Short Form Distribution and Foreign License Agreement - BMG Music d/b/a BMG Entertainment and ARTISTdirect Recordings LLC
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 BMG. To
facilitate BMG's determination under this Paragraph, Owner may furnish BMG with
a sample of Owner's Product(s) prior to same being distributed hereunder. Such
sample is to be sent to Vice President, Legal and Business Affairs (BMG
Distribution) at the address indicated in Paragraph 20.
(iii) BMG will furnish Owner with written notice of any
determination to reject (specifying the basis therefor) Owner's Product(s) under
this Paragraph ("Rejected Owner's Product(s)"). If within fourteen (14) days
after such notice Owner fails to furnish BMG with a modified sample of the
Rejected Owner's Product(s) satisfactory to BMG, BMG will have no obligation to
distribute the Rejected Owner's Product(s).
(h) (i) Upon Owner's written request and to the extent available pursuant
to BMG's agreements with Soundscan, Inc. ("Soundscan") and/or Broadcast Data
Systems, L.P. ("BDS"), BMG will afford Owner access to Soundscan's computerized
on-line management information system and BDS' "Record Track" service,
respectively provided that BMG determines that Owner has no agreement or other
obligation to secure (and pay for) such access directly from Soundscan or BDS.
The charge for such access will be determined by BMG in respect of each calendar
quarter of the Term. BMG will invoice Owner each calendar quarter therefor
(based on the Applicable Percentage of the amount payable by BMG to Soundscan
and/or BDS for BMG's access to the system and/or service, plus any additional
charges levied by Soundscan and/or BDS against BMG in connection with Owner's
accessing the system (including any set-up and connect charges and charges for
special reports). The Applicable Percentage will be determined by dividing the
Gross Sales of Owner's Product(s) in record(s) configurations hereunder during
the relevant quarter by the total gross sales of all applicable products (in
record(s) configurations) distributed by BMG during such quarter.
(ii) As of the date first written hereinabove, BMG represents that
BDS is not available to Owner under the current agreement between BDS and BMG.
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9. MARKETING/ADVERTISING/PROMOTION
(a) Owner will be solely responsible for developing, planning,
undertaking, implementing and otherwise performing all marketing, advertising
(including, without limitation, so-called "co-op" advertising) and promotion in
connection with Owner's Product(s) and for timely paying all of the costs and
expenses related thereto. Owner agrees and warrants that Owner will timely
undertake the marketing, promotion and advertising of each Owner's Product(s)
and, upon BMG's request, will evidence same, in part, by consulting with BMG and
furnishing BMG with a written marketing plan and budget therefor prior to the
distribution of particular Owner's Product(s) ("Marketing Plan"). At least
fifteen (15) days prior to the "street date" for the first Owner's Product(s) to
be distributed hereunder and at least thirty (30) days prior to the commencement
of each Contract Year subsequent to the first Contract Year, Owner will furnish
BMG with any requested Marketing Plan for the Owner's Product(s) to be
distributed during the Contract Year concerned."). The Marketing Plan should be
sent to Vice President Sales & Marketing, Distributed Labels (BMG Distribution)
1540 Broadway, 37th Floor, New York, New York 10036-4098. If Owner fails to
furnish BMG with such Marketing Plan, BMG will furnish Owner with written notice
of such failure and Owner will have thirty (30) days after such written notice
to cure such failure. Notwithstanding anything to the contrary contained herein,
BMG, on behalf of Owner and at Owner's request (or with Owner's authorization),
agrees to facilitate the placement and verification of Owner requested or
authorized marketing and advertising commitments (including, without limitation,
"co-op ads" and "in-store promotions") (such placement, verification and
commitments being at Owner's sole cost and expense) provided that upon BMG's
request, from time to time, Owner evidences to BMG's satisfaction that Owner
will timely defray all of the costs and expenses related thereto. If BMG pays
any such costs and expenses for which Owner is responsible BMG will invoice
Owner for same and Owner will pay same in accordance with Paragraphs 14(b) and
(c) hereof provided that deductions in respect of any invoice amount and/or such
costs and expenses as are related to a particular commitment will be made as of
the so- called "use date" (i.e., the date (sometimes referred to as the "start
date") which represents the date upon which the particular advertisement or
promotion underlying such commitment is to commence in accordance with BMG's
Advertising Policy) provided further that if BMG determines at any time that the
monies payable to Owner hereunder are insufficient to enable BMG to make a
related deduction or offset ("Commitment Shortfall"), BMG will be entitled to
(i) elect not to facilitate the placement and verification of any particular
advertising commitments (or any outstanding advertising commitments in respect
of which the related advertising occurrence has not taken place); (ii) require
payment from Owner in respect of unreimbursed payments in respect of prior
commitments (or offset such unreimbursed payments against any and all sums due
to Owner hereunder); and (iii) elect not to honor such commitments unless Owner
pays BMG therefor prior to BMG's honoring such commitment.
(b) At no cost to BMG Owner will deliver (or cause to be delivered) to BMG
reasonable quantities of promotional copies of Owner's Product(s).
(c) In consultation with BMG, Owner will establish an initial release
schedule for each specific Owner's Product(s). Owner will schedule all releases
of Owner's Product(s) in accordance with BMG's release schedules (singles each
week and albums semi-monthly) and BMG will release not more than two (2) Owner's
Product(s) during any thirty (30)-day period of the Term (excluding Owner's
Product(s) in Single Record(s) configuration and Owner's
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Product(s) which constitute Owner's catalog as of the date first written
hereinabove ("Existing Catalog")) provided that BMG will give good faith
consideration to requests from Owner from time to time for additional releases
with respect to Owner's Product(s) other than the Existing Catalog.
(d) In the performance of its services hereunder, BMG will have the right
(but not the obligation):
(i) to advertise, promote and otherwise market (and to cause others
to do so) Owner's Product(s) during the Term and throughout the Territory and
through any mediums and channels by any means whatsoever (now and/or hereafter
known) related to the channels in respect of which BMG is entitled to perform
Distribution Services;
(ii) to use and to authorize others to use the names, likenesses,
sobriquets, photographs, biographies and facsimile signatures of each of the
artists and characters whose performances or characters are embodied in Owner's
Product(s), the producers of Owner's Product(s) and Owner ("Identification")
provided, however, that to the extent that Owner notifies BMG, in writing, that
Owner's rights to use any particular Identification in connection with Owner's
Product(s) are limited or otherwise restricted, BMG's use pursuant to this
Paragraph 9(d)(ii) will be limited or so restricted to the same extent following
such notice;
(iii) to perform Owner's Products(s) publicly and to permit public
performances thereof in any medium and by any means whatsoever, (now and/or
hereafter known); and
(iv) to cause Owner to link (in a form satisfactory to BMG and for
any reasonable period of time as selected by BMG in its sole and absolute
discretion) any BMG related web site to any and all web site(s) (as selected by
BMG in its sole and absolute discretion) operated by (or on behalf of) Owner or
any artist in respect of which Owner has the right to exploit artist's
performances hereunder.
10. TRADEMARKS
(a) Owner hereby represents and warrants that Owner is the exclusive owner
or licensee of all trademarks, trade names, service marks and logos used by
Owner in connection with Owner's Product(s) and that no other person or entity
has any interest, adverse or otherwise therein. BMG hereby recognizes the rights
of Owner to all such trademarks, trade names and logos and BMG agrees not to use
any such trademarks, trade names, service marks and logos other than in
connection with BMG's rendering Distribution Services hereunder. Owner's
submission of any "Materials" which includes trademarks, trade names and logos
will be deemed to be instructions to BMG for BMG to use such trademarks, trade
names and logos as submitted.
(b) No trademark, trade name, service mark or logo (including, without
limitation, the "BMG Logo" (as depicted herein)) owned and/or exclusively
controlled by BMG will be used by Owner without BMG's express written consent
and license to use same and then only in accordance with BMG's specific
instructions and requirements (e.g., the following trademark legend must appear
(in the place and in the size and prominence specified by BMG) if and when BMG
consents to Owner's use of the BMG trademark: "BMG (or the "BMG logo," whichever
is
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applicable) is a trademark of BMG Music"). BMG (in its absolute and sole
discretion) may require that owner use the BMG trademark "BMG" or the "BMG Logo"
(as applicable) in connection with BMG approved marketing materials and
advertisements related to the distribution of Owner's Product(s) hereunder or on
Owner's Product(s) in the manner described in Exhibit C attached hereto by this
reference incorporated herein provided that such use is in strict compliance
with the trademark requirements set forth on Exhibit C.
(c) Any unauthorized manufacture, duplication or distribution of BMG's
property (including, without limitation, its copyrights and trademark rights and
interests) will be considered nothing less than copyright infringement,
trademark infringement, misrepresentation and unfair competition in violation of
federal and state laws and BMG will seek the appropriate judicial relief.
PART II - MANUFACTURING
11. PURCHASE/PROCESSING/QUANTITIES
(a) Owner grants to BMG the exclusive right and option(s) to manufacture
(or cause the manufacture of) and sell to Owner all of Owner's requirements of
Owner's Product(s) which include, without limitation, the quantities of Owner's
Product(s) required to be manufactured and delivered under Paragraph 3(a). If
BMG exercises such option(s), Owner will purchase exclusively from BMG all such
requirements. BMG will exercise such option(s) by placing BMG's order for the
particular Owner's Product(s) concerned. For purposes hereof, the term
manufacture" means any and all forms of duplication including, without
limitation, pressing in the case of Record(s) and duplication in the case of
audio-visual recordings in video configuration. If and when BMG elects to
manufacture Owner's Product(s), then:-
(i) Notwithstanding anything to the contrary stated herein (other
than in Exhibits D & E), the minimum order quantity for each configuration of
each specific catalogue number of Owner's Product(s) manufactured as Record(s)
hereunder will be the applicable number of units ("Minimum Order Quantity")
specified in Exhibits D & E attached hereto and by this reference incorporated
herein. BMG may increase the Minimum Order Quantity by notice to Owner if BMG's
suppliers increase the Minimum Order Quantity which BMG must order. If any other
Minimum Quantity Order is to apply to other Owner's Product(s) (other than
Record(s) manufactured by BMG for Owner hereunder), BMG will notify Owner
beforehand.
