
(d) Notwithstanding the foregoing, for Net Sales that are in excess
of [***]* in the aggregate BMG will retain a Distribution Fee of
[***]* and such [***]* Distribution Fee shall be applied to all
of Owner's cumulative Net Sales retroactive to the first unit
comprising Owner's Product(s). If such threshold is achieved,
BMG shall render an adjusted accounting and payment, if any, to
Owner in respect of such retroactive application of the [***]*
Distribution Fee at the same time BMG renders the monthly
accounting for the month in which such threshold is reached.
5. ADVANCES
(A) Execution Advances
(1) As a recoupable, non-returnable distribution Advance BMG
will pay Owner the sum of [***]* payable as follows:
(a) [***]* promptly upon the full execution of this
agreement; and
(b) [***]* promptly upon the full execution the
Supplemental Agreement.
(2) As a recoupable, non-returnable foreign license Advance,
BMG will pay Owner the sum of [***]* (the "First Foreign
License Advance") payable as follows:
(a) [***]* promptly upon the full execution of this
Agreement; and
(b) [***]* promptly following the full execution of
the Supplemental Agreement.
(B) Foreign License Agreement Advance
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* Confidential treatment is requested for confidential information enclosed in
the brackets and underlined.
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Promptly after the commencement of the Second Contract Year, BMG
will pay Owner a recoupable non-returnable Advance in the sum of
[***]* (the "Second Foreign License Advance").
(C) Threshold Advance
(1) As a recoupable non-returnable Advance, BMG will pay
Owner the sum of [***]* (the "Threshold Advance") payable promptly
following the expiration of the first consecutive nine (9) months of the
Term, if and only if:
(a) Net Sales in respect of such nine (9) month
period (as determined by reference to the
statements reflecting sales through the ninth
such month) exceed [***]* (excluding reserves
then being held); and
(b) All Advances payable in subparagraph 5(A) above
are then being fully recouped in accordance with
the recoupment schedule therefor (i.e. a minimum
of [***]* has been recouped from Net Proceeds.
(D) Option Advances
(1) If BMG timely exercises its option for the Option Period
pursuant to subparagraph 1(b) above, then promptly
following the end of the third month of the Second
Contract Year, BMG will pay Owner the sum of [***]* as
follows:
(a) a recoupable, non-returnable Advance in
the sum of [***]* (the "Optional Contract
Advance") for the Domestic Territory; and
(b) a recoupable, non-returnable Advance in
the sum of [***]* (the "Foreign License
Option Advance").
(E) Recoupment of Advances
(1) The Advances payable under subparagraphs 5(A), 5(B) and
5(C) above shall be recouped from Net Proceeds (as
defined in paragraph 6 below) as follows:
(a) In respect of each month of the first
Contract Year, in an amount which is the
greater of: (i) [***]*; OR (ii) [***]* of
Net Proceeds;
(b) In respect of the first three months of
the second Contract Year of the Term in
an amount which is the greater of: (i)
[***]*; OR (ii) [***]* of Net Proceeds;
(c) In respect of each month of the second
Contract Year, other than the first three
months of such Contract Year:
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* Confidential treatment is requested for confidential information enclosed in
the brackets and underlined.
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(i) If the Threshold Advance
has NOT been paid, in an amount which is
the greater of: (A) [***]*; or (B)
[***]* of Net Proceeds; OR
(ii) If the Threshold Advance
has been paid, in an amount which is the
greater of: (A) [***]*; OR (B) [***]* of
Net Proceeds.
(d) The applicable amount specified in
subsection (i) of each of (a), (b) and
subsection (A) of (c)(i) and (c)(ii)above, shall
be known as the "Scheduled Minimum Monthly
Recoupment" or "SMMR" for the applicable month.
(2) If BMG exercises its Option pursuant to subparagraph
1(b) above, then the Optional Contract Advance and the
Foreign License Option Advance payable pursuant to
subparagraph 5(D) above will be recoupable from Net
Proceeds in eighteen (18) equal, consecutive monthly
installments of [***]* (the "Option Recoupable Amount"
or "ORA." Recoupment of the Advances payable pursuant to
subparagraph 5(D) shall commence in month sixteen (16)
of the Term. Notwithstanding anything to the contrary
contained herein, the ORA is in addition to the SMMR for
month sixteen (16) and each subsequent month of the
Term. For the avoidance of doubt, the amount of
recoupment from month sixteen (16) of the Term onward
shall be an amount which is the greater of the total sum
of the (i) ORA PLUS the applicable SMMR for the
particular month concerned OR (ii) [***]* of Net
Proceeds.
(3) Notwithstanding anything to the contrary contained
herein, if in any given month of the Term, Net Proceeds
are less than the sum of the SMMR plus the applicable
ORA, (e.g. insufficient for recoupment purposes) then
the difference between the sum of the SMMR plus the
applicable ORA, and the amount of Net Proceeds (the
"Roll Forward Amount" or "RFA") shall be rolled forward
to and shall increase the subsequent months' SMMR
payment on a cumulative and continuous basis. (By way of
example ONLY, if the amount of Net Proceeds in month
three of the Term is $100,000, which is $250,000 less
than the SMMR of $350,000, then, the RFA is $250,000.
The Scheduled Minimum Monthly Recoupment for month four
of the Term shall be the sum the RFA and the otherwise
applicable SMMR, for a total SMMR of $600,000). If the
amount of Net Proceeds for month four of the Term is
then $300,000, the RFA for month four shall be $300,000
and the SMMR for month five of the Term will be
increased to $650,000.
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* Confidential treatment is requested for confidential information enclosed in
the brackets and underlined.
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(F) Foreign Royalties
Notwithstanding anything to the contrary contained herein, at all times
the entire First Foreign License Advance, the entire Second Foreign
License Advance and the entire Foreign License Option Advance
(collectively, the "Foreign Advances") will also be fully recoupable
from all FRR (as defined in paragraph 11 below). (For the avoidance of
doubt, (i) while the Foreign Advances are recoupable from Net Proceeds
as indicated above and FRR, such Foreign Advances shall only be
recoupable once, (ii) Foreign Royalties shall not be used to recoup the
Domestic Advances herein and, (iii) Foreign Advances recouped from FRR
shall in no way reduce the SMMR and/or ORA above unless and until all
Advances have been recouped hereunder.
6. NET PROCEEDS
(a) "Net Proceeds" means Net Sales less the Distribution Fee and any
other amounts, including without limitation manufacturing,
warehouse and advertising costs, which BMG shall be entitled to
offset or otherwise deduct therefrom hereunder. BMG will account
for Net Proceeds within sixty (60) days after the last day of
each calendar month of the Term, except Net Proceeds in respect
of a "new release" will be accounted five (5) business days
following the end of the month in which payment is due to BMG
from "Customer(s)" (subject to any additional dating authorized
by Owner and approved by BMG). For purposes of clarification,
the accounting for "new releases" in the immediately preceding
sentence only applies to the initial shipments of such "new
release" (i.e., shipments made prior to the street date of the
release concerned all subsequent shipments of such release will
be in accordance with BMG's standard accounting practices and
the accounting for such "new releases" may be rendered up to
ninety (90) business days following the last day of the month of
the "street date" for such "new release.".
(b) Manufacturing and Miscellaneous Invoices. BMG shall deduct all
invoices, except coop advertising, from Net Proceeds sixty (60)
days following the end of the month of each calendar month of
the Term in which such invoice is billed. By way of example, an
invoice generated by BMG during the month of January, shall be
deducted from the accounting of Net Proceeds rendered to Owner
at the end of March.
(c) Coop Advertising. BMG shall invoice Owner for coop advertising
commitment(s) ("CAC") during the month immediately following the
start date for such CAC. Invoices for CACs shall be deducted
from Net Proceeds thirty (30) days following the end of the
month in which the invoice is billed by BMG to Owner. By way of
example, a CAC with a start date during the month of January
will be invoiced to Owner in February and shall be deducted from
Net Proceeds due to Owner at the end of March. Notwithstanding
the foregoing, from time to time BMG may be required to make
adjustments or other administrative tasks which prevent BMG from
generating an invoice in a timely manner. In such instances,
Owner remains responsible for such invoiced costs whether or not
Owner receives the invoice in a timely manner or otherwise,
provided however, that BMG evidences to Owner, upon Owner's
request that BMG has paid the amount which would have been
invoiced to Owner.
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(d) Except as otherwise expressly provided herein, BMG will bear the
costs and expenses associated with Customer(s) bad debt risk and
cash discounts offered by BMG for timely payment in respect of
Owner's Product(s) sold and distributed by BMG to Customer(s).
Accordingly, Owner will bear the costs and expenses associated
with bad debt risk related to Owner's Export Product(s) (if
authorized or approved by Owner) and other Owner's Product(s),
if any, which is not distributed by BMG hereunder or which for
any reason is distributed by BMG, on behalf of Owner, to a
person other than a Customer(s).
7. RETURNS RESERVES
(a) (i) With respect to Owner's Product(s) sold in the
Domestic Territory and each calendar month of the Term,
BMG will be entitled to establish a reserve against
returns at the rate of twenty (20%) percent (except forty
(40%) percent with respect to Gross Sales of Owner's
Product(s) as so-called "singles" Record(s)) of Gross
Sales for Owner's Product(s) sold in the Domestic
Territory. The reserve will be maintained for a period of
four (4) months.
(ii) Notwithstanding the foregoing, (1) following the
first Contract Year, BMG will be entitled to adjust
(increase and/or decrease) the reserves to reflect the
level, value and timing of the returns anticipated by BMG
in respect of Owner's Product(s) returnable to BMG
hereunder. In making any such adjustment, the types of
factors which BMG will consider will include BMG's
so-called weighted, historical "returns-running rate"
experience (i.e., the percentage rate of returns
applicable to particular Owner's Product(s) during a
given period (except that with respect to the Singles
Record(s) it will be the percentage rate of returns
applicable to Owner's Product(s) distributed as Singles
Record(s) during such period)), which BMG determines (in
its reasonable sound commercial judgment) are likely to
be returned to BMG, (2) BMG will adjust (on a monthly
basis) the amount of reserves held with respect to a
particular Owner's Product(s) ("POP") (If the reserves
maintained for a POP exceed the difference between gross
shipments for the POP and the sum of one hundred and
fifteen percent (115%) of Soundscan's reported sales of
the POP and actual units returned of such POP, then BMG
shall liquidate such difference.
