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EXHIBIT 10.13
PRODUCT DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is made as of January 1,
2000 by and between Integrity Incorporated, 0000 Xxxx Xxxx, Xxxxxx, Xxxxxxx
00000 a Delaware Corporation ("INTEGRITY") and Word Entertainment (a division
of Word Music Group, Inc.), 00 Xxxxx Xxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxx 00000
("WORD").
RECITALS
WHEREAS, INTEGRITY is engaged in the business of acquiring and
producing audio and video masters and manufacturing phonograph records, tapes,
and printed musical products (including but not limited to audio cassettes,
compact discs, accompaniment tracks, video cassettes, and other recorded and
printed music products derived therefrom); and
WHEREAS, INTEGRITY desires WORD to distribute throughout the United
States, Guam, Puerto Rico and A.F.E.S. and other military purchasing groups
which serve military bases across the world, ("xxx Xxxxxxxxx") through normal
retail channels and wholesale outlets in the Christian bookstore market ("CBA
Marketplace") and general/secular markets (e.g., record stores and mass
merchandisers) ("General Marketplace") recorded product and musical print
products related thereto manufactured by or for INTEGRITY.
NOW, THEREFORE, the parties hereto agree as follows;
1. GRANT OF RIGHTS. INTEGRITY hereby authorizes and appoints WORD to be
INTEGRITY's exclusive distributor to normal retail outlets in the CBA
Marketplace and General Marketplace (exclusive of those markets
retained by INTEGRITY pursuant to Paragraph 2 hereunder) during the
term hereof in the Territory of all audio and video recordings derived
from audio and video masters now or hereafter owned or controlled by
INTEGRITY (such masters hereinafter the "Masters," and the recordings
derived therefrom hereinafter "Records") and all choral and consumer
printed products (hereinafter "Print Products") whether or not on the
"Integrity Music" label (such Records and Print Products collectively
hereinafter referred to as the "Products.") A listing of all current
INTEGRITY labels is attached hereto as "Exhibit A". Such distribution
rights shall include the right to distribute to wholesalers which
distribute records and print products to such normal retail outlets in
the CBA Marketplace and General Marketplace. INTEGRITY may not sell,
license, or otherwise distribute Records or manufacturing overruns of
Records derived from the Products to any person, firm, association,
corporation, or entity other than WORD for sale through normal retail
channels in the CBA Marketplace and General Marketplace in the
Territory during the term of this Agreement.
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2. RIGHTS RESERVED BY INTEGRITY. Notwithstanding anything contained
herein to the contrary, WORD hereby acknowledges that INTEGRITY has
specifically reserved its right to distribute Products for sale in
remaining markets of any kind or nature not specifically granted to
WORD hereunder as well as all rights whatsoever outside the Territory,
including, but not limited to:
a. All mail order, television and radio promotion, record clubs,
budget and mid-price sales, "K-Tel"-type sales, and
non-phonograph record exploitation, such as films or
television;
b. Special markets, including but not limited to Christian Book
Distributors, Avon, Publisher's Clearing House, Books R Fun,
and any other direct to consumer catalog account;
c. All so-called international rights without limitation;
d. The right to sell Products directly to churches and
individuals, whether in the Territory or elsewhere throughout
the world;
e. All Internet, E-commerce, digital transmissions of any
nature, or by any technological means not specifically
granted to WORD hereunder;
f. General Market place sales for print products. If INTEGRITY
shall not have previously assigned such rights to any third
party, and INTEGRITY and WORD shall mutually desire for
INTEGRITY's Print Products to be distributed by WORD's
General Marketplace print distributor, WORD shall assume such
rights at a rate to be mutually negotiated in good faith.
g. All Choral Clubs rights. Each party shall maintain its own
Choral Clubs, and there shall be no right or responsibility
of either party to participate in the other's Choral Club,
except where the parties mutually agree. The parties
acknowledge that pursuant to WORD's current agreement with
PraiseGathering Publications, WORD currently handles the
subscription and fulfillment services for INTEGRITY's Choral
Club, however Word's right or obligation to deliver such
services is not a condition or term of this Agreement.
h. The right to sell Products directly to bookstore accounts
which primarily serve the Catholic Church market.
3. TERM. The term ("Term") of this Agreement shall commence on January 1,
2000 and shall continue for an initial period of four (4) years,
ending December 31, 2003. The initial twelve (12) months of the Term
and each consecutive twelve (12) month period thereafter
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is referred to herein as a "contract year." Execution of this
Agreement shall result in the early termination of the existing
agreement between the parties related to the subject matter hereof,
and dated April 1, 1996; provided that fees with respect to sales
occurring through December 31, 1999 shall be paid according to the
terms of the prior agreement.
