U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
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Commission file number 1-12635
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PARADISE MUSIC & ENTERTAINMENT, INC.
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(Name of small business issuer in its charter)
Delaware 13-3906452
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
53 West 23rd Street, New York, New York 10010
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(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (212) 957-4340
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $0.01 per share Nasdaq SmallCap Market
Boston Stock Exchange
Redeemable Common Stock Purchase Warrants Nasdaq SmallCap Market
Boston Stock Exchange
Securities registered under Section 12(g) of the Act:
None
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [ ]
The Issuer's revenues for the year ended June 30, 1997 were $5,568,286.
As of September 15, 1997, the aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was sold or the average bid and ask price of
such common equity was $4,929,968.
As of September 15, 1997, there were 2,228,333 shares of the registrant's common
stock outstanding.
Documents incorporated by reference:
Quarterly report on Form 10-QSB for the quarter ended December 31, 1996
Transitional Small Business Disclosure Format (check one)
Yes |_| No |X|
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company is engaged in various aspects of the music and entertainment
business. The Company's current businesses include: production of original
scores and advertising themes for television, radio and film; production of
music videos and specials for television; music artist management; and a record
label. Operations are conducted through four wholly-owned subsidiaries: John
Leffler Music Inc. d/b/a Rave Music and Entertainment ("Rave"), Picture Vision,
Inc. ("Picture Vision"), All Access Entertainment Management Group, Inc. ("All
Access") and Push Records, Inc. ("Push"). Through its subsidiaries, the Company
provides a range of services which management believes, are not provided by
other independent music companies. This combination of services is believed to
provide certain competitive advantages including the ability to offer lower
costs and greater convenience to customers.
The Company's strategy is to continue to expand its existing businesses and
acquire or develop complementary businesses, thereby extending the range of its
products and services as well as the size and profitability of its businesses.
The Music Industry
The production of original scores and advertising themes for television, radio
and film; the production of music videos and specials for television and music
artist management are generally carried out by individuals or small privately
held companies. Usually, individuals or small companies engage in only one of
the foregoing businesses.
The record business, however, is dominated by divisions of six multi-billion
dollar international companies; Warner Bros., PolyGram, Sony, BMG, MCA/Universal
and Thorn EMI. These companies also have their own publishing divisions and
distribution systems. The remainder of the record business is comprised of
numerous small record companies, smaller distribution companies and smaller
publishing companies. The companies are called independents simply to
differentiate them from the six major companies. The Company believes that its
lower overhead structure provides the record label and its artists an
opportunity to share greater economic benefits than its competitors.
Most independent music companies specialize in only one aspect of the music
industry (such as niche- oriented record labels, jingles, video production,
artist management, concert promotion and genre- oriented publishing or
distribution). The Company believes that there is a significant opportunity for
consolidation among the smaller music companies who are increasingly recognizing
the need to adopt new strategies and form strategic alliances in order to stay
competitive.
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Current Business
Commercial Music
The Company's commercial music production business is conducted through
Rave, a company founded in 1986 by John Loeffler, the President of the
Company. Rave creates original scores and advertising themes for
television, radio, and film. This business involves creating original
music, hiring musicians, recording music in its in-house studios and
submitting final, ready to use, compositions.
The Company typically works with advertising agencies to help create the
soundtracks for commercials. Once the Company has been solicited for its
services it reviews the information provided by its client and produces a
rough version of the proposed production ("demo"). The fees for producing
a "demo" range from $750 to $2,000. The experience of the Company is that
it is hired to produce finished soundtracks based on the demo less than
15% of the time.
The Company utilizes the services of musicians, singers and engineers who
are independent contractors to work with the composer to produce the final
soundtrack in the Company's recording studios. The fee for a final
soundtrack ranges from $5,000 to $15,000. Creative/arranging fees and the
fees of the musicians, singers, engineers and studio expenses are paid by
the client. The Company retains its intellectual property rights in its
musical compositions. Royalty and residual distributions are paid by
Broadcast Music, Inc. ("BMI") or ASCAP to the Company, the composer and
the performers for the various uses of the actual compositions. These
residual fees can exceed the creative fees.
The Company has six recording studios at its New York headquarters. The
Company currently owns the equipment contained in one 24 track analog
recording studio and one digital mini recording studio. The Company's four
other recording studios contain digital mini recording equipment owned by
independent contractors who work for the Company. The Company has an oral
understanding with such independent contractors for the free use of this
equipment when it is not in use.
The Company believes that its commercial music business has begun to
derive benefits from the availability of resources of the Company's other
businesses. Through its relationships with various music artists, the
music artist management business has provided the commercial music
business with either well-known artists or artists whose style or sound
would be ideal for a particular commercial soundtrack. There can be no
assurance that such efficiencies will continue to be achieved.
Video Production
The Company's music video and television special production business is
conducted through Picture Vision, a company founded in 1984 by Jon Small,
an Executive Vice President of the Company. The Company produces music
videos, used to promote music artists, as well as music specials and
programs for television networks and other video broadcasters. In
connection with this business, the Company, utilizing both in-house
capabilities and independent contractors, directs, produces, story-writes,
art directs, scouts locations, produces special effects, edits, contracts,
and manages the production.
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Once the Company is solicited by a music company and asked to produce a
music video, it will receive a copy of the recording and develop a concept
for the video, which is referred to as the "treatment" or the "script". If
the concept is approved, the Company will submit a budget proposal to its
client. If the budget is approved, the production process is commenced.
The Company has a very limited time from concept to budget approval and,
therefore, must be very accurate in its budgeting. The Company gets paid
the lump sum budget amount and retains as profit all amounts not used for
production costs and expenses. The profit for any given job will increase
if it is directed and produced by one of the Company's in-house directors
or producers. This is not always possible as a client may wish to use
their own director or producer or the Company may be producing more jobs
than its in-house personnel can accommodate. The Company does not retain
any of the intellectual property rights in its videos.
Once production begins, the Company hires the crew, which includes the
actors, the lighting designer, the art director, the wardrobe person and
the hair and make-up artist. The Company also finds the locations for the
videos, rents the appropriate equipment for the production, builds the
required sets, obtains insurance, arranges for meals and produces a
shooting schedule. The video is typically shot in one to five days and a
rough copy is then sent to the appropriate individuals for review. If any
editorial changes are requested, such changes are made and then the final
high quality video is delivered. This entire process typically takes
between one and three weeks.
The Company also produces music video television specials, and has also
produced a limited number of television commercials, the production of
which is similar in many ways to music video production.
The Company believes that its video production business has begun to
derive benefits from the Company's other businesses. Producing television
commercials involves similar resources and skills to producing music
videos. Through its relationships with various people in the advertising
industry, the commercial music business can create opportunities in
commercials for the video production component of the Company. There can
be no assurance that such efficiencies will continue to be achieved.
Music Artist Management
The Company's music artist management services are provided by All Access,
a company founded in 1994 by Brian Doyle and Richard Flynn, each an
Executive Vice President of the Company. In the music industry, artist
management means working with an artist in every facet of his or her
career. For developing artists, the Company provides assistance in the
following ways: building a support team for the artists (including an
attorney, an accountant/business manager and booking agent); securing
appropriate recording and publishing contracts; promoting sales of
records; and developing touring opportunities. For established artists,
the Company provides strategic planning to help maintain and advance the
artists' careers in areas including touring, recording and record sales;
publishing and ancillary uses of the artists music (such as motion picture
sound tracks). The Company specializes in developing and implementing
strategic plans for its artists that include personalized marketing and
promotion strategies with continuous monitoring and follow through to
hopefully ensure the success of each phase of the plan. Additionally, the
Company acts as a liaison between its clients and all of their other
advisors and also offers a full range of administrative support with
respect to every aspect of its clients careers.
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The Company has a variety of sources for new artists. The Company receives
numerous referrals from within the industry due to its reputation in the
music artist management business. Recorded music companies prefer to work
with "known entities" and will recommend management companies to newly
acquired artists who are unrepresented. Music industry attorneys, who
often work with unsigned artists in the expectation that they may
eventually get signed and have a career, are also a source of referrals.
Likewise business managers, accountants, producers and occasionally
publishing companies serve as sources of referrals. In addition, the
Company's representatives spend a good deal of time in small clubs and
local music venues listening to new music and following up industry leads.
The Company receives approximately five to ten "demo" tapes a month
through referrals and directly from artists in search of management.
Various members of the staff will listen to these tapes searching for the
"better" talent. Only when the Company identifies what is believes to be
an exciting prospect will the Company consider pursuing that artist. The
Company generally will hear an artist four or five times in live
performances before deciding to sign such artist. The Company's philosophy
is to develop a relationship with artists before actually signing them.
This relationship building process can take up to six months before it is
mutually agreed that the artist is ready for management. The artist must
demonstrate a willingness to listen to management, to take advice and
direction, and to pursue his or her career diligently.
The leading commercially successful artists typically have an exclusive
arrangement with a management company. A few management companies have
under contract a large number of artists (more than 10). The majority of
management companies have a relatively small number of artists under
contract (less than 10). The balance of the industry consists of a number
of very small companies that principally represent a number of unsigned
artists. To maximize client service and minimize overhead, it is the
intention of the Company to maintain a roster of eight to ten artists
(with three or four established artists and four or five developing
artists). In addition, as the Company builds relationships with new
artists, the Company may be working with up to six additional unsigned
artists that are not generating income.
The Company currently manages the careers of seven music artists and/or
music groups. For providing its services, the Company is paid commissions
typically ranging from 15% to 20% of the entertainment related gross
earnings (less certain minimal standard industry costs) of its clients.
The Company's policy, in accordance with industry practice, is to pay up
to 5% of commissions received to certain non-executive employees who
either identify, develop and/or manage such artists. With respect to music
artist management, the Company's most well known artists are Hall and
Oates and Daryl Hall. The Company also represents Thin Lizard Dawn,
Screaming Headless Torsos, Coward, Luxx, and Fat. In accordance with
industry practice, the Company typically does not enter into written
management contracts with the artists it represents. However, the Company
does adhere to agreed upon fee structures with its artists and in the
future will try to enter into written agreements with certain of its
artists to the extent practicable.
The Company believes that its music artist management business has begun
to derive benefits from the Company's other businesses. Existing clients
of the Company's music artist management business may find the television
commercial opportunities provided by the Company's commercial music
division to be attractive. Additionally, with music videos becoming such
an important promotional tool for artists, being able to provide music
video production services gives the music artist management business an
advantage in soliciting potential clients. There can be no assurance that
such efficiencies will continue to be achieved.
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Independent Record Label
General
In February 1997, the Company incorporated its record label Push to
operate in the recorded music industry as a contemporary label featuring
alternative and adult contemporary artists. Push is under the direction of
Brian Doyle and Richard Flynn and will, to the extent practicable, utilize
the in-house recording studios and video production services of the
Company. Until it can support a higher level of overhead, Push will, to
the extent practicable, use the existing resources of the Company,
particularly those employed in its artist management services business.
Currently Push has entered into agreements with Daryl Hall and John Oates,
who have recorded "Marigold Sky", which is scheduled to be released in
late September 1997, and Luxx, who have recorded their first album titled
"Luxx" which is schedule to be released in the third quarter of fiscal
1998. Push has entered into a North American manufacturing and
distribution agreement with BMG Music d/b/a BMG Entertainment ("BMG").
Production
Average music production costs for the Company's releases have been and
are expected to continue to be below what the Company believes to be the
industry average. The Company believes that the savings result from the
willingness of its artists to forgo the substantial advances and other
benefits paid to the top recording artists by the major music companies.
In addition, savings will result from utilizing, to the extent possible,
its integrated facilities and services by its artists. It is also
important to note that most independent music companies do not have the
facilities and services which the Company currently owns and can provide.
Consequently, the Company believes that it will experience a cost
advantage over other small independent music companies. The Company also
tries to keep production costs low by utilizing producers and musicians
with whom the Company has a relationship.
The Company's average accompanying video production costs (when
applicable) will be budgeted below the industry average for a high quality
video. This will be possible because, to the extent practicable, videos
will be produced by the Company's video production division.
As an artist gains recognition, it is common practice to allocate larger
production budgets to their subsequent releases. The Company will follow
this strategy on a selective basis.
Manufacturing and Distribution
Typical distribution for an independent recorded music company is through
independent distributors. The major recorded music company-owned companies
offer national distribution, consistent market visibility, accounts
receivable and collection administration. Independent distributors offer
similar services, but normally on a much smaller scale.
In August 1997, Push entered into a three year agreement with BMG (a major
recorded music company-owned branch system) to provide distribution and
manufacturing services within the United States, its territories and
possessions and Puerto Rico for all sound recordings derived from masters
owned or controlled by Push.
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Push is presently negotiating worldwide distribution agreements in
connection with Daryl Hall & John Oates album "Marigold Sky" and all
future record releases if management believes that one or more of its
albums can be sold profitably in foreign markets or that such distribution
strategically positions the Company for future sales.
Promotion
The traditional and most effective means of promoting recorded music is by
radio air play. Obtaining radio air play for a new release is an extremely
competitive process. The trend by radio stations to focus more on
particular music formats has made it easier for independent producers to
target those stations most likely to air a specific recording. Independent
radio promoters are often hired to gain air play and, in certain markets,
they are quite effective in gaining air play for a release. Public and
college radio stations are useful venues for lesser known artists. Music
videos are also a vital means of promoting artists and records.
Songs that are aired on a major radio station are chosen by the program
director, often in conjunction with a format consultant. Once a recording
is aired, the amount of repeat play it receives depends upon listener
requests and feedback, as well as actual sales data. Since listener
response and sales depend in large measure on how often a release is
aired, building a commercial hit depends on an ongoing cycle of air play
and sales. Nurturing this cycle requires constant marketing attention and
careful coordination with advertising, concert schedules and other
promotional activities. Other promotional tools include print advertising,
retail promotions, concert tours and appearances on television talk shows.
Additionally, getting music video airplay on MTV or VH-1 or other video
stations or programs, or on their niche oriented programs, is also
essential to the success of a recording music artist and their records.
The key to finding an audience for new artists is to properly coordinate
all these promotional activities to maximize awareness and exposure. The
Company has and will continue to, where possible, use its in-house
expertise to direct or assist with the promotional activities with respect
to its artists. By coordinating or providing assistance with these
activities, to the extent practicable, in-house costs will be further
kept under control.
Relationship with Artists
The Company's plan is to sign and develop new or emerging music artists
and, to the extent practicable, sign established artists. The Company will
continue to recruit new and emerging artists and to enter into exclusive,
long-term recording contracts (expected to cover an initial album, with
options to record three to five additional albums, at the Company's
discretion). The Company will concentrate its resources on a small number
of artists, developing a tailored marketing and promotion plan for each.
There can be no assurance that the Company will be able to attract new and
emerging music talent or established artists, or, if the Company is able
to attract such talent, that the Company will be able to develop that
talent successfully or in such manner so as to produce significant sales.
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If the Company develops commercially successful music artists, there can
be no assurance that the Company will be able to maintain its
relationships with such artists even if it has entered into exclusive
recording contracts with them. Furthermore, performing artists
occasionally request releases from their exclusive recording agreements.
Among the reasons that may cause an artist to engage in so-called
"label jumping" are expectations of greater income and advances or
promotional support by a competing label. There can be no assurance that
any given artist developed by the Company will not determine to request
a release from his or her agreement with the Company. Because of the
highly personal and creative nature of the artist's contractual
obligations to the Company, it is not feasible to force an unwilling
artist to perform the terms of his or her contract with the Company. If
the Company does release a "label jumping" artist from his or her
contract, it may be able to obtain an "override royalty" as consideration
for the release. Override royalties are customarily paid by the released
artist's new recording company and are based on a percentage of the
suggested retail selling price or wholesale price (depending on the
particular label in question), subject to certain deductions. Such
royalties are payable with respect to a negotiated number of the artist's
albums after release from his or her existing contract.
The Company will seek to contract with its artists on an exclusive basis
for the marketing of their recordings in return for a percentage royalty
on the retail selling price of the recording. The Company will generally
seek to obtain rights on a worldwide basis. A typical contract for an
artist may provide for a number of albums to be delivered, with advances
against royalties being paid upon delivery of each album, although
advances are often made prior to recording. The Company will generally
have an option to take each album that the artist is contracted to
deliver, exercisable within an agreed period of time, usually a few months
following delivery of the previous album. Normally, if an option is not
exercised, the artist has no obligation to deliver additional albums.
Provisions in contracts with established artists vary considerably and
may, for example, require the Company to release a fixed number of albums
and/or contain an option exercisable by the Company covering more than one
album. The Company will seek to obtain rights to exploit product delivered
by the artists for the life of the product's copyright. Under the
contracts, advances are normally recoupable against royalties payable to
the artist. The Company will seek to recoup a portion of certain marketing
and tour support costs, if any, against artist royalties.
Contracts either provide for the artists to deliver completed recordings
or for the Company to undertake the recording with the artist. If the
recording costs are advanced by the Company, they are added to the
advances paid to the artist and recouped against royalties payable to the
artist. The Company's staff is involved in selecting producers, recording
studios, any additional musicians needed and songs to be recorded, as well
as supervising the output of recording sessions, although for experienced
artists, such involvement may be less. The Company will produce music
videos of single songs for promotional purposes (clips) and longer music
programs (for example, concert programs). Income from music videos is
derived from the sale of video cassettes and from the publishing of music
included in such videos.
Acquisition Program
The music and entertainment industry includes six major companies in the
area of recorded music and thousands of smaller independent music entities
in the area of recorded music and the broader music business. The Company
believes that many owners of independent music entities do not enjoy
certain benefits which the Company intends to offer. These benefits
include the ability to provide a broader range of services to their
clients and greater liquidity and potential for capital enhancement
through ownership of a publicly trade entity. Other benefits that the
Company believes it can provide acquired entities are access to capital,
management expertise and a broad range of industry contacts.
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The Company's acquisition program will concentrate on small complementary
music driven businesses in the music and entertainment industry. The
Company believes that it can implement its acquisition strategy based on
the following:
Size. Initially, the Company will focus on transactions of up to $5
million in cost. The Company believes that there are acquisition
opportunities in this price range and that targets of this size
often get overlooked because smaller music companies generally do
not have sufficient capital or the requisite expertise to engage in
such transactions while larger companies typically focus on larger
transactions. If the assets of the Company increase, it may review
acquisitions in excess of $5 million. However, the significant
portion of its acquisitions are still expected to be $5 million or
below.
Type. The Company will focus its acquisition activities on small
complementary music driven businesses such as independent record
labels and small independent entities in the music and entertainment
industry which operate in, among other areas, the areas of video
production, commercial music, music artist management, marketing,
publishing, and music oriented television production. The Company
will focus on what the Company believes are established companies
with a financial performance history.
Efficiency. Targeting acquisitions in areas as to which the
Company's existing management has expertise will allow the Company
to attempt to achieve efficiencies by hopefully permitting the
Company to merge much of the overhead of acquired companies into the
Company's existing infrastructure, thereby hopefully reducing costs.
Momentum. The Company will focus on acquiring companies which are
complementary to the Company's current businesses and which can
hopefully be integrated into the Company's current operations. This
is intended to enable the Company to strengthen its current
businesses while expanding into new areas of the music industry. If
the Company continues to strengthen its core businesses and expand
into other aspects of the music industry, the Company believes it
will become easier for the Company to acquire the pieces which it
needs to hopefully develop and grow according to its strategy.
Consideration. The Company intends to pursue its acquisition program
by acquiring companies with common stock, cash, debt instruments or
a combination thereof.
Complexity. Due to the Complexity involved in acquiring and
integrating additional entities and their assets, many smaller
entities with whom the Company competes do not have the expertise or
desire to compete for such acquisitions.
There can be no assurance that the acquisition program will be successful,
that companies acquired by the Company will be profitable or that the
Company will grow into a profitable mid-sized independent music and
entertainment company.
Copyrights
The Company's record business, like that of other companies involved in
recorded music, will primarily rest on ownership or control and
exploitation of musical works and sound recordings. The Company's music
products, including its commercial music, are and will be protected under
applicable domestic and international copyright laws.
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Although circumstances vary from case to case, rights and royalties
relating to a particular recording typically operate as follows: When a
recording is made, copyright in that recording vests either in the
recording artist (and is licensed to the recording company) or in the
record company itself, depending on the terms of the agreement between
them. Similarly, when a musical composition is written, copyright in the
composition vest either in the writer (and is licensed to a music
publishing company) or in a publishing company. A public performance of a
record will result in money being paid to the writer and publisher. The
rights to reproduce songs on soundcarriers are obtained by record
companies or publishers from the writer. The manufacture and sale of a
soundcarrier results in mechanical royalties being payable by the record
company to the performer at industry agreed or statutory rates for the use
of the composition and by the record company to the recording artists for
the use of the recording. The Company operates in an industry in which
revenues are adversely affected by the unauthorized reproduction of
recordings for commercial sale, commonly referred to as "piracy", and by
home taping for personal use.
Potential publishing revenues may be derived from the Company's ownership
interest in musical compositions, written in whole or in part by the
Company's artists. Management anticipates securing a partial ownership
position in the copyright to any compositions written by its recording
artists, where such rights are available and have not been previously sold
or assigned. Generally, revenues from publishing are generated in the form
of: (1) mechanical royalties, paid by the record company to the publisher
for the mechanical duplication of the copyright to a particular
composition (as distinct from the copying of the artist's performance of
that composition); (2) performance royalties collected and paid by
performing rights entities such as ASCAP and BMI for the actual public
performance of the composition as represented by radio airplay, Musak, or
as a theme or single broadcast in synchronization with a visual image via
television; (3) sub-publishing revenues derived from copyright earnings in
foreign territories, and publishers in those territories acting as
designated collection agents for the Company; and (4) licensing fees
derived from printed sheet music, uses in synchronization with images as a
video or film scores, computer games and other software applications, and
any other use involving the composition.
The Company may be engaged, with respect to its recorded music business,
in licensing activities involving both the acquisition of rights to
certain master recordings and compositions for its own projects and the
granting of rights to third parties in the master recordings and
compositions it owns. There can be no assurance that the Company will be
able to obtain licenses from third parties on terms satisfactory to the
Company or at all.
Competition
The Company currently competes with numerous other businesses and
individuals who produce original music scores and advertising themes for
television, radio and film, produce music videos and specials for
television and provide music artist management. Currently, the production
of original scores and advertising themes for television, radio and film,
the production of music videos and video specials for television, and
music artist management are carried out by individuals or small privately
held niche companies. Generally, each such individual or small company
engages in only one of these businesses. Many of these businesses and
individuals including Crushing Enterprises, Elias Associates and JSM
Music, Inc., with respect to commercial music, The End, Propaganda and
DNA, with respect to video production and Gold Mountain Entertainment,
Left Bank Management and H.K. Management, with respect to artist
management, have greater financial resources, and in many instances longer
operating histories, than the Company.
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Push, the Company's record label, faces intense competition for
discretionary consumer spending from numerous other record companies and
other forms of entertainment offered by film companies, video companies
and others. Push competes directly with other recorded music companies,
including the six major recorded music companies, which distribute
contemporary music, as well as with other record companies for signing
artists and acquiring music catalogs. Many of these competitors have
significantly longer operating histories, greater financial resources and
larger music catalogs than the Company. The Company's ability to compete
successfully in the recorded music business will be largely dependent upon
its ability to sign and retain successful artists and to introduce music
products which are accepted by consumers.
The Company does not believe that there are currently any independent
music companies which offer the range of services which are provided by
the Company.
Organization
The Company was incorporated in the State of Delaware on July 18, 1996 and
is located at 53 West 23rd Street, New York, New York, 10010 and its
telephone number is 212-957-4340.
Employees/Independent Contractors
As of September 15, 1997, the Company had 25 employees, 21 of whom were
located at the Company's New York offices and 4 were located in Nashville,
Tennessee. None of the Company's employees is represented by a labor
union. The Company has not experienced any work stoppage and considers
relations with its employees to be good.
As is customary in the music business, the Company also utilizes the
services of artists, performers, composers, producers, engineers, roadies,
booking agents and others who are independent contractors. These
independent contractors hire out their services on an as needed basis and
receive a set fee for the services. The services performed by these
independent contractors are not needed on a full time basis. As a result,
services of independent contractors are less expensive than having full
time employees perform these services.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leased office space at three locations as of June 30, 1997. Its
headquarters and commercial music recording studios were located at 420 West
45th Street in New York City where it subleased approximately 9,000 square feet,
pursuant to a sublease that expired in May 1997. The space is currently on a
month to month lease. The Company's music video production business leases 2,050
square feet of office space at 209 10th Avenue South in Nashville, Tennessee
which lease expires in August 2000. The Company's artist management business and
the record label leases space at 425 Madison Avenue in New York City, which
expired in February 1997. This property is currently on a month to month lease.
In July, the Company entered into a new ten year lease agreement commencing on
August 1, 1997 at 53 West 23rd Street in New York City. The new space which will
consolidate its New York operations will contain executive offices and recording
studios. The Company is temporarily located on the 7th floor at 53 West 23rd
Street, pursuant to a month to month lease and will move to the 11th floor when
construction is completed with the minimum monthly rental approximating $22,000.
The ultimate costs of the construction are currently estimated to approximate
$900,000. All the properties leased by the Company are, in management's opinion,
in good condition.
-10-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. MATTERS SUBMITTED TO SHAREHOLDER VOTE
None
-11-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock commenced trading on the Nasdaq SmallCap Market and
the Boston Stock Exchange on January 22, 1997. The high and low bid prices of
the Company's common stock for each quarter since its initial public offering
are as follows:
Nasdaq SmallCap Market
Start End
Date Date High Low
---- ---- ---- ---
1/22/97 3/31/97 $7 $5-3/8
4/01/97 6/30/97 $5-7/8 $3-1/2
Boston Stock Exchange
Start End
Date Date High Low
---- ---- ---- ---
1/22/97 3/31/97 $7 $5
4/01/97 6/30/97 $6 $3
The approximate number of holders of record of the common stock was 40 as of
September 15, 1997. The Company believes that there are in excess of 300
beneficial owners of common stock whose shares are held in street name.
The Company has never paid a dividend on its common stock. The Company
anticipates that future earnings, if any, will be retained for use in its
business or for other corporate purposes, and it is not anticipated that cash
dividends in respect of the common stock will be paid.
Recent Sales of Unregistered Securities
During the period covered by this Report, except as previously included in a
quarterly report on Form 10-QSB for the quarter ended December 31, 1996, the
Company did not sell any securities without registration under the Securities
Act of 1933, as amended.
-12-
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements
Except for the historical information contained herein, this annual report on
Form 10-KSB may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Investors are cautioned that forward-looking
statements are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or suggested in the
forward-looking statements due to certain risks and uncertainties, including,
without limitation, risks associated with the Company being a recently
consolidated entity, dependence on senior management, risks inherent in the
recorded music industry such as the possibility of losses by the record label
and popularity of recording artists, the Company's ability to contract with
recording artists, the Company's ability to manage growth and the success of the
Company's acquisition program. The forward-looking statements contained herein
represent the Company's judgment as of the date of this release hereof, and the
Company cautions readers not to place undue reliance on such statements.
General
The Company currently derives most of its revenues from: the production of
original music scores and advertising themes for television, radio, and film;
the production of music videos used to promote music artists and music specials
and programs for television networks and other video broadcasters; and the
management of music artists.
The Company believes the results of operations of its operating subsidiaries
will be subject to seasonal variations, which variations may initially offset
each other. However, once the Company enters into the recorded music business,
the Company's results of operations from period to period may be materially
affected by the timing of new record releases and, if such releases are delayed
beyond the peak holiday season, the Company's operating results could be
materially adversely affected. Additionally, due to the success of particular
artists, artists touring schedules and the timing of music television specials,
it is possible that the Company could also experience material fluctuations in
revenue from year to year.
During the fiscal year 1998, the Company expects to expand its four wholly-owned
subsidiaries (Rave, Picture Vision, All Access, and Push), and implement its
acquisition program which will initially target acquisitions and joint venture
arrangements with small complementary businesses in the music and entertainment
industry of up to $5,000,000. The Company's failure to expand its business in an
efficient manner could have a material adverse effect upon the Company's
business, operating results and financial condition.
Results of Operations
Commercial music production revenues increased to $894,362 for the fiscal year
ended June 30, 1997 from $820,835 for the fiscal year ended June 30, 1996, an
increase of $73,527 or 9.0% while commercial music production cost of sales
increased to $365,434 for the fiscal year ended June 30, 1997 from $343,716 for
the fiscal year ended June 30, 1996, an increase of $21,718 or 6.3%. The
increase in revenues was primarily due to an increase of residual and royalty
income.
-13-
<PAGE>
Gross profit as a percentage of commercial music production revenues increased
to 59.1% for the fiscal year ended June 30, 1997 from 58.1% for the fiscal year
ended June 30, 1996. The increase was attributable to an increase in residual
and royalty income which has no cost of sales associated with it. The level of
residual and royalty income varies from year to year based upon the number of
compositions airing at any one time, the medium on which such compositions are
aired and the frequency of such airings.
Video production revenues increased to $3,839,472 for the fiscal year ended June
30, 1997 from $2,090,388 for the fiscal year ended June 30, 1996, an increase of
$1,749,084 or 83.7%. The increase in production revenues is due to the
completion of the production of a music special, which generated approximately
$1,870,000 of revenues.
Cost of sales for video productions increased to $2,976,949 for the fiscal year
ended June 30, 1997 from $1,596,091 for the fiscal year ended June 30, 1996, an
increase of $1,380,858 or 86.5%. The increase was attributable to the production
of the music special.
Gross profit as a percentage of video production revenues decreased to 22.5% for
the fiscal year ended June 30, 1997 from 23.7% for the fiscal year ended June
30, 1996. The decrease was primarily attributable to the Company earning a lower
gross profit on the music special described above.
Music artist management revenues increased to $834,452 for the fiscal year ended
June 30, 1997 from $726,969 for the fiscal year ended June 30, 1996, an increase
of $107,483 or 14.8%. The increase is primarily attributable to the signing of
two record deals for two of its artists and increased touring by Hall and Oates.
Cost of sales for the record label, which was $104,622 for the year ended June
30, 1997 resulted from the costs associated with the production of Luxx's
record. Push commenced operations in February 1997 and, accordingly, there was
no cost of sales for the fiscal year ended June 30, 1996.
The Company's marketing, selling, general and administrative expenses increased
to $3,199,901 for the fiscal year ended June 30, 1997 from $1,610,097 for the
fiscal year ended June 30, 1996, an increase of $1,589,804 or 98.7%. The
increase is primarily attributable to the start-up of Push, building an
infrastructure to operate and manage a public company, and executive
compensation.
Interest income, which was $94,100 for the fiscal year ended June 30, 1997,
resulted from interest earned on the proceeds of the Company's initial public
offering. These proceeds were invested in a highly liquid investment fund. The
Company did not have interest income for the year ended June 30, 1996.
The Company's income (loss) before taxes decreased to a loss of $984,520 for the
year ended June 30, 1997 from a profit of $88,288 for the year ended June 30,
1996. The loss for the year ended June 30, 1997 was primarily due to increases
in marketing, selling, general and administrative expenses.
Liquidity and Capital Resources
During the year ended June 30, 1997, the Company funded its operating loss and
expansion of activities primarily through the issuance of equity securities.
In October 1996, the Company received approximately $210,000 after deducting
fees and expenses from the private sale of 78,333 shares of common stock. The
funds were used for working capital.
-14-
<PAGE>
In December 1996, one of the Company's subsidiaries borrowed $100,000 from a
bank. The loan bore interest at 1.5% above the bank's prime rate, was personally
guaranteed by two officers of the Company and was collateralized by all of the
assets of such subsidiary and a cross corporate guarantee by the Company. The
loan was repaid in June 1997.
In January 1997, the Company completed its initial public offering. Through the
offering, the Company sold 1,000,000 units consisting of 1,000,000 shares of
common stock and 1,000,000 warrants. For each two warrants owned, the holder was
entitled to purchase one share of common stock through January 21, 2001 at
$7.20. In February 1997, an additional 146,000 units were sold upon the exercise
of the underwriter's over allotment option. The aggregate net proceeds were
approximately $5,330,000, after underwriter's commissions and offering expenses
of approximately $1,546,000. Out of the net proceeds, $300,000 was allocated for
expansion of the Company's core businesses, the three original subsidiaries of
the Company. An additional $600,000 was used for the establishment and
development of the Company's recorded music business, Push. The remaining funds
from the offering are to be used to expand the Company's original subsidiaries,
development of the recorded music business, construction and relocation of the
Company's new offices and recording studios, and the Company's acquisition
program.
During the fiscal year ended June 30, 1997, the Company used cash for operating
activities of approximately $443,000 compared to cash generated from operations
for the fiscal year ended June 30, 1996 of approximately $64,000. Cash used for
the fiscal year June 30, 1997 resulted from the Company's net loss of
approximately $993,000, increase of prepaid production costs of approximately
$218,000, increase of prepaid record master costs of approximately $350,000
offset by an increase of deferred revenues of approximately $451,000, increase
of accrued payroll and related expenses of approximately $375,000 and an
increase of accrued expenses and other current liabilities of approximately
$230,000.
The Company used cash for investing activities of approximately $112,000 and
$25,000 for the fiscal years ended June 30, 1997 and 1996, respectively. The
cash was primarily used for the purchase of property and equipment.
During the fiscal year ended June 30, 1997, the Company generated cash from
financing activities of approximately $5,559,000 compared to cash used from
financing activities for the fiscal year ended June 30, 1996 of approximately
$62,000, which was primarily used for the repayment of officer loans. During the
fiscal year ended June 30, 1997, the Company received net proceeds from the
sales of common stock of approximately $5,559,000.
During the next year, the Company will be investing $100,000 in expanding its
core businesses for each of the Company's original subsidiaries for a total of
$300,000. In addition, the Company has entered into a new lease effective August
1, 1997 to consolidate its New York operations. Such relocation will include the
construction of recording studios. The ultimate costs of this relocation and
construction are currently estimated to approximate $900,000.
The Company believes that cash generated from the proceeds of the initial public
offering and cash from operations will be sufficient to meet the Company's
operating capital requirements for at least the next 12 months. There can be no
assurance, however, that the Company will not require additional financing
before the end of such 12 month period or thereafter. A significant factor which
will affect the Company's need for additional financing is the Company's
acquisition program and the continued support of Push. If the Company were
required to obtain additional capital in the future, there can be no assurance
that sources of capital would be available on terms acceptable to the Company,
if at all.
-15-
<PAGE>
Inflation
There was no significant impact on the Company's operations as a result of
inflation during the current year or prior year.
Effect of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share".
SFAS No. 128 requires dual presentation of basic and diluted earnings per share
on the face of the statement of operations for all periods presented. Basic
earnings per share excludes dilution and is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997, and when adopted, it
will require restatement of prior years' earnings per share. Management does not
believe SFAS No. 128 will have a material impact upon historical consolidated
net loss per share of common stock as reported.
ITEM 7. FINANCIAL STATEMENTS
See index to the Company's financial statements attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company's directors and executive officers are as follows:
Name Age Position with the Company
- ---- --- -------------------------
John Loeffler 46 President, Chief Executive Officer and Chairman
of the Board
Jon Small 50 Executive Vice President and Director
Brian Doyle 41 Executive Vice President and Director
Richard Flynn 40 Executive Vice President, Treasurer, Secretary
and Director
Robert Klein 44 Vice President Corporate Relations and Director
Paul Thomas Cohen 45 Director
Thomas J. Edelman 46 Director
-16-
<PAGE>
Mr. John Loeffler has been President, Chief Executive Officer and Chairman of
the Board of the Company since its inception in 1996. From 1986 to September
1996, Mr. Loeffler was the Chief Executive Officer and sole stockholder of Rave.
From 1986 to 1995, Mr. Loeffler was the President of Rave. Rave's roster of
staff composers and producers regularly produced four to five commercial
soundtracks per week. Rave's clients include: Downy Fabric Softner, Hertz and
Coca Cola. Mr. Loeffler was awarded by ASCAP as one of television's "Most
Performed" composers in 1988 and 1989 for his title themes of the television
shows "Kate & Allie", "Another World", and NBC's "Friday Nite Videos". He also
composed the theme for New York City's Channel 4 NBC Evening News, and recently
completed the themes for the new syndicated TV show, "WMAC Masters", ESPN's
"Survival of the Fittest", Robin Leach's "Home Videos of the Stars", the New
York Marathon and ESPN's "US Open", as well as two NBC Summer Olympic '96
Specials. Prior to 1986, Mr. Loeffler was a composer and producer at Sherman and
Cahan, a commercial music production company in New York City. Since 1979, he
has also been a consulting music director to Grey Advertising. Mr. Loeffler
graduated from Williams College, cum laude, in 1973.
Mr. Jon Small has been an Executive Vice President and a director of the Company
since its inception in 1996. Since September 1996, Mr. Small has been the Chief
Executive Officer of Picture Vision. From 1984 to September 1996, Mr. Small had
been President and the sole stockholder of Picture Vision. Picture Vision has
produced, executively-produced and or directed over 300 video musical
productions of such performers as Garth Brooks, Whitney Houston, Madonna, Anita
Baker, Ray Charles, Van Morrison, Rod Stewart, Reba McEntire, Billy Joel and
Sting. Previously, as a musician/performer, Mr. Small toured, or recorded with
The Kinks, The Doobie Brothers, and Billy Joel. While at Picture Vision, Mr.
Small produced and or directed specials for Disney and HBO and has received
several Grammy nominations. While at Picture Vision, Mr. Small also produced and
directed specials and long form programs including NBC's 1994 Thanksgiving
Special "Reba! Live in concert", the Disney special Billy Joel's "Live from Long
Island", Anita Baker's "One Night of Rapture", Hall & Oates' "Live from the
Apollo Theater", Donald Fagen's "New York Rock and Soul Revue", Garth Brooks'
"Live from Central Park", and several shows for the ABC Network's series "Live
in Concert". While at Picture Vision, Mr. Small has won ACE and Monitor awards
for Best Television Music Specials and has received two Grammy nominations for
his work with Billy Joel. He received Country Music awards for Best Video of the
Year, awards for Cable Excellence (ACE), and Monitor Awards. He has been awarded
gold Medals by the International Film & TV Festival. In addition, the Academy of
Country Music set a precedent by choosing two of Mr. Small's videos out of the
final five in the "Videos of the Year" category.
Mr. Brian Doyle has been an Executive Vice President and a director of the
Company since its inception in 1996. Since 1996, Mr. Doyle has been the Chief
Executive Officer of All Access and, since February 1997, has been the Chief
Executive Officer of Push Records. He founded All Access in 1994 and has been
the President and co-owner of All Access since its inception. He currently
manages Daryl Hall and John Oates, and others. From 1991 to 1994, Mr. Doyle
served as CEO/President of Horizon Entertainment and Management Group, Inc.
("Horizon"). Horizon's clients included Mariah Carey, John Mellencamp, and Daryl
Hall and John Oates. His responsibilities included managing the overall
achievement of the Company's strategic objectives, development and control of
the client roster, coordinating worldwide marketing efforts for clients, serving
as artists liaison to MTV, VH-1 and other media outlets, and interfacing on
behalf of clients with record companies and professional services consultants.
In addition, he provided specialized personal management services for clients
including career planning and development, music development, and song
acquisition. Mr. Doyle has also produced HBO and Lifetime television specials.
-17-
<PAGE>
Mr. Richard Flynn has been an Executive Vice President and Secretary of the
Company since its inception, has been a director since October 9, 1996 and has
been Treasurer since December 1996. Since September 1996, Mr. Flynn has been
Vice President and General Manager of All Access. From September 1994 to
September 1996, Mr. Flynn has been the Managing co-owner of All Access. From
March 1990 until September 1994. Mr. Flynn served as General Counsel to Horizon.
He provided legal services to Horizon and its clients Mariah Carey, John
Mellencamp, Daryl Hall & John Oates, and other artists. In addition, Mr. Flynn
assisted in all aspects of artist management for Horizon's clients. Since 1983,
Mr. Flynn has been a practicing attorney in New York State specializing in
entertainment, corporate and public sector law. Since 1989, he has provided
legal representation, financial management, and consulting services to artists
and entertainers, including negotiating recording, publishing, production,.
performance and endorsement contracts.
Mr. Robert Klein was an Executive Vice President and Treasurer of the Company
from inception through December 1996, has been a director of the Company since
its inception and has been Vice President Corporate Relations since December
1996. From 1992 to 1996, Mr. Klein was an independent financial consultant.
Prior to that time, from 1990 to 1992, Mr. Klein was a Senior Vice President of
Corporate Finance at Laidlaw Holdings, Inc. From 1986 to 1990, Mr. Klein worked
at D.H. Blair & Company, Inc. Prior to 1986, Mr. Klein worked for various
companies including Shearson Lehman Brothers.
Mr. Paul Thomas Cohen has been a director of the Company since October 9, 1996.
Since 1987, Mr. Cohen has been an investment banker and a consultant to the
media and entertainment industries. As an advisor to such clients as Time-Life,
Time Inc., The New York Times, NBC, and Rolling Stone Magazine, he has been
involved in licensing, alliances and other strategic initiatives involving new
media activities in both the on-line services and CD-ROM arenas. From 1984 to
1987, Mr. Cohen served as Co-Executive Officer of Herzfeld & Stern, a mid-size
brokerage firm. Mr. Cohen graduated from Williams College in 1974 and received
an MBA from Columbia University in 1976.
Mr. Thomas J. Edelman has been a director of the Company since October 1996. Mr.
Edelman has served as Chairman and Chief Executive Officer of Patina Oil & Gas
Corporation since its formation in 1996. He co-founded Snyder Oil Corporation
and was its President and a director from 1981 through February 1997. Prior to
1981, he was a Vice President of The First Boston Corporation. From 1975 through
1980, Mr. Edelman was with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman
received his Bachelor of Arts Degree from Princeton University and his Masters
Degree in Finance from Harvard University's Graduate School of Business
Administration. Mr. Edelman also serves as Chairman of Lomak Petroleum, Inc.,
and is a Director of Petroleum Heat & Power Co., Star Gas Corporation and
Weatherford Enterra, Inc. Mr. Edelman is also a Trustee of The Hotchkiss School.
All directors of the Company are elected by the stockholders, or in the case of
a vacancy, by the directors then in office, to hold office until the next annual
meeting of stockholders and until their successors are elected and qualified or
until their earlier resignation or removal.
All officers of the Company serve at the discretion of the Board of Directors.
The Company also employs the following key employee:
Mr. John Siegler, President of Rave. Since 1995, Mr. Siegler has been President
of Rave. From 1989 to 1995, Mr. Siegler was a senior producer/composer for Rave.
Mr. Siegler has been a recipient of a number of gold and platinum record awards.
Mr. Siegler is a producer, composer, and performer who has worked, independent
of Rave, with: Bette Midler, Mick Jagger, Jeff Beck, Stevie Nicks, Roger Daltry,
Daryl Hall and John Oates, Meatloaf, Edgar Winter, Richie Havens, Herbie Mann,
Cher, Todd Rundgren, and others. Mr. Siegler has recorded over 100 albums as a
featured musician and musical collaborator.
-18-
<PAGE>
Compliance with Section 16(a) of the Exchange Act
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and information furnished by the reporting persons,
John Loeffler failed to timely file a Form 4.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company for the fiscal years ended
June 30, 1997, 1996 and 1995 to John Loeffler, the Company's Chief
Executive Officer and to Jon Small, Brian Doyle and Richard Flynn, each an
Executive Vice President of the Company (collectively the "Named Executive
Officers"). No other executive officer received annual compensation in
excess of $100,000 for the fiscal years ended June 30, 1997, 1996 and
1995:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation (1) Awards
---------------------------------------- ------
Securities
All Other Underlying
Name and Principal Position Year Salary Bonus Compensation (2) Options
- --------------------------- ---- ------ ----- ---------------- -------
<S> <C> <C> <C> <C> <C>
John Loeffler 1997 $150,000 $191,000 $ 34,000 5,000
Chief Executive Officer 1996 218,000 71,000 --
1995 170,000 77,000
Jon Small 1997 $150,000 $189,000 $ 36,000 5,000
Executive Vice President 1996 88,000 89,000 --
1995 184,000 172,000
Brian Doyle 1997 $150,000 $162,500 $ 7,000 --
Executive Vice President 1996 101,000 48,000
1995 -- 35,000
Richard Flynn 1997 $150,000 $162,500 $ -- --
Executive Vice President 1996 101,000 48,000
1995 -- 35,000
</TABLE>
(1) The Company was incorporated in July 1996. Compensation for the fiscal
years ended June 30, 1996 and 1995 represent amounts paid by Rave, Picture
Vision and All Access. All Access commenced operations in September 1995.
Compensation for the fiscal year ended June 30, 1997 represent amounts
paid by Rave, Picture Vision, All Access and Push.
(2) Includes amounts paid by the Company which the Company deemed to be for
the benefit of such executive, including amounts paid for lodging,
transportation, insurance, entertainment and other perquisites.