(iii) Notwithstanding the foregoing, (x) BMG shall not
be required to compute said calculation and accelerate
reserves liquidation for a POP with a gross shipment of
less than forty thousand (40,000) units); and (y) for
each of the final nine (9) calendar months of the Term,
the amount of the reserve will be the applicable
percentage of the higher of (A) Gross Sales for the month
concerned, or (B) the average monthly Gross Sales for the
twelve months immediately preceding the final twelve (12)
months of the Term and such reserve will be maintained
until nine (9) months following the expiration or
termination of the Term, (the "Post-Term Returns
Period").
(b) Notwithstanding anything to the contrary contained herein, BMG
will retain all reserves established in respect of the nine (9)
month period preceding the last day of the Term and apply such
reserves against credits issued during such period
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and/or the Post-Term Returns Period. Within thirty (30) days
following the end of the Post-term Returns Period, a
determination of returns and credits issued will be made by BMG.
If credits issued by BMG exceed reserves retained by BMG, Owner
promptly will pay BMG the value of Net Proceeds of that
difference, and if at the end of the Post-Term Returns Period
such reserves exceed credits issued, BMG promptly will pay Owner
the value of the Net Proceeds of that difference.
(c) Paragraph 7(b) above will not be applicable hereunder if:
(1) Owner enters into a written agreement ("New
Distributor Agreement") with a "New Distributor"
(as defined below) pursuant to which the New
Distributor agrees (a) to accept all returns of
Owner's Product(s) upon and after the expiration
or termination of the Term; (b) to be fully
responsible for crediting Customer(s) therefor
at the prices applicable pursuant to (and
otherwise in accordance with) the terms of the
then applicable BMG Returns Policy; and (c) to
fully indemnify BMG (d) and hold BMG harmless
from any and all claims against BMG and from any
losses, claims, costs, liabilities or damages
(including attorney's fees) arising out of or
connected with a breach by New Distributor of
its obligations under the New Distributor
Agreement; and
(2) Owner causes New Distributor to furnish BMG with
written notification of the New Distribution
Agreement which complies with the provisions of
subparagraph 7(c)(1) (e.g. a copy of the letter
sent by New Distributor to Customer(s) which is
consistent with the provisions of paragraph
7(c)(1) ("New Distributor Customer(s) Letter")).
If the conditions set forth in subsections 7(c)(1) and 7(c)(2)
above are met, BMG will liquidate the unliquidated reserves
established hereunder in accordance with the provisions hereof
promptly following BMG's receipt of the New Distributor
Customer(s) Letter (BMG retaining only a reasonable reserve in
respect of foreseeable returns to BMG (e.g. so-called "pipeline"
returns)) provided that prior to any such liquidation Owner has
paid (or made specific arrangements with BMG to pay) all
outstanding amounts due (or to become due thereafter). "New
Distributor" means a so-called "Major" third party distribution
company or other third party distributor reasonably approved by
BMG which operates in the prerecorded record business segment of
the record industry, is ordinarily regularly engaged in
distributing to Customer(s) product(s) similar to Owner's
Product(s), agrees to render Distribution Services as Owner's
new distributor, and agrees, upon and after the expiration of
the Term, to accept all returns of Owner's Product(s) and to be
solely and fully responsible for crediting BMG's Customer(s) in
accordance with the terms hereof and otherwise fulfilling the
obligations contemplated by this paragraph.
(d) For returns received by the New Distributor during the first
four and one-half (4 1/2) months of the Post-Term Returns Period
of units of Records distributed by BMG hereunder, BMG shall
remit to Owner the Distribution Fee taken by BMG in respect
thereof provided that (1) the New Distributor has not released
the Record concerned with the same selection number, and (2) the
New Distributor provides BMG with a
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detailed inventory control report evidencing such returns to
BMG's reasonable satisfaction.
(e) Notwithstanding the foregoing, if Owner evidences to BMG in the
form of a guaranty or bank letter of credit in form and
substance reasonably satisfactory to BMG (BMG employing its
reasonable commercial judgment in making a determination in this
regard) that Owner is then and will continue to be in a position
to timely fulfill its financial obligations and responsibilities
due to BMG hereunder, then BMG shall not withhold reserves for
the remainder of the Term in respect of sales of Owner's
Product(s) in the Domestic Territory.
8. MANUFACTURING SERVICES
BMG will render and charge Owner for "manufacturing" services at the
prices set forth in Exhibit D of the Standard Agreement.
Notwithstanding the foregoing, if Owner determines the prices
charged by BMG for manufacturing services related to Owner's Product(s)
in the Domestic Territory are no longer so-called "competitive prices,"
Owner, subject to not unreasonably disrupting the business of Owner or
of BMG and further subject to the reasonable scheduling and component
requirements necessary to maintain BMG's efficient administration of
BMG's manufacturing services, shall have the right not more than once
within any twelve (12) month period of the Term to request that BMG
match the terms of a written bona fide third party offer ("Competitive
Offer") to manufacture a particular configuration of Owner's Product(s)
for no less than a consecutive twelve (12) month period. Owner shall
provide BMG with a written Competitive Offer to Owner from at least two
(2) reputable manufacturers (other than Sonopress or any affiliate of
Sonopress) offering at least the same quality of services as BMG
provides. BMG's match, if any, shall be the average of the two
Competitive Offers. If within ten (10) business days of BMG's receipt of
Owner's written Competitive Offer, BMG fails to respond to Owner's
request or notifies Owner that BMG is not willing to match such offer,
then and only then may Owner utilize the services of those third-party
manufacturers from which the Competitive Offer were secured for the
particular configuration concerned.
9. DELIVERY COMMITMENT
In respect of the Territory, Owner shall deliver a minimum of six (6)
"Qualifying Albums" (as defined below) during the first Contract Year of
the Term, at least eight (8) Qualifying Albums during the second
Contract Year of the Term and at least ten (10) Qualifying Albums during
the Option Period, if any.
If at any time during the Term Owner delivers less than the minimum
number of Qualifying Albums during any Contract Year, such Contract Year
shall be extended and shall continue until Owner has delivered the
minimum number of Qualifying Albums for such Contract Year. If any
extension continues for a period of nine (9) months or more, BMG shall
also have the option, in its sole discretion, to terminate the Term of
this Agreement and to require Owner to repay Advances on a pro-rata
basis with the number of Qualifying Albums Owner has not delivered,
provided, however, that Owner shall not be required to repay BMG more
than the then outstanding amount of unrecouped Advances hereunder. By
way of
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example, if during the First Contract Year Owner delivers five (5)
Qualifying Albums, and following the nine (9) month period of extension
of the Term, BMG terminates the Term, Owner shall repay one-sixth (1/6)
of all Advances made hereunder to the date of Termination.
Owner shall not deliver albums for the primary purpose of satisfying the
foregoing delivery commitment (i.e., Owner shall act in good faith in
delivering albums hereunder).
A Qualifying Album means a single-disc album:
(a) which is recorded in the pop, rock, rap, urban or country
genres;
(b) for which Owner controls distribution rights in all of the
Territory; and
(c) which is comprised of newly recorded, previously unreleased
studio recordings featuring the performances of a single artist (whether
an individual or group) or which is a non-score soundtrack album to a
motion picture with a budget in excess of $20 Million.
Notwithstanding the foregoing: (i) up to one (1) "live" album per
Contract Year shall count as a Qualifying Album, provided such live
album (A) otherwise satisfies the criteria for a Qualifying Album and
(B) embodies compositions previously unreleased by the applicable artist
on 65% or more of the total playing time of such album; and (ii) up to
one (1) album per Contract Year shall count as a Qualifying Album even
though Owner does not control the distribution rights therefor for all
of the Territory, provided such album otherwise satisfies the criteria
for a Qualifying Album and provided that owner does control the
distribution rights for the Domestic Territory and a substantial portion
of the Foreign Territory.
10. MARKETING/PROMOTION/SALES
(a) Owner will be responsible in the Domestic Territory for:
(i) all marketing, advertising and promotion of Owner's
Product(s); and
(ii) all BMG approved special sales programs, dating, special
sales discounts and campaigns in connection with Owner's
Product(s). (Owner shall have the right to request or
consent to any such "special terms" in accordance with
paragraph 8(c) of the Standard Agreement.)
Notwithstanding the foregoing, BMG, will facilitate the
placement and verification (at Owner's sole cost and
expense (on a so-called "commit" basis in lieu of the
so-called "street" date)) of Owner's coop advertising
commitments. For purposes of clarification, Owner shall
have the right to pre-approve Coop Advertising
hereunder.
(b) In consultation with BMG, Owner will establish an initial
release schedule for each specific Owner's Product(s) in the
Domestic Territory in accordance with
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subparagraph 9(c) of the Standard Agreement. Notwithstanding the
foregoing, it is hereby understood and agreed that Owner's
Product(s) for recording artist p/k/a "Custom" scheduled to be
released in October of 2001 shall be released in a so-called
"off-cycle" and ONLY for said first "Custom" release BMG shall
not charge Owner the customary off-cycle charges therefor.
(c) BMG will not edit, re-mix or recompile or, with respect to the
Domestic territory, otherwise alter Owner's Products without
Owner's prior consent.
11. FOREIGN LICENSE
(a) During the Term, Owner hereby grants BMG the exclusive rights to
exploit all of Owner's Product throughout the Foreign Territory.
