EXHIBIT 10.2
MANUFACTURING AND DISTRIBUTION AGREEMENT
This MANUFACTURING AND DISTRIBUTION AGREEMENT (the "Agreement") is
entered into as of June --, 2000 by and between EMI Music Distribution ("EMD"),
a division of Capitol Records, Inc., a Delaware corporation ("Capitol"), and
0XXxxxxx.xxx, a California corporation ("Company").
RECITALS
A. Company is engaged in the business of acquiring rights in
and producing Masters for the manufacture and distribution of Records derived
therefrom.
B. EMD is engaged in the business of manufacturing and
distributing recorded music.
C. Company desires for EMD to manufacture and distribute
Records for Company from Masters owned, controlled by or licensed to Company
in the Territory.
D. As part of the consideration to EMD for entering into this
Agreement, Company is issuing shares to Virgin Holdings, Inc., an affiliate
of Capitol, pursuant to a Stock Issuance Agreement, as of the date hereof.
THEREFORE, it mutually is agreed as follows:
A. GENERAL TERMS
1. Definitions.
As used in this Agreement, the following terms shall have the
meanings set forth below:
a. "Cassette" or "Cassettes" shall mean and refer to a Record
in the form of pre-recorded analog or digital audio tape recordings in the
cassette configuration (including those that are digitally mastered).
b. "Compact Disc" shall mean and refer to a Record which is
replayed by means of a laser (and shall include, without limitation, so-called
"enhanced CDs" and "CD-ROM").
c. "Components" shall mean and refer to the packaging,
merchandising or promotional elements included in the Containers or utilized
in connection therewith, including, without limitation, inserts, cards, and
stickers, but excluding the
d. "Containers" shall mean and refer to the jewel boxes,
Norelco Boxes or other containers into which Compact Discs, Cassettes, DVDs or
other formats of Records are collated, together with shrink-wrap or other
material used to protect or seal such Containers and cartons used in shipping
the Compact Discs, Cassettes, DVDs and/or other formats of Records in their
Containers.
e. "DVD" shall mean and refer to Digital Versatile Discs
and shall include both DVD-Audio and DVD-Video.
f. "Electronic Transmission" shall mean and refer to the
distribution, transmission or communication of a Record over a communication
medium (including but not limited to wired and/or wireless systems, broadband,
narrowband, or other Internet, Satellite, optical fibre, wire, cable or other
means), whether now known or unknown or hereafter devised, from one location to
a remote location, in such a manner that the Record when received at the remote
location is sufficiently permanent or stable to permit it to be perceived,
reproduced or otherwise communicated for a period of more than transitory
duration at such remote location, and without regard to whether the sound
recording or audiovisual work embodied in the Record is simultaneously performed
in audible fashion during such distribution, transmission or communication.
g. "Master" or "Masters" shall mean and refer to all
recordings in any form (including audio and audiovisual) from which Records may
be derived, now or hereafter owned, controlled or distributed by, or licensed
to, Company or any Person which directly or indirectly, controls, is controlled
by, or is under common control with, Company.
h. "Person" shall mean and refer to any natural person, firm,
corporation, partnership, limited liability company, association, union or other
entity recognized by law.
i. "Record" or "Records" shall mean and refer to every form of
reproduction, transmission or communication of Masters (whether now known or
unknown and howsoever used, and whether embodying sound alone or synchronized
with, or accompanied by, visual images, other sensory data or other information
or material), whether such records are interactive or non-interactive,
including, without limitation, discs of any configuration and/or format,
mini-discs, digital compact cassettes, digital audio tapes, laser discs, solid
state memory devices, digital versatile discs (both DVD-Audio and DVD-Video),
compact discs capable of bearing visual images (including, without limitation,
Enhanced CD and CD-ROM), Records sold via so-called "point-of sale"
manufacturing, Records sold via Electronic Transmission, digital storage media
of any kind, reel-to-reel tapes, cartridges, cassettes and tapes of any kind,
and including the package into which Records may be assembled.
j. "Territory" shall mean and refer to the entire United
States, and its territories and possessions, and all military bases or other
locations where military or PX sales occur (whether located within or outside
the United States).
2. Term.
a. The term of this Agreement (the "Term") shall commence as
of June_, 2000 and shall continue for three (3) years, unless earlier terminated
pursuant to the terms of this Agreement.
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3. Representations, Warranties and Certain Covenants. Company
covenants, represents and warrants to EMD as follows:
a. Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. Company has the
corporate right, power and authority to enter into this Agreement, to grant to
EMD the exclusive rights set forth herein and to perform fully its obligations
hereunder.
b. With respect to each Record furnished to EMD hereunder,
Company presently is, or at the time of the manufacture, distribution and sale
of such Record will be, the owner, assignee, exclusive licensee or distributor
in the Territory of (i) the Master from which such Record is derived, (ii) all
recorded performances embodied in such Record, (iii) the right to manufacture
and distribute such Record in the Territory, (iv) all applicable sound recording
copyrights in such Record, including all so-called "samples" from pre-existing
masters, (v) all applicable copyrights in the graphic materials used in
connection with all Components and the packaging, merchandising and commercial
exploitation of such Record, (vi) all trademarks and tradenames used in or on
such Record, and (vii) the right to grant EMD the rights to manufacture and
distribute such Record in the Territory. Company shall register such sound
recording and other copyrights (to the extent owned) with the United States
Copyright Office. At EMD's reasonable request, Company shall permit EMD to
inspect documents evidencing Company's rights as set forth in this subparagraph
and shall deliver copies of such documents to EMD.
c. Company has and shall maintain good and marketable title to
the Masters, or a right to exploit the Masters, which are embodied on Records to
be distributed hereunder during the Term. There presently are no liens, levies,
judgments, garnishments, encumbrances (collectively, "Liens"), claims, demands,
disputes, litigation (or any other form of judicial or regulatory proceedings,
pending or threatened), limitations of rights or obligations (collectively,
"Claims") upon, concerning or in connection with Masters (other than royalty or
similar obligations), Records derived therefrom, Components or manufacturing
parts therefor and, except for any rights granted to EMD pursuant to Section H
hereof (the "Security Provisions"), there shall be none during the Term. If any
Lien or Claim should arise during the Term, without limiting EMD's rights or
remedies, Company immediately shall notif~' EMD thereof in writing, and shall
take whatever steps may be necessary or appropriate to defend any such Claim or
eliminate such Lien.
d. All costs of recording the Masters have been or will be
paid in full prior to the time Records derived therefrom are manufactured and
distributed by EMD hereunder. All of the performers and other Persons whose
services were furnished in connection with recording the Masters (and each
selection thereon) were free to furnish such services, without such conduct
constituting a material violation of any contract, contractual restriction or
duty owed to any Person.
x. Xxxxxxx, Records derived therefrom and all other materials
and services furnished by Company hereunder, including (without limitation)
advertising and promotion activities, album jackets and other packaging,
artwork, liner notes, credits, merchandising materials and similar items and
services (i) shall comply with all applicable laws
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and regulations, including (without limitation) those concerning trade
regulation, payola, customs and obscenity and (ii) shall not violate, breach or
infringe any contractual right, common law right or statutory right of any
Person whatsoever (living or deceased), including (without limitation) rights
with respect to patents, trademarks, tradenames, copyrights, defamation and
rights of privacy and publicity. Notwithstanding the generality of the
foregoing, Company presently has, or at the time of the manufacture and
distribution of Records hereunder will have, the right and license to reproduce
mechanically all compositions embodied in Records to be distributed hereunder.