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<PAGE>
Option Grants in Last Fiscal Year
Percent of
Number of Total Options
Securities Granted to Exercise
Underlying Employees in or Expiration
Name Options Fiscal Year Base Price Date
---- ------- ----------- ---------- ----
J. Loeffler 5,000 50% $6 December 19, 2001
J. Small 5,000 50% $6 December 19, 2001
R. Flynn - - - -
B. Doyle - - - -
Directors' Compensation
Directors who are not employees or officers of the Company or associated
with the Company ("Outside Directors") receive $500 for each Board of
Directors and committee meeting attended. In addition, all directors are
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings. Other than with respect to reimbursement
of expenses, Directors who are employees or officers of the Company or who
are associated with the Company do not receive compensation for service as
a director.
For the period January 1, 1997 through June 30, 1997, the Outside
Directors earned $6,000 and 1,000 shares of common stock valued at $3.875.
Thereafter, Outside Directors will be paid at the rate of $18,000 per
fiscal year, payable quarterly with such payment to be half in cash and
half in common stock valued on the last day of the applicable quarter.
Outside Directors also receive non-qualified options to purchase 5,000
shares of common stock for each year of service, payable in advance, with
the first of such options granted to Paul Thomas Cohen and Thomas J.
Edelman. The initial options are exercisable at the initial public
offering price. Thereafter, the option exercise price will be the closing
bid price of the common stock on the first trading day of each fiscal
year, commencing July 1, 1997. Such options will be fully vested upon
grant, and have a term of five years.
Employment Agreements
On October 9, 1996, the Company entered into employment agreements, as
amended (the "Agreements"), with Messrs. Loeffler, Small, Doyle and Flynn
(the "Executives"). Each of the Agreements are for a period of three years
and provide for annual base salaries of $150,000. Pursuant to the
Agreements, four bonus plans have been established primarily for the
benefit of the Executives.
-20-
<PAGE>
Under the first bonus plan, bonuses will be granted to each Executive
based on earnings (as defined in the Agreements) of the respective
subsidiary or division which the Executive manages or co-manages.
Generally, the Executives receive approximately 60% of such earnings (with
the two Executives of All Access considered as one person for purposes of
this calculation) up to a maximum of $375,000 of earnings for each of Rave
and Picture Vision commencing with the year ended June 30, 1997 and
$512,500 of earnings for All Access commencing with the year ending June
30, 1998. The Executives of All Access received all earnings of All Access
up to $325,000 of earnings for the year ended June 30, 1997. Each of the
Executives will have the right to allocate any portion of the bonus
granted to him to any of the employees of the respective subsidiary or
division of such Executive. Under the second bonus plan, a bonus pool
equal to 10% of the consolidated pretax earnings of the Company (after
giving effect to all other bonuses) will be established for each fiscal
year. Awards under this bonus pool will be granted to the Company's
employees at the discretion of the Company's Board of Directors. The third
bonus plan has been established for the benefit of the Executives of All
Access and others designated by them based on cumulative profitability of
the recorded music business based on a successful launch of the record
label. Under this bonus plan, $250,000 will be granted in the first fiscal
year in which cumulative net pretax profits of the record label, as
defined in the Agreements, exceed $1,000,000. An additional bonus of
$250,000 shall be granted in the first fiscal year in which cumulative net
pretax profits of the record label, as defined in the Agreements, exceed
$2,000,000. An additional bonus of $100,000 shall be granted in the first
fiscal year in which cumulative net pretax profits of the record label, as
defined in the Agreements, exceed $2,400,000. No bonus will be granted
under this plan after June 30, 2001 and the maximum aggregate bonus
granted under this plan will be $600,000. The fourth bonus plan has been
established as an incentive for successful consummation of special
projects pre-designated by the Compensation Committee. Such plan provides
for a bonus, if net profits (as defined in the Agreements) from the
special project exceed $1,000,000. Such bonus will be calculated on 15% of
net profits realized therefrom in excess of any bonus paid to such
Executive pursuant to the first bonus plan. After the payment of any bonus
pursuant to the fourth bonus plan, there will be payable 15% of future
royalty revenue derived from such special projects.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth certain information as of September 15, 1997,
with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of common stock of the Company, each director of the Company
and all officers and directors as a group. The table does not include options or
SARs that have not yet vested or are not exercisable within 60 days of the date
hereof.
Amount and
Nature of Percent
Beneficial of
Name and Address of Beneficial Owner Ownership Class
------------------------------------ ---------- -------
John Loeffler 348,400 (2)(6) 15.6%
c/o Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
Paul Thomas Cohen 14,333 (2)(4) *
c/o Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
Brian Doyle 145,500 6.5%
c/o Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
Thomas J. Edelman 29,333 (3)(4) 1.3%
c/o Patina Oil & Gas Corporation
667 Madison Avenue
New York, New York 10021
Richard Flynn 145,500 6.5%
c/o Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
Robert Klein 85,000 3.8%
c/o Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
Jon Small 291,000 (2) 13.0%
c/o Paradise Music & Entertainment, Inc.
53 West 23rd Street
New York, New York 10010
All officers and directors as a group 1,059,066 (5)(6)(7) 46.8%
(7 persons)
* Denotes less than 1%
-22-
<PAGE>
(1) All shares are beneficially owned and sole voting and investment
power is held by the persons named, except as otherwise notes.
(2) Includes options to purchase 5,000 shares of common stock.
(3) Includes options to purchase 20,000 shares of common stock.
(4) Includes 1,000 shares of common stock earned by the Outside
Directors.
(5) Includes options to purchase 35,000 shares of common stock.
(6) Includes 3,600 and 3,800 shares of common stock purchased by Mr.
Loeffler's Pension and his wife's Keogh Plans, respectively.
(7) Includes 2,000 shares of common stock earned by the Outside
Directors.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 9, 1996, the Company entered into the Exchange Agreement with each of
John Loeffler, Jon Small, Brian Doyle and Richard Flynn, each of whom was an
executive officer and a director of the Company. Pursuant to the Exchange
Agreement, John Loeffler and Jon Small were each issued 291,000 shares of common
stock and Brian Doyle and Richard Flynn were each issued 145,500 shares of
common stock in exchange for all of the outstanding stock of each of Rave,
Picture Vision and All Access. The Company believes that this transaction was
fair from a financial point of view. This belief is based on the fact that the
Exchange Agreement, and the transactions consummated thereby, were analyzed and
approved by the Company's Board of Directors and by all of its then existing
stockholders.
On October 9, 1996, the Company issued 78,333 shares of its common stock to 11
individuals in a private placement (the "Private Placement") for $3.00 per
share. There were no underwriters involved in the Private Placement. The common
stock in the Private Placement was issued only to accredited investors, as such
term is defined in the Securities Act. The aggregate offering price of the
Private Placement was $234,999. Messrs. Cohen and Edelman, directors of the
Company, each purchased 8,333 shares of common stock in the Private Placement.
The holders of these 78,333 shares have agreed not to sell, transfer or dispose
of these shares prior to January 22, 1998.
John Loeffler, the President, Chief Executive Officer and a director of the
Company, is also a consultant to Grey Advertising, which is a major client of
the Company's commercial music production division. For such consulting
services, Mr. Loeffler is paid approximately $45,000 per year by Grey
Advertising. The Company derived approximately $361,000 and $365,000 of
commercial music production revenues (approximately 40% and 44% of commercial
music production revenues) from Grey Advertising for the years ended June 30,
1997 and 1996, respectively.
In December 1996, one of the Company's subsidiaries borrowed $100,000 from a
bank. The loan bore interest at 1.5% above the bank's prime rate, was personally
guaranteed by two officers of the Company and collateralized by all of the
assets of such subsidiary and a cross corporate guarantee by the Company. The
loan was repaid in June 1997.
In January 1997, the Company entered into a one year consulting agreement with
Mr. Cohen, a director, for $60,000.
-23-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of the Registrant (1)
3.2 Amended and Restated By-Laws of the Registrant (1)
4.1 Specimen of Registrant's Common Stock Certificate (1)
4.2 Specimen of Registrant's Warrant Certificate (1)
4.3 Form of Representative's Warrant Agreement including form of Warrant (1)
4.4 Form of Warrant Agreement between Registrant and Continental Stock
Transfer and Trust Company (1)
10.1 Exchange Agreement dated as of October 9, 1996 among the Registrant, Brian
Doyle, Richard Flynn, John Loeffler and Jon Small (1)
10.2 Employment Agreement dated as of October 9, 1996 between the Registrant
and Brian Doyle (1)
10.3 Employment Agreement dated as of October 9, 1996 between the Registrant
and Richard Flynn (1)
10.4 Employment Agreement dated as of October 9, 1996 between the Registrant
and John Loeffler (1)
10.5 Employment Agreement dated as of October 9, 1996 between the Registrant
and Jon Small (1)
10.6 Expense Allocation Agreement dated as of October 9, 1996 among the
Registrant, Rave, Picture Vision, All Access and Robert Klein (1)
10.7 Form of The Registrant's 1996 Stock Option Plan (corrected version)
10.8 Lease Agreement dated June 24, 1992 between Not Just Jingles, Inc. and
Newmark & Company Real Estate, Inc. (1)
10.9 Lease Agreement dated October 28, 1994 between the Registrant and Silk &
Halpern Realty Associates, Inc. (1)
10.10 Lease Agreement dated April 4, 1995 between the Registrant and Cummins
Station L.L.C. (1)
10.11 Sublease Agreement dated September 29, 1996 between the Registrant and Not
Just Jingles, Inc. (1)
10.12 Financial Consulting Agreement (1)
10.13 Form of Consulting Agreement dated as of January 1, 1997 between the
Company and Thomas J. Edelman (1)
10.14 Lease Agreement dated as of October 21, 1996 between the Registrant and
Twenty Third Street joint Venture, together with Escrow Letter dated
December 11, 1996 (1)
10.15 Form of Amended and Restated Employment Agreement dated as of January 17,
1997 between the Registrant and Brian Doyle (1)
10.16 Form of Amended and Restated Employment Agreement dated as of January 17,
1997 between the Registrant and Richard Flynn (1)
10.17 Form of Amended and Restated Employment Agreement dated as of January 17,
1997 between the Registrant and John Loeffler (1)
10.18 Form of Amended and Restated Employment Agreement dated as of January 17,
1997 between the Registrant and Jon Small (1)
10.19 Distribution Agreement with BMG Music d/b/a BMG Entertainment and Push
Records, Inc.
-24-
<PAGE>
10.20 Lease Agreement dated July 10, 1997 between the Registrant and
Twenty-third Street Joint Venture.
10.21 Consulting Agreement dated August 15, 1997 between the Registrant and
Consulting for Strategic Growth, Ltd.
10.22 Personal Services Agreement dated August 13, 1997 between Push Records
and Luxx.
10.23 Form of Service Agreement dated September 22, 1997 between Daryl Hall &
John Oates and Push Records.
13.1 Quarterly Report on Form 10-QSB for the quarter ended December 31, 1996
(2)
21.1 Subsidiaries of Registrant (1)
27.1 Financial Data Schedule.
(1) Incorporated by Reference to the Company's Registration
Statement on Form SB-2 (Reg. No. 333-13941)which was declared
effective by the Securities and Exchange Commission on January
22, 1997.
(2) Filed with the Securities and Exchange Commission on March 17,
1997.
(b) Reports on Form 8-K
None
-25-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized
Date: September 26, 1997
PARADISE MUSIC & ENTERTAINMENT, INC.
By: /s/ John Loeffler
-------------------------------------
John Loeffler, Chairman of the Board,
Chief Executive Officer and President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
By: /s/ John Loeffler
--------------------------------------------------------------------------
John Loeffler, Chairman of the Board, Chief Executive Officer, President
(Principal Executive, Financial and Accounting Officer)
Date: September 26, 1997
By: /s/ Jon Small
--------------------------------------------------------------------------
Jon Small, Executive Vice President and Director
Date: September 26, 1997
By: /s/ Brian Doyle
--------------------------------------------------------------------------
Brian Doyle, Executive Vice President and Director
Date: September 26, 1997
By: /s/ Richard Flynn
--------------------------------------------------------------------------
Richard Flynn, Executive Vice President, Treasurer, Secretary and Director
Date: September 26, 1997
By:
--------------------------------------------------------------------------
Paul Thomas Cohen, Director
Date: September __, 1997
By: /s/ Thomas J. Edelman
--------------------------------------------------------------------------
Thomas J. Edelman, Director
Date: September 26, 1997
By:
--------------------------------------------------------------------------
Robert Klein, Vice President Corporate Relations and Director
Date: September __, 1997
-26-
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
JUNE 30, 1997
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8-F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Paradise Music & Entertainment, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Paradise Music &
Entertainment, Inc. and Subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Paradise Music &
Entertainment, Inc. and Subsidiaries as of June 30, 1997, and the results of
their operations and their cash flows for the years ended June 30, 1997 and 1996
in conformity with generally accepted accounting principles.
Roseland, New Jersey
August 21, 1997, except for Note 9 as to
which the date is September 5, 1997
F-2
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $5,086,118
Accrued interest receivable 23,162
Accounts receivable 52,240
Prepaid production costs 235,645
Prepaid record master costs 350,160
Other current assets 46,216
----------
Total current assets $5,793,541
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 146,754
OTHER 14,072
----------
$5,954,367
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenues $ 501,073
Accrued payroll and related expenses 374,590
Accrued expenses and other current liabilities 371,058
----------
Total current liabilities $1,246,721
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 5,000,000 shares, none issued
Common stock, $.01 par value,
authorized 20,000,000 shares,
issued and outstanding 2,228,333 shares 22,283
Capital in excess of par value 5,752,317
Retained earnings (deficit) (1,066,954)
----------
Total stockholders' equity 4,707,646
----------
$5,954,367
==========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
June 30,
-------------------------
1997 1996
----------- ----------
REVENUES $ 5,568,286 $3,638,192
----------- ----------
OPERATING EXPENSES:
Cost of sales 3,447,005 1,939,807
Marketing, selling, general and administrative 3,199,901 1,610,097
----------- ----------
Total operating expenses 6,646,906 3,549,904
----------- ----------
INCOME (LOSS) FROM OPERATIONS (1,078,620) 88,288
INTEREST INCOME 94,100 --
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (984,520) 88,288
INCOME TAXES 9,432 10,500
----------- ----------
NET INCOME (LOSS) $ (993,952) $ 77,788
=========== ==========
NET LOSS PER SHARE OF COMMON STOCK $ (.65)
==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,529,736
==========
PRO FORMA DATA
INCOME BEFORE PRO FORMA INCOME TAXES $ 88,288
PRO FORMA INCOME TAXES 26,000
----------
PRO FORMA NET INCOME $ 62,288
==========
PRO FORMA NET INCOME PER COMMON SHARE $ .06
==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,039,167
==========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Common Stock Capital in Retained Stock
---------------- Excess of Earnings Subscription
Shares Amount Par Value (Deficit) Receivable
------ ------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, June 30, 1995 998,000 $ 9,980 $ 12,090 $ 41,372 $(1,250)
NET INCOME 77,788
------- ------- ---------- ----------- -------
BALANCES, June 30, 1996 998,000 9,980 12,090 119,160 (1,250)
RECLASSIFICATION OF PRIOR
"S" CORPORATION RETAINED
EARNINGS 192,162 (192,162)
SALE OF COMMON STOCK, net
of expenses 78,333 783 209,804
COMMON STOCK, issued for
services relating to the initial
public offering 4,000 40 11,960
SALES OF COMMON STOCK,
net of expenses 1,146,000 11,460 5,318,571
COMMON STOCK, issued to 2,000 20 7,730
outside directors
PAYMENT OF COMMON STOCK
SUBSCRIPTION RECEIVABLE 1,250
NET LOSS (993,952)
------- ------- ---------- ----------- -------
BALANCES, June 30, 1997 2,228,333 $22,283 $5,752,317 $(1,066,954) $ --
========= ======= ========== =========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (993,952) $ 77,788
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities:
Depreciation and amortization 46,544 23,413
Common stock issued to outside directors 7,750
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Accrued interest receivable (23,162)
Accounts receivable 77,475 41,039
Prepaid production costs (218,390) 109,464
Prepaid record master costs (350,160)
Other current assets (46,216) 2,607
Deferred revenues 451,461 (32,510)
Accrued payroll and related expenses 374,590
Accrued expenses and other current liabilities 230,641 (158,185)
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (443,419) 63,616
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (112,144) (27,782)
Proceeds from other assets 3,209
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (112,144) (24,573)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable, bank 100,000
Payment on note payable, bank (100,000)
Payment on stockholders' loans (57,500)
Payment for deferred registration costs (5,000)
Proceeds from sales of common stock, net of expenses 5,557,618
Payment of common stock subscription receivable 1,250
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,558,868 (62,500)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,003,305 (23,457)
CASH and CASH EQUIVALENTS, beginning of year 82,813 106,270
----------- -----------
CASH and CASH EQUIVALENTS, end of year $ 5,086,118 $ 82,813
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended June 30,
---------------------
1997 1996
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 5,322 $ --
======== ========
Cash paid during the year for income taxes $ 58,660 $ --
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Stock issued in exchange for services, relating
to the initial public offering $ 12,000 $ --
======== ========
Reclassification of prior "S" corporation
retained earnings $192,162 $ --
======== ========
Stock issued to outside directors $ 7,750 $ --
======== ========
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS:
Paradise Music & Entertainment, Inc. ("Paradise") was formed on July
18, 1996 and in July 1996 issued 125,000 shares of common stock at $.01
par value (see Note 7). In October 1996, Paradise entered into an
exchange agreement ("the Agreement") (see Note 7). Paradise exchanged
873,000 shares of common stock in exchange for the outstanding stock of
its three original subsidiaries in a transaction accounted for as a
pooling of interests, whereby the financial statements for all periods
prior to the combination were restated to reflect the combined
operations of its original subsidiaries: All Access Entertainment
Management Group, Inc. ("All Access"), a musical artist management
company incorporated in New York, Picture Vision, Inc. ("Picture
Vision") a video production company incorporated in Tennessee, and John
Leffler Music, Inc. (which operates under the name of Rave Music and
Entertainment) ("Rave") a creator of music scores and advertising
themes for television and radio, which was incorporated in New York. In
February 1997, the Company incorporated its record label in New York,
Push Records, Inc. ("Push").
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements
give effect to the execution of the Agreement (see Note 7) and includes
the accounts of Paradise and its wholly-owned subsidiaries, Rave,
Picture Vision, All Access and Push (the "Company"). All significant
intercompany transactions and balances have been eliminated in
consolidation.
Revenue Recognition - Commercial music production revenues and the
related production costs are recognized upon acceptance of the music
production by the client. Royalty and residual income is recognized
when received. For projects which are short in duration, (primarily
less than one month) video production revenues and related production
costs are recorded upon completion of the video. For projects that have
a longer term, video production revenues and related production costs
are recorded using the percentage-of-completion method which recognizes
income as work on the project progresses. In accordance with industry
custom, the Company currently operates its business based on oral
agreements and purchase orders with its artists and customers. Pursuant
to these arrangements the Company receives up to 20% of the gross
revenues received in connection with artist entertainment related
earnings less certain standard industry costs. Record label revenues
are recognized when records are shipped and costs which are directly
related to production, manufacture and sale of records will be
capitalized as recoverable from future revenues and amortized over the
expected life of the records, to the extent there is reasonable
assurance that these costs will be recoverable from future sales. The
Company is accounting for these costs in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 50 "Financial Reporting in
the Record and Music Industry."
Cash and Cash Equivalents - Cash and cash equivalents consists of cash
on hand and a highly liquid investment account with maturity of less
than three months from the purchase date, and at times exceeds the
Federal Deposit Insurance Corporation Coverage of $100,000. Management
regularly monitors the financial condition of the financial institution
in order to keep the potential risk to a minimum.
F-8
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property and Equipment - Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization is computed as follows:
Estimated
Asset Useful Lives Principal Method
----- ------------ ----------------
Furniture, fixtures and equipment 5-7 Years Declining-balance
Leasehold improvements Term of Lease Straight-line
Impairment of Long-Lived Assets - The Company periodically assesses the
recoverability of the carrying amount of long-lived assets, including
intangible assets. A loss is recognized when expected future cash flows
(undiscounted and without interest) are less than the carrying amount
of the asset. The impairment loss is determined as the difference by
which the carrying amount of the asset exceeds its fair value.
Income Taxes - Rave and All Access were "S" corporations prior to the
execution of the exchange agreement and, as a result, earnings and
losses have been included in the personal income tax returns of the
respective stockholders. Accordingly, no provision for federal income
tax or benefits from operating losses has been reflected in the
consolidated financial statements for these subsidiaries. As a result
of the Agreement the "S" elections were terminated. Accordingly, the
financial statements reflect a reclassification of $192,162 from
retained earnings to capital in excess of par value.
The Company complies with SFAS No. 109, "Accounting for Income Taxes",
which requires an asset and liability approach to financial reporting
of income taxes. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable
to the periods in which the differences are expected to effect taxable
income. Valuation allowances are established, when necessary, to reduce
the deferred income tax assets to the amount expected to be realized.
Net Income (Loss) Per Common Share - Net income (loss) per common share
is computed based on net income (loss) applicable to common
shareholders divided by the weighted average number of common shares
outstanding. The weighted average includes shares issued within one
year of the Company's initial public offering (IPO) with an issue price
less than the IPO price, using the treasury stock method.
Fair Value of Financial Instruments - The fair value of the Company's
assets and liabilities which qualify as financial instruments under
SFAS No. 107 approximate the carrying amounts presented in the
consolidated balance sheet.
Use of Estimates - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Accounting for Stock Options - For the year ended June 30, 1997, the
Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995, 1996 and future years as if the fair
value-based method defined in SFAS No. 123 had been applied (see Note
8). The Company has elected to continue to apply the provisions of APB
Opinion No. 25.
Newly Issued Accounting Standard - In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 requires dual presentation of basic and diluted earnings
per share on the face of the statement of operations for all periods
presented. Basic earnings per share excludes dilution and is computed
by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. SFAS No.
128 is effective for fiscal years ending after December 15, 1997, and
when adopted, it will require restatement of prior years' earnings per
share. Management does not believe that SFAS No. 128 will have a
material impact upon historical consolidated net income (loss) per
common share as reported.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
Furniture, fixtures and equipment $280,551
Leasehold improvements 61,412
--------
341,963
Less accumulated depreciation and amortization 195,209
--------
$146,754
========
Certain property and equipment was jointly purchased by Rave and an
unaffiliated company. Rave recorded 50% of the purchase price
(approximately $75,000) as an asset. At June 30, 1997, the asset was
fully depreciated.
F-10
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INCOME TAXES:
The provision for income taxes consists of the following:
Years Ended June 30,
--------------------
1997 1996
-------- -------
Current:
Federal $ - $ 5,500
State and city 9,432 2,000
-------- -------
9,432 7,500
-------- -------
Deferred:
Federal 2,000
State and city 1,000
-------- -------
3,000
-------- -------
Total $ 9,432 $10,500
======== =======
At June 30, 1997, the Company recorded deferred federal, state and city
income tax assets aggregating approximately $454,000, arising from net
operating loss carryforwards. A valuation allowance in the same amount
has been recorded, since management has no assurance that the tax
benefit will be realized.
At June 30, 1997, the Company has federal and state net operating loss
carryforwards of approximately $984,000 which expire in 2012.
The following reconciles income tax expense (benefit) computed at the
federal statutory rate to the actual provision for income taxes.
Years Ended
June 30,
------------------
1997 1996
------ ------
Tax expense (benefit) computed
at federal statutory rate (35.00)% 34.00%
State and city provision, net of federal taxes (11.70) 5.10
Surtax and other 1.60 (4.60)
Valuation allowance 46.10
Non-taxable income resulting from
Subchapter "S" election (22.60)
------ ------
1.00% 11.90%
====== ======
F-11
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INCOME TAXES (CONTINUED):
The pro forma income tax expense that would have been reported if All
Access and Rave Music subchapter "S" Corporations had been "C"
Corporations and were consolidated along with Picture Vision to form
Paradise Music and Entertainment, Inc. for the year ended June 30, 1996
is as follows:
Current pro forma income taxes:
Federal $15,000
State 11,000
-------
$26,000
=======
The following reconciles income tax expense computed at the federal
statutory rate to the actual pro forma provision for income taxes for
the year ended June 30, 1996.
Income tax expense computed
at federal statutory rate 34.00%
State provision, net of federal tax 8.60
Surtax and other (13.20)
------
29.40%
======
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
Rave rents office and commercial recording studio space pursuant to a
sublease arrangement at an annual rate of approximately $50,000. The
sublease agreement expired in May 1997 and the Company is currently on
a month to month lease. All Access rents office space under a lease
which expired in February 1997. All Access is currently on a month to
month lease. Picture vision rents office space under a lease which
expires in 2001.
The aggregate future minimum annual rental payments are approximately
as follows:
Year ending June 30:
1998 $ 17,000
1999 17,000
2000 17,000
2001 3,000
--------
$ 54,000
========
F-12
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense for the years ended June 30, 1997 and 1996 was
approximately $122,000 and $114,000, respectively.
On October 9, 1996, the Company entered into employment agreements, as
amended (the "Agreements"), with four of its executives (the
"Executives"). Each of the Agreements is for a period of three years,
and provides for annual base salaries of $150,000. Pursuant to the
Agreements, four bonus plans have been established primarily for the
benefit of the Executives.
Under the first bonus plan, bonuses will be granted to each Executive
based on earnings (as defined in the Agreements) of the respective
subsidiary or division which the Executive manages or co-manages.
Generally, the Executives receive approximately 60% of such earnings
(with the two Executives of All Access considered as one person for
purposes of this calculation) up to a maximum of $375,000 of earnings
for each of Rave and Picture Vision commencing with the year ended June
30, 1997 and $512,000 of earnings for All Access commencing with the
year ending June 30, 1998. The Executives of All Access receive all
earnings of All Access up to $325,000 of earnings for the year ended
June 30, 1997. Each of the Executives will have the right to allocate
any portion of the bonus granted to him to any of the employees of the
respective subsidiary or division of such Executive. Under the second
bonus plan, a bonus pool equal to 10% of the consolidated pretax
earnings of the Company (after giving effect to all other bonuses) will
be established for each fiscal year. Awards under this bonus pool will
be granted to the Company's employees at the discretion of the
Company's Board of Directors. The third bonus plan has been established
for the benefit of the Executives of All Access and others designated
by them based on cumulative profitability of the recorded music
business based on a successful launch of the record label. Under this
bonus plan $250,000 will be granted in the first fiscal year in which
cumulative net pretax profits of the record label, as defined in the
Agreements, exceed $1,000,000. An additional bonus of $250,000 shall be
granted in the first fiscal year in which cumulative net pretax profits
of the record label, as defined in the Agreements, exceed $2,000,000.
An additional bonus of $100,000 shall be granted in the first fiscal
year in which cumulative net pretax profits of the record label, as
defined in the Agreements, exceed $2,400,000. No bonus will be granted
under this plan after June 30, 2001 and the maximum aggregate bonus
granted under this plan will be $600,000. The fourth bonus plan has
been established as an incentive for successful consummation of special
projects pre-designated by the Compensation Committee. Such plan
provides for a bonus, if net profits (as defined in the Agreements)
from the special project exceed $1,000,000. Such bonus will be
calculated on 15% net profits realized therefrom in excess of any bonus
paid to such Executive pursuant to the first bonus plan. After the
payment of any bonus pursuant to the fourth bonus plan, there will be
payable 15% of future royalty revenue derived from such special
projects.
F-13
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
For the period January 1, 1997 through June 30, 1997, the Outside
Directors earned $6,000 and 1,000 shares of common stock valued at
$3.875. Thereafter, Outside Directors will be paid at the rate of
$18,000 per fiscal year, payable quarterly with such payment to be half
in cash and half in Common Stock valued on the last day of the
applicable quarter.
On March 15, 1997, the Company entered into a six and one half month
financial consulting agreement with an individual for approximately
$60,000.
In January 1997, the Company entered into a one year consulting
agreement with a director of the Company for $60,000.
In July 1997, the Company entered into a new 10 year lease agreement
commencing August 1, 1997. The lease expires in July 2007 and requires
the Company to pay for certain operating expenses.
Aggregate future minimum rental payments are approximately as follows:
Year ending June 30,
1998 $ 79,000
1999 169,000
2000 270,000
2001 270,000
2002 270,000
Thereafter 1,572,000
----------
Total $2,630,000
==========
NOTE 6 - ECONOMIC DEPENDENCY:
Approximately $361,000 and $365,000 of commercial production revenues
for the years ended June 30, 1997 and 1996, respectively, were derived
from one advertising agency. Approximately $675,000 and $700,000 of
musical talent management revenues for the years ended June 30, 1997
and 1996, respectively, were derived from three and two musical
artists, respectively. For the years ended June 30, 1997 and 1996,
approximately $1,867,000 and $518,000, respectively, of video
production revenues were derived from one and two artists,
respectively. At June 30, 1997, approximately $32,000 was owed in the
aggregate to the Company by these artists and customers.
F-14
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY
On July 18, 1996, a new Delaware corporation was formed, Paradise Music
& Entertainment, Inc. which on July 22, 1996 issued 125,000 shares of
common stock at $.01 par value (see Notes 1 and 2).
On October 9, 1996, Paradise issued 873,000 shares of its common stock
in exchange for the outstanding stock of Rave, Picture Vision and All
Access in a transaction accounted for as a pooling of interests (see
Notes 1 and 2).
On October 9, 1996, the Company completed a private placement to sell
78,333 shares of common stock for approximately $235,000 ($3.00 per
share) prior to deducting fees and expenses of approximately $25,000.
On October 9, 1996, the Company issued 4,000 shares of its common stock
in consideration for legal services to the Company relating to the
initial public offering.
In January 1997, the Company completed its initial public offering,
through the offering the Company sold 1,000,000 units consisting of
1,000,000 shares of common stock and 1,000,000 warrants at $6.00 per
unit. For each two warrants owned, the holder is entitled to purchase
one share of common stock through January 21, 2001 at $7.20. In
February 1997, an additional 146,000 units were sold upon the exercise
of the underwriter's over allotment option. The aggregate net proceeds
were approximately $5,330,000, after underwriters' commissions and
offering expenses of approximately $1,546,000.
NOTE 8 - STOCK OPTIONS
On October 8, 1996, the Board of Directors adopted and the stockholders
approved the Option Plan. The Option Plan provides for the grant of
incentive stock options ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"),
non-qualified stock options ("NQSOs") and/or Stock Appreciation Rights
(SARs) to certain directors, agents and employees of, and consultants
to the Company. The purpose of the Option Plan is to attract and retain
exemplary employees, agents, consultants and directors. Options and
SARs granted under the Option Plan may not be exercisable for terms in
excess of 10 years from the date of grant. In addition, no options or
SARs may be granted under the Option Plan later than 10 years after the
Option Plan's effective date. The total number of shares of Common
Stock with respect to which options and SARs will be granted under the
Option Plan is 185,000. The shares subject to and available under the
Option Plan may consist, in whole or in part, of authorized but
unissued stock or treasury stock not reserved for any other purpose.
Any shares subject to an option or SAR that terminates, expires or
lapses for any reason, and any shares purchased pursuant to an option
and subsequently repurchased by the Company pursuant to the terms of
the option, shall again be available for grant under the Option Plan.
At June 30, 1997, options to purchase 10,000 shares of common stock are
outstanding, none of which have been exercised.
F-15
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTIONS (CONTINUED):
In addition, the Board of Directors approved the adoption of the
Outside Directors Stock Option Program (the "Program"). The Program
provides for the granting of an aggregate of 100,000 stock options to
eligible directors of the Company (as defined in the Program). Each
eligible director shall receive 5,000 stock options per annum, subject
to adjustment, for their services on the Board on each July 1, that
they are serving as an eligible director. The options are exercisable
at the fair market value of common stock on the last date preceding the
date of grant. The Program further provides that the maximum term of
stock options may not exceed 5 years and the stock options may be
exercised at any time for a period of 5 years after the date of grant.
At June 30, 1997, options to purchase 25,000 shares of common stock
were outstanding, none of which have been exercised.
The activity in the Option Plan and the Program are as follows:
Exercise Price Per Share
-----------------------------
Number of
Options Price Average
--------- ------- -------
Balance outstanding,
July 1, 1996 -- $ -- $ --
Granted 35,000 6.00 6.00
------- ------- -------
Balance outstanding,
June 30, 1997 35,000 $ 6.00 $ 6.00
======= ======= =======
Had compensation for the Company's stock option plan and the Program
been determined based on the fair value at the grant date of award in
1997 consistent with the provisions of SFAS No. 123, the Company's
consolidated net loss and loss per common share would have increased to
the pro forma amounts indicated below:
Net loss applicable to common stockholders, as reported $ (993,952)
===========
Net loss applicable to common stockholders, pro forma $(1,081,102)
===========
Loss per common share, as reported $ (.65)
===========
Loss per common share, pro forma $ (.71)
===========
The fair value of each option grant is estimated on the grant date
using the Black-Scholes option pricing model with the following
assumptions for grants for the year ended June 30, 1997; risk-free
interest rate 6.0%, no dividend yield, expected life of 3.5 years and
expected volatility of 53 percent.
F-16
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SUBSEQUENT EVENTS:
On August 13, 1997, Push entered into a personal service contract, (the
"Contract"), with an artist to record two albums. In addition, the
Contract contains two consecutive separate options with the artist to
produce a total of three additional albums.
On August 15, 1997 Push entered into a three year distribution and
manufacturing agreement, ("the Agreement"), with BMG Music d/b/a BMG
Entertainment ("BMG"). Such Agreement, which expires on August 15,
2000, contains an option to extend for one additional year, and
provides that BMG will provide distribution and manufacturing services
within the United States, its territories and possessions and Puerto
Rico for all sound recordings derived from record masters owned or
controlled by Push, excluding products geared primarily toward non
audio personal computer use. As part of the Agreement, BMG will retain
a distribution and a manufacturing fee based on the cumulative net
sales before any adjustments for special terms as defined in the
Agreement.
On August 15, 1997, the Company entered into an agreement with a
consulting firm which provides for payments of $2,000 per month and
options to purchase a total of 20,000 shares of the Company's common
stock at various exercise prices during the term of the consulting
agreement. The options vest one year from date of grant and expire if
not exercised in 4 years. This Agreement expires on December 31, 1998.
On September 4, 1997, Push reached a tentative worldwide exclusive
recording agreement ("the Agreement"), with an artist. Such Agreement
provides for Push to have the exclusive right to distribute one album
and, in addition, the agreement provides for two consecutive options
for two additional albums only if performance plateaus are met by the
preceding album as defined in the Agreement. Additionally, under the
Agreement warrants to purchase 30,000 shares of the Company's common
stock will be granted upon the execution of the Agreement.
On September 5, 1997, the Company granted options and warrants to
employees and non-employees to purchase 108,000 shares of common stock
at the average bid and ask price on September 5, 1997. These options
become exercisable over a three year period and expire if not exercised
in 5 years from the grant date.
F-17
Exhibit 10.7
PARADISE MUSIC & ENTERTAINMENT, INC.
1996 STOCK OPTION PLAN
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
1996 STOCK OPTION PLAN
Table of Contents
-----------------
Page
----
1. Purpose of the Plan................................................... 1
2. Stock Subject to the Plan............................................. 1
3. Administration of the Plan............................................ 1
4. Type of Options....................................................... 2
5. Eligibility........................................................... 2
6. Restrictions on Incentive Stock Options............................... 2
7. Option and SAR Agreements............................................. 3
8. Option Price.......................................................... 4
9. Manner of Payment; Manner of Exercise................................. 5
10. Exercise of Options and SARs.......................................... 5
11. Term of Options and SARs; Exercisability.............................. 5
12. Options and SARs Not Transferable..................................... 6
13. Terms and Conditions of SARs.......................................... 7
14. Recapitalization, Reorganizations and the Like........................ 8
15. No Special Employment Rights.......................................... 9
16. Withholding........................................................... 9
17. Restrictions on Issuance of Shares.................................... 10
18. Purchase for Investment; Rights of Holder on Subsequent Registration . 10
19. Loans................................................................. 11
20. Modification of Outstanding Options and SARs.......................... 11
21. Approval of Stockholders.............................................. 11
22. Termination and Amendment of Plan..................................... 11
23. Limitation of Rights in the Option Shares............................. 12
24. Notices............................................................... 12
25. Prohibited Transactions............................................... 12
<PAGE>
PARADISE MUSIC & ENTERTAINMENT, INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the Paradise Music & Entertainment, Inc., 1996 Stock Option
Plan (the "Plan") is to advance the interests of Paradise Music & Entertainment,
Inc., a Delaware corporation (the "Company"), by providing an opportunity for
ownership of the stock (or, in the case of SARs, as defined below, the
appreciation of the value of the stock) of the Company by employees, agents and
directors of, and consultants to, the Company and its subsidiaries. By providing
such oppor tunity, the Company seeks to attract and retain such qualified
personnel, and otherwise to provide additional incentive for grantees to promote
the success of its business.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or treasury
shares of the common stock, par value $.01 per share, of the Company (the
"Common Stock") for which options (the "Options") and stock appreciation rights
("SARs") may be granted under the Plan shall be 185,000, subject to adjustment
as provided in Section 14 hereof.
(b) If an Option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent Option grants under the
Plan; provided, however, that shares as to which an Option has been surrendered
in connection with the exercise of a related SAR will not again be available for
subsequent Option or SAR grants under the Plan.
(c) Stock issuable upon exercise of an Option may be subject to such
restrictions on transfer, repurchase rights or other restrictions as shall be
determined by a committee (the "Committee") of the Board of Directors of the
Company (the "Board") composed solely of two or more "Non-Employee Directors"
within the meaning of paragraph (b)(3) of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such term
is interpreted from time to time.
3. Administration of the Plan.
(a) The Plan shall be administered by the Committee. No member of the
Committee shall act upon any matter exclusively affecting any Option or SAR
granted or to be granted to himself or herself under the Plan. A majority of the
members of the Committee, but at least two, shall constitute a quorum, and any
action may be taken by a majority, but at least two, of those present and voting
at any meeting. The decision of the Committee as to all questions of
interpretation and application of the Plan shall be final, binding and
conclusive on all persons. The Committee, in its sole discretion, shall grant
Options to purchase shares of Common Stock and may grant SARs, as provided in
the Plan. Every such grant shall be pre-approved by the Committee. The Committee
shall have authority, subject to express provisions of the Plan, to construe the
respective Option and SAR agreements and the Plan, to prescribe, amend and
rescind rules and regulations relating to the
-1-
<PAGE>
Plan, to determine the terms and provisions of the respective Option and SAR
agreements, which may but need not be identical, and to make all other
determinations in the judgment of the Committee necessary or desirable for the
administration of the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option or SAR
agreement in the manner and to the extent it shall deem expedient to implement
the Plan and shall be the sole and final judge of such expediency. No member of
the Committee shall be liable for any action or determination made in good
faith.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by action of the
Committee as set forth in the Plan and may be designated as either incentive
stock options meeting the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or non-qualified options which are not
intended to meet the requirements of such Section 422 of the Code, the
designation to be in the sole discretion of the Committee. Options designated as
incentive stock options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified options
automatically without further action by the Committee on the date of such
failure to continue to meet the requirements of Section 422 of the Code.
5. Eligibility.
Options designated as incentive stock options may be granted only to
officers and key employees of the Company or of any subsidiary corporation
(herein called "subsidiary" or "subsidiar ies"), as defined in Section 424(f) of
the Code and the Income Tax Regulations (the "Regulations") promulgated
thereunder. Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. Options designated as non-qualified options may be granted to (i)
officers and key employees of the Company or of any of its subsidiaries, or (ii)
agents, directors of and consultants to the Company, whether or not otherwise
employees of the Company.
In determining the eligibility of an individual to be granted an Option or
SAR, as well as in determining the number of shares to be subject to any such
Option or SAR, the Committee shall take into account the position and
responsibilities of the individual being considered, the nature and value to the
Company or its subsidiaries of his or her service and accomplishments, his or
her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Committee may deem relevant.
6. Restrictions on Incentive Stock Options.
Incentive stock options (but not non-qualified options) granted under the
Plan shall be subject to the following restrictions:
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<PAGE>
(a) Limitation on Number of Shares. Ordinarily, the aggregate fair market
value of the shares of Common Stock with respect to which incentive stock
options are granted (determined as of the date the incentive stock options
are granted), exercisable for the first time by an individual during any
calendar year shall not exceed $100,000. If an incentive stock option is
granted pursuant to which the aggregate fair market value of shares with
respect to which it first becomes exercisable in any calendar year by an
individual exceeds such $100,000 limitation, the portion of such option
which is in excess of the $100,000 limitation shall be treated as a
non-qualified option pursuant to Section 422(d)(1) of the Code. In the
event that an individual is eligible to participate in any other stock
option plan of the Company or any subsidiary of the Company which is also
intended to comply with the provisions of Section 422 of the Code, such
$100,000 limitation shall apply to the aggregate number of shares for
which incentive stock options may be granted under the Plan and all such
other plans.
(b) Ten Percent (10%) Stockholder. If any employee to whom an incentive
stock option is granted pursuant to the provisions of the Plan is on the
date of grant the owner of stock (as determined under Section 424(d) of
the Code) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any subsidiary of
the Company, then the following special provisions shall be applicable to
the incentive stock options granted to such individual:
(i) The Option price per share subject to such incentive stock
options shall be not less than 110% of the fair market value
of the stock determined at the time such Option was granted.
In determining the fair market value under this clause (i),
the provisions of Section 8 hereof shall apply.
(ii) The incentive stock option by its terms shall not be
exercisable after the expiration of five (5) years from the
date such Option is granted.
7. Option and SAR Agreements.
Each Option and SAR shall be evidenced by an agreement (the "Agreement")
duly executed on behalf of the Company and by the grantee to whom such Option or
SAR is granted, which Agreement shall comply with and be subject to the terms
and conditions of the Plan. The Agreement may contain such other terms,
provisions and conditions which are not inconsistent with the Plan as may be
determined by the Committee; provided that Options designated as incentive stock
options shall meet all of the conditions for incentive stock options as defined
in Section 422 of the Code. No Option or SAR shall be granted within the meaning
of the Plan and no purported grant of any Option or SAR shall be effective until
the Agreement shall have been duly executed on behalf of the Company and the
grantee. More than one Option and SAR may be granted to an individual, subject,
if applicable, to the limitations of Section 6 hereof.
-3-
<PAGE>
8. Option Price.
(a) Subject to the conditions set forth in Section 8(d) hereof, the option
price or prices of shares of the Common Stock for Options designated as
non-qualified stock options shall be as determined by the Committee; provided,
however, that such option price shall be not less than the fair market value of
the shares subject to such Option, determined as of the date of grant of such
Option.
(b) Subject to the conditions set forth in Section 6(b) hereof, the option
price or prices of shares of the Common Stock for incentive stock options shall
be at least the fair market value of such Common Stock at the time the Option is
granted as determined by the Committee in accordance with the Regulations
promulgated under Section 422 of the Code.
(c) If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices,
if any, on the largest such exchange on the date of the grant of the Option or,
if none, shall be determined by taking a weighted average of the means between
the highest and lowest sales prices on the nearest date before and the nearest
date after the date of grant in accordance with Section 25.2512-2 of the
Regulations. If the shares are not then listed on any such exchange, the fair
market value of such shares shall be the mean between the closing "Bid" and the
closing "Ask" prices, if any, as reported in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") for the date of the
grant of the Option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales prices on the nearest
date before and the nearest date after the date of grant in accordance with
Section 25.2512-2 of the Regulations. If the shares are not then either listed
on any such exchange or quoted in NASDAQ, the fair market value shall be the
mean between the average of the "Bid" and "Ask" prices on the National Daily
Quotation Service for the date of the grant of the Option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Section 25.2512-2 of the Regulations. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Committee.
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
option price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the option price of such Options, (ii) shares of
Common Stock owned by the grantee having a fair market value equal in amount to
the option price of the Options being exercised, or (iii) any combination of (i)
and (ii); provided, however, that payment of the option price by delivery of
shares of Common Stock owned by such grantee may be made only upon the condition
that such payment does not result in a charge to earnings for financial
accounting purposes as determined by the Committee, unless such condition is
waived by the Committee. The fair market value of any shares of Common Stock
which
-4-
<PAGE>
may be delivered as payment upon exercise of an Option shall be determined by
the Committee in accordance with Section 8 hereof.
(b) To the extent that the right to purchase shares under an Option has
accrued and is in effect, Options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the Option, to the Company, stating the number of shares with
respect to which the Option is being exercised, accompanied by payment in full
for such shares as provided in Section 9(a) hereof. Upon such exercise, delivery
of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the Option
at such time, during ordinary business hours, after thirty (30) days but not
more than ninety (90) days from the date of receipt of the notice by the
Company, as shall be designated in such notice, or at such time, place and
manner as may be agreed upon by the Company and the person or persons exercising
the Option.