(b) BMG's rights in the Foreign Territory shall be extended with
respect to any Owner's Product(s) delivered in the last nine (9)
months of the Term so that BMG's rights hereunder shall continue
for nine (9) months from delivery with respect to each such
Owner's Product(s).
(c) BMG shall have a six (6) month non-exclusive sell-off period
following (a) or (b), as applicable. There shall be no excessive
build-up of inventory in anticipation of the sell-off period and
during the sell-off period no Record shall be sold on a price
line lower than the lowest price line on which such Record was
rightfully sold hereunder during the Term.
(d) Owner and BMG shall negotiate in good faith with respect to
appropriate foreign release provisions to be included in the
Supplemental Agreement. Owner and BMG agree that such provision
shall contain the following elements:
(1) the release provision shall apply to the United
Kingdom, Australia, France, Germany, Japan, Canada and
Mexico only;
(2) the release provision shall not apply until the
applicable album has been released in the United States
and has had some quantifiable sales success, provided
that Owner shall have the right to have the provision
apply to one album per year which has not had such
success and as may be necessary to comply with
reasonable release provisions in applicable artist
agreements;
(3) a provision which provides for exceptions to
sections (1) and (2) above to the extent necessary to
comply with reasonable release provisions in applicable
artist agreements; and
(4) the release commitment shall not apply until BMG has
been given notice and a cure period to be negotiated and
if BMG fails to release the applicable album within the
applicable cure period the sole remedy shall be that
Owner shall be free to license such Owner's Product to a
third party with respect to such territory, provided
however, that any revenue from such license will be paid
to BMG and will be deemed FRR hereunder until such time
as BMG has recouped the Foreign Advances hereunder.
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<PAGE>
(e) With respect to sales of Owner's Product(s) in the Foreign
Territory BMG will accrue to Owner's account an all-inclusive,
comprehensive (including, without limitation MPTF, SPP, artist,
producer and all other Owner obligations to third parties)
royalty at the applicable rate(s) set forth below on 100% of
Owner's Product(s) (excluding Digital Records) hereunder sold
(i.e. neither returned nor exchanged) by BMG or its licensees
through normal retail channels, less container deductions and
taxes (stated as part of or included in the price), and
calculated (on a published price to dealers ("PPD") basis) at
the following rates in respect of such Owner's Product(s):
(1) Albums: (i) at Top Price Line, [***]*;
(ii) at Mid-Price-Line, [***]*;
(iii) at Budget Price Line, [***]* and
(iv) at Superbudget Price Line,
[***]*;
(2) Singles: [***]* for all Price Lines;
(3) EPs: [***]* for all Price Lines;
(4) Price Line Definitions:
(a) Mid Price-Line: Records sold at a price
list or category which is equal to or less than
[***]* and equal to, or in excess of, [***]* of
the applicable Top Price Line for Records of a
particular type and embodying a particular
repertoire line release by the applicable
releasing party in the applicable country or
territory;
(b) Budget Price Line: Records sold at a
price list or category which is less than [***]*
and equal to, or in excess of, [***]* of the
applicable Top Price Line for Records of a
particular type and embodying a particular
repertoire line release by the applicable
releasing party in the applicable country or
territory.
(c) Superbudget Price Line: Records sold at
a price list or category which is less than
[***]* of the applicable Top Price Line for
Records of a particular type and embodying a
particular repertoire line release by the
applicable releasing party in the applicable
country or territory.
(d) Digital Records: [***]* of the
applicable rate(s) set forth above. ("Digital
Records" does not include compact discs or
digital transmission for the purposes of
calculating royalties hereunder).
----------------------
* Confidential treatment is requested for confidential information enclosed in
the brackets and underlined.
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(5) Club Operations: The royalty base for the sale
of Records through club operations shall be the club
operation's actual selling price of such Records to its
members less actual third-party shipping and handling
charges separately stated and paid by such member and
the applicable royalty shall be [***]* of such royalty
base for records sold at a Top Price Line; or [***]* of
such royalty base for Records sold at less than a Top
Price Line.
(6) Videograms (including DVD-Videos):
(i) CD-V 3" and 5": [***]*;
(ii) CD-V 8": [***]* if 30 minutes or
shorter, [***]* if longer than 30 minutes;
(iii) Video cassette, DVD video and
other CD-V at Top Price Line: [***]* if 30
minutes or shorter and [***]* if longer than
over 30 minutes; and
(iv) Video cassette, DVD video and
other CD-V at Mid-Price-Line: [***]* if 30
minutes or shorter and [***]* if longer than
thirty minutes.
(7) Third Party Licensing: [***]* of monies received
by BMG solely attributable to the exploitation of the
Master Recordings by third parties within the Foreign
Territory.
(8) The following container charges equal to the
following percentage of the PPD net of any consumer
taxes included therein shall apply:
[***]* with respect to black vinyl;
[***]* with respect to pre-recorded
analog tapes;
[***]* with respect to compact discs and
all other records, including without
limitation all audiovisual records.
(f) Royalty Accounting: Accountings for sales hereunder will be
rendered within 120 days following the end of each calendar
quarter and shall reflect sales made in the applicable quarter.
Except as otherwise provided herein, the royalties applicable
hereunder shall be computed on the same basis and in
substantially the same manner as BMG accounts to its
wholly-owned affiliates (including, without limitation,
calculation and liquidation of reserves, free goods and
treatment of returns). All royalties payable to or on behalf of
Owner pursuant to the Foreign License portion of this Agreement
shall be referred to herein as "Foreign Royalties Received" or
"FRR".
(g) In connection with the Supplemental Agreement, Owner and BMG
will negotiate in good faith with respect to reasonable
marketing approvals and other similar terms for the Foreign
Territory as are customary for deals of this nature.
----------------------
* Confidential treatment is requested for confidential information enclosed in
the brackets and underlined.
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12. KEY MAN
If for any reason Field shall cease to be actively engaged in the day to
day management of Owner during the Term, then BMG shall have the right,
by written notice to Owner and without liability, to terminate the Term
of this agreement, in which event Owner shall promptly pay to BMG an
amount equal to the amount of any unrecouped Advances hereunder.
13. MISCELLANEOUS
(a) Promptly following the execution hereof, BMG, upon Owner's
request, will introduce Owner to BMG's Information Systems and
Technology ("IS&T") in order to afford Owner the option of using
the available support services of such IS&T unit in connection
with the tracking of Owner's exploitation of Owner's Product(s)
in the Domestic Territory. Except as otherwise provided herein,
if at any time after the date hereof, IS&T no longer charges a
fee to BMG's distributed labels for the support services it
offers, or BMG absorbs said IS&T charges for all of its third
party distributed labels, then Owner shall be a beneficiary of
such policy(ies).
(b) Within the sixty (60) day period immediately following the full
execution of this Agreement, the parties hereto agree to
continue negotiating in good faith with respect to the
Supplemental Agreement mentioned hereinabove (including, without
limitation, with respect to the foreign license) consistent with
the foregoing terms and conditions and containing such other
terms and conditions as are contained in Standard Agreement,
inclusive of, but not limited to, terms and conditions related
to ordering, title and ownership, audit rights, warranties and
representations, indemnification, excess inventory, deletions,
force majeure, governing law, sale of products, processing and
quantities, price increases, key personnel).
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<PAGE>
(c) Paragraphs 17 and 20 through 28 of the Standard Agreement are
hereby incorporated by reference, and shall be part of this
Agreement. Notwithstanding the foregoing, BMG shall, at Owner's
request, negotiate such provisions in good faith in connection
with the Supplemental Agreement in accordance with its usual
business practices.
ARTISTdirect Records, LLC BMG Distribution,
a unit of BMG Music,
d/b/a BMG Entertainment
By:/s/ Marc P. Geiger By:/s/ Pete Jones
------------------------- -------------------------
Date: October 29, 2001 Date: October 31, 2001
To the limited extent applicable to him:
/s/ Ted Field
-------------------------
Ted Field
Date: October 29, 2001
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EXHIBIT 1
TO THE SHORTFORM DISTRIBUTION AND FOREIGN LICENSE AGREEMENT
BETWEEN BMG MUSIC AND ARTISTDIRECT RECORDS, LLC, AND TED FIELD
"STANDARD AGREEMENT"
DISTRIBUTION AGREEMENT
by and between
BMG MUSIC D/B/A BMG ENTERTAINMENT
and
ARTISTDIRECT RECORDS, LLC
DATED AS OF ____________, 200_
<PAGE>
TABLE OF CONTENTS
Page
PART I - DISTRIBUTION..................................................... 1
1. TERM....................................................... 1
2. BASIC SERVICES............................................. 1
3. ORDERING/TITLE/OWNERSHIP................................... 4
4. DISTRIBUTION FEE/NET SALES/NET PROCEEDS/RESERVES/PAYMENT... 6
5. RETURNS/PROCEDURE/NON-BMG PRODUCT(S)....................... 9
6. EXCESS INVENTORY........................................... 12
7. DELETED PRODUCTS........................................... 13
8. SALE OF PRODUCTS BY BMG.................................... 13
9. MARKETING/ADVERTISING/PROMOTION............................ 17
10. TRADEMARKS................................................. 18
PART II - MANUFACTURING................................................... 19
11. PURCHASE/PROCESSING/QUANTITIES............................. 19
12. PRICES/ADDITIONAL TERMS.................................... 21
PART III - GENERAL........................................................ 21
13. APPLICABILITY.............................................. 21
14. STATEMENTS/ACCOUNTING/AUDIT/PAYMENTS/COLLATERAL............ 21
15. FORCE MAJEURE.............................................. 23
16. TERMINATION................................................ 23
17. OWNER'S REPRESENTATIONS, WARRANTIES, COVENANTS AND
INDEMNIFICATION............................................ 25
18. OWNER'S RELATIONSHIP TO BMG................................ 28
19. KEY PERSONNEL.............................................. 29
20. NOTICES.................................................... 29
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21. ASSIGNMENT................................................... 29