EMD may (but shall not be required to) request Company to furnish EMD with
actual copies of Company's mechanical licenses for any or all of the
compositions embodied on such Records, which Company thereupon promptly shall
furnish to EMD.
f. All Masters have been or will be recorded in
accordance with the applicable rules and regulations of the American
Federation of Musicians ("A. F. of M.") and Company has made or will make
payment in full for musicians' services at not less than applicable A. F. of
M. scale (including Pension and Welfare payments), it being understood and
agreed that this representation and warranty is included for the benefit of
the A.F. of M., as well as EMD, and may also be enforced by the A. F. of M.,
or by such Persons as the A.F. of M. may designate. Company shall enter into
an Assumption Agreement with the licensor of any Masters subject to this
Agreement, assuming such obligations. All American Federation of Television
and Radio Artists ("AFTRA") members whose performances are embodied on
Masters, if any, have been, or will be, paid by Company not less than the
minimum rates specified in the applicable AFTRA collective bargaining
agreements, and, if applicable, all payments due to the AFTRA Health and
Retirement funds have been, or will be, made by Company, and Company shall
make any and all further AFTRA payments as and when due. All Masters have
been, or will be, recorded in accordance with the rules and regulations of
all other unions having jurisdiction over the recording thereof.
4. Company's Obligations.
a. Company solely shall be responsible for all activities and,
as between EMD and Company, Company shall pay or cause to be paid all costs,
expenses and charges incurred in connection with the creation of, or the
acquisition of Company's rights in, Masters and Components, and all steps
required to utilize Masters and Components in the manufacture of Records,
including each of the following:
(i) The procurement, in writing, of all necessary
rights, licenses, consents, authorizations and clearances to record the Masters
and to produce, manufacture, use, sell, advertise, promote and distribute
Records, together with Components, including (without limitation) (A) mechanical
licenses for all copyrighted compositions embodied in any Record, (B)
authorizations from each artist and any other Person whose name, likeness,
performance or services are embodied in any Record or the Components or in any
advertising or promotional materials in connection therewith, and (C) all
consents and clearances necessary to use any copyrights, trademarks, tradenames,
artist names, group names, artwork, patents or any similar intangible property
rights of any Person in or on Masters, Records and Components; and
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(ii) The payment of any royalties, fees, costs and
other sums payable to any Person in connection with the creation of or the
acquisition of Company's rights in the Masters and Components (and the rights
granted hereunder by Company to enable EMD to manufacture and distribute Records
derived therefrom), including (without limitation) all recording costs, all
royalties and fees payable to artists, producers, engineers, musicians,
publishers, writers and other Persons who rendered services or granted rights to
Company in connection with the creation of the Masters; and all mechanical
royalties.
b. Without limiting any of EMD's rights hereunder, EMD hereby
reserves the right to refuse to manufacture or distribute at any time any Record
that, in EMD's sole judgment, is obscene, defamatory, unlawful, likely to result
in disputes or litigation or infringes upon the rights of others. In the event
that EMD shall so refuse to manufacture or distribute any Record hereunder, EMD
will promptly notify Company in writing, and Company thereupon shall have the
option to obtain the manufacture of such Record from an alternative source or
the distribution of such Record by some alternative manner.
c. Nothing in this Agreement shall be construed to prevent or
restrict EMD or any of its affiliated labels from producing, manufacturing,
distributing, promoting or otherwise exploiting records, whether or not
competitive with any Records manufactured or distributed hereunder.
B. MANUFACTURING
1. Basic Order Requirements.
Company shall order from EMD all of its Compact Disc and
Cassette manufacturing requirements in the Territory during the Term with
respect to all Records, and during the Term, Company shall not itself
manufacture Records, or license or allow any Person other than EMD to
manufacture Records for Company in the Territory. Except as otherwise provided
herein, EM]) shall furnish Company with all the materials and services specified
in Exhibits A and B hereto in connection with the manufacture of Records ordered
by Company hereunder.
2. Prices.
With respect to all Records manufactured by EMD hereunder,
Company shall pay to EMD the prices set forth below:
a. For standard configurations of Records (other than
Components) ordered by Company, the prices set forth in Exhibits A and B hereto
for the basic services specified in said Exhibits (the "Basic Prices"). For
special handling or the furnishing of materials or services not included in the
basic services specified in Exhibits A and B, additional charges shall be quoted
at the time those services are requested.
b. Company shall have the right to elect whether or not EMD
shall include top-spine labels in all of the Compact Discs to be manufactured
hereunder (i.~, Company cannot request so-called "top-spine labels" on certain
units but not on others). If Company elects to include such labels, with respect
to all such Compact Discs, the Base Price charged by EMD to
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Company hereunder as set forth on Exhibit A shall be increased by $0.04 per unit
manufactured hereunder.
c. The parties hereto acknowledge that EMD may participate in
a program to apply anti-theft electronic article security (EAS) tags to Compact
Discs at the point of manufacture. It is agreed that if EMD shall commence the
application of EAS tags, the per unit price of Compact Discs manufactured
hereunder may be subject to increase in an amount to be charged to Company on a
favored nations basis with other third party labels of EMD.
3. Certain Obligations of Company.
In addition to the obligations set forth in Paragraph 4 of
Section A above, Company shall be solely responsible for all activities, and
shall pay all costs, expenses and charges incurred in connection with:
a. The delivery of Masters, color separations and label copy
to a location designated by EMD in the forms specified on Exhibits A and B;
b. Obtaining and Assigning ISRC Codes to each Master embodied
on Records manufactured hereunder and ensuring the encoding thereof on all such
Masters;
c. Selecting the carrier and method of transportation to
deliver Masters, packaging Masters, arranging for their shipment and delivery to
a location designated by EMD, and the payment of all freight charges for
shipment of Masters to such location; and
d. Obtaining Components (but not Containers) for all Records,
and their delivery in good condition to EMD's designated manufacturing facility,
freight charges prepaid. Any Components referring to the services performed by
EMD under this Agreement must be approved by EMD in advance of delivery.
4. Order Procedures.
a. Company and EMD shall mutually determine all quantities of
Records to be manufactured hereunder. All orders for Records shall be evidenced
by a written purchase order or fax, signed by an authorized representative of
each of Company and EMD. Orders must include all information necessary to
properly identify the product to be manufactured, including artist, title,
catalog number, configuration, quantity, special handling or special items
requested by Company and desired delivery date.
b. Prior to manufacture, an order must be Workable. A
"Workable" order is an order for which all of the necessary items to be
furnished by Company (such as Masters, Components and similar materials) have
been received by EMD. Subject to the continuing availability of sufficient
quantities of Components, EMD shall use reasonable efforts to make finished
goods Records available no later than the following time periods from and after
the close of business on the date on which the order becomes Workable: ten (10)
business days in the case of new orders; and five (5) business days in the case
of re-orders (i.~, an order for Records, the individual title and configuration
of which EMD has manufactured previously).