10. Exercise of Options and SARs.
Each Option and SAR granted under the Plan shall, subject to Section 11(b)
and Section 14 hereof, be exercisable at such time or times and during such
period as shall be set forth in the Agree ment; provided, however, that no
Option or SAR granted under the Plan shall have a term in excess of ten (10)
years from the date of grant. To the extent that an Option or SAR is not
exercised by a grantee when it becomes initially exercisable, it shall not
expire but shall be carried forward and shall be exercisable, on a cumulative
basis, until the expiration of the exercise period. No partial exercise may be
made for less than one hundred (100) full shares of Common Stock. The exercise
of an Option shall result in the cancellation of any related SAR with respect to
the same number of shares of Common Stock as to which the Option was exercised.
11. Term of Options and SARs; Exercisability.
(a) Term.
(i) Each Option and SAR shall expire on a date determined by the
Committee which is not more than ten (10) years from the date
of the granting thereof, except (a) as otherwise provided
pursuant to the provi sions of Section 6(b) hereof, and (b)
for earlier termination as herein provided.
(ii) Except as otherwise provided in this Section 11, an Option or
SAR granted to any grantee whose employment, by the Company or
any of its subsidiaries, is terminated, shall terminate on the
earlier of (a) ninety (90) days after the date such grantee's
employment, for the Company or any such subsidiary, is
terminated, or (b) the date on which the Option or SAR expires
by its terms.
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<PAGE>
(iii) If the employment of a grantee is terminated by the Company or
any of its subsidiaries for cause or because the grantee is in
breach of any employment agreement or because the grantee
voluntarily terminates such employment, such Option or SAR
will terminate on the date the grantee's employment is
terminated by the Company or any such subsidiary, unless the
Committee determines, at the time of such option, to extend
such option for a specified period (but not beyond the period
described in Section 11(a)(ii)).
(iv) If the employment of a grantee is terminated by the Company or
any of its subsidiaries because the grantee has become
permanently disabled (within the meaning of Section 22(e)(3)
of the Code), such Option or SAR shall terminate on the
earlier of (a) one (1) year after the date such grantee's
employment, by the Company or any such subsidiary, is
terminated, or (b) the date on which the Option or SAR expires
by its terms.
(v) In the event of the death of any grantee, any Option or SAR
granted to such grantee shall terminate one (1) year after the
date of death, or on the date on which the Option or SAR
expires by its terms, whichever occurs first.
(b) Exercisability. An Option or SAR granted to a grantee whose
employment, by the Company or any of its subsidiaries, is terminated, for
whatever reason, including, without limitation, death or disability, shall
be exercisable only to the extent that such Option or SAR has accrued and
is in effect on the date such grantee's employment, by the Company or any
such subsidiary, is terminated.
12. Options and SARs Not Transferable.
The right of any grantee to exercise any Option or SAR granted to him or
her shall not be assignable or transferable by such grantee other than by will
or the laws of descent and distribution, or the rules thereunder, and any such
Option or SAR shall be exercisable during the lifetime of such grantee only by
him or her. Any Option or SAR granted under the Plan shall be null and void and
without effect upon the bankruptcy of the grantee to whom the Option or SAR is
granted, or upon any attempted assignment or transfer, except as herein
provided, including without limitation, any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, trustee process or similar process, whether legal or equitable, upon
such Option or SAR.
-6-
<PAGE>
13. Terms and Conditions of SARs.
(a) An SAR may be granted separately or in connection with an Option
(either at the time of grant or at any time during the term of the Option).
(b) The exercise of an SAR shall result in the cancellation of the Option
to which it relates with respect to the same number of shares of Common Stock as
to which the SAR was exercised.
(c) An SAR granted in connection with an Option shall be exercisable or
transferable only to the extent that such related Option is exercisable or
transferable.
(d) Upon the exercise of an SAR related to an Option, the holder will be
entitled to receive payment of an amount determined by multiplying:
(i) The difference obtained by subtracting the option price of a
share of Common Stock specified in the related Option from the fair market value
of a share of Common Stock on the date of exercise of such SAR (as determined by
the Committee), by
(ii) The number of shares as to which such SAR is exercised.
(e) An SAR granted without relationship to an Option shall be exercisable
as determined by the Committee, but in no event after ten (10) years from the
date of grant.
(f) An SAR granted without relationship to an Option will entitle the
holder, upon exercise of the SAR, to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the fair market value of
the a share of Common Stock on the date the SAR was granted from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Committee), by
(ii) The number of shares as to which such SAR is exercised.
(g) Notwithstanding Sections 13 (d) and 13 (f) hereof, the Committee may
limit the amount payable upon exercise of an SAR. Any such limitation shall be
determined as of the date of grant and noted on the instrument evidencing the
SAR granted.
(h) At the discretion of the Committee, payment of the amount determined
under Sections 13 (d) and 13 (f) hereof may be made solely in whole shares of
Common Stock valued at their fair market value on the date of exercise of the
SAR (as determined by the Committee), or solely in cash, or in a combination of
cash and shares. If the Committee decides to make full payment in
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shares of Common Stock and the amount payable results in a fractional share,
payment for the fractional share shall be made in cash.
14. Recapitalization, Reorganizations and the Like.
In the event that the outstanding shares of the Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in the number and kind of shares as to which Options
and SARs may be granted under the Plan and as to which outstanding Options,
SARs, or portions thereof then unexercised, shall be exercisable, to the end
that the proportionate interest of the grantee shall be maintained as before the
occurrence of such event; such adjustment in outstanding Options and SARs shall
be made without change in the total price applicable to the unexercised portion
of such Options and SARs and with a corresponding adjustment in the option price
per share.
In addition, unless otherwise determined by the Committee in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock, in his, her or its sole discretion, may deliver to
the grantee the same kind of consideration that is delivered to the stockholders
of the Company as a result of such sale, conveyance or Change in Control, or the
Committee may cancel all outstanding Options in exchange for consideration in
cash or in kind, which consideration in both cases shall be equal in value to
the value of those shares of stock or other securities the grantee would have
received had the Option been exercised (but only to the extent then exercisable)
and had no disposition of the shares acquired upon such exercise been made prior
to such sale, conveyance or Change in Control, less the option price therefor.
Upon receipt of such consideration, all Options (whether or not then
exercisable) shall immediately terminate and be of no further force or effect.
The value of the stock or other securities the grantee would have received if
the Option had been exercised shall be determined in good faith by the
Committee, and in the case of shares of Common Stock, in accordance with the
provisions of Section 8 hereof.
The Committee shall also have the power and right to accelerate the
exercisability of any Option, notwithstanding any limitations in this Plan or in
the Agreement upon such a sale, conveyance or Change in Control. Upon such
acceleration, any Option or portion thereof originally designated as an
incentive stock option that no longer qualifies as an incentive stock option
under Section 422 of the Code as a result of such acceleration shall be
redesignated as a non-qualified stock option without the necessity of further
Committee action.
A "Change in Control" shall be deemed to have occurred if any person, or
any two (2) or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than fifty percent (50%) of the
then outstanding Common Stock, shall acquire such additional shares of Common
Stock in one (1) or more transactions, or series of transactions, such
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that following such transaction or transactions, such person or group and
affiliates beneficially own fifty percent (50%) or more of the Common Stock
outstanding.
Upon dissolution or liquidation of the Company, all Options and SARs
granted under this Plan shall terminate, but each grantee (if at such time in
the employ of or otherwise associated with the Company or any of its
subsidiaries as a director, agent or consultant) shall have the right, immedi
ately prior to such dissolution or liquidation, to exercise his or her Option or
SAR to the extent then exercisable.
If by reason of a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization, or liquidation, the Committee shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Committee may grant an option or options
upon such terms and conditions as it may deem appropriate for the purpose of
assumption of the old Option, or substitution of a new option for the old
Option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option grant shall not reduce the
number of shares otherwise available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any Option, but in the event any adjustment hereunder in the number
of shares covered by the Option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
15. No Special Employment Rights.
Nothing contained in the Plan or in any Option or SAR granted under the
Plan shall confer upon any grantee any right with respect to the continuation of
his or her employment by the Company or any subsidiary or interfere in any way
with the right of the Company or any subsidiary, subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the Option or SAR
holder from the rate in existence at the time of the grant of an Option or SAR.
Whether an authorized leave of absence, or absence in military or government
service, shall constitute termination of employment shall be determined by the
Committee at the time of such occurrence pursuant to uniform nondiscriminatory
criteria.
16. Withholding.
The Company's obligation to deliver shares upon the exercise of any
non-qualified Option granted under the Plan, or cash upon the exercise of an SAR
granted under the Plan, shall be subject to the grantee's satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements. The Company and grantee may agree to withhold shares of Common
Stock purchased upon exercise of an Option to satisfy the above-mentioned
withholding requirements.
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17. Restrictions on Issuance of Shares.
(a) Notwithstanding the provisions of Section 9 hereof, the Company may
delay the issuance of shares covered by the exercise of an Option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such Option has been
exercised are at the time of the issue of such shares
effectively registered or qualified under applicable Federal
and state securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld,
that such shares are exempt from registration and
qualification under applicable Federal and state securities
acts now in force or as hereafter amended.
(b) It is intended that all exercises of Options shall be effective, and
the Company shall use its reasonable efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any Option may be
exercised, except as otherwise agreed to by the Company in writing in its sole
discretion.
18. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), as now in force or hereafter amended, the
Company shall be under no obligation to issue any shares covered by any Option
or SAR unless the person who exercises such Option or SAR, in whole or in part,
shall give a written representation and undertaking to the Company which is
satisfactory in form and scope to counsel for the Company and upon which, in the
opinion of such counsel, the Company may reasonably rely, that he or she is
acquiring the shares issued pursuant to such exercise of the Option or SAR for
his or her own account as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares, and that he or she will
make no transfer of the same except in compliance with any rules and regulations
in force at the time of such transfer under the 1933 Act, or any other
applicable law, and that if shares are issued without such registration, a
legend to this effect may be endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an Option shall have been exercised, or to qualify any
such shares for exemption from the 1933 Act or other applicable statutes, then
the Company may take such action and may require from each grantee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus,
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preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors from such holder against all losses, claims, damages and liabilities
arising from such use of the information so furnished and caused by any untrue
statement of any material fact therein or caused by the omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
19. Loans.
At the discretion of the Committee, the Company may loan to the grantee
some or all of the option price of the shares acquired upon exercise of an
Option.
20. Modification of Outstanding Options and SARs.
Subject to any applicable limitations contained herein, the Committee may
authorize the amendment of any outstanding Option or SAR with the consent of the
grantee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
21. Approval of Stockholders.
The Plan shall become effective upon adoption by the Board; provided,
however, that the Plan shall be submitted for approval by the stockholders of
the Company no later than twelve (12) months after the date of adoption of the
Plan by the Board. Should the stockholders of the Company fail to approve the
Plan within such twelve-month period, all Options granted thereunder shall be
and become null and void.
22. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate ten
(10) years from the date upon which the Plan was duly adopted by the Committee.
The Committee may at any time terminate the Plan or make such modification or
amendment thereof as it deems advisable; provided, however, that (i) the
Committee may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 21 hereof, increase the maximum number
of shares for which Options and SARs may be granted or change the designation of
the class of persons eligible to receive Options and SARs under the Plan, and
(ii) any such modification or amendment of the Plan shall be approved by a
majority of the stockholders of the Company to the extent that such stockholder
approval is necessary to comply with applicable provisions of the Code, rules
promulgated pursuant to Section 16 of the Exchange Act (if applicable),
applicable state law, or applicable NASD or exchange listing requirements.
Termination or any modification or amendment of the Plan shall not, without the
consent of a grantee, affect his or her rights under an Option or SAR
theretofore granted to him or her.
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<PAGE>
23. Limitation of Rights in the Option Shares.
A grantee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the Options except to the extent that the Option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the grantee.
24. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the Chief Executive
Officer at the Company's principal place of business; and, if to a grantee, to
his or her address as it appears on the records of the Company.
25. Prohibited Transactions.
"Discretionary Transactions" within the meaning of paragraph (b)(1) of
Rule 16b-3 promulgated under the Exchange Act shall be prohibited under the
Plan.
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DISTRIBUTION AGREEMENT
by and between
BMG MUSIC d/b/a BMG ENTERTAINMENT
and
PUSH RECORDS, INC.
DATED AS OF AUGUST 15, 1997
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TABLE OF CONTENTS
Page
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PART I - DISTRIBUTION
1. Term 3
2. Basic Services 3
3. Ordering/Title/Ownership 5
4. Distribution Fee/Net Sales/Net Proceeds/Reserves/Payment 6
5. Returns/Procedure/Non-BMG Product(s) 8
6. Excess Inventory 10
7. Deleted Products 10
8. Sale Of Products By BMG 11
9. Marketing/Advertising/Promotion 13
10. Trademarks 14
PART II- MANUFACTURING
11. Purchase/Processing/Quantities 15
12. Price/Additional Terms 17
PART III - GENERAL
13. Applicability 17
14. Statements/Accounting/Audit/Payments/Collateral 17
15. Force Majeure 18
16. Termination 19
17. Owner's Representations, Warranties, Covenants And Indemnification 20
18. Owner's Relationship To BMG 23
19. Key Person 23
20. Notices 24
21. Assignment 24
22. Waivers and Remedies 25
23. Headings 25
24. Investigation 25
25. Entire Agreement 25
26. Severability 25
27. Governing Law 26
28. Counterparts 26
SCHEDULES AND EXHIBITS
Schedule 1 - Owner's Products 27
Schedule 2 - Non-BMG Product(s) 28
Exhibit A - Price Schedule for Warehouse Services 30
Exhibit B - Parental Advisory Logo 33
Exhibit C - Trademark Requirements 34
Exhibit D - Price Schedule for Audio Manufacturing Services 36
Exhibit E - Security Agreement 39
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DISTRIBUTION AGREEMENT
AGREEMENT made as of the 15th day of August, 1997, by and between BMG Music,
d/b/a BMG Entertainment, a New York general partnership, having an office at
1540 Broadway, New York, New York 10036-4098 ("BMG") and Push Records, Inc., a
Delaware corporation, having an office at 425 Madison Avenue, Suite 802, New
York, New York 10017 ("Owner").
In consideration of the representations, warranties, covenants and mutual
promises contained herein and subject to the terms and conditions hereinafter
set out, the parties hereto agree as follows:
PART I - DISTRIBUTION
1. TERM
(a) The "Term" of this Agreement is the three (3) year period commencing
on the date first written hereinabove ("Initial Period"), unless terminated or
extended as provided herein.
(b) Owner grants to BMG one (1) option to extend the Term ("Option") for
one (1) additional one (1) year period commencing immediately following the
expiration of the Initial Period ("Additional Period"). The Option will be
exercised, if at all, by written notice from BMG to Owner prior to the
expiration of the applicable Period. Notwithstanding the immediately preceding
sentence, if Owner furnishes BMG with written notice (no sooner than one hundred
twenty (120) days, and no later than thirty (30) days, prior to the expiration
of the Term) of Owner's interest in knowing whether BMG intends to extend the
Term, BMG shall exercise the Option, if at all, only by written notice to Owner
within thirty (30) days following Owner's notice to BMG under this Paragraph
1(b).
(c) The Initial Period and any Additional Period constitute the "Term". As
used herein, "Contract Year" means the twelve month period commencing on the
month and day first written hereinabove of any year of the Term and ending on
the day immediately preceding such day of the following year of the Term.
2. BASIC SERVICES
(a) As used herein -
(i) "Owner's Product(s)" means any and all "sound recordings"
including, without limitation, record(s) configured as enhanced and other types
of compact discs ("CD(s)") (excluding "interactive, multimedia, CD-ROM software
products" geared primarily toward non-audio personal computer use (all
platforms)), cassettes, tapes, tape cartridges, soundtracks, black vinyl records
and all other record(s) forms and "audio-visual recordings", now or hereafter
known or developed, derived from "Master(s)" owned or controlled, in whole or in
part, directly or indirectly by Owner, currently or at any time during the Term.
Attached hereto and by this reference incorporated herein as Schedule 1 is a
list of Owner's Product(s) as of the date first written above.
(ii) "Master(s)" means the original material object in which sounds
(with and without images) and/or images (with and without sounds) are fixed by
any method now known or later developed and from which sounds and/or images can
be perceived, reproduced or
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otherwise communicated, either directly or with the aid of a machine, device or
process (including, without limitation, "Sony 1610/1630" master(s) and "gold
master(s)"); and
(iii) "Record(s)" means any reproduction of a Master(s) in any form
now known or later developed in which sounds (with and without visual images)
are fixed by any method now known or later developed, and from which such sounds
can be perceived, reproduced or otherwise communicated, either directly or with
the aid of a machine, device or process, and include the objects in which such
sounds are fixed, including, but not limited to, CD(s), cassettes, tapes, tape
cartridges, soundtracks and "black vinyl record(s)".
(b) (i) During the Term, BMG will perform for Owner "Distribution
Services" (as more fully described herein, including without limitation, in
Paragraph 2(c) hereof) related to the distribution of Owner's Product(s) within
the fifty United States, its territories and possessions and Puerto Rico
("Territory"), by customary means through any and all normal (viz. traditional)
wholesale and retail channels (including, without limitation, so-called "duty
free" channels and military channels (including AAFES (the central distribution
point in Dallas, Texas)) and any and all so-called "alternative" (viz.,
non-traditional) wholesale and retail channels (now and/or hereafter known) but
at all times subject to the provisions set forth in Paragraph 2 (b)(ii) below
through which BMG currently and during the Term distributes, on behalf of other
record labels ("Distributed Label(s)"), products comparable to Owner's
Product(s) ("Distributed Label(s) Product(s)) and Owner will rely exclusively on
BMG therefor.
(ii) All rights not granted to BMG by Owner are reserved by Owner
inclusive of, but not limited to, Owner's retention of the right (1) to make
Owner's Product(s) available to consumers through so-called "record clubs"
(Owner agrees to give good faith consideration to any non-exclusive proposal
from the record club unit affiliated with BMG to make Owner's Product(s)
available to consumers throughout the Territory through such record club); (2)
to solicit sales and make Owner's Product(s) available on a so-called "direct
mail" or "direct to consumer" basis through the Internet and other
electronic/on-line mediums (Owner agrees to consult with BMG prior to engaging
in any such solicitation and to give good faith consideration to any proposal
from BMG to solicit sales on such basis); (3) to solicit sales of Owner's
Product(s) ("tv solicitation sales") through television advertisements,
excluding tv solicitation sales by or through a "Customer"(s) (as defined
herein) such as "QVC" or "HSC" (Owner agrees to consult with BMG prior to
engaging in any such solicitation and to give good faith consideration to any
proposal from BMG to solicit sales on such basis); (4) to use Owner's Product(s)
(in whole or in part) for so-called "premium" or "special products" type of
sales (as such terms are commonly understood in the entertainment industry (it
being understood and agreed that Owner agrees to give good faith consideration
to any proposal from the special products unit affiliated with BMG in connection
with premiums and special products sales of Owner's Product(s)); (5) to use and
license Owner's Master(s) for any non-record uses (e.g. synchronization
licenses); (6) to license Owner's Master(s) to a third party from time to time
for use as and for a compilation Record(s) provided that less than a majority of
the tracks on any such Record(s) derive from Owner(s) Master(s); and (7) to make
Owner's Product(s) available through those non-traditional wholesale and retail
channels (in addition to any such channels described under this Paragraph
2(b)(ii)) through which BMG in good faith, is not then distributing (and not
intending to distribute) Distributed Label(s) Product(s) (it being understood
and agreed that if and when BMG is not distributing Distributed Label(s)
Product(s) through such channels, Owner will not distribute Owner's Product(s)
through such channels without first affording BMG, during the Term, a "right of
first offer" therefor). Upon Owner's written request, from time to time
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during the Term, BMG will advise Owner (in writing) whether BMG distributes or
intends to distribute Distributed Label(s) Product(s) on such basis or through
such channels.
(c) Without limiting any provision hereunder, as used in Paragraph 2(b)(i)
"Distribution Services" include the following: (i) coordination of the delivery
of Owner's Product(s) to the "Warehouse" (as defined herein); (ii) inventory
control and management in connection with Owner's Product(s) so delivered; (iii)
receiving of all Owner's Product(s) at BMG's Warehouse; (iv) stocking and
storing the delivered Owner's Product(s) at the Warehouse in a safe, secure
manner consistent with BMG's customary standards and practices for stocking and
storing products of Distributed Label(s); (v) solicitation and servicing of
"Customer(s)" (as defined herein); (vi) acceptance, processing and fulfillment
of orders from Customer(s); (vii) picking Owner's Product(s) from BMG's
inventory; (viii) packing the picked Owner's Product(s) for shipment to
Customer(s); (ix) physically transporting Owner's Product(s) from the Warehouse
to Customer(s); (x) invoicing Customer(s); (xi) collecting from Customer(s);
(xii) processing returns of Owner's Product(s) for scrap or return to inventory;
(xiii) crediting Customer(s); (xiv) restocking Owner's Product(s) which have
been returned in a saleable condition or have been refurbished to a saleable
condition; and (xv) affording Owner access to such inventory, sales and other
management information reports (as relate to Owner's Product(s)) as are made
available to Distributed Label(s).
(d) The "right of first offer" will operate as follows: Owner will furnish
BMG with written notice of the availability of the particular Owner's Product(s)
for distribution hereunder through a particular non-traditional channel and the
material terms of any offer which Owner may desire to make to (or accept from)
any third party with respect to such solicitation and distribution of said
Owner's Product(s) ("Owner's Notice"). No later than fifteen (15) days following
Owner's Notice, BMG will notify Owner, in writing, of BMG's intention, if any,
to exercise this right of first offer. If BMG fails to respond to Owner's
Notice, in writing, within such fifteen (15) day period, or notifies Owner, in
writing, that BMG does not accept the basis or terms of the offer set forth in
Owner's Notice, then Owner will have no obligation to BMG with respect thereto.
In the event BMG notifies Owner, in writing, that BMG accepts the basis or terms
of the offer set forth in Owner's Notice, BMG and Owner will agree, as
necessary, to enter into a written amendment to this Agreement (as promptly as
possible within the fifteen (15) day period immediately following BMG's written
notice to Owner) incorporating herein the basis or terms set forth in the
Owner's Notice. Owner agrees not to engage in any such solicitation and
distribution of Owner's Product(s) on a basis or terms less favorable to Owner
than the basis and terms set forth in the applicable Owner's Notice. The right
of first offer described in this Paragraph 2(e) will apply to each different
basis and offer which represents the basis or offer upon which Owner is desirous
of proceeding, regardless of the date when any such basis or offer is
contemplated or any basis or offer (or offers) are made or whether there are
several basis and offers on the same or different terms. Owner agrees to notify
BMG of the terms of such basis and offer so that BMG may determine whether same
is more favorable and elect to accept the same or not, as provided herein.
3. ORDERING/TITLE/OWNERSHIP
(a) From time to time, BMG will order from Owner such quantities of
Owner's Product(s) as BMG requires hereunder to meet the demand therefor and
Owner will manufacture such quantities (or cause such quantities to be
manufactured), within a reasonable period of time following BMG's order. Unless
Owner notifies BMG (in writing) promptly following BMG's placement of a
particular order for Owner's Product(s) that Owner has reasonable objections
(specifying the nature of any such objection) to such order, Owner
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will cause such quantities to be delivered freight prepaid (i.e. included in the
prices set forth on Exhibit D), to BMG's warehouse in Duncan, South Carolina or
any other place in the United States designated by BMG ("Warehouse"). The prices
set forth in Exhibit D include freight costs to the Warehouse. Therefore, there
will be no separate freight costs payable to BMG upon, or in connection with,
the delivery of Owner's Product(s) manufactured hereunder in accordance with
Exhibit D and all freight costs related to such delivery will be deemed prepaid.
BMG will hold Owner's Product(s) at the Warehouse in inventory until the
applicable Owner's Product(s) is sold or otherwise disposed of in accordance
with the provisions hereof. Owner's Product(s) will be deemed sold at the time
Owner's Product(s) are shipped by BMG from the Warehouse to its
sub-distributors, distributors, retailers, agents, merchants or other persons
with whom BMG may do business (hereinafter individually and collectively,
"Customer(s)"). BMG shall maintain its Warehouse in a safe and secure manner
consistent with the applicable industry standards.
(b) Subject to the terms and conditions hereof, including, without
limitation, the provisions embodied in Paragraph 14(g), Owner will retain title
to, and ownership of, Owner's Product(s) delivered to the Warehouse until sold
(as described in Paragraph 3(a) hereof) or otherwise disposed of by BMG in
accordance with the provisions hereof. BMG will assume the risk of loss or
damage to Owner's Product(s) while Owner's Product(s) are in BMG's possession at
the Warehouse. The risk assumed by BMG will be limited to the cost of
manufacturing and delivering replacements of the applicable Owner's Product(s)
including applicable packaging elements and BMG shall manufacture and deliver
(or cause to be manufactured and delivered) such replacements, freight prepaid
to the Warehouse.
4. DISTRIBUTION FEE/NET SALES/NET PROCEEDS/RESERVES/PAYMENT
(a) (i) For Distribution Services rendered under this Part I, BMG will
retain a distribution fee of Eighteen (18%) percent of Net Sales ("Distribution
Fee") before any and all deductions or other adjustments for "Special Term(s)"
(as defined in Paragraph 8(c) below) authorized and/or offered by Owner (which
Special Term(s) will be at Owner's sole cost and expense) but after BMG's
so-called "standard discounts" (as more fully described herein). As used herein,
"Gross Sales" means the total amount invoiced to, and payable by, BMG's
Customer(s) for Owner's Product(s) sold hereunder; and "Net Sales" means Gross
Sales (i) less credits issued to Customer(s) with respect to Owner's Product(s)
which have been returned by Customer(s) and reserves established hereunder, (ii)
plus reserves liquidated hereunder. BMG will bear the costs and expenses
associated with Customer(s) bad debt risk and cash discounts offered by BMG for
timely payment in respect of Owner's Product(s) sold and distributed by BMG to
Customer(s).
(ii) Notwithstanding anything to the contrary contained in section
4(a)(i) above:
(A) The Distribution Fee with respect to those cumulative Net
Sales that are in excess of Twelve Million ($12,000,000) Dollars will be
Seventeen and One Half (17.5%) percent of those Net Sales in lieu of Eighteen
(18%) percent, calculated as set forth in Paragraph 4(a)(i) above;
(B) The Distribution Fee with respect to those cumulative Net
Sales that are in excess of Fifteen Million ($15,000,000) Dollars will be
Seventeen (17%) percent of those Net Sales in lieu of Seventeen and One-Half
(17.5%) percent, calculated as set forth in Paragraph 4(a)(i) above;
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(C) The Distribution Fee with respect to those cumulative Net
Sales that are in excess of Twenty Million ($20,000,000) Dollars will be Sixteen
and One-Half (16.5%) percent of those Net Sales in lieu of Seventeen (17%)
percent, calculated as set forth in Paragraph 4(a)(i) above; and
(D) The Distribution Fee with respect to those cumulative Net
Sales that are in excess of Twenty Five Million ($25,000,000) Dollars will be
Sixteen (16%) percent of those Net Sales in lieu of Sixteen and One-Half (16.5%)
percent, calculated as set forth in Paragraph 4(a)(i) above.
(iii) Notwithstanding anything to the contrary contained in
Paragraphs 4(a)(i) and (ii) above, the initial application of the Distribution
Fee set forth in Paragraph 4(a)(ii) will be in respect of the Net Proceeds
accounting for the calendar month ("Implementation Month") immediately following
the calendar month during which the applicable cumulative Net Sales threshold is
achieved ("Threshold Month") and will be applied only in respect of the
applicable excess cumulative Net Sales in the Implementation Month and
applicable month(s) subsequent to the Implementation Month.
(b) "Net Proceeds" means Net Sales less the Distribution Fee and other
permissible deductions for manufacturing etc.
(c) Except as otherwise provided herein, Net Proceeds will be payable by
BMG to Owner in respect of Owner's Product(s) sold hereunder sixty (60) days
after the last day of the calendar month during which Owner's Product(s) is sold
by BMG provided that in respect of the sale of each Owner's Product(s) which
constitutes a "new release" (i.e. Owner's Product(s) subject to a new release
street date) any Net Proceeds in respect thereof will be payable promptly
following the end of the calendar month during which payment is due from
Customer(s) therefor in accordance with BMG's standard Sales Policy, but in no
event later than one hundred (100) days following the applicable "street date"
for the particular Owner's Product(s). Net Proceeds payments will be accompanied
by a statement rendered in accordance with BMG's regular accounting practices.
By way of example, if a new release of Owner's Product(s) is sold in 1997 as
release #16 (street date August 26, 1997), any Net Proceeds in respect thereof
will be reflected in the accounting rendered on November 30, 1997, rather than
on October 31, 1997.
(d) (i) BMG will have the right to establish, with respect to each
calendar month of the Term, a reserve not in excess of thirty (30%) percent of
the Gross Sales for that month, except forty (40%) percent with respect to the
Gross Sales of Owner's Product(s) as "singles" records (any and all
configurations). The reserve established with respect to each month will be
maintained for a period of six (6) months and liquidated at the end of the
applicable six (6) month period hereunder. Liquidated reserves will be accounted
and paid to Owner at the same time and in the same manner as Net Proceeds are
accounted and paid to Owner for sales of Owner's Product(s) in the month in
which such reserves are liquidated. Notwithstanding the immediately preceding
provisions of this Paragraph 4(d)(i) and within sixty (60) days following the
expiration of each Contract Year, BMG will review the reserves established
hereunder against returns and BMG may adjust (upward and/or downward) the
reserves (and the duration of any liquidation period) to reflect BMG's so-called
weighted, historical "returns-running rate" experience (i.e., the percentage
rate of returns applicable to all Owner's Product(s) during a given twelve (12)
month period (except that with respect to "singles Record(s)" it will be the
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percentage rate of returns applicable to Owner's Product(s) distributed as
"singles" Record(s)) for the immediately preceding twelve (12) month period. BMG
will give good faith consideration to Owner's request for an additional review
of reserves and returns and an additional adjustment during a given Contract
Year.
(ii) Notwithstanding anything, to the contrary contained herein, for
each of the final nine (9) calendar months of the Term, the amount of the
reserve will be the percentage established pursuant to Paragraph 4(d)(i) of the
higher of (A) Gross Sales for the month concerned, or (B) the average monthly
Gross Sales for the twelve months immediately preceding the final nine (9)
months of the Term.
5. RETURNS/PROCEDURE/NON-BMG PRODUCT(s)
(a) Owner will accept from BMG all returns of Owner's Product(s) hereunder
physically received from Customer(s) during the Term and during the period
ending nine (9) months (except ten (10) months if the Term is terminated) after
the last day of the Term ("Post-Term Returns Period").
(b) Any services rendered by BMG in connection with returned Owner's
Product(s) will be at the applicable per unit price set forth in Exhibit A
attached hereto and by this reference incorporated herein. BMG shall not charge
Owner, separately, for any of the costs and expenses incurred by BMG to handle
and process (as opposed to refurbish etc.) returns of Owner's Product(s). For
the avoidance of doubt, the Distribution Fee does not include any Exhibit A
charges, all of which are in addition to the Distribution Fee for such services.
BMG will invoice Owner for such services and Owner will pay such invoice in
accordance with Paragraphs 14(b) and (c) hereof.
(c) Owner's Product(s) returned to BMG will be returned to the inventory
of Owner's Product(s) in BMG's custody, except that, unless BMG and Owner
otherwise agree, in writing, BMG will be entitled to scrap (i) any "singles"
Record(s) returned; (ii) any other Owner's Product(s) returned with the
shrink-wrap, container or other packaging material breached to the extent that
Owner's Product(s) could have been removed therefrom; (iii) any Owner's
Product(s) which in BMG's reasonable business judgment is not in saleable
condition; and (iv) any other Owner's Product(s) which Owner instructs BMG to
scrap. BMG will scrap Owner's Product(s) at the applicable per unit price set
forth in Exhibit A. BMG will invoice Owner for such scrapping and Owner will pay
such invoice in accordance with Paragraphs 14(b) and (c) hereof. Notwithstanding
the provisions embodied in Paragraph 5(c)(ii) hereof, BMG, as and if readily
practicable (however as of the date hereof this is not practicable), shall hold
breached Owner's Product(s) in the Warehouse for a reasonable period of time.
BMG shall advise Owner of the breached Owner's Product(s) being held and afford
Owner an opportunity to remove same from the Warehouse provided that prior to
any such removal by Owner (other than for storage purposes) the particular
Owner's Product(s) concerned shall have been appropriately marked or otherwise
modified by BMG (at Owner's expense) in a manner consistent with BMG's current
practices to remove BMG's name therefrom and otherwise preclude same being
returned to BMG and provided further that there are no monies due from Owner to
BMG. If Owner fails to remove same, pay for the modification of same, pay the
"Excess Inventory Charge" which BMG shall be entitled to invoke for storing same
after the expiration of such reasonable period of time or pay any monies due
from Owner to BMG, BMG shall be entitled to scrap same (without any further
obligation to Owner) at the applicable per unit price set forth in Exhibit A for
scrapping. BMG shall bill Owner for such charges and Owner shall pay such
invoice in accordance with subparagraph 14(b).
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(d) (i) (A) As used herein, "Non-BMG Product(s)" means any and all Owner's
Product(s) existing prior to the commencement of the Term which was not
manufactured or distributed by BMG hereunder and any and all Owner's Product(s)
existing during the Term which for any reason is not distributed by BMG
hereunder. Non-BMG Product(s) existing prior to the commencement of the Term is
listed in Schedule 2 attached hereto and by this reference incorporated herein.
Owner represents that as of the date first written hereinabove Non-BMG
Product(s) do not exist.
(B) Owner (rather than BMG) will be solely responsible for
returns of Non-BMG Product(s), the issuance of any credits to Customer(s) in
connection therewith and the value of any credit(s) issued or to be issued to
Customer(s) (and, upon BMG's request, Owner (at Owner's sole cost and expense)
will notify, in writing, all customers and other third parties to such effect).
Notwithstanding the immediately preceding provisions of this Paragraph
5(d)(i)(B), BMG (pursuant to Owner's request and solely as an accommodation to
Owner), may elect (in BMG's sole discretion) to issue credits to Customer(s) in
respect of returns of the applicable Non-BMG Product(s) returned to BMG in
accordance with BMG's "Returns Policy". Such credits as are issued by BMG will
be issued at the Net Effective Cost (or its equivalent) prices set forth in
Schedule 2 (except, in the absence of any price(s) in Schedule 2 or if any
Schedule 2 prices are incompatible with the prices or manner in which BMG
administers returns, then such credits will be issued at the prices at which BMG
would have issued credits had such Non-BMG Product(s) (or substantially similar
products) been distributed by BMG hereunder). The provisions of Paragraphs 5(a),
5(b), 5(c) and 5(d)(ii) will also apply to Non-BMG Product(s). Once BMG credits
Customer(s) in respect of these returns, BMG will invoice Owner for the value of
such credits and Owner will pay such invoice in accordance with Paragraphs 14(b)
and (c) hereof.
(ii) In order to enable BMG to distinguish Owner's Product(s) (and
returns of Owner's Product(s)) manufactured and distributed hereunder from any
Non-BMG Product(s), (and returns of Non-BMG Product(s)), Owner will ensure that
each Owner's Product(s) distributed hereunder is readily distinguishable from
Non-BMG Product(s). BMG will advise Owner of, and Owner will incorporate such
elements (including, without limitation, separate UPC and/or BMG designated
selection numbers for such Owner's Product(s) hereunder) or make such other
modifications to Owner's Product(s) hereunder as BMG deems reasonably necessary.
(e) At Owner's request, BMG will perform refurbishing services with
respect to Owner's Product(s) at the applicable per unit prices set forth in
Exhibit A. BMG will invoice Owner for such services and Owner will pay such
invoice in accordance with Paragraphs 14(b) and (c) hereof.
(f) Notwithstanding anything to the contrary contained herein, BMG will
retain all reserves established during the six (6) month period preceding the
last day of the Term and apply such reserves against credits issued during such
period and/or the Post-Term Returns Period. Within thirty (30) days following
the end of the Post-Term Returns Period, a final determination of returns and
credits issued therefor will be made by BMG. If credits issued by BMG exceed
reserves retained by BMG, Owner promptly will pay BMG the value of the Net
Proceeds of that difference, and if at the end of the Post-Term Returns Period
such reserves exceed credits issued, BMG promptly will pay Owner the value of
the Net Proceeds of that difference.
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(g) BMG will not be obligated to accept returns of Owner's Product(s)
after the expiration of the Post-Term Returns Period. If in its sound commercial
judgment BMG accepts a reasonable number of returns of Owner's Product(s) during
the thirty (30) day period following the expiration of the Post-Returns Period,
BMG will invoice Owner for the value of the Net Proceeds of such returns and for
all applicable per unit charges set forth in Exhibit A related thereto and Owner
promptly will pay such invoice.
6. EXCESS INVENTORY
(a) If on or about the last day of each month (the "last day") after the
first nine months of the Term, BMG determines from BMG's books and record(s) on
a selection-by-selection basis and by each configuration thereof that BMG's
inventory (as determined in accordance with BMG's standard business practices)
of Owner's Product(s) in BMG's possession or control as of each such last day is
in excess of a one (1) year supply ("Excess Inventory"), BMG will notify Owner
to such effect, in writing. Thereafter, Owner, at Owner's election, will either
remove such Excess Inventory for storage purposes only (at Owners sole cost and
expense of removal and storage) within thirty (30) days of BMG's report under
this Paragraph, or promptly pay BMG for each month that any Excess Inventory is
retained or controlled by BMG beyond such thirty (30) day period an amount equal
to the number of units of Excess Inventory multiplied by Seven ($.07) Cents (the
"Excess Inventory Charge"). Any Excess Inventory which is removed must be marked
or otherwise modified by BMG (at Owner's sole cost and expense) beforehand to
adequately distinguish it from all other Owner's Product(s). If Owner fails to
remove any Excess Inventory or pay the Excess Inventory Charge on a timely
basis, BMG, subject to the provisions embodied in Paragraph 11(a)(v)(B) and
14(g) hereof, will scrap such Excess Inventory at the applicable per unit price
set forth in Exhibit A for scrapping. BMG will invoice Owner for such scrapping
and any applicable Excess Inventory Charges and Owner will pay such invoice in
accordance with Paragraphs 14(b) and (c) hereof.
(b) Owner will be afforded access once per each Contract Year and during
regular business hours (on at least thirty (30) days prior written notice) to
BMG's Warehouse to conduct a physical stock count of the inventory of Owner's
Product(s) in the Warehouse. It's BMG's preference that Owner visit the
Warehouse for physical stock counts at the time that BMG conducts its annual
physical inventory (circa May of each Contract Year) of all products including
Owner's Product(s).
(c) With respect to stock shrinkage, BMG will bear the manufacturing cost
of replacing the missing stock of Owner's Product(s) (including freight costs to
the Warehouse) in excess of one percent (1%) of the number of units of Owner's
Product(s) manufactured by BMG and delivered to BMG's Warehouse, and one (1%)
percent of the number of units of any graphics and components delivered to BMG's
Warehouses in a given Contract Year.
7. DELETED PRODUCTS
(a) Owner will have the right to delete Owner's Product(s) from Owners
catalog and, subject to Owner having fulfilled all of its then outstanding
financial obligations to BMG hereunder, remove and sell same as so-called
"cut-outs". Owner will give BMG notice of the date on which a particular Owner's
Product(s) is to be deleted from Owners catalog and Owner will have forty-five
(45) days from that date to remove, at Owner's expense, deleted Owner's
Product(s) from the Warehouse. Prior to any such removal, the deleted Owner's
Product(s) will be appropriately marked by BMG (at Owner's sole cost and
expense) as cut-outs in a manner consistent with BMG's then current practices to
distinguish the inventory of deleted and cut-out
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Owner's Product(s) from the inventory of Owner's Product(s) which has not been
deleted and cut-out. Upon such deletion, marking and removal, the applicable
Owner's Product(s) will no longer be subject to the terms and conditions of this
Agreement.
(b) If Owner does not remove Owner's Product(s) deleted pursuant to the
immediately preceding Paragraph, BMG, upon thirty (30) days prior written notice
to Owner, will have the right to scrap same (without any further obligation to
Owner) at the applicable per unit price set forth in Exhibit A for scrapping.
BMG will invoice Owner for such scrapping and Owner will pay such invoice in
accordance with Paragraphs 14(b) and (c) hereof.
8. SALE OF PRODUCTS BY BMG
(a) The suggested retail list price or "list category" of Owner's
Product(s) will be established by Owner, in Owners sole discretion. However, in
order to permit necessary efficiencies in day-to-day operations, Owner will not
change the suggested retail list price or "list category" of any specific
Owner's Product(s) without giving BMG written notice at least one (1) calendar
month prior to the effective date of the change. As and if reasonably necessary
to denote such change, BMG will modify (by stickering or destickering,
restickering and reshrinkwrapping) the particular Owner's Product(s) concerned
at the applicable per unit prices for stickering or destickering, restickering
and reshrinkwrapping set forth in Exhibit A (or at the applicable per unit price
established by BMG for any other type of alteration and repackaging). BMG will
invoice Owner for such charges and Owner will pay such invoice in accordance
with Paragraphs 14(b) and (c) hereof.
(b) The Customer(s) to whom and, except as otherwise expressly provided in
Paragraph 8(c) hereof, the terms and conditions of sale (including prices to
Customer(s), "standard discounts", free goods, credit and dating, Returns Policy
(including the percentage limitations on returns) at which BMG distributes and
sells, Owner's Product(s) hereunder, and the local advertising allowances (if
any) made by BMG (at BMG's sole cost and expense) will be established by BMG in
its sole discretion. Promptly following the commencement of the Term, BMG will
familiarize Owner with BMG's current Returns Policy, BMG's current advertising
policy ("Advertising Policy") and BMG's current terms and conditions of sale
("Sales Policy").
(c) From time to time Owner, employing sound business judgment, may
request that BMG offer (or authorize BMG to offer) to Customer(s) discounts and
dating greater than the so-called "standard" discounts (if any) and dating (if
any) then offered by BMG (individually and collectively, "Special Term(s)"). BMG
will honor requests and authorizations unless BMG determines that BMG cannot
lawfully offer and/or administer the particular Special Term(s) concerned, that
such Special Term(s) is inconsistent with and does not otherwise comport
favorably with BMG's programs and policies applicable to Distributed Label(s) or
that in BMG's sound commercial judgment such Special Term(s) is not in the best
interest of Owner (e.g., extending extra dating to an insolvent Customer(s)) or
a Customer(s) whose account is past due). Any Special Term(s) offered to
Customer(s), will be offered on behalf of Owner and at Owner's sole cost and
expense, subject at all times to the particular Special Term(s) concerned being
consistent, and otherwise comporting favorably, with BMG's special discount
rates and the discount and dating programs associated therewith, Owner will give
BMG such reasonable advance written notice of the Special Term(s) which Owner is
desirous of having BMG offer so as to afford BMG an opportunity to implement
same in an efficient manner consistent with BMG's administration of sales. BMG's
"standard" discounts are indicated in BMG's Price Cards, (i.e., as of the date
first written hereinabove and in respect of the United States, twenty-three
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and eight-hundredths (23.08%) percent for singles Record(s), twenty (20%)
percent for CD(s), and fifteen (15%) percent for certain other Record(s)).
(d) Owner will be solely responsible for securing (and Owner agrees to
timely secure) any and all permissions, authorizations, clearances, licenses,
releases and other rights required to enable BMG to distribute Owner's
Product(s) without infringing upon the rights of, or incurring any liability to,
any third party(ies). In addition, Owner will be solely responsible for timely
paying (and Owner agrees to timely pay) any and all sums due or otherwise
required to be paid to third party(ies) in respect of any such permissions,
authorizations, clearances, licenses, releases and other rights (including,
without limitation, payments to developers, copyright proprietors, publishers,
writers, artists, producers and engineers). Upon BMG's reasonable request, if at
all, from time to time during the Term Owner will furnish BMG with documentation
evidencing that Owner has secured any and all such permissions, authorizations,
clearances, licenses, releases and rights and has timely paid all sums due to
third party(ies) in respect thereof.
(e) Owner agrees to identify and label any and all applicable Owner's
Product(s) described hereunder with "explicit contents" by affixing the
Parental Advisory Logo ("Logo") to same in accordance with the standards
established by the Recording Industry Association of America ("RIAA") under the
Parental Advisory Program ("Program). The current standards applicable to
records are set forth in Exhibit B attached hereto and by this reference
incorporated herein. The initial decision to identify and label a particular
Owner's Product(s) rests with Owner. If BMG determines that Owner has failed to
affix the Logo to Owner's Product(s), when appropriate, BMG, at Owner's sole
cost and expense, will be entitled to affix the Logo to Owner's Product(s) or to
recall and cease further distribution of Owner's Product(s). Any such
determination by BMG will be based solely on the good faith opinion of BMG's
counsel applying the same standards used when making such types of determination
with respect to other products distributed by BMG.