22. WAIVERS AND REMEDIES......................................... 30
23. HEADINGS..................................................... 30
24. INVESTIGATION................................................ 30
25. ENTIRE AGREEMENT............................................. 30
26. SEVERABILITY................................................. 30
27. GOVERNING LAW................................................ 31
28. COUNTERPARTS................................................. 31
29. INTERNATIONAL CATALOG LICENSING AGREEMENT ("ICLA")........... 31
SCHEDULES AND EXHIBITS
Schedule 1 - Owner's Products............................................... 33
Schedule 2 - Non-BMG Product(s)............................................. 34
Exhibit A - Price Schedule for Warehouse Services........................... 35
Exhibit B - Parental Advisory Logo.......................................... 36
Exhibit C - Trademark Requirements.......................................... 37
Exhibit C-1 - Designation of Origin......................................... 39
Exhibit D - Price Schedule for Audio Manufacturing Services................. 40
Exhibit E - Pride Schedule for Video Duplication Services................... 43
Exhibit F - Security Agreement.............................................. 44
Exhibit G - Short Form Security Agreement................................... 45
Exhibit H - ICLA Terms...................................................... 55
ii
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DISTRIBUTION AGREEMENT
AGREEMENT made as of the _____ day of _____________, 200_, by and between BMG
Music, d/b/a BMG Entertainment, a New York general partnership, having an office
at 1540 Broadway, New York, New York 10036-4098 ("BMG") and
_______________________ a ________________________ its units and divisions and
its affiliated and associated labels, having an office at
___________________________________ ("Owner").
In consideration of the representations, warranties, covenants and mutual
promises contained herein and subject to the terms and conditions hereinafter
set out, the parties hereto agree as follows:
PART I - DISTRIBUTION
1. TERM
(a) The "Term" of this Agreement is the ___________ (___)-year period
commencing on the date first written hereinabove ("Initial Period"), unless
terminated or extended as provided herein.
(b) Owner grants BMG two (2) separate, consecutive options to extend the
Term ("First Option" and "Second Option," respectively). The First Option and
the Second Option are sometimes herein referred to as the "Option(s)." Each
"Option(s)" is for one (1) additional one (1)-year period(s) ("Additional
Period(s)"). The First Option is to extend the Initial Period for an additional
one (1)-year period commencing immediately following the expiration of the
Initial Period ("First Additional Period") and the Second Option is to extend
the First Additional Period for an additional one (1)-year period commencing
immediately following the expiration of the First Additional Period ("Second
Additional Period"). Each Option(s) will be exercised, if at all, by written
notice from BMG to Owner. The First Option will be exercised, if at all, prior
to the expiration of the Initial Period and the Second Option will be exercised,
if at all, prior to the expiration of the First Additional Period.
(c) The Initial Period and any Additional Period(s) constitute the "Term."
As used herein, "Contract Year" means the twelve (12)-month period commencing on
the month and day first written hereinabove of any year of the Term and ending
on the day immediately preceding such day of the following year of the Term.
2. BASIC SERVICES
(a) As used herein -
(i) (A) "Owner's Product(s)" means any and all so-called "sound
recordings" including, without limitation, "Record(s)" configured as enhanced
and/or other types of compact discs ("CD(s)"), "DVD(s)" cassettes, tapes, tape
cartridges, soundtracks, digital audio (and/or video) discs, black vinyl records
and all other Record(s) forms, now or hereafter known or developed, and
"audio-visual recordings," now or hereafter known or developed, derived from
"Master(s)" owned or controlled, in whole or in part, directly or indirectly by
Owner and/or an Affiliate(s), currently or at any time during the Term. Attached
hereto and by
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this reference incorporated herein as Schedule 1 is a list of Owners Product(s)
as of the date first written hereinabove.
(B) "Affiliates" means any person or entity engaged in the
so-called media/entertainment industry" that directly or indirectly owns or
controls Owner, is owned or controlled by Owner or "Key Personnel" (or any
combination of them), or is under common ownership or control with Owner; "own"
(including the terms "owned by" and "under common ownership with") means the
possession, directly or indirectly, of a majority of the indicia of ownership of
an entity (i.e., a majority of the stock in the case of a corporate entity or a
majority interest in the case of a partnership); and "control" (including the
terms "controlled by" and under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of an entity, for example in the case of a corporate
entity through the power to elect a majority of the board of directors, whether
through the ownership of voting securities, by contract, or otherwise.
(ii) "Master(s)" means the original material object, form or basis
in which sounds (with and without images) and/or images (with and without
sounds) are fixed or otherwise established by any method now known or later
developed and from which sounds and/or images can be perceived, reproduced or
otherwise communicated, either directly or with the aid of a machine, device or
process (including, without limitation, "Sony 1610/1630" master(s) CD(s), DVD(s)
and "encoded" digital masters(s)).
(iii) "Record(s)" means any reproduction of a Master(s) in any form
now known or later developed in which sounds (with and without visual images)
are fixed or otherwise established by any method now known or later developed,
and from which such sounds can be perceived, reproduced or otherwise
communicated, either directly or with the aid of a machine, device or process,
and include the objects in which such sounds are fixed, inclusive of, but not
limited to, CD(s), DVD(s), cassettes, tapes, tape cartridges, soundtracks,
digital audio (and/or video) discs, digital phonograph records and black vinyl
record(s).
(b) (i) (A) During the Term, BMG will perform for Owner "Distribution
Services" (as more fully described herein, including, without limitation, in
Paragraph 2(c) hereof) related to the distribution of Owner's Product(s) within
the fifty United States, its territories and possessions and Puerto Rico
("Territory ") by customary means through any and all channels now or hereafter
known including, without limitation, all normal wholesale and retail channels,
(e.g., all traditional music retailers, chains, mass merchants, super stores,
consumer electronic stores, one-stops, independent stops and rack jobbers,
so-called "duty free" channels and military channels (including the Army Air
Force Exchange Services "AAFES" (the central distribution point in Dallas,
Texas)), so-called "alternative," "non-traditional" and "special market"
channels, "direct" to consumer and "direct mail" channels, the Internet, any and
all electronic and on-line mediums, channels or transmissions (in any and all
forms with and without other data) now or hereafter known or developed, any
"direct transmission" and "indirect transmission" to consumer over wire or
through the air (including, without limitation, via telephone, satellite
(inclusive of, but not limited to, point to multipoint satellite and direct
broadcast satellite) or cable), and any and all point of sale manufacturing
channels and any and all other channels in which BMG performs distribution
services on behalf of other persons ("Distributee(s)") with respect to products
comparable to Owner's Product(s) ("Distributee(s)
2
<PAGE>
Product(s)") and Owner will rely exclusively on BMG therefor. During the Term
and throughout the Territory, Owner will use its best efforts to acquire the
right for BMG to exclusively perform Distribution Services with respect to the
product(s) described in the definition of Owner's Product(s) provided that such
right and said product(s) are available to Owner for inclusion hereunder. In
addition, Owner will use its best efforts to retain such rights, during the Term
and in the Territory, with respect to each Owner's Product(s).
(B) If BMG determines (in its sound commercial judgment) that
a particular Owner's Product(s) distributed hereunder through a secondary
channel has achieved the level of success which warrants its being distributed
through BMG's primary traditional distribution channel, BMG will be entitled to
distribute the particular Owner's Product(s) concerned through such traditional
channel and will furnish Owner with written notice to such effect.
(ii) If from time to time during the Term Owner requests that BMG
export a reasonable number of Owner's Product(s) ("Owner's Export Product(s)")
outside of the Territory, BMG will retain a distribution fee therefor,
calculated in the manner in which the Distribution Fee is calculated hereunder
in respect of Owner's Product(s) sold to Customer(s) in the Territory. BMG,
solely as an accommodation to Owner and subject to Owner having fulfilled all of
its obligations to BMG hereunder (e.g., paying to BMG the manufacturing costs
associated therewith), will export the Owner's Export Product(s) in accordance
with BMG's then current export policy ("Export Policy"). Following the
commencement of the Term, BMG will familiarize Owner with the Export Policy. BMG
will invoice Owner for such export services (including, without limitation, the
charges listed in Exhibit A attached hereto and by this reference incorporated
herein) and Owner will pay such invoice in accordance with Paragraphs 14(b) and
(c) hereof. As between BMG and Owner, Owner will be solely responsible both for
invoicing and collecting from third parties any and all sums due in connection
with Owner's Export Product(s) (including, without limitation, monies payable to
Owner in respect of the sale of Owner's Export Product(s) and withholding taxes)
as well as for the payment of any and all monies payable to third parties
(including, without limitation, music publishers in respect of mechanical
royalties and any other copyright payments due and owing).
(c) (iii) Without limiting any provision hereunder, as used in Paragraph
2(b)(i) "Distribution Services" include the following: (A) coordination of the
delivery of Owner's Product(s) to the "Warehouse" (as defined herein); (B)
inventory control and management of Owner's Product(s); (C) receiving Owner's
Product(s) at the Warehouse; (D) stocking and storing the delivered Owner's
Product(s) at the Warehouse; (E) solicitation and servicing of "Customer(s)" (as
defined herein); (F) acceptance, processing and fulfillment of orders from
Customer(s); (G) picking Owner's Product(s) from BMG's inventory for shipment to
Customer(s); (H) packing the picked Owner's Product(s) for shipment to
Customer(s); (I) preparing Owner's Product(s) for transmission or communication
to Customer(s); (J) physically transporting Owner's Product(s) from the
Warehouse to Customer(s) (K) transmitting or otherwise communicating Owner's
Product(s) to Customer(s); (L) invoicing Customer(s); collecting from
Customer(s); (M) processing returns of Owner's Product(s) for scrap or return to
inventory; (N) crediting Customer(s) (e.g., credits in respect of returns, and
failed transmissions, communications and other forms of delivery); (O)
restocking Owner's Product(s) which have been returned in a saleable condition
(or refurbished to a saleable condition); (P) subject to
3
<PAGE>
marketing the terms and conditions contained herein, handling, processing and
administering of certain Owner authorized or approved "cooperative-advertising"
expenditures made in connection with Owner's Product(s) (including, without
limitation, all related "Advertising Commitments" and "claims" for reimbursement
(as such terms are more fully described in the Advertising Policy)) which have
been approved by BMG beforehand; and (Q) performing such other services in
connection with the exploitation of such rights herein granted to BMG, as are
customarily performed by BMG with respect to its exploitation of such rights
through channels and any mediums now or hereafter known or developed.