(ii) All orders for the manufacture of Owner's Product(s) will be
made by BMG through BMG's order service and inventory control departments and in
compliance with BMG's inventory management policies ("Inventory Policy(ies)").
Following the commencement of the Term, BMG will familiarize Owner with BMG's
current Inventory Policy(ies).
(iii) If after the initial release of any particular Owner's
Product(s) BMG receives orders for such Owner's Product(s) from its Customer(s)
in excess of the existing inventory of Owner's Product(s) by at least two
hundred (200) units (or the equivalent of same) then Owner will be deemed to
order a quantity of Owner's Product(s) equal to the higher of such excess or the
Minimum Order Quantity.
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(iv) Such orders as are placed hereunder will be deemed fulfilled by
BMG by the manufacture of any quantity of Owner's Product(s) between ninety
(90%) percent and one hundred ten (110%) percent of the quantity of Owner's
Product(s) ordered.
(v) (A) Owner, at Owners cost and expense, will deliver (or cause to
be delivered) to BMG (or its designee) (i) all duplicate Master(s) (including,
without limitation, all applicable master recordings and lacquers (all of which
will be of quality suitable to comply with BMG's performance standards) required
by BMG to manufacture Owner's Product(s); and (ii) all necessary containers
(including jackets), other packaging materials not supplied by BMG or its
manufacturers, graphics, booklets, inserts, tray and inlay cards (four color
separations), stickers, posters and other components (herein collectively called
the "Materials")."
(B) BMG will store (or cause to be stored), during the Term, a
reasonable inventory of the Materials free of charge. From time to time during
the Term, BMG will determine the amount of any excess inventory (i.e., more than
a six (6) months supply as determined by BMG in accordance with BMG's standard
practices) of Materials in BMG's possession or control and report such
determination to Owner. Owner, at Owner's expense, will remove (for storage
purposes only at Owner's sole cost and expense of removal and storage) such
excess inventory within thirty (30) days of BMG's report to Owner under this
Paragraph. Notwithstanding the two immediately preceding sentences, if Owner
fails to remove such excess inventory BMG may scrap (at Owner's sole cost and
expense) such excess inventory of Materials. BMG will invoice Owner for such
scrapping charges and Owner will pay such invoice in accordance with Paragraphs
14(b) and (c) hereof.
(b) (i) If for any reason there are orders placed (at the request of BMG
or Owner (with BMG's prior written consent)) directly by Owner with third
party(ies) for the manufacture of a number of units of Owner's Product(s) and
Materials, the costs and expenses associated with such order will be billed
directly to Owner and paid directly by Owner (and no part of the payment for
such manufacture will be BMG's responsibility) and all Owner's Product(s) and
Material(s) so manufactured will be delivered to BMG to be held in the Warehouse
in accordance with this Agreement. If any Owner's Product(s) which is
manufactured by third party(ies) pursuant to orders placed directly by Owner are
not physically suitable for shipment to, and acceptance by, Customer(s), then
Owner will promptly reimburse BMG for all of the costs and expenses arising from
such unsuitability. The provisions embodied in Paragraphs 10(b), 11(c), and
11(d) apply to Owner's Product(s) manufactured pursuant to 11(b) hereof.
(ii) Owner will consult with BMG in advance in respect of the
quantities of Owner's Product(s) and Material(s) which Owner is desirous of
having delivered to the Warehouse and the allocation of such quantities as among
BMG's Warehouse locations and, except as otherwise provided herein with respect
to manufacturing, the final allocation decision will rest with BMG. Deliveries
will be made f.o.b. the Warehouse location(s) so determined.
(c) At Owner's sole cost and expense Owner will have printed (as and where
designated by BMG) or stickered on all jackets, containers and graphics on
Owner's Product(s) manufactured and/or distributed hereunder or otherwise placed
in inventory hereunder) the language "Manufactured and Distributed in the United
States by BMG Distribution, a unit of
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BMG Entertainments 1540 Broadway, New York, New York 10036" "BMG (or the "BMG
logo," whichever is applicable) is a trademark of BMG Music.
(d) BMG will place Owner's Product(s) manufactured and/or delivered
pursuant to this Paragraph in the location in the Warehouse where BMG holds the
Owner's Product(s) pursuant to Part 1 of this Agreement. Such placement of
Owner's Product(s) will be deemed "delivery" for purposes of this Agreement.
(e) Notwithstanding anything and the contrary contained herein, all of
Owner's Product(s) (including related Materials) delivered hereunder will be
available for release and will not be subject to any restrictions which would
prohibit the manufacture, distribution and sale of Owner's Product(s) at any
time during the Term, except to the extent that Owner furnishes BMG with written
notice to the contrary (any such notice to be furnished promptly following the
date that any such restriction comes into existence). Following such notice, the
applicable Owner's Product(s) will be subject to such restrictions.
(f) Prior to the duplication of Owner's Product(s) in video configuration,
BMG, upon request, will apprise Owner of any other terms and conditions
applicable to the duplication of videos hereunder.
12. PRICES/ADDITIONAL TERMS
(a) Owner will pay to BMG for Owner's Product(s) manufactured hereunder,
the prices, f.o.b. Warehouse, set forth in Exhibits A, D and E attached hereto
and by this reference incorporated herein. Exhibits A, D and E also set forth in
specificity certain obligations of the parties and additional prices for certain
services (including, without limitation, BMG's distribution of Owner's
Product(s) supplied by Owner to third party(ies) for promotional purposes). BMG
will invoice Owner for rendering such Manufacturing and Warehouse Services and
Owner will pay such invoice in accordance with Paragraphs 14(b) and (c) hereof.
(b) BMG will have the right, not more than once within any twelve
(12)-month period of the Term, to increase the prices charged hereunder,
however, no such increase will exceed one hundred (100%) percent of the amount
by which BMG's costs (fairly allocated per configuration and per unit)
including, without limitation, the costs of purchasing and/or obtaining finished
goods, raw materials, labor, services and/or power, will have increased (using
the date first written hereinabove as the benchmark for the first increase, if
any, and the date of the subsequent increase as the benchmark for any subsequent
increase(s)).
PART III - GENERAL
13. APPLICABILITY
The provisions of this Part Ill will apply to the provisions of Parts I and II
hereof.
14. STATEMENTS/ACCOUNTING/AUDIT/PAYMENTS/COLLATERAL
(a) All statements and other accountings rendered by BMG will be binding
upon Owner and not subject to any objections by Owner for any reason whatsoever,
unless such specific objection is made in writing, stating the basis thereof and
delivered to BMG within two (2) years from the date such statement is rendered.
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(b) Except as otherwise expressly provided herein, BMG will invoice Owner
(in full or in part) monthly for all amounts due hereunder and Owner will pay
BMG within thirty (30) days of the date of each invoice.
(c) Notwithstanding any contrary provision contained herein, BMG is
entitled to deduct (in full or in part) any amounts invoiced (or to be invoiced)
or otherwise due and owing hereunder from any and all sums owed by BMG to Owner
under this Agreement including, without limitation, any Net Proceeds otherwise
payable to Owner hereunder.
(d) At any time that Net Proceeds are reported, if such Net Proceeds are
in a negative amount, then Owner promptly will pay BMG such Net Proceeds, plus
any other amounts then due.
(e) Owner may, at Owners own expense, appoint an independent certified
public accountant to inspect, examine and audit BMG's books and record(s)
insofar as such books and record(s) relate to the accountings and payments
rendered by BMG to Owner hereunder. Such inspection will be made on not less
than thirty (30) days prior written notice during normal business hours, but not
more than once in any twelve (12)-month period during the Term hereof and no
more than once with respect to any statement rendered hereunder, and not between
November 1 and February 28 of any Contract Year. Owner will propose to BMG, in
writing, accompanied by appropriate documentation any adjustments to such
payments which Owner in good faith believes to be necessary no later than ninety
(90) days after completion of the auditor's field work. Any audit (including all
of the auditor's field work and the submission of Owner's proposed adjustments)
conducted by Owner will be completed within the time-frame agreed by Owner and
BMG (in good faith) prior to the commencement of the audit, but in no event
later than one (1) year following such commencement - unless and to the extent
delays are occasioned solely by BMG's action or inaction.
(f) Any amount determined to be due from either party hereunder, if not
paid or offset within thirty (30) days of the applicable invoice or other due
date, will bear interest at a rate per annum equal to the "Prime Rate." Any such
amount as is due including interest, will be (i) in the case of Owner as the
delinquent party, deductible from and against any and all sums including Net
Proceeds otherwise payable by BMG hereunder (but, if Net Proceeds are in a
negative amount, then such amount will also be due and payable on demand (in
whole or in part) or (ii) in the case of BMG as the delinquent party, any such
amount as is due (including interest) will be payable on or before the date of
the next payment due to Owner from BMG hereunder. "Prime Rate" for any monthly
period will mean the interest rate for such period as announced on the first
"Business Day" of each month by The Chase Manhattan Bank N.A. or successors
thereto, at its principal office in New York City as its prime or base
commercial lending rate. The "Prime Rate" is a reference rate and does not
necessarily represent the lowest rate actually charged to any customer.
"Business Day" means any day other than Saturday, Sunday or other day on which
commercial banks are required or permitted to close by law in the State of New
York.
(g) Owner will execute and deliver the "Security Agreement" attached
hereto and by this reference incorporated herein as Exhibit F at the same time
that Owner signs this Agreement.