(f) (i) Without prejudice to any other rights which BMG may possess at law
or hereunder, BMG may reject a particular Owner's Product(s) for distribution
hereunder if BMG determines (in its sole discretion) that: (A) such Owner's
Product(s) advocates an illegal activity; (B) such Owner's Product(s) is
patently offensive or obscene; (C) such Owner's Product(s) violates any
governmental regulation or law (including, without limitation, a regulation or
law relating to ethical, religious, moral or political conception); (D) such
Owner's Product(s) violates the personal property or other rights of a person,
firm or corporation; or (E) such distribution of Owner's Product(s) would
constitute a breach of any of Owner's material warranties, representations or
covenants herein or constitute the potential defamation or libel of any person.
(ii) Any such determination by BMG will be based on the good faith
opinion of BMG's counsel applying the same standards used in making such types
of determination with respect to other products distributed by BMG. To
facilitate BMG's determination under this Paragraph, Owner may furnish BMG with
a sample of Owner's Product(s) prior to same being distributed hereunder.
(iii) BMG will furnish Owner with written notice of any
determination to reject (specifying the above basis therefor) Owner's Product(s)
under this Paragraph ("Rejected Owner's Product(s)"). If within fourteen (14)
days after such notice Owner fails to furnish BMG
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with a modified sample of the Rejected Owner's Product(s) satisfactory to BMG,
BMG will have no obligation to distribute the Rejected Owner's Product(s).
(iv) If BMG elects not to distribute a Rejected Owner's Product(s),
Owner will be entitled to distribute the Rejected Owner's Product(s) (or
authorize a third party to distribute same) subject to Owner, at Owner's sole
cost and expense,
(A) purchasing (if Owner has not theretofore paid for or
otherwise purchased) all of BMG's inventory of the Rejected Owner's Product(s)
at the applicable prices charged by BMG hereunder in connection therewith;
(B) continuing to be responsible for all work-in-progress and
returns in connection with the Rejected Owner's Product(s); and
(C) reimbursing BMG for any and all costs incurred by BMG to
produce Owner's Product(s).
(g) Upon request and to the extent available pursuant to BMG's agreements
with Soundscan, Inc. ("Soundscan"), BMG will afford Owner access to Soundscan's
computerized on-line management information system. The charge for such access
will be determined by BMG in respect of each calendar quarter of the Term. BMG
will invoice Owner each calendar quarter therefor (based on the Applicable
Percentage of the amount payable by BMG to Soundscan for BMG's access to the
system and/or service, plus any additional charges levied by Soundscan against
BMG in connection with Owner's accessing the system (including any set-up and
connect charges and charges for special reports). The Applicable Percentage will
be determined by dividing the Gross Sales of Owner's Product(s) in record(s)
configurations hereunder during the relevant quarter by the total gross sales of
all applicable products (in record(s) configurations) distributed by BMG during
such quarter.
9. MARKETING/ADVERTISING/PROMOTION
(a) Owner will be solely responsible for developing, planning,
undertaking, implementing and otherwise performing all marketing, advertising
and promotion in connection with Owner's Product(s) and for timely paying all of
the costs and expenses related thereto. Owner agrees and warrants that Owner
will timely undertake the marketing, promotion and advertising of each Owner's
Product(s). Notwithstanding the foregoing, BMG, on behalf of Owner and at
Owner's request (or with Owner's authorization), agrees to facilitate the
placement and verification (such placement and verification being at Owner's
sole cost and expense) of Owner requested or authorized marketing and
advertising commitments (including, without limitation, "co-op ads" and
"in-store promotions") provided that upon BMG's written request, from time to
time, Owner reasonably evidences to BMG that Owner can and will defray all of
the costs and expenses related to such commitments. If BMG pays any such costs
and expenses for which Owner is responsible BMG will invoice Owner for same and
Owner will pay same in accordance with Paragraphs 14(b) and (c) hereof.
(b) At no cost to BMG, Owner will deliver (or cause to be delivered) to
BMG reasonable quantities of promotional copies of Owner's Product(s) and BMG
shall distribute same to radio stations, review services and other persons
designated by Owner et al. at the applicable per unit price set forth in Exhibit
A. BMG shall bill Owner for such charges and Owner shall pay such invoice in
accordance with Paragraph 14(b).
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(c) In consultation with BMG, Owner will establish an initial release
schedule for each specific Owner's Product(s). In no event will BMG be obligated
to release more than two (2) specific Owner's Product(s) released as so-called
"album Record(s)" in any thirty (30) day period.
(d) In the performance of its services hereunder, BMG will have the right:
(i) to advertise, promote and otherwise market (and to cause others
to market) Owner's Product(s) during the Term and throughout the Territory and
through the mediums (now and/or hereafter known) related to the channels in
respect of which BMG is entitled to perform Distribution Services;
(ii) to use and to authorize others to use the names, approved
likenesses, sobriquets, photographs, biographies and facsimile signatures of
each of the artists and characters whose performances or characters are embodied
in Owner's Product(s), the producers of Owner's Product(s) and Owner
("Identification") provided, however, that to the extent that Owner notifies
BMG, in writing, that its rights to use any particular Identification in
connection with Owner's Product(s) are limited or otherwise restricted, BMG's
use pursuant to this Paragraph 9(d)(ii) will be limited or so restricted to the
same extent following such notice (all elements of Identification submitted by
Owner will be deemed approved by Owner and BMG will have the right to use the
same as submitted);
(iii) to perform Owner's Products(s) publicly and to permit public
performances thereof in any medium and by any means whatsoever, whether now or
hereafter known.
(iv) to advertise, promote and otherwise market Owner's Product(s),
to use Identification originated by (or for) BMG and to perform Owner's
Product(s), provided BMG will do so only with Owner's prior written approval and
provided further that the particular Identification in connection with all
advertising, promotion and marketing submitted by Owner shall be deemed
approved.
10. TRADEMARKS
(a) Owner hereby represents and warrants that Owner is the exclusive owner
or licensee of all trademarks, trade names and logos used by Owner in connection
with the Owner's Product(s) and that no other person or entity has any interest
therein that would limit Owner's and/or BMG's use of the same as provided for
herein or give cause to a bona fide infringement and/or unfair competition claim
by such person or entity against Owner and/or BMG. BMG hereby recognizes the
rights of Owner to all such trademarks, trade names and logos and BMG agrees not
to use any such trademarks, trade names and logos in connection with the
marketing and sale of Owner's Product(s), or as part of BMG's trade name or in
any other manner, without the prior written consent of Owner (which shall not be
unreasonably withheld). Owner's submission of any "Materials" which includes
trademarks, trade names and logos will be deemed to be instructions to BMG for
BMG to use such trademarks, trade names and logos as submitted. The use of
Owner's trademarks, trade name, and/or logos by BMG shall not confer any
ownership rights to BMG in the same. Upon the termination or expiration of the
Term and at Owner's request BMG shall quitclaim to Owner in a form (satisfactory
to BMG) submitted by Owner to BMG all rights that BMG may have acquired in the
same by operation of law or otherwise.
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(b) (i) No trademark, trade name, service mark or logo (including the BMG
logo) owned and/or exclusively controlled by BMG will be used by Owner without
BMG's express written consent and license to use same and then only in
accordance with BMG's specific instructions and requirements (e.g., the
following trademark legend must appear (in the place and in the size and
prominence specified by BMG) if and when BMG consents to Owner's use of the BMG
trademark: "BMG (or the "BMG logo", whichever is applicable) is a trademark of
BMG Music"). Any unauthorized manufacture, duplication or distribution of BMG's
property (including, without limitation, its copyrights and trademark rights and
interests) will be considered nothing less than copyright infringement,
trademark infringement, misrepresentation and unfair competition in violation of
federal and state laws and BMG will seek the appropriate judicial relief.
(ii) BMG hereby consents to Owner's use of the BMG trademark: "BMG" or the
"BMG Logo", whichever is applicable on Owner's Product(s) in strict compliance
with the trademark requirements set forth on Exhibit C attached hereto and by
this reference incorporated herein.
PART II - MANUFACTURING
11. PURCHASE/PROCESSING/QUANTITIES
(a) In accordance with the terms and conditions of this Agreement, BMG
will manufacture (or cause to be manufactured) and sell to Owner and Owner in
accordance with the terms and conditions of this Agreement will purchase
exclusively from BMG all of Owner's Product(s) ordered by BMG and required to be
delivered under Paragraph 3(a). Except as otherwise provided in Paragraphs 3(a)
and 11(b)(i) hereof, BMG, further to the provisions of Paragraph 11(b)(ii)
hereof, will be entitled to otherwise determine or approve the number of units
of Owner's Product(s) manufactured hereunder. For purposes hereof, the term
"manufacture" means any and all forms of duplication including, without
limitation, pressing in the case of record(s). Once BMG undertakes to
manufacture Owner's Product(s), then: -
(i) Notwithstanding anything to the contrary stated herein (other
than in Exhibits D), the minimum order quantity for each configuration of each
specific catalogue number of Owner's Product(s) manufactured as record(s)
hereunder will be the applicable number of units ("Minimum Order Quantity")
specified in Exhibits D attached hereto and by this reference incorporated
herein. BMG may increase the Minimum Order Quantity by notice to Owner if BMG's
suppliers increase the Minimum Quantity Order which BMG must order. If any other
Minimum Quantity Order is to apply to other Owner's Product(s) (other than
record(s) manufactured by BMG for Owner hereunder), BMG will notify Owner
beforehand.
(ii) All orders placed by BMG with a third party(ies) for the
manufacture of Owner's Product(s) will be made through BMG's order service and
inventory control departments and in compliance with BMG's inventory management
policies ("Inventory Policy(ies)"). Promptly following the commencement of the
Term, BMG will apprise Owner of BMG's current Inventory Policy(ies).
(iii) If after the initial release of any particular Owner's
Product(s) BMG receives orders for such Owner's Product(s) from its Customer(s)
in excess of the existing inventory of Owner's Product(s) by at least two
hundred (200) units (or the equivalent of same)
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then Owner will be deemed to order a quantity of Owner's Product(s) equal to the
higher of such excess or the Minimum Order Quantity.
(iv) Such orders as are placed hereunder will be deemed fulfilled by
BMG by the manufacture of any quantity of Owner's Product(s) between ninety
(90%) percent and one hundred ten (110%) percent of the quantity of Owner's
Product(s) ordered.
(v) (A) Owner will, at Owners cost and expense, deliver or cause to
be delivered to BMG (or its designee) (i) all duplicate Master(s) (including,
without limitation, all applicable master recordings, lacquers and gold
master(s) (all of which will be of quality suitable to comply with BMG's
performance standards) required by BMG to manufacture Owner's Product(s); and
(ii) all necessary containers (including jackets), other packaging materials not
supplied by BMG or its manufacturers, graphics, booklets, inserts, tray and
inlay cards (four color separations), stickers, posters and other components
(herein collectively called the "Materials"). The Materials will be used only to
meet the Owner's requirements for Owner's Product(s) hereunder.
(B) Owner will retain title to all the Materials which Owner
produces (or causes to be produced) and delivers to BMG and BMG will store (or
cause to be stored), during the Term, a reasonable inventory of the Materials
free of charge. From time to time during the Term, BMG will determine the amount
of any excess inventory (i.e., more than a six (6) months supply as determined
by BMG in accordance with BMG's standard practices) of Materials in BMG's
possession or control and report such determination to Owner, in writing
("Excess Materials Inventory"). Owner, at Owner's expense, will remove (for
storage purposes only at Owner's sole cost and expense of removal and storage)
such Excess Materials Inventory within thirty (30) days of BMG's report to Owner
under this Paragraph. Notwithstanding the two immediately preceding sentences,
if Owner fails to remove such Excess Materials Inventory BMG will scrap (at
Owner's sole cost and expense) such Excess Materials Inventory. BMG will invoice
Owner for such scrapping charges and Owner will pay such invoice in accordance
with Paragraphs 14(b) and (c) hereof.
(b) (i) If for any reason there are orders placed (at Owner's request and
with BMG's prior written consent) directly by Owner with third party(ies) for
the manufacture of a number of units (as determined by Owner (in its sole
discretion)) of Owner's Product(s) and Materials, the costs and expenses
associated with such order will be billed directly to Owner and paid directly by
Owner, and no part of the payment for such manufacture will be BMG's
responsibility; and all such Owner's Product(s) and Material(s) so manufactured
will be delivered to BMG to be held in accordance with this Agreement. If any of
the Owner's Product(s) which are manufactured by third party(ies) pursuant to
orders placed directly by Owner are not physically suitable for shipment to, and
acceptance by, BMG's Customer(s), then Owner will promptly reimburse BMG for all
costs and expenses (e.g. rebox, rework) arising from such unsuitability. The
provisions embodied in Paragraphs 10(b) and 11(c), 11(d) and 11(f) apply to
Owner's Product(s) manufactured pursuant to 11(b) hereof.
(ii) Owner and BMG will consult in advance respecting the quantities
of Owner's Product(s) and Material(s) to be manufactured and delivered to the
Warehouse and the allocation of such quantities as among BMG's Warehouse
locations, and the final decision on both questions will rest with BMG.
Deliveries will be made f.o.b. the Warehouse location(s) so determined.
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(c) At Owner's sole cost and expense Owner will have printed (as and where
reasonably designated by BMG) or stickered on all jackets and containers on
Owner's Product(s) manufactured and/or distributed hereunder or otherwise placed
in inventory hereunder) the language "Manufactured and Distributed" in the
United States by BMG Distribution, a unit of BMG Entertainment, 1540 Broadway,
New York, New York 10036" "BMG (or the "BMG logo", whichever is applicable) is a
trademark of BMG Music").
(d) BMG will place Owner's Product(s) manufactured pursuant to this
Paragraph in the location in BMG's Warehouse where it holds the Owner's
Product(s) pursuant to Part I of this Agreement. Such placement of Owner's
Product(s) will be deemed "delivery" for purposes of this Agreement.
(e) All of Owner's Product(s) delivered hereunder will be available for
release and will not be subject to any restrictions which would prohibit the
manufacture, distribution and sale of Owner's Product(s) at any time during the
Term, except to the extent that Owner furnishes BMG with written notice to the
contrary (any such notice to be furnished promptly following the date that any
such restriction comes into existence). Following such notice, the applicable
Owner's Product(s) will be subject to such restrictions.
(f) Prior to the duplication of Owner's Product(s) in video configuration,
BMG, upon request, will apprise Owner of any additional or Special Term(s)
applicable to the duplication of videos hereunder.
12. PRICES/ADDITIONAL TERMS
(a) For services rendered by BMG to Owner under this Part II and in
accordance with Paragraphs 14(b) and (c), Owner will pay to BMG for Owner's
Product(s) delivered hereunder, the prices, f.o.b. Warehouse, set forth in
Exhibits A and D attached hereto and by this reference incorporated herein.
Exhibits A and D also set forth in specificity certain obligations of the
parties and additional prices for certain services (including, without
limitation, BMG's distribution of Owner's Product(s) supplied by Owner to third
party(ies) for promotional purposes).
(b) BMG will have the right, not more than once within any twelve (12)
month period of the Term, to increase the prices set forth in Exhibits A and D,
however, no such increase will exceed one hundred (100%) percent of the amount
by which BMG's costs (fairly allocated per configuration per unit), including,
without limitation, the costs of purchasing and/or obtaining finished goods, raw
materials, labor, services and/or power, will have increased (using the date
first written hereinabove as the benchmark; for the first increase, if any, and
the date of the subsequent increase as the benchmark for any subsequent
increase(s)).
PART III - GENERAL
13. APPLICABILITY
The provisions of this Part III will apply to the provisions of Parts I
and II hereof.
14. STATEMENTS/ACCOUNTING/AUDIT/PAYMENTS/COLLATERAL
(a) All statements and other accountings rendered by BMG will be binding
upon Owner and not subject to any objections by Owner for any reason whatsoever,
unless such specific objection is made in writing, stating the basis thereof and
delivered to BMG within two (2) years from the date such statement is rendered.
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(b) Except as otherwise expressly provided herein, BMG will invoice Owner
(in full or in part) monthly for all amounts due hereunder and Owner will pay
BMG within thirty (30) days of the date of each invoice (except that amounts due
during the first Contract Year in respect of manufacturing costs and expenses
hereunder Owner will pay BMG within sixty (60) days of the date of each
invoice).
(c) Notwithstanding any contrary provision contained herein, BMG will be
entitled to deduct (in full or in part) any amounts invoiced (or to be invoiced)
pursuant to Paragraphs 14(b) and (c) hereof from any and all sums then owed by
BMG to Owner under this Agreement including, without limitation, any Net
Proceeds otherwise payable to Owner hereunder.
(d) At any time that Net Proceeds are reported, if such Net Proceeds are
in a negative amount, then Owner promptly will pay BMG such Net Proceeds, plus
any other amounts then due.
(e) Owner may, at Owners own expense, appoint an independent certified
public accountant to inspect, examine and audit BMG's books and record(s)
insofar as such books and record(s) relate to the accountings and payments
rendered by BMG to Owner hereunder. Such inspection will be made on not less
than thirty (30) days prior written notice during normal business hours, but not
more than once in any twelve-month period during the Term hereof and no more
than once with respect to any statement rendered hereunder, and not between
November 1 and February 28 of any Contract Year. Owner will propose to BMG, in
writing, accompanied by appropriate documentation any adjustments to such
payments which Owner in good faith believes to be necessary no later than ninety
(90) days after completion of the auditor's field work. Any audit (including all
of the auditor's field work and the submission of Owner's proposed adjustments)
conducted by Owner will be completed within the time-frame agreed by Owner and
BMG prior to the commencement of same, but in no event later than one (1) year
following such commencement - unless and to the extent delays are occasioned
solely by BMG's action or inaction.
(f) Any amount determined to be due from either party hereunder, if not
paid on the due date, will bear interest at a rate per annum equal to the "Prime
Rate". Any such amount as is due including interest, will be (i) in the case of
Owner as the delinquent party, deductible against any Net Proceeds otherwise
payable by BMG hereunder (but, if Net Proceeds are in a negative amount, then
such due amount will be due and payable on demand) or (ii) in the case of BMG as
the delinquent party, due and payable with the next payment due to Owner from
BMG hereunder. "Prime Rate" for any monthly period means the interest rate for
such period as announced on the first "Business Day" of each month by The Chase
Manhattan Bank N.A. or successors thereto, at its principal office in New York
City as its prime or base commercial lending rate. The "Prime Rate" is a
reference rate and does not necessarily represent the lowest rate actually
charged to any customer. "Business Day" means any day other than Saturday,
Sunday or other day on which commercial banks are required or permitted to close
by law in the State of New York.
15. FORCE MAJEURE
(a) In the event of any act of God or force majeure, such as strikes,
lock-outs, accidents, fires, delays in manufacturing, delays of carriers, delays
in delivery of materials, labor controversy, government actions, war or any
other causes beyond their control, neither party will be responsible for delay
in performance hereunder nor will incur liability to the other
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due to the resulting inability to perform provided that the party relying on
such events of force majeure gives notice to the other party of the cause and
anticipated duration, within thirty (30) days of the occurrence.
(b) If by reason of a force majeure event, BMG is unable to distribute
Owner's Product(s) in the manner contemplated by this Agreement for a period of
thirty (30) consecutive days, Owner shall have the right to secure third
party(ies) distribution of the Owner's Product(s) concerned, provided, however,
that such alternative distribution shall terminate upon the cessation of such
inability. Notwithstanding anything to the contrary set forth herein, in the
event a force majeure event continues for more than one hundred eighty (180)
days, then the party other than the party relying on the force majeure shall
have the right to terminate the Term of the Agreement by written notice to such
other party.
16. TERMINATION
(a) Either party hereto will have the right, in addition to any other
rights it may have at law or hereunder, to terminate the Term with immediate
effect by prior written notice to the other party ("Termination Notice"): (i) in
the event of a breach or default by the other party of any material
representation, warranty, covenant or obligation under this Agreement which, in
the good faith judgment of the party seeking to terminate the Term, would
interfere with the exercise of its rights hereunder and which breach or default
has not been cured (if and to the extent curable) within thirty (30) days after
prompt written notice (specifying the nature of such breach or default) has been
given to such breaching or defaulting party by the party seeking to terminate
the Term; or (ii) in the event of a force majeure as set out above which
continues for a period in excess of one hundred and eighty (180) days.
(b) BMG will have the right, in addition to any other rights BMG may have
at law or hereunder, to terminate the Term, with immediate effect, by prior
written notice to Owner:
(i) If any of the following occur: (A) the dissolution of Owner or
the liquidation of Owner's assets; (B) the filing by or against Owner of a
petition for liquidation or reorganization under Title 11 of the United States
Code as now or hereafter in effect or under any similar statute relating to
insolvency, bankruptcy, liquidation or reorganization (unless vacated within
thirty (30) days); (C) the appointment of a trustee, receiver or custodian for
Owner or for any of Owner's property (unless vacated within thirty (30) days);
(D) Owner's making of an assignment for the benefit of creditors; (E) Owner's
commission of any act for or in bankruptcy; (F) or Owner's becoming insolvent.
(ii) if Gross Sales of Owner's Product(s) hereunder are less than
Ten Million ($10,000,000) Dollars in respect of any Contract Year (except Seven
Million ($7,000,000) Dollars in respect of the first Contract Year and Thirteen
Million ($13,000,000) Dollars in respect of the second Contract Year ("Minimum
Sales Threshold"), BMG shall be entitled to terminate the Term. In determining
whether the Minimum Sales Threshold has been achieved, BMG may estimate in good
faith the Gross Sales of Owner's Product(s) in respect of the last sixty (60)
days of the applicable Contract Year. If taking such estimate into
consideration, BMG determines that the Minimum Sales Threshold has not been
achieved, BMG may terminate the Term as early as sixty (60) days prior to the
expiration of the particular Contract Year concerned. Any termination under this
Paragraph will be effective, whichever occurs last, the expiration of such
particular Contract Year or the expiration of the sixty (60) day period
following BMG's notice of termination.
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(c) Unless otherwise expressly agreed by BMG and Owner, in writing, upon
termination of the Term for any reason whatsoever:
(i) Owner will remove (at Owner's expense) from BMG's Warehouse
and/or any other applicable location designated by BMG all of Owner's Product(s)
and Materials in BMG's possession and/or control within thirty (30) days
following the effective date of such expiration or termination ("termination
date") and notwithstanding the expiration or termination of the Term will
purchase, as and if not theretofore purchased by Owner, all of BMG's inventory
of Owner's Product(s). Owner will accept the return of all Owner's Product(s)
returned by BMG's Customer(s) from time to time thereafter and repurchase from
BMG such Owner's Product(s) for an amount equal to the value of Net Proceeds of
the credit given by BMG to its Customer(s) for such returned Owner's Product(s)
returned. Owner's Product(s) returned to BMG's Warehouse after the initial
removal of Owner's Product(s) by the Owner, will be removed by the Owner, at the
Owner's expense, within thirty (30) days following BMG's written request to
Owner to do so. Prior to such removal of Owner's Product(s) by Owner the
particular Owner's Product(s) concerned will be appropriately marked or
otherwise modified by BMG (at Owner's expense) in a manner consistent with BMG's
current practices to remove BMG's name therefrom and otherwise preclude same
being returned to BMG, unless a new distributor is responsible for returns of
Owner's Product(s) under a new distribution agreement. BMG will be entitled to
scrap Owner's Product(s) and Materials not so removed or paid for by Owner. Such
scrapping will be at the applicable per unit price set forth in Exhibit A. BMG
will invoice Owner therefor and Owner will pay such invoice in accordance with
Paragraphs 14(b) and (c) hereof;
(ii) all unshipped orders for Owner's Product(s) will be canceled
without liability, except that Owner will remain liable for work-in-progress
under Part II;
(iii) BMG will immediately cease soliciting orders for and
thereafter distributing Owner's Product(s);
(iv) the expiration, termination or cancellation of the Term or the
revocation of this Agreement will not discharge Owner or BMG from their
obligation to pay any amounts owing hereunder. As long as any amount so owing to
BMG by the Owner has not been paid in full, BMG will have the right to reimburse
itself from amounts owed to the Owner hereunder, without prejudice to the other
rights of BMG.
(d) Consistent with BMG's then prevailing practices and procedures, BMG
will promptly notify Customer(s) of the expiration or termination of the Term of
this Agreement as and when such notification becomes necessary. Customer(s) will
also be advised of the disposition of returns of Owner's Product(s) following
the expiration or termination of the Term and Post-Term Returns Period to the
extent such returns will be accepted by a distributor other than BMG or a party
affiliated with BMG.
17. OWNER'S REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNIFICATION
(a) During the Term (except during and after the Term with respect to
those representations, warranties, covenents and obligations of Owner which
survive the expiration or termination of the Term), Owner represents, warrants
and covenants as follows:
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(i) (A) Owner has the exclusive right to produce, mechanically
record, promote, advertise, manufacture, distribute and sell Owner's Product(s)
during the Term and in the Territory;
(B) Owner is possessed of the full right to enter into this
Agreement and to grant BMG all of the rights herein granted; and
(C) All Owner's Product(s) delivered are available for release
and are not subject to any restrictions which prohibit the manufacture,
distribution and sale of Owner's Product(s) in accordance with the terms and
conditions hereof including, without limitation, Paragraph 11(e) hereof.
(ii) In performing services in accordance with the provisions of
this Agreement, BMG will not violate the rights of any third person or entity
from whom Owner derives or should have derived any rights;
(iii) Except as otherwise expressly provided, no other person
whatsoever has (or will have) the right, during the Term and in the Territory,
to perform the services to be performed by BMG hereunder;
(iv) Owner has paid and will pay all costs and expenses (including,
without limitation, the costs and expenses of development, production and
recording, manufacturing and marketing) relating to Owner's Product(s);
(v) There is no claim or legal proceeding in respect of any of
Owner's Product(s) subject to this Agreement which will interfere with BMG's
distribution of Owner's Product(s);
(vi) Owner is the owner or licensee of all rights relating to
Owner's Product(s) by virtue of valid contracts;
(vii) Owner has not sold, assigned, transferred, leased, conveyed or
granted a security interest in, or otherwise disposed of, and will not sell,
assign, transfer, lease, convey or grant a security interest in and to any of
Owner's Product(s), adverse to or derogatory to the rights of BMG herein, nor is
there any lien or encumbrance upon any of Owner's Product(s);
(viii) Owner is and will continue to be the owner or licensee of all
rights relating to the Owner's Product(s) and Materials (including, without
limitation, trademarks) during the Term and throughout the Territory;
(ix) Owner owns or possesses the right to use and to authorize
others to use the Identification in the manner provided herein;
(x) During the Term, Owner (and any person deriving rights from
Owner) will not do or authorizes any person to do anything inconsistent with, or
which might diminish or impair, any of BMG's rights hereunder or violate the
rights of any third parties provided that nothing contained herein will restrict
Owner from operating its business in the normal course (e.g. dropping acts, not
picking up options);
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(xi) With respect to the production, manufacture, distribution and
sale of Owner's Product(s) and all amounts paid by BMG to Owner hereunder, Owner
will pay all taxes and all third party obligations required to be paid by Owner
inclusive of, but not limited to, obligations to artists, producers, developers,
writers, composers, lyricists and publishers, and all federal and state sales
and use taxes, property taxes and all other applicable taxes of any nature for
which Owner is responsible. With respect to any payments that may become due to
any union having jurisdiction or under any collective bargaining agreement,
including, without limitation, A.F.T.R.A., the A.F. of M., and their Music
Performance Trust Fund and Special Payments Fund, which payments arise out of
the production, manufacture, distribution and sale of Owner's Product(s)
hereunder, BMG will not be responsible therefor and any obligations for such
payments will be satisfied by Owner; and
(xii) As and when applicable, Owner will have the applicable masters
(other than gold masters) fully tested so that same operate in accordance with
commonly accepted standards for the operation of such products and will be free
from a "Defect". Should any significant error, defect, anomaly or nonconformity
be detected with respect to Owner's Product(s) (which is attributable to a
defect in the Masters) ("Defect") Owner will, at its sole cost and expense,
promptly correct same and promptly provide BMG with corrected Owner's Product(s)
to enable BMG to distribute a corrected version of Owner's Product(s). In the
event BMG is required to replace copies of Owner's Product(s) which have been
distributed with copies which do not contain a Defect or to refund any part of
any fees or costs in connection with the Owner's Product(s) containing the
Defect, Owner will promptly reimburse BMG for all reasonable costs incurred in
replacing copies of the Owner's Product(s) or for all refunds given, as well as
all reasonable costs of removing all copies of the Owner's Product(s) containing
the Defect from the channels of distribution. BMG will be entitled to offset and
otherwise deduct such amounts as are due from Owner to BMG under this Paragraph
from and against any monies due to Owner from BMG under this Agreement.
(b) BMG and Owner each ("the Indemnitor") does hereby indemnify and agree
to hold the other, it successors and assigns and any of its officers, directors,
employees, representatives and/or agents or each of them ("the Indemnitee")
harmless at all times from and against any and all losses, third party claims,
costs, expenses, liabilities and damages (including, without limitation,
reasonable fees and disbursements of counsel) arising out of or connected with
any breach or alleged breach by the Indemnitor of this Agreement or any material
agreement, warranty, representation, promise, covenant or any obligation by the
Indemnitor (including, without limitation, in the case of Owner, all of Owner's
obligations under Paragraphs 8(d) and 17(a)(xi)). Prompt written notice will be
given to the Indemnitor of any claim, action or proceeding to which the
foregoing indemnity relates and the Indemnitor will have the right to
participate in the defense thereof at the Indemnitor's expense. The Indemnitor
will reimburse the Indemnitee on demand for any payment made by the Indemnitee
at any time in connection with any liability or claim to which the foregoing
indemnity relates, provided that such liability results from a judgment on the
merits against the Indemnitee or a settlement entered into by the Indemnitee
with the consent (not to be unreasonably withheld) of the Indemnitor. Pending
the determination of any such claim, without limitation of BMG's remedies and
rights, BMG, as Indemnitee, may withhold payments and deduct sums from any
monies accruing or payable to Owner hereunder in an amount reasonably related to
such claim, provided, however, that if Owner will obtain and post an undertaking
(as defined, as of the date of this Agreement in Section 2501(1) of the Civil
Practice Law and Rules (CPLR) of the State of New York) in an amount which BMG,
in its sole judgment but in good faith, deems reasonably sufficient to secure
BMG for Owner's liabilities hereunder, then BMG will not have the right to
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withhold and reserve monies as set forth in this Paragraph. If BMG has withheld
and reserved any monies pursuant to this Paragraph with respect to any claim and
if said claim has not been followed by commencement of an action or proceeding
within twelve (12) months or if a claim is dismissed, defeated or discharged
within twelve (12) months, BMG will release such monies without prejudice to its
rights to again withhold and reserve monies in the future if any action or
proceeding is later commenced.
18. OWNER'S RELATIONSHIP TO BMG
(a) In performing Owner's obligations hereunder and in performing any
services in connection herewith, Owner is and will be deemed an independent
contractor, and nothing herein contained will in any way constitute Owner, or
any of Owner's officers, directors or employees, an agent or employee of BMG.
(b) (i) Without the other party's express prior written consent, neither
party shall disclose or authorize the disclosure of any information of a
confidential nature learned as a result of this Agreement or the operation
thereof, nor in any way or in any form publicize or advertise in any manner any
of the terms, conditions or obligations contained in this Agreement except as
provided in Paragraphs 18(b)(ii)(A), (B) and (C) below.
(ii) Owner will keep strictly confidential information with respect
to the terms, conditions and obligations of this Agreement, except that Owner
may disclose same:
(A) to the extent required by law, regulation or legal process
or any regulatory agency, subject to the terms and conditions contained in
Paragraph 18(b)(iii);
(B) to Owner's employees, representatives, legal, professional
advisors and affiliates who need to know the information for the purpose of
performing their duties and obligations hereunder; or
(C) if at the time of disclosure it is in the public domain
other than as a result of Owner's breach of this Agreement.
(iii) In the event that any of one party's employees, advisors, or
representatives are requested pursuant to, or become compelled by, applicable
law, regulation or legal process to disclose this Agreement, any of its terms or
any confidential information learned as a result of this Agreement or the
operation thereof, such party will provide the other party with prompt written
notice so that the other party may seek a protective order or other appropriate
remedy or, in the sole discretion of the other party, waive compliance with the
terms of this Agreement. In the event that no such protective order or other
remedy is obtained, or that the other party waives compliance with the terms of
this Agreement, such party will furnish (or permit to be furnished) only that
portion of this Agreement or its terms which such party is advised by counsel
that such party is legally required to furnish (or have furnished) and such
party will cooperate with the other party's efforts to obtain reliable assurance
that confidential treatment will be accorded this Agreement, its terms and all
such confidential information.
19. KEYPERSON
BMG has entered into this Agreement because of its trust and confidence in
Brian Doyle (the "Key Person"). It is understood and agreed that the bearing of
continuing and primary responsibility on a full-time basis by the Key Person for
Owner's development, A&R, marketing and promotion activities throughout the Term
is a vital part of this Agreement. In the event of
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the death or incapacity of any of the Key Person, or in the event that the Key
Person ceases for whatever reason such continuing and primary responsibility for
said A&R, marketing and promotion, BMG will have the right, without prejudice to
any other rights it may have, to terminate the Term of this Agreement by giving
written notice to Owner, effective immediately.
20. NOTICES
All notices from one party to the other hereunder will, unless herein
indicated to the contrary, be in writing and will be addressed as follows:
To OWNER: Push Records, Inc.
425 Madison Avenue
Suite 802
New York, New York 10017
with a courtesy copy to:
Grubman Indursky Schindler & Goldstein, P.C.
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019-3301
Attn: Donald L. Kaplan, Esq.
To BMG: BMG MUSIC
d/b/a BMG Entertainment
1540 Broadway
New York, New York l0036-6758
Attn: Vice President, Legal & Business Affairs (BMG
Distribution) with a copy to Vice President, Finance (BMG
Distribution)
or to such other address as the addressee may designate in writing. Any notice
will be sent either by regular mail, certified or registered mail, return
receipt requested, or by personal delivery or air express or telefax (to the
telefax number of the party to be served) and will be deemed complete when same
(containing whatever information may be required hereunder) is deposited in any
United States mail box addressed as aforesaid, except that (a) all materials
personally delivered or sent by telefax will be deemed served when actually
received by the party to whom addressed, (b) air express materials will be
deemed served on the day of delivery to the air express company, (c) notices of
change of address will be effective only from the date of its receipt, and (d)
accounting statements will be sent by regular mail and will be deemed rendered
when deposited in any United States mail box.
21. ASSIGNMENT
Owner will not have the right to assign the Agreement or any of its rights or
obligations thereunder without BMG's prior written consent (which consent shall
not be unreasonably withheld). BMG may, at its election, assign the Agreement or
any of its rights or obligations hereunder to its parent, subsidiary or
affiliated company or any person acquiring all or substantially all of its
assets or with whom BMG may merge. BMG and Owner shall remain primarily liable
for their respective obligations in the event of any assignment. The foregoing
will in no way limit BMG's right to assign or license in the ordinary course of
business.
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22. WAIVERS AND REMEDIES
No waiver of any provision of or default under this Agreement will affect
Owner's or BMG's right, as the case may be, thereafter to enforce such provision
or to exercise any right or remedy in the event of any other default, whether or
not similar. To the extent permitted by, and subject to the mandatory
requirements of all applicable laws, rules and regulations, each and every
right, power and remedy herein specifically given to either party or otherwise
in this agreement will be cumulative and will be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute, and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and as often and in such order as may be deemed expedient by such
party, and the exercise or the beginning of the exercise of any power or remedy
will not be construed to be a waiver of the right to exercise at the same time
or thereafter any other right, power or remedy. No delay or omission by either
party in the exercise of any right, remedy or power or in the pursuit of any
remedy will impair any such right, remedy or power or be construed to be a
waiver of any default of the part of such party or to be an acquiescence
therein. No express or implied waiver by either party of any breach or default
hereunder by the other party will in any way be, or be construed to be, a waiver
of any future or subsequent breach or default hereunder by such other party.
23. HEADINGS
The headings and captions preceding the text of the various provisions of
this Agreement are inserted solely for reference and will not constitute a part
of this Agreement nor affect its meaning, construction or effect. Every word or
phrase defined herein will, unless herein specified to the contrary, have the
same meaning throughout this Agreement. As used herein, wherever applicable, the
singular will include the plural and the plural will include the singular, the
masculine will include the feminine and the feminine will include the masculine.
24. INVESTIGATION
BMG will have no obligation whatsoever to make any investigation of the
facts relevant to any agreement, warranty or representation made by Owner
herein. Neither the furnishing by Owner nor the receipt by BMG of any document
will impair BMG's absolute rights to rely, to have relied, and to continue to
rely on any warranties or representations made by Owner herein in connection
with such document or the contents thereof.
25. ENTIRE AGREEMENT
This Agreement contains the entire and only agreement between the parties
with respect to the subject matter hereof. This Agreement supersedes all
previous agreements or arrangements between the parties relating to the subject
matter hereof. No amendment, modification, waiver or discharge of this Agreement
or any provision hereof will be binding unless signed by BMG's and Owner's
authorized signatories.
26. SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement will nevertheless remain in full
force and effect, so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto will negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually
-25-
<PAGE>
acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the greatest extent possible.
27. GOVERNING LAW
This Agreement will be construed under the internal laws of the State of
New York applicable to contracts to be performed wholly therein, and both
parties agree that only the New York courts will have jurisdiction over this
contract and any controversies arising out of this contract will be brought by
the parties to the Supreme Court of the State of New York, County of New York,
and they hereby grant jurisdiction to that Court.
28. COUNTERPARTS
This agreement may be executed in one or more counterparts and by the
different parties hereto in separate counterparts, each of which when executed
will be deemed to be an original but all of which taken together will constitute
one and the same agreement. Facsimile signatures on this Agreement will be
deemed original for all purposes.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first above
mentioned.
BMG MUSIC, a New York general partnership PUSH RECORDS, INC.
By: BERTELSMANN MUSIC GROUP, INC., a Delaware Corp.
a Delaware corporation, a general
partner
By: /s/ Peter P. Jones By: /s/ Brian Doyle
------------------------------- -------------------------------
Name: Peter P. Jones Name: Brian Doyle
Title: President Title: President
Date: 8-27, 1997 Date: August 25, 1997
133932778
-----------------------------------
Federal Tax ID #
-26-
<PAGE>
SCHEDULE I
TO THE AGREEMENT DATED AS OF AUGUST 15, 1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
Owner's Product(s): As of August 15, 1997
1. Owner represents that Owner is negotiating a record agreement with Daryl Hall
for his exclusive, solo performances as a recording artist.
2. Luxx (Titles To Be Determined)
-27-
<PAGE>
SCHEDULE 2
TO THE AGREEMENT DATED AS OF AUGUST 15, 1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
NON-BMG PRODUCT(S) SCHEDULE
(To Be Completed By Owner)
Old
Prior New Net Effective
Distributor BMG Cost Price
Catalog #* Catalog # Artist Title ("NECP")**
- ---------- --------- ------ ----- ----------
US (CDN)
CD Cass. Other
-- ----- -----
Codes (see below (**))
* Prior Distributor's Catalog #s for Non-BMG Product(s) distributed prior to
August 15, 1997 in the United States by Owner's prior distributor ("Prior
Distributor") and the corresponding Prior Distributor's published SRLP (and the
corresponding NECP at which Owner is desirous of having BMG issue returns
credits to BMG's customers).
** Codes: (See Attached Page)
*** Indicate # of records included in product if more than one CD, cassette etc.
-28-
<PAGE>
SCHEDULE 2 (continued)
SRLP NECP
(a) CD Prices*** 1
2
3
4
5
6
7
8
9
10
(b) Cass. Prices*** 11
12
13
14
15
16
17
18
19
20
(c) Other (vinyl
disc etc.)*** 21
22
23
24
25
26
27
28
29
30
-29-
<PAGE>
EXHIBIT A
TO THE AGREEMENT DATED AS OF AUGUST 15, 1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
PRICE SCHEDULE FOR WAREHOUSE SERVICES
COST PER UNIT
INVENTORY REWORK
LP CASS CD VIDEO
-- ---- -- -----
1) Product stickering on
outside of shrinkwrap:
Machine - Qty 1 0.03 0.03 0.03 0.03
Manual
General Location -
- Qty 1 0.05 0.05 0.05 0.05
- Qty 2 0.07 0.07 0.07 0.07
Specific Location -
- Qty l 0.07 0.07 0.07 0.07
- Qty 2 0.12 0.12 0.12 0.12
2) Deface and Ship 0.02 0.04 0.02- Saw 0.07
Cutouts 0.04- Drill
3) Selection Number 0.20 ST/SW 0.16 ST/SW 0.16 ST/SW 0.25 ST/SW
Conversion 0.22 ST/J 0.25 ST/ 0.25 RPL
CARD GRAPH SLP
0.18 RPL 0.23 RPL/GRAPH
INST
4) Rebox 0.04 0.04 0.04 0.04
5) Defacing Only 0.01 0.02 0.080 STICKER 0.06
0.03 NO STICKER
6) Remove Spine Sticker 0.07
ST=Sticker/SW=Shrinkwrap/RPL=Replace/SLP=Slipcase/JC-Jewelcase
ACCOUNT CHARGE
1) Pop 0.06 (Posters, Flats, etc.)
2) Prepack Individually Quoted - All Configurations
3) Prime the Pump 0.07 0.07 0.07 0.07
-30-
<PAGE>
EXHIBIT A (continued)
PRICE SCHEDULE FOR WAREHOUSE SERVICES
COST PER UNIT
LP CASS CD VIDEO
-- ---- -- -----
ACCOUNT CHARGE (Cont'd)
4) Meet Comp 0.07 0.07 0.07 0.07
5) Individual Order 0.25 0.25 0.20 0.30
6) Export 0.20 0.20 0.20 0.20
7) Cash Sales 0.00 0.00 0.00 0.00
8) Field Promo -
No Deface 0.15 0.15 0.15 0.16
9) Advertising Free 0.10 0.10 0.10 0.10
10) N/R Service 0.06 0.05 0.05 0.06
11) Catalog Service 0.09 0.09 0.15 0.13
12) Open N/A N/A N/A N/A
13) Reviewer Mailing 0.21 0.28 0.28 0.32
14) Radio Mailing 0.33 0.23 0.23 0.38
15) Cut-Out 0.02 0.04 0.02 0.07
16) Prime the Pump -
Individual 0.17 0.16 0.16 0.16
17) Outside Fulfillment 0.05 0.05 0.05 0.05
18) Miscellaneous 0.10 0.10 0.20 0.10
19) Bulk Shipments 0.04 0.04 0.04 0.04
Add on Charges: (Applies to all configurations)
Package Insert
- Level 1 (Letter Only) 0.06
- Level 2 (Press kit) 0.12
NOTE: FREIGHT COSTS NOT INCLUDED IN ABOVE ACCOUNT CHARGE PER UNIT COSTS. ACTUAL
FREIGHT TO BE BILLED SEPARATELY.
-31-
<PAGE>
EXHIBIT A (continued)
PRICE SCHEDULE FOR WAREHOUSE SERVICES
COST PER UNIT
RETURNS REFURBISHMENT
1) Generic Sticker 0.04 0.04 0.04 0.04
2) Replace Shrinkwrap 0.13 0.07 0.08 JC 0.19
3) Replace Case N/A 0.29 0.38 JC ONLY N/A
4) CD Repackage N/A N/A 0.080 CH-BL/JC N/A
0.115 CH/SW/JC
0.140 BL/SW/JC
MISCELLANEOUS
1) Ship N/R Out Of Cycle
(Per Voucher) 4.00 4.00 4.00 4.00
2) Pack Ship Export 0.20 0.20 0.20 0.20
3) Product Scrapping
(Finished Goods) 0.005 0.005 0.005 0.005
NOTE: ANY SPECIAL REQUESTS FOR WORK NOT SHOWN ABOVE MUST BE QUOTED SEPARATELY
-32-
<PAGE>
EXHIBIT B
TO THE AGREEMENT DATED AS OF AUGUST 15, 1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
STANDARD PARENTAL ADVISORY LOGO
Wording: PARENTAL ADVISORY: EXPLICIT CONTENTS
Color: Black and white
Placement: Front of the permanent packaging (under the shrinkwrap) of
the particular Owner's Product(s) concerned (e.g., CD,
cassette, vinyl record and music video)
Size: 1" x 5/8"
Example:
[LOGO]
-33-
<PAGE>
EXHIBIT C
TO THE AGREEMENT DATED AS OF AUGUST 15,1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
BMG LOGO TRADEMARK REQUIREMENTS:
BMG LOGO: [LOGO]
APPEARANCE: o BMG letters in black and the solid triangle and rule in
BMG Red (PMS200 - Pantone(R) 200C for coated stock,
Pantone(R) 200U for uncoated stock) or
o Entire Logo in solid black or other BMG approved, solid
dark color on a light background or
o Entire Logo in white on a dark background.
