Sander & Xxxxxxxxx, LLP
000 Xxxx Xx. Xxxxx 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
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February 11, 1999
Xxxxxxx X. Xxxxx
CEO/President
A&R Online Inc. and A&R Entertainment Inc.
Dear Xxxxxxx:
This letter shall supersede all letters or other communications by and between
the parties hereto (including without limitation, by and between their
respective agents, attorneys and so forth) prior to the above date regarding the
subject matter hereof, and shall confirm the material terms of the exclusive
recording agreement reached between A&R Online Inc. and A&R Entertainment Inc.
(hereinafter "You") and Prelude Development (hereinafter "Company") as follows:
1. PRODUCT: One (1) album, with four (4) album options:
2. TERRITORY: The World.
3. CREATIVE CONTROLS: Prior to the recording of Master Recordings made under
this agreement, you and Company will mutually discuss the selection of the
producer, the selection of material, and the selection of studios to be
used for recording and mastering sessions, but in any event, neither party
will withhold consent unreasonably. All decisions regarding mixes, remixes,
and the formats and order in which Master Recordings will be released will
be made by Company in consultation with you. Company will not be obligated
to accept the delivery of Master Recordings, which it determines are not
technically and/or commercially satisfactory for the manufacture and sale
of Phonograph Records.
4. ROYALTIES: Company will accrue to your royalty account royalties inclusive
of royalties payable to all third parties (such as the individual producer,
at the rate set forth below) and such royalties shall be based on Net Sales
of Phonograph Records consisting entirely of Masters recorded by you under
the agreement and shall be computed on the suggested retail list price of
such Records.
(a) As to Net Sales in the United States ("USNRC Net Sales"), your royalty
(the "Basic U.S. Rate") shall be:
0-600,000 Units 500,000-1m Units 1m+Units
First Album 18% 18 1/4% 18 1/2%
Second Album 18% 18 1/4% 18 1/2%
Third Album 18% 18 1/4% 18 1/2%
Fourth Album 18% 18 1/4% 18 1/2%
The escalations set forth above in the subclause 6(a) shall be prospective
of 500,000 and 1,000,000 units and all of the royalties and escalations set
forth above in this subclause 6(a) shall be based on USNRC Net Sales only. Your
record royalties hereunder shall be subject to Company's standard reductions for
sales other than USNRC Sales.
(b) USNRC Net Sales of Singles: 10%
(c) Net Sales in Canada & UK: 75% of the otherwise applicable Basic Rate in
the United States for the Record concerned (i.e. without regard to sales
escalations).
(d) Net Sales in the EEC, JAPAN or Australia: 65% of the otherwise
applicable Basic Rate in the United States for the Record concerned (i.e.
without regard to sales escalations).
(e) Net Sales in the rest of the world: 50% of the otherwise applicable
Basic Rate in the United States for the Record concerned (i.e. without
regard to sales escalations).
5. ROYALTY RESERVES: Company shall have the right to establish reasonable
royalty reserves against anticipated returns and exchanges. The reserve so
established shall not exceed, with respect to single/LP commencing with the
first full accounting period after the release of the respective Record,
and twenty-five percent 25% of all single/LP Records shipped during each
accounting period thereafter. Each reserve shall be fully liquidated
equally over the four 4 full accounting periods after such reserve is
established. Company shall have the right to establish reserves in excess
of such limitations if in Company's good faith business judgment, Company
believes that the percent limitations provided for herein may be
insufficient to cover actual returns.
6. MECHANICAL ROYALTIES: (50%) minimum statutory rate prevailing at the date
of respective albums initial release, 11 cap for albums. 2 Outside
compositions @ full statutory rate for samples 87 1/2% of statutory rate @
USNRC 500M prospectively 100% of statutory rate @ USNRC 1MM prospectively.
7. MUSIC PUBLISHING: You hereby agree to grant and assign to Company
affiliated publishing company, (To be determined later) a 50% copyright
interest and 100% administration rights in and to each musical composition
written, owned or acquired by you during the term of this recording
agreement ("Compositions"). In connection therewith, you agree to enter
into a separate Exclusive Co-Publishing Agreement with company affiliated
publishing company, the terms of which shall be negotiated in good faith,
but which shall include the right of company affiliated publishing company
to administer the Compositions throughout the world and to charge an
administration fee of 10%.
8. INDEPENDENT PROMOTION/PUBLICITY: In the event that Company, in its sole and
exclusive discretion, elects to expend any monies in connection with
independent third party promotion, marketing or publicity of any Record
embodying Master Recordings made under this agreement, Company shall have
the right to charge 100% of such costs against and recoup same at any time
from any and all royalties (other than mechanical royalties) according to
your royalty account.
If the foregoing is consistent with your understanding and agreement, then
please sign the respective space provided below for your name.
Very truly yours,
Prelude Development Inc.
By: /s/
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Authorized signature
AGREED TO AND ACCEPTED
By: /s/
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Xxxxxxx X. Xxxxx, CEO/President