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15. FORCE MAJEURE
In the event of any act of God or force majeure, such as strikes, lock-outs,
accidents, fires, delays in manufacturing, delays of carriers, delays in
delivery of materials, labor controversy, government actions, war or any other
causes beyond their control, neither party will be responsible for any delay in
performance hereunder nor will incur liability to the other due to the resulting
inability to perform provided that the party relying on such events of force
majeure gives notice to the other party of the cause and anticipated duration,
within thirty (30) days of the occurrence.
16. TERMINATION
(a) Either party hereto will have the right, in addition to any other
rights it may have at law or hereunder, to terminate the Term with immediate
effect by prior written notice to the other party ("Termination Notice"): (i) in
the event of a material breach or default (e.g., default by failure to promptly
pay any amounts due hereunder) by the other party of any representation,
warranty, covenant or obligation under this Agreement which, in the good faith
judgment of the party seeking to terminate the Term, would interfere with the
exercise of its rights hereunder and which breach or monetary default has not
been cured (if and to the extent curable) within thirty (30) days after prompt
written notice (specifying the nature of such breach or default) has been given
to such breaching or defaulting party by the party seeking to terminate the
Term; or (ii) in the event of a force majeure as set out above which continues
for a period in excess of one hundred eighty (180) days.
(b) Notwithstanding anything to the contrary contained herein, BMG will
have the right (in addition to any other rights BMG may have at law or
hereunder) to terminate the Term, with immediate effect, by prior written notice
to Owner:
(i) If any of the following occur: (A) the dissolution of Owner or
the liquidation of Owner's assets; (B) the filing by or against Owner of a
petition for liquidation or reorganization under Title 11 or 7 of the United
States Code as now or hereafter in effect or under any similar statute relating
to insolvency, bankruptcy, liquidation or reorganization; (C) the appointment of
a trustee, receiver or custodian for Owner or for any of Owner's property; (D)
Owner's making of an assignment for the benefit of creditors; (E) Owner's
commission of any act for or in bankruptcy; (F) or Owner's becoming insolvent.
(ii) (A) if Owner fails to furnish BMG with the written evidence (or
any other BMG approved form of assurance), if any, requested by BMG that Owner
has fulfilled all of Owner's obligations hereunder (including, without
limitation, Owner's obligation to secure the appropriate form of license or
authorization from, and make timely corresponding payments to, and third
party(ies) hereunder) and that Owner is solvent (and will continue to be
solvent) and otherwise ready and able to fulfill all of its then current and
future obligations to BMG and/or third party(ies) hereunder in a timely manner.
(B) If Owner (A) fails to use its best efforts to acquire
exclusive distribution rights during the Term and throughout the Territory with
respect to the types of goods categorized within the definition of Owner's
Product(s) which are available to Owner for inclusion hereunder or (B) fails to
retain such rights during the Term and throughout the
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Territory with respect to each Owner's Product(s) provided, however, that
Owner's failure to acquire or retain such rights shall not be deemed a material
breach of this Agreement.
(iii) If Gross Sales of Owner's Product(s) hereunder are less than
(TBA) Dollars in respect any subsequent Contract Year ("Minimum Sales
Threshold"). In determining whether the Minimum Sales Threshold has been
achieved (or will be achieved), BMG may estimate (in good faith) the Gross Sales
of Owner's Product(s) in respect of the applicable period (or Contract Year). If
taking such estimate into consideration, BMG determines that the Minimum Sales
Threshold has not been achieved (or will not be achieved), BMG may terminate the
Term prior to the expiration of the particular period (or Contract Year)
concerned. Any termination under this Paragraph will be effective, whichever
occurs first, the expiration of such particular period (or Contract Year) or the
expiration of the fourteen (14)-day period following BMG's notice of
termination.
(iv) Upon the occurrence of any event which entitles BMG to
terminate the Term (including, without limitation, Owner's insolvency), BMG, in
addition to any rights it may have at law or hereunder will be entitled to
offset and otherwise deduct and withhold from any and all monies otherwise
payable by BMG to Owner such amounts as are due and owing (or which BMG
determines will become due and owing) to BMG hereunder.
(v) "Default" (as defined in the Security Agreement).
(vi) Owner materially breaches any of BMG's Policies.
(c) Subject to the provision embodied in Paragraph 2(b)(i)(B) hereof, will
if for any reason product(s) comparable to Owner's product(s) are no longer
being distributed through the _______ channel and/or the _____ channel ceases to
exist, the Term will expire automatically.
(d) Unless otherwise expressly agreed by BMG and Owner, in writing, upon
the expiration or termination of the Term for any reason whatsoever:
(i) Owner will remove (at Owner's sole cost and expense) from BMG's
Warehouse and/or any other applicable location designated by BMG all of Owner's
Product(s), including without limitation, finished goods (e.g., Records (in all
configurations)), Masters, graphics, promotional items and related materials and
Materials (collectively "Residual Materials") in BMG's possession and/or control
within thirty (30) days following the effective date of such expiration or
termination ("Termination Date") and, notwithstanding the expiration or
termination of the Term, Owner will purchase (as and if not theretofor purchased
by Owner) all of BMG's inventory of Owner's Product(s) (including, without
limitation, Materials). Owner will accept the return of all Owner's Product(s)
returned by BMG's Customer(s) from time to time thereafter and repurchase from
BMG such Owner's Product(s) for an amount equal to the value of Net Proceeds of
the credit given by BMG to its Customer(s) for such returned Owner's Product(s)
returned. Owner's Product(s) returned to BMG's Warehouse after the initial
removal of Owner's Product(s) by the Owner, will be removed by the Owner, at
Owner's sole cost and expense, within thirty (30) days following BMG's written
request to Owner to do so. Prior to such removal of Owner's Product(s) by Owner
the particular Owner's Product(s) concerned will be appropriately marked or
otherwise modified by BMG (at Owner's sole cost and expense) in a
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manner consistent with BMG's current practices to remove BMG's name therefrom
and otherwise preclude same being returned to BMG. BMG will be entitled to scrap
any and all of the Residual Materials not so removed or paid for by Owner. Such
scrapping will be at the applicable per unit price set forth in Exhibit A. BMG
will invoice Owner therefor and Owner will pay such invoice in accordance with
Paragraphs 14(b) and (c) hereof;
(ii) all unshipped orders for Owner's Product(s) will be canceled
without liability, except that Owner will remain liable for work-in-progress
under Part II;
(iii) BMG will cease soliciting orders for and thereafter
distributing Owner's Product(s);
(iv) the expiration, termination or cancellation of the Term or the
revocation of this Agreement will not discharge Owner or BMG from their
obligation to pay any amounts due and owing hereunder (and any amounts which are
likely to become due and owing). As long as any amount so owing to BMG by the
Owner has not been paid in full, BMG will have the right to reimburse itself
from amounts owed to the Owner hereunder, without prejudice to the other rights
of BMG.
17. OWNER'S REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNIFICATION
(a) Owner represents, warrants and covenants as follows:
(i) (A) Owner has the exclusive right to produce, mechanically
record, promote, advertise, manufacture, distribute and sell Owner's Product(s)
during the Term and in the Territory;
(B) Owner is possessed of the full right to enter into this
Agreement and to grant BMG all of the rights herein granted;
(C) Any and all pressing and distribution agreements between
Owner and a third party(ies) (including, without limitation, "Prior
Distributor") for the manufacture and/or distribution of any of Owner's
Product(s) and/or Non-BMG Product(s) in the Territory (excluding agreements with
artists and producers whose performances are embodied in Owner's Product(s) and
production companies, record labels and licensors of the Materials, copyrights
and trademarks related thereto) have expired or have been lawfully terminated
and Owner has paid any and all amounts due to third party(ies) in connection
therewith (and no third party(ies) claims any amounts are due and owing from
Owner);
(D) All Owner's Product(s) delivered hereunder are available
for release and are not subject to any restrictions which prohibit the
manufacture, distribution and sale of Owner's Product(s) in accordance with the
terms and conditions including, without limitation, Paragraph 11(e) hereof;
(E) Owner will promptly furnish BMG with any and all materials
and elements reasonably required for BMG in connection with its exercise of the
rights herein granted to BMG in any and all channels and mediums now or
hereafter known or developed; and
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(F) Owner will not exploit or otherwise permit the
exploitation of the Master(s) from which Owner's Product(s) derive or Owner's
Product(s) in any manner which impairs, diminishes or otherwise adversely
impacts the exclusive rights afforded to BMG hereunder.