(ii) (A) In addition to the Distribution Services, BMG will furnish
Owner, gratis, with such so-called "management information reports" as are
customarily furnished by BMG to Distributee(s) at no charge ("MIS Reports").
Moreover, BMG, upon Owner's request, will also introduce Owner to BMG's
Information and Systems Technology and Media Systems units ("IS&T" & "MS,"
respectively) which will afford Owner the option of using the services of IS&T
and MS (at the prices charged by MS and IS&T therefor) to support Owner's end
user computing needs for the purpose of accessing the MIS Reports and otherwise
communicating with BMG through BMG's so-called "computer network connectivity
setup" (e.g., services related to hardware and software procurement, hardware
and software installation, hardware maintenance, software support and consulting
services, E-mail and file and print services, internet access, infrastructure
services (LAN & WAN), leased lines (T1 etc.) and software licensing).
(B) Upon any such request from Owner, BMG will arrange for
IS&T and MS to furnish Owner with the current schedule of prices charged by IS&T
and MS with respect to the services described in Paragraph 2(c)(ii)(A) of this
Agreement.
3. ORDERING/TITLE/OWNERSHIP
(a) Except as otherwise expressly provided herein, either: -
(i) (A) BMG from time to time will order from Owner such quantities
of Owner's Product(s) as BMG requires hereunder to meet the demand therefor
(Owner is entitled to approve such order (such approval not to be unreasonably
withheld and such approval will be evidenced by Owner's issuance of a purchase
order ("PO") to BMG for the quantities concerned) and BMG will manufacture such
quantities and deliver the applicable Owner's Product(s) (freight prepaid) to
BMG's "Warehouse" (as defined herein). As used herein "Warehouse" means any
facility (or its equivalent (including so-called "lockers")) reasonably
designated by BMG for Owner's Product(s) (e.g., Duncan, South Carolina) or
(B) Owner from time to time will order from BMG such
quantities of Owner's Product(s) as Owner requires to meet the demand therefor
(BMG is entitled to approve such order) such approval not to be unreasonably
withheld and such approval (or the extent of such approval) will be evidenced by
BMG's manufacture and delivery to the Warehouse of the BMG approved percentage
of the quantities specified in Owner's P0 therefor).
(ii) (A) Owner's disapproval of any BMG initiated order will be by
written notice (within twenty-four (24) hours of BMG's advising Owner that BMG
has initiated such order) to the Director, National Inventory Management (BMG
Distribution, 6550 East 30th
4
<PAGE>
Street, Indianapolis, Indiana 46219), with a copy to Vice President Field
Operations and Vice President Legal and Business Affairs (BMG Distribution)) of
Owner's reasonable objections to such order (specifying the nature of each such
objection). If BMG inadvertently or otherwise manufactures a quantity of Owner's
Product(s) in excess of the quantity which Owner approves, BMG will bear the
direct manufacturing costs and expenses associated therewith only until such
time as BMG determines that the particular Owner's Product(s) is sold, whereupon
BMG will invoice Owner in respect of such costs and expenses and Owner will pay
such invoice in accordance with Paragraphs 14(b) and (c) hereof. Owner will be
deemed to have approved any BMG initiated order in respect of which Owner fails
to furnish the aforesaid notice in a timely manner. Notwithstanding anything to
the contrary contained herein, it is understood and agreed that Owner is deemed
to have approved at all times BMG's manufacture of such quantities of Owner(s)
Product(s) in respect of which BMG reasonably anticipates orders from
Customer(s).
(B) BMG's disapproval of any Owner initiated order will be by
written notice to Owner (within the twenty-four (24) hours of Owner's advising
BMG that Owner is desirous of initiating a particular order) of BMG's reasonable
objections (specifying the nature of any objection) to such order. If at any
time Owner requests that BMG manufacture a quantity of Owner's Product(s) in
excess of the quantity in respect of which BMG has orders from Customer(s) or
which BMG determines (in its sound commercial judgment) is required to meet the
demand therefor, BMG will be entitled to offset all of the costs and expenses in
respect of such excess from any and all monies otherwise payable to Owner in the
month in which such excess order is placed (and subsequent months) provided that
if there are insufficient monies against which to offset same, BMG will not be
obligated to manufacture such excess unless Owner pays BMG therefor in advance.
(C) Faxes and/or emails are appropriate mediums for
expeditiously giving disapproval notices pursuant to Paragraph 3(a)(ii).
(D) Any manufacturing performed pursuant to this Paragraph
will be performed in accordance with the manufacturing provisions of this
Agreement.
(iii) BMG will hold Owner's Product(s) at the Warehouse in inventory
until the applicable Owner's Product(s) is sold or otherwise disposed of in
accordance with the provisions hereof. Owner's Product(s) will be deemed sold at
the time that Owner's Product(s) is shipped, transmitted or otherwise made
available by BMG from the Warehouse (or other storage facility as applicable) to
its sub-distributors, distributors, retailers, agents, merchants, consumers or
other persons with whom BMG may do business (individually and collectively,
"Customer(s)"), except that with respect to any Owner's Product(s) which
constitutes a so-called "new release" (as more dully described hereinbelow), the
particular Owner's Product(s) will be deemed sold as of the actual so-called
"street date" therefor.
(b) Subject to the terms and conditions hereof, Owner will retain title
to, and ownership of, Owner's Product(s) delivered to the Warehouse until sold
(as described in Paragraph 3(a) hereof) or otherwise disposed of by BMG in
accordance with the provisions hereof. While Owner's Product(s) is in BMG's
possession at the Warehouse, BMG will assume the risk of loss or damage to
Owner's Product(s). The risk assumed by BMG will be limited to the cost of
manufacturing replacements of the applicable Owner's Product(s).
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4. DISTRIBUTION FEE/NET SALES/NET PROCEEDS/RESERVES/PAYMENT
(a) (i) (A) For the Distribution Services rendered pursuant to Paragraph
(2c)(i) hereof, BMG will retain a distribution fee of _________ (%) percent
("Distribution Fee") of "Net Sales," (as defined herein) before any and all
deductions or other adjustments for "Special Terms" (as defined herein), if any,
offered by Owner or authorized by Owner (all such Special Terms discounts will
be at Owner's sole cost and expense) and approved by BMG. As used herein, "Gross
Sales" means the "Purchase Price" multiplied by the number of units of Owner's
Product(s) sold hereunder; "Net Sales" means Gross Sales (i) less any and all
credits issued, and reserves established, in respect of returns of Owner's
Product(s) sold hereunder, (ii) plus such reserves as are liquidated hereunder;
and "Purchase Price" means the price at which the Customer(s) is invoiced by BMG
in respect of the cost of the particular Owner's Product(s) concerned and in
respect of which payment is due from Customer(s) to BMG therefor (e.g., the Net
Effective Cost" price listed in BMG's Price Card(s) or the equivalent thereof).
(B) Notwithstanding anything to the contrary contained in
Paragraph 4(a)(i)(A) hereinabove, with respect to Distribution Services rendered
by BMG in respect of the distribution of Owner's Product(s) through "special
market" channels, "direct to consumer" and "direct mail" channels, the Internet,
any and all electronic and on-line mediums, channels or transmissions (in any
and all forms with and without other data) now or hereafter known or developed,
any "direct transmission" and "indirect transmission" to consumer over wire or
through the air (including, without limitation, via telephone, satellite
(inclusive of, but not limited to, point to multipoint satellite and direct
broadcast satellite) or cable), and any and all point of sale manufacturing
channels, BMG will retain a Distribution Fee equal to (TBA).
(C) Notwithstanding anything to the contrary contained herein:
(a) the Distribution Fee with respect to those Net Sales of Owner's Product(s)
sold, by BMG, through a commissioned BMG agency model, as so-called "digital
download" sales will be _______ percent of those Net Sales, after any and all
deductions or other adjustments for "Special Terms" and commissions in
connection therewith, calculated in the manner set forth above; (b) the
Distribution Fee with respect to those Net Sales of Owner's Product(s) sold by
BMG through BMG's wholesale model or a so-called "digital download" sales will
be ________ percent of those Net Sales, after any and all deductions or other
adjustments for "Special Terms" , calculated in the manner set forth above and
(c) the Distribution Fee with respect to those Net Sales of Owner's Product(s)
sold by BMG, as a so-called "Kiosk" sales will be ________ percent of those Net
Sales, after any and all deductions or other adjustments for "Special Terms" and
commissions in connection therewith (in lieu of _________ percent), calculated
in the manner set forth above.
(ii) Except as otherwise expressly provided herein, BMG will bear
the costs and expenses associated with Customer(s) bad debt risk and cash
discounts offered by BMG for timely payment in respect of Owner's Product(s)
sold and distributed by BMG to Customer(s). Accordingly, Owner will bear the
costs and expenses associated with bad debt risk related to Owner's Export
Product(s) and other Owner's Product(s), if any, which is not distributed by BMG
hereunder or which for any reason is distributed by BMG, on behalf of Owner, to
a person other than a Customer(s).