4. INTEGRITY'S RESPONSIBILITIES. INTEGRITY shall be solely responsible
for, and shall pay all costs in connection with:
a. All activities and costs in connection with the Masters or
the Products, including without limitation all costs arising
out of the creation of, and/or the acquisition of INTEGRITY's
rights in, the Masters or the Products.
b. All activities and costs in connection with the manufacture
of finished Products, including without limitation, all
jackets, sleeves, inserts, engravings and other components of
the finished Records and Print Products, and delivery of
finished product to WORD's designated warehouse(s).
c. Obtaining all necessary mechanical, synchronization and print
licenses and paying all license fees; filing copyright
registration on all Masters or Products subject to copyright;
obtaining all consents, authorizations and clearance with
respect to the reproduction, use and commercial exploitation
of the Masters or the Products; and obtaining all consents,
authorizations and clearances with respect to the services,
names, and likenesses of any person whose performances and/or
services are embodied in any Products distributed hereunder.
INTEGRITY shall hold WORD harmless from its failure to take
such actions.
d. INTEGRITY will be solely responsible for and shall pay any
and all artists' royalties, producers' royalties, musicians,
copyright, publishers' and/or writers' mechanical and
synchronization royalties, and any and all other royalties or
similar payments as may be or become payable in connection
with the Masters, the Products, the Compositions, the
Materials, and/or earnings of WORD, which may be payable by
reason of the manufacture, sale, and distribution of the
Products in the Territory. INTEGRITY shall hold WORD harmless
from the obligation to pay such royalties.
e. Subject to the rights reserved by INTEGRITY hereunder,
INTEGRITY agrees that neither INTEGRITY nor any person, firm
or corporation acting for INTEGRITY or with INTEGRITY's
authorization or acquiescence (other than WORD) will
distribute the Products for sale through normal retail
channels in the CBA Marketplace and General Marketplace
throughout the Territory except as otherwise provided herein.
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5. INTEGRITY'S WARRANTIES. INTEGRITY represents and warrants to WORD as
follows:
a. INTEGRITY is the sole owner, or the exclusive licensee of the
sole owner, for the Territory of the Masters and Products, of
all performances embodied therein, all records, compact
discs, tapes, videos and reproductions derived therefrom, and
all sound recording copyrights therein. Subject to any rights
reserved by INTEGRITY hereunder, no other person, firm or
corporation has any rights in or to the Masters, the
Products, the performances embodied therein or any copy
thereof in the Territory.
b. INTEGRITY is duly qualified to do business in the State of
Alabama and has the full right, power and authority to enter
into this Agreement; and INTEGRITY has not done or permitted
to be done anything which may curtail or impair any of the
rights given or granted herein.
c. INTEGRITY has and will have the right to record and reproduce
all musical compositions (the "Compositions") embodied in the
Products.
d. None of the Masters, the Records, the Compositions, the Print
Products, or any other materials or services supplied by
INTEGRITY hereunder including, without limitation, album
jackets or other packaging, artwork liner notes, advertising,
promotion and merchandising materials and advertising
marketing services (the "Materials"), violate or infringe, or
will violate or infringe, any statute or law, or any common
law or statutory rights of any person or entity whatsoever,
including, without limitation, contractual rights,
copyrights, trademarks, rights of privacy and publicity, and
obscenity laws.
e. There is not any claim, demand, or any form of litigation or
other judicial or regulatory proceeding whatsoever pending or
threatened with respect to any of the Masters, the Records,
the Print Products, the Compositions, or the Materials.
f. All other costs and expenses in connection with the recording
and printing of the Products have been and will be paid, and
all necessary licenses, consents or clearances have been
and/or will be obtained.
6. PROPRIETARY MATERIALS; BIOGRAPHIES; TRADEMARKS.
a. Subject to any restrictions in INTEGRITY's agreements with
any individual artist or producer of which INTEGRITY shall
notify WORD in writing no later than the date INTEGRITY
delivers the Records containing such artists' performance,
WORD shall have the right to use and publish INTEGRITY's and
each artist's and producer's likeness, name, voice,
trademark, trade name, logo, sound effects and biographical
materials provided by INTEGRITY in connection with WORD's
sale, advertisement
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and distribution of Products hereunder, or to refrain
therefrom. It is understood that INTEGRITY's designated logo
will be used wherever INTEGRITY's Products and/or its artists
or producers are used in advertisement. Further, INTEGRITY
shall have the right to approve all consumer advertising not
supplied by Integrity and containing INTEGRITY's artists,
logos, trademarks or trade names prior to publication.
b. Subject to the foregoing provisions, WORD may use INTEGRITY's
applicable trademark or logo during the Term hereunder at no
additional cost to WORD. WORD will honor the notice
requirement relating to INTEGRITY's trademarks; provided that
any inadvertent failure by WORD to use INTEGRITY's logo shall
not constitute a breach of this Agreement. INTEGRITY warrants
that INTEGRITY has all rights to grant WORD the right to use
such trademarks and logo and shall indemnify and hold WORD
harmless with respect thereto. INTEGRITY's submission of any
material which includes INTEGRITY's and/or any artists'
trademarks and/or logos shall be deemed to be instructions to
WORD to use such trademarks and/or logos, as submitted.