(ii) In performing services in accordance with the provisions of
this Agreement, BMG will not violate the rights of any third person or entity;
(iii) No other person whatsoever has (or will have) the right,
during the Term and in the Territory, to perform any of the services (including,
without limitation, Distribution Services) to be performed by BMG hereunder;
(iv) Owner has paid all costs and expenses (including, without
limitation, the costs and expenses of development, production, creation and
recording of the Master(s) and Owner will timely pay all costs and expenses
related to the manufacturing, printing and marketing of Owner's Product(s)
Product(s);
(v) There is no claim or legal proceeding in respect of Owner and/or
any of Owner's Product(s);
(vi) Owner is the owner or licensee of all rights relating to
Owner's Product(s) by virtue of valid contracts;
(vii) Owner has not sold, assigned, transferred, leased, conveyed or
granted a security interest in, or otherwise disposed of, and will not sell,
assign, transfer, lease, convey or grant a security interest in and to any of
Owner's Product(s), adverse to or derogatory to the rights of BMG herein, nor is
there any lien or encumbrance upon any of Owner's Product(s);
(viii) Owner is and will continue to be the owner or licensee of all
rights relating to the Owner's Product(s) and Materials (including, without
limitation, copyrights and trademarks) during the Term and throughout the
Territory;
(ix) Owner owns or possesses the right to use and to authorize
others to use the Identification in the manner provided herein;
(x) During the Term, Owner (and any person which derives rights from
Owner and/or which is controlled by Owner and from whom Owner derives rights)
will not do or authorize any person to do anything inconsistent with, or which
might diminish or impair, any of BMG's rights hereunder or violate the rights of
any third parties;
(xi) With respect to the production, manufacture, distribution and
sale of Owner's Product(s) and all amounts paid by BMG to Owner hereunder, Owner
will pay all taxes and all third party obligations required to be paid by Owner
inclusive of, but not limited to, obligations to artists, producers, developers,
writers, composers, lyricists and publishers, and all federal and state sales
and use taxes, property taxes and all other applicable taxes of any nature. With
respect to any payments that may become due to any union having jurisdiction or
under any collective bargaining agreement, including, without limitation,
A.F.T.R.A., the A.F. of M., and their Music Performance Trust Fund and Special
Payments Fund, which payments arise out of
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the production, manufacture, distribution and sale of Owner's Product(s)
hereunder, BMG will not be responsible therefor and any and all obligations for
such payments will be satisfied by Owner; and
(xii) Owner has fully tested any applicable Master(s) from which
Owner's Product(s) derive and same will operate in accordance with commonly
accepted standards for operation of such products, will be free from any
significant errors or anomalies, and will operate and run in a reasonable and
efficient business manner. Should any significant error or anomaly or
nonconformity be detected, Owner, at Owner's sole cost and expense, will
promptly correct such programming error or anomaly and provide BMG with a new
Master(s) to enable BMG to reproduce and/or distribute a corrected version of
Owner's Product(s), or to continue to manufacture and/or distribute Owner's
Product(s), as the case may be. Owner will use its best efforts to complete such
repairs and to provide a new Master(s) to BMG in a timely manner. In the event
BMG is required to replace copies of Owner's Product(s) which have been
distributed with copies which do not contain a significant error or anomaly or
nonconformity, or to refund any part of any fees or costs in connection with the
use of copies of Owner's Product(s), Owner will promptly reimburse BMG for all
reasonable costs incurred in replacing copies of the Owner's Product(s) or for
all refunds given, as well as all reasonable costs of removing all copies of the
Owner's Product(s) from the channels of distribution. BMG will be entitled to
offset from and against any payments due to Owner under this Agreement (or any
other agreement) any sums owed to BMG pursuant to this Paragraph."
(b) BMG and Owner each ("the Indemnitor") does hereby indemnify and agree
to hold the other, it successors and assigns and any of its officers, directors,
employees, representatives and/or agents or each of them ("the Indemnitee")
harmless at all times from and against any and all losses, claims, costs,
expenses, liabilities and damages (including, without limitation, reasonable
fees and disbursements of counsel incurred by Indemnitee in any action or
proceeding between Owner and BMG or between BMG and any third party or
otherwise) arising out of or connected with any breach or alleged breach by the
Indemnitor of this Agreement or any agreement, warranty, representation,
promise, covenant or any obligation by the Indemnitor (including, without
limitation, in the case of Owner, all of Owner's obligations under Paragraphs
8(d) and 17(a)(xi)). Prompt written notice will be given to the Indemnitor of
any claim, action or proceeding to which the foregoing indemnity relates and the
Indemnitor will have the right to participate in the defense thereof at the
Indemnitor's expense. The Indemnitor will reimburse the Indemnitee on demand for
any payment made by the Indemnitee at any time in connection with any liability
or claim to which the foregoing indemnity relates, provided that such liability
results from a judgment on the merits against the Indemnitee or a settlement
entered into by the Indemnitee with the consent (not to be unreasonably
withheld) of the Indemnitor. Pending the determination of any such claim,
without limitation of BMG's remedies and rights, BMG, as Indemnitee, may
withhold payments and deduct sums from any monies accruing or payable to Owner
hereunder in an amount reasonably related to such claim, provided, however, that
if Owner will obtain and post an undertaking (as defined, as of the date of this
Agreement in Section 2501(1) of the Civil Practice Law and Rules (CPLR) of the
State of New York) in an amount which BMG, in its sole judgment but in good
faith, deems reasonably sufficient to secure BMG for Owner's liabilities
hereunder, then BMG will not withhold and reserve monies as set forth in this
Paragraph. If BMG has withheld and reserved any monies pursuant to this
Paragraph with respect to any claim and if said claim has not been followed by
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<PAGE>
commencement of an action or proceeding within twelve (12) months or if a claim
is dismissed, defeated or discharged within twelve (12) months, BMG will release
such monies without prejudice to its rights to again withhold and reserve monies
in the future if any action or proceeding is later commenced.
18. OWNER'S RELATIONSHIP TO BMG
(a) In performing Owner's obligations hereunder and in performing any
services in connection herewith, Owner is and will be deemed an independent
contractor, and nothing herein contained will in any way constitute Owner, or
any of Owner's officers, directors or employees, an agent or employee of BMG.
(b) (i) Without the other party's express prior written consent, neither
party shall disclose or authorize the disclosure of any information of a
confidential nature learned as a result of this Agreement or the operation
thereof, nor in any way or in any form publicize or advertise in any manner any
of the terms, conditions or obligations contained in this Agreement except as
provided in Paragraphs 18(b)(ii) (A), (B) and (C) below.
(ii) Each party will keep strictly confidential any and all
information with respect to the terms, conditions and obligations of this
Agreement, except that each party may disclose same:
(A) to the extent required by law, regulation or legal process
or any regulatory agency, subject to the terms and conditions contained in
Paragraph 18(b)(iii);
(B) to each party's employees, representatives, legal,
professional advisors and affiliates who need to know the information for the
purpose of performing their duties and obligations hereunder (provided each
party requires its employees, advisors, and representatives (including, without
limitation, legal representatives) to keep same strictly confidential); or
(C) if at the time of disclosure it is in the public domain
other than as a result of Owner's breach of this Agreement.
(iii) In the event that any of one party's employees, advisors, or
representatives are requested pursuant to, or become compelled by, applicable
law, regulation or legal process to disclose this Agreement, any of its terms,
or any confidential information learned as a result of this Agreement or the
operation thereof, such party will provide the other party with prompt written
notice so that the other party may seek a protective order or other appropriate
remedy or, in the sole discretion of the other party, waive compliance with the
terms of this Agreement. In the event that no such protective order or other
remedy is obtained, or that the other party waives compliance with the terms of
this Agreement, such party will furnish (or permit to be furnished) only that
portion of this Agreement or its terms which such party is advised by counsel
that such party is legally required to furnish (or have furnished) and such
party will cooperate with the other party's efforts to obtain reliable assurance
that confidential treatment will be accorded this Agreements terms and all such
confidential information.
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19. KEY PERSONNEL
BMG has entered into this Agreement because of its trust and confidence in
_________________ and ______________ (individually and collectively the "Key
Personnel"). It is understood and agreed that the bearing of continuing and
primary responsibility on a full-time basis by the Key Personnel for Owner's
management, development, A&R, marketing and promotion activities throughout the
Term is a vital part of this Agreement. In the event of the death or incapacity
of the Key Personnel, or in the event that the Key Personnel will cease for
whatever reason (or no reason at all) such continuing and primary responsibility
for said A&R, marketing and promotion, BMG will have the right, without
prejudice to any other rights it may have, to terminate the Term of this
Agreement by giving written notice to Owner, effective immediately.
20. NOTICES
(a) All notices from one party to the other hereunder will, unless herein
indicated to the contrary, be in writing and will be addressed as follows:
To OWNER:
To BMG: BMG MUSIC
d/b/a BMG Entertainment
1540 Broadway
New York, New York 10036-6758
Attn: Vice President, Legal & Business Affairs (BMG Distribution)
with a copy to Senior Vice President, Finance (BMG Distribution)
or to such other address as the addressee designates by written notice. Any
notice hereunder will be sent either by regular mail, certified or registered
mail (return receipt requested), or by personal delivery or air express or
telefax (to the telefax number of the party to be served) and will be deemed
complete when same (containing whatever information may be required hereunder)
is deposited in any United States mail box addressed as aforesaid, except that
(a) all materials personally delivered or sent by telefax will be deemed served
when actually received by the party to whom addressed, (b) air express materials
will be deemed served on the day of delivery to the air express company, (c)
notices of change of address will be effective only from the date of its
receipt, and (d) accounting statements will be sent by regular mail and will be
deemed rendered when deposited in any United States mail box.
(b) During the Term, Owner will at all times designate an employee of
Owner as Owner's representative and agent with whom BMG can primarily liase for
purposes of this Agreement (e.g., manufacturing, sales, marketing, advertising,
etc.). Currently, Owner designates ________________ (and any employee of Owner
designated, in writing, by him) as its representative and agent for purposes of
this Agreement.
21. ASSIGNMENT
Owner will not have the right to assign the Agreement or any of its rights
or obligations hereunder. BMG may, at its election, assign the Agreement or any
of its rights or obligations hereunder to its parent, subsidiary or affiliated
company or any person acquiring all or substantially all of its assets or with
whom BMG may merge. The foregoing will in no way limit
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BMG's right to assign or license in the ordinary course of business. Any
assignment of this Agreement by Owner will be null and void.
22. WAIVERS AND REMEDIES
No waiver of any provision of or default under this Agreement will affect
Owner's or BMG's right, as the case may be, thereafter to enforce such provision
or to exercise any right or remedy in the event of any other default, whether or
not similar. To the extent permitted by, and subject to the mandatory
requirements of all applicable laws, rules and regulations, each and every
right, power and remedy herein specifically given to either party or otherwise
in this agreement will be cumulative and will be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute, and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and as often and in such order as may be deemed expedient by such
party, and the exercise or the beginning of the exercise of any power or remedy
will not be construed to be a waiver of the right to exercise at the same time
or thereafter any other right, power or remedy. No delay or omission by either
party in the exercise of any right, remedy or power or in the pursuit of any
remedy will impair any such right, remedy or power or be construed to be a
waiver of any default on the part of such party or to be an acquiescence
therein. No express or implied waiver by either party of any breach or default
hereunder by the other party will in any way be, or be construed to be, a waiver
of any future or subsequent breach or default hereunder by such other party.