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(iii) Notwithstanding anything to the contrary contained in
Paragraphs 4(a)(i) and (ii) above:
(A) The Distribution Fee with respect to cumulative Net Sales
in excess of _______________ dollars will be ___________ (___%) percent of those
Net Sales in lieu of ________ (___%) percent, calculated in the manner set forth
in Paragraphs 4(a)(i) and (ii) above;
(B) The Distribution Fee with respect to cumulative Net Sales
in excess of __________ dollars will be ___________ (___%) percent of those Net
Sales in lieu of _________ (___%) percent, calculated in the manner set forth in
Paragraphs 4(a)(i) and (ii) above;
(C) The Distribution Fee with respect to cumulative Net Sales
in excess of __________________ Dollars will be ___________ (___%) percent of
those Net Sales in lieu of _________ (___%) percent, calculated in the manner
set forth in Paragraphs 4(a)(i) and (ii) above;
(D) The Distribution Fee with respect to cumulative Net Sales
in excess of _________ dollars will be ___________ (___%) percent of those Net
Sales in lieu of _________ (___%) percent, calculated in the manner set forth in
Paragraphs 4(a)(i) and (ii) above;
(iv) Notwithstanding anything to the contrary contained in
Paragraphs 4(a)(i), (ii) and (iii) above, the initial application of the
Distribution Fee set forth in Paragraph 4(a)(iii) will be in respect of the Net
Proceeds accounting with respect to the calendar month ("Implementation Month")
immediately following the calendar month during which the applicable cumulative
Net Sales threshold is achieved which triggers such Distribution Fee ("Threshold
Month") and will be applied only in respect of the applicable excess cumulative
Net Sales in the Implementation Month and applicable month(s) of the particular
Contract Year concerned subsequent to the Implementation Month. For the
avoidance of doubt, Owner's Export Product(s) and any other sale or distribution
of Owner's Product(s) which has not been solicited or distributed by BMG to
Customer(s) are excluded from the cumulative Net Sales calculation pursuant to
Paragraph 4(a)(iii).
(b) "Net Proceeds" means Net Sales less the Distribution Fee and any other
amounts which BMG is entitled to offset or otherwise deduct therefrom hereunder.
(c) Except as otherwise expressly provided herein, Net Proceeds will be
payable by BMG to Owner sixty (60) days after the last day of the calendar month
during which the applicable Owner's Product(s) is sold by BMG provided that in
respect of the sale of each Owner's Product(s) which constitutes a "new release"
(i.e., Owner's Product(s) subject to a new release street date) any Net Proceeds
payable in respect thereof will be payable within five (5) business days
following the end of the calendar month during which payment is due from
Customer(s). Net Proceeds payments will be accompanied by a statement rendered
in accordance with BMG's regular accounting practices. Notwithstanding anything
to the contrary contained herein, BMG, during and subsequent to the Post-Term
Returns Period, is not obligated
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to render an accounting statement with respect to any calendar months in respect
of which there is no significant (as determined by BMG in its sound commercial
judgment) change between the accounting rendered with respect to the calendar
month immediately preceding such particular calendar month and the accounting
which would otherwise be rendered with respect to such particular calendar
months unless Owner requests, in writing, on accounting statement for one or
more particular months. Any such requests will be made at least thirty (30) days
prior to the commencement of the month in respect of which an accounting
statement is sought.
(d) (i) With respect to each calendar month of the Term, BMG will be
entitled to establish a reserve at the rate of twenty percent (20%) of the Gross
Sales for that month, except forty percent (40%) with respect to the Gross Sales
of Owner's Product(s) sold as so-called "Singles" Record(s) (any and all
configurations). The reserve established with respect to each month will be
maintained for a period of four (4) months and liquidated at the end of the
applicable four (4)-month period hereunder. Liquidated reserves will be
accounted and credited to Owner at the same time and in the same manner as Net
Proceeds are accounted and paid to Owner for sales of Owner's Product(s) in the
month in which such reserves are liquidated. Notwithstanding the immediately
preceding provisions of this Paragraph 4(d)(i), BMG from time to time will be
entitled to adjust (increase and/or decrease) the reserves (and the duration of
any liquidation period) to reflect the level, value and timing of the returns
anticipated by BMG in respect of Owner's Product(s) and/or any Non-BMG
Product(s) returnable to BMG hereunder. In making any such adjustment, the types
of factors which BMG will consider will include BMG's so-called weighted,
historical "returns-running rate" experience (i.e., the percentage rate of
returns applicable to particular Owner's Product(s) during a given period
(except that with respect to the Singles Record(s) it will be the percentage
rate of returns applicable to Owner's Product(s) distributed as Singles
Record(s) during such period)), the level, value and timing of Soundscan
reported sales of Owner's Product(s) which BMG determines (in its reasonable
sound commercial judgment) are likely to be returned to BMG, and BMG's good
faith estimate with respect to the number of Non-BMG Product(s) likely to be
returned to BMG.
(ii) Notwithstanding anything to the contrary contained herein, for
each of the final twelve (12) calendar months of the Term, the amount of the
reserve will be the percentage established pursuant to Paragraph 4(d)(i) of the
higher of (A) Gross Sales for the month concerned, or (B) the average monthly
Gross Sales for the twelve months immediately preceding the final twelve (12)
months of the Term provided that the amount of reserve will be such amount as is
determined by BMG (in its sound commercial judgment) in the event that the final
twelve (12) months of the Term is any period other than the period comprising
the last twelve (12) months of the Initial Period (or other than the period
comprising the Additional Period(s)) or that for any reason the duration of the
Term is a period less than twelve (12) months.
(e) With respect to mechanical royalties, BMG will be entitled to
establish a reserve in accordance with the provisions of Paragraph 8(d) hereof.
5A. ADVANCE
(a) As an advance recoupable from and against Net Proceeds, BMG will pay
Owner the sum of ______________________ ($______) Dollars ("Advance") payable
(i) ___________ ($________) Dollars following the full execution of this
Agreement; (ii) ________________ ($________) Dollars following (TBA) .
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(b) The Advance will be fully recoupable from Net proceeds otherwise
payable in respect of Owner's Product(s) sold hereunder provided that if the
Gross Sales of same of Owner's Product(s) and BMG's projected Gross Sales during
the then remaining portion of the Term will not be sufficient to afford BMG an
opportunity to fully recoup the then unrecouped portion of the Advance, BMG will
be entitled to fully recoup the Advance at any time from any and all monies
otherwise payable to Owner. For purposes of this subparagraph and any
determination by BMG with respect to whether such projections are sufficient,
BMG, in good faith, will employ its sound commercial judgment to determine the
Net Proceeds likely to be payable in respect of the sale of the Owner's
Product(s) during such period.
5. RETURNS/PROCEDURE/NON-BMG PRODUCT(S)
(a) Notwithstanding anything to the contrary contained herein, Owner will
accept from BMG any and all returns of Owner's Product(s) which are returned for
any reason (in accordance with BMG's Returns Policy), during the Term and during
the period ending nine (9) months (except ten (10) months if the Term is
terminated) after the last day of the Term ("Post-Term Returns Period").
(b) Any services rendered by BMG in connection with returned Owner's
Product(s) will be at the applicable per unit price set forth in Exhibit A
attached hereto and by this reference incorporated herein. BMG shall not charge
Owner, for any of the costs and expenses incurred by BMG to merely handle and
process (as opposed to refurbish etc.) a reasonable number of returns from
Customer(s) of Owner's Product(s) (excluding Owner's Export Product(s) which
will be distributed on a non-returnable basis in accordance with the provisions
hereof) distributed by BMG hereunder and "Non-BMG Product(s)" (as defined
herein). With respect to the handling and processing returns in excess of the
number of units which BMG determines, in good faith, to be reasonable and
returns of units which BMG determines are Non-BMG Product(s), BMG will be
entitled to a "Returns Handling Charge." The "Returns Handling Charge" means the
per unit dollar equivalent of the "Excess Inventory Charge" (as defined herein).
BMG will invoice Owner for any Returns Handling Charge and Owner will pay such
invoice in accordance with Paragraphs 14(b) and (c) hereof. For the avoidance of
doubt, the Distribution Fee does not include any amounts in respect of Exhibit A
charges for such services or the Returns Handling Charge, (i.e., all of such
charges are in addition to the Distribution Fee). BMG will invoice Owner for
such services and charges and Owner will pay such invoice in accordance with
Paragraphs 14(b) and (c) hereof.
(c) Owner's Product(s) returned to BMG will be returned to the inventory
of Owner's Product(s) in BMG's custody, except that, unless BMG and Owner
otherwise agree, in writing, BMG will be entitled to scrap (i) any "singles"
record(s) returned; (ii) any other Owner's Product(s) returned with the
shrinkwrap, container or other packaging material breached to the extent that
Owner's Product(s) could have been removed therefrom; (iii) any Owner's
Product(s) which in BMG's judgment is not in saleable condition; and (iv) any
other Owner's Product(s) which Owner instructs BMG to scrap. BMG will scrap
Owner's Product(s) at the applicable per unit price set forth in Exhibit A. BMG
will invoice Owner for such scrapping and Owner will pay such invoice in
accordance with Paragraphs 14(b) and (c) hereof.
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(d) (i) (A) As used herein, "Non-BMG Product(s)" means any and all Owner's
Product(s) existing prior to the commencement of the Term which was not
manufactured or distributed by BMG hereunder and any and all Owner's Product(s)
existing during the Term which, for any reason, is not manufactured or
distributed by BMG to Customer(s) hereunder (including, without limitation
Owner's Export Product(s)). Each Non-BMG Product(s) existing as of the date
first written hereinabove is listed in Schedule 2 attached hereto and by this
reference incorporated herein. Non-BMG Products, which have been distributed by
Owner or one or more third party(ies) distributors prior to BMG's distribution
of Owner's Product(s) hereunder ("Prior Distributor") is indicated by an
asterisk in Schedule 2.
(B) As between Owner and BMG, Owner (directly or indirectly
through Prior Distributor) will be solely responsible for returns of Non-BMG
Product(s), the issuance of any credits to any and all customers (including
Customer(s)) in connection therewith and the value of any credit(s) issued or to
be issued. Upon BMG's request, Owner (at Owner's sole cost and expense) will
notify all such customers and any other relevant third party(ies) (or cause all
such customers and third party(ies) to be notified by Prior Distributor or
otherwise), in writing, to such effect.
