August 26, 1996
House of Blues Records, Inc.
0000 Xxxxxx Xxxxxxxxx
Xxxx Xxxxxxxxx, Xxxxxxxxxx 00000
Dear House of Blues Records, Inc.:
In order to confirm previous understandings and agreements with respect to
the formation of a joint venture between the House of Blues Records, Inc., a
Delaware corporation ("HOB"), and Platinum Entertainment, Inc., a Delaware
corporation ("Platinum"), for the purpose of producing and exploiting sound
recordings and audiovisual works, it is hereby agreed as follows:
1. The mutual execution of this letter agreement (the "Agreement"), and
the purchase by Platinum of the fifty percent (50%) interest of Private, Inc.
("Private") in the joint venture between Private and HOB formed pursuant to an
agreement dated as of April 28, 1994 (the "Former Agreement"), shall constitute
the formation of a joint venture between HOB and Platinum entitled "House of
Blues Music Company" (hereinafter, the "Venture"). The Venture is intended to
be a partnership under the laws of the State of California.
2. The purposes for which the Venture is formed and the business of the
Venture shall be the development and production of recording and related film
and video properties featuring blues, gospel and other music and the turning to
account of rights held by the Venture or enterprises formed by the Venture in
such productions (hereinafter referred to individually and collectively as the
"Projects"). The business of the Venture shall not include publishing,
merchandising, or film or video projects developed by HOB Productions, Inc.
unless the parties otherwise specifically agree in writing. The Venture may
accomplish its purposes and conduct its business either alone or as a co-owner
or operator of other enterprises as the parties may agree. The Venture shall
have the power to do and perform all things necessary for, incident to and
connected with or arising out of such activities and shall take such actions
as may be conducive to the accomplishment of such purposes.
3. HOB and Platinum shall contribute capital to the Venture as such
parties shall mutually agree. Unless the parties otherwise mutually agree,
Platinum shall make all cash capital contributions to the Venture in accordance
with the current Annual Budget (as determined in accordance with Paragraph
5(c)). These monies shall
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be expended to develop the Projects. All directly related or allocable costs
paid by Platinum for producing, recording, remixing, manufacturing, shipping,
distribution, advertising, promotion, mastering, artwork, AFTRA and AFofM
payments, artist, producer, and publisher royalties, any other payments required
by applicable laws or pursuant to any contracts or licenses, and all taxes,
credits, and returns, shall be deemed cash capital contributions. HOB (or an
affiliate that owns the intellectual property) agrees to contribute as capital
to the Venture a license in the HOB's trademarks, logo, and other intellectual
property that are reasonably necessary for the Venture business, as well as the
other services and valuable consideration described herein. Such capital
contribution by HOB shall not be recoupable pursuant to PARAGRAPH 4 of this
Agreement. The parties agree to raise such additional monies and enter the
Venture in such other enterprises as the parties may mutually agree (including
the purchase of blues sound recordings). The parties hereby deem the value of
their respective capital contributions, excluding any cash contributions, to be
equal and their initial capital accounts shall be equal. For purposes of this
agreement, the $3,550,000.00 paid by Platinum to Private, Inc. ("Private") in
connection with the assignment to Platinum of Private's interest in the record
company joint venture with HOB shall be deemed to be a cash capital contribution
in addition to Platinum's initial capital contribution to the Venture.
4. (a) Subject to any agreement the parties may enter with any investor,
the Venture shall make distributions from Available Cash (as defined below) as
follows:
(i) first, an amount equal to forty percent (40%) of the total
net income allocated to the parties pursuant to Paragraph 4(b)(i) below shall be
distributed fifty percent (50%) to HOB and fifty percent (50%) to Platinum;
(ii) second, to the parties pro rata based on the remaining
balance of the cash contributions that have not previously been distributed to
them pursuant to this Paragraph 4(a)(ii) until both parties have been
distributed an amount equal to their cash capital contributions;
(iii) third, to repay loans made by the parties as provided in
Paragraph 7 below; and
(iv) thereafter, fifty percent (50%) to HOB and fifty percent
(50%) to Platinum.