23. HEADINGS
The headings and captions preceding the text of the various provisions of
this Agreement are inserted solely for reference and will not constitute a part
of this Agreement nor affect its meaning, construction or effect. Every word or
phrase defined herein will, unless herein specified to the contrary, have the
same meaning throughout this Agreement. As used herein, wherever applicable, the
singular will include the plural and the plural will include the singular, the
masculine will include the feminine and the feminine will include the masculine.
24. INVESTIGATION
BMG will have no obligation whatsoever to make any investigation of the
facts relevant to any agreement, warranty or representation made by Owner
herein. Neither the furnishing by Owner nor the receipt by BMG of any document
will impair BMG's absolute rights to rely, to have relied, and to continue to
rely on any warranties or representations made by Owner herein in connection
with such document or the contents thereof.
25. ENTIRE AGREEMENT
This Agreement contains the entire and only agreement between the parties
with respect to the subject matter hereof. This Agreement supersedes all
previous agreements or arrangements between the parties relating to the subject
matter hereof. No amendment, modification, waiver or discharge of this Agreement
or any provision hereof will be binding unless signed by BMG's and Owner's
authorized signatories.
26. SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this
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Agreement will nevertheless remain in full force and effect, so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto will negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the greatest
extent possible.
27. GOVERNING LAW
This Agreement will be construed under the internal laws of the State of
New York applicable to contracts to be performed wholly therein, and both
parties agree that only the New York courts will have jurisdiction over this
contract and any controversies arising out of this contract will be brought by
the parties to the Supreme Court of the State of New York, County of New York,
and they hereby grant jurisdiction to that Court. THE PARTIES HERETO EXPRESSLY
AND IRREVOCABLY WAIVE THEIR RIGHT TO TRIAL BY JURY AND ANY OBJECTION,
(INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
GROUNDS OF FORUM NON CONVENIENS WHICH THEY MAY NOW OR HEREINAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION) IN CONNECTION WITH
ANY CLAIM, DEMAND OR ACTION ARISING OUT OF THIS AGREEMENT.
28. COUNTERPARTS
This agreement may be executed in one or more counterparts and by the
different parties hereto in separate counterparts, each of which when executed
will be deemed to be an original but all of which taken together will constitute
one and the same agreement. Facsimile signatures on this Agreement will be
deemed original for all purposes.
29. INTERNATIONAL CATALOG LICENSING AGREEMENT ("ICLA")
The terms and conditions applicable to the exploitation of Owner's
Products outside of the Territory ("Rest of World" or "ROW") are set forth in
Exhibit H attached hereto and by this reference incorporated herein.
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IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first above
mentioned.
BMG MUSIC, a New York general partnership __________________, a ________________
d/b/a BMG Entertainment (Owner)
By: BERTELSMANN MUSIC GROUP, INC.,
a Delaware corporation, a general partner
By: __________________________________ By: __________________________________
Name: Name:
Title: Title:
Date: ______________________, 200__ Date: ______________________, 200__
______________________________________
Federal Tax ID #
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SCHEDULE I
TO THE AGREEMENT DATED AS OF __________,200_
BETWEEN BMG MUSIC AND________________________
Owner's Product(s) As of_________, 200_
(To Be Completed By Owner)
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SCHEDULE 2
TO THE AGREEMENT DATED AS OF ___________, 200_
BETWEEN BMG MUSIC AND _______________________
(To Be Completed By Owner)
Non-BMG Product(s) As of_________ 200
(*)* Artist Title Release Old UPC New UPC Prior Prior Distributor
Date Code & Code & Distributor's (Net Effective
Selection # Selection # (Name) Returns Price)
----------
* Insert an asterisk (*) to indicate each Non BMG Product(s) which has been
distributed by Prior Distributor.
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(Third Party Prices)
EXHIBIT A
TO THE AGREEMENT DATED AS OF __________,200_
BETWEEN BMG MUSIC AND ______________________
PRICE SCHEDULE FOR WAREHOUSE SERVICES
PRICE PER UNIT (US DOLLARS)
TO BE ADVISED
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EXHIBIT B
TO THE AGREEMENT DATED AS OF ____________,200__
BETWEEN BMG MUSIC AND ______________________
STANDARD PARENTAL ADVISORY LOGO
(UNITED STATES)
Wording : PARENTAL ADVISORY: EXPLICIT CONTENTS
Color: Black and white
Placement: Front of the permanent packaging (under the shrinkwrap) of the
particular Owner's Product(s) concerned (e.g., CD, cassette,
vinyl record and video)
Size: 1" x 5/8"
Example:
(ATTACH LOGO HERE)
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EXHIBIT C
TO THE AGREEMENT DATED AS OF ___________,200__
BETWEEN BMG MUSIC AND _____________________
TRADEMARK REQUIREMENTS
BMG LOGO:
(ATTACH LOGO HERE)
APPEARANCE: - BMG letters in black and the solid triangle and rule in
BMG Red (PMS200 - Pantone(R) 200C for coated stock,
Pantone(R) 200U for uncoated stock) or
- Entire BMG Logo in solid black or other BMG approved,
solid dark color on a light background or
- Entire BMG Logo in white on a dark background.
TYPEFACE: Futura Bold Condensed
OWNER'S PRODUCT(S) PLACEMENT:
AUDIO
- Compact Disc - The BMG Logo must appear on the back of
the tray card (visible to the consumer at time of
purchase), in the booklet and on the compact disc.
- Cassette - The BMG Logo must appear on the back of the
J card (visible to the consumer at time of purchase) and
on the cassette (c-zero cartridge).
- Vinyl - The BMG Logo must appear on the back of the
jacket (visible to the consumer at time of purchase) and
on the label.
VIDEO - The BMG Logo must appear on the back of the slipcase
(visible to the consumer at time of purchase) and on the face
label of the video cassette.
OTHER - The BMG Logo must appear on the back of the applicable
product container (visible to the consumer at time of
purchase) and on the product.
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EXHIBIT C (continued)
SIZE: Under no circumstances may the size of the BMG Logo be smaller
than the size of the BMG Logo depicted below or any other logo
depicted in connection with Owner's Product(s).
Example of smallest size (19/32" or 15mm):
(ATTACH LOGO HERE)
LEGEND: The following Legend must appear wherever the BMG Logo
appears:
"The BMG Logo is a trademark of BMG Music,"
----------
* THE BMG LOGO MAY ONLY APPEAR IN THE MANNER DEPICTED ABOVE.
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EXHIBIT C-1
TO THE AGREEMENT DATED AS OF____________ _____
BETWEEN BMG MUSIC AND ______________________
DESIGNATION OF ORIGIN
Printed or stickered on all jackets, containers and graphics
on Owner's Product(s)
WORDING: "Manufactured and Distributed in the United States by BMG
Distribution, a unit of BMG Entertainment, 1540 Broadway, New York,
New York 10036"
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EXHIBIT D
TO THE AGREEMENT DATED AS OF ____________, 200__
BETWEEN BMG MUSIC AND _____________________________
PRICE SCHEDULE FOR AUDIO MANUFACTURING SERVICES
(US DOLLARS)
Configuration Price Per Unit Elements
------------- -------------- --------
7" Records $0.43 Generic craft sleeve - 1 color
Flexograph printing.
12" Records $0.87 White sleeve
Jacket supplied by Owner.
Standard Shrinkwrap.
(Black generic jacket supplied by BMG
($0.30).
Cassettes $0.42 Tape housed in a standard white
(full-length) (ferric tape) C-zero cartridge or clear C-zero
$0.49 cartridge, includes 1 color direct
(Cr02 tape) imprint. Insertion into a black or
clear Norelco Box with 4 panel J card.
plus $0.0040 for each Standard shrinkwrap
minute or portion thereof
in excess of 45 minutes
Cassette Singles $0.33
(ferric tape)
plus $0.004 for each minute
or portion thereof in
excess of 20 minutes
$0.37
(chrome tape)
plus $0.004 for each minute
or portion thereof in
excess of 20 minutes
Compact Discs $0.55 Disc (includes up to 3 color screen
(full-length or single) print), top spine and inbound
freight, tray and jewel case.
Insertion of booklet and tray card,
as supplied by Owner. Overwrapped.
A $0.15 credit will be applied when
the Jewel case is not used.
Additional charges for other
packaging elements shall be as
specified by BMG.
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EXHIBIT D (continued)
PRICE SCHEDULE FOR AUDIO MANUFACTURING SERVICES
In addition to the elements listed above, the elements for each configuration
shall include a commercial quality pressing and boxing in BMG's standard count
box,
ADDITIONAL PROVISIONS
7" AND 12" RECORDS
7" and 12" records will be manufactured in various locations. With respect
thereto:
- 7" records Minimum Initial Order 1000 units, reorder minimum 500
units.
- 12" records - Minimum Initial Order 500 units, reorder minimum 500
units.
- Owner will furnish BMG with Sony 1610 master tape and lacquers for
manufacturing.
- If Direct Metal Mastering (DMM) is used, Owner will furnish BMG with
molds at Owner's expense.
- Owner will supply BMG with printed polylined inner sleeves. Owner
will send printed jackets, inserts and polylined inner sleeves to
the location(s) designated by BMG, Owner will supply label
background separations. BMG will print the backgrounds. Owner will
provide that all jackets shall bear the new selection numbers and
UPC barcodes and that BMG jackets, graphics and labels background
separations shall bear the language "Distributed (or `Manufactured
and Distributed,' whichever is appropriate) in the United States by
BMG Distribution, a unit of BMG Entertainment, 1540 Broadway, New
York, New York 10035." "BMG (or the `BMG logo,' whichever is
applicable) is a trademark of BMG Music."
CASSETTES
Caasettes will be manufactured by BMG in various locations. With respect
thereto:
- Minimum Initial Order 1000 units, reorder minimum 500 units,
- Owner will supply BMG with a Sony 1630 master tape.