TYPEFACE: Futura Bold Condensed
PLACEMENT: AUDIO
o Compact Disc - The BMG Logo must appear on the back of
the tray card (visible to the consumer at time of
purchase, in the booklet and on the compact disc.
o Cassette - The BMG Logo must appear on the back of the
J card (visible to the consumer at time of purchase) and
on the cassette (c-zero cartridge).
o Vinyl - The BMG Logo must appear on the back of the
jacket (visible to the consumer at time of purchase) and
on the label.
VIDEO - The BMG Logo must appear on the back of the slipcase
(visible to the consumer at time of purchase) and on the face
label of the video cassette.
OTHER - The BMG Logo must appear on the back of the
applicable product container (visible to the consumer at time
of purchase) and on the product.
-34-
<PAGE>
EXHIBIT C (continued)
BMG LOGO TRADEMARK REQUIREMENTS
SIZE: Under no circumstances may the size of the BMG Logo be
smaller than the BMG Logo depicted below.
Example of smallest size (19/32" or l5mm):
[LOGO]
LEGEND: The following Legend must appear wherever the BMG Logo
appears:
"The BMG Logo is a trademark of BMG Music."
-35-
<PAGE>
EXHIBIT D
TO THE AGREEMENT DATED AS OF AUGUST 15, 1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
PRICE SCHEDULE FOR AUDIO MANUFACTURING SERVICES
Configuration Price Per Unit Elements
- ------------- -------------- --------
7" Records $0.43 Generic craft sleeve - 1 color
Flexograph printing.
12" Records $0.80 White sleeve,
Jacket supplied by Owner.
Standard shrinkwrap.
Black generic jacket supplied
by BMG ($0.30).
Cassettes $0.45 Tape housed in a standard white
(full-length) (ferric tape) C-zero cartridge or clear C-zero
$0.49 cartridge, includes 1 color direct
(Cr02 tape) imprint. Insertion into a black or
clear Norelco Box with Owner supplied
4 panel J card.
plus $0.0075 Standard shrinkwrap.
for each minute
or portion
thereof in
excess of
45 minutes
Cassette Singles $0.35
(ferric tape)
$0.39
(chrome tape)
Compact Discs $0.75 Disc (includes up to 3 color screen
(full-length or single) print), tray and jewel case.
Insertion of booklet supplied by
Owner and tray card.
Overwrapped.
A $0.20 credit will be applied when
the jewel case is not used.
Additional charges for other
packaging elements shall be as
specified by BMG.
In addition to the elements listed above, the elements for each configuration
shall include a commercial quality pressing and boxing in BMG's standard count
box.
-36-
<PAGE>
EXHIBIT D (continued)
PRICE SCHEDULE FOR AUDIO MANUFACTURING SERVICES
ADDITIONAL PROVISIONS
7" and 12" Records
7" and 12" records will be manufactured in various locations. With respect
thereto:
- 7" records - Minimum Initial Order 1000 units, reorder minimum 500
units.
- 12" records - Minimum Initial Order 500 units, reorder minimum 500
units.
- Owner will furnish BMG with Sony 1610 master tape and lacquers for
manufacturing.
- If Direct Metal Mastering (DMM) is used, Owner will furnish BMG with
molds at Owner's expense.
- Owner will supply BMG with printed polylined inner sleeves. Owner will
send printed jackets, inserts and polylined inner sleeves to the location(s)
designated by BMG. Owner will supply label background separations. BMG will
print the backgrounds. Owner will provide that all jackets shall bear the new
selection numbers and UPC barcodes and that all jackets, graphics and labels
background separations shall bear the language "Manufactured and Distributed" in
the United States by BMG Distribution, a unit of BMG Entertainment, 1540
Broadway, New York, New York 10036" "BMG (or the "BMG logo", whichever is
applicable) is a trademark of BMG Music".
Cassettes
Cassettes will be manufactured by BMG in various locations. With respect
thereto:
- Minimum Initial Order 1000 units, reorder minimum 500 units.
- Owner will supply BMG with a Sony 1630 master tape.
- Owner will supply BMG with label copy film for direct imprint on
cassettes.
- Owner will provide BMG with artwork and all related mechanicals and
Owner will supply BMG with cassette J-Cards, at Owner's expense, sufficient to
allow BMG, at BMG's expense, to provide printed, 4-color, scored insert cards
which shall bear the new selection numbers and UPC barcodes and the language
"Manufactured and Distributed" in the United States by BMG Distribution, a unit
of BMG Entertainment, 1540 Broadway, New York, New York 10036" "BMG (or the "BMG
logo", whichever is applicable) is a trademark of BMG Music". Owner shall be
solely responsible for all coordination, cost and expense including, without
limitation, freight to
-37-
<PAGE>
EXHIBIT D (continued)
PRICE SCHEDULE FOR AUDIO MANUFACTURING SERVICES
BMG's manufacturing facilities, associated with ensuring that the Owner-supplied
J-Cards are received by BMG in a manner and form suitable to BMG to allow BMG to
incorporate Owner's J-Cards in an efficient and timely manner.
- BMG will collate the cassettes and J-cards into Norelco cases and
shrinkwrap.
Compact Discs
Compact Discs will be manufactured and packaged in various locations. With
respect thereto:
- Minimum Initial Order 1,000 units, reorder minimum 500 units.
- Owner will supply a technically satisfactory Sony 1630 master tape
accompanied by the appropriate digital tracking information. In the alternative,
Owner shall pay BMG its standard compact disc mastering charge for each compact
disc selection mastered hereunder.
- Owner will supply label background film and artwork for each selection
with tracking sequences and timings.
- Owner will supply printed booklets and inlay cards which will bear the
new selection numbers, UPC barcodes and the language "Manufactured and
Distributed" in the United States by BMG Distribution, a unit of BMG
Entertainment, 1540 Broadway, New York, New York 10036" "BMG (or the "BMG logo",
whichever is applicable) is a trademark of BMG Music".
- BMG will collate the discs, booklets and inlay cards into jewel cases
and overwrap them.
BMG will designate the location(s) for Owner to deliver the various items Owner
is to supply.
-38-
<PAGE>
EXHIBIT E
TO THE AGREEMENT DATED AS OF AUGUST 15, 1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
SECURITY AGREEMENT
(See Attached)
-39-
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of this 15th day of August, 1997, by and
between BMG Music d/b/a BMG Entertainment (herein referred to as "Distributor")
on the one hand, and Push Records, Inc. (herein referred to as "Company"), on
the other hand, with reference to the following:
A. Distributor and Company are entering into a Distribution Agreement (herein
referred to as "the Distribution Agreement") dated as of August 15, 1997. In
connection with the Distribution Agreement, Distributor will advance certain
monies on behalf of Company, and Distributor will incur additional
administrative and overhead costs in order to assist Company in the operation of
its business.
B. As an inducement and precondition to Distributor entering into the
Distribution Agreement, and as security for Company's performance pursuant to
the Distribution Agreement, Company has agreed to grant a security interest in
certain of its assets to Distributor (hereinafter sometimes referred to as
"Secured Party") under this Security Agreement.
NOW THEREFORE, for and in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
GRANT OF SECURITY INTEREST
(a) In order to secure the prompt and full payment, performance and
observance of all indebtedness, obligations, liabilities and agreements of any
kind of the Owner to BMG under this Distribution Agreement (collectively, the
"Obligations"), Owner hereby grants to BMG a continuing first priority security
interest in and to (i) the Inventory of Owner's Products; (ii) all accounts due
from BMG to Owner under this Distribution Agreement and all books, ledger cards,
computer programs, databases and other property and general intangibles at any
time evidencing or relating to such accounts, (iii) all insurance proceeds or
claims for loss or damage to or destruction of any of the foregoing, and (iv)
any and all products and proceeds of any of the foregoing in any form whatsoever
(collectively, the "Collateral").
(b) Owner represents, warrants and agrees that it has not and will not
grant a security interest to any third party in the Collateral without BMG's
prior express written consent and that it has and will continue to have good and
marketable, legal and beneficial title to all Collateral, free of all liens,
claims, security or other interests, defenses, offsets, pledges, mortgages,
hypothecations, charges and encumbrances (collectively "Encumbrances")
whatsoever other than the Encumbrance granted to BMG hereunder. Owner further
represents, warrants and agrees that the chief executive office of Owner and the
office where Owner keeps its books and records relating to the Collateral is
Push Records, Inc., 425 Madison Avenue, Suite 802, New York, New York 10017, and
all locations of Collateral are at the addresses set forth on Schedule 1 hereto.
Owner will execute and deliver to BMG, at its request, and hereby appoints BMG,
with full power of substitution, as its attorney-in-fact and agent to file on
its behalf, without Owner's signature, financing statements and any other
document, including additional financing statements and/or continuation
statements, BMG deems necessary in order to establish, maintain and perfect
BMG's security interest in the Collateral. Owner further agrees to do such other
acts and things as BMG may reasonably request from time to time to establish and
maintain a valid first priority security interest in the Collateral, free of all
other
-40-
<PAGE>
Encumbrances other then the Encumbrance of BMG. Upon BMG's request, Owner will
make a notation on its records to reflect BMG's security interest in the
Collateral in form satisfactory to BMG.
(c) Upon the occurrence of a material breach or default by Owner of
Owner's obligations to timely fulfill its monetary obligations under the
Distribution Agreement (which breach or default has not been cured (if and to
the extent curable) within thirty (30) days after prompt written notice
(specifying the nature of such breach or default)) has been given to Owner by
BMG, BMG will have in addition to any other rights it has under this
Distribution Agreement, all rights and remedies afforded a secured party under
applicable law including, without limitation, all rights and remedies of a
secured party under the New York Uniform Commercial Code as amended from time to
time, the right to exploit the Collateral, in any media, and in any commercially
reasonable manner available to BMG and the right to sell the Collateral at
public or private sale at the location or locations then specified by BMG. All
reasonable attorneys' fees and disbursements and all other costs, charges,
premiums and other expenses incurred in connection with any such sale will be
charges against and deducted from the proceeds thereof, with the balance, if
any, applied in reduction of the obligations of Owner under the Distribution
Agreement, whether or not then due, with any surplus remaining being payable to
Owner. In the event there is a deficiency, said deficiency will be payable
forthwith by Owner. Notice of public or private sale, if given, will be
sufficiently given for all purposes if sent to Owner at its last known address,
and if a public sale, if published once in any newspaper of general circulation
in the county in which such sale is to be held, not less than five (5) days
prior to sale. In addition to any other rights or remedies BMG may have, upon
thirty (30) days written notice to Owner, BMG may sell the Collateral, at a
private sale to a distributor, dealer or other person or entity at BMG's
customary "cut-out" or "close out" prices, which Owner acknowledges and agrees
will constitute disposition thereof in a commercially reasonable manner. All
rights and remedies provided in this Distribution Agreement are cumulative, not
exclusive and enforceable, alternatively, successively or concurrently.
(d) For purposes hereof, "Owner's Product(s)" means any and all Records
subject to the Distribution Agreement, derived from Master(s) owned or
controlled, in whole or in part, directly or indirectly by Owner currently or at
any time during the Term. "Inventory" means all raw materials, work-in-progress,
finished goods and inventory of whatsoever kind or nature and all wrappings,
packaging, advertising, marketing, promotional and shipping materials and any
documents, necessary instruments and rights relating thereto, and all labels and
other devices, names and marks affixed or to be affixed thereto for purposes of
selling or of identifying the same, and all right, title and interest of Owner
therein and thereto (with the exception of underlying trademarks), wherever
located, whether now owned or hereafter acquired by Owner and all books, records
and other property relating to the foregoing. "Masters" means the original
material object in which sounds, with or without visual images, are fixed by any
method now known or hereafter developed and from which sounds, with or without
visual images, can be perceived, reproduced or otherwise communicated, either
directly or with the aid of a machine, device or process including out-takes,
unused portions and similar material relating to the above.
(e) This Agreement will be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflicts of law.
(f) Company agrees that any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, or otherwise relating to the
Agreement, may be brought
-41-
<PAGE>
against Company only in a state or federal court located in New York City, and
Company hereby submits to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein except that, if in Secured Party's judgment, it
is preferable to join in any such action or proceeding a third party that cannot
be joined in any such state or federal court, Secured Party may bring or seek to
transfer such action or proceeding to a court in such place where jurisdiction
can be obtained and the parties hereto consent to the jurisdiction of such court
and the transfer thereto. Notwithstanding anything herein to the contrary,
however, a judgment creditor may bring and action to enforce any judgment
arising out of this Agreement made by such court against the judgment debtor in
any court having jurisdiction over the judgment debtor or its possessions.
Process in any action or proceeding referred to in the Paragraph 12(f) will be
served on Company by personal service on the Secretary of state of New York
together with service by registered mail on the office of the Secretary of
Company (Company hereby irrevocably designates such office as its agent for such
service). Company will at all times maintain an agent in New York for receipt of
process and keep Secured Party informed as to the name and address of such
agent. Nothing herein will affect the right of secured Party to serve process in
any other manner permitted by law or to commence any legal action or proceeding
against Company in any other jurisdiction. EACH OF COMPANY AND SECURED PARTY
HEREBY IRREVOCABLY WAIVES TRIAL BY JURY AND ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
ACTION OR PROCEEDING IN SUCH JURISDICTION.
(g) As used herein, the singular, plural, masculine, feminine and neuter
will be deemed to include the other whenever and wherever appropriate.
(h) Time is of the essence.
-42-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed on the day and year first written above.
BMG MUSIC, a New York general Push Records, Inc., a Delaware corporation
partnership d/b/a BMG Entertainment (Company)
By: BERTELSMANN MUSIC GROUP, INC.,
a Delaware corporation, a general
partner
By: /s/ Peter P. Jones By: /s/ Brian Doyle
----------------------------- --------------------------------------
Name: Peter P. Jones Name: Brian Doyle
Title: President Title: President
Date: 8-27-97 Date: August 25, 1997
133932778
--------------------------------------
Federal Tax ID #
-43-
<PAGE>
SCHEDULE I
TO THE SECURITY AGREEMENT DATED AS OF AUGUST 15, 1997
BETWEEN BMG MUSIC AND PUSH RECORDS, INC.
Location of:
1. Chief Executive office of Company ) To Be Completed
) by Company
2. Collateral ) To Be Completed
) by Company
3. Books and Records Relating to Collateral ) To Be Completed
) by Company
-44-
[Logo of ADAMS & CO.]
This WORK ORDER shall apply
ONLY in connection with lease dated July 10, 1997 made between the undersigned:
53-7 WEST 23RD STREET thru to
34 WEST 24TH STREET
Building 30-2 WEST 24TH STREET
Tenant PARADISE MUSIC & ENTERTAINMENT, INC.
Lease begins 8/1/97
Space 11TH FLOORS
executive offices & production studios
Business for the music & entertainment industry
Lease expires 7/31/2007
The following work ONLY is to be done by Landlord:
SEE ARTICLE #59.
TWENTY THIRD STREET JOINT VENTURE
BY: ADAMS & CO. REAL ESTATE, INC., Agent
BY: /s/ [ILLEGIBLE] Landlord
--------------------------------
Executive Director of Leasing
PARADISE MUSIC & ENTERTAINMENT, INC. Tenant
BY: /s/ [ILLEGIBLE]
-----------------------------------
All work will commence as scheduled and will be prosecuted diligently, subject
to anything beyond Landlord's control, including but not limited to strikes,
labor troubles, governmental intervention, wars or other emergencies. Progress
of work specified above shall not affect payment of rent. Where work as above
mentioned is held up pending Tenant's request, either verbal or written, the
Landlord shall not be obligated to perform such work within the period of the
last six months of the lease and no liability shall result because of failure on
the Landlord's part to perform such work.
<PAGE>
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made as of this 10th day of July 1997, between TWENTY THIRD
STREET JOINT VENTURE party of the first part, hereinafter referred to as
LANDLORD, and PARADISE MUSIC & ENTERTAINMENT, INC., a Delaware corporation party
of the second part, hereinafter referred to as TENANT,
Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the ENTIRE ELEVENTH (11TH) FLOORS as shown on the floor plan attached
in the building known as 53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET and
30-2 WEST 24TH STREET in the Borough of MANHATTAN, City of New York, for the
term of TEN (10) YEARS (or until such term shall sooner cease and expire as
hereinafter provided) to commence on the 1ST day of AUGUST nineteen hundred and
NINETY-SEVEN, and to end on the 31ST day of JULY two thousand and SEVEN both
dates inclusive, at an annual rental rate of TWO HUNDRED SEVENTY THOUSAND
($270,000.) DOLLARS for the period commencing AUGUST 1, 1997 and ending JULY 31,
2002; and thereafter at an annual rental rate of THREE HUNDRED TEN THOUSAND
($310,000.) DOLLARS for the period commencing AUGUST 1, 2002 and ending JULY 31,
2007 (each being the base rent for the period involved) which Tenant agrees to
pay in lawful money of the United States which shall be legal tender in payment
of all debts and dues, public and private, at the time of payment, in equal
monthly installments in advance on the first day of each month during said term,
at the office of Landlord or such other place as Landlord may designate, without
any set off or deduction whatsoever, except that Tenant shall pay the first
_______ monthly installment(s) on the execution hereof (unless the lease be a
renewal).*
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Landlord
pursuant to the terms of another lease with Landlord or with Landlord's
predecessor in interest, Landlord may at Landlord's option and without notice to
Tenant add the amount of such arrearages to any monthly installment of rent
payable hereunder and the same shall be payable to Landlord as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for executive offices
and production studios for the music and entertainment industry and for no other
purposes.
Alterations: 3. Except as otherwise expressly permitted in this lease, Tenant
shall make no changes in or to the demised premises of any nature without
Landlord's prior written consent. Subject to the prior written consent of
Landlord, and to the provisions of this article, Tenant, at Tenant's expense,
may make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first reasonably approved by Landlord. All fixtures and
all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Landlord in Tenant's behalf, shall,
upon installation, become the property of Landlord and shall remain upon and be
surrendered with the demised premises unless Landlord, by notice to Tenant no
later than twenty days prior to the date fixed as the termination of this lease,
elects to relinquish Landlord's right thereto and to have them removed by
Tenant, in which event, the same shall be removed from the premises by Tenant
prior to the expiration of the lease, at Tenant's expense. Nothing in this
Article shall be construed to give Landlord title to or to prevent Tenant's
removal of trade fixtures, moveable office furniture and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Landlord, Tenant shall immediately and at its expense, repair
and restore the premises to the condition existing prior to installation and
repair any damage to the demised premises or the building due to such removal.
All property permitted or required to be removed by Tenant at the end of the
term remaining in the premises after Tenant's removal shall be deemed abandoned
and may, at the election of Landlord, either be retained as Landlord's property
or may be removed from the premises by Landlord, at Tenant's expense. Tenant
shall, before making any alterations, additions, installations or improvements,
at its expense, obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Landlord and Tenant agrees to carry and
will cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Landlord may reasonably require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or not
done pursuant to this article, the same shall be discharged by Tenant within 30
days thereafter, at Tenant's expense, by filing the bond required by law.
Repairs: 4. Landlord shall maintain and repair the public portions of the
building, both exterior and interior. Tenant shall, throughout the term of this
lease, take good care of the demised premises and the fixtures and appurtenances
therein and at Tenant's sole cost and expense, make all non-structural repairs
thereto as and when needed to preserve them in good working order and condition,
reasonable wear and tear, obsolescence and damage from the elements, fire or
other casualty, excepted. Notwithstanding the foregoing, all damage or injury to
the demised premises or to any other part of the building, or to its fixtures,
equipment and appurtenances, whether requiring structural or non-structural
repairs, caused by or resulting from carelessness, omission, neglect or improper
conduct of Tenant, Tenant's servants, employees, invitees, or licensees, shall
be repaired promptly by Tenant at its sole cost and expense, to the satisfaction
of Landlord reasonably exercised. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture or equipment. All the aforesaid repairs shall be of quality or class
equal to the original work or construction. If Tenant fails after ten days
notice to proceed with due diligence to make repairs required to be made by
Tenant, the same may be made by the Landlord at the expense of Tenant and the
expenses thereof incurred by Landlord shall be collectible as additional rent
after rendition of a bill or statement therefor. If the demised premises be or
become infested with vermin, Tenant shall, at its expense, cause the same to be
exterminated from time to time to the satisfaction of Landlord. Tenant shall
give Landlord prompt notice of any defective condition in any plumbing, heating
system or electrical lines located in, servicing or passing through the demised
premises and following such notice, Landlord shall remedy the condition with due
diligence, but at the expense of Tenant, if repairs are necessitated by damage
or injury attributable to Tenant, Tenant's servants, agents, employees, invitees
or licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. The provisions of this
Article 4 with respect to the making of repairs shall not apply in the case of
fire or other casualty with regard to which Article 9 hereof.
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the New York State Labor Law or any other applicable law or of
the Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads: 6. Prior to the commencement
of the lease term, if Tenant is then in possession, and at all times thereafter
Tenant, at Tenant's sole cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law,
* , to be applied to the fixed rent due on December 1, 1997 and January 1, 1998.
<PAGE>
and all orders, rules and regulations of the New York Board of Fire Underwriters
or any similar body which shall impose any violation, order or duty upon
Landlord or Tenant with respect to the demised premises arising out of Tenant's
use or manner of use thereof, or, with respect to the building, if arising out
of Tenant's use or manner or use of the premises of the building. Except as
provided in Article 29 hereof, nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has by its manner of use of the
demised premises other than the use permitted under Article #2 hereof or method
of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Landlord to Landlord's satisfaction against all damages, interest, penalties and
expenses, including, but not limited to, reasonable attorneys' fees, by cash
deposit or by surety bond in an amount and in a company satisfactory to
Landlord, contest and appeal any such laws, ordinances, orders, rules,
regulations or requirements provided same is done with all reasonable promptness
and provided such appeal shall not subject Landlord to prosecution for a
criminal offense or constitute a default under any lease or mortgage under which
Landlord may be obligated, or cause the demised premises or any part thereof to
be condemned or vacated. Tenant shall not do or permit any act or thing to be
done in or to the demised premises which is contrary to law, or which will
invalidate or be in conflict with public liability, fire or other policies of
insurance at any time carried by or for the benefit of Landlord with respect to
the demised premises or the building of which the demised premises form a part,
or which shall or might subject Landlord to any liability or responsibility to
any person or for property damage, nor shall Tenant keep anything in the demised
premises except as now or hereafter permitted by the Fire Department, Board of
Fire Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties or
damages, which may be imposed upon Landlord by reason of Tenant's failure to
comply with the provisions of this article and if by reason of such failure the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Landlord, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Landlord which shall have been charged because of
such failure by Tenant, and shall make such reimbursement upon the first day of
the month following such outlay by Landlord. In any action or proceeding wherein
Landlord and Tenant are parties a schedule or "make-up" of rate for the building
or demised premises issued by the New York Fire Insurance Exchange, or other
body making fire insurance rates applicable to said premises shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates then applicable to said premises. Tenant shall not place a
load upon any floor of the demised premises exceeding the floor load per square
foot area which it was designed to carry and which is allowed by law. Landlord
reserves the right to prescribe the weight and position of all safes, business
machines and mechanical equipment. Such installations shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's
reasonable judgement, to absorb and prevent vibration, noise and annoyance.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessee or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Landlord may request.
Property- Loss, Damage, Reimbursement, Indemnity: 8. Landlord or its agents
shall not be liable for any damage to property of Tenant or of others entrusted
to employees of the building, nor for loss of or damage to any property of
Tenant by theft or otherwise, nor for any injury or damage to persons or
property resulting from any cause of whatsoever nature, unless caused by or due
to the negligence of Landlord, its agents, servants or employees; nor shall
Landlord or its agents be liable for any damage caused by other tenants or
persons in, upon or about said building or cause by operations in construction
of any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Landlord's own acts, Landlord shall not be liable
for any damage Tenant may sustain thereby and Tenant shall be not entitled to
any compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall not move any safe, heavy machinery, heavy equipment, bulky matter, or
fixtures into or out of the building without Landlord's prior written consent.
If such safe, machinery, equipment, bulky matter or fixtures requires special
handling, all work in connection therewith shall comply with the Administrative
Code of the City of New York and all other laws and regulations applicable
thereto and shall be done during such hours as Landlord may designate. Tenant
shall indemnify and save harmless Landlord against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Landlord
shall not be reimbursed by insurance, including reasonable attorney's fees,
paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licenses, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licenses. Tenant's
liability under this lease extends to the acts and omissions of any subtenant,
and any agent, contractor, employee, invitee or licensee of any subtenant. In
case any action or proceeding is brought against Landlord by reason of any such
claim, Tenant, upon written notice from Landlord, will, at Tenant's expense,
resist or defend such action or proceeding by counsel approved by Landlord in
writing, such approval not to be unreasonably withheld. Landlord hereby approves
any counsel provided by Tenant's insurance company.
Rider to be added if necessary.
Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Landlord and this lease shall continue in full force and
effect except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other casualty, the
damages thereto shall be repaired by and at the expense of Landlord and the
rent, until such repair shall be substantially completed, shall be apportioned
from the day following the casualty according to the part of the premises which
is usable. (c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent shall be proportionately paid
up to the time of the casualty and thenceforth shall cease until the date when
the premises shall have been repaired and restored by Landlord, subject to
Landlord's right to elect not to restore the same as hereinafter provided. (d)
If the demised premises are rendered wholly unusable or (whether or not the
demised premises are damaged in whole or in part) if the building shall be so
damaged that Landlord shall decide to demolish it or to rebuild it, then, in any
such events, Landlord may elect to terminate this lease by written notice to
Tenant, given within 90 days after such fire or casualty specifying a date for
the expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Landlord's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Landlord shall serve a
termination notice as provided for herein, Landlord shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Landlord's control. * After any such casualty, Tenant
shall cooperate with Landlord's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Landlord that the premises
are substantially ready for Tenant's occupancy. (e) Nothing contained
hereinabove shall relieve Tenant from liability that may exist as a result of
damage from fire or other casualty. Notwithstanding the foregoing, each party
shall look first to any insurance in its favor before making any claim against
the other party for recovery for loss or damage resulting from fire or other
casualty, and to the extent that such insurance is in force and collectible and
to the extent permitted by law, Landlord and Tenant each hereby releases and
waives all right of recovery against the other or any one claiming through or
under each of them by way of subrogation or otherwise. The foregoing release and
waiver shall be in force only if both releasors' insurance policies contain a
cause providing that such a release or waiver shall not invalidate the insurance
and also, provided that such a policy can be obtained without additional
premiums. Tenant acknowledges that Landlord will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Landlord will not be obligated
to repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
* SEE ADDENDUM
Eminent Domain: 10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease.
Assignment, Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Landlord in
each instance. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Landlord may,
after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but
not such assignment, underletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, under-tenant or
occupant as tenant, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. The consent by
Landlord to an assignment or underletting shall not in any wise be construed to
relieve Tenant from obtaining the express consent in writing of Landlord to any
further assignment or underletting. This Article is modified by Article #53.
Electric Current: 12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in
Landlord's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The change at
any time of the character of electric service shall in no wise make Landlord
liable or responsible to Tenant, for any loss, damages or expenses which Tenant
may sustain.
Access to Premises: 13. Landlord or Landlord's agents shall have the right (but
shall not be obligated) to enter the demised premises in any emergency at any
time, and, at other reasonable times, to examine the same and to make such
repairs, replacements and improvements as Landlord may deem necessary and
reasonably desirable to the demised premises or to any portion of the building
or which Landlord may elect to perform following Tenant's failure to make
repairs or perform any work which Tenant is obligated to perform under this
lease, or for the purpose of complying with laws, regulations and other
directions of governmental authorities. Tenant shall permit Landlord to use and
maintain and replace pipes and conduits in and through the demised premises and
to erect new pipes and conduits therein. Landlord may, during the progress of
any work in the demised premises, take all necessary materials and equipment
into said premises without the same constituting an eviction nor shall the
Tenant be entitled to any abate-
<PAGE>
ment of rent while such work is in progress nor to any damages by reason of loss
or interruption of business or otherwise. Throughout the term hereof Landlord
shall have the right [ILLEGIBLE] to enter the demised premises at reasonable
hours for the purpose of showing the same to prospective purchasers or
mortgagees of the building, and during the last six months of the term for the
purpose of showing the same to prospective tenants. If Tenant is not present to
open and permit an entry into the premises, Landlord or Landlord's agents may
enter the same whenever such entry may be necessary or permissible by master key
or forcibly and provided reasonable care is exercised to safeguard Tenant's
property and such entry shall not render Landlord or its agents liable therefor,
nor in any event shall the obligations of the Tenant hereunder be affected.
Landlord shall have the right at any time, without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets, or other public parts of the building and
to change the name, number or designation by which the building may be known.
Vault, Vault Space, Area: 14. No vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding.
Landlord makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Landlord shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
Occupancy: 15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Landlord's work, if
any. In any event, Landlord makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record.
Bankruptcy: 16. (a) If at the date fixed as the commencement of the term of this
lease or if at any time during the term hereby demised there shall be filed by
or against Tenant in any court pursuant to any statute either of the United
States or of any state a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's property, and within 60 days thereof, Tenant fails to secure
a dismissal thereof, or if Tenant make an assignment for the benefit of
creditors or petition for or enter into an arrangement, this lease, at the
option of Landlord exercised or within a reasonable time after notice of the
happening of anyone or more of such events, may be cancelled and terminated by
written notice to the Tenant (but if any of such events occur prior to the
commencement date, this lease shall be ipso facto cancelled and terminated) and
whether such cancellation and termination occur prior to or during the term,
neither Tenant nor any person claiming through or under Tenant by virtue of any
statute or of any order of any court, shall be entitled to possession or to
remain in possession of the premises demised but shall forthwith quit and
surrender the premises, and Landlord, in addition to the other rights and
remedies Landlord has by virtue of any other provision herein or elsewhere in
this lease contained or by virtue of any statute or rule of law, may retain as
liquidated damages, any rent, security deposit or moneys received by him from
Tenant or others in behalf of Tenant. If this lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be applicable
only to the party then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four per cent (4%) per annum. If such premises or any
part thereof be re-let by the Landlord for the unexpired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Landlord to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payments of rent or additional rent; or
if the demised premises becomes abandoned; or if the demised premises are
damaged by reason of negligence or carelessness of Tenant, its agents, employees
or invitees; or if any execution or attachment shall be issued against Tenant or
any of Tenant's property whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if Tenant shall make default with
respect to any other lease in the building between Landlord and Tenant; then in
any one or more of such events, upon Landlord serving a written twenty days
notice upon Tenant specifying the nature of said default and upon the expiration
of said twenty days, if Tenant shall have failed to comply with or remedy such
default or if the said default or omission complained of shall be of a nature
that the same cannot be completely cured or remedied within said twenty day
period, and if Tenant shall not have diligently commenced curing such default
within such twenty day period, and shall not thereafter with reasonable
diligence and in good faith proceed to remedy or cure such default, then
Landlord may serve a written five (5) days' notice of cancellation of this lease
upon Tenant, and upon the expiration of said five (5) days, this lease and the
term thereunder shall end and expires as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Landlord but Tenant shall remain
liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and the
term shall expire as aforesaid; or if Tenant shall make default in the payment
of the rent reserved herein or any item of additional rent herein mentioned or
any part of either or in making any other payment herein required for a period
of 20 days after the due date; then and in any of such events Landlord may
without notice, re-enter the demised premises either by force or otherwise, and
dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove their
effects and hold the premises as if this lease had not been made, and Tenant
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end. If Tenant shall make default hereunder prior to
the date fixed as the commencement of any renewal or extension of this lease,
Landlord may cancel and terminate such renewal or extension agreement by written
notice.
Remedies of Landlord and Waiver of Redemption: 18. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a)
the rent shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, together with such reasonable expenses as Landlord
may incur for legal expenses, attorneys' fees, brokerage, and/or putting the
demised premises in good order, or for preparing the same for re-rental; (b)
Landlord may re-let the premises or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms, which may at Landlord's
option be less than or exceed the period which would otherwise have constituted
the balance of the term of this lease and may grant concessions or free rent or
charge a higher rental than that in this lease, and/or (c) Tenant or the legal
representatives of Tenant shall also pay Landlord as liquidated damages for the
failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and/or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
lease or leases of the demised premises for each month of the period which would
otherwise have constituted the balance of the term of this lease. The failure of
Landlord to re-let the premises or any part or parts thereof shall not release
or affect Tenant's liability for damages. In computing such liquidated damages
there shall be added to the said deficiency such reasonable expenses as Landlord
may incur in connection with re-letting, such as legal expenses, attorneys'
fees, brokerage, advertising and for keeping the demised premises in good order
or for preparing the same for re-letting. Any such liquidated damages shall be
paid in monthly installments by Tenant on the rent day specified in this lease
and any suit brought to collect the amount of the deficiency for any month shall
not prejudice in any way the rights of Landlord to collect the deficiency for
any subsequent month by a similar proceeding. Landlord, in putting the demised
premises in good order or preparing the same for re-rental may, at Landlord's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises as Landlord, in Landlord's sole judgment, considers advisable
and necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacements, and/or decorations shall not operate
or be construed to release Tenant from liability hereunder as aforesaid.
Landlord shall in no event be liable in any way whatsoever for failure to re-let
the demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event shall
Tenant be entitled to receive any excess, if any, of such net rents collected
over the sums payable by Tenant to Landlord hereunder. In the event of a breach
or threatened breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this lease of any particular
remedy, shall not preclude Landlord from any other remedy, in law or in equity.
Tenant hereby expressly waives any and all rights of redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Landlord obtaining possession of
demised premises, by reason of the violation by Tenant of any of the covenants
and conditions of this lease, or otherwise.
Fees and Expenses: 19. If tenant shall default in the observance or performance
of any term or covenant on tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, then,
unless otherwise provided elsewhere in this lease, landlord may immediately or
at any time thereafter and without notice perform the obligation of Tenant
thereunder and if landlord, in connection therewith or in connection with any
default by tenant in the covenant to pay rent hereunder, makes any expenditures
or incurs any obligations for the payment of money, including but not limited to
reasonable attorney's fees, in instituting, prosecuting or defending any action
or proceeding, such sums so paid or obligations incurred with interest and costs
shall be deemed to be additional rent hereunder and shall be paid by tenant to
landlord within five (5) days of rendition of any bill or statement to tenant
therefor and if tenant's lease term shall have expired at the time of making of
such reasonable expenditures or incurring of such obligations, such sums shall
be recoverable by landlord as damages.
No Representations by Landlord: 20. Neither Landlord nor Landlord's agents have
made any representations or promises with respect to the physical condition of
the building, the land upon which it is erected or the demised premises, the
rents, leases, ex-
<PAGE>
penses of operation or any other matter or thing affecting or related to the
premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition, and
agrees to take the same "as is" [ILLEGIBLE] and acknowledges that the taking of
possession of the demised premises by Tenant shall be conclusive evidence that
the said premises and the building of which the same form a part were in good
and satisfactory condition at the time such possession was so taken, except as
to latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Landlord and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term: 21. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Landlord the demised premises, broom
clean, in good order and condition, ordinary wear excepted, and Tenant shall
remove all its property. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of this lease. If the last day
of the term of this Lease or any renewal thereof, falls on Sunday, this lease
shall expire at noon on the preceding Saturday unless it be a legal holiday in
which case it shall expire at noon on the preceding business day.
Quiet Enjoyment: 22. Landlord covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 33 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
Failure to Give Possession: 23. If Landlord is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants, or if the premises are located in a building being constructed,
because such building has not been sufficiently completed to make the premises
ready for occupancy or because of the fact that a certificate of occupancy has
not been procured or for any other reason, Landlord shall not be subject to any
liability for failure to give possession on said date and the validity of the
lease shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extent the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for the inability
to obtain possession) until after Landlord shall have given Tenant written
notice that the premises are substantially ready for Tenant's occupancy. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease, Tenant covenants and
agrees that such possession shall be deemed to be under all the terms,
covenants, conditions and provisions of this lease, except as to the covenant to
pay rent. The provisions of this article are intended to constitute "an express
provision to the contrary" within the meaning of Section 233-a of the New York
Real Property Law.
No Waiver: 24. The failure of Landlord to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations, set forth or hereafter adopted by Landlord,
shall not prevent a subsequent act which would have originally constitute a
violation from having all the force and effect of an original violation. The
receipt by Landlord of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no provision of this lease
shall be deemed to have been waived by Landlord unless such waiver be in writing
signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser
amount then the monthly rent herein stipulated shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this lease provided. No act or thing done by
Landlord or Landlord's agents during the term hereby demised shall be deemed an
acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Landlord. No employee of
Landlord or Landlord's agent shall have any power to accept the keys of said
premises prior to the termination of the lease and the delivery of keys to any
such agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
Waiver of Trial by Jury: 25. It is mutually agreed by and between Landlord and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Landlord and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding (other
than compulsory counterclaims.)
Inability to Perform: 26. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be affected, impaired or excused
because Landlord is unable to fulfill any of its obligations under this lease or
to supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if Landlord is prevented or delayed from so doing by
reason of strike or labor troubles or any cause whatsoever including, but not
limited to, government preemption in connection with a National Emergency or by
reason of any rule, order or regulation of any department or subdivision thereof
of any government agency or by reason of the conditions of supply and demand
which have been or are affected by war or other emergency.
Bills and Notices: 27. Except as otherwise in this lease provided, a bill,
statement, notice or communication which Landlord may desire or be required to
give to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant other than legal
process if otherwise permitted by law, and the time of the rendition of such
bill or statement and of the giving of such notice or communication shall be
deemed to be the time when the same is delivered to Tenant, mailed, or left at
the premises as herein provided. Any notice by Tenant to Landlord must be served
by registered or certified mail addressed to Landlord at the address first
hereinabove given or at such other address as Landlord shall designate by
written notice.
Water Charges: 28. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary lavatory purposes (of which fact Tenant constitutes
Landlord to be the sole judge) Landlord may install a water meter and thereby
measure Tenant's water consumption for all purposes. Tenant shall pay Landlord
for the cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant's own cost and
expense in default of which Landlord may cause such meter and equipment to be
replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to
pay for water consumed, as shown on said meter as and when bills are rendered,
and on default in making such payment Landlord may pay such charges and collect
the same from Tenant. Tenant covenants and agrees to pay the sewer rent, charge
or any other tax, rent, levy or charge which now or hereafter is assessed,
imposed or a lien upon the demised premises or the realty of which they are part
pursuant to law, order or regulation made or issued in connection with the use,
consumption, maintenance or supply of water, water system or sewage or sewage
connection or system. The bill remdered by Landlord shall be payable by Tenant
as additional rent. If the building or the demised premises or any part thereof
be supplied with water through a meter through which water is also supplied to
other premises Tenant shall pay to Landlord as additional rent, on the first day
of each month, ___% ($100.00) of the total meter charges, as Tenant's portion.
Independently of and in addition to any of the remedies reserved to Landlord
hereinabove or elsewhere in this lease, Landlord may sue for and collect any
monies to be paid by Tenant or paid by Landlord for any of the reasons or
purposes hereinabove set forth.
Sprinklers: 29. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
or city government require or recommended the installation of a sprinkler system
or that any changes, modifications, alterations, or additional sprinkler heads
or other equipment be made or supplied in an existing sprinkler system by reason
of Tenant's business, or the location of partitions, trade fixtures, or other
contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, changes, modifications, alterations, additional
sprinklers heads or other such equipment, become necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate set by any said Exchange or by any fire
insurance company, Tenant shall, at Tenant's expense, promptly make such
sprinkler system installations, changes, modifications, alterations, and supply
additional sprinkler heads or other equipment as required whether the work
involved shall be structural or non-structural in nature. Tenant shall pay to
Landlord as additional rent the sum of ($100.00) on the first day of each month
during the terms of this lease, as Tenant's portion of the contract price for
sprinkler supervisory.
Elevators, Heat, Cleaning: 30. As long as Tenant is not in default in the
payment of rent or additional rent under this lease Landlord shall: (a) provided
necessary elevator facilities on business days from 8 a.m. to 6 p.m. and on
Saturdays from 8 a.m. to 1 p.m.; (b) furnish heat to the demised premises, when
and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays
from 8 a.m. to 1 p.m.; (c) at the Landlord's expense cause to be kept clean the
public halls and public portions of the building which are used in common by all
tenants. Tenant shall, at Tenant's expense, keep the demised premises clean and
in order, to the satisfaction of Landlord, and for that purpose shall employ the
person or persons, or corporation approved by Landlord. Tenant shall pay to
Landlord the cost of removal of any of Tenant's refuse and rubbish from the
building. Bills for the same shall be rendered by Landlord to Tenant at such
time as Landlord may elect and shall be due and payable when rendered, and the
amount of such bills shall be deemed to be, and be paid as, additional rent.
Tenant shall, however, have the option of independently contracting for the
removal of such rubbish and refuse in the event that Tenant does not wish to
have same done by employees of Landlord. Under such circumstances, however, the
removal of such refuse and rubbish by others shall be subject to such rules and
regulations as, in the judgment of Landlord, are necessary for the proper
operation of the building. Landlord reserves the right to stop service of the
heating, elevator, plumbing and electric systems, when necessary, by reason of
accident, or emergency, or for repairs, alterations, replacements or
improvements, in the judgment of Landlord desirable or necessary to be made,
until said repairs, alterations, replacements or improvements shall
<PAGE>
have been completed. And Landlord shall have no responsibility or liability for
failure to supply heat, elevator, plumbing and electric service, during said
period or when prevented from so doing by strikes, accidents or by any cause
beyond Landlord's control, or by laws, orders or regulations of any Federal,
State or Municipal Authority, or failure of coal, oil or other suitable fuel
supply, or inability by exercise of reasonable diligence to obtain coal, oil or
other suitable fuel. If the building of which the demised premises are a part
supplies manually operated elevator service, Landlord may proceed with
alterations necessary to substitute automatic control elevator service upon ten
(10) days written notice to Tenant without in any way affecting the obligations
of Tenant hereunder, provided that the same shall be done with the minimum
amount of inconvenience to Tenant, and Landlord pursues with due diligence the
completion of the alterations.
Security: 31. Tenant shall deposit with Landlord the sum of $51,600.00 as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease; it is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent,
Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default in respect
of any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the reletting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Landlord. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to
Landlord. In the event of a sale of the land and building or leasing of the
building, of which the demised premises form a part, Landlord shall have the
right to transfer the security to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look to the new Landlord solely for the return of
said security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. See Schedule "A"
Captions: 32. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
Definitions: 33. The term "Landlord" as used in this lease means only the owner,
or the mortgagee in possession, for the time being of the land and building (or
the owner of a lease of the building or of the land and building) of which the
demised premises form a part, so that in the event of any sale or sales of said
land and building or of said lease, or in the event of a lease of said building,
or of the land and building, the said Landlord shall be and hereby is entirely
freed and relieved of all covenants and obligations of Landlord hereunder, and
it shall be deemed and construed without further agreement between the parties
or their successors in interest, or between the parties and the purchaser, at
any such sale, or the said lessee of the building, or of the land and building,
that the purchaser or the lessee of the building, or of the land and building,
that the purchaser or the lessee of the building has assumed and agreed to carry
out any and all covenants and obligations of Landlord hereunder. The words
"re-enter" and "re-entry" as used in this lease are not restricted to their
technical legal meaning. The term "business days" are used in this lease shall
exclude Saturdays, (except such portion thereof as is covered by specific hours
in Article 30 hereof), Sundays, and all days observed by the State or Federal
Government as legal holidays and those designated as holidays by the applicable
building service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
Adjacent Excavation- Shoring: 34. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against Landlord,
or diminution or abatement of rent.
Rules and Regulations: 35. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Landlord or Landlord's agents may from time to time adopt. Notice
of any additional rules or regulations shall be given in such manner as Landlord
may elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Landlord or Landlord's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Landlord within ten (10) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations or terms, covenants or conditions in any other lease, as against
any other tenant and Landlord shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
Glass: 36. Tenant shall replace, at the expense of Tenant, any and all plate and
other glass damaged or broken from any cause whatsoever in and about the demised
premises. Landlord may insure, and keep insured, at Tenant's expense, all plate
and other glass in the demised premises for and in the name of Landlord. Bills
for the premiums therefor shall be rendered by landlord to Tenant at such times
as Landlord may elect, and shall be due from, and payable by, Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid as,
additional rent.
Successors and Assigns: 37. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Landlord and Tenant and
their respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
Rider containing Articles #38 through #65 inclusive,
annexed hereto and forming part of this lease.