The term "Gross Receipts" shall mean all receipts of the Venture, from
whatever source derived, but excluding loan proceeds and cash capital
contributions. The term "Available Cash" shall
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mean Gross Receipts less cash expenditure for operating costs and debt service,
and appropriate reserves and accruals.
In consideration of the foregoing, the parties shall perform those
functions in connection with the development and production of Projects of the
Venture as referred to herein, or as the parties mutually agree, and each such
party shall receive appropriate credit for its participation as described
herein.
(b) (i) All income and gain of the Venture shall be allocated fifty
percent (50%) to HOB and fifty percent (50%) to Platinum.
(ii) Any loss of the Venture shall be allocated among the parties
pro rata based upon the sum of their relative cash capital contributions and
their outstanding loans to the Venture, and if losses are to be allocated in
excess of such amounts, then fifty percent (50%) to HOB and fifty percent (50%)
to Platinum. Thereafter, notwithstanding Paragraph 4(b)(i) above, income or gain
of the Venture shall be allocated to the parties pro rata based upon their
relative share of the losses previously allocated and in inverse order of
such losses until each party has been allocated income and gain equal to the
losses previously allocated to them under this Paragraph 4(b)(ii).
(iii) Upon the termination of the Venture or upon the sale of all
or substantially all of its assets, income, gain or loss of the Venture for the
year in which the transaction occurs shall be allocated among the parties so as
to cause the capital accounts of the parties to most closely reflect the manner
in which the assets of the Venture are to be distributed to the parties upon
termination as provided in Paragraph 8.
5. (a) Each of the parties hereto shall devote such time as may be
necessary to the business of the Venture, it being expressly agreed that no
party hereto shall be required to devote exclusive time to the Venture's
business. Either party hereto may be engaged in one or more businesses other
than the business of the Venture, including, subject to the provisions of
PARAGRAPH 5(e), the production of other sound recordings or audiovisual works.
Neither the Venture nor any party hereto shall have any rights to any income or
profits derived by a party hereto with respect to such outside business
activity. Notwithstanding the foregoing, the parties agree that all
opportunities brought to the attention of either party during the term of this
agreement to purchase, record, distribute, or sell sound recordings featuring
performance of blues music (other than sound recordings owned or controlled by
Alligator Records, Inc.) shall first and promptly be brought to the attention of
the other party for consideration of such opportunity
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by the Venture. The parties agree, after receipt of information sufficient to
enable the Venture to evaluate such opportunity, to promptly determine
whether to pursue such opportunity for acquisition by the Venture, and that
neither party shall pursue any such opportunity apart from the Venture unless
and until the Venture declines such opportunity. Each party shall conduct all
transactions with the Venture diligently and in good faith and shall at all
items give the other full information and truthful explanation of all matters
relative to the affairs of the Venture. Each party commits to use its best
efforts to fully exploit on behalf of the Venture all rights acquired by the
Venture in connection with the Projects.
(b) Unless otherwise agreed by the parties, and except as set forth
herein, all business decisions regarding the business of the Venture shall be
made jointly by the parties. The approval of either party shall not be
unreasonably withheld, delayed or conditioned. All recording artist contracts
undertaken by the Venture shall be through HOB. Unless the parties otherwise
agree, the copyright interests in all compilation albums produced by the
Venture (other than so-called promotional sampler albums primarily featuring
recording artists signed to HOB) shall be held by Platinum. All creative
decisions concerning the selection of recording artists to be signed to HOB, the
releases to be marketed through the Venture, and other Venture operations shall
be determined by HOB, subject to the reasonable consent of Platinum. Each party
may withdraw its participation from any Project of the Venture, and upon such
withdrawing party's request, such Project shall not be associated with such
withdrawing party or the Venture in any manner. The withdrawal of a party shall
not prevent the remaining party from continuing to develop and exploit such
Project.