- Owner will supply BMG with label copy film for direct imprint on
cassettes.
At Owner's sole cost and expense, Owner will provide BMG with artwork and all
related mechanicals and will supply BMG with cassette J-Cards sufficient to
allow BMG, (at Owner's sale cost and expense), to provide printed, 4-color,
scored insert cards which shall bear the new selection numbers and UPC barcodes
and the language "Manufactured and Distributed" in the United States by BMG
Distribution, a unit of BMG Entertainment, 1540 Broadway, New York. New York
10036." "BMG (or the `BMG logo,' whichever is applicable) is a trademark of BMG
Music." Owner shall be solely responsible for all coordination, costs and
expenses, including, without limitation, freight to BMG's manufacturing
facilities, associated with ensuring that the
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EXHIBIT D (continued)
PRICE SCHEDULE FOR AUDIO MANUFACTURING SERVICES
Owner-supplied J-Cards are received by BMG in a manner and form suitable to BMG
to allow BMG to incorporate Owner's J-Cards in an efficient and timely manner.
- BMG will collate the cassettes and J-cards into Norelco cases and
shrinkwrap.
CAMPACT DISCS
Compact discs will be manufactured and packaged in various locations. With
respect thereto;
- Minimum Initial Order 1,000 units, reorder minimum 500 units.
- At Owner's sole cost and expense, Owner will supply a technically
satisfactory Sony 1630 master tape accompanied by the appropriate
digital tracking Information. In the alternative, Owner shall pay
BMG its standard compact disc mastering charge for each compact disc
selection mastered hereunder.
- At Owner's sole cost and expense, Owner will supply label background
film and artwork for each selection with tracking sequences and
timings.
- At Owner's sole cost and expense, Owner will supply printed booklets
and Inlay cards which will bear the new selection numbers, UPC
barcodes and the language "Manufactured and Distributed" in the
United States by BMG Distribution, a unit of BMG Entertainment, 154
Broadway, New York, New York 10036." "BMG (or the "BMG logo,"
whichever is applicable) is a trademark of BMG Music."
- BMG will collate the discs, booklets and inlay cards into jewel
cases and overwrap them..
BMG will designate the location(s) to which Owner is required to deliver the
various items Owner is to supply.
DIGITAL DOWNLOADS AND KIOSKS
Owner will be solely responsible for certain costs and expenses associated with
digital downloads and kiosk sales (including, without limitation, the costs and
expenses for the digitalization or other creation of the necessary Master(s) for
the particular Owner's Product(s) concerned, for the so-called "context
preparation" associated with the particular Owner's Product(s) concerned and for
the download or either delivery of the particular Owner's Product(s) concerned),
except that BMG will be responsible for the so-called "storage costs" and
"rights clearing house costs" associated with same.
Notwithstanding anything to the contrary contained herein, BMG, with respect to
the distribution of Owner's Product(s) as so-called digital download or kiosk
sales, will apprise Owner from time to time of such specific costs and expenses
for the particular Owner's Product(s) concerned and/or for all Owner's
Product(s) in respect of which Owner is responsible and any other terms and
conditions applicable thereto.
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EXHIBIT E
TO THE AGREEMENT DATED AS OF ___________, 200
BETWEEN BMG MUSIC AND ______________________
PRICE SCHEDULE FOR SP (STANDARD PLAY) VIDEO DUPLICATION SERVICES
TO BE ADVISED
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EXHIBIT F
TO THE AGREEMENT DATED AS OF __________, 200_
BETWEEN BMG MUSIC AND ______________________
SECURITY AGREEMENT
(See Attached)
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of this day of _________, 200_, by and
between BMG Music d/b/a BMG Entertainment (herein referred to as "Distributor")
on the one hand, and (herein referred to as "Company"), on the other hand, with
reference to the following:
A. Distributor and Company are entering into a Distribution Agreement (herein
referred to as "the Distribution Agreement") dated as of ________________, 200_.
In connection with the Distribution Agreement, Distributor will advance certain
monies on behalf of Company, and Distributor will incur additional
administrative and overhead costs in order to assist Company in the operation of
its business.
B. As an inducement and precondition to Distributor entering into the
Distribution Agreement, and as security for Company's performance pursuant to
the Distribution Agreement, Company has agreed to grant a security interest in
certain of its assets to Distributor (hereinafter sometimes referred to as
"Secured Party") under this Security Agreement.
NOW THEREFORE, for and in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF SECURITY INTEREST
(a) In order to secure the prompt and punctual payment, performance and
observance of all indebtedness, obligations, liabilities and agreements of any
kind of Company to Secured Party under this Agreement and the Distribution
Agreement (collectively, the "Obligations"), Company hereby grants to the
Secured Party a continuing first priority security interest in and to and to all
of its right, title and interest in and to:
(i) all existing and after-acquired Inventory of Company in
"Company's Product(s)" (as hereafter defined) subject to the Distribution
Agreement and all "Masters" (as hereinafter defined) from which the same derive,
all of Company's rights, title and interest in and to all copyrights, whether or
not now in existence, which are or will relate to the Masters and Company's
Product(s) which are subject to the Distribution Agreement; and all documents
covering such Inventory, Company Product(s) and Master(s), and all proceeds of
the sale or other disposition of the same, wherever located.
(ii) all existing and after-acquired licenses, copyrights, service
marks, trademarks, trade names and contract rights, documents and instruments
associated with and necessary for the manufacture and distribution of all
Company Product(s);
(iii) all existing and after-acquired licenses, copyrights and other
contract rights associated with the Master(s) and necessary for the manufacture
and distribution of all Company Product(s);
(iv) all accounts due from Distributor to Company under the
Distribution Agreement and all books, ledger cards, computer programs, databases
and other property and general intangibles at any time evidencing or relating to
the accounts;
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(v) all insurance proceeds or claims by the Company against third
parties for loss or damage to or destruction of any or all of the Collateral;
and
(vi) any and all products and proceeds of any of the foregoing in
any form whatsoever.
All items set forth in Paragraphs (i) through and including (vi) above
hereinafter will be collectively referred to as the "Collateral."
2. REPRESENTATIONS AND WARRANTIES
Company represents, warrants and agrees that:
(a) no financing statement naming Company as debtor has been filed in any
public office;
(b) it has not and will not grant a security interest to any third party
in the Collateral without Secured Party's prior express written consent;
(c) Company has and will continue to have good and marketable, legal and
beneficial title to all Collateral, free of all liens, claims, security or other
interests, defenses, offsets, pledges, mortgages, hypothecations, charges and
encumbrances (collectively, "Encumbrances") whatsoever, other than the lien and
security interests granted hereunder;
(d) on and after the date hereof, this Agreement will create a valid and
enforceable first priority and, upon filing of the appropriate financing
statements, perfected security interests in and to the Collateral in favor of
the Secured Party, superior and prior to the rights of all persons and entities
and subject to no other Encumbrance whatsoever other than the lien and security
interest granted hereunder. The Collateral is being used, and will continue to
be used, in Company's business and not for personal, family, household or
farming use. The Collateral is now personal property and not a fixture.
(e) Company has and will have full power and authority to execute this
Agreement and to perform its obligations hereunder and this Agreement is a valid
and binding obligation of Company, enforceable in accordance with its terms;
(f) Company has and will have full power and authority to subject the
Collateral to the lien and security interest granted hereunder;
(g) all information with respect to the Collateral set forth in any
schedule, certificate or other writing at any time heretofore or hereafter
furnished by Company to the Secured Party and all other written information
heretofore or hereafter furnished by Company to the Secured Party, is and will
be true and correct in all material respects as of the date furnished;
(h) the execution and delivery of this Agreement and the performance of
its terms does not and will not result in any violation of any provision of the
Articles of Incorporation or By-laws of Company or violate or constitute a
default under the terms of any agreement, instrument, license, judgment, decree,
order, law, statute, or other governmental rule or regulation applicable to
Company or its assets or properties;
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(i) the chief executive office of Company and the office where Company
keeps its books and records relating to the Collateral is and all locations of
Collateral are at the addresses set forth on Schedule 1 hereto and, except as
otherwise specified on Schedule 1, have been located at such addresses at all
times prior to the date hereof.
3. PERFECTION OF SECURITY INTEREST
Company will execute and deliver to the Secured Party, at its request, but
also hereby appoints the Secured Party, with full power of substitution, as its
attorney-in-fact and agent to execute and file on Company's behalf, financing
statements copyright, trademark or service mark filings, assignments, mortgages
and pledges covering the Collateral. The Secured Party is authorized, at its
option, and Company hereby appoints the Secured Party, as its attorney-in-fact
and agent, to file any additional financing statement(s) and/or continuation
statement(s) with or without its signature with respect to any of all of the
Collateral; Company agrees to pay the costs in excess of Two Hundred ($200)
Dollars of any such filing and recording in all public offices deemed necessary
by Secured Party and to sign upon request any instruments, documents or other
papers which Secured Party may require to perfect its security interest in the
Collateral.
4. COVENANTS
Company agrees:
(a) to do such other acts and things, all as the Secured Party may from
time to time reasonably requests to establish and maintain a valid security
interest in the Collateral, free of all other Encumbrances, other than the
Secured Party.