In Witness Whereof, Landlord and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Landlord: TWENTY THIRD STREET JOINT VENTURE
BY: ADAMS & CO. REAL ESTATE, INC., Agent
[CORP. SEAL]
By: /s/ [ILLEGIBLE] [L.S.]
- ------------------------ --------------------------------------
Executive Director of Leasing
Witness for Tenant: PARADISE MUSIC & ENTERTAINMENT, INC. [L.S.]
By: /s/ [ILLEGIBLE] [CORP. SEAL]
- ------------------------ --------------------------------------
/ /97
I.D. #
------------------------------------
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE LANDLORD
STATE OF NEW YORK, ) ss.:
County of )
On this ___________ day of ___________, 19__, before me personally came
__________________________________, to me known, who being by me duly sworn, did
depose and say that he resides in ______________________________________________
that he is the ________________ of ____________________________________________
the corporation described in and which executed the foregoing instrument, as
LANDLORD; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
----------------------------------
INDIVIDUAL LANDLORD
STATE OF NEW YORK, ) ss.:
County of )
On this __________ day of __________, 19__, before me personally came
______________________________, to be known and known to me to be the individual
described in and who, as LANDLORD, executed the foregoing instrument and
acknowledged to me that he executed the same.
----------------------------------
CORPORATE TENANT
STATE OF NEW YORK., ) ss.:
County of )
On this ___________ day of ___________, 19__, before me personally came
_________________________ to me known, who being by me duly sworn, did depose
and say that he resides in ____________________________ that he is the
________________ of ____________________________________________ the corporation
described in and which executed the foregoing instrument, as TENANT; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation, and that he signed his name thereto by like order.
----------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK., ) ss.:
County of )
On this __________ day of __________, 19__, before me personally came
___________, to me known and known to me to be the individual described in and
who, as TENANT, executed the foregoing instrument and acknowledged to me that he
executed the same.
----------------------------------
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE IN
ACCORDANCE WITH ARTICLE 35.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingrees to or egress from
the demised premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Landlord. There shall not be used in any space, or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and sideguards. If said premises are situate on the ground floor of
the building Tenant thereof shall further, at Tenant's expense, keep the
sidewalks and curb in front of said premises clean and free from ice, snow, dirt
and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Landlord, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to Tenant or Tenants violating this rule.
Interior signs on doors and directory tablet shall be inscribed, painted or
affixed for each Tenant by Landlord at the expense of such Tenant, and shall be
of a size, color and style acceptable to Landlord.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part except with
Landlord's written consent. No boring, cutting or stringing of wires shall be
permitted, except with the prior written consent of Landlord, and as Landlord
may direct. No Tenant shall lay linoleum, or other similar floor covering, so
that the same shall come in direct contact with the floor of the demised
premises, and, if linoleum or other similar floor covering is desired to be used
an interlining of builder's deadening felt shall be first affixed to the floor,
by a paste or other material, soluble in water, the use of cement or other
similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by, such Tenant, and in the event of
the loss of any keys, so furnished, such Tenant shall pay to Landlord the cost
thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Landlord. Landlord reserves the right
to inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations or the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Landlord,
and at hours and under regulations fixed by Landlord. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Landlord reserves the right to exclude from the building between the
hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all
persons who do not present a pass to the building signed by Landlord. Landlord
will furnish passes to persons for whom any Tenant requests same in writing.
Each Tenant shall be responsible for all persons for whom he requests such pass
and shall be liable to Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any
Tenant which in Landlord's opinion, tends to impair the reputation of the
building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
<PAGE>
Address 53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Premises ENTIRE ELEVENTH (11TH) FLOORS
================================================================================
TWENTY THIRD STREET JOINT VENTURE
TO
PARADISE MUSIC & ENTERTAINMENT, INC.
================================================================================
STANDARD FORM OF
(SEAL) LOFT LEASE (SEAL)
The Real Estate Board of New York, Inc.
(C) Copyright 1973. All rights Reserved.
Reproduction in whole or in part prohibited.
================================================================================
Dated July 10, 1997
Rent Per Year $270,000.
$310,000.
Rent Per Month $22,500.00
$25,833.33
Term 10 years
From 8/1/97
To 7/31/07
Drawn by mc
------------------------------------------------------------------------
Checked by
----------------------------------------------------------------------
Entered by
----------------------------------------------------------------------
Approved by
---------------------------------------------------------------------
================================================================================
[ADAMS & CO. LOGO]
<PAGE>
[GRAPHIC OMITTED]
MAP OF PARADISE MUSIC & ENTERTAINMENT, INC.
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
ELECTRICITY
(a) Tenant may make its own arrangements with the public utility company
servicing the demised premises for the payment of all charges for electricity
consumed at the demised premises by Tenant. In no event shall Landlord be
responsible for charges for electricity consumed at the demised premises by
Tenant. Notwithstanding the foregoing, if electric current be supplied by
Landlord, which Landlord reserves the right to do at its sole option, Tenant
covenants and agrees to purchase the same from Landlord or Landlord's designated
agent at terms and rates set by Landlord in subparagraph (b) below. Where more
than one meter measures the service of Tenant in the building, the service
rendered through each meter may be computed and billed separately in accordance
with the rates herein. Bills therefor shall be rendered at such times as
Landlord may elect in the amount computed from a meter. In the event that such
bills are not paid within thirty (30) days after the same are rendered, Landlord
may, without further notice, discontinue the service of electric current to the
demised premises without releasing Tenant from any liability under this lease
and without Landlord or Landlord's agent incurring any liability for any damage
or loss sustained by Tenant by such discontinuance of service. Landlord shall
not in any wise be liable or responsible for any loss or damage or expense which
Tenant may sustain or incur if either the quantity or character of electric
service is changed or is no longer available or suitable for Tenant's electrical
requirements. Any riser or risers to supply Tenant's electrical requirements,
upon written request of Tenant, will be installed by Landlord, at the sole cost
and expense of Tenant, if, in Landlord's sole judgment, the same are necessary
and will not cause permanent damage or injury to the building or demised
premises or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations, repairs or expense or interfere with or
disturb other tenants or occupants of the building. In addition to the
installation of such riser or risers, Landlord will also at the sole cost and
expense of Tenant, install all other equipment proper and necessary in
connection therewith subject to the aforesaid terms and conditions. Tenant
covenants and agrees that at all times its use of electric current shall never
exceed the capacity of existing feeders to the building or the risers or wiring
installations. Landlord may discontinue any of the aforesaid services upon
thirty (30) days notice to Tenant without being liable to Tenant therefor or
without in any way affecting this lease or the liability of Tenant hereunder or
causing a diminution of rent and the same shall not be deemed to be lessening or
diminution of services within the meaning of any law, rule or regulation now or
hereafter enacted, promulgated or issued. In the event Landlord gives such
notice of discontinuance Landlord shall permit Tenant to receive such service
direct from a public utility company. Tenant shall make no alteration or
addition to the electric equipment and/or appliances without prior written
consent of Landlord in each instance. If any tax is imposed upon Landlord's
receipt from the sale or resale of electrical energy or gas or telephone service
to Tenant by any Federal, State or Municipal Authority, Tenant covenants and
agrees that, where permitted by law, Tenant's pro rata share of such taxes shall
be passed on to, and included in the bill and paid by Tenant to Landlord.
(b) The Tenant shall purchase electricity from the Landlord or Landlord's
Agent at a charge which shall be computed by adding l0% to the total of (1) the
meter readings for energy use, the demand, and fuel adjustments under
Consolidated Edison Service Classification 4 or like or similar rate by any
other utility company servicing the building, and (2) all taxes imposed on each
of such components plus sales tax. All charges incurred by the Tenant under this
Article shall be additional rent and collectible by the Landlord as such.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
38. It is specifically understood and agreed that this lease is offered to the
Tenant for signature by the Managing Agent of the building solely in its
capacity as such Agent.
39. The Tenant will indemnify and save harmless the Landlord from and against
any and all liability, penalties, losses, damages, expenses, suits and judgments
arising from injury during the term of this lease to person or property of any
nature, in the demised premises from any matter or thing growing out of the use
or occupation thereof and the Tenant agrees throughout the term of this lease to
keep the Landlord insured against General Public Liability in limits of
$1,000,000. per person, $3,000,000. per incident and against Property Damage in
the amount of $500,000. Such policies of insurance and certificates thereof
shall be obtained by the Tenant and delivered to the Landlord showing the
payment of the premium thereon. On the failure of the Tenant to obtain and pay
for such insurance, the Landlord may, but shall not be obligated to, procure the
same and pay the premiums thereon, and the cost thereof shall be added to the
monthly rent next due and shall be collectible as additional rent.
40. Prior to installing additional air conditioning units in the premises not
specified in the original construction drawing, the Tenant shall first obtain
the written consent of the Landlord or its Managing Agent. Tenant shall pay for
all electrical current consumed in the operation thereof. In the event such unit
or units utilize circulating water, it shall be equipped with an approved water
conserving device and in connection therewith, Tenant shall install and maintain
in good working order, at its own cost and expense, a water meter which shall
meter all make-up water used in such air conditioning equipment and shall pay
for such water as per meter reading and in addition thereto, sewerage or any
other charge, tax or levy which now or hereafter is imposed by the City of New
York in connection with said use of water. Any charge for electricity or water
consumed as herein provided, shall be deemed to be additional rent and payable
as such.
41. If the Landlord or any successor in interest be an individual, joint
venture, tenancy in common, co-partnership, unincorporated association, or other
unincorporated aggregate of individuals (all of which are referred to below,
individually and collectively, as an "unincorporated Landlord"), then, anything
elsewhere to the contrary notwithstanding, Tenant shall look solely to the
estate and property of such unincorporated Landlord in the land and building of
which the leased premises are a part, for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) requiring the
payment of money by Landlord in the event of any default or breach by Landlord
with respect to any of the terms, covenants and conditions of the lease to be
observed and/or performed by Landlord, and no other property or assets of such
unincorporated Landlord shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies.
42. The provisions of Article #19 of this lease shall apply to any action or
special proceeding the Landlord may institute should the Tenant fail to vacate
the premises at the expiration of the term of this lease.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
43. (a) For the purpose of this Article, the term "lease year" shall mean the
period of twelve (12) months commencing with the term commencement date and
ending on the following JULY 31ST and each successive period of twelve (12)
months thereafter during the term. The term "base year" as applied to real
estate taxes, shall mean the City tax year July 1, 1997 to June 30, 1998.
(b) In the event that the real estate taxes payable with respect to the
building and the land on which it is located, during any lease year shall be
greater than the amount of such taxes due and payable during the base year,
whether by reason of an increase in either the tax rate or the assessed
valuation or by reason of the levy, assessment or imposition of any tax on real
estate as such, not now levied, assessed or imposed, or for any other reason,
Tenant shall pay to Landlord, as additional rent for the lease year in which
such increase occurs, an amount equal to 8% of the difference between the amount
of such tax or installment and the corresponding tax or installment paid during
the base year. Such additional rent shall be paid in twelve (12) equal monthly
installments beginning on the first day of the month next succeeding receipt by
the Tenant of a bill therefor. The amount of such taxes actually paid by
Landlord during the base year shall determine the amount of additional rent
payable under this paragraph (b) until, as the result of a final determination
in legal proceedings or otherwise, the amount of such taxes shall be reduced. In
the event of such final determination, the reduced amount of such taxes shall
thereafter be the base tax upon which shall be determined the amount of
additional rent payable by Tenant pursuant to this paragraph (b), the additional
rent theretofore payable hereunder shall be recomputed on the basis of such
reduction, unless the taxes for any subsequent year exceeds the original tax
prior to reduction, in which event the base tax shall be the original tax and
Tenant shall pay to the Landlord such additional rent in twelve (12) equal
monthly installments after being billed therefor, any deficiency between the
amount of such additional rent as theretofore computed and the amount thereof
due as the result of such recomputation. If Landlord shall be the lessee under
an underlying lease, the term "real estate taxes" as used in this paragraph (b)
shall be deemed to mean and include the amounts payable as additional rental
under said underlying lease based on the taxes payable with respect to said
building and land.
(c) If the amount of additional rent payable by Tenant pursuant to the
foregoing paragraph (b) shall be affected by any application filed by or on
behalf of Landlord for a reduction in the assessed valuation of the said
building and land or by any proceedings instituted by or on behalf of Landlord
in a court of competent jurisdiction for judicial review of said assessed
valuation, and if, after Tenant shall have made a payment of additional rent
under said paragraph (b) Landlord shall receive a refund of any portion of the
real estate taxes on which such payment shall have been based as the result of
any such application or proceeding, Landlord shall pay to Tenant 8% of the
refund less any amount owing by Tenant for reasonable expenses actually incurred
by Landlord in connection with any such application, court action or otherwise.
Nothing in this paragraph (c) contained shall be deemed or construed to require
Landlord to pay to Tenant any portion of a refund of taxes paid by Landlord
during the base year.
(d) For the purposes of this lease and more particularly for this Article,
the expenses referred to in paragraph (b) shall be the total of the items
mentioned for the buildings at 53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
and 30-2 WEST 24TH STREET.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
44. If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this lease, such
holding over shall not be deemed to extend the term or renew the lease, but such
holding over thereafter shall continue upon the covenants and conditions herein
set forth except that the charge for use and occupancy of such holding over for
each calendar month or part thereof (even if such part shall be a small fraction
of a calendar month) shall be the sum of:
(a) 1/12 of the highest base annual rental rate set forth on page one of
this lease times 1.5, plus
(b) 1/12 of all other items of annual additional rental, which annual
additional rental would have been payable pursuant to this lease had
this lease not expired, plus
(c) those other items of additional rent (not annual additional rent)
which would have been payable monthly pursuant to this lease, had
this lease not expired,
which total sum Tenant agrees to pay to Landlord promptly upon demand, in full,
without set-off or deduction. Neither the billing nor the collection of use and
occupancy in the above amount shall be deemed a waiver of any right of Landlord
to collect damages for Tenant's failure to vacate the demised premises after the
expiration or sooner termination of this lease.
The aforesaid provisions of this Article shall survive the expiration or
sooner termination of this lease.
45. Tenant's obligation to pay additional rent under this lease for the final
lease year shall survive the expiration of the term of this lease, and any
additional rent due for any partial lease year shall be prorated.
46. If Tenant is late in making any payment due to Landlord from Tenant under
this lease for five (5) or more days, Tenant shall pay Landlord a late charge of
$.05 for each $1.00 which remains unpaid after such period to compensate
Landlord for additional expense in processing such late payment. In addition, if
Tenant is late in making any payment due to Landlord under this lease for five
(5) or more days, then interest shall become due and owing on such payment and
shall be paid by Tenant to Landlord from the date when it was due until the date
payment is made, computed at a rate equal to the lesser of twelve (12%) per cent
per annum or the highest rate permitted by law.
47. All charges which are the obligation of the Tenant shall be additional rent
and collectible as such.
48. The Landlord agrees to accept checks in payment of any obligations of the
Tenant under this lease provided, however, they are drawn on bank, which has an
office or branch in the City of New York. In the event any check tendered in
payment of rent or additional rent is dishonored for any reason whatsoever more
than two (2) times during the term of this lease, its substitute shall be a
certified or bank check and all future checks tendered to the Landlord shall be
certified or bank checks.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
49. Every notice, invoice, or demand given by the Landlord to the Tenant for any
item of additional rent under this lease shall be conclusive and binding upon
the Tenant unless within 30 days after the giving of such notice, invoice or
demand the Tenant shall notify the Landlord in writing as required by the
pertinent provisions of this lease that the Tenant disputes the correctness of
the notice, invoice or demand, specifying the particular item claimed to be
incorrect. In the event the dispute shall not thereafter be settled by agreement
between the parties within 30 days thereafter the Landlord shall within the next
90 days institute a summary proceeding or an action to determine the issue.
During the pendency of such action or proceeding the Tenant shall pay all of the
items on such notice, invoice or demand including the disputed items without
prejudice to Tenant's position on such disputed items and in the event there is
a final determination in Tenant's favor the Landlord shall forthwith refund to
the Tenant the amount overpaid.
50. It is understood and agreed that upon the execution and delivery of this
lease, the Tenant shall have immediate possession of the demised premises, free
of base rent through NOVEMBER 30, 1997, and at one-half the base rent for the
period of DECEMBER 1, 1997 through MARCH 31, 1999, otherwise subject to the
terms and conditions hereof, and with the express understanding that the Tenant
shall pay all items of additional rent and other charges reserved under this
lease commencing with the date the Tenant receives an executed copy of this
lease, provided however, that in the event Tenant defaults in fulfilling any of
the terms of this lease at any time during the term or defaults in the payment
of rent or additional rent after the free rent period, the rent for the entire
free rent period shall immediately become due and payable. This shall apply to
monetary defaults only.
51. On each anniversary date of the term of this lease commencing August 1, 1998
through July 31, 2002, there shall be an adjustment of 3% of the annual rental
payable hereunder, compounded annually, and commencing August 1, 2002 through
the balance of the term of this lease, there shall be an adjustment of 4% of the
annual rental payable hereunder, compounded annually.
52. In consideration of the Tenant, at its own cost and expense, doing work in
the demised premises and upon the completion of such work and the presentation
by the Tenant to the Landlord of receipted bills for all such work as evidence
that same has been paid for, the Landlord agrees to grant to the Tenant an
allowance in an amount not to exceed the sum of THREE HUNDRED THOUSAND
($300,000.) DOLLARS (Tenant's allowance) against the actual cost of such work
and the presentation of said receipted bills.
The allowance shall be paid to the Tenant no more than once monthly within
ten (10) business days after receipt of paid invoices. The Landlord shall pay
the allowance for the amount of the bills less ten (10%) per cent, which ten
(10%) per cent shall be cumulative and shall be retained by the Landlord until
the installations and alterations have been signed-off by the governmental
authorities claiming jurisdiction over such work. Upon delivery of all the
necessary departmental documents indicating "sign-off", provided Tenant is not
in default of any of the terms, conditions and covenants of the within lease,
the balance of the allowance then being held by the Landlord shall be paid to
the Tenant within ten (10) days thereafter.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
53. (A) Subject to the provisions of paragraph (F) of this Article, the
provisions of Article #11 of this lease are amended to the extent that, Landlord
agrees that it will not withhold its consent unreasonably to a subletting of the
entire demised premises or an assignment of this lease provided that (a) as to a
sublease, Tenant delivers to Landlord a copy of the proposed essential terms of
the sublease in form to be executed, together with reasonably detailed
statements of the proposed subtenant's business and financial references; (b) as
to an assignment, Tenant delivers to Landlord reasonably detailed statements of
the proposed assignee's business and financial references; (c) the purpose for
which the proposed subtenant or assignee intends to use the demised premises are
uses expressly permitted by and not expressly prohibited by this lease; (d) the
date when the proposed sublease or assignment is to become effective is at least
30 days after the submission to Landlord of the aforesaid documentation; (e)
Tenant shall not be in default in the performance of any of its obligations
under this lease; (f) the proposed subtenant or assignee is not then a tenant of
any space in the building of which the demised premises form a part; (g) no
advertisement with respect to the demised premises shall quote a rental below
that of the demised premises or comparable space in the building; (h) any
request for consent to such subletting or assignment shall be made by notice
pursuant to the provisions of Article #27 of this lease.
(B) Any such subletting or assignment shall not release the Tenant herein
from any liability or responsibility under the terms, covenants or conditions of
the within lease.
(C) It is expressly agreed that in the event of an assignment, the
Assignee shall assume all the obligations of the lease jointly with the Tenant
herein, and the Tenant shall deliver to the Landlord a duplicate-original of
such assignment and the assumption by the Assignee, duly executed and
acknowledged by the Tenant and such Assignee as soon as same has been executed.
(D) No further or additional subletting of the demised premises or
assignment of this lease shall be made, except with the prior written approval
of the Landlord pursuant to this Article.
(E) It is further understood and agreed that the Tenant shall designate
Adams & Co. Real Estate, Inc. as Tenant's exclusive Agent to effect any sublet,
assignment or release, and Tenant shall pay to Adams & Co. Real Estate, Inc.
upon the execution of any such subleasing, assignment or release actually
procured by Adams & Co. Real Estate, Inc., a commission computed in accordance
with the rates and rules established by Adams & Co. Real Estate, Inc., provided
said rates are customary.
(F) Notwithstanding the provisions of this Article, in the event Tenant
requests Landlord's consent to a subletting of the entire demised premises or an
assignment of this lease, Landlord shall have the right to cancel and terminate
this lease as of the effective date set for such proposed subletting or
assignment by giving Tenant notice to that effect within 15 days from the
receipt of such request and thereupon, on such effective date, this lease shall
terminate and come to an end as though that were the date originally set forth
for the termination of this lease. Tenant agrees to vacate and surrender
possession of the premises to the Landlord on or before said date, leaving same
broom clean, in good order and condition. Thereupon, both parties will be
released and relieved from further liability under the within lease, except that
Tenant's obligations to perform all of the terms, obligations and covenants,
including the obligation to pay rent and additional rent, up to and including
the date of termination, shall survive such termination.
SEE ADDENDUM
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
54. Subject to all of the terms and conditions of Article #3 of the within
lease, permission is hereby granted to the Tenant to make, at its own cost and
expense, all alterations, improvements and installations in the demised premises
including the installation of a satellite antenna on the roof, and the
installation of air conditioning.
Prior to the commencement of any and all work and installations, Tenant shall
submit to the Landlord or its Managing Agent, for its approval in writing, plans
and specifications for all work and installations, which approval Landlord
agrees shall not be unreasonably withheld or delayed. All work shall be in
strict conformity with all rules, regulations and ordinances of any governmental
authority or bureau having jurisdiction thereof, including the New York Board of
Fire Underwriters or any other similar body, and the Tenant agrees to procure
any permits needed in connection with such work prior to the commencement
thereof. In the event the Tenant is required to do any work in connection with
the building sprinkler system, water and/or electrical risers or any other
building riser or facility, the Tenant agrees that all work in connection
therewith shall be done by plumbing, electrical, sprinkler and/or other
contractors approved by the Landlord, which approval shall not be unreasonably
withheld, at the Tenant's sole cost. Tenant further agrees that it shall require
its contractors and/or sub-contractors to furnish the Landlord with Certificates
of Insurance for Workers' Compensation, Public Liability and Property Damage, as
provided for in Article #3 of this lease and otherwise comply with the terms and
conditions of this lease and particularly Article #13 thereof.
55. Upon the execution of this lease the Tenant shall furnish to the Landlord a
list of all of its officers.
56. Tenant and Landlord represent that they dealt with no broker except ADAMS &
CO. REAL ESTATE, INC. and BRANFORD PROPERTIES, INC. Landlord and Tenant agrees
to hold Landlord and ADAMS & CO. REAL ESTATE, INC. harmless from and against any
and all claims or demands for brokerage commissions arising out of or in
connection with the execution of this lease or any conversations or negotiations
thereto with any broker other than the above named broker. Landlord agrees to
pay all commissions due to the above-named brokers.
57. Landlord represents that the (i) the sprinkler system complies with all laws
and is in good working order based on current configuration and (ii) the demised
premises are free of friable asbestos.
58. The Tenant hereby agrees to pay as additional rent the monthly charge of
$120.00 in the manner provided for in this lease for the payment of rent, as
Tenant's contribution toward the Landlord's cost for furnishing guard service in
the passenger lobby of the building Monday through Friday five (5) days per week
during the hours from 8:00 A.M. to 8:00 P.M. In the event the Landlord's cost
for such service is increased, the Tenant agrees to pay its proportionate share
of such increase. The Tenant understands that the Landlord is not obligated to
maintain this service and Landlord may discontinue this additional service at
any time without notice to the Tenant at which time the Tenant's contribution
shall cease.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
59. From the date of delivery of an executed copy of the lease to the Landlord,
the following work will be performed by the Landlord within ninety (90) working
days:
PROVIDE SUFFICIENT ALTERNATING CURRENT TO A PULL BOX ON THE 11TH FLOOR (8
WATTS PER SQUARE FOOT DEPENDING ON TENANT'S NEEDS) UPON RECEIPT OF "LOAD
LETTER";
REPLACE EXISTING PANES ON WINDOWS ON THE WEST SIDE OF THE DEMISED PREMISES
(53 WEST 23RD STREET) WITH CLEAR WIRE GLASS;
REMOVE METAL WINDOW SHUTTERS ON THE WEST SIDE OF PREMISES;
UPGRADE TOILET ROOMS WITH NEW TOILETS, SINKS AND TILE (BUILDING STANDARD).
60. Landlord represents that the premises may be used for the purposes set forth
in Article #2 of this lease.
61. Notwithstanding anything contained in this lease to the contrary, if there
is an interruption of services or Landlord fails to make any repairs or comply
with any laws except as may be caused by reason of strike or labor troubles or
any cause whatsoever including, but not limited to, government preemption in
connection with a National Emergency or by reason of any rule, order or
regulation of any department or subdivision thereof of any government agency or
by reason of the conditions of supply and demand which have been or are affected
by war or other emergency, and such condition shall continue for any reason in
excess of 90 consecutive days or if such interruption or failure to repair or
comply results in the denial to Tenant of access to the demised premises or
otherwise renders impossible or impracticable the intended use of a significant
portion of the demised premises Tenant shall be entitled, upon 5 days' written
notice to Landlord, to an abatement of rent for the period of such interruption
or failure, and if such interruption or failure continues for a period in excess
of 60 consecutive days, Tenant may terminate this lease by giving 5 days'
written notice to Landlord during which period the restoration, repair or
compliance with law may be completed, and any ground lessor or mortgagee (to
which Tenant has prior written notice) at any time before such services are
restored or repairs made or relevant law is complied with.
62. Permission is granted to the Tenant to install equipment to be used in
connection with the conduct of its business, with the distinct proviso, however,
that all equipment so installed shall have suitable insulating foundations, so
as to absorb or prevent any objectionable vibration or noise.
Failure on the part of the Tenant to comply with any of the provisions of
this clause will constitute a breach of the within lease, and the rights and
remedies provided in this lease in the event of a breach thereof shall thereupon
be available to the Landlord.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
63. As an accommodation to you, the Landlord has agreed to permit you to occupy
the 7Th FLOOR SOUTH in 53-7 WEST 23RD STREET on a month-to-month basis
commencing immediately and ending December 31, 1997, for which you agree to pay
the Landlord the sum of One ($1.00) Dollar per month.
You agree to pay for the consumption of electricity based on $.25 per
square foot per month on occupied space only.
Your occupancy of the premises is at your own risk and responsibility and
the Landlord or its Agent shall not be liable for any damage or loss to any of
your property from any cause whatsoever.
It is understood and agreed that on or before December 31, 1997, the
termination of your occupancy, you are to vacate from and surrender possession
of the above premises, leaving same in good order and broom-clean condition,
free from all rubbish and debris. Should you holdover, the base rental shall be
at $20.00 per sq. ft.
In the event the Landlord leases the premises to another tenant, you shall
vacate from and surrender possession of the above premises and the Landlord
agrees, at its own cost and expense, to relocate you to other space in the
building.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
64. Notwithstanding the hours mentioned in Article #30 of this lease, the Tenant
shall have access to the demised premises seven (7) days per week, twenty-four
(24) hours per day.
65. Permission is hereby granted to the Tenant to purchase electric current
directly from the Consolidated Edison Company of New York, and the Tenant agrees
to furnish and install, at its own cost and expense, all risers, service wiring
and switches that may be necessary and required by the public utility company
for the Tenant's electric current needs in the demised premises and will, at its
own cost and expense, maintain and keep in good repair all such risers, service
wiring and switches. The Tenant further agrees that all such risers, service
wiring and switches shall be installed in a location designated by the Landlord,
and all work in connection therewith shall be done by an electrician approved by
the Landlord.
Prior to the commencement of any work, the Tenant agrees to submit to the
Landlord necessary layouts or plans for the Landlord's written approval, in
accordance with this Article. The Tenant further agrees to otherwise comply with
all of the terms and conditions of this lease and particularly Article #3
thereof.
ADDENDUM to ARTICLE #9:
Provided Tenant shall have vacated the entire demised premises as a result of
such casualty and if Landlord shall not have completed the restorations or
repairs within 120 days after notice to Landlord from Tenant under paragraph (a)
was given, subject to extensions not to exceed 30 days for delays due to
adjustment of insurance claims, labor troubles and force majeure (the
"Cancellation Date"), provided such fire or other casualty was not caused by
Tenant, its agents, contractors or employees, Tenant shall have the right to
cancel this lease by giving Landlord written notice of its intention to do so
within 10 days after the Cancellation Date, and this lease shall terminate as of
the date such notice is received by Landlord. In the event of such termination
the above provisions of this Article shall apply.
ADDENDUM to ARTICLE #53:
Notwithstanding anything to the contrary contained herein, Tenant shall be
permitted without the prior consent of Landlord to transfer (by assignment or
sublease) the lease to any Affiliated Company (as hereinafter defined) which, in
the case of an assignment, assumes in writing all of Tenant's obligations
hereunder. The assumption shall be in form and substance satisfactory to
Landlord and sublease up to 2,500 square feet of the demised premises to: NOT
JUST JINGLES. Tenant will be required of give notice of any such transfer prior
to the date upon which the transfer becomes effective. The term "Affiliated
Company" shall mean any company or other entity which directly or indirectly
controls, or is under common control with, or is controlled by Tenant.
INITIALS
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated JULY 10, 1997, Premises ENTIRE 11TH FLOORS -
53-7 WEST 23RD STREET thru to 34 WEST 24TH STREET
30-2 WEST 24TH STREET
Between TWENTY THIRD STREET JOINT VENTURE as Landlord
and PARADISE MUSIC & ENTERTAINMENT, INC. as Tenant
SCHEDULE "A"
GUARANTY AND SECURITY
This lease shall not become effective until there shall have been
delivered to the Landlord a duly executed Letter of Credit issued by a bank
having an office in New York City conditioned upon the faithful performance and
observance by the Tenant of the terms, covenants and conditions of this lease
pursuant to the following Schedule. The Letter of Credit shall be in the form
and language acceptable to both the issuing bank and the Landlord.
The Letter of Credit shall be in the amount of $350,000.00, which amount
shall be reduced in accordance with the following Schedule:
L/C REDUCTION L/C BALANCE AT THE BEGINNING
LEASE TERM AT YEAR END OF FOLLOWING LEASE YEAR
---------- ------------- ----------------------------
$350,000.00
24th month $ 60,000.00 $290,000.00
30th month $100,000.00 $190,000.00
42nd month $100,000.00 $ 90,000.00
60th month $ 38,400.00 $ 51,600.00
In event such notice not to renew shall have been given, the Tenant shall,
within 30 days thereafter furnish to the Landlord an acceptable replacement for
the Letter of Credit for the balance of the first five (5) years pursuant to the
above Schedule. Failure of the Tenant to obtain an acceptable replacement of the
Letter of Credit shall be a default of a substantial obligation of this lease
based upon which the Landlord may draw upon the Letter of Credit then in effect
to its full amount. The funds so received shall be placed in an interest-bearing
bank account with a bank in the City of New York, the earned interest thereon to
accrue to the benefit of the Tenant less one (l%) per cent for administration
fees which may be retained by the Landlord. Such deposit shall be reduced
periodically pursuant to the above Schedule. The entire amount together with
interest shall be refunded to the Tenant upon delivery to the Landlord of an
acceptable replacement Letter of Credit for the appropriate amount.
Upon the expiration of the 60th month of the lease, the Tenant shall
deposit with the Landlord the sum of $51,600.00 either a) by cash payment; b) by
causing the letter of credit to be renewed for the balance of the lease term or
c) in the event the Landlord has in its possession such sum by reason of having
called down the Letter of Credit as hereinabove provided, the Landlord shall
retain such sum and any excess returned to the Tenant. Such security amount
shall be deposited in Citibank, N.A. at 411 Fifth Avenue, New York, NY 10016, in
an interest-bearing account, the interest earned thereon to accrue to the
benefit of the Tenant less one (1%) per cent to be retained by the Landlord as
an administration charge.
INITIALS
C.F.S.G.
CONSULTING
FOR STRATEGIC GROWTH, LTD.
8 The Hemlocks
Roslyn Estates, NY 11576
Tel: (516) 625-4523
Mobile: (516) 729-3714
Fax: (516) 625-4523
1-800-625-2236
August 15, 1997
Mr. John Loeffler
President & CEO
Paradise Music & Entertainment, Inc.
53 West 23rd Street
7th floor
New York NY 10010
Dear Mr. Loeffler,
This Agreement, dated as of August 15, 1997 is entered into by and between
Paradise Music & Entertainment, Inc. ("the Company") with offices located at 53
West 23rd Stree New York NY 10010 and Consulting for Strategic Growth, Ltd. (the
"Consultant") with offices located at 8 The Hemlocks Roslyn Estates N.Y. 11576.
RECITALS
Whereas the Consultant has experience in the investment banking and financial
services business; and
Whereas, the consultant desires to provide the financial advisory services (the
"Services") set forth in Section 3 hereof to the Company, and the Company
desires to retain the consultant, who will assign Mr. Stanley Wunderlich to
provide the Services to the Company.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreement hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Retention. The Company hereby retains the Consultant, and the Consultant
agrees to be retained by the Company, to perform the Services as a Consultant to
the Company on the terms and conditions set forth herein. The parties agree that
the Consultant shall be retained by the Company as an independent contractor on
a consulting basis and not as an employee of the Company.
2. Term. The term of this Agreement shall commence on the date hereof and shall
end on December 31, 1998, unless terminated earlier pursuant to Section 7.
hereof. In addition the "Company" can cancel this agreement any time during the
first ninety days (90) without any recourse by the "Consultant". (See notices)
3. Duties of Consultant. During the term of this Agreement
<PAGE>
Consultant shall provide the Company with such regular and customary consulting
advise as is reasonably requested by the Company, within the scope of the
services enumerated below.
It is understood and acknowledged by the parties that the value of Consultant's
advice is not readily quantifiable, and that Consultant shall be obligated to
render advice upon the request of the Company, in good faith, but not be
obligated to spend any specific amount of time in so doing. Consultant's duties
shall include, but will not necessarily be limited to, providing recommendations
concerning one or more of the following financial and related matters upon the
request of the Board of Directors of the Company and/or its President.
a. Assisting in the introduction of the Company to retail registered
representatives at various registered broker/dealers;
b. Arranging, on behalf of the Company, meetings with securities analysts
of nationally recognized and regional investment banking firms on a quarterly
basis or more frequently;
c. Arranging, on behalf of the Company, meetings in or within 50 miles of
New York City and a major city close to Boston with "small cap" money managers
who manage funds in both North America and Europe on a quarterly basis or more
frequently;
d. Using its best efforts to cause at least two research reports
concerning the Company to be written and disseminated by at least two regional
investment banking firms;
e. Using its best efforts to provide the Company with four market-makers
in its Common Stock, which market makers have not previously made a market in
the Company's securities; and
f. Promptly upon request by the Company, preparing press releases for the
Company and promptly distributing them to the appropriate news and wire
services.
g. Send Bi-Monthly fax messages to a select list of institutional
accounts, and interested parties, which would include analyst's, broker/dealers
and retail brokers. (Blast Fax)
4. Compensation. In consideration for the services rendered by Consultant to the
Company pursuant to this Agreement, the Company shall pay to the Consultant
$2,000.00 upon the signing of this agreement, and $2,000 (by the tenth of each
month) for each successive month during the term of this Agreement. (subject to
review and adjustment by mutual consent.) This fee will include all regular,
ongoing routine out of pocket expenses, including communications, mailings, fax
broadcasts, etc. Unusal special requests would be paid for by the company ie.
trip to California.
<PAGE>
5. Confidentiality. Consultant acknowledges that as a consequence of its
relationship with the Company, it has been and will continue to be given access
to ideas, trade secrets, methods, customer information, business plans and other
confidential and proprietary information of the Company (collectively,
"Confidential Information"). Consultant agrees that it shall maintain in
confidence, and shall not disclose directly or indirectly, to any third parties
or use for any purposes (other than the performance hereof), any Confidential
Information for the term of this Agreement and a period of seven years
thereafter, unless previously approved by the Company in writing. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Section 5 are not performed by the Consultant in accordance
with their specific terms or are otherwise breached by the Consultant. It is
accordingly agreed that the Company shall be entitled to an injunction or
injunctions to prevent breaches of this section 5 and to enforce specifically
the terms and provisions hereof in any court of the United States or any State
having jurisdiction in addition to any other remedy to which they are entitled
at law or in equity.
6. The Company agrees to issue to the Consultant three options (the "Options"),
each of which shall be non-transferable, for a total of 20,000 shares of Common
Stock of the Company as set forth below; each of which shall vest on the later
of the date of issuance or one year from the date hereof.
(i) One option for 10,000 shares of Common Stock of the Company at an
exercise price of $5.00 per share.
(ii) One option for 5,000 shares of Common Stock of the Company at an
exercise price of $7.00 when the stock has closed for ten (10)
consecutive days @ $7.00 or higher.
(iii) One option for 5,000 shares of Common Stock of the Company at an
exercise price of $9.00 when the stock has closed for ten (10)
consecutive days @ $9.00 or higher.
* All of the above grants are subject to board approval and all
options granted will be for "four" (4) years as issued.
In the event that this Agreement is terminated during the first (1st) year, all
options issued shall be immediately canceled. The consultant shall have one
piggy-back registration right with respect to any earned shares of common stock
issuable upon exercise of the options.
<PAGE>
7. Termination: This agreement shall terminate upon the earlier of:
(i) Expiration of the term of the agreement; or
(ii) Sixty (60) days written notice by either party
8. Compliance with Law. The Consultant agrees that in performing this agreement,
that the Consultant shall comply with the applicable provisions of the
Securities Act of 1933, as amended. The applicable rules and regulations of the
National Association of Securities Dealers, Inc. and any other applicable
federal, state or foreign laws, rules and regulations.
9. Indemnity. The Consultant shall indemnify the Company, its directors,
officers, stockholders, representatives, agents and affiliates (collectively,
the "Affiliated Parties") from and against any and all losses, damages, fines,
fees, penalties, deficiencies, expenses, including expenses of investigation,
court costs and fees and expenses of attorneys, which the Company or its
Affiliated Parties may sustain at any time resulting from, arising out of or
relating to the breach or failure to comply with any of the covenants or
agreements of the Consultant or its Affiliated Parties contained in this
Agreement.
10. Notices. Notices, other communications or deliveries required or permitted
under this Agreement shall be in writing delivered by hand against receipt,
certified mail return receipt, or reputable overnight courier to the addresses
set forth below or to such address as a party may designate in accordance with
this paragraph and shall be effective upon the earlier of:
(i) actual receipt
(ii) three (3) calendar days if sent by certified mail; or one (1) day if sent
by overnight courier.
A. To the Company at:
53 West 23rd Street
New York NY 10010
Att: John Loeffler
B. To the Consultant at:
8 The Hemlocks
Roslyn Estates N.Y. 11576
11. Applicable Law. This agreement shall be governed by the internal laws of the
State of New York without regard to its conflict of law provisions.
<PAGE>
If the foregoing sets forth your understanding of our agreement, kindly indicate
your agreement by signing on the space provided below.
Very truly yours,
Consulting for Strategic Growth, Ltd.
By: /s/ Stanley Wunderlich, Chairman
----------------------------------
Name: Stanley Wunderlich, Chairman
Agreed and Accepted by:
Paradise Music & Entertainment
By: /s/ John Loeffler
------------------------------------
Name: John Loeffler, President & CEO
AGREEMENT made and entered into as of this 13 day of August, 1997 by and between
PUSH RECORDS, INC. ("Company") and Ian Hatton, Katrina Chester, Tony Fennell and
Dave Silver, individually and collectively, p/k/a LUXX ("you" , "your" and or
"artist"), whose address is: c/o Joseph Grier, Esq., Pryor, Cashman, Sherman &
Flynn, Esqs., 410 Park Avenue, 10th Floor, New York, NY 10022.
1. EXCLUSIVE SERVICES
Company hereby engages your exclusive personal services as recording
artists in connection with the production of Records and you hereby accept such
engagement and agree to exclusively render such services for Company in the
Territory during the initial period of this agreement and all extensions and
renewals (the "Term"). (You are sometimes called the "Artist" below; all
references in this agreement to "you and Artist," "you or Artist," and the like,
shall be understood to refer to you alone.)
2. TERM
The Term shall commence on the date hereof and shall continue for an
initial period (the "Initial Period") ending on the date eight (8) months
following Delivery of all Recordings constituting the Recording Commitment for
such Initial Period. You hereby grant to Company two (2) consecutive separate
options to extend the Term for further periods (the "Option Periods"), each upon
the same terms and conditions applicable to the Initial Period, except as
otherwise set forth herein. Each Option Period for which Company has exercised
its option shall commence upon the expiration of the immediately preceding
Contract Period and shall continue until the date eight (8) months following
Delivery of all Recordings constituting the Recording Commitment for the
applicable Option Period. You shall be required to serve notice of expiration of
the term upon Company no more than forty five (45) days and no less than thirty
(30) days prior to the end of each respective period, including the initial
period and each option period, if any, and Company shall thereafter have thirty
(30) days within which to exercise, if at all, the option(s), if any, provided
for herein. Company may, at its sole discretion exercise each respective option,
if at all, by notice to you at any time prior to the date the Term would
otherwise expire. If, pursuant to this paragraph 2, a Contract Period is due to
expire in the months of November or December, such Contract Period shall be, and
hereby is, extended to January 15 of the following calendar year. As used
herein, the term "Contract Period" shall mean the Initial Period or any Option
Period of the Term, as such may be suspended or extended as provided herein.
3. RECORDING COMMITMENT; DELIVERY
(a) (i) During each Contract Period you will perform and record for
Company a sufficient number of Masters to constitute the required number of
Albums specified in the following schedule (the "Recording Commitment"):
----------------------------------------------------------------------
Contract Period Recording Commitment
----------------------------------------------------------------------
1
<PAGE>
----------------------------------------------------------------------
Initial Period Two (2) Albums (the "First and "Second Albums")
----------------------------------------------------------------------
First Option Period One (1) Album (the "Third Album")
----------------------------------------------------------------------
Second Option Period Two (2) Albums (the "Fourth and Fifth Albums")
----------------------------------------------------------------------
(b) (i) You shall Deliver the First Album of the Recording Commitment to
Company within four (4) months following commencement of the Initial Contract
Period.
(ii) You shall Deliver the Second through Fifth Albums of the
Recording Commitment, if any, no earlier than ten (10) months and no later than
eighteen (18) months after Delivery of the immediately preceding Album of the
Recording Commitment, unless you and Company mutually agree in writing to an
earlier Delivery date.
(c) You shall not commence recording any Album earlier than seven (7)
months following the date of Delivery of the immediately preceding Album.
(d) (i) Upon your written request and as a courtesy, Company will notify
you of the date of Delivery in respect of any Album of the Recording Commitment,
provided, however, that Company's inadvertent failure to provide such
information shall not constitute a breach of this agreement and Company's
providing you with such information shall not constitute a waiver by Company of
your obligations with respect to Delivery of Masters hereunder. If you dispute
the date of Delivery in respect of any Album of the Recording Commitment as
provided in the notice from Company, you shall give notice of such objection in
writing to Company within thirty (30) days of Company's notice to you. Your
failure to so notify Company shall be deemed your acceptance of the date
contained in Company's notice to you.
(ii) If you have not received any notice from Company pursuant to
paragraph 3(d)(i) above within thirty (30) days after the date you deem to be
such applicable delivery date, then you shall notify Company within ten (10)
days after such thirty (30) day period of the date you deem the applicable
delivery date. Company shall have the right to object to such date within thirty
(30) days after receipt of your notice.
(iii) If either party objects to the date contained in the notice
given by the other party, Company and you shall mutually and in good faith agree
in writing on the date to be deemed the delivery date. If the parties do not
reach such agreement or if neither party gives notice of the delivery date of
any Album of the Recording commitment earlier than thirty (30) days prior to the
date of initial release in the United States of such Album, then the delivery
date of such Album shall be deemed to be thirty (30) days prior to such date of
initial release.
4. RECORDING PROCEDURE
(a) (i) Prior to the commencement of recording each Album, you and Company
shall mutually agree on each of the following before you proceed further: (A)
selection of producer and the financial terms of the agreement between you and
such producer; (B) selection of material, including the number of Compositions
to be recorded; and (C) the dates of recording and mixing and the studios
2
<PAGE>
where recording and mixing are to take place. Subject to Company's approval of
budget and financial terms, Ron Saint Germain is deemed approved and accepted as
the Producer, Mixer and Engineer of Album 1. With regard to Albums 1 through 5,
Company shall be deemed to have approved any first-class recording studio
subject to and consistent with an approved budget. In addition, at least
fourteen (14) days prior to the date of the first recording session for the
Album concerned, you shall submit to Company in writing a proposed recording
budget setting forth, in itemized detail, all anticipated Recording Costs for
the album concerned. Upon receipt of Company's written approval of such
recording budget, which shall not be unreasonably withheld, you shall commence
such sessions.