7. WORD'S RESPONSIBILITIES. At WORD's expense, WORD will furnish all
"normal distribution services" as that term is generally understood in
the phonograph record industry subject to the specific business
practices and policies of WORD. Such services shall include, but not
necessarily be limited to:
a. Warehousing of finished Products and, if applicable, finished
jackets, sleeves, inserts and other components ("Inventory")
at its designated Distribution Centers.
b. Selling and shipment of finished goods and merchandising
materials supplied by INTEGRITY to WORD's customers within
the Territory (WORD's salesmen are to receive the same
compensation or commission on sales of Products hereunder as
they are paid for sales of WORD's products).
c. Billing for Products delivered to customers and collection
thereof, with weekly reports (including but not limited to
movement reports and weekly sales summaries) to be promptly
provided to INTEGRITY, including the administration of any
sales and/or discount programs requested by INTEGRITY
pursuant to Paragraph 13(b) herein below, and the absorption
of any "bad debts" and cash discounts (both of which are
WORD's sole responsibility) relating to Products sales
hereunder to such customers in the same manner as WORD deals
with customers of WORD's products.
d. Upon INTEGRITY's request to WORD, WORD will compile, collate,
pack and ship all packets required of INTEGRITY for use at
choral workshops, festivals, and clinics. INTEGRITY will pay
WORD's direct and out-of-pocket costs (including the wages of
hourly employees, but not an allocation of operating
overhead) for
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providing such services within thirty (30) days from receipt
of WORD's invoice for the same. In the event WORD and
INTEGRITY desire to join marketing efforts, the parties shall
jointly determine the extent of the efforts, and shall each
bear the cost incurred proportionate to their participation.
e. Notwithstanding anything to the contrary contained herein,
WORD shall have the right, without liability to INTEGRITY, to
decline to distribute or withdraw from distribution any
Products hereunder if such Products(s) or the materials
contained thereon or therein are deemed, in the opinion of
WORD's counsel, libelous, slanderous or defamatory or
violative of the laws of any jurisdiction or infringe upon
copyrights or trademarks or otherwise violate or infringe
upon the rights of any party or person.
f. WORD warrants and agrees that regular orders shall be
fulfilled out of Inventory on hand within an average of two
business (2) days [such average to be measured during any
continuous 30-day period] after WORD's receipt of an order
from its customer.
g. WORD shall issue a clear and direct clarification to its
General Market distributor of such distributor's rights with
regard to the Products. INTEGRITY shall either prepare or
approve such letter of clarification prior to its issuance.
h. WORD shall cause the WORD logo to be removed from all
Products manufactured for sale by its General Market
distributor, after the execution hereof. Such product shall
bear only the INTEGRITY logo and the logo of the General
Market distributor.
i. WORD shall furnish non-dedicated office space with telephone
privileges in WORD's Nashville building for the use by
INTEGRITY's senior staff when in Nashville.
8. WORD'S WARRANTIES; PERFORMANCE GOAL.
a. WORD warrants and agrees that it shall represent INTEGRITY's
Products in a manner consistent with INTEGRITY's mission and
the nature of the product, and further that WORD will promote
and sell INTEGRITY's product with the same level of energy,
commitment and professionalism as it devotes to sales of
WORD's own product lines. WORD agrees to exercise all of its
rights under this Agreement in good faith, in accordance with
its business practices and policies. In this regard, WORD
currently maintains a field sales force of fourteen (14)
persons, four (4) key account representatives, and a
telemarketing sales force of ten (10) persons. Word shall not
reduce the foregoing groups by more than twenty percent (20%)
throughout the Term, unless INTEGRITY agrees to such
reductions in writing.
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b. Provided INTEGRITY shall continue to deliver similar quantity
and quality of Products to WORD for distribution as it has
produced over the last 24 months, if and only if, WORD's
total sales of INTEGRITY Products in any contract year falls
below net sales of ten million dollars ($10,000,000), in that
event, INTEGRITY shall have the right to terminate this
Agreement, upon three (3) months' written notice to WORD
delivered anytime within the first two (2) months of the next
contract year. In such event, all other provisions of the
Agreement relative to termination shall apply.
c. WORD shall have the right during the term hereof to sell
Products directly to U.S. bookstore accounts which deal
primarily with Spanish and Portuguese titles (and WORD shall
account for sales through its Miami-based office serving such
accounts separately, by product title); provided that if
aggregate net sales of Products to all such accounts reported
and paid to INTEGRITY shall not in the calendar year 2000
equal at least Five Hundred Thousand dollars ($500,000.00),
or in any subsequent calendar year shall not exceed by at
least ten percent (10%) such sales in the immediately
preceding calendar year, INTEGRITY shall have the right, at
any time during the first two (2) months of the subsequent
calendar year, to deliver written notice to WORD to the
effect that such right with regard to such Spanish/Portuguese
bookstore accounts will terminate on June 30 of the year in
which notice is given.