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c. EMD reserves the exclusive prerogative to designate which
of its manufacturing facilities shall fabricate any given purchase order for
Records. EMD shall have the right to off-load production of Records to any
sub-contractor that EMD uses from time to time for its subcontracting
requirements (at no additional cost to Company).
d. All orders shall be subject to the minimum order
requirements set forth on Exhibits A and B. For each selection in an order,
there shall be an allowable fulfillment deviation of plus or minus ten percent
(10%), not to exceed one thousand (1,000) units. Orders filled within such
deviation shall be deemed to be satisfied, and Company shall pay EMD on the
actual number of units shipped. Once placed, an order may not be canceled or
changed without EMD's written approval. In such event, Company shall pay EMD for
all units manufactured and for any incremental costs of material and labor
incurred by EMD in respect of such cancelled or changed order.
e. Records manufactured by EMD for Company and all of the
materials supplied by EMD shall be of a quality level equivalent to standard
"pop" Records then being manufactured domestically for EMD's affiliated labels.
EXCEPT TO THE EXTENT OF THE FOREGOING SENTENCE, ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE ARE HEREBY DISCLAIMED. As used in this paragraph, the terms
"manufacturing defects" and "defective product" shall mean and refer to the
following: (i) Records bearing a "split" label; (ii) Records the labels of which
incorrectly identify the contents of the Record (due to misapplication); (iii)
jackets or other packaging that incorrectly identify the Record collated therein
(excluding, however, any incorrect written copy or other visual identification
contained on or in any Component that is applied to the correct Record); or (iv)
Records otherwise defectively manufactured. In the event of manufacturing
defects as hereinabove defined, EMD's responsibility shall be limited to
replacement of the defective product (and related shipping costs) or crediting
Company for its cost of manufacture, at EMD's election. EMD SHALL NOT BE LIABLE
FOR ANY OTHER ACTUAL OR CONSEQUENTIAL DAMAGES THAT COMPANY MAY SUSTAIN OR INCUR,
INCLUDING (BUT NOT LIMITED TO) LOST REVENUE OR PROFITS. EMD may change the
technical specifications for Records manufactured hereunder without approval by
or notice to Company of any such change if such change applies uniformly to all
product manufactured by EMD.
f. All Records manufactured hereunder shall indicate that they
are "Manufactured by 0XXxxxxx.xxx" and set forth Company's true name and
address. Records manufactured and distributed hereunder may indicate that they
are "Distributed by EMI Music Distribution."
g. Upon the completion of an order for Records, EMD shall, at
its own expense, ship all such Records to the EMD Customer Fulfillment Center
designated by EMD in EMD's standard box-lot quantities.
5. Manufacturing Charges.
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a. All fees and charges in respect of manufacturing services
provided under this Section B (collectively, "Manufacturing Charges") shall be
set forth on the statement rendered by EMD to Company pursuant to Paragraph 8 of
Section C below in connection with the distribution of Records hereunder and all
Manufacturing Charges shall be deducted from any sums due to Company hereunder
pursuant to the provisions of such Paragraph 8; provided, however, if such sums
are insufficient to allow for the full amount of such set-off, the amount of
such insufficiency shall constitute a direct debt from Company to EMD, and EMD
shall have the right to offset the amount of such debt from any other sums
payable by EMD to Company. EMD's failure to set forth an amount due and payable
by Company to EMD shall not constitute a waiver of any amount due.
b. Company's obligations to make payments to EMD under this
Section B are secured by a "Security Interest" (as defined and more specifically
set forth in Section H below) in the "Collateral" (as defined therein).
6. Manufacturing Inventory.
a. All inventory of Records and Components temporarily stored
in EMD's manufacturing facilities ("Manufacturing Inventory") shall become
Company's property upon the completion of their manufacture, subject to the
Security Provisions. The risk of loss of Manufacturing Inventory in EMD's
possession shall be borne by EMD, and EMD shall obtain insurance coverage for
loss or damage to such Manufacturing Inventory (subject to any amounts of
self-insurance provided under the applicable insurance contract). EMD shall own
all. manufacturing parts and all derivatives or duplicates thereof fabricated by
it in connection with the production process, including (without limitation) all
photographic films and color keys, if any, duplicate audio tapes (analog or
digital), glass Masters and running Masters; provided, however, that EMD shall
not use any such manufacturing parts or derivatives except pursuant to this
Agreement. Company may acquire any of such manufacturing parts or derivatives
when they become obsolete, or at the end of the Term, by paying to EMD the
actual cost of their manufacture (or such lesser amount as the parties may
agree). In the event Company elects not to acquire such manufacturing parts or
derivatives, Company irrevocably authorizes EMD to destroy them. Company shall
own all manufacturing parts or derivatives furnished by it to EMD, which EMD
shall return to Company upon Company's request therefor, unless they are
destroyed in the production process. Within thirty (30) days after the
expiration or termination of the Term, Company shall remove such manufacturing
parts or derivatives from EMD's -facilities, at Company's sole cost and expense,
and Company authorizes EMD to destroy any manufacturing parts or derivatives not
so removed within such time period. Where applicable, at Company's request, EMD
will provide Company with a certificate of destruction.
b. Company shall be responsible for the obsolescence of all
Manufacturing Inventory. A reasonable quantity of Company's Components shall be
stored by EMD at no charge. If a particular selection is not ordered for a
period in excess of six (6) months, then EMD may notify Company to remove
promptly any Components for that particular selection, at Company's expense. If
such Components are not so removed within thirty (30) days of such notice to
Company, then EMD may scrap or destroy such Components, without further notice
or responsibility to Company. Within thirty (30) days after the expiration or
termination of the Term, Company shall remove all Manufacturing Inventory from
EMD's facilities, at
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Company's sole cost and expense, and Company authorizes EMD to destroy any
Manufacturing Inventory not so removed within such time period.
C. DISTRIBUTION
1. Appointment.
a. Subject to the terms and conditions of this Agreement,
during the Term hereof, Company hereby appoints EMD as its exclusive distributor
of Records in all channels of distribution in the Territory, and grants and
licenses to EMD the exclusive right to distribute and sell Records in all
channels of distribution (including Internet and Electronic Transmission) in the
Territory during the Term hereof.
b. Notwithstanding the otherwise exclusive scope of EMD's
rights under this Agreement:
(i) EMD agrees that Company shall have the
non-exclusive right to distribute Records by means of Electronic Transmission
directly to consumers, in connection with the operation of an artist or Company
web site, if such Electronic Transmission Records (x) have not been released in
other configurations, or (y) embody single tracks and are distributed on a
promotional basis only, and (z) provided that such Electronic Transmission
Records meet or exceed the security standards set by the SDMI Working Group, in
effect at the time such Electronic Transmission Records are distributed.
c. During the Term, Company shall not itself distribute
Records in the Territory, or license or allow any Person other than EMD to
distribute Records in the Territory, except as otherwise provided in this
Agreement.
2. Certain Obligations of Company.
In addition to the obligations set forth in Paragraph 4 of
Section A above, and subject to the terms and conditions hereof, Company solely
shall be responsible for all activities and, as between EMD and Company, Company
shall pay or cause to be paid all costs, expenses and charges incurred in
connection with:
a. The manufacture of finished goods Records from Masters, of
a quality satisfactory to EMD, and the packing of finished goods Records into
EMD's standard box-lot quantities ready for distribution by EMD (subject to the
satisfaction by EMD of its obligations pursuant to Section B above);.
b. Obtaining a Universal Product Code Manufacturer Number from
the Uniform Code Council, Inc., and ensuring that appropriate bar code appears
on all Records;
c. The advertisement, promotion, and merchandising of Records,
including (without limitation) the preparation of artwork and design layouts of
all types (including, without limitation, any costs charged by EMD with respect
to the advertising of Records in EMD's "New Release Book" and EMD's "Extranet"),
the furnishing of merchandising posters and displays for distribution by EMD,
promotion to radio and television for the purpose
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of attempting to secure air play, the furnishing of sufficient quantities of
demonstration samples of Records to EMD's sales staff, and the furnishing of all
similar materials and services; Company agrees to commit funds in an amount
approximately equal to five percent (5%) of Net Sales (as defined in Paragraph 6
below) for co-op/customer advertising, pursuant to the provisions of
subparagraph 3.c. below; and
d. The payment of all fees, costs and expenses charged by any
Person in connection with Company's utilization of and participation in any
industry-related services and/or professional organizations, including, without
limitation, any such fees, costs and expenses charged by the RIAA and NARM.