(c) Beginning on or before October 1 of each year during the term
hereof the parties shall work diligently and in good faith to develop an annual
operating budget of the Venture for the next year, which budget shall include a
description of proposed Projects for the next year (the "Annual Budget"). In
attempting to develop an Annual Budget, each party shall act in a reasonable,
non-arbitrary manner, giving due consideration to the number and magnitude of
Projects undertaken in the current year, as well as reasonably expected growth
of the Venture during the next year. If the parties are not able to agree, by
December 1, on an Annual Budget for the next year, then HOB shall have the
right to purchase Platinum's entire interest in the Venture by giving written
notice thereof to Platinum by December 31 (the "HOB Option"). If HOB elects to
exercise the HOB Option, HOB shall pay to Platinum, within thirty (30) days
after the time of the election of the HOB Option (or cause to be paid to
Platinum at such time, for example,
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by locating a third party to assume Platinum's Venture interest) an amount equal
to any unpaid loans or advances by Platinum and any cash capital contributions
of Platinum not previously distributed hereunder. If HOB does not elect to
exercise the HOB Option, and the parties are not otherwise able to agree to an
Annual Budget, then the Venture shall continue as provided herein and the Annual
Budget for the next year shall be the same as the Annual Budget for the current
year, as adjusted for changes in the Wholesale Price Index. HOB shall not be
entitled to exercise the HOB Option if the amount of the Annual Budget finally
proposed by HOB and rejected by Platinum (i) varies by more than one hundred
twenty five percent (125%) from the Annual Budget of the immediately preceding
year or (ii) exceeds the amount of the Annual Budget of the immediately
preceding year, and the Venture operated at a loss for such period. Each such
calculation shall be adjusted for changes in the Wholesale Price Index.
(d) Notwithstanding the foregoing, no party shall, in connection with
the Venture and without the consent of the other, (1) endorse any note, or act
as an accommodation party, or otherwise become surety for any person, (2) borrow
or lend money on behalf of the Venture or make, deliver or accept any commercial
paper, or execute any mortgage, security agreement, bond, or lease, or purchase
or contract to purchase, or sell or contract to sell, any property for or of the
Venture, or (3) assign, mortgage, grant a security interest in, or sell such
party's share in the Venture or in the Venture's assets or property, or enter
any agreement as a result of which any person shall become interested with a
party hereto in the Venture or do any act detrimental to the best interest of
the Venture or which would make it impossible to carry on the business of the
Venture. Any transaction not within the scope of the business of the Venture
entered by a party in this Venture, for whatever amount, shall be the sole and
separate liability of the party entering the transaction.
(e) The Venture, exclusively through Platinum, shall manufacture,
distribute, perform, exhibit and sell sound recordings ("Recordings") and
related audiovisual works ("Videos") under the HOUSE OF BLUES label. HOB shall
be entitled to purchase its requirements of copies of Videos and Recordings for
resale at the location of HOUSE OF BLUES clubs or by mail order either through
the U.S. mail, on-line computer services or any other media now or hereinafter
created at a price equal to the lowest wholesale price charged by Platinum to
third parties in such media (less all applicable discounts and allowances
offered on such Recordings and Videos) to the extend that such non-House of
Blues location sales do not conflict with rights granted by Platinum pursuant to
distribution agreements with third parties existing as of the date of this
agreement. Platinum shall be entitled to deduct from the
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Venture's gross receipts from the exploitation of Videos and Recordings (after
returns, reasonable reserves and credits) ("Gross Revenue"), a label service fee
of seven percent (7%) of the initial Two Million Five Hundred Thousand Dollars
($2,500,000) of Gross Revenue per annum ("Base Revenue"), reduced in each year
prospectively by one percent (1%) for each Two Million Five Hundred Thousand
Dollars ($2,500,000) of Gross Revenue in excess of Base Revenue that is realized
by the Venture per annum thereafter, but not to be reduced to less than three
percent (3%) in any case during any year. In the event Recordings or Videos are
distributed in the Christian bookstore market through Platinum's Light
Distribution division, Platinum shall be entitled to deduct from Gross Revenues
a distribution fee shall be twenty seven percent (27%) of net sales (as defined
in Platinum's customary distribution agreement).