(C) BMG will consider a written request from Owner that Owner
be permitted to notify such customer(s) who are Customer(s) (or cause such
customers to be notified by Prior Distributor) that returns of Non-BMG
Product(s) may be sent to the Warehouse in accordance with BMG's "Returns
PolicyTM in effect with respect to any such returns and that with respect to
Non-BMG Product(s), BMG issue credits therefor at the Net Effective Cost price
(or its equivalent) set forth in Schedule 2 or the price at which BMG would
issue credits in respect of such Non-BMG Product(s) (or substantially similar
products) which are being (or had been or will be) distributed by BMG hereunder
in the absence of any price(s) in Schedule 2 or if any Schedule 2 prices are
incompatible with the prices or manner in which BMG otherwise issues credits or
administers returns from Customer(s) (or in the absence of a new UPC and
selection number in Schedule 2). If BMG agrees to honor any such request, BMG
will furnish Owner with written notice to such effect. For the avoidance of
doubt, if Non-BMG Product(s) is not readily distinguishable as a returned
product from Owner's Product(s) distributed by BMG and returned to BMG, BMG (in
its sole discretion) is entitled to determine which, if any, Non-BMG Products
will be accepted by BMG as returns for credit purposes hereunder and the prices
at which credits will be issued in connection therewith. The provisions of
Paragraphs 5(a), 5(b), 5(c) and 5(d)(ii) will also apply to Non-BMG Product(s)
as if Non-BMG Product(s) constituted Owner's Product(s) hereunder. Once BMG
credits Customer(s) in respect of these returns, BMG will invoice Owner for the
value of such credits and Owner will pay such invoice in accordance with
Paragraphs 14(b) and (c) hereof.
(D) If BMG honors such request, the provisions of this
Agreement (including, without limitation, the provisions embodied in Paragraphs
5(a), 5(b), 5(c) and 5(d)(ii)(A), 5(e) and 5(g) applicable to Owner's Product(s)
will apply to Non-BMG Product(s) returned in accordance with the provisions
hereof.
(ii) In order to enable BMG to distinguish Owner's Product(s) (and
returns of Owner's Product(s)) manufactured and distributed hereunder from any
Non-BMG Product(s), (and returns of Non-BMG Product(s)), Owner will ensure that
each Owner's Product(s)
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distributed hereunder is readily distinguishable as a returned product from
Non-BMG Product(s). BMG will advise Owner of, and Owner will incorporate, such
elements (including, without limitation, separate UPC and selection numbers for
such Owner's Product(s) hereunder) or make such modifications to Owner's
Product(s) hereunder as BMG deems reasonably necessary for such purposes.
(e) BMG will perform refurbishing services with respect to Owner's
Product(s) at the applicable per unit prices set forth in Exhibit A. BMG will
invoice Owner for such services and Owner will pay such invoice in accordance
with Paragraphs 14(b) and (c) hereof.
(f) (i) Notwithstanding anything to the contrary contained herein, BMG
will retain all reserves established in respect of the twelve (12) month period
preceding the last day of the Term (or any other period selected by BMG (in its
sound commercial judgment) in the event that the final twelve (12) months of the
Term is any period other than the period comprising the last twelve (12) months
of the Initial Period (or any period other than the period comprising an
Additional Period(s)) or that for any reason the duration of the Term is a
period less than twelve (12) months) and apply such reserves against credits
issued during such period and/or the Post-Term Returns Period. Within thirty
(30) days following the end of the Post-Term Returns Period, a determination of
returns and credits issued will be made by BMG. If credits issued by BMG exceed
reserves retained by BMG, Owner promptly will pay BMG the value of the Net
Proceeds of that difference, and if at the end of the Post-Term Returns Period
such reserves exceed credits issued, BMG promptly will pay Owner the value of
the Net Proceeds of that difference.
(ii) The provisions of Paragraph 5(f)(i) will not be applicable
hereunder if no less than ninety (90) days prior to the expiration of the Term
Owner enters into a written agreement ("New Distributor Agreement") with a "New
Distributor" (as defined herein) pursuant to which the New Distributor agrees to
accept all returns of Owner's Product(s) and Non-BMG Product(s); to be fully
responsible for crediting Customer(s) therefor at the prices applicable pursuant
to (and otherwise in accordance with) the terms of the then applicable BMG
Returns Policy; and to fully indemnify BMG and hold BMG harmless from any and
all claims against BMG and from any losses, claims, costs, liabilities or
damages (including attorney's fees) arising out of or connected with a breach by
New Distributor of its obligations under the New Distributor Agreement.
Following the full execution of the New Distributor Agreement, Owner will
furnish BMG with a redacted copy of the New Distributor Agreement sufficient to
evidence that same comports favorably with the terms of this Paragraph
(5)(f)(ii). If BMG approves the New Distributor Agreement, BMG will liquidate
the reserves established hereunder in accordance with the provisions hereof (BMG
retaining only a reasonable reserve in respect of foreseeable returns to BMG
(e.g., so-called "pipeline" returns)) and the provisions of the New Distributor
Agreement which are consistent herewith provided that prior to any such
liquidation Owner has paid all outstanding amounts due (or to become due within
the next ninety (90) days) to BMG and evidenced to BMG that Owner will be in a
position to pay any and all other amounts due and owing to BMG. "New
Distributor" means a BMG approved "major third party distribution company"
(other than a Customer(s)) which operates in the prerecorded record business
segment of the media/entertainment industry, is ordinarily and regularly engaged
in distributing to Customer(s) a product(s) which is substantially similar to
Owner's Product(s), agrees to render Distribution Services as Owner's new
distributor, and which further agrees,
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upon and after the expiration of the Term, to accept all returns of Owner's
Product(s) and Non-BMG Product(s) and to be solely and fully responsible for
crediting BMG's Customer(s) and otherwise fulfilling the obligations
contemplated by this Paragraph.
(g) BMG will not be obligated to accept returns of Owner's Product(s)
after the expiration of the Post-Term Returns Period. If BMG elects to accept
any returns of Owner's Product(s) subsequent to the expiration of the Post-Term
Returns Period, BMG will invoice Owner for the value of the Net Proceeds of such
returns and for all applicable per unit charges hereunder in connection
therewith and Owner promptly will pay such invoice in accordance with Paragraphs
14(b) and (c) hereof.
6. EXCESS INVENTORY
(a) On or about the last day of each month (the "Last Day") after the
first six months of the Term, BMG will determine from BMG's books and record(s)
on a selection-by-selection basis and by each configuration thereof the amount
of any excess inventory (i.e., more than a one (1) year supply, as determined in
accordance with BMG's standard business practices) in BMG's possession or
control as of each Last Day and will report such determination to Owner ("Excess
Inventory"). Owner, at Owner's election, will either remove Excess Inventory for
storage purposes only (at Owner's sole cost and expense of removal and storage)
within thirty (30) days of BMG's report under this Paragraph, or promptly pay
BMG for each month that any Excess Inventory is retained or controlled by BMG an
amount equal to the number of units of Excess Inventory multiplied by Ten ($.10)
Cents (the "Excess Inventory Charge"). Any Excess Inventory which is removed
must be marked, drilled or otherwise modified by BMG (at Owner's sole cost and
expense) beforehand to adequately distinguish it from all other Owner's
Product(s). If Owner fails to remove any Excess Inventory or pay the Excess
Inventory Charge on a timely basis, BMG, subject to the provisions embodied in
Paragraph 11(a)(v)(8) and 14(g) hereof, will scrap the Excess Inventory at the
applicable per unit price set forth in Exhibit A for scrapping. BMG will invoice
Owner for such scrapping and any applicable Excess Inventory charges and Owner
will pay such invoice in accordance with Paragraphs 14(b) and (c) hereof.
(b) Owner will be afforded access once per each Contract Year and during
regular business hours to BMG's catalog Warehouse in Duncan, South Carolina to
conduct a physical stock count of the inventory of Owner's Product(s) in the
Warehouse at the time that BMG conducts its annual physical inventory
(currently, circa April/May of each calendar year) of all products including
Owner's Product(s).
(c) Notwithstanding anything to the contrary contained herein, with
respect to any so-called "stock shrinkage" of Owner's Product(s) in the
Warehouse, BMG will bear the manufacturing cost of replacing the missing stock
of Owner's Product(s) in excess of one percent (1%) of the number of units of
Owner's Product(s) manufactured by BMG and delivered to BMG's Warehouse, and one
(1%) percent of the number of units of any graphics and components delivered to
BMG's Warehouses, in a given Contract Year.
(d) Upon Owner's written request from time to time during the Term, BMG
will evidence to Owner (no more frequently than once per each calendar quarter
of a given Contract Year and then only in connection with requests made, no
sooner than thirty (30) days before (and no later than forty-five (45) days
after) a scrapping occurrence and in the form of the so-called
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"destruction report" or "certificate" for scrapping customarily employed by BMG
for this purpose) that Owner's Product(s) have been removed from inventory in
BMG's Warehouse and scrapped. Such request must be sent to Vice President,
National Distribution & Transportation, 112 Hidden Lake Circle, Duncan, South
Carolina, 29334 with a copy to Vice President Legal and Business Affairs (BMG
Distribution) at the address indicated in Paragraph 20.
7. DELETED PRODUCTS
(a) (i) From time to time during the Term on no less than thirty (30) days
prior written notice to BMG, Owner will be entitled to delete particular Owner's
Product(s) from Owners catalog of Owner's Product(s) distributed by BMG
hereunder ("Deleted Owner's Product(s)"). Subject to Owner having fulfilled all
of its then outstanding and reasonably foreseeable obligations to BMG hereunder,
Owner will also be entitled to make the deleted Owner's Product(s) available for
sale through BMG as so-called "cut-outs." Owner will give BMG notice of the date
on which a particular Owner's Product(s) is to be deleted from Owners catalog.