3. EMD's Obligations.
a. With respect to Records distributed by EMD hereunder,
EMD shall furnish, at its expense, the following "Basic Services":
(i) Warehousing of Inventory of Records at EMD's
Customer Fulfillment Centers;
(ii) Soliciting sales of Records to EMD's accounts;
(iii) Transportation of Inventory between EMD's
Customer Fulfillment Centers (so-called "inter-branch transfers");
(iv) Subject to sufficient quantities of Records
being on-hand, timely and accurate order fulfillment, by picking, packing and
shipping Records to EMD's customers from Inventory of Records at EMD's Customer
Fulfillment Centers;
(v) Acceptance and processing of Returns (as
defined below) of Records distributed by EMD, subject to the provisions
hereof;
(vi) Billing and collection for Records shipped by
EMD to customers, and crediting for Returns (and, in this connection, as between
EMD and Company, EMD will bear credit risk for EMD's customers hereunder, it
being agreed and understood that the decision whether or not to grant credit to
any customer, to continue to extend credit to any customer and/or the amount of
any credit so extended shall, in each case, be determined by EMD in its sole
professional judgment); and
(vii) Periodic sales and inventory reports pertaining
to sales, Returns and Inventory of Records subject to this Agreement.
b. At Company's direction, EMD, shall perform certain
additional services as set forth in clauses (i) through (v) below (the
"Additional Services") and Company shall be charged for such Additional Services
in accordance with EMD's Menu of Special Services. A copy of the Menu of Special
Services currently in effect is attached hereto as Exhibit C, it being agreed
and understood that the prices contained thereon are subject to change from time
to time. Once requested, Company may terminate any such Additional Services on a
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prospective basis only. EMD shall have the right to deduct any charges
authorized by Company pursuant to this subparagraph b. from any and all sums
otherwise owed to Company hereunder.
(i) At Company's request, EMD, will pick, pack,
arrange and pay for the transportation of "Promotional Records" (i.e., Records
identified or marked as for promotional purposes only and not for resale, which
Company gives away or furnishes on a "no charge" basis for promotional purposes
to disc jockeys, newspaper or magazine reviewers, or radio or television
stations or networks), including, without limitation, "promotional mailers" sent
to radio stations and retail customers at the special request by Company, which
may be ordered by Company through the Internal Merchandise Request (IMR) system.
Company agrees to comply with EMD's Internal Merchandise Request (IMR) policy
and procedures as in effect from time to time. Company shall furnish EMD with
labels pre-printed with the names and addresses of all recipients of such
Promotional Records.
(ii) At Company's request, EMD will arrange for the
distribution of merchandising materials to EMD's customers in the manner such
items are normally distributed for EMD's affiliated labels. Any such
merchandising materials (e.g., posters, flats) shall be furnished by Company to
EMD at Company's sole cost and expense.
(iii) EMD will fulfill special requests, such as
special packaging, prepacking, stickering or reboxing of Records, and will pick,
pack and ship (but not xxxx and collect for) closeouts, overstock orders and
promotional mailers.
(iv) EMD will fulfill requests for special marketing
services, such as distribution of promotional video compilations, new music
samplers and new release book inserts to customers.
(v) EMD will perform such other Additional Services
as are specified on the Menu of Special Services attached hereto.
c. EMD will not spend money for customer advertising (or issue
any credit memos to its customers in respect thereof) unless Company previously
has allocated funds (by written authorization) to EMD for such purpose. All such
advances of funds or issuances of credit memos for customer advertising shall be
granted and implemented pursuant to the "co-op advertising" policy of EMD (the
"EMD Co-op Policy") as same shall be in effect from time to time (and it is
hereby acknowledged that EMD shall have the right, in its sole discretion, to
revise such Policy at any time). - The amount of any advances made, or credits
issued, by EMD pursuant to this subparagraph c. shall be deducted by EMD, in the
accounting period during which EMD credits its customer on account of such
advertising, in computing the "Adjusted Net Sales" payable to Company pursuant
to Paragraph 6 below. EMD will not accept any written authorization from Company
regarding customer advertising after the expiration or earlier termination of
the Term hereof. Subject to EMD's then-current policies, EMD will examine all
advertising claims submitted by its customers, furnish reports thereof to
Company, and credit to its customers advertising funds in accordance with
Company's previous allocation. Within one (1) year of the date on which any
claim is submitted, at Company's written request, EMD will furnish Company with
copies of advertising claims (but without backup or "tear-sheets") submitted by
its customers. All advertising administered by EMD shall be subject to a
variance
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often percent (10%) or one hundred dollars ($100.00) between the amount
reimbursed to EMD's customer and the amount of Company's commitment, whichever
is greater.
d. EMD, in its discretion, may agree to fulfill orders from
customers that do not otherwise buy Records from EMD, by picking, packing and
shipping Records to such customers from Company's Inventory of Records at EMD's
Customer Fulfillment Centers. EMD will xxxx and collect for such Records and
credit for Returns; provided, however, that Company (and not EMD) shall bear the
entire credit risk for all such customers and shall guarantee payments and
obligations owed by such customers, upon request by EMD's credit department.
4. No Minimum Sales Warranty.
EMD has not made, and does not hereby make, any representation
or warranty of any kind or nature with respect to the quantities of Records that
may be sold or returned, or the proceeds that will or may be derived by EMD or
Company pursuant to this Agreement, it being acknowledged by the parties that
the extent of sales and Returns of Records hereunder, and the amount of proceeds
that may be derived therefrom, is speculative. The judgment of EMD with regard
to any matters affecting the sale or distribution of Records hereunder shall be
binding and conclusive upon Company. Company shall not make any claim (of any
kind, whether in contract, tort or otherwise), nor shall any liability be
imposed upon EMD based upon any claim that more sales could or should have been
made than were made by EMD or that Returns were excessive.
5. Additional Charges.
EMD shall be entitled to-impose on Company the following
additional charges, which may, at EMD's discretion, be deducted by EMD from all
amounts otherwise payable to Company. Company hereby agrees and acknowledges
that the amount of and the procedures related to, such charges are subject to
change from time to time.
a. Returns Charge. EMD shall be entitled to charge Company a
per-unit amount equal to thirty-five cents ($0.35) for each album-length Record
(L~, excluding singles, but including EPs) constituting a Return hereunder.
b. Slow Moving Product Charge. With respect to each SKU with
annual dollar Net Sales (as defined below) less than $15,000 (calculated based
on the previous twelve (12) months' sales, on a rolling basis) (each, a "Slow
Moving SKU"), EMD shall be entitled to charge Company a $0.02 monthly fee for
each unit of Inventory embodying such Slow Moving SKU that is stored in an EMD
Customer Fulfillment Center on the last business day of the last month to occur
in such twelve (12) month period.