d. WORD shall during the term hereof sell selected Products
through its General Market distributor, such Products to be
selected at the General Market distributor's discretion;
provided that INTEGRITY shall have the right, at any time
during the first 30 days of any calendar year after 2000, to
deliver written notice to WORD to the effect that such right
will terminate on July 31 of the year in which notice is
given. INTEGRITY agrees that it will not enter into an
agreement with WORD's General Market distributor for the sale
of Products in the General Market within one (1) year after
the effectiveness of any termination of WORD's right as
described in this Section 8(d). The foregoing
notwithstanding, if during the term WORD shall terminate its
distribution agreement with its General Market Distributor
Sony, Inc., INTEGRITY shall have the option to negotiate an
agreement directly with Sony to continue distribution of
INTEGRITY's Products through Sony, Inc. independent of WORD.
9. FREIGHT CHARGES. INTEGRITY shall pay the insurance and freight charges
(including charges for air and/or surface shipment) for shipment from
the plants where the Products and merchandising materials are pressed
or fabricated to WORD's designated Distribution Centers (and
merchandising warehouses, if any).
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10. SALES AND DISTRIBUTION FEES.
a. With respect to net sales of the Products in the Territory
(i.e., gross sales of the Products less returns, credits and
rebates) by WORD, and except as otherwise provided for
herein, WORD will pay INTEGRITY [ ]* percent ([ ]*) of WORD's
actual net selling price to its customers.
b. With respect to sales of INTEGRITY's Records by WORD through
WORD's General Market distributor, Sony Music, a Group of
Sony Music Entertainment, Inc. ("Distributor"), WORD shall
pay INTEGRITY [ ]* percent ([ ]*) of its net receipts from
Distributor, with full account and payment to be remitted to
INTEGRITY within thirty (30) days after WORD's receipt of
payment from Distributor. In the event of any material
modification to or termination of WORD's agreement with
Distributor, the parties agree to renegotiate in good faith
the terms of this provision, or a replacement provision as to
General Market sales.
c. With respect to net sales (i.e., gross sales of the Products
less returns, credits and rebates) by WORD of one (1)
released album of Masters and one (1) potentially forthcoming
album of Masters featuring Xxxxxx X.X. Xxxxx (including his
ministries, associates, or successors), for which Integrity
has obtained distribution rights for the CBA marketplace
through Island Records, WORD will pay INTEGRITY [ ]* percent
([ ]*) of WORD's actual net selling price to its customers.
d. With respect to net sales of "WOW Worship" Products in the
Territory (i.e., gross sales of the Products less returns,
credits and rebates) by WORD, WORD will pay INTEGRITY
[ ]* percent ([ ]*) of WORD's actual net selling price
to its customers.
e. All amounts hereunder collected by WORD and due to INTEGRITY
shall be paid thirty (30) days following the end of each
month. Subject at all times to the provisions of Paragraph 22
hereof, amounts owing to INTEGRITY shall be paid as
aforesaid. WORD acknowledges that prompt and timely payment
by it is a material condition of this Agreement, and that if
any such payment is not made within five (5) days of its due
date INTEGRITY, in addition to any other remedies which it
might have, INTEGRITY shall be entitled to immediately
terminate this Agreement upon notice to WORD, and WORD shall
forthwith return to INTEGRITY all Inventory in its
possession. Amounts due INTEGRITY which are not paid within
five (5) days of the due date therefor shall bear interest at
the prime rate plus two percent (2%) per annum. For the
purposes of this Agreement, prime shall be the "prime rate"
set by SunTrust Bank in Nashville on the day which the
payment was due.
f. Upon either party's dissolution or the liquidation of
substantially all its assets, or the
* Indicates information that has been redacted pursuant to a request for
confidential treatment.
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filing of a petition in bankruptcy or insolvency or for an
arrangement or reorganization, by, or for either party (or
against such party and not disposed of successfully within
sixty (60) days thereafter), or in the event of the
appointment of a receiver or a trustee for all or a portion
of such party's property, or if either party shall make an
assignment for the benefit of creditors, commit any act for,
or in, bankruptcy or become insolvent, or in the event any
payment to either party by the other party under this
Agreement becomes subject, in any manner, to anticipation,
alienation, sale, transfer, assignment (except as permitted
pursuant to this agreement), levy, pledge, encumbrance or
charge, or to attachment, garnishment or other legal process,
then at any time after the occurrence of any such event, in
addition to any other remedies which may be available, then
the other party shall have the right to retain any funds then
in its possession but only as and to the extent such party is
entitled to such funds under the terms of this Agreement.