(ii) Nothing in this agreement shall obligate Company to continue or
permit the continuation of any recording sessions, even if previously approved
hereunder, if Company reasonably anticipates that the Recording Costs for the
applicable Masters will exceed one-hundred and ten percent (110%) of the amount
authorized by Company or that Masters constituting the applicable Recording
Commitment will not be Commercially Satisfactory.
(iii) It is of the essence of this agreement that you obtain prior
to each applicable recording session and deliver to Company within seventy-two
(72) hours following each such recording session, a duly completed and executed
Form I-9 (or such similar or other forms as may be prescribed by the United
States Immigration and Naturalization Service or other government agency
regarding citizenship, permanent residency or so-called "documented worker"
status which Company notifies you of in respect of each individual employed to
render recording services hereunder. You shall simultaneously obtain and deliver
to Company true and complete copies of all evidentiary documents relating to the
contents or subject matter of said forms. In the event you fail to comply with
any of the foregoing requirements, Company may deduct any resulting penalty
payments from all monies payable to you under this agreement or any other
agreement.
(b) No Recordings shall be made by or include unauthorized Sampling.
("Sampling," as used herein, refers to the use and reproduction of pre-existing
musical material, hereinafter "Sampled Material," which is owned or controlled
by any Person other than you, in a Recording hereunder , but is not intended to
refer to Artist's newly recorded performance hereunder of a musical composition
previously recorded by other recording artist(s) and heretofore released.)
Concurrently with your delivery to Company of a Recording, you shall notify
Company in writing of the names and addresses of all recording artists, record
companies, songwriters and publishers and/or any other Persons who have any
right, title or interest of any kind in any Sampled Material embodied in that
Recording. You shall be solely responsible for obtaining all consents and
licenses necessary or desirable in connection with the use, reproduction and
licensing by Company, of any Sampled Material in any Recording hereunder for
Records and Audiovisual Records and reproductions thereof, so that Company shall
enjoy the full and perpetual rights granted to Company pursuant to paragraph 5
with respect to Recordings hereunder; at Company's request, you shall supply
Company with fully executed copies of any such consents, licenses and other
related documentation. You shall be solely responsible for and shall account for
and pay to any and all Persons who own or control Sampled Material any monies or
other compensation to which such Persons are entitled as a result of any use
hereunder by Company of any Recording embodying such Sampled Material.
Notwithstanding anything to the contrary expressed or implied herein, no
royalties, Advances or other monies shall be earned by or payable to you
hereunder or under any other agreement in connection with any Record embodying
any Sampled Material, and no Recording
3
<PAGE>
embodying Sampled Material shall be deemed Delivered hereunder unless and until
you have obtained, on Company's behalf, all rights required hereunder with
respect to such Sampled Material, and, if Company requests, until Company
receives documentation satisfactory to Company with respect thereto.
(c) Each Album Delivered by you as part of the Recording Commitment shall
only contain newly-recorded studio Masters of previously unrecorded Compositions
(other than demonstration recordings) made specifically for the applicable
Album, unless an authorized signatory on behalf of Company consents otherwise in
writing, which consent Company may withhold in its unrestricted discretion.
5. GRANT OF RIGHTS
(a) All Recordings made or furnished to Company by you or Artist under
this agreement or during the Term from the inception of the recording thereof,
and all reproductions derived therefrom, together with the performances embodied
thereon, shall be the property of Company in perpetuity for the Territory free
from any claims whatsoever by you or Artist or any other Person. Company shall
have the exclusive right throughout the Territory to copyright those Recordings
in Company's name as the author and owner of them and to secure any and all
renewals and extensions of copyright throughout the Territory. Each such
Recording shall be considered a "work made for hire" for Company; if any such
Recording is determined not to be a "work made for hire," it will be deemed
transferred to Company by this agreement, together with all rights in it. You
and Artist hereby irrevocably and unconditionally waive any and all moral and
like rights that Artist has in the Recordings and in the performances embodied
therein and hereby agree not to make any claim against Company or any Person
authorized by Company to exploit the Recordings based on such moral or like
rights. Without limiting the generality of the foregoing, Company and any Person
authorized by Company shall have the exclusive and unlimited right to all the
results and proceeds of Artist's recording services rendered during the Term,
including, but not limited to, the exclusive, unlimited and perpetual rights
throughout the Territory:
(i) to manufacture, advertise, sell, lease, license, distribute or
otherwise use, exploit or dispose of, in any or all fields of use by any method
now or hereafter known, Records embodying Masters;
(ii) to release Records derived from Masters under any name,
trademark or label which Company or its subsidiaries, affiliates or licensees
may from time to time elect;
(iii) to perform such Masters publicly and to permit public
performances thereof by means of radio broadcast, television or any other method
now or hereafter known; and
(iv) to reproduce, adapt, transmit, communicate or otherwise use
Masters, all upon such terms and conditions as Company may elect, or at its
discretion, to refrain therefrom.
(b) In accordance with subparagraph 6(a) of this agreement, Company and
any Person authorized by Company, including Company's licensees and
institutional advertisers, shall have the exclusive right during the term and
the non exclusive and perpetual right after the term hereof, without any
liability to any Person, to use and to authorize other Persons to use the names
(including any
4
<PAGE>
professional names heretofore or hereafter adopted), and any likenesses, whether
or not current (including photographs, portraits, caricatures and stills from
any Videos made hereunder), autographs (including facsimile signatures) and
biographical material of or relating to Artist, to any producer and to any other
Person performing services in connection with Masters hereunder, on and in the
packaging of Records hereunder, and for purposes of advertising, promotion and
trade and in connection with the marketing and exploitation of Records hereunder
and general goodwill advertising (i.e., advertising designed to create goodwill
and prestige and not for the purpose of selling any specific product or
service), without payment of additional compensation to you or Artist or any
other Person. Notwithstanding the foregoing, Company shall comply with any
contractual limitations on the use of the name and likeness of any such producer
or other Person that exist prior to the execution of the Artist's agreement with
such producer or other Person, provided you have given Company prior written
notice of any such limitation: you agree to use your reasonable efforts to
obtain the fullest rights to use the name and likeness of any such producer or
other Person consistent with the custom and practice in the United States record
industry. No such names, likenesses, or biographical material shall be used in
connection with product (other than Records hereunder) or service endorsements
or merchandising: provided, however, that Company may use such names,
likenesses, and biographical material in connection with the promotion of
Records hereunder, including, without limitation, the distribution of
promotional merchandise solely on a gratis basis. You represent and warrant that
you own the exclusive right to so use such names, likenesses, autographs
(including facsimile signatures) and biographical materials and that the use of
same will not infringe upon the rights of any third party. If any Person
challenges Artist's right to use a professional name, Company may, at its
election and without limiting Company's rights, require Artist to adopt another
professional name approved by Company. Company shall have the right to do, but
shall not be required to do, a Trademark and or Service Mark search of each and
every professional name and or mark which Artist uses or by which Artist is
known. Company may, but is not required to, spend up to $600 per search which
shall be deemed an advance. During the Term, Artist will not change the name by
which Artist is professionally known without Company's prior written approval
which shall not be unreasonably withheld
6. CREATIVE AND MARKETING MATTERS
(a) (i) During the Term, all photographs and biographical material
concerning Artist which Company uses for the purposes herein stated shall be
subject to your approval, which shall not be unreasonably withheld and which
approval (or disapproval) shall be given to Company within five (5) days after
such photographs or biographical material are submitted to you by Company. Your
failure to give such notice to Company shall be deemed to be approval as to the
material for which said approval is sought. Promptly following the execution of
this agreement, you shall furnish Company with a reasonable number of
photographs of Artist and biographical material concerning Artist. All
photographs and biographical material concerning Artist furnished by you to
Company, or approved by you, shall be deemed approved by you for the purposes
hereof unless you notify Company in writing to the contrary thereafter. Anything
to the contrary notwithstanding, approved photographs of Artist which Company
uses, for purposes other than for record packaging, shall be subject to your
re-approval, which shall not be unreasonably withheld and which approval (or
disapproval) shall be given to Company within five (5) days after such
photographs or biographical material are submitted to you by Company if such use
first occurs or is to occur more than two (2) years after initially approved.
Your failure to give such notice to Company shall be deemed to be approved as to
the material for which said approval is
5
<PAGE>
sought. An inadvertent failure by Company to obtain your approval pursuant to
this subparagraph 6(a) shall not constitute a breach of this agreement by
Company. Company will use reasonable efforts to cure such failure in any future
production runs following notice from you or Artist.
(ii) You shall cause Artist, subject to Artist's prior professional
commitments, and at Company's sole non-recoupable expense, to cooperate with
Company's efforts to promote any Albums released hereunder, including, but not
limited to, Artist's appearing for interviews with trade press, in-store
promotional events, and other promotional appearances, which appearances shall
be mutually selected by you and Company.
(iii) With respect to the initial release in the United States of
each Album of the Recording Commitment, Company shall consult with you in good
faith in a meaningful manner regarding marketing plans Company intends to
implement for the Album concerned, however, the inadvertent failure by Company
to consult with you shall not constitute a breach hereof.
(b) During the Term, you shall not record or Deliver a Multiple Record Set
without Company's prior approval, which approval may be withheld in Company's
sole discretion nor shall Company require Artist to record and you to Deliver a
Multiple Record Set without Artist's consent.
(c) (i) Company shall not, without your approval, which approval may be
withheld in your sole discretion:
(A) sell Records hereunder as Premium Records.
(B) license any Master hereunder in connection with any
political or commercial advertisements.
(C) license any Master hereunder for synchronization in any
theatrical motion picture, television motion picture, television soundtrack or
any home video devices which have received a rating of "X" or "NC-17" or its
equivalent from the Motion Picture Association of America (or it's counterpart
for television), where Company has a reasonable belief that such rating would be
given at the time of Company's licensing of the applicable Master.
(D) remix, re-edit or resequence any Masters delivered
hereunder for the commercial release of Singles, Maxi-Singles or EPS (Except to
the extent necessary with respect to tape configurations for timing purposes) or
otherwise; and
(E) release any demonstration recordings.
(ii) During the Term in respect of Records manufactured for sale in
the Territory, Company shall not, without your approval:
(A) license any Master for synchronization with theatrical
motion pictures, or television motion pictures, television programs, or any
other audiovisual productions;
6
<PAGE>
(B) license any Master for use in radio programs or radio
commercials (other than radio commercials advertising Records made hereunder).
(C) license any Master for synchronization with television
commercials (other than television commercials advertising Records made
hereunder).
(iii) During the Term in respect of Records manufactured for sale in
the United States, Company shall not, without your approval:
(A) couple, or, license to a third party for coupling, more
than two (2) Masters on any particular Record offered for sale to the public,
which Record embodies Recordings that do not embody the performances of Artist,
except with respect to samplers, uses on transportation carriers, and Consumer
Compilations. The term "Consumer Compilation" means a Record embodying
Recordings (including one (1) or more Masters) that are sequenced and/or
selected by the consumer (e.g., the Personics system);
(B) release any Mid-Price Record comprised solely of Masters
Delivered hereunder prior to fifteen (15) months following Company's initial
United States release of a full-priced Record embodying such Masters. If Company
releases any such Mid-Price Record prior to the expiration of said fifteen (15)
month period without your approval, your sole remedy shall be that the royalty
to which you are otherwise entitled for any royalty-bearing units of such
Mid-Price Record sold prior to the expiration of said fifteen (15) month period
shall not be reduced pursuant to subparagraph 9 (c)(i);
(C) release any Budget Record comprised solely of Masters
Delivered hereunder prior to eighteen (18) months following Company's initial
United States release of a full-priced Record embodying such Masters. If Company
releases any such Budget Record prior to the expiration of said eighteen (18)
month period without your approval, your sole remedy shall be that the royalty
to which you are otherwise entitled for any royalty-bearing units of such Budget
Record sold prior to the expiration of said eighteen (18) month period shall not
be reduced pursuant to subparagraph 9 (c)(i); and/or
(D) release any so-called "out takes" (i.e., preliminary or
unfinished or alternate versions of Master recordings embodied on records which
have been released) recorded hereunder;
(E) commercially release any Single derived from Masters
delivered hereunder without engaging in a meaningful, good-faith consultation
with Artist regarding the selections to be embodied on the "A" side of any such
Single. With respect to the "B" side of any such Single, Company shall obtain
your prior consent as to the selection to be embodied thereon;
(F) release more than one (1) Album in the form of a "Greatest
Hits" compilation consisting entirely of Masters recorded hereunder until you
have Delivered the first three (3) Albums of the Recording Commitment. During
the Term in respect of Records manufactured for sale in the United States,
Company shall not, without your approval, release a Greatest Hits Album without
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<PAGE>
Artist's prior approval of the Masters to be included thereon; provided,
however, that such approval right shall not delay the scheduled release date of
any such Greatest Hits Album. All Masters embodied on any Singles listed at any
time among the top fifty (50) Singles in the weekly chart of best-selling
popular Singles published in Billboard magazine, i.e., the chart titled "Hot 100
Singles", or the chart corresponding most closely to that chart if it is
retitled or discontinued, shall be deemed approved by Artist and Company for
inclusion on Greatest Hits Albums. In the event of a dispute, with respect to
Masters not subject to the preceding sentence, fifty percent (50%) of such
Masters shall be selected by Artist, and fifty percent (50%) of such Masters
shall be selected by Company; and
(iv) The failure of Company's licensees to obtain approval from Artist for
such use(s) shall not constitute a breach by Company. Artist shall provide
Company specific notice and Company shall request or direct the licensee to seek
Artist's approval for said use.
(d) (i) Notwithstanding anything to the contrary herein, provided you have
fulfilled all of your material obligations under this agreement, Company agrees
to commercially release each Album constituting the Recording Commitment in the
United States within one hundred twenty (120) days following Delivery of the
Album concerned (the "U.S. Release Deadline Period"). If Company shall have
failed to so release any such Album in the United States, you shall have the
right, within sixty (60) days following the expiration of the U.S. Release
Deadline Period to notify Company in writing of Company's failure and of your
desire that the Term be terminated if Company does not, within forty-five (45)
days after Company receives such notice from you ("U.S. Release Cure Period"),
commercially release the Album concerned in the United States. If Company then
fails to release the Album concerned in the United States during the U.S.
Release Cure Period, Company shall have no liability whatsoever to you, and your
only remedy shall be to terminate the Term by written notice to Company within
thirty (30) days following the expiration of the U.S. Release Cure Period. If
you terminate the Term of this Agreement pursuant to, and in accordance with,
the immediately preceding sentence of this subparagraph 6(d)(i), you shall have
the option to purchase all of the Masters , but no less than all constituting
such recorded and unreleased Album from Company (the "Unreleased Masters")
provided you notify Company of your election in the written notice specified in
the immediately preceding sentence.
(ii) If you exercise your right to purchase the Unreleased Masters,
Company will transfer to you the Unreleased Masters no later than fifteen (15)
days after the date of your notice of exercise of your option to acquire
Company's rights in the Unreleased Masters and Company will deliver them to you
at Company's offices. You shall reimburse Company for the Recording Costs and
all Advances paid to you in connection with the Unreleased Masters
simultaneously with your acquisition of the unreleased Masters, by certified or
bank check. The unreleased Masters will be delivered to you and accepted "as is"
at the time of delivery and no warranty or representation, express or implied,
is or will be made by Company in connection therewith; provided, however, that
Company shall not further impair or encumber the rights in or to the Unreleased
Masters prior to your purchase of them. Any use by you or any other Person of
the Unreleased Masters will be in accordance with subparagraph 13(d)(ii) of this
agreement.
8
<PAGE>
(e) (i) Provided you have fulfilled all of your material obligations under
this agreement and not withstanding subparagraph 5 (a)(iv), Company agrees to
commercially release each Album constituting the Recording Commitment in the
following periods after Company commercially releases such Album in the United
States: in Canada, within ninety (90) days; the United Kingdom, Germany, France,
Italy, Belgium, the Netherlands and Luxembourg within one hundred twenty (120)
days; Japan, Australia, and New Zealand within one hundred fifty (150) days.
(ii) If Company fails to comply with paragraph 6(e)(i) in any
Foreign Release Territory, you may notify Company, within forty-five (45) days
following the end of the respective release deadline concerned, that you intend
to invoke this section 6(e)(ii) if Company does not release that Album in that
Foreign Release Territory within seventy-five (75) days following Company's
receipt of your notice (the "Foreign Release Cure Period"). If Company then
fails to release the Album concerned in the Foreign Release Territory concerned
during the Foreign Release Cure Period, you shall have the right ("Outside
License Option") to require Company to enter into an agreement with a licensee
designated by you, who is actually engaged in the business of manufacturing and
distributing Records in the Foreign Release Territory, authorizing the licensee
to manufacture and distribute Records derived from that Album in that Foreign
Release Territory. You may exercise your Outside License Option by giving
Company notice within ninety (90) days after the end of the Foreign Release Cure
Period. Your only remedy for any failure by company to release a particular
Album in a particular Foreign Release Territory shall be to exercise your
Outside License Option in accordance with this subparagraph (6)(e)(ii). If you
fail to give Company any of the notices described in the foregoing provisions of
this subparagraph (6)(e)(ii) within the appropriate time period specified
herein, your rights under this subparagraph (6)(e)(ii) shall lapse. Fifty (50%)
of Company's Net Receipts from licenses entered into pursuant to this
subparagraph (6)(e)(ii) shall be credited to your royalty account under this
agreement and paid to you (if such account is fully recouped) for Records sold
under those licenses, in lieu of any other royalties set forth in paragraph 9.
Each license agreement shall provide for such compensation for Company as you
negotiate with the licensee, and shall contain other provisions as Company shall
reasonably require, including, but not limited to, the following:
(A) the licensee shall be required to obtain and deliver to
Company, in advance: (1) all consents by Artist or third parties which Company
may reasonably require (including but not limited to consents by recording
artists); and (2) all agreements arising in connection with the manufacture or
distribution of Records under the license (including such agreements, if any, by
unions and funds established under union agreements). The licensee shall also
become a first party to the Record Manufacturers' Special Payments Fund
Agreement dated October 1993 (or any successor agreement then in effect) entered
into by Company with the American Federation of Musicians of the United States
and Canada. The license shall not become effective until the licensee has
complied with all the provisions of this subparagraph 6(e)(ii)(A);
(B) the licensee shall make all payments required in
connection with the manufacture, sale and distribution in that Foreign Release
Territory of Records made from Masters after the effective date of the license,
including, without limitation, any royalties and other payments to other
performing artists, producers, owners of copyrights in Compositions, the Music
Performance Trust Fund and Special Payments Fund, and, if applicable, any other
unions and union funds. The licensee, if necessary, shall comply with the
applicable rules and regulations of the American Federation of
9
<PAGE>
Musicians and any other union having jurisdiction and any other applicable laws,
rules and regulations covering any rights from the licensee, in the manufacture
and sale of Records or otherwise;
(C) Company shall make no warranty of merchantability or
fitness for a particular purpose or any other warranty or representation,
express or implied, in connection with the Masters, the license, or otherwise.
Company will deliver to the licensee a so-called "1630" (or other format in
Company's sole but reasonable discretion) embodying the Masters of a quality
sufficient for the manufacture of Records. You and licensee shall indemnify and
hold harmless Company and Company's licensees against all claims, damages,
liabilities, costs, and expenses, including, without limitation, reasonable
counsel fees and legal expenses, arising out of any use of the Masters in the
Foreign Release Territory or exercise of such rights by the licensee or any
third party deriving rights from the licensee in the Foreign Release Territory;
(D) Company shall instruct its licensees in the Foreign
Release Territory concerned in writing not to manufacture Records derived from
those Recordings for sale in that Release Territory, except as permitted under
subparagraph 6(e)(ii)(H) below. If you or the licensee notifies Company of any
such manufacture, Company shall instruct the Company's licensee concerned in
writing to discontinue it and Company shall use other reasonable efforts to
discontinue such manufacture, but neither Company nor the Company licensee shall
have any liability by reason of any manufacture occurring before Company's
receipt of such notice, and Company shall have no liability by reason of any
such manufacture at any time;
(E) each record released under the license shall bear a sound
recording copyright notice identical to the notice used by Company for Company's
initial United States release of the Master concerned and such other notice as
Company shall reasonably require, and any other notice as may be required by the
law of such country. Otherwise, those Records shall not be identified directly
or indirectly with Company;
(F) Upon reasonable notice, Company shall have the right to
examine the books and records of the licensee and all others authorized by the
licensee to manufacture or distribute Records under the license, for the purpose
of verifying the accuracy of the accountings rendered to Company by the
licensee:
(G) the licensee shall not have the right to authorize any
other person or entity to exercise any rights pursuant to the license without
Company's prior written consent, not to be unreasonably withheld; and
(H) Company and Company's licensees shall, as provided herein,
have the continuing right at all times to manufacture and sell Greatest Hits
Albums and Compilation Albums, which may embody those Masters subject to the
license, in that Foreign Release Territory. (A "Compilation Album" means an
Album containing Recordings hereunder coupled with other Recordings (e.g., "Best
of the 90's").
(f) The U.S. Release Deadline Period and the U.S. Release Cure Period
shall be suspended and the expiration date postponed for the period of any
suspension of the running of the Term under
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subparagraph 13(b). If the U.S. Release Deadline Period or the U.S. Release Cure
Period would otherwise expire on a date between November 15 and the following
January 16, the running of the U.S. Release Deadline Period or the U.S. Release
Cure Period, as the case may be, shall be suspended for the duration of the
period between November 15 and January 16 and the expiration date concerned
shall be postponed by the same number of days. An Album shall be deemed
released, for the purposes of subparagraph 6 (d) only, when Company has
announced its availability for sale in the United States.
7. ADVANCES AND RECORDING COSTS
Company shall pay to you the following sums which shall be Advances:
(a) (i) For any Album of the Recording Commitment which Company is paying
Recording Costs, Company shall, upon receipt of invoices therefor, pay directly
all such Recording Costs actually incurred in the production of Masters
comprising each such Album constituting the Recording Commitment, provided such
costs have been approved by Company in writing pursuant to subparagraph 4(a)(i).
Such Recording Costs shall be deducted from, and shall not exceed, the
applicable Advances for Recording Costs (the "Recording Advances") set forth
below.
(ii) With respect to the First Album, a Recording Advance shall be
payable to you in the amount of One Hundred Thousand Dollars ($100,000.00),
which amount shall be payable and administered by Company as follows: (1) 12.5%
of the applicable Recording Advance for the first Album shall be paid to you,
following your written notice to Company that recording of Masters to comprise
the applicable Album constituting the Recording Commitment has commenced, and is
scheduled to proceed, without interruption, to completion payment of which is
acknowledged as being paid by Company and received by Artist on April 18, 1997;
(2) the balance of the recording advance for the First Album is available, as
administered by Company, upon complete execution of this agreement including the
"AFFILIATION AGREEMENT" attached hereto; and (3) the balance thereof, if any, is
payable to Artist pursuant to subparagraphs 7(a)(iii)(B) and 7(a)(iii)(C) of
this agreement.
(iii) The Recording Advances for the Second and each subsequent
Album of the Recording Commitment, if any, shall be payable by Company as
follows:
(A) fifteen percent (15%) of the applicable Recording Advance
for each Album, shall be paid to you, following your written notice to Company
that recording of Masters to comprise the applicable Album constituting the
Recording Commitment has commenced, and is scheduled to proceed, without
interruption, to completion. Any payment pursuant to the preceding sentence
shall be reduced to the extent it would reduce the balance of the Recording
Advance for the applicable Album below one hundred ten percent (110%) of the
Recording Costs for the immediately preceding Album constituting the Recording
Commitment, but, in no event shall any such payment be less than the greater of
Twenty Five Thousand Dollars ($25,000.00) or ten percent (10%) of the Recording
Advance for the Album concerned.
(B) the balance, if any, of the applicable Recording Advance
shall be paid to you after deducting all Recording Costs and other Advances paid
or incurred by Company in connection
11
<PAGE>
with the applicable Album, following Delivery to Company of the applicable Album
and receipt by Company of all invoices for all Recording Costs incurred in
connection therewith.
(C) With respect to payments to be made pursuant to
subparagraph 7(a)(iii)(B), Company shall have the right to withhold a reasonable
portion of such payments to provide for anticipated Recording Costs (e.g., union
payments in respect of recording sessions, mastering and sampling costs) in an
amount not to exceed Twenty-Five Thousand Dollars ($25,000), which Recording
Costs have not yet been paid by Company or billed to Company and which are
otherwise deductible from payments to be made to you. Provided that Company
shall have received all invoices relating to all such costs, Company shall not
withhold such sums for a period of more than thirty (30) days following
Delivery.
(b) With respect to the Second and each subsequent Album constituting the
Recording Commitment, if any, a Recording Advance shall be payable to you in an
amount equal to sixty-six and two-thirds percent (66-2/3%) of the amount of
royalties credited to your royalty account hereunder in respect of USNRC Net
Sales of the immediately preceding Album constituting the Recording Commitment,
subject to subparagraphs 7(c) and 7(d) of this agreement.
(c) For the purposes of making the computations pursuant to subparagraph
7(b), Company shall refer to accounting statements rendered to you and Company's
good faith estimate of royalties that have accrued, but have not yet been
credited to your record royalty account through the end of the accounting period
following the date twelve (12) months following Company's initial release in the
United States of the immediately preceding Album constituting the Recording
Commitment (the "Computation Date") and, solely for the purposes of making such
computation, reserves shall be limited to fifteen percent (15%) of shipments,
prior to the Computation Date, of the prior Album whose Net Sales form the basis
for such computation.
(d) (i) Notwithstanding the foregoing, the Recording Advance for each
Album, other than the First Album, constituting the Recording Commitment shall
be no less than the applicable minimum amount and no more than the applicable
maximum amount set forth below:
Album Minimum Maximum
----- ------- -------
Second Album $ 100,000 $ 200,000
Third Album $ 150,000 $ 300,000
Fourth Album $ 175,000 $ 350,000
Fifth Album $ 200,000 $ 400,000
(e) All monies paid to you or Artist or on behalf of you or Artist or to
or on behalf of any Person representing you or Artist, other than royalties
payable pursuant to paragraphs 9, 12 and 18, shall constitute Advances, unless
Company shall otherwise consent in writing.
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(f) All Recording Advances paid by Company pursuant to the terms of
paragraph 7, and Advances paid by Company pursuant to subparagraph 18(a)(iv), as
applicable, shall specifically include the prepayment of session union scale, as
provided in the applicable union codes, and you agree to complete any
documentation required by the applicable union to effectuate the terms of this
sentence. All Recording Costs incurred in excess of the applicable approved
recording budget shall be your sole responsibility. You hereby agree to
forthwith pay and discharge all such excess Recording Costs. In the event that
Company elects to pay, on your behalf, any such Excess Recording Costs which
exceed the applicable Recording Advance, Company shall have the right to deduct
such excess Recording Costs from any monies otherwise due you under this
agreement or any other agreement; if such monies are insufficient, you shall
reimburse Company, upon notice, to the extent of such insufficiency.
(g) Fifty percent (50%) of all expenses paid or incurred by Company in
connection with the independent promotion and/or marketing of Masters (i.e.,
promotion or marketing by Persons other than regular employees of Company) shall
constitute Advances; provided, however, that no more than Fifty Thousand Dollars
($50,000) paid or incurred for the promotion of any single Album (i.e. 50% of
$100,000) hereunder shall be recoupable against your royalties without your
consent, not to be unreasonably withheld. You and Company agree that Video
Production Costs and any payments in connection with Artist's Tour(s) pursuant
to paragraph 21A of this agreement shall not constitute independent promotion
or marketing expenses under this subparagraph 7(h).
(h) Any cost, not to exceed Six Hundred Dollars ($600.00) incurred by
Company in connection with a trademark and/or service mark search to confirm
Artist's right to use any professional name shall constitute an Advance
(i) Promptly following the initial release in the United States of each
Greatest Hits Album as provided in paragraph 6(c)(iii)(F) above, if any, during
the term, Company will pay to Artist an advance in an amount equal to the
difference between Fifty Thousand Dollars ($50,000.00) and the unearned balance
in Artist's royalty account hereunder, if any, determined as of the last day of
the month preceding the month of the initial United States release of such
Greatest hits Album. Each such Advance shall be inclusive of all Recording costs
for the applicable Greatest Hits Masters, but in no event shall the Advance paid
pursuant to this subparagraph 7(i) be less than Twenty Five Thousand Dollars
($25,000.00) with respect to any Greatest Hits Album released on or before the
scheduled release date established by Company or after the scheduled release
date established by Company if the delay in the release of the Greatest Hits
Album is not caused by Artist.
8. PRODUCER SERVICES
(a) Each Recording recorded hereunder shall be produced, subject to
paragraph 4, by a producer mutually approved by you and Company. You shall be
solely responsible for the engagement of such producer and for the payment of
all monies becoming payable to such producer, unless such producer is a Staff
Producer (as defined in subparagraph 8(b). In the event Company elects to pay
any such producer directly, Company may deduct or recoup such payment from all
monies payable to you under this agreement or any other agreement. Company
agrees to comply with Artist's reasonable
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<PAGE>
request to pay any producer directly, however, failure of Company to comply with
Artist's request shall not be deemed to be a breach hereof.
(b) With respect to Recordings produced by a mutually approved producer
rendering services pursuant to an agreement with Company (other than an
agreement relating solely and specifically to those particular Recordings)
("Staff Producer"), Company shall deduct from the applicable Recording Advance
for such Recordings a sum equal to Four Thousand Dollars ($4,000.00) times the
number of such Recordings, which sum shall constitute Recording Costs.
Additionally, you hereby direct Company to deduct from all monies payable to you
under this agreement or any other agreement a royalty computed at a Basic U.S.
Rate of four percent (4%) for Net Sales of Singles, Maxi-Singles, EPs and Albums
with royalties for all other uses (e.g., foreign sales, clubs, licensing, etc.)
calculated, reduced and paid in the same manner as your royalties are
calculated, reduced and paid for similar Net Sales under this agreement.
9. ROYALTIES
Company shall credit to your royalty account royalties as described below.
Royalties shall be computed by applying the applicable royalty rate specified
below to the applicable Royalty Base Price in respect of Net Sales of the Record
concerned:
(a) (i) The royalty rate (the "Basic U.S. Rate") on USNRC Net Sales of
Records consisting entirely of Masters recorded hereunder during the applicable
Contract Periods specified below shall be as follows:
TYPE OF RECORD CONTRACT PERIOD BASIC U.S. RATES
-------------- --------------- ----------------
Singles, Maxi-Singles All 14%
--------------------------------------------------------------------------
EPs All 14%
--------------------------------------------------------------------------
First and Second Initial 20%
Albums
--------------------------------------------------------------------------
Third and Fourth First Option and First Album 20.5%
Albums of Second Option
--------------------------------------------------------------------------
Fifth and Sixth Albums Second Album of Second 21%
Option and Third Option
--------------------------------------------------------------------------
(ii) The royalty rate (the "Escalated U.S. Album Rate") solely on
USNRC Net Sales of each Album constituting the Recording Commitment in excess of
the following number of units shall
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be the applicable rate set forth below rather than the otherwise applicable
Basic U.S. Rate or any prior and otherwise applicable Escalated U.S. Album
Rate:
--------------------------------------------------------------------------
RECORDING COMMITMENT USNRC NET SALES ESCALATED U.S.
ALBUM RATES
--------------------------------------------------------------------------
First Album 500,000 units 20.5%
--------------------------------------------------------------------------
1,000,000 units 21%
--------------------------------------------------------------------------
Second Album 500,000 units 20.5%
--------------------------------------------------------------------------
1,000,000 units 21%
--------------------------------------------------------------------------
Third and Fourth Albums 500,000 units 21%
--------------------------------------------------------------------------
1,000,000 units 21.5%
--------------------------------------------------------------------------
Fifth and Sixth Albums 500,000 units 21.5%
--------------------------------------------------------------------------
1,000,000 units 22%
--------------------------------------------------------------------------
(b) The royalty rate (the "Foreign Rate") on Net Sales of Top-Line Records
(other than Audiovisual Records) sold for distribution through normal retail
channels in territories outside the United States by Company or its Principal
Licensee shall be fifty percent (50%) of the net amount received by Company or
credited to its account against an advance previously received after we shall
have first deducted all third party payments for which we are responsible.
(c) (i) The royalty rate on Net Sales of the following categories of sales
of Records by Company or its Principal Licensee shall be computed at the
applicable percentage of the Basic U.S. Rate (without regard to any applicable
Escalated U.S. Album Rate) or Foreign Rate that would otherwise apply to such
Net Sales:
- --------------------------------------------------------------------------------
CATEGORY OF SALES PERCENTAGE OF APPLICABLE BASIC U.S.
RATE OR FOREIGN RATE
- --------------------------------------------------------------------------------
Government, PX and Educational Institutions 50%
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Premium Records 50%
- --------------------------------------------------------------------------------
Mid-Price Record 66-2/3%
- --------------------------------------------------------------------------------
Budget Record 50%
- --------------------------------------------------------------------------------
(ii) The royalty rate on Net Sales of: (A) any Record sold by
Company or a Principal Licensee through any direct mail or mail order
distribution method other than a Club Operation; and (B) any Record sold
outside the United States in conjunction with a major television advertising
campaign, during the calendar quarter-annual period in which that campaign
begins and the next two (2) calendar quarter-annual such periods, shall be fifty
percent (50%) of the otherwise applicable Basic U.S. Rate or Foreign Rate.
Notwithstanding anything to the contrary contained herein, the aggregate amount
not accrued to your account as a result of the royalty reduction permitted in
this paragraph 9(c)(ii)(B) shall not exceed one-half(1/2) of the cost of any
such major television advertising campaign.
(iii) The royalty rate on Net Sales of any Multiple Record Set shall
be fifty percent (50%) of the otherwise applicable Basic U.S. Rate or Foreign
Rate set forth above if the Royalty Base Price of that particular Multiple
Record Set is the same as the Royalty Base Price applicable to Company's or a
Principal Licensee's single Top-Line Record in the same configuration in the
applicable country of the Territory where the particular Multiple Record Set is
sold. If a different Royalty Base Price applies to such Multiple Record Set, the
royalty rate shall be calculated by multiplying the applicable Basic U.S. Rate
or applicable Foreign Rate by a fraction, the numerator of which shall be the
Royalty Base Price for such Multiple Record Set and the denominator of which
shall be the Royalty Base Price applicable to Company's or its Principal
Licensee's single Top-Line Record in the same configuration multiplied by the
number of Records in the Multiple Record Set.
(d) (i) The royalty rate on Net Sales of Records derived from Masters,
which Records are licensed by Company or a Principal Licensee for sale through
any Club Operation shall be fifty percent (50%) of Net Receipts solely
attributable to such Masters. No royalties shall be payable with respect to
Records received by members of any Club Operation in an introductory offer in
connection with joining it or purchasing a required number of Records including,
without limitation, Records distributed as "bonus" or "free" Records, or Records
for which the Club Operation is not paid.
(ii) (A) The royalty rate for Masters licensed by Company or a
Principal Licensee to a Person for use in the distribution of Records shall be
fifty percent (50%) of Net Receipts solely attributable to such Masters;
provided that such credit to your royalty account shall not exceed the same
royalty amount that would otherwise be credited to your account hereunder for
such use if Company distributed the Records concerned.
(B) The royalty rate for Masters licensed by Company or a
Principal Licensee to a Person for use in synchronization with theatrical motion
pictures, television programs, or radio or television commercials, or on any
other "flat fee" basis, shall be fifty percent (50%) of Net Receipts solely
attributable to such Masters.
(e) Notwithstanding anything to the contrary contained herein and for
sales by Company or a Principal Licensee of Records in the following
configurations:
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(i) With respect to audio-only Records in compact disc form, the
royalty rate shall be one hundred percent (100%) of the otherwise applicable
Basic U.S. Rate, Escalated U.S. Album Rate or Foreign Rate.
(ii) With respect to Records in any form, configuration, format or
technology not herein described, which is now known but not widely distributed
or which hereafter becomes known, including Enhanced CD, CD Extra, CD-ROM and
DVD ('New Technology Configurations"), the royalty rate shall be eighty percent
(80%) of the otherwise applicable Basic U.S. Rate, Escalated U.S. Album Rate or
Foreign Rate. At any time but no sooner than the later of (A) two (2) years
following the date of this agreement or (B) two (2) years following the first
release of a Record hereunder in the New Technology Configuration concerned,
upon your request, Company shall negotiate with you in good faith with respect
to the computation of royalties payable in respect of the New Technology
Configuration(s) concerned, which negotiations shall take into consideration
then current industry practices and Company's then current policies with respect
to recording artists of comparable sales stature for that particular form of
configuration or exploitation, however, the failure of the parties hereto to
agree to, or of Company to set, a different rate as to New Technology
Configurations, shall not be a breach and shall not prevent Company from
exploiting or continuing to exploit Records in New Technology Configurations.
(f) With respect to Records and other exploitations sold directly to
consumers (i) by Company in the United States, (ii) or by a Principal Licensee
outside the United States, or by their respective licensees throughout the
Territory (e.g., licensed web sites), other than by distribution of physical
Records to consumers, (e.g., without limitation, the downloading or other
conveyance of Artist's performances in Master(s) or Video(s) concerned via
telephone, satellite, cable, direct transmission over wire or through the air,
and on-line computer sales) (collectively, "Cybersales"), the royalty rate shall
be seventy-five percent (75%) of the otherwise applicable Basic U.S. Rate or
Foreign Rate. Such royalties shall be computed on the basis of eighty-five
percent (85%) of Net Sales of such Records in the United States, and one hundred
percent (100%) of Net Sales of such Records outside the United States. At any
time during the Term but no sooner than three (3) years after the date of this
agreement, you may request in writing that Company negotiate with you in good
faith with respect to the computation of royalties payable in respect of
Cybersales, and, provided such request is made, Company agrees to engage with
you in such negotiations. Those negotiations shall take into consideration then
current industry practices and Company's then current policies with respect to
artists of comparable sales stature to Artist for that particular form of
configuration or exploitation, however, the failure of the parties hereto to
agree to, or of Company to set, a different rate as to Cybersales, shall not be
a breach and shall not prevent Company from exploiting or continuing to exploit
Records in Cybersales.
(g) The royalty rate on any Record embodying Masters hereunder coupled
with other Recordings shall be computed by multiplying the otherwise applicable
royalty rate by a fraction, the numerator of which is the number of Masters
hereunder embodied on such Record and the denominator of which is the total
number of Recordings embodied on such Record.
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(h) As to any Master embodying the performances of Artist together with
the performances of any other artist(s), the royalty rate otherwise payable
hereunder with respect to sales of any Record derived from such Master shall be
computed by multiplying such royalty rate by a fraction, the numerator of which
shall be one (1) and the denominator of which shall be the total number of
artists whose performances are embodied on such Master, including Artist;
provided, however, that members of the same group shall constitute one royalty
earning artist for purposes of such apportionment. The Recording Costs for any
such Master shall be pro-rated in accordance with the formula specified in the
preceding sentence. Company shall not require Artist to record with any other
artist(s), without Artist's consent.
(i) No royalties shall be payable to you in respect of: (A) Records given
away or furnished on a "no-charge" basis to "one-stops", rack jobbers,
distributors or dealers, whether or not affiliated with Company, which Records
do not exceed two hundred thirty (230) "no-charge" Singles out of every one
thousand (1,000) Singles distributed and One Hundred Fifty (150) "no-charge"
Albums out of every One Thousand (1,000) Albums distributed; (B) such additional
"no-charge" Records distributed during short term special promotions or
marketing campaigns, which such Records do not exceed the limits set forth in
subparagraph 9(i)(A) plus an additional ten percent (10%) of the total number of
Records distributed; (C) Records given away or sold at below fifty percent of
the stated wholesale prices for promotional purposes to disc jockeys, Record
reviewers, radio and television stations and networks, motion picture companies,
music publishers, Company's employees, Artist, or other customary recipients of
promotional Records or for use on transportation facilities; (D) Records sold as
scrap, salvage, overstock or "cut-outs"; (E) Records sold below cost; and (F)
"sampler" Records intended for free distribution to automobile purchasers and
containing not more than two (2) Masters hereunder. Company shall have the right
to include or to license others to include any one or more Masters hereunder in
promotional Records on which such Masters and other Recordings are included,
which promotional Records are sold at a more than fifty percent (50%) percent
below the regular price of Company's Albums. No royalties shall be payable on
sales of such promotional Records.
(j) As to Records sold at a discount to "one-stops", rack jobbers,
distributors or dealers, whether or not affiliated with Company, in lieu of the
Records given away or furnished on a "no-charge" basis as provided in sections
9(i)(A) and (B), the applicable royalty rate otherwise payable hereunder with
respect to such Records shall be reduced in the proportion that said discount
Wholesale Price bears to the usual stated Wholesale Price, provided that said
reduction in the applicable royalty rate does not exceed the percentage
limitations set forth in subparagraphs 9(i)(A) and (B).
(k) Notwithstanding anything to the contrary expressed or implied in this
paragraph 9, this paragraph 9 shall not be deemed to apply to (i) any payments
received by Company pursuant to any statute or other legislation (including,
without limitation, payments for the public performance of Recordings, or
royalties payable for the sale of blank cassettes or for the sale of recording
equipment) or (ii) any so-called "blanket licenses" (including, without
limitation, performance licenses) between Company and a licensee under which the
licensee is granted access to all or a significant portion of Company's
catalogue of master recordings unless it is possible to accurately calculate a
portion of such payment which is specifically and directly attributable to
royalty bearing master recordings of Artist.
10. ACCOUNTING
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(a) Statements as to royalties payable hereunder shall be sent by Company
to you within sixty (60) days after the expiration of each semi annual for the
preceding semi annual period ending the last fiscal day of June or December.
Notwithstanding the foregoing, Company may, if Company elects, change the
aforesaid time and dates, provided, however, in the event of such change,
statements shall be rendered to you no less frequently than semi-annually.
Concurrently with the rendition of each statement, Company shall pay you all
royalties shown to be due by such statement, after deducting all Recording Costs
paid by Company, all payments made therefor and Artist, and all Advances made to
you and Artist prior to the closing date of such statement. Advances and any
payments which Company is permitted to deduct from royalties made by Company
subsequent to the last date of a particular accounting period shall not reduce
the accrued royalties, if any, payable to you hereunder in respect of such
accounting period. The preceding sentence shall not apply to any Advances
Company is not obligated to pay hereunder or any Advances where the reason for
payment of such Advance after the end of the applicable accounting period is
pursuant to your request, your late Delivery of an Album, or your delay in the
timely fulfillment of any of your other material obligations hereunder. No
statements need be rendered by Company for any such period after the expiration
of the Term for which there are no sales of Records derived from Masters
hereunder or liquidation of reserves hereunder or other exploitation of Masters
hereunder, however, following your written request, Company shall render a
statement for any other such period, if Company is reasonably able to do so. All
payments shall be made to the order of: LUXX and sent to (artist/business
manager). Company shall be entitled to maintain a single account with respect to
all Recordings subject to this agreement or any other agreement. Company may
maintain reasonable reserves; each such royalty reserve shall be liquidated
evenly and not later than the end of the fourth semi-annual accounting period
following the accounting period in which it is established. Company shall not
establish any royalty reserve during any particular accounting period: (i) with
respect to Albums in excess of twenty-five percent (25%), or (ii) with respect
to Singles, Maxi-Singles, and EPs in excess of thirty-five percent (35%), of the
aggregate number of Albums or Singles, or Maxi-Singles, or EPs, as the case may
be, shipped to Company's customers, unless Company anticipates in its good faith
judgment returns and credits which justify the establishment of a larger
reserve. You shall be deemed to have consented to all accountings rendered by
Company hereunder and said accountings shall be binding upon you and not subject
to any objection by you for any reason unless specific objection, in writing,
stating the basis thereof is given to Company within two (2) years after the
date Company is deemed to have rendered the applicable statement, and after such
written objection, unless suit is instituted within three (3) years after the
date Company is deemed to have rendered the applicable statement. Company shall
be deemed conclusively to have rendered you each statement on the date
prescribed in this subparagraph 10 (a) unless you notify Company otherwise with
respect to any particular statement within sixty (60) days after the date that
Company has failed to render that statement.
(b) (i) You shall have the right at your sole cost and expense to appoint
a Certified Public Accountant who is not then currently engaged in an
outstanding audit of Company to examine Books and Records as same pertain to
sales of Records subject hereto as to which royalties are payable hereunder,
provided that any such examination shall be for a reasonable duration, shall
take place at Company's offices during normal business hours on reasonable prior
written notice and shall not occur more than once in any calendar year. You may
examine Books and Records with respect to a particular statement only once.