(b) to keep, at Company's address specified in Paragraph 2(i) hereof, the
records concerning Collateral, which records will be of such character as will
enable the Secured Party or its designees to determine at any time the status
thereof;
(c) to permit Secured Party or its representative after reasonable notice
at any time during normal business hours to visit Company's offices and to
inspect, audit and make copies of and extracts from all records and all other
papers in the possession of Company, and upon request of the Secured Party, to
deliver to the Secured Party all of such records and papers which pertain to the
Collateral;
(d) upon request of the Secured Party, to clearly indicate on its records
concerning the Collateral a notation, in form satisfactory to the Secured Party,
of the security interest of the Secured Party hereunder;
(e) at all times to keep all Collateral which constitutes tangible
personal property fully insured to the extent insurable, against loss, damage,
theft and other risks, naming Secured Party as an additional insured, from such
insurance companies, under such policies and in such form as required by Secured
Party and to deliver to Secured Party a certificate of such insurance within
fifteen (15) days of the date of this Agreement;
(f) to reimburse the Secured Party for all expenses (including, without
limitation, attorneys' fees) incurred by them in seeking to collect or enforce
any rights in the Collateral:
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(g) appear in and defend any action or proceeding, affecting or purporting
to affect the Collateral, and pay all costs and expenses thereof and all costs
and expenses in any such action or proceeding in which Secured Party may appear;
(h) to provide Secured Party at least forty-five (45) days' advance
written notice of (i) any change in the location of its chief place of business
or chief executive office, and to inform Secured Party of the address of such
new location; (ii) any change in the location of its books and records relating
to the Collateral, and to inform Secured Party of the address of such new
location: and (iii) each new location of any office or warehouse (excluding
locations of Collateral in the possession or under the control of the Secured
Party).
(i) to file mortgages of copyright and assignments of trademarks with the
appropriate recording office simultaneously with the filing of any applications
for copyright and trademark registrations as are necessary in order to fulfill
the covenant contained in Paragraph 1(a) hereof, which filings will be performed
at least quarterly.
(j) to give written notice to the Secured Party promptly after it becomes
aware of (i) the occurrence of any Event of Default or of any fact, condition,
or event which, with lapse of time or the giving of notice, or both, would
constitute an Event of Default hereunder, which notice will specify the nature
thereof, the period of existence thereof, and (ii) the commencement of, or the
written threat of, or any significant development in, any litigation or
governmental proceeding pending against Company which is likely to have a
material adverse effect on the Collateral, or on the business or assets of
Company.
(k) to cause all Company Products to comply in all respects with all
labeling requirements of Secured Party as set forth in the Distribution
Agreement, relating to trademarks, copyrights or other notice elements of the
artwork or background thereof, including, without limitation, UPC symbols (i.e.,
bar-coding), PMRC and other similar advisory stickers, or any disclosures deemed
advisable by Secured Party's attorneys;
(l) not to change Company's name or conduct Company's business under any
trade name or style other than as set forth herein without providing Secured
Party with thirty (30) days prior written notice of such proposed change or new
trade name or style; and
(m) not to voluntarily transfer or permit any involuntary transfer of the
Collateral or any interest therein, by way of sale (other than sales of
Inventory in the ordinary course of business), creation of an Encumbrance, levy
or other judicial process without first obtaining the written consent of Secured
Party;
5. EVENTS OF DEFAULT
(a) The occurrence of any one of the following events will constitute an
event of default (an "Event of Default") hereunder if not cured within thirty
(30) days after written notice from Distributor to Company in the manner
provided for notices in the Distribution Agreement; PROVIDED HOWEVER, that
Secured Party will have the right to terminate this Agreement upon written
notice to Company, without a cure period, if Secured Party determines that the
nature of the breach or default is such that it cannot be cured by Company
within such thirty (30)-day period:
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(i) if any amount due to Distributor from Company under the
Distribution Agreement is not paid when due;
(ii) if Company will fail to duly perform any of its respective
covenants, agreements or obligations contained in the Distribution Agreement or
this Agreement;
(iii) if Company will fail to duly perform any of its obligations to
third parties identified in Distribution Agreement;
(iv) if Company will commence any case, proceeding or other action
under any bankruptcy, insolvency or similar law for the protection of creditors
or the relief of debtors, or will have any such case, proceeding or other action
commenced which seeks an order for relief or an adjudication of insolvency or an
appointment of a receiver or similar official where such action commenced
against it is not dismissed or discharged within thirty (30) days;
(v) if Company will make a general assignment for the benefit of its
creditors;
(vi) if Company will be dissolved or liquidated or will be party to
any merger or consolidation with a third party, or will sell all or any
substantial part of its capital stock, business or assets other than by a public
offering of securities;
(vii) if Company has made a representation or warranty herein or in
the Distribution Agreement which will have been materially untrue at or as of
the date made or misleading in light of the circumstances under which it was
made;
(viii) if Key Personnel no longer performs in accordance with the
Key Personnel provisions of the Distribution Agreement; and
(ix) if Company will be in default, or an event of default has
occurred, under the Distribution Agreement.
6. REMEDIES
(a) General - Upon the occurrence of an Event of Default, the Secured
Party will have, in addition to any rights it has under the Distribution
Agreement, all rights and remedies afforded a Secured Party under applicable law
including, without limitation, all rights and remedies of a Secured Party under
the New York Uniform Commercial Code, as amended from time to time, the right to
exploit the Collateral, in any media, and in any commercially reasonable manner
available to Secured Party and the right to sell the Collateral at public or
private sale at the location or locations then specified by the Secured Party.
Company agrees upon the occurrence of an Event of Default, at the request of the
Secured Party, to assemble the Collateral, at the expense of Company, at a
convenient place acceptable to the Secured Party. All reasonable attorneys' fees
and disbursements and all other costs, charges, premiums and other expenses
incurred in connection with any such sale will be charges against and deducted
from the proceeds thereof, with the balance, if any, applied in reduction of the
respective obligations of Company under the Distribution Agreement, whether or
not then due, with any surplus remaining being payable to Company, and in the
event there is a deficiency, said deficiency will be payable forthwith by
Company. Notice of public or private sale, if given, will be sufficiently given
for all purposes if sent to Company at its last known address, and if a public
sale, if
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published once in any newspaper of general circulation in the country in which
such sale is to be held, not less than five (5) days prior to sale.
(b) Sale of Inventory - In addition to any other rights or remedies
Secured Party may have, upon such thirty (30) days written notice to Company,
Secured Party may sell the Collateral, at a private sale to a distributor,
dealer or other person or entity at Secured Party's customary "cut-out" or
"close out" prices, which Company acknowledges and agrees will constitute
disposition thereof in a commercially reasonable manner.
(c) With respect to an Event of Default under Paragraph 5(iv) above, all
obligations will immediately and automatically be due and payable without
further presentment, demand, protest, notice of any kind, all of which are
hereby expressly waived by Company.
(d) All rights and remedies provided in this Agreement are cumulative, not
exclusive and enforceable, alternatively, successively or concurrently.
7. REASONABLE CARE
The Secured Party will be deemed to have exercised reasonable care in the
custody and preservation of any of the Collateral in its possession if it takes
such action for that purpose as Company reasonably requests, in writing, but
failure of the Secured Party to comply with any such request will not of itself
be deemed a failure to exercise reasonable care, and no failure of the Secured
Party to preserve or protect any rights with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by Company, will be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral.
8. RELEASE OF THE COLLATERAL AND TERMINATION
Upon receipt by the Secured Party of evidence acceptable to it of the
satisfaction of all Obligations of Company under this Agreement and the
Distribution Agreement, this Agreement will terminate and the Secured Party, at
the request and expense of Company, will execute and deliver to Company
appropriate instruments acknowledging such termination. If, as a result of any
bankruptcy, dissolution, reorganization, intervention, arrangement, or
liquidation proceedings (or proceedings similar in purpose or effect), or if for
any other reason, any payment received by Secured Party in respect of the
Obligations is rescinded or must be returned by Secured Party, this Agreement
will continue to be effective as if such payment had not been made.
9. WAIVER: CUMULATIVE RIGHTS: SETOFF
(a) No failure or delay on the part of the Secured Party in the exercise
of any power or right hereunder, or with respect to the Collateral, will operate
as a waiver thereof, nor will any single or partial exercise of any other right,
power or privilege hereunder, or with respect to the Collateral, preclude any
other or further exercise or the exercise of any other right, power or
privilege, it being understood that the rights and remedies of the Secured Party
under and in respect of this Agreement and the Collateral are cumulative and
will be in addition to any and all other rights and remedies now or hereafter
existing in law or in equity or available to the Secured Party under the
Distribution Agreement, or otherwise. No modification or waiver of any provision
of this Agreement, nor consent to any departure herefrom by Company will, in any
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event, be effective unless such waiver or modification will be in writing signed
by an officer of the Secured Party and then will be effective only for the
period, and on the conditions, an for the specific instance and purpose for
which given. No notice to or demand on Company in any case will entitle Company
to any other or further notice of demand in similar or other circumstances.
(b) Upon the occurrence of an Event of Default, in addition to its rights
under Paragraph 6, the Secured Party will have the right to set off against any
amount which it owes Company, whether hereunder or under the Distribution
Agreement, or otherwise.
10. SURVIVAL; ASSIGNMENT
All representations, covenants and warranties contained herein will
survive the execution hereof and any investigation made by the Secured Party or
its representatives. Company may not assign this Agreement or any of its rights
or Obligations hereunder without the prior written consent of Secured Party. All
representations, covenants and warranties made by Company in this Agreement and
in the Distribution Agreement will be binding upon Company, its permitted
successors and permitted assigns and will inure to the benefit of the Secured
Party, its successors, endorsees, transferees and assignees.
11. CERTAIN DEFINITIONS
When used herein, the following terms will have the following meanings:
(a) "Inventory" means: (i) all raw materials, work in progress, finished
goods and inventory of whatsoever kind or nature and all wrapping, packaging,
advertising, marketing, promotional and shipping materials, and any documents
relating thereto, and all labels and other devices, names and marks affixed or
to be affixed thereto for purposes of selling or of identifying the same of the
seller or manufacturer thereof, and all right, title and interest of Company
therein and thereto, wherever located, whether now owned or hereafter acquired
by Company and (ii) all books, records and other property relating to the
foregoing.
(b) "Master(s)" means the original material object in which sounds, with
or without visual images, are fixed by any method now known or hereafter
developed and from which sounds, with or without visual images, can be
perceived, reproduced or otherwise communicated, either directly or with the aid
of a machine, device or process including out takes, unused portions and similar
material relating to the above.