11. ACCOUNTING.
a. WORD shall render accounting statements setting forth in
detail the sales and returns of Products distributed
hereunder on a monthly basis. Said reports shall be rendered
no later than ten (10) business days following the last
business day of each month of this Agreement. Further, WORD
shall forward to INTEGRITY copies of such pages of
Distributor's monthly sales report to WORD which set forth
sales data of INTEGRITY's General Market sales and royalty
reporting as received by WORD within ten (10) business days
following WORD's receipt.
b. In addition to the foregoing accounting statements, WORD
agrees to electronically render to INTEGRITY on a monthly
basis no later than two (2) business days following the last
business day of each month of this Agreement all of WORD's
standard reports, which shall include a report listing gross
sales volume, Inventory movement (i.e. units sold, units
given away, units returned) and Inventory balances. No later
than December 1, 1999, WORD shall supply INTEGRITY with fully
functional on-line sales reporting and access to Inventory
data pertaining to the Products, including all reports
requested by INTEGRITY, a current list of which shall be
attached hereto as Exhibit B. Any such on-line reports shall
be made available by WORD on-line in text format for
transmission directly to INTEGRITY's database. The format of
such reports are subject to reasonable change in accordance
with WORD's then current practices and policies in effect
from time to time, provided INTEGRITY is notified in advance,
and WORD shall make every reasonable effort to accommodate
INTEGRITY's request for additional detail or format
adjustments.
c. Provided that INTEGRITY shall have theretofore notified WORD
in writing of its objection to any statement rendered
pursuant to this Agreement, specifying with
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particularity each element of such statement to which
objection is made, INTEGRITY may, at any time within two (2)
years after any statement is rendered to INTEGRITY hereunder,
examine the books and records of WORD described below with
respect to such objections. Such examination shall be
conducted at INTEGRITY's sole cost and expense by a certified
public accountant selected by INTEGRITY, provided that such
accountant shall be an accredited accounting firm and not
then engaged in an outstanding examination of WORD's books
and records on behalf of a person other than INTEGRITY and
who certifies that: (i) he will conduct such examination in
accordance with the then-current rules and regulations of the
applicable society of Certified Public Accountants; and (ii)
such examination shall be made in accordance with generally
accepted accounting principles. Such examination shall be
made during WORD's usual business hours at the place where
WORD maintains the books and records described below, and
INTEGRITY's examination shall be limited to the same.
INTEGRITY's sole right to inspect WORD's books and records
shall be as set forth in this Paragraph, and WORD shall have
no obligation to produce such books and records more than
once with respect to each statement rendered to INTEGRITY nor
more than once in any calendar year. Without limiting the
generality of the foregoing, INTEGRITY acknowledges and
agrees that WORD's statements of account and Inventory
summaries will be based on documents generated in the
ordinary course of WORD's business by WORD's computer system
and that said computer-generated documents shall constitute
the major source documents in, and be a substantial factor
in, any dispute between the parties as to the accuracy or
completeness of statements and inventories furnished by WORD
hereunder and that such documents shall show sales and gratis
distribution of Products hereunder. Except with respect to
objections made by INTEGRITY in accordance with this
Paragraph, each statement rendered to INTEGRITY shall be
final, conclusive and binding on INTEGRITY and shall
constitute an account stated. INTEGRITY shall be foreclosed
from maintaining any action, claim or proceeding against WORD
in any forum or tribunal with respect to any statement of
accounting due hereunder unless such action, claim or
proceeding is commenced against WORD in a court of competent
jurisdiction within one (1) year after the date any audit
conducted with respect thereto is completed.
12. MARKETING PROVISIONS.
a. WORD will provide four (4) to eight (8) hours for INTEGRITY
to present its Products at all WORD sales conferences, as
agreed upon with INTEGRITY for each conference.
b. WORD's executive sales, operations and distribution staff
shall meet with INTEGRITY's staff a minimum of three (3)
times per calendar year, with at least two (2) of those
meetings being held at INTEGRITY'S Mobile office, unless
agreed otherwise.
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c. Prior to March 31, 2000, WORD shall present for INTEGRITY's
approval a comprehensive plan for choral Print Products
reading events, specifically including WORD sponsored choral
reading sessions and other special events.