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(ii) Notwithstanding anything to the contrary contained in
subparagraph 10(b)(i), if Company notifies you that the Certified Public
Accountant designated by you to conduct an audit under subparagraph l0(b)(i) is
engaged in an outstanding audit of Company on behalf of another person ("Other
Audit"), you may nevertheless have your audit conducted by such accountant, and
the running of the time within which such audit may be made shall be suspended
until such accountant has completed the Other Audit, subject to the following
conditions:
(A) You shall notify Company of its election to that effect
within fifteen (15) days after the date of Company's said notice to you;
(B) You shall use your reasonable efforts to cause your
accountant to proceed in a reasonably continuous and expeditious manner to
complete the Other Audit and render the final report thereon to the client and
Company; and
(C) Your audit shall not be commenced by your accountant
before the delivery to Company of the final report on the Other Audit, shall be
commenced within thirty (30) days thereafter, and shall be conducted in a
reasonably continuous manner.
It shall not be a material breach if Company shall under account to Artist.
(iii) The provisions of subparagraph 10(b)(ii) will not apply if
Company elects to waive the provisions of subparagraph 10(b)(i) which require
that your accountant shall not be engaged in any Other Audit.
(c) Company shall compute your royalties in the same national currency in
which Company's licensee pays Company for that sale, and Company shall credit
those royalties to your account at the same rate of exchange at which the
licensee pays Company. For purposes of accounting to you, Company shall treat
any sale outside of the United States as a sale made during the same semi annual
period in which Company receives Company's licensee's accounting and payment for
that sale. If any licensee deducts any taxes from its payments to Company,
Company may deduct a proportionate amount of those taxes from your royalties. If
any law, any government ruling, or any other restriction affects the amount of
the payments which a Company licensee can remit to Company, Company may deduct
from your royalties an amount proportionate to the reduction in the licensee's
remittances to Company. If Company cannot collect payment in the United States
in U.S. Dollars, Company shall not be required to account to you for that sale,
except as provided in the next sentence. Company shall, at your request and at
your expense, deduct from the monies so blocked, and deposit in a foreign
depository, the equivalent in local currency of the royalties which would be
payable to you on the foreign sales concerned, to the extent such monies are
available for that purpose, and only to the extent to which your royalty account
is then in a fully recouped position. All such deposits shall constitute royalty
payments to you for accounting purposes. To the extent possible, Company will
allow you to select the foreign depository referred to in this subparagraph 10
(c).
11. NOTICES.
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Except as otherwise specifically provided herein, all notices under this
agreement shall be in writing and shall be given by courier or other personal
delivery requiring the signature of the recipient, by overnight delivery by an
established overnight delivery service (e.g., Federal Express or United Parcel
Service), or by registered or certified mail return receipt requested at the
appropriate address below, or at a substitute address designated in a written
notice sent by the party concerned to the other party hereto.
TO YOU: The address shown above
TO COMPANY: PUSH RECORDS, INC.
425 Madison Avenue, Suite 802
New York, NY 10017
Each notice to Company shall be addressed to the attention of Company's
Executive Vice President -Administration, and a copy of each notice to Company
shall be sent simultaneously to the attention of Company's General Counsel.
Notices shall be deemed given when mailed or deposited into the custody of an
overnight delivery service for overnight. delivery, or, if personally delivered,
when so delivered, except that a notice of change of address shall be effective
only from the date of its receipt.
12. LICENSES FOR MUSICAL COMPOSITIONS
(a) For the purposes of this paragraph 12, the following definitions shall
apply:
(i) "Controlled Compositions": Any Composition, or material recorded
pursuant to this agreement, which, in whole or in part, is written or composed,
and/or owned or controlled, directly or indirectly, by you and/or any individual
member of Artist and/or any producer of a Master.
(ii) "Effective Date": The date on which Artist delivers the
Recording which embodies a Controlled Composition provided that such delivery is
no later than provided for in paragraph 3 (b)(i) and 3(b)(ii) and if such
delivery is later than as provided therein the date on which Artist commences
recording the Recording which embodies a Controlled Composition.
(iii) "U.S. 75% Rate": A royalty per Controlled Composition equal to
seventy-five percent (75%) of the United States minimum compulsory license rate
applicable to the use of Compositions on phonorecords under the United States
Copyright Law (without regard to playing time) in effect on the Effective Date,
or, if there is no statutory rate in the United States on the Effective Date,
seventy-five percent (75%) of the per Composition rate (without regard to
playing time) generally utilized by major record companies in the United States
on the Effective Date.
(iv) "Canadian 75% Rate": A royalty per Controlled Composition equal
to seventy-five (75%) percent of the Canadian statutory per Composition rate
(without regard to playing time) in effect on the Effective Date, or, if there
is no statutory rate in Canada on the Effective Date, seventy-five (75%) percent
of the per Composition rate (without regard to playing time) generally utilized
by major record companies in Canada on the Effective Date.
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(v) "U.S. 87-1/2% Rate": A royalty per Controlled Composition equal
to eighty-seven and one-half percent (87-1/2%) of the United States minimum
compulsory license rate applicable to the use of Compositions on phonorecords
under the United States Copyright Law (without regard to playing time) in effect
on the Effective Date, or, if there is no statutory rate in the United States on
the Effective Date, eighty-seven and one-half percent (87-1/2%) of the per
Composition rate (without regard to playing time) generally utilized by major
record companies in the United States on the Effective Date.
(vi) "U.S. 100% Rate": A royalty per Controlled Composition equal to
one hundred percent (100%) of the United States minimum compulsory license rate
applicable to the use of Compositions on phonorecords under the United States
Copyright Law (without regard to playing time) in effect on the Effective Date,
or, if there is no statutory rate in the United States on the Effective Date,
one hundred percent (100%) of the per Composition rate (without regard to
playing time) generally utilized by major record companies in the United States
on the Effective Date.
(b) (i) Controlled Compositions shall be and are hereby licensed to
Company and its licensees:
(A) For the United States, at a royalty per Controlled
Composition equal to the U.S. 75% Rate;
(1) if any Album of the Recording Commitment
individually achieves USNRC Net Sales in excess of Five Hundred Thousand
(500,000) units, Controlled Compositions embodied thereon and on all Records
derived therefrom shall be and are hereby licensed to Company for USNRC Net
Sales at a royalty per Controlled Composition equal to the U.S. 87-1/2% Rate,
but only with respect to those Net Sales of such Records in excess of Five
Hundred Thousand (500,000) units; and/or
(2) if any Album of the Recording Commitment
individually achieves USNRC Net Sales in excess of One Million (1,000,000)
units, Controlled Compositions embodied thereon and on all Records derived
therefrom shall be and are hereby licensed to Company for USNRC Net Sales at a
royalty per Controlled Composition equal to the U.S. 100% Rate, but only with
respect to those Net Sales of such Records in excess of One Million (1,000,000)
units; and/or
(3) furthermore, if any Album individually achieves
USNRC Net Sales as specified in either subparagraph 12(b)(i)(A)(1) and/or
12(b)(i)(A)(2), Controlled Compositions embodied on the next immediately
succeeding Album of the Recording Commitment and on all Records derived
therefrom shall be licensed to Company at the highest such rate achieved by such
immediately preceding Album, which rate shall be applied to all USNRC Net Sales
of the next immediately succeeding Album and Records derived therefrom subject
to further escalation in accordance with subparagraph 12 (b)(i)(A)(2).
(B) For Canada, at a royalty per Controlled Composition equal
to the Canadian 75% Rate.
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(ii) Notwithstanding the foregoing, the maximum aggregate mechanical
royalty rate which Company shall be required to pay in respect of:
(A) any Single hereunder, regardless of the total number of
Compositions embodied thereon, shall not exceed two (2) times the U.S. 75% Rate,
the Canadian 75% Rate, the U.S. 87-1/2% Rate or the U.S. 100% Rate, as the case
may be;
(B) any Maxi-Single hereunder, regardless of the total number
of Compositions embodied thereon, shall not exceed three (3) times the U.S. 75%
Rate, the Canadian 75% Rate, the U.S. 87-1/2% Rate or the U.S. 100% Rate, as the
case may be;
(C) any EP hereunder, regardless of the total number of
Compositions embodied thereon. shall not exceed five (5) times the U.S. 75%
Rate, the Canadian 75% Rate, the U.S. 87-1/2% Rate or the U.S. 100% Rate, as the
case may be;
(D) any Album in any form other than compact disc, regardless
of the total number of Compositions embodied thereon, shall not exceed ten (10)
times the U.S. 75% Rate, the Canadian 75% Rate, the U.S. 87-1/2% Rate or the
U.S. 100% Rate, as the case may be;
(E) any Album in compact disc form, regardless of the total
number of Compositions embodied thereon, shall not exceed eleven (11) times the
U.S. 75% Rate, the Canadian 75% Rate, the U.S. 87-1/2% Rate or the U.S. 100%
Rate, as the case may be. Notwithstanding the foregoing, in the event that any
Album of the Recording Commitment contains non-Controlled Compositions, then the
maximums set forth in subparagraphs 12(b)(ii)(D) and (E) shall be increased by
the difference, if any, between (a) the mechanical royalty required to be paid
with respect to up to two (2) such non-Controlled Compositions (but in no event
more than the U.S. 100% Rate or the Canadian statutory per Composition rate
(without regard to playing time) in effect on the Effective Date, as the case
may be, for two (2) Compositions, and (b) the mechanical royalty that would be
payable if such non-Controlled Compositions were Controlled Compositions.
(c) (i) In the event that any Single, Maxi-Single, EP or Album contains
other Compositions in addition to Controlled Compositions and the aggregate
mechanical royalty rate for said Single, Maxi-Single, EP or Album exceeds the
applicable maximum aggregate mechanical royalty rate provided in subparagraph
12(b)(ii), the aggregate mechanical royalty rate for the Controlled Compositions
contained thereon shall be reduced by the aforesaid excess over said applicable
rate. Additionally, Company shall have the right with respect to any Single,
Maxi-Single, EP or Album, the aggregate mechanical royalty rate for which
exceeds the applicable maximum aggregate mechanical royalty rate provided in
subparagraph 12(b)(ii), to deduct the excess payable thereon from all monies
payable to you pursuant to this agreement or any other agreement.
(ii) All mechanical royalties payable hereunder shall be paid on the
basis of Net Sales of Records for which royalties are payable to you pursuant to
this agreement, except that mechanical royalties shall be payable, for
Controlled Compositions embodied on any Album of the Recording Commitment with
respect to fifty percent (50%) of such Albums which are for all other purposes
non-royalty bearing pursuant to the terms of subparagraph 9(i)(A) herein.
Company may maintain reasonable
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reserves with respect to the payment of mechanical royalties which reserves
shall be liquidated after the fourth accounting period following the accounting
period in which such reserve(s) are established. If Company makes an overpayment
of mechanical royalties in respect of Compositions recorded under this
agreement, you will reimburse Company for same, failing which Company may recoup
any such overpayment from all monies becoming payable to you pursuant to this
agreement or any other agreement. Mechanical royalty payments on Records
subsequently returned are considered overpayments.
(iii) Notwithstanding anything to the contrary contained herein,
mechanical royalties payable in respect of Controlled Compositions for Net Sales
of Records for any use other than as described in subparagraphs 9 (a), (b),
(c)(iii), (e), (g) and (h) shall be seventy-five (75%) percent of the otherwise
applicable U.S. 75% Rate or Canadian 75% Rate, as the case may be. Mechanical
royalties for Controlled Compositions which are arranged versions of any
Compositions in the public domain shall be paid in the same proportion as the
appropriate performing rights society grants performing credits to the publisher
of such Controlled Composition, provided you have furnished Company with a copy
of the letter from such performing rights society setting forth the percentage
of the otherwise applicable credit which the publisher will receive.
(iv) Any assignment of the ownership or administration of copyright
in any Controlled Composition shall be made subject to the provisions hereof and
any inconsistencies between the terms of this agreement and mechanical licenses
issued to and accepted by Company shall be determined by the terms of this
agreement.
(v) If any Single, Maxi-Single, EP or Album contains other
Compositions in addition to the Controlled Compositions, you will use your
reasonable efforts to obtain for Company's benefit mechanical licenses covering
such Compositions on the same terms and conditions applicable to Controlled
Compositions pursuant to this paragraph 12.
(d) You hereby agree that all Controlled Compositions shall be available
for licensing by Company and Company's licensees, for reproduction and
distribution in each country of the Territory outside of the United States and
Canada through the author's society or other licensing and collecting body
generally responsible for such activities in the country concerned. You shall
cause the issuance of effective licenses, under copyright and otherwise, to
reproduce each Controlled Composition on Records and distribute those Records
outside the United States and Canada, on terms not less favorable to Company or
Company's licensees than the standard provisions contained in mechanical
licenses issued by the Harry Fox Agency, Inc. or CMRRA and such terms shall be
no less favorable to Company or Company's licensee than the terms prevailing on
a general basis in the country concerned with respect to the use of Compositions
on comparable Records.
(e) (i) In respect of all Controlled Compositions, Company and its
licensees are hereby granted the irrevocable perpetual worldwide right to
reprint the lyrics on the jackets, sleeves and other packaging of Records
derived from Masters hereunder, and to reproduce such lyrics on, or cause the
reproduction of lyrics by, any New Technology Configurations. Company shall
provide appropriate copyright notices and writer and publisher credits with
respect to such reprinted lyrics; provided that
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Company's inadvertent and isolated failure to do so in any instance shall not
constitute a breach of this agreement.
(ii) You also grant to Company and Company's licensees an
irrevocable license under copyright to reproduce each Controlled Composition in
Videos, to reproduce, distribute and perform those Videos in any manner
(including, without limitation, publicly and for profit), to manufacture and
distribute Audiovisual Records and other copies of those Videos, and to exploit
them otherwise, by any method and in any form known now or in the future,
throughout the Territory, and to authorize others to do so. Company and
Company's licensees shall not be required to make any payment in connection with
those uses, and that license shall apply whether or not Company receives any
payment in connection with any use of any Video. If any exhibition of a Video is
also authorized under another license (such as a public performance license
granted by ASCAP or BMI), that exhibition shall be deemed authorized by that
license instead of this agreement. (In all events, Company and Company's
licensees shall have no liability by reason of any such exhibition.)
Notwithstanding the foregoing, with respect to Net Sales of Audiovisual Records
hereunder which are sold, paid for and not returned, and only with respect to
such net units sold following Company's full recoupment of all Video Production
Costs for such units, Company shall pay a synchronization fee for Controlled
Compositions equal to four percent (4%) of the Royalty Base Price for
Audiovisual Records (defined in subparagraph 24(z)(iii)) below therefor,
prorated on the basis that the playing time of Controlled Compositions bears to
the total playing time of such Audiovisual Record.
(f) Notwithstanding anything to the foregoing provisions of this paragraph
12 to the contrary, if a particular Controlled Composition recorded hereunder is
embodied more than once on a particular Record, Company shall pay mechanical
royalties in connection therewith at the applicable rate for such Controlled
Composition as if the Controlled Composition concerned were embodied thereon
only once.
13. EVENTS OF DEFAULT
(a) If you do not fulfill timely any portion of the Recording Commitment
hereunder or any of your other material obligations hereunder in accordance with
all of the terms and conditions of this agreement, then, in addition to any
other rights or remedies which Company may have, Company shall have the right,
upon written notice to you at any time prior to the expiration of the
then-current Contract Period, (i) to terminate the Term; and (ii) to require you
to repay to Company the unrecouped amount of any Advance previously paid to you
and not specifically attributable under paragraph 7 to an Album which has
actually been Delivered, except as expressly provided in the next sentence,
unless your default is due solely to your death or disability. You shall not be
required to repay any such Advance to the extent to which you furnish Company
with documentation satisfactory to Company establishing that you have actually
used the Advance to make payments to Persons not affiliated with you and in
which you do not have an interest, for Recording Costs incurred in connection
with the Album concerned prior to Company's demand for repayment. Company may
exercise any or all of its rights pursuant to subparagraph 13(a), by sending you
the appropriate notice. Notwithstanding anything to the contrary in this
agreement, if you Deliver Masters for any Album hereunder at any time within
sixty (60) days from the date such Delivery was required pursuant to
subparagraph 3(b)(i), Company shall not exercise its rights under this
subparagraph 13(a) on the basis of such delayed Delivery. No exercise by Company
of
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its rights under this paragraph shall limit Company's rights to recover damages
by reason of your default or to exercise any of its other rights and remedies.
(b) Company reserves the right, at its election, to suspend the operation
of this agreement for the duration of any of the following contingencies, if by
reason of any such contingency, it is materially hampered in the performance of
its obligations under this agreement or its normal business operations are
delayed or become impossible or commercially impracticable: Act of God, fire,
catastrophe, labor disagreement, acts of government, its agencies or officers,
any order, regulation, ruling or action of any labor union or association of
artists, musicians, composers or employees affecting Company or the industry in
which it is engaged, delays in the delivery of materials and supplies, or any
other cause beyond Company's control. Any such suspension due to a labor
controversy which involves only Company shall be limited to a period of six (6)
months. Notwithstanding such suspension, Company shall continue to account and
pay royalties to you as and when due unless the contingency resulting in such
suspension materially hampers Company in carrying out such obligation.
(c) If Artist's voice or Artist's ability to perform as an instrumentalist
should be materially or permanently impaired for a period in excess of seven (7)
consecutive months, then, in addition to any other rights or remedies which
Company may have, Company shall have the right, upon written notice to you, to
terminate the Term.
(d) (i) If Company exercises any of its termination rights pursuant to
this paragraph 13, you shall have the option to purchase any recorded but
undelivered or unreleased Masters from Company. Company will transfer to you
such Masters as you wish to purchase (the "Subject Masters") no later than
fifteen (15) days after the date of your notice of exercise of your option to
acquire Company's rights in the Subject Masters and upon receipt by Company of
certified funds fully reimbursing Company for the Recording Costs of the Subject
Masters, Company will deliver the Subject Masters to you at Company's offices.
You shall reimburse Company for the Recording Costs of the Subject Masters
simultaneously with your acquisition of the Subject Masters, by certified or
bank check. The Subject Masters will be delivered to you and accepted "as is" at
the time of delivery and no warranty or representation, express or implied, is
or will be made by Company in connection therewith; provided, however, that
Company shall not further impair or encumber the rights in or to the Subject
Masters prior to your purchase of them.
(ii) You shall be solely responsible for paying for, discharging and
performing, as and when due, all obligations and liabilities relating to the
Subject Masters and the Unreleased Masters. Without limiting the foregoing, you
shall make all payments required in connection with manufacture, sale or
distribution of Records derived from the Subject Masters and/or the Unreleased
Masters and all other payments required by reason of your use of the Subject
Masters and/or the Unreleased Masters, including, without limitation, all
royalties and other payments to performing artists, producers, owners of
copyrights in musical compositions, the Music Performance Trust Fund and Special
Payments Fund, and any other unions and union funds. You shall comply with the
applicable rules and regulations of the American Federation of Musicians and any
other union having jurisdiction and any other applicable laws, rules and
regulations covering any use of the Subject Masters and/or the Unreleased
Masters by you, or any Person deriving rights from you, in the manufacture and
sale of Records or otherwise. You warrant and represent that you have obtained
or will obtain all necessary rights, licenses, permissions,
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clearances, consents and approvals which you are required to obtain from other
Persons relating to the exploitation of the Subject Masters and/or the
Unreleased Masters. You will indemnify and hold harmless Company and its
licensees from and against any and all claims, damages, liabilities, costs and
expenses, including legal expenses and reasonable counsel fees, arising out of
any use of the Subject Masters and/or the Unreleased Masters by you or your
successors, assigns or licensees.
14. INJUNCTIVE RELEIF
You expressly acknowledge that Artist's services hereunder are of a special,
unique intellectual and extraordinary character which gives them peculiar value,
and that in the event of a breach or threatened breach of any term, condition,
representation, warranty, agreement or covenant hereof Company will be caused
immediate irreparable injury, including loss of goodwill and harm to reputation,
which cannot be adequately compensated in monetary damages. Accordingly, in the
event of any such breach, actual or threatened, Company shall have, in addition
to any other legal remedies, the right to injunctive or other equitable relief.
The preceding sentence shall not be construed to preclude you from opposing
Company's application for injunctive relief based upon a challenge of the
factual basis alleged by Company in support of its application.
15. WARRANTIES AND REPRESENTATIONS; INDEMNITIES
(a) You warrant and represent that:
(i) You are each over the age of eighteen (18) and have the right
and legal capacity to enter into this agreement, and you are not subject to any
prior obligations or agreements, whether as a party or otherwise, which would
restrict or interfere in any way with the full and prompt performance of your
obligations hereunder, and you shall fully and promptly perform your obligations
to Artist.
(ii) There exist no prior unreleased Recordings embodying Artist's
performances collectively as Luxx, except as set forth on Schedule A attached to
this agreement.
(iii) Company shall not be required to make any payments of any
nature for or in connection with the acquisition, exercise or exploitation of
any of Company's rights hereunder, except as specifically provided in this
agreement. You shall be solely responsible for: (A) all royalties (except
mechanical royalties) payable to producers, mixers, remixers and others
contributing to the recording of Masters engaged by you or with your consent
(subject to subparagraph 8 (b) above); (B) all Recording Costs in excess of the
Recording Advances set forth in paragraph 7; (C) all mechanical royalties in
excess of the applicable rates and/or the applicable maximum aggregate
mechanical royalty rates set forth in subparagraph 12 (b)(ii); (D) video shoot
cancellation costs pursuant to the terms of subparagraph 18 (b) (iii); (E) all
Special Packaging Costs which you have requested, submitted or otherwise
approved in writing or consented to; (F) all other costs, if any, which are in
excess of the fixed amounts provided herein which Company has agreed to pay
which have not been incurred solely as a result of Company's acts or omissions;
and (G) all other amounts which you agree to pay herein. You
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shall promptly pay all of the amounts set forth in this subparagraph 15 (a)
(iii), or reimburse Company if Company pays them. Such amounts may also be
deducted from all monies becoming payable to you by Company under this agreement
or any other agreement to the extent to which they have not been paid by you or
you have not reimbursed Company.
(iv) The Materials or any use thereof, shall not violate any law and
shall not infringe upon or violate the rights of any Person (including, without
limitation, contractual rights, copyrights, rights of publicity and rights or
privacy); and that each track-by-track list identifying the performers on each
Master and describing their performances which you furnish to Company is and
shall be true, accurate and complete. "Materials," as used in this subparagraph
15 (a) (iv), means: Masters hereunder (including any Sampled Material embodied
therein); all Controlled Compositions; each name used by Artist, individually or
as a group, in connection with Masters hereunder; all photographs and likenesses
of Artist; and all other musical, dramatic, artistic and literary materials,
ideas, and other intellectual properties furnished by you or artist, contained
in or used in connection with any Masters hereunder or their packaging, sale,
distribution, advertising, publicizing or other exploitation supplied by or
approved by your or Artist. Company's acceptance and/or utilization of Masters,
Materials, or track-by-track lists hereunder shall not constitute a waiver of
your representations, warranties or agreements in respect thereof, or a waiver
of any of Company's rights or remedies.
(v) You will make no changes in the personnel comprising Artist
without Company's prior written consent which shall not be unreasonably
withheld. You shall not, during the Term, assign Artist's professional name set
forth on Page 1 hereof, or any other names utilized by Artist in connection with
Masters, or permit the use of said names by any other individual or group of
individuals in respect of the Masters without Company's prior written consent,
and any attempt to do so shall be null and void and shall convey no right or
title. You hereby warrant and represent that you are and shall be the sole owner
of all such professional names, and that no other Person has the right to use
said names or to permit said names to be used in connection with Records, and
that you have the authority to grant Company the exclusive right to use said
names in the Territory in accordance with all of the terms and conditions of
this agreement and Company shall have the exclusive right to use said
professional name as set forth herein.
(vi) Artist shall not perform, and neither you nor Artist shall
authorize or knowingly permit Artist's performances to be recorded for any
purpose, without an express written agreement with the Person for whom the
Recording is to be made for Company's benefit, prohibiting the use of such
Recording for making, promoting, or marketing Recordings or Records, or for
digital broadcasts or other transmissions, distributions or other communications
now or hereafter known, in violation of the applicable restrictions set forth in
subparagraphs 15 (a) (i), (vii) and (viii). You shall furnish Company with a
fully executed copy of each such agreement promptly after the execution thereof.
Without limiting the generality of this subparagraph 15(a)(vi), Artist shall
have the right to (A) perform as an actor in motion picture or other visual or
audio-visual media, the contents of which are dramatic and substantially
non-musical, and (B) appear on musical shows on television provided that
neither you nor Artist permit the replication of such television show(s) to be
released as Audiovisual Records.
(vii) Artist shall not perform or render any services and Artist
shall not authorize the use of Artist's name, likeness, or other identificati6n
for the purpose of distributing, selling, advertising
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or exploiting Records for any Person other than Company during the Term in the
Territory. Notwithstanding the preceding sentence,
(A) Artist shall have the right to perform as a so-called
non-featured "back-up musician", "background vocalist" or "sideman" with
featured artists for the purpose of making Records for any Person other than
Company only upon the following conditions:
(1) Artist's activities in this regard shall not
materially interfere with the prompt and timely performance of your Delivery
obligations hereunder;
(2) You shall undertake to provide Company with advance
written notice thereof and the Compositions to be performed and recorded shall
not be Compositions recorded pursuant to this agreement; provided, however, your
isolated failure to do so shall not constitute a breach of this agreement;
(3) If any such Record is released in a Record, Artist's
name may only be used on the liner of such Record in a size, prominence and type
style as is customary in the recording industry for the names of such
non-featured "back-up musicians", "background vocalists" and "sidemen" whose
performances are embodied, and who are given credit on such Record, and in the
same place on the liner where all other such non-featured performers are listed,
and, Company shall be given appropriate courtesy credit in conjunction with any
use of Artist's name on the liner of such Record; provided, however, Artist's
failure to procure such credit for Company shall not be deemed a breach of this
agreement; and
(4) Artist shall not perform any step-outs, solos or
duets in excess of fifteen (15) seconds in connection with such Recordings; and
(5) Except as otherwise provided above, Artist's name,
likeness, or photograph shall not be used in any manner by any third party in
connection with the performances of any member of Artist or in any advertising
thereof. No visual reproduction of Artist's performance shall appear in any
Video, New Technology Configurations, Cybersales or Audiovisual Record without
Company's prior written consent.
(B) The individual members of Artist shall have the right to
produce Recordings by other recording artists, but only upon the following
conditions:
(1) Such individual's activities as a producer shall not
materially interfere with the prompt and timely performance of your Delivery
obligations or material obligations pursuant to subparagraph 6 (a) (ii) herein;
(2) You shall undertake to provide Company with advance
notice of any such activity; provided, however, your isolated failure to do so
shall not constitute a breach of this agreement;
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(3) If any such Recordings are released in a Record, the
name of the individual member of Artist who produced such Recording may only be
used on the liner notes, packaging and advertising of such Record in a size,
prominence and type style as is customary in the recording industry for the
names of producers who have produced Recordings embodied, and who are given
credit, on such Record, and in the same place on the liner where all other
producers are listed, and Company shall be given appropriate courtesy credit in
connection with any use of the name of any individual member of Artist on the
liner of such Record; provided, however, Artist's failure to procure such credit
for Company shall not be deemed a breach of this agreement; and
(4) Artist's professional name, likeness, or photograph
shall not be used in any manner by any third party in connection with Artist's
production of Recordings or in any advertising for such Record; provided,
however, that the name of the individual member of Artist concerned may be used
as set forth above.
(viii) Artist shall not perform for the purpose of recording any
Composition, or any adaptation of a Composition, recorded hereunder for any
Person other than Company for use in the Territory on Records, or in radio or
television commercials except as provided in subparagraph 15(a)(vi) of this
agreement, or otherwise for synchronization with visual images, for a period of
(A) five (5) years after the date of Delivery to Company of all Recordings made
in the course of the same Album (or other recording project) as the Recording of
the restricted Composition concerned, or (B) two (2) years after the expiration
or other termination of the Term, whichever is later (the "Re-recording
Restriction"). In the event that a Composition recorded hereunder is not
embodied on any Record which is released hereunder prior to one (1) year after
the expiration or other termination of this agreement, there shall be no
Re-recording restriction with respect to such Composition.
(ix) All Persons rendering services in connection with Masters or
Videos shall fully comply with the provisions of the Immigration Reform Control
Act of 1986.
(x) The Recordings to be recorded will be subject to the AFM and
AFTRA collective bargaining agreements and/or any other applicable collective
bargaining agreements and an entity owned or controlled by you will be a party
to all such agreements.
(xi) You and Artist will comply with all union rules, regulations
and agreements applicable to the Recordings.
(xii) Before the Delivery of Recordings to Company hereunder; (1)
you will make all payments to all Persons rendering services for the Recordings
concerned; (2) you will insure that there will be delivered to Company all
licenses required under copyright for the recording of the musical compositions
and any other copyrighted material reproduced in the Recordings, and you will
make all payments (except mechanical royalties) required under those licenses;
(3) you will pay or furnish Company with waivers of all other payments (except
"per-record" royalties) to which any Person may become entitled and all other
costs in connection with those Recordings or their use in the manufacture and
sale of Records; (4) you will furnish Company with the name of each vocalist who
may be a "covered artist" under Appendix A to the AFTRA 1993-1996 National Code
of Fair Practice for Phonograph Recordings (or any applicable successor
agreement), it being agreed that your failure to
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notify Company of such vocalists will constitute your warranty and
representation that no such "covered artist" rendered services in connection
with the Recordings; and (5) you will furnish Company with all required AFTRA
and AFM forms, duly completed and executed.
(xiii) If any claim is asserted against Company for payment of any
obligation required to be discharged by you pursuant to subparagraphs 15(a)(x)
through 15(a)(xv), Company will have the right to make any such payment and any
late penalties incurred due to your untimely delivery of or failure to deliver,
necessary paperwork required to make such payments, and shall deduct the amount
of such payment, including late payments, from any and all monies accruing or
becoming payable to you hereunder. No payments shall be made pursuant to
subparagraph 7 (f)(iii) until Company receives the documentation required to be
furnished to Company pursuant to subparagraphs 15(a)(xii) and/or 15(a)(xvi).
(xiv) All unions concerned and the owners of recording studios to be
used, if any, have agreed not to look to Company for payment of any scale
compensation or other obligations arising in connection with Masters recorded
hereunder, except for "per-record" royalties.
(xv) All union scale payments due all Persons who render or perform
services in connection with Masters recorded hereunder, as well as payroll taxes
and any other taxes required to be paid thereon, if any, shall be promptly paid
by you when due.
(xvi) You will furnish Company with all information and all
instruments and documents which Company may reasonably require in connection
with Masters to confirm your compliance with the terms of subparagraphs 15(a)(x)
through 15(a)(xv) and 24(k) of this agreement.
(b) You agree to and do hereby indemnify, save and hold Company harmless
from any and all loss and damage (including court costs and reasonable
attorneys' fees) arising out of; connected with or as a result of any
inconsistency with, failure of, or breach or threatened breach by you of any
warranty, representation, agreement, undertaking or covenant contained in this
agreement including, without limitation, any claim by any third party in
connection with the foregoing, which has resulted in a judgment against Company
or which has been settled with your consent, which consent shall not be
unreasonably withheld, it being agreed that such consent shall only be required
for settlements in excess of Five Thousand Dollars ($5,000.00). In addition to
any other rights or remedies Company may have by reason of any such
inconsistency, failure, breach, threatened breach or claim, Company may obtain
reimbursement from you, on demand, for any payment made by Company at any time
after the date hereof with respect to any loss, damage or liability (including
anticipated and actual court costs and reasonable attorneys' fees) resulting
therefrom. Such amounts may also be deducted from all monies becoming payable to
you by Company under this agreement or any other agreement to the extent to
which they have not been reimbursed to Company by you. If the amount of any such
claim or loss has not been determined, Company may withhold sums due you in an
amount consistent with such claim or loss pending such determination unless you
post a bond in a form and from a bonding company acceptable to Company in an
amount equal to Company's estimate of the amount of the claim. Such withheld
sums shall be released if suit is not filed within twelve (12) months after
Company is notified of or receives a communication with respect to such claim;
provided, however, that if such claim is thereafter asserted, Company shall
maintain the right to begin once again to withhold monies. Company
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shall give you notice of any third party claim to which the foregoing indemnity
applies and you shall have the right to participate in the defense of any such
claim through counsel of your own choice and at your expense; provided that
Company shall have the right at all times, in Company's sole discretion, to
retain or resume control of the conduct thereof.
16. APPROVALS
(a) Except as otherwise expressly provided in this agreement, as to all
matters treated herein to be determined by mutual agreement, or as to which any
approval or consent is required, such agreement, approval or consent shall not
be unreasonably withheld.
(b) Your agreement, approval or consent, whenever required (including,
without limitation, written agreement, approval or consent), shall be deemed to
have been given unless you notify Company otherwise within ten (10) business
days following the date of Company's written request to you. Joseph Grier, Esq.,
of Pryor, Cashman, Sherman & Flynn, Esqs, is hereby deemed an authorized agent
to give approval on behalf of you.
17. COLLECTIVE BARGAINING AGREEMENTS
You hereby warrant and represent that, during the Term, Artist shall become and
remain a member in good standing of any labor unions with which Company may at
any time have agreements lawfully requiring such union membership, including,
but not limited to, the American Federation of Musicians and the American
Federation of Television and Radio Artists. All Masters hereunder shall be
produced in accordance with the rules and regulations of all unions having
jurisdiction. Those provisions of any collective bargaining agreement between
Company and any labor organization which are required, by the terms of such
agreement, to be included in this agreement shall be deemed incorporated herein.
18. VIDEOS
(a) Company agrees to cause to be produced at least one (1) promotional
Video in connection with each Album constituting the Recording Commitment,
provided that promotional Videos continue to be a meaningful marketing tool for
artists similar in style to Artist, pursuant to the prevailing custom and
practice in the record industry in the United States at the time of Company's
release of the applicable Album.
(b) With respect to any Videos requested by Company:
(i) The Master to be embodied in such Videos, the concept for such
Videos, the creative aspects of the production of such Videos (including,
without limitation, preparation of the script and storyboard), and the dates and
locations for the shooting of such Videos, shall be mutually selected by you and
Company; provided that, each Master released as the "A" side of a Single shall
be deemed mutually selected by you and Company for inclusion in a Video.
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(ii) The director of such Videos shall be mutually selected by you
and Company and Company shall engage the other production personnel for such
Videos. Artist shall fully cooperate with the director and all other production
personnel in the production of such Videos. Company shall determine the budget
for each Video, in consultation with Artist, subject to the preceding sentence
and the terms of subparagraph 18 (a).
(iii) Company shall pay all Video Production Costs incurred in
connection with such Videos consistent with a production budget approved by
Company in good faith consultation with Artist. All Video Production Costs in
excess of the approved budget that have been incurred due solely as a result of
your acts or omissions shall be your sole responsibility and you hereby agree to
forthwith pay and discharge all such excess costs. In the event that Company
agrees to pay any such excess costs on your behalf, you shall, upon demand
reimburse Company for such excess costs or, in lieu of requesting reimbursement,
Company may deduct such excess costs from all monies payable to you under this
agreement or any other agreement. In the event that Artist fails to appear at
locations and/or on dates which have been mutually approved by you and Company,
without reasonable excuse, the costs of cancellation of the shoot shall be fully
deductible from all monies payable to you under this agreement or any other
agreement to the extent such costs exceed the budget.
(iv) All Video Production Costs paid or incurred by Company shall
constitute Advances, fifty percent (50%) of which shall be recoupable from
royalties credited to your account pursuant to paragraph 9, and one hundred
percent (100%) of which shall be recoupable from royalties derived from the
commercial exploitation of Videos credited to your account pursuant to paragraph
18. Company shall not be entitled to recoup more than one hundred percent (100%)
of the Video Production Costs for any Video. This subparagraph is subject to
subparagraph 18(b)(iii).
(v) Company shall not, without your consent, require Artist to
perform for the making of a so-called "long-form" Video consisting of Videos of
various musical Compositions and Company shall not commercially release such
"long-form" Video in the United States during the Term. The term "long-form"
Video shall mean a full-length audio-visual program, as such term is generally
understood in the recording industry, but specifically excludes any compilation
of so-called "short form" or promotional Video. During the Term hereof Company
shall not commercially release audiovisual material embodying Videos or portions
thereof made hereunder together with other audiovisual materials without your
consent.
(c) With respect to Net Sales by Company of Audiovisual Records which
embody Videos, the royalty credited to your account hereunder shall be computed
in accordance with the provisions of paragraph 9, except that: (i) with respect
to Net Sales of Top Line Audiovisual Records in the United States through normal
retail channels, the Basic U.S. Rate shall be eighteen percent (18%); and (ii)
with respect to Net Sales of Top Line Audiovisual Records outside the United
States through normal retail channels, the Foreign Rate shall be thirteen
percent (13%). The Escalated U.S. Album Rate shall not apply.
(d) (i) The royalty rate for Videos licensed by Company or a Principal
Licensee to a Person for use in the manufacture and distribution of Audiovisual
Records shall be fifty percent (50%) of Video Net Receipts solely attributable
to such Videos; provided that such credit to your royalty
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account shall not exceed the same royalty amount that would otherwise be
credited to your account hereunder for such use if Company manufactured or
distributed the Audiovisual Record concerned.
(ii) The royalty rate for Videos licensed by Company or a Principal
Licensee to a Person for use in synchronization with theatrical motion pictures,
television programs, or radio or television commercials shall be fifty percent
(50%) of Video Net Receipts solely attributable to such Videos.
(e) Notwithstanding anything to the contrary in subparagraph 9 (g), the
royalty rate on a Video which is coupled with videos by other artists on
Audiovisual Records shall in no event exceed the royalty rate that would apply
if such royalty were computed by apportionment based on the actual playing time
of each Recording embodied in the Audiovisual Record concerned.
(f) The terms of the following paragraphs of this agreement are
specifically incorporated by reference into this paragraph 18, and shall apply
to the exploitation of Videos as if fully set forth herein: paragraph 5,
subparagraph 6(c), paragraph 10, paragraph 15, paragraph 16, and paragraph 24.
(g) Notwithstanding anything to the contrary in this agreement, Company
may reproduce on any New Technology Configuration any Video without payment of a
separate or additional royalty for such use; the royalty to be credited to your
Record royalty account for Net Sales of such New Technology Configurations
pursuant to paragraph 9 shall cover the use of such Video.
19. [INTENTIONALLY OMITTED]
20. GROUP PROVISIONS
(a) (i) You warrant, represent and agree that, for the Term, Artist will
perform together as a group (the "Group") for Company. If any individual
comprising Artist refuses, neglects or fails to perform together with the other
individuals comprising Artist in fulfillment of the obligations under this
agreement or leaves the Group, you shall give Company prompt written notice
thereof. Said individual shall remain bound by this agreement, including, but
not limited to, the provisions of subparagraph 20(b) herein or Company may, by
notice in writing, (A) terminate this agreement with respect to such individual
or (B) terminate this agreement in its entirety without any obligation as to
unrecorded or undelivered Masters.
(ii) The individual whose engagement is so terminated or who
refuses, neglects or fails to perform with the Group or who leaves the Group,
may not perform for others for the purpose of recording any Composition as to
which the applicable Re-recording Restriction has not yet expired. Any member of
the Group who refuses, neglects or fails to perform with the Group or who leaves
the Group shall not thereafter use the professional name of the Group in any
commercial or artistic endeavor; said
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professional name shall remain for all purposes the property of those members of
the Group who continue to perform their obligations hereunder and whose
engagements are not terminated.
(iii) Each person permanently added to Artist, as a replacement or
otherwise, shall become bound by the terms and conditions of this agreement and
shall execute this agreement and any other documents required by Company as a
condition precedent to being so added.
(iv) In the event that an individual engagement is terminated by
notice from Company, or by mutual consent, (A) each party shall be relieved and
discharged from liability for Masters unrecorded at the time of such notice or
mutual consent and (B) you will be solely responsible for and shall pay all
monies required to be paid to such individual whose engagement is so terminated
in connection with any Masters theretofore or thereafter Delivered under this
agreement for which royalties are payable to such individual and you will
indemnify and hold harmless Company against any claims relating thereto,
pursuant to the terms of subparagraph 15 (b).
(b) In addition to the rights provided in the preceding subparagraph
20(a), Company shall have, and each individual member of the Group hereby grants
to Company, an irrevocable option for the individual and exclusive services of
each of the individuals comprising Artist for the purpose of making Records.
Said option with respect to such individuals may be exercised by Company giving
such individuals notice in writing within sixty (60) days after Company receives
the notice provided for in subparagraph 20(a) to the effect that each such
individual has refused, neglected or failed to perform with the other
individuals comprising Artist or that each such individual has left the Group or
that the Group has disbanded. Company shall be deemed to have exercised said
option with respect to such individual(s) unless Artist serves written notice to
Company that the time for exercising said option has run. In the event that
Artist serves notice that the time to exercise the option(s) for the individual
and exclusive services has run then Company shall have thirty (30) days within
which Company shall provide written notice of the exercise of the option set
forth herein. In the event of Company's exercise of such option, you and each
such individual shall be deemed to have entered into a new and separate
agreement with Company with respect to each such individual's exclusive
recording services upon all the terms and conditions of this agreement except
that:
(i) each such individual shall, at Company's option (A) record and
deliver to Company three (3) demonstration recordings ("Demos") at Company's
non-recoupable expense pursuant to a recording budget approved by Company
therefor or (B) arrange for a personal audition (the "Audition") at such place
and time as Company may approve;
(ii) within forty five (45) days following Company's receipt of said
notice as provided in subparagraph 20(b) of this agreement, but not sooner than
forty five (45) days following Company's receipt of the Demos or the date of the
Audition, as the case may be, Company shall have the option by written notice to
require such individual to record and Deliver to Company Masters sufficient to
comprise one (1) Album ("Commitment") and Company shall thereafter have the
right to increase the Commitment and the right to extend the term for option
periods so that Company shall have the right under such agreement to the same
number of Albums as Company then has rights or options for under this agreement,
provided that, notwithstanding anything to the contrary herein, Company shall
have the right to request not less than three (3) Albums under such agreement;
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(iii) [intentionally omitted]
(iv) Company shall pay a Recording Advance in respect of Masters to
be recorded by each such individual up to the amount of seventy-five percent
(75%) of the Recording Advance set forth in paragraph 7 for the immediately
preceding Album Delivered by Artist constituting the Recording Commitment, or if
Artist has not yet Delivered the First Album, of the Recording Advance for the
First Album. Each succeeding Recording Advance shall be at least seventy-five
percent (75%) of the minimum Recording Advance set forth in this agreement which
follows the Recording Advance on which the first Recording Advance to each such
individual concerned is computed;
(v) Company's royalty obligation to each such individual in respect
of Recordings by each such individual shall be the payment to them of the same
Basic U.S. Rate, Escalated U.S. Album Rate, and Foreign Rate as set forth in
this agreement, with royalties for all other uses (foreign sales, clubs,
licensing, etc.), calculated and reduced in the same manner as otherwise
provided in paragraph 9;
(vi) If your royalty account is in an unrecouped position at the
date of Company's exercise of its option for the individual concerned pursuant
to subparagraph 20 (b) (ii), then the portion of such unrecouped balance
chargeable to such individual's royalty account shall be determined by
multiplying such unrecouped balance by a fraction, the numerator of which shall
be one (1) and the denominator of which shall be the total number of royalty
artists constituting Artist as of the date of Company's exercise of its option.
(vii) Recordings by such individual shall not be applied in
diminution of the Recording Commitment and Delivery obligations as set forth in
paragraph 3.
21. ARTWORK
(a) You and/or Artist may prepare and deliver to Company, subject to
approval by Company, the artwork for the album cover used in connection with the
release, during the Term, of each Album constituting the Recording Commitment
(hereinafter, the "Artwork") and any Greatest Hits Albums during the Term,
provided that:
(i) You deliver all such Artwork prepared by you and/or Artist,
together with all licenses and consents (if any) required in connection
therewith, to Company in New York City not less than sixty (60) days prior to
Company's projected release date for the Album. Time is of the essence of this
delivery obligation. Company shall advise you reasonably in advance of Company's
projected release date for each Album. If any of such material has not been
delivered to Company within the time prescribed herein (or if you have otherwise
advised Company that you and/or Artist do not intend to prepare and deliver
Artwork in respect of any specific Album), Company shall have the right to
prepare and use Company's own Artwork in good faith consultation with Artist.
Company shall not be obligated to make any such payments to you or any other
Person in connection with any Artwork produced by Company for the Album
concerned.
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(ii) You will deliver to Company, together with all such Artwork
produced by you and/or Artist, an itemized statement of your actual costs in
connection therewith. Following such delivery to Company and its acceptance of
such Artwork in accordance with this paragraph 21, Company shall reimburse you
in the amount of said costs, up to but not in excess of Ten Thousand Dollars
($10,000) with respect to each Album constituting the Recording Commitment,
excluding the cost of separations, which costs Company shall bear as a
non-recoupable expense. Unless Company specifically agrees in writing otherwise,
any costs incurred by you in excess of such said Ten Thousand Dollars ($10,000)
per Album and reimbursed by Company shall be recoupable against