6. Distribution Fee; Net Sales; Company's Share of Adjusted
Net Sales.
a. In consideration of the Basic Services to be performed by
EMD hereunder, EMD shall be entitled to a distribution fee (the "Distribution
Fee") on the Net Sales (as hereinafter defined) of Records hereunder during each
year of the Term (i.e., each 12-month period commencing with the first full
shipment month hereunder, provided that all Net Sales
12
prior to the first full shipment month shall be included in the calculation made
with respect to the first such 12-month period) in accordance with the following
schedule:
12-month Net Sales Distribution Fee
------------------ ----------------
Less than $10,000,000 18%
From $10,000,000-$20,000,000 17%
Over $20,000,000 16%
Any decrease in EMD's Distribution Fee shall be paid or credited to Company
commencing with the statement for the accounting period during which such next
sales tier was reached. Any decreases in EMD's Distribution Fee shall not be
applicable for any accounting period during which Net Sales subsequently fall
below such higher sales tier, due to Returns. With respect to each year of the
Term hereof in which annual Net Sales equal $10,000,000 or more, on the
statement to be rendered in connection with the final month of each such
12-month period, EMD shall issue Company a credit equal to the difference
between (i) the aggregate amount of the Distribution Fee actually credited to
EMD for such 12-month period and (ii) the product obtained by multiplying (A)
aggregate Net Sales during such 12-month period times (B) the applicable
percentage set forth in the above schedule.
b. As used herein, "Net Sales" during any accounting period
shall be determined by deducting from Gross Sales (as hereinafter defined)
during such accounting period (i) the dollar amount of Returns, rebates, credits
and adjustments, if any, issued to EMD's customers and (ii) the dollar amount of
all so-called "program" or "invoice" discounts authorized by Company
(collectively, "Program Discounts"). Net Sales shall not be reduced by (and EMD
shall be solely responsible for) any so-called "cash" discounts granted by EMD
for early payment.
c. As used herein, "Gross Sales" shall mean the dollar amount
of "sales" during any accounting period, and shall be computed by multiplying
the number of units of each Record shipped for sale during such accounting
period by the applicable published wholesale price of such Record in each
applicable configuration at the time of shipment.
d. As used herein, a "sale" by Company shall occur upon EMD's
shipment of Records to a customer, except that no sale shall be deemed to occur
in the case of distribution of Promotional Records and Free Goods, deletion of
Records from catalog, and/or any transactions pursuant to the Security
Provisions.
e. As used herein, a "Return" shall mean a Record distributed
by EMD hereunder which is returned to EMD's Returns Center pursuant to a returns
authorization or other customary and appropriate authorization, and shall occur
upon the crediting by EMD of the applicable customer's account for such Records
returned to EMD. The dollar amount of Returns shall be computed by multiplying
the number of units of each Record returned by the applicable net effective unit
price (as determined in accordance with EMD's then effective average purchase
price policy) for such Record when most recently shipped to the applicable
customer (after giving effect to any Free Goods and/or Program Discounts
included in the
13
applicable shipment). EMD may, in its sole discretion, establish Returns credits
and Returns charges to its customers. Company shall pay or reimburse EMD for all
Returns of Records hereunder. In any month where Returns exceed Gross Sales, EMD
shall charge to Company (or deduct from the Reserve) the amount of such excess.
f. EMD may retain for its own account any separate handling
charges to its customers, denominated as such, for fulfillment of shipments of
Records in less than full box-lot quantities (if necessary) or for small orders,
to compensate EMD for its additional costs incurred (collectively, "Special
Handling Charges"). Notwithstanding the foregoing, on a SKUby-SKU basis, Company
shall have the right to waive any such Special -Handling Charges, in which event
EMD shall charge Company (rather than EMD's customer) for the full amount of any
such Special Handling Charges applicable to the affected order. Such Special
Handling Charges may, at EMD's discretion, be deducted by EMD from all amounts
otherwise payable to Company hereunder.
g. Subject to EMD's right under Paragraph 9 below with respect
to the taking of Reserves, during each accounting period hereunder, Company
shall be entitled to, and EMD shall pay to Company, one hundred percent (100%)
of"Adjusted Net Sales" of Records. As used herein, "Adjusted Net Sales" during
each such accounting period shall mean one hundred percent (100%) of Net Sales
after the deduction of:
(i) EMD's Distribution Fee;
(ii) the dollar amount of any and all advances of
funds made, or credit memos issued, to customers of EMD for customer
advertising pursuant to Paragraph 3.c. above;
(iii) Manufacturing Charges; and
(iv) any and all other sums charged to Company
hereunder or otherwise due and owing by Company to EMD under this Agreement (as
well as the amount of any overpayment by EMD to Company resulting from incorrect
accounting, clerical error, mistake or inadvertence).
h. Company shall designate the wholesale prices to be charged
by EMD for Records to be distributed hereunder from the price list categories
maintained by EMD.
7. Promotional Records, Free Goods and Sales Programs.
a. No payment shall be due from EMD to Company on account of
EMD's or Company's distribution of Promotional Records, and Company shall
undertake any distribution of Promotional Records entirely at its own cost and
expense.
b. "Commercial Records" (i.~, finished goods Records intended
forresale to consumers) shall not be used as Promotional Records unless they are
marked or otherwise altered in such a manner so as to prevent their return to
EMD, and EMD shall have the right to charge Company for all costs incurred by
EMD in marking such Records.
14
c. Free Goods shall be furnished by Company to EMD at
Company's sole cost and expense. As used herein, "Free Goods" are Records
furnished by Company or shipped by EMD to any one or all of EMD's customers on a
"no charge" basis, or as a sales inducement. "Free Goods" also include
Commercial Records marked as Promotional Records by EMD on Company's behalf. EMD
will not distribute Free Goods without Company's prior written approval.
d. In the event that Company authorizes an invoice dating
program (j~, the granting of payment terms beyond those contained in EMD's
standard terms of sale), Company shall pay to EMD (and authorizes EMD to deduct
from any payment due to Company hereunder) interest at the rate of ten percent
(10%) per annum on the balance extended past such standard period. The foregoing
rate of interest shall be increased without any further action by the parties
hereto in the event, and to the extent, of any increase in the rate of interest
charged by the EMI Group (or any, successor thereof) to EMD for internal
management reporting purposes.
8. Statements and Payments.
a. For each shipment month during the Term, EMD shall render a
statement to Company setting forth in respect of Records distributed during such
shipment month: the dollar amount of Gross Sales, Returns, Net Sales, EMD's
Distribution Fee, Adjusted Net Sales, the amount of any Reserve taken, the
Reserve Shortfall deducted (if any) by EMD in respect of such period pursuant to
Paragraph 9.a. below, and the amount of the Reserve to be liquidated in such
period pursuant to Paragraph 9.b. below. Each statement shall also include all
Manufacturing Charges and any and all other sums charged to Company hereunder or
otherwise due and owing by Company to EMD under this Agreement. In the event
that the proceeds otherwise payable to Company are insufficient to allow for the
full setoff of all such charges and sums, EMD will have the right to setoff the
amount of such insufficiency from any other sums payable by EMD to Company.
b. EMD shall send such statement, accompanied by any payment
due from EMD to Company, on-or before the first day of the third (3rd) full
accounting month following the end of the shipment period covered by the
statement. Any payment shown thereon to be due and owing from-Company to EMD
shall constitute an account stated and immediately shall be due and payable. EMD
is authorized and directed to make all payments to Company hereunder by check
payable to "0XXxxxxx.xxx " or by wire transfer of funds to an account of Company
at a bank designated by Company by notice to EMD.
c. All amounts payable by Company to EMD hereunder are secured
by the Security Interest in the Collateral as set forth in Section H below.