13. PROMOTIONAL AND FREE GOODS.
a. No payment shall be due from WORD nor shall a distribution
fee be charged on Products given away or on Records furnished
on a "no charge" basis for promotional purposes to disc
jockeys, radio and television stations or networks
("Promos"), or for sales inducement products (or discounts in
addition to or in lieu thereof) furnished to independent
distributors, subdistributors and dealers, or for displays,
or as sales inducement products to independent distributors,
subdistributors and dealers ("Free Goods"). Free Goods shall
be distributed only pursuant to sales programs of limited
duration. WORD agrees that Free Goods of INTEGRITY's Products
shall not be distributed to induce the sale of any products
other than INTEGRITY's. The foregoing notwithstanding, WORD
agrees that the sum of Promos and Free Goods of any Products
distributed hereunder shall not exceed ten percent (10%) of
the contract- to-date net trade sales (1 free with 10) of
that title reported and paid to INTEGRITY, unless INTEGRITY
and WORD shall have mutually agreed otherwise prior to such
distribution.
b. With respect to discount programs of Products hereunder
("Programs"), INTEGRITY shall instruct WORD in writing of the
particular Products and terms for such Programs that
INTEGRITY approves hereunder. WORD and INTEGRITY shall
develop and mutually agree on advertising programs with the
Family Bookstore Chain, Lemstone, Berean, Parable Group,
Covenant Group and Spring Arbor Distributors as well as
Central South, Riverside, Xxxxxxxx House, Appalachian and New
Day whereby advertising shall be paid for via INTEGRITY Free
Goods.
c. With WORD approval, INTEGRITY may furnish prizes or Aspiffs"
to WORD salesmen and district managers.
14. RETURNS. WORD shall be entitled to scrap shop-worn Products returned
to WORD upon prior written notice to INTEGRITY and WORD shall report
such scrapping to INTEGRITY. "Shop-worn" Products are those Products,
in any configuration, which by WORD's standards, are deemed to be so
damaged as a result of mishandling when not in WORD's control so as to
be unsalable and not economically salvageable.
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15. INVENTORY AND SHRINKAGE.
a. Simultaneously with WORD's receipt of a sales order from its
customers for finished goods and merchandising materials
supplied by INTEGRITY, title to such inventory passes to
WORD. Inventory shall at all other times by INTEGRITY's
property. Upon any authorized return by WORD's customer,
title to the returned goods and materials shall pass to
INTEGRITY when WORD credits its customer's account.
b. Inventory shall be subject to a two percent (2%) shrinkage
allowance calculated as of December 31st of each year based
on the average monthly Inventory ending balance for the
applicable calendar year. WORD will furnish to INTEGRITY the
results of its Inventory cycle counts regarding INTEGRITY
product kept at WORD's warehouse(s) for each year of the term
hereunder. INTEGRITY shall have the right, on an annual basis
and at its expense, to conduct a physical inventory of its
product upon reasonable notice. At such times as WORD in its
sole discretion, conducts a physical inventory of INTEGRITY's
product, the results of said physical inventory will also be
furnished to INTEGRITY.
c. All transfers and removals of Inventory shall be at
INTEGRITY's expense. WORD shall institute a new procedure, to
be approved by INTEGRITY, for reporting of such transferred
Inventory. Such transferred Inventory will not be reflected
as "gratis sales."
d. At the end of the Term, INTEGRITY shall remove its Inventory
from WORD's custody within thirty (30) days after WORD's
written request for such removal. The cost of such removal
and storage charges from and after the thirty-first (31st)
day following such written demand shall be paid by INTEGRITY.
At the end of the Term of this Agreement allowance for
shrinkage shall be calculated on the same basis as applied
throughout the Term as set forth above.
16. DELETION OF PRODUCTS.
a. INTEGRITY shall have the right, with WORD's consent as to the
precise timing thereof, to declare specified Products as
out-of-print or remainders and to delete such Products from
WORD's catalog ("Deleted Products") upon two (2) months'
written notice to WORD ("Deletion Notice"). Upon receipt of
such Deletion Notice, WORD shall advise all of its accounts
of such pending deletion to be effective at the time stated
in such notices to its accounts (the "Deletion Date"). If
INTEGRITY wishes to remainder such Inventory after such
Deletion Date, shipment and collection shall be INTEGRITY's
sole responsibility. At any time after INTEGRITY deletes one
(1) or more Products, WORD may, by written notice to
INTEGRITY, require INTEGRITY to remove its Inventory of such
Product or Products from WORD's
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warehouses and INTEGRITY shall do so within thirty (30) days
after such notice. The cost of such removal and any storage
charges from and after the thirty-first (31st) day following
such notice shall be paid by INTEGRITY.
b. Upon deletion of a Product or Products from WORD's catalog,
WORD shall continue to accept returns from WORD's customers
for a period not to exceed six (6) months or the expiration
of the Term (or other termination of this Agreement),
whichever is shorter. For purposes of this Paragraph, a
return shall be deemed to have been accepted on the date such
return is physically processed by WORD.
17. RETURNS UPON TERMINATION. Upon expiration of the Term of this
Agreement, WORD shall continue to accept returns (from other than
Deleted Products) for a period of six months (the "Extra Returns
Period"). Six (6) months prior to the expiration of the Term, WORD
shall establish a monthly returns reserve in an amount equal to the
monthly INTEGRITY sales times the "average actual returns percentage."