(c) "Record(s)" means any form of reproduction, transmission and/or
communication, now or hereafter known, embodying sound alone or sound
accompanied by visual images, manufactured, distributed, transmitted or
communicated primarily for home use, school use, juke box use, and/or use in
means of transportation; however, such term will not include any reproduction
that is not intended for perception by human beings, including but not limited
to, data carriers. Terms not otherwise defined in this Agreement will have the
meanings given to them in the Distribution Agreement.
(d) "Company'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)"), 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-
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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 this reference incorporated herein as Schedule 2 is a list of
Owner's Product(s) as of the date first written hereinabove. "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. "Key Personnel" means the person(s) identified as "Key Personnel"
under the Distribution Agreement.
12. NOTICES
All notices from one party to the other hereunder will, unless herein
indicated to the contrary, be in writing and will be addressed as follows:
To COMPANY:
To DISTRIBUTOR: BMG MUSIC
d/b/a BMG Entertainment
1540 Broadway
New York, New York 10036-6758
Attn: Vice President, Legal & Business Affairs (BMG Distribution)
with a copy to Senior Vice President, Finance (BMG Distribution)
or to such other address as the addressee designates by written notice. Any
notice hereunder will be sent either by regular mail, certified or registered
mail (return receipt requested), or by personal delivery or air express or
telefax to the telefax number of the party to be served and will be deemed
complete when same (containing whatever information may be required hereunder)
is deposited in any United states mail box addressed as aforesaid, except that
(a) all materials personally delivered or sent by telefax will be deemed served
when actually received by the party to whom addressed, (b) air express materials
will be deemed served on the day of delivery to the air express company, (c)
notices of change of address will be effective only from the date of its
receipt, and (d) accounting statements will be sent by regular mail and will be
deemed rendered when deposited in any United States mail box.
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13. MISCELLANEOUS
(a) All notices to be given hereunder will be deemed served upon receipt
by the addressee, or if mailed, upon the first to occur of receipt of the
expiration of five (5) days after deposit in United States Postal Service
certified or registered mail, postage prepaid, addressed to the address of
Company or Distributor appearing below. Such addresses may be changed by notice
given in the same manner.
(b) The Secured Party will not be liable for failure to collect or to
demand payment of, or to protest, or to give notice of non-payment of, any
amounts due under the Distribution Agreement, or for any delay in so doing, nor
will the Secured Party be under any obligation to foreclose on or sell any
Collateral or any part thereof. If an Event of Default will occur, the Secured
Party will be entitled to reimbursement of all out-of-pocket expenses incurred
by it, including attorneys' fees and disbursements in connection with such Event
of Default and collection and other enforcement proceedings resulting therefrom.
(c) Company agrees to execute and deliver to the Secured Party, upon the
Secured Party's request, such other instruments and documents as may be
reasonable necessary to effectuate the purposes hereof including, without
limitation, notices to third parties, endorsements on or assignments of the
Collateral, financing statements, continuation statements, mortgages and
assignments of any security agreements securing the Collateral.
(d) The Paragraph headings in this Agreement are for convenience of
reference only and will not affect the construction or interpretation of any
provision hereof.
(e) This Agreement will be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflicts of law.
(f) Company agrees that any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, or otherwise relating to the
Agreement, may be brought against Company only in a state or federal court
located in New York City, and Company hereby submits to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein except
that, if in Secured Party's judgment, it is preferable to join in any such
action or proceeding a third party that cannot be joined in any such state or
federal court, Secured Party may bring or seek to transfer such action or
proceeding to a court in such place where jurisdiction can be obtained and the
parties hereto consent to the jurisdiction of such court and the transfer
thereto. Notwithstanding anything herein to the contrary, however, a judgment
creditor may bring and action to enforce any judgment arising out of this
Agreement made by such court against the judgment debtor in any court having
jurisdiction over the judgment debtor or its possessions. Process in any action
or proceeding referred to in the Paragraph 13(f) will be served on Company by
personal service on the Secretary of state of New York together with service by
registered mail on the office of the Secretary of Company (Company hereby
irrevocably designates such office as its agent for such service). Company will
at all times maintain an agent in New York for receipt of process and keep
Secured Party informed as to the name and address of such agent. Nothing herein
will affect the right of secured Party to serve process in any other manner
permitted by law or to commence any legal action or proceeding against Company
in any other jurisdiction. EACH OF COMPANY AND SECURED PARTY HEREBY IRREVOCABLY
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WAIVES TRIAL BY JURY AND ANY OBJECTION INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING
IN SUCH JURISDICTION.
(g) As used herein, the singular, plural, masculine, feminine and neuter
will be deemed to include the other whenever and wherever appropriate.
(h) Time is of the essence.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first above
mentioned.
BMG MUSIC, a New York general partnership ____________, a ______________________
d/b/a BMG Entertainment (Company)
By: BERTELSMANN MUSIC GROUP, INC.,
a Delaware corporation, a general partner
By: __________________________________ By: __________________________________
Name: Name:
Title: Title:
Date: ______________________, 200__ Date: ______________________, 200__
______________________________________
Federal Tax ID #
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SCHEDULE 1
TO THE SECURITY AGREEMENT DATED AS OF ____________, 200_
BETWEEN BMG MUSIC AND _______________________
Location of:
1. Chief Executive office of Company ) To Be Completed
) by Company
2. Collateral ) To Be Completed
) by Company
3. Books and Records Relating to Collateral ) To Be Completed
) by Company
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SCHEDULE 2
TO THE SECURITY AGREEMENT DATED AS OF __________, 200_
BETWEEN BMG MUSIC AND __________________
Company's Product(s):
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EXHIBIT H
TO THE AGREEMENT DATED AS OF ____________, 200_
BETWEEN BMG MUSIC AND ______________________
INTERNATIONAL CATALOG LICENSE AGREEMENT TERMS AND CONDITIONS
GRANT During the Term, Owner also grants during the Term the exclusive
right and license to exploit outside of the Territory ("Rest of the
World") all of Owner's Product(s) ("International Sales").
Owner will use its best efforts to acquire exclusive exploitation
rights with respect to Owner's Product(s) throughout the Rest of
World.
ROYALTIES General
(all in) Owner is entitled to receive royalties with respect to the
International Sales of the Owner's Product(s), calculated in
accordance with the provisions of the BMG intercompany license
agreement with BMG's wholly-owned affiliates (the so-called
"BMG-ICLA' agreement) or such royalties as are otherwise agreed, and
subject to all of the other terms and conditions of the BMG ICLA.
RATES FOR RECORD(S) configurations including Digital Phonorecord
Delivery ("DPDs") Record(s) and Enhanced CDs.
Royalties are paid at the applicable rate(s) set forth below on 100%
of record(s) sold (e.g., neither returned nor exchanged), less
container deductions and taxes.
Royalties shall be calculated (on a published price to dealers
("PPD") basis) at the following rates in respect of records:
Albums:
Thirty and one-half percent (30.5%) for the Top-Price-Line
Twenty and one-fifth percent (20.5%) for the Mid-Price-Line
Sixteen and one-half percent (16.5%) for the Budget-Price-Line
Twelve and one-fifth percent (12.5%) for the Superbudget-Price-Line
Singles:
Twenty and one-fifth percent (20.5%) for all Price-Lines
Eps:
Twenty-three and one-half percent (23.5%) for all Price-Lines
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Mid-Price-Line - Price list or category which is equal to or less
than eighty-six percent (86%) and equal to or in excess of
sixty-five percent (65%) of the applicable Top Priced Line for
records of a particular type and embodying a particular repertoire
line released by the applicable releasing party in the applicable
particular country or territory.
Budget-Price-Line - Price list or category which is less than
sixty-five percent (65%) and in excess of fifty percent (50%) of the
applicable Top-Priced Line for records of a particular type and
embodying a particular repertoire line released by the applicable
releasing party in the applicable particular country or territory.
Superbudget -- Price Line -- Price list or category which is equal
to or less than fifty percent (50%) of the applicable Top Priced
Line for records of a particular type and embodying a particular
repertoire line released by the applicable releasing party in the
applicable particular country or territory.
RATES FOR DIGITAL RECORD(S)
Royalties are paid at 85% of the applicable rate(s) set forth above.
Digital Record(s) are records in tape configuration made for digital
playback, including, without limitation, Digital Audio Tape ("DAT").
NOTE: Compact Discs, DPDs and enhanced Compact Discs are not digital
records for these purposes.
RATES FOR CLUB
--------------
Top-Price 12%
Lower than Top-Price line 9%
RATES FOR VIDEOCIRAMS AND DVD VIDEOS:
0-30 MINUTES OVER 30 MINUTES
------------ ---------------
Top-Price 22 2/3 % 29 1/3%
Mid-Price* 15% 20%
(*Defined as 75% of Top-Price)
ROYALTY
ACCOUNTING Accountings will be rendered 120 days after the end of the
calendar quarter.
THIRD-PARTY Licensing of masters to third parties [in licensed territory]
LICENSES within the Territory will be subject to consent [via Schedule
E (form used for intra-company consent)] and are subject to
payment of 75% of royalties received by company from such
license.
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CONTAINER DEDUCTIONS /
EXCESS PACKAGING COSTS
5% black vinyl records of any size (excluding Compact Discs,
DPDs, pre-recorded tapes and Digital Records)
10% Pre-recorded analog tapes of any size (excluding Compact
Discs, DPDs, black vinyl and Digital Records)
25% Compact Discs, DPDs, Digital Records and Videograms of any
size (excluding black vinyl and pre-recorded analog tapes).
WARRANTIES Owner agrees, represents, warrants and covenants that Owner
has the right to grant BMG all of the exclusive rights herein
granted with respect to International Sales and that the
agreements, representations, warranties, covenants and
indemnities embodied in Paragraph 17 of the Agreement in
connection with Owner's Product(s) in the Territory will apply
with full force and effect to Owner's Product(s) in the Rest
of the World.
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