Adjusted Net Sales shall not be earned or payable on any transactions pursuant
to the Security Provisions, unless the net amount realized by EMD at any sale
conducted pursuant thereto is greater than the total amount of Company's
indebtedness to EMD.
9. Reserves.
a. EMD shall be entitled to deduct from any payment owing to
Company hereunder a reserve on account of future credits, rebates, adjustments
for Returns or
15
other sums payable by Company to EMD of twenty-five percent (25%) of Gross Sales
per month for full-length Records (in all configurations) and fifty percent
(50%) of the Gross Sales for singles Records (the "Reserve") for each month for
which a statement is rendered, on account of transactions covered by such
statement. With respect to each statement to be rendered hereunder, if the
amount of the proceeds otherwise payable to Company hereunder is insufficient to
allow for the deduction of the full amount of such applicable Reserve (such
insufficiency shall be referred to hereinafter as the "Reserve Shortfall"), EMD
shall charge and xxxx Company for the amount of such Reserve Shortfall and
Company shall pay to EMD such amount no later than thirty (30) days after the
delivery of the statement setting forth such charge; provided, however, that,
with respect to any unpaid Reserve Shortfall, EMD shall have the right to deduct
any or all of such amount from the proceeds otherwise available for payment to
Company pursuant to any subsequent statement rendered to Company hereunder.
b. EMD shall liquidate its Reserve as follows: subject to the
second sentence of Paragraph 9.a., the entire amount of any Reserve taken with
respect to a particular shipment month of this Agreement shall be liquidated and
reported on the monthly statement for the shipment month that occurs six (6)
months after the month in which such Reserve is taken.
c. EMD may (but shall not be required to) retain and apply all
or part of the Reserve against any sum due from Company to EMD hereunder,
including (without limitation) (i) the full amount of any current, cumulative or
prospective credits, rebates and adjustments for Returns, (ii) any balance due
from Company pursuant to Section B hereof or (iii) any and all other sums that
may be payable hereunder by Company to EMD. EMD's rights in this regard shall be
in addition to, and not in lieu of, its rights under any other provision of this
Agreement. If, at any time, funds held in Reserve are applied to EMD's account,
the amount necessary to replenish the Reserve to its original level prior to the
application of suchfunds shall be charged to Company by EMD (and EMD shall have
the right to deduct the amount of any such charge from any sums otherwise
payable to Company hereunder).
d. No portion of the Reserve shall be applied or credited to
Company's account for any accounting period in which Returns exceed Gross Sales.
In that case, the portion of the Reserve scheduled for liquidation either may be
retained and applied to EMD's account in the reduction of such excess, or
retained and rescheduled for liquidation as if first taken in the accounting
period when it was so retained.
e. Notwithstanding anything to the contrary set forth in this
Agreement, during the six (6) month period immediately preceding, and any period
following the expiration or any earlier termination of this Agreement, EMD shall
be entitled to withhold from any funds otherwise payable to Company reasonable
Reserves against Returns or other sums payable by Company to EMD, without regard
to the limitations set forth in this Paragraph 9 and EMD shall have no
obligation to credit any Reserves to Company's account whatsoever.
10. Inventory.
a. The inventory of finished goods Records stored in EMD's
warehouses ("Inventory") shall be Company's property (subject to the terms of
the Security Provisions) and Company shall bear all costs or risks attributable
to the obsolescence thereof.
16
Subject to the shrinkage allowance set forth in subparagraph c. below, the risk
of loss of Inventory prior to "sale" (as defined in Paragraph 6.d.) due to any
casualty or theft shall be borne by EMD.
b. Returns shall be restored to Inventory, unless they are
"ShopWorn" or "Defective." "Shop-worn" Records are those Records, in any
configuration, which by EMD's standards are deemed to be so damaged or
excessively handled as to be unsalable and not economically salvageable. As used
in this subparagraph b., "Defective" Records are those Records, in any
configuration, which are properly designated by a customer as defective on the
applicable Return authorization. EMD is hereby authorized to scrap all Shop-Worn
or Defective Records returned to EMD, as well as any cassette single Records
returned to EMD (whether "loose" or in box-lot quantities), regardless of
condition.' Company acknowledges that such Records are not Inventory, and EMD
shall have no further responsibility with respect thereto. Company shall comply
with the inventory management policies propounded by EMD from time to time with
respect to all record labels distributed by EMD.
c. At its sole cost and expense, during each year of the Term,
Company may, at a mutually agreeable time during EMD's normal business hours,
take one (1) physical inventory of its Inventory then stored at EMD's Customer
Fulfillment Centers. The book inventory of Company's Inventory and Components,
reduced by units discarded or scrapped in accordance with this Agreement, shall
be subject to a shrinkage allowance of two percent (2%) (the "Shrinkage
Allowance") for any disappearances. For this purpose, overages of any items
shall be combined with shortages of any other items to determine net shortages.
EMD -shall not be liable for Records or Components discarded or scrapped
pursuant to and in accordance with the terms of this Agreement or for shortages
less than or equal to the Shrinkage -Allowance. Furthermore, EMD's sole
liability for shortages in excess of the Shrinkage Allowance ("Excess Missing
Inventory") shall be the cost of replacing such Excess Missing Inventory. EMD
may elect to replace such Excess Missing Inventory in satisfaction of such
liability and, if requested, Company shall furnish Masters and Components, and
otherwise cooperate with EMD to enable EMD to do so.
d. Within sixty (60) days after the expiration or earlier
termination of this Agreement (the "Removal Date"), Company shall remove all
Inventory from EMD's Customer Fulfillment Centers. The cost of such removal
(including all freight charges and charges for EMD's loading services, if any)
shall be paid by Company. If all or any portion of such Inventory is not removed
by the Removal Date, Company irrevocably authorizes EMD to scrap such Inventory,
with the cost of scrapping to be borne by Company.
11. Deletion of Records from Catalog.
a. Company shall have the right to delete Records from
Company's catalog and sell them at close-out only, in which event such Records
no longer shall be manufactured or sold by Company, except at close-out only.
Company authorizes EMD to xxxx all such Records so deleted by Company from
Company's catalog at Company's expense so as to prevent their Return to EMD. If
Company wishes to sell such deleted Inventory at close-out only, shipments and
collection with respect thereto shall be Company's sole responsibility, and
17
Company shall have full responsibility for all Inventory and returns of such
Records. EMD shall earn no Distribution Fee on account of Company's sales of
such Records.
b. Upon Company's deletion of a Record from its catalog, EMD
may notify its customers that they have sixty (60) days (or such longer period
of time as EMD may elect) to Return such deleted Records for credit against
their applicable price (the "Cut-Out No-Return Date"). Notwithstanding the
foregoing, during any period during the Term and during any period after the
expiration of the Term (if any) in which EM]) accepts. Returns of Records, EMD
may accept Returns of such deleted Records after the Cut-Out No-Return Date, and
charge Company therefor, which sum Company promptly shall pay, or EMD may deduct
any such sum from any amount due to Company hereunder, or from the Reserve.
c. At any time following thirty (30) days after the "Cut-Out
No-Return Date" established pursuant to subparagraph b. above, EMD may, by
written notice to Company, require Company to remove its Inventory of such
deleted Records from EMD's Customer Fulfillment Centers, and Company shall do so
within thirty (30) days after such notice. The cost of such removal (including
all freight charges and charges for EMD's loading services, if any) shall be
paid by Company. If such Inventory has not been removed at the end of such
period, EMD may charge Company for storage or may scrap such Inventory (in which
event EMD shall have no further responsibility to Company with regards thereto).