The "average actual returns percentage" shall be equal to the total
actual returns during the twelve (12) month period beginning eighteen
(18) months prior to the expiration of the Term and ending six (6)
months prior to the end of the Term divided by the actual gross
commissionable sales during the same period. This monthly returns
reserve percentage shall reduce the payments due to INTEGRITY each
month for the last six (6) months of the Term. This return reserve
shall be treated like any other return and therefore should be
subtracted from gross sales before any distribution fee is calculated.
The cumulative reserve built by this six (6) month period shall be
used during the Extra Returns Periods. WORD will reduce the returns
reserve during the Extra Returns Period by the gross amount of the
credits issued to WORD's customers (i.e., if WORD issues the customer
a credit for $5.80, the reserve balance will be reduced by the same
amount.) To the extent the reserve balance is insufficient to bear
such debits against the reserve (i.e., credits to WORD's customers),
INTEGRITY shall promptly pay to WORD the excess. Following the
expiration of the period during which WORD has agreed to accept
returns (i.e., the "Extra Returns Period"), WORD shall release the
remaining reserves, if any, within fourteen (14) days, and
subsequently, INTEGRITY, for the benefit of WORD's customers, shall
accept returns of Products distributed pursuant to this Agreement, and
give such customers full credit.
18. INSURANCE. The risk of loss of INTEGRITY's property in WORD's
possession (i.e., finished goods Inventory, finished jackets, inserts,
and other components) shall be borne by WORD, and WORD will procure
and pay for an insurance policy naming INTEGRITY as the primary
loss-payee, in an amount equal to the wholesale price of INTEGRITY's
Inventory on hand in warehouse. The proceeds of such policy shall be
payable to INTEGRITY in the event of the destruction or damage to the
Inventory. Evidence of such insurance shall be furnished to INTEGRITY
upon request.
19. SOUNDSCAN. During the term of this Agreement, WORD shall continue to
pay all charges
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in connection with INTEGRITY's access to SoundScan reporting.
20. NOTICES.
a. All notices, statements and payments which WORD may be
required or desire to serve upon INTEGRITY shall be served by
depositing same, postage prepaid, in any mail box, chute, or
other receptacle authorized by the United States Post Office
Department for mail, addressed to INTEGRITY at the address
below its signature, or at such other address as INTEGRITY
may from time to time designate by written notice to WORD
pursuant to Subparagraph 20(b). The date of service of any
notice, statement, or payment so deposited shall be five (5)
business days following the date of deposit.
b. All notices, statements, and payments which INTEGRITY may be
required or desire to service upon WORD shall be served by
depositing same, postage paid, in any mail box, chute or
other receptacle authorized by the United States Post Office
Department for mail, addressed to WORD at the address below
its signature, or at such other address as WORD may from time
to time designate by written notice to INTEGRITY pursuant to
Subparagraph 20(a). The date of service of any notice,
statement, or payment so deposited shall be five (5) business
days following the date of deposit.
21. WORD'S SERVICES NON-EXCLUSIVE. Nothing in this Agreement shall be
construed to prevent or restrict WORD from producing, distributing,
promoting and otherwise exploiting records of any kind, including
those produced by itself or other persons, whether or not competitive
with any of the Products distributed hereunder. Nothing in this
Agreement shall be construed to prevent or restrict INTEGRITY from
producing records of any kind, including those which may be deemed
competitive with product produced or distributed by WORD. Subject to
the provisions of Paragraph 7(e) herein, WORD agrees to distribute all
Products produced by INTEGRITY.
22. WAIVERS AND CURE OF BREACH. The waiver by either party or 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.
Except for a breach by WORD pursuant to Paragraph 10, neither WORD nor
INTEGRITY shall be deemed to be in breach of any of their respective
obligations hereunder unless and until the other shall have given
specific written notice by certified or registered mail, return
receipt requested, of the nature of such breach and the receiving
party shall have failed to cure such breach within twenty (20) days
after receipt of such written notice, provided such breach is
reasonably capable of being fully remedied within such twenty (20) day
period, or if it is not, the receiving party shall not be deemed to be
in breach if such party commences to remedy such breach within such
twenty (20) day period and proceeds with
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reasonable diligence to complete the remedying of such breach. The
foregoing notwithstanding, should WORD utilize more than two (2) cure
periods for any reason whatsoever during the term of this Agreement,
INTEGRITY may, at its sole option, terminate this Agreement
immediately upon written notice to WORD.
23. TERMINATION. This Agreement may be terminated only as follows:
a. Upon the mutual written agreement of the parties hereto; or
b. Upon either party's breach of performance and failure to cure
upon notice as set forth herein (which breach and failure to
cure shall be continuing.)
24. NO ASSIGNMENT. Neither party may assign this Agreement, or any part
hereof, or any rights hereunder to any person without the written
consent of the other, except that either party may, without such
consent, assign this Agreement to its controlling shareholder or
controlling shareholders, to a parent, subsidiary or affiliated
corporation. The foregoing notwithstanding, the parties mutually agree
that should the ownership or voting control of either company change
during the Term hereof, the other party may, upon four (4) months'
written notice to the other party, terminate this Agreement.