Owner will have thirty (30) days from such date to remove, at Owner's sole cost
and expense, deleted Owner's Product(s) from the Warehouse. Prior to any such
removal, the deleted Owner's Product(s) will be appropriately marked by BMG (at
Owner's sole cost and expense) as cut-outs in a manner consistent with BMG's
then applicable practices to distinguish the inventory of deleted and cut-out
Owner's Product(s) from Owner's Product(s) (including, BMG's inventory of same)
which has not been deleted and cut-out or which is otherwise returnable to BMG.
Upon such deletion, marking and removal, the applicable Owner's Product(s) will
no longer be subject to the terms and conditions of this Agreement.
(ii) Notwithstanding anything to the contrary contained herein, if
for any reason and by any means any Owner's Product(s) (including, without
limitation, Deleted Owner's Product(s) and Excess Inventory) is removed from the
Warehouse by Owner without being appropriately marked and/or, if Deleted Owner's
Product(s) is made available for sale as cut-outs other than through BMG, BMG
will be entitled to retain an amount equivalent to the value of the Net Proceeds
and the Distribution Fee in respect thereof or if such Owner's Product(s) has
been sold by BMG on a non-returnable basis hereunder and invoice Owner therefore
at the applicable card price for each such unit of Owner's Product(s). Owner
will pay such invoice in accordance with Paragraph 14(b) and (c) hereof.
(b) If Owner does not remove any Owner's Product(s) deleted pursuant to
the immediately preceding Paragraph 7(a), BMG will have the right to scrap same
(without any further obligation to Owner) at the applicable per unit price set
forth in Exhibit A for scrapping. BMG will invoice Owner for such scrapping and
Owner will pay such invoice in accordance with Paragraphs 14(b) and (c) hereof.
8. SALE OF PRODUCTS BY BMG
(a) The suggested retail list price ("SRLP") (or its equivalent (e.g., any
BMG pricing in respect of on-line, electronic, Internet medium or channels on a
basis other than SRLP)) or "list category" of Owner's Product(s) will be
established by Owner, in Owner's sole discretion, from time to time from the BMG
designated SRLPs (or the BMG designated equivalent). However, in order to permit
necessary efficiencies in day-to-day operations, Owner will not establish or
change the SRLP (or its equivalent) or "list category" of any specific Owners
Product(s) without giving BMG written notice at least one (1) calendar month
prior to the
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effective date of the applicable SRLP. As and if reasonably necessary to denote
such establishment or change, BMG will modify (by stickering or destickering,
restickering and reshrinkwrapping) the particular Owner's Product(s) concerned
at the applicable per unit prices for stickering or destickering, restickering
and reshrinkwrapping set forth in Exhibit A (or at the applicable per unit price
established by BMG for any other type of alteration and repackaging required by
BMG). BMG will invoice Owner for such charges and Owner will pay such invoice in
accordance with Paragraphs 14(b) and (c) hereof.
(b) The Customer(s) to whom and, except as otherwise provided in Paragraph
8(c) hereof, all of the terms and conditions of sale (including prices to
Customer(s), discounts, free goods, credit and dating, Returns Policy (including
any percentage limitations on returns) at which BMG distributes and sells
Owner's Product(s) hereunder, and the advertising allowances (if any) made by
BMG (at BMG's sole cost and expense) and as allowances additional to the
advertising allowances made by Owner (at Owner's sole cost and expense)) will be
established by BMG in its sole discretion. Following the commencement of the
Term, BMG will familiarize Owner with BMG's current Returns Policy, BMG's
current advertising policy ("Advertising Policy") and BMG's current terms and
conditions of sale ("Sales Policy").
(c) From time to time, Owner may request that BMG offer (or authorize BMG
to offer) to Customer(s) discounts and dating greater than the so-called
"standard discounts" (if any) and dating (if any) then offered by BMG
(individually and collectively, "Special Terms"). BMG will give good faith
consideration to all such requests and authorizations but will have no
obligation to honor same if, BMG determines that BMG cannot lawfully offer
and/or administer the particular Special Term(s) concerned, that such Special
Term(s) is inconsistent with and doesn't otherwise comport favorably with BMG's
programs, standards, policies and limitations or that (in BMG's sound commercial
judgment) such Special Term(s) is not in the best interest of Owner and BMG
(e.g., extending dating to an insolvent Customer(s) or a Customer(s) whose
account is past due). If BMG offers Special Terms as discounts and/or dating to
its Customer(s), such offer will be made on Owner's behalf, and Owner will bear
all costs and expenses associated therewith, Owner will give BMG such reasonable
advance written notice of the Special Terms discounts or dating which Owner is
desirous of having BMG offer so as to afford BMG an opportunity to consider and,
as applicable, implement same in an efficient manner consistent with BMG's
administration of sales. BMG's "standard" discounts are indicated in the BMG
price cards ("Price Card(s)") incorporated in BMG's Sales Policy (i.e., as of
the date first written hereinabove and in respect of the United States, the
standard discount is twenty-three and eight-hundredths (23.08%) percent for a
singles Record(s), twenty (20%) percent for a CD(s), and fifteen (15%) percent
for certain other Record(s)).
(d) (i) Owner will be solely responsible for securing (and Owner agrees to
timely secure) any and all permissions, authorizations, clearances, licenses,
releases and other rights required (or reasonably deemed necessary by BMG) to
enable BMG to distribute Owner's Product(s) without infringing upon the rights
of, or incurring any liability to, any third party(ies) including, without
limitation, music publishers and their agents. In addition, Owner will be solely
responsible for timely paying (and Owner agrees to timely pay) any and all sums
due or otherwise required to be paid to any and all third party(ies) in respect
of any such permissions, authorizations, clearances, licenses, releases and
other rights (including, without limitation,
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payments to developers, copyright proprietors, music publishers, writers,
artists, producers and engineers).
(ii) Within thirty (30) days following the expiration of each
calendar quarter of the Term, Owner will furnish BMG with written evidence (such
evidence to be in a form satisfactory to BMG) (A) that Owner has entered into
written mechanical license agreements, as required, with the appropriate persons
in respect of each and every musical composition embodied in Owner's Product(s)
theretofor distributed hereunder (and/or which is scheduled to be distributed
hereunder in the calendar quarter in which such evidence is furnished)
("Mechanical License") and (B) that Owner has accounted and paid hereunder (such
evidence to be in a form satisfactory to BMG ( any such form including, without
limitation, the following information: name of the publisher, the payee, date,
catalogue number, title (of musical composition and of Owner's Product(s)), type
of sale (bonus, free club etc.), rate, quantity, total royalty payable per
musical composition)) all mechanical royalties due in this regard pursuant to
such license agreement (or pursuant to the compulsory statutory provisions of
the U.S. Copyright Art) ("Mechanical Royalty"). Such evidence will be furnished
to BMG (Attn: Director, Sales Accounting, at BMG (Distribution), 210 Clay
Avenue, Lyndhurst, New Jersey 07071) Failure to timely evidence such license and
payments constitutes a breach of this Agreement.
(iii) With respect to any failure by Owner to evidence the
Mechanical License and/or the Mechanical Royalty payment in respect thereof, BMG
is entitled to retain a reserve in respect of such Mechanical Royalty payment
obligation at the rate of, whichever is greater, one ($1.00) dollar per each
unit of Owner's Product(s) in respect of which there are Gross Sales during the
applicable calendar quarter or ten (10%) percent of the applicable Gross Sales
in connection therewith (or, in the absence of any Gross Sales, the applicable
card price therefor). Such reserve will be maintained until the end of the month
following the month in which Owner furnishes BMG with written evidence that
Owner has paid the Mechanical Royalty to which such reserve pertains. Any such
liquidated reserve will be accounted and credited to Owner at the same time as
BMG accounts to Owner for sales of Owner's Product(s) in the month in which such
reserves are liquidated.
(iv) BMG will give good faith consideration to any written proposal
from Owner to secure for BMG's benefit, as a named beneficiary, errors and
omission or other insurance in respect of Owner's mechanical royalty obligations
and any written agreement reached in this regard will be substituted for the
provisions embodied in Paragraphs 8(d)(ii) and (iii) above.
(e) Owner agrees to identify and label any and all applicable Owner's
Product(s) described hereunder with "explicit contents" by affixing the Parental
Advisory Logo ("Logo") to same and related materials in accordance with the
standards established by the Recording Industry Association of America ("RIAA")
under the Parental Advisory Program ("Program").
(f) The current standards applicable to records are set forth in Exhibit B
attached hereto and by this reference incorporated herein. The initial decision
to identify and label a particular Owner's Product(s) and related materials
rests with Owner. If BMG determines that Owner has failed to affix the Logo,
when appropriate, BMG, at Owner's sole cost and expense,
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will be entitled to affix the Logo to Owner's Product(s) and related materials
or to recall and cease further distribution of Owner's Product(s). Any such
determination by BMG will be based solely on the good faith opinion of BMG's
counsel applying the same standards used when making such types of determination
with respect to other products distributed by BMG).
(g) (i) Without prejudice to any other rights which BMG may possess at law
or hereunder, BMG may reject a particular Owner's Product(s) for distribution
hereunder if BMG determines (in its sole discretion) that: (A) such Owner's
Product(s) advocates an illegal activity; (B) such Owner's Product(s) is
patently offensive or obscene; (C) such Owner's Product(s) violates any
governmental regulation or law (including, without limitation, a regulation or
law relating to ethical, religious, moral or political conception); (D) such
Owner's Product(s) violates the personal property or other rights of a person,
firm or corporation; or (E) the distribution of Owner's Product(s) would
constitute a breach of any of Owner's warrantees, representations or covenants
herein or constitute the potential defamation or libel of any person.
(ii) Any such determination by BMG will be based on the good faith
opinion of BMG's counsel applying the same standards used in making such types
of determination with respect to other products distributed by BM |