6. All expenses incurred with respect to the operation of the
Venture shall be mutually agreed in writing in advance. All expenses
advanced by the parties on behalf of the Venture shall be reimbursed on a pro
rata basis by the Venture upon submission of the statements accounting for
such expenses. The Venture's books shall be maintained at the principal
office of Platinum or at such other place as shall be mutually designated by
the parties, and each party or any designated representative of either party
shall at all times have access thereto. The Venture shall prepare, and each
party agrees to cooperate and assist in preparing, customary quarterly and
annual financial statements prepared in accordance with generally accepted
accounting principles (with each of the quarterly accounting periods subject
to adjustment). Such financial statements shall be provided to each of the
parties not later than the 30th day following the end of the Venture's first
three quarterly accounting periods and not later than the 45th day following
the end of the Venture's fiscal year. The Venture's fiscal year shall
commence on January 1 and conclude on December 31 of each calendar year. The
Venture may retain any duly licensed firm of accountants or attorneys in
connection with the business of the venture, including the maintenance of
books and records or the renditions of said accountings.
7. The parties may make loans to the Venture from time to time. Such
amounts and such terms shall be agreed upon by the parties in writing. Any such
loans shall be clearly segregated on the books of the Venture. All loans shall
bear interest at a legal market rate. Until such time as all loans have been
repaid in full, any distribution by the Venture to the parties will be in
partial or complete repayment of the loan or loans then outstanding, will be
made to each party in the proportion which the total of the then outstanding
loans from such party bears to the total of all the then outstanding loans from
all parties, and xxxx
Xxxx 7
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not be deemed a distribution on account of the balance of each party's share of
the Venture's Net Profits. Monies contributed by the parties that are not
clearly designated as loans shall be deemed cash capital contributions.
8. The term of the Venture shall commence on the date first above written
and shall continue for five (5) years or until the first to occur of the
following events: (a) the adjudication of bankruptcy or insolvency of any party,
(b) the parties' written agreement to dissolve, or (c) by operation of law,
except as otherwise provided herein. Upon termination of the Venture, the
parties shall proceed with reasonable promptness to liquidate the business of
the Venture. Proceeds from the liquidation of the Venture's assets and
receivables shall be used and distributed in the following order: (a) to pay or
provide for the payment of all Venture liabilities and liquidating expenses and
obligations, (b) to repay any debts owing to any of the parties, including debts
arising from loans made to or for the benefit of the Venture, (c) to repay the
cash capital contribution of any party to the Venture not previously distributed
in accordance with Paragraph 4(a)(i), and (d) thereafter fifty percent (50%) to
HOB and fifty percent (50%) to Platinum.
The Venture, upon an event of termination, shall not have any right to use,
sell, or transfer any names, marks, logos or other intellectual property of HOB
or its affiliates (collectively, the "HOB Properties") without the prior written
consent of HOB, and all of the HOB Properties contributed to the Venture by HOB
(or its affiliate) shall be distributed to HOB, or its affiliate as designated
by HOB. Notwithstanding the preceding sentence, upon termination, Platinum
shall continue to have the right to use the HOB Properties in Videos and
Recordings physically in existence as of the date of the event of termination
(a) so long as HOB continues to receive its 50% distribution of the Net Profits
(that it would otherwise receive pursuant to PARAGRAPH 4) earned from sales of
such Videos and Recordings subsequent to the event of termination and (b) until
all Videos and Recordings manufactured in connection with the Projects as of the
time of the event of termination have been sold. Subsequent to an event of
termination, Platinum may only manufacture and distribute for sale additional
Videos and Recordings that bear any of the HOB Properties or any other HOB name
after obtaining the written consent of HOB and for such period and upon such
other terms as HOB may agree to in writing. Either party shall have the right
to purchase the assets (excluding rights to the HOB Properties) of the Venture
upon liquidation.
For the purposes of this PARAGRAPH 8, "Net Profits" and all related defined
terms in this Agreement shall continue to have the
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meaning such terms would have if an event of termination had not occurred and
the Venture had continued to exist.