12. Examination of Certain Accounting Records.
a. Provided that Company previously shall have notified EMD in
writing of its objections to such statement, specifying with particularity each
element of such statement to which objection is made, Company may, at any
mutually agreed upon time within two (2) years after any statement is rendered
to Company hereunder, examine and make copies of the books and records of EMD
with respect to such objections. Company shall not be entitled to withhold
payment of any sums shown on EMD's statements to be due to EMD during the
pendency of any such examination.
b. Such examination shall be conducted at Company's sole cost
and expense by an independent Certified Public Accountant designated by Company
who is not then engaged in an outstanding examination of EMD's or its
affiliates' books and records on behalf of a Person other than Company.
c. Such examination shall be made during EMD's usual business
hours at the place where EMD maintains the books and records (which shall
consist of all books, records, accounts, ledgers, vouchers, invoices and data,
including but not limited to computer data, relating to the manufacture and
distribution of Records hereunder and monies earned by Company hereunder); and
Company's examination shall be limited to the same. Company's sole right to
inspect EMD's books and records shall be as set forth in this Paragraph 12, and
EMD shall have no obligation to produce such books and records more than once
with respect to each statement rendered to Company nor more than once in any
calendar year. EMD shall have no obligation to furnish Company with any
additional books or records except as set forth herein.
18
d. Company shall be foreclosed from maintaining any action,
claim or proceeding against EMD in any forum or tribunal with respect to any
statement or accounting due hereunder unless such action, claim or proceeding is
commenced against EMD in a court of competent jurisdiction within two (2) years
after the date upon which such statement or accounting is rendered.
D. TERMINATION
1. Right to Terminate.
In the event that (i) Company is in material breach of any of
its material representations, warranties, obligations or covenants hereunder, or
(ii) an Event of Default shall occur under the Security Provisions of this
Agreement, then, and in addition to any other rights or remedies that EMD may
have at law, in equity or under this Agreement, EMD may elect to terminate this
Agreement by notice in writing (subject to Paragraph 2 of Section I below), and
thereby shall be relieved of any further duty of future performance hereunder.
2. Upon Termination.
a. In the event of such a termination, Company immediately
shall make payment to EMD of all sums due and owing to EMD under this Agreement
or, if applicable, subject to EMD's rights with respect to the taking of
Reserves pursuant to Paragraph 9 of Section C hereof, EMD shall pay Company any
sums due and owing to Company.
b. From and after the expiration or termination of this
Agreement, Company shall be and remain financially responsible for all Returns
of Records distributed hereunder. EMD may (in its sole discretion) authorize EMD
to continue to accept Returns from EMD's customers, but EMD shall not be
obligated to do so. With respect to any such Returns accepted by EMD and where
EMD credits its customer therefor, EMD may charge and xxxx Company for such
Returns, which sum Company promptly shall pay, or EMD may deduct such amount
from the Reserve.
c. Company and EMD shall cooperate fully and in good faith
with each other to achieve a smooth transition at the end of the Term, and
Company shall require any successor distributor to do so as well.
E. NOTICES
All notices and other communications required or permitted
hereunder shall be in writing and shall be delivered personally, faxed (so long
as receipt is acknowledged) or sent by certified, registered mail or next day
express mail or courier, postage prepaid. Any such notice shall be deemed given
(a) when so delivered personally or faxed (if receipt is confirmed by telephone
the same day), (b) the day after, when sent by next day express mail or courier
or (c) five (5) days after, when sent by certified or registered mail, as
follows:
19
(i) If to EMD, to it at:
00000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
Fax: (000) 000-0000
Attention: Vice President, Legal & Business
Affairs
with a copy to:
EMI Recorded Music, North America
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Vice President, Legal Affairs
(ii) If to Company, to it at:
0XXxxxxx.xxx
00000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx Xxxxx, XX 00000
Fax: -818-593-2225
Attention: Xx. Xxxx Xxxxxx
F. FORCE MAJEURE
If at any time during the Term, by reason of any act of God, fire,
earthquake, flood, explosion, strike, labor disturbance, civil commotion, act of
government, its agencies or officers, any order, regulation, ruling or action of
any labor union affecting EMD, or any shortage of or failure or delays in the
delivery of materials, supplies, labor or equipment, or any other cause or
causes beyond EMD's control, the performance of any of EMD's obligations
hereunder is delayed, interrupted or prevented, then the performance of such
obligation shall be excused to the extent so delayed, interrupted or prevented.
G. INDEMNIFICATION
Company hereby indemnifies, saves, and holds EMD harmless from any
and all damages, liabilities, costs, losses and expenses (including legal costs
and attorneys' fees) (collectively, "Losses") arising out of or connected with
any third party claim, demand, or action which is inconsistent with any of the
warranties, representations, covenants or agreements made by Company in this
Agreement. Company shall reimburse EMD, on demand, for any payment made by EMD
at any time with respect to any damage, liability, cost, loss or expense to
which the foregoing indemnity applies. Pending the determination of any claim,
demand, or action, EMD may, at its election, withhold payment of any monies
otherwise payable to Company hereunder in an amount that does not exceed
COmpany's potential liability to EMD pursuant to this paragraph. This
indemnification provision shall survive the expiration or any termination of
this Agreement.
20
H. SECURITY PROVISIONS
1. Grant.
To secure the prompt and complete payment and performance of
any and all present and future indebtedness, obligations and liabilities of
Company to EMD pursuant to this Agreement (the "Obligations"), Company hereby
grants to EMD a first-priority security interest, prior to all other liens and
encumbrances (the "Security Interest") in and to the following, whether now
owned or hereafter acquired (collectively, the "Collateral"): (i) all existing
and after-acquired inventory of Records, wherever located, now or hereafter held
by Company or EMD, (ii) the Components, Containers, mothers, stampers and all
parts used to manufacture or derive finished goods Records, (iii) all sources,
masters (to the extent owned by Company), and other audio-visual master
recordings, owned or contrOlled by Company or its affiliates used to produce the
Records, (iv) all existing and after-acquired artist's contracts governing
Records manufactured or distributed hereunder for artists, authors, composers or
performers now or hereafter under contract to Company or its affiliates, and all
rights deriving therefrom, including inter alia, the right to commercially
exploit all masters previously delivered by such artists, or to be delivered in
the future; all copyrights, and the right to compel such artists to deliver
masters exclusively in the future to EMD or its designated affiliate, in the
event of Company's default hereunder, (v) all existing and after-acquired
licenses, rights, copyrights, general intangibles and other contract rights
associated with or necessary for the manufacture and distribution of Records
owned or controlled by Company, sufficient to enable EMD or its designated
affiliates to commercially exploit as its own all Collateral hereunder in the
event of Company's default, (vi) all accounts receivables due from EMD to
Company under this Agreement, and (vii) all proceeds and products arising from
the collection, sale, lease, exchange, assignment, or other distribution of, or
realization upon, any or all of the foregoing (including without limitation, all
claims against third parties for losses and all insurance proceeds).