25. FORCE MAJEURE. If because of: act of God; inevitable accident; fire;
riot or civil commotion; act of public enemy; enactment rule, order or
act of any government or governmental instrumentality (whether
federal, state, local or foreign); either party is materially hampered
in the satisfaction of its obligations hereunder, then, such party
shall not be deemed to be in breach of this Agreement as a result
thereof and it shall continue in full force and effect unless such
party's inability to satisfy its obligations shall continue for a
period of greater than ninety (90) consecutive days and the other
party shall give written notice of its intent to terminate.
26. GOVERNING LAW. This Agreement shall be governed by laws of the State
of Tennessee, County of Davidson, applicable to contracts made and to
be performed within Tennessee.
27. INDEMNITIES.
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a. WORD and INTEGRITY agree to indemnify one another against,
and hold each other harmless from, any and all claims,
liabilities, causes of action, damages, expenses, costs of
defense (including reasonable attorneys' fees and court
costs) and other costs arising out of or in any way related
to any breach of any representation, warranty or agreement
contained in this Agreement; or though not a breach of this
Agreement, any act for which WORD has no responsibility
(including without limitation artist claims, producer claims,
union claims, copyright claims, trademark claims, and
disputes as to the ownership of or rights in the Masters or
the Products which may not arise out of or be related to a
breach) provided that such act shall result in a judgment in
WORD's or INTEGRITY's favor or a settlement executed with
INTEGRITY's consent, said consent not to be unreasonably
withheld.
b. WORD and INTEGRITY represent and warrant that each has the
right to enter into this Agreement and that each shall
perform all of its material obligations hereunder.
28. ACTIONS. If either party hereto commences a legal action or proceeding
against the other to enforce rights or obligations arising out of this
Agreement, the prevailing party in such action or proceeding shall, in
addition to all other sums, be entitled to recover its costs and
expenses, including reasonable attorneys' fees.
29. ENTIRE AGREEMENT. The terms set forth in this Agreement constitute the
entire agreement between WORD and INTEGRITY with respect to the
subject matter hereof, all prior negotiations and understandings being
merged herein. INTEGRITY acknowledges and agrees that no person acting
or purporting to act on behalf of WORD has made any promises or
representations upon which INTEGRITY has relied except those expressly
found herein. The bold headings contained in this Agreement are for
convenience and reference only, and shall have no effect upon the
purposes or intent of this Agreement. This Agreement may only be
altered by an instrument executed by both INTEGRITY and an authorized
officer of WORD.
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INTEGRITY INCORPORATED WORD ENTERTAINMENT
0000 Xxxx Xxxx 00 Xxxxx Xxxxxx Xxxx
Xxxxxx, Xxxxxxx 00000 Xxxxxxxxx, Xxxxxxxxx 00000
By: /s/ Xxxxx X. Xxxxxx By: /s/ Xxxxxx Xxxxx
------------------------- -------------------------
Xxxxx X. Xxxxxx Xxxxxx Xxxxx
Executive Vice President President Chief
Operating Officer
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EXHIBIT A
1. Hosanna! Music
2. Integrity Music
3. Vertical Music
4. Integrity Music Just For Kids
5. Renewal Music
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EXHIBIT B
ON DEMAND REPORTS TO BE MADE AVAILABLE ON-LINE/REAL-TIME ACCESS:
View Inventory Profile
Inventory Position
Inventory Movement
Confirmation of order and shipping status
DAILY REPORTS (TO BE MADE AVAILABLE ELECTRONICALLY [VIA ASCII OR EXCEL
SPREADSHEET] WITHIN 12 HOURS FOLLOWING THE CLOSE OF EACH BUSINESS DAY):
Sales report
Inventory report
Returns report
Reserved report
Receipts report
Sales Update summary
Adjustments report (Inventory adjustments and reason code)
WEEKLY REPORTS (TO BE DELIVERED NO LATER THAN 8:00 A.M. C.S.T. EACH TUESDAY
MORNING FOR THE PRECEDING WEEK):
Backorder report
Pre-publication report for Merchandising/Point of Purchase items
Pre-publication report for Recorded Product
MONTHLY REPORTS (TO BE DELIVERED AS SPECIFIED BELOW):
Final Month-end Sales report (two (2) days after the last business day of each
month)
Final Month-end Royalty report (preliminary report delivered electronically
within ten (10) days after the last business day of each month; final
report delivered with payment thirty (30) days following the last
business day of each month.)
QUARTERLY REPORT (TO BE DELIVERED WITHIN FIVE BUSINESS DAYS AFTER THE LAST
BUSINESS DAY OF THE CALENDAR QUARTER):
Customer Account Listing (Name, Address, YTD Sales of INTEGRITY Products)
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