9. (a) Platinum represents and warrants that it has the full right,
power and authority to grant to the Venture the right to use all intellectual
property and other proprietary rights of third parties used in connection with
the Venture in all media now or hereafter developed in connection with the
Venture, including, but not limited to, all consents, permits and licenses
required in connection therewith. Upon the oral or written request of HOB,
Platinum agrees to provide HOB with copies of all contracts between Platinum or
the Venture and third parties in connection with this PARAGRAPH 9(a), or, if
such contracts have not been executed or are unavailable, Platinum agrees to
provide HOB with all material terms of such contracts. Platinum agrees to
indemnify and hold harmless HOB in connection with any claims of third parties
that Platinum, HOB or the Venture has violated or infringed upon any
intellectual or other proprietary rights.
(b) HOB represents and warrants that it has the full right, power and
authority to grant to the Venture the right to use all intellectual property and
other proprietary rights of third parties used in connection with the Venture in
all media now or hereafter developed in connection with the Venture, including,
but not limited to, all consents, permits and licenses required in connection
therewith. Upon the oral or written request of Platinum, HOB agrees to provide
Platinum with copies of all contracts between HOB or the Venture and third
parties in connection with this PARAGRAPH 9(b), or, if such contracts have not
been executed or are unavailable, HOB agrees to provide Platinum with all
material terms of such contracts. HOB agrees to indemnify and hold harmless
Platinum in connection with any claims of third parties that HOB, Platinum or
the Venture has violated or infringed upon any intellectual or other
proprietary rights.
10. HOB and Platinum shall be accorded credit in connection with the
Projects of the Venture, as the parties shall agree.
11. The Venture shall be entitled to use the HOB Properties in promotional
materials related to the Venture; PROVIDED, HOWEVER, that any such use of such
names, marks or logos shall be approved in advance in writing by HOB (such
approval not to be unreasonably withheld).
12. This agreement is executed and intended to be performed in the State
of California and the laws of California shall govern its interpretation and
effect. If any term, provision, covenant or condition of this agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
rest of the
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agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. This agreement may be executed in counterparts, each
of which shall be deemed an original.
13. In the event of any action, suit or proceeding arising from or based
upon this agreement brought by either party hereto against the other, the
prevailing party shall be entitled to recover from the other its reasonable
attorneys' fees in connection therewith in addition to the costs of such action,
suit or proceeding.
14. Neither party may assign its respective rights hereunder without the
prior written consent of the other; PROVIDED, HOWEVER, that such written consent
shall not be required for the assignment or transfer of such rights to a wholly
owned affiliate of such party. Subject to the restrictions on assignment set
forth in this Agreement, the provisions of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the parties.
15. Neither party shall be deemed to be in breach of any obligation
hereunder unless and until the party alleging a breach shall give the other
specific written notice of the nature of such breach and the party receiving
such notice shall have failed of cure such breach within 30 days after receipt
of such written notice. Notice shall be deemed given when deposited in the U.S.
mail, postage prepaid, bearing the parties respective address as set forth
herein or such other address as the parties may later designate.
16. This Agreement constitutes the complete, exclusive statement of the
agreement among the parties and is not to be amended, supplemented, varied or
discharged except by agreement of the parties set forth in an instrument in
writing. No representation, statement, condition or warranty not contained in
this agreement shall be binding on the parties or have any force or effect
whatsoever. In particular and without limitation concerning any other
agreement, upon consummation of the purchase by Platinum of Private's fifty
percent (50%) interest in the joint venture with HOB that is memorialized in the
Former Agreement, this Agreement amends, restates, and supercedes the terms of
the Former Agreement; PROVIDED, HOWEVER, that the terms of the Former Agreement
shall be incorporated herein by reference and remain in full force and effect to
the extent only that it pertains to payments to HOB or Platinum for proceeds
form sales of LPs produced under such agreement.
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Kindly indicate agreement and acceptance of the foregoing by signing below.
Very truly yours,
PLATINUM ENTERTAINMENT, INC.
By: /s/ Xxxxxx Xxxxxx
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Name: Xxxxxx Xxxxxx
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Title: As CEO & President
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AGREED AND ACCEPTED:
HOUSE OF BLUES RECORDS, INC.
By: /s/ Xxxxxxx X. Trojan
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Name: Xxxxxxx X. Trojan
---------------------------
Title: President & COO
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