2. Representations, Warranties and Certain Covenants.
a. Company warrants, represents and covenants that Company has
not granted and will not grant any rights to anyone other than EMD that would be
superior to the rights granted to EMD hereunder with respect to all or any part
of the Collateral, whether by way of assignment, security interest or otherwise,
and that no financing statement naming Company or any predecessor thereof as
debtor is on file in any public office. Without the prior written consent of
EMD, Company will not sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so, except in the ordinary
course of Company's business. To the extent permitted by applicable law, Company
waives all claims, damages and demands against EMD arising out of the
repossession, retention or sale of the Collateral, or any part or part thereof,
under these Security Provisions. Company recognizes that in the event Company
fails to perform, observe or discharge any of its obligations or liabilities
under this these Security Provisions, no remedy at law will provide adequate
relief to EMD and EMD shall be entitled to seek temporary injunctive relief in
any such case without the necessity of proving actual damages.
b. Company agrees to execute and deliver to EMD all financing
or continuation statements and/or other documents (e.g, UCC- 1 forms) that are
reasonable and
21
necessary for EMD to protect its interest in the Collateral ("Financing
Statements"). If Company fails unreasonably to so execute and deliver any such
Financing Statement within ten (10) business days following Company's receipt of
such Financing Statement, then Company will grant to EMI a limited
power-of-attorney solely for the purpose of executing such Financing Statements
in Company's name and on Company's behalf. EMD shall have the right to file such
Financing Statements in any jurisdiction that EMD deems appropriate.
c. Company agrees that it will pay to EMD upon demand the
amount of any and all reasonable out-of-pocket expenses (including, without
limitation, all taxes, if any, and attorney's fees and costs) that EMD may incur
by reason of the Security Interest or otherwise in connection with (i) the
administration or enforcement of, or the exercise of any rights conferred on EMD
under these Security Provisions, including such expenses as are incurred to
preserve the value of the Collateral or the validity, perfection, rank and value
of the Security Interest and (ii) the custody, preservation, use or operation
of, or the collection, sale or other disposition of, any of the Collateral, or
to free any of the Collateral from any lien or other encumbrance thereon.
3. Events of Default.
Upon the occurrence of an Event of Default (as hereinafter
defined), EMD shall have the right to declare any obligation secured hereby
immediately due and payable and to exercise any and all other rights it has
hereunder and under applicable law. As used herein, an "Event of Default" shall
occur: (i) the breach at any time of any covenant, agreement or undertaking of
Company contained herein, and the continuation of such breach for a period of
fifteen (15) days after written notice thereof to Company; (ii) the failure to
pay when due any obligations of Company to EMD hereunder; (iii) the material
falsity, at any time, of any representation or warranty of Company contained
herein; (iv) if EMD shall have the right to terminate the Agreement pursuant to
Section Dhereunder; or (v) upon the insolvency of, or the adjudication of
bankruptcy of, or the filing of a petition therefor by or against, Company or if
Company is unable to generally pay its debts as they come due.
4. Termination of Security Interest.
The Security Interest shall terminate when this Agreement has
been terminated and all of the Obligations have been completely performed and
indefeasibly paid in full. At such time, EMD will, at the expense of Company and
without any representations, warranties or recourse of any kind whatsoever,
execute and deliver to Company -such documentation (e.g., UCC-3s) as is
reasonable"and necessary to evidence the termination of the Security Interest. -
I. MISCELLANEOUS
1. Taxes; Tax Withholding.
Personal property taxes, taxes on Inventory and Manufacturing
Inventory, and all other taxes or charges on Company's property shall be paid by
Company; and if such taxes or charges should be assessed to EMD, then Company
shall pay to EMD all sums required to discharge such liability. If taxes (e.g~,
sales, use, excise, value added) of any kind are or
22
should hereafter become applicable to the services to be rendered or the
transactions contemplated by this Agreement, then such taxes shall be added to
the charges to be paid by Company hereunder, and Company agrees to pay same at
the time when the invoice to which they pertain is due. EMD shall have the right
to withhold from sums otherwise payable hereunder such amounts, if any, as may
be required under the laws, regulations or judicial or administrative orders of
any jurisdiction in the Territory, including (without limitation) all taxing
authorities. Nothing in this Agreement shall require EMD to perform any act or
pay any monies which act or payment would violate the laws, regulations, or
judicial or administrative orders of any jurisdiction in the Territory.
2. Cure.
Neither party shall be in material breach of any of its
obligations hereunder unless and until the other party shall have given specific
written notice describing in detail the breach, and the notified party shall
have failed to cure that breach within thirty (30) days after receipt of such
written notice.
3. Independent Contractor Relationship.
The relationship between EMD and Company hereunder shall at
all times be that of independent contractors, and nothing contained herein shall
render or constitute the parties joint venturers, partners or fiduciaries of
each other.
4. Public Statements.
Company shall seek EMD's prior approval of all public
statements or written materials referring to this Agreement or the Stock
Issuance Agreement.
5. Waiver.
The waiver by any party of any term or condition of this
Agreement, or any part hereof, shall not be deemed a waiver by such party of any
other term or condition of this Agreement, or of any later breach of this
Agreement or of any part thereof.
6. Severability.
If any part of this Agreement is determined to be void,
invalid, inoperative or unenforceable by a court of competent jurisdiction or by
any other legally constituted body having jurisdiction to make such
determination, such decision shall not affect any other provisions hereof, and
the remainder of this Agreement shall be effective as though such void, invalid,
inoperative or unenforceable provision had not been contained herein.
7. Counterparts.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
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8. Assignment.
Company may not assign this Agreement, or any part hereof, or
any of its rights hereunder, to any person without the prior written consent of
EMD. EMD may assign all of its rights and duties under this Agreement, upon
giving written notice thereof to Company, to any parent, subsidiary, affiliated
or successor Person, or to any Person acquiring all or substantially all of
EMD's assets, and upon such assignment EMD shall be relieved of its obligations
hereunder.
9. Applicable Law.
This Agreement shall be governed by the laws of the State of
New York applicable to contracts made and to be performed in the State of New
York, without regard to the choice of law principles thereof. The jurisdiction
and venue for any judicial proceeding regarding or pertaining to this Agreement
shall lie in the federal or state courts of New York or Los Angeles counties.
10. Entire Agreement.
This Agreement constitutes the entire agreement between EMD
and Company with respect to the subject matter hereof, all prior negotiations
and understandings being merged herein. No person acting or purporting to act on
behalf of either party has made any promises or representations upon which the
other has relied, except those expressly found herein. This Agreement may only
be altered by an instrument in writing, executed by authorized officers of all
of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
0XXxxxxx.xxx EMI Music Distribution, a division of
Capitol Records, Inc.
By: _________________________________ By: _________________________________
Name: Name:
Title: Title:
Address: Address:
00000 Xxxxxx Xxxxxx, Xxxxx 0000 00000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000 Xxxxxxxx Xxxxx, XX 00000
In consideration of EMI Music Distribution ("EMD") executing this Agreement and
as a further inducement for EMD to do so (it being to the benefit of the
undersigned that EMD execute same), the undersigned hereby assents to the
execution of this Agreement by 0XXxxxxx.xxx, agrees to be bound thereby, and
irrevocably and unconditionally guarantees, up to a maximum of $200,000, the
full payment and performance of all obligations of 0XXxxxxx.xxx under this
Agreement.
AGREED:
---------------------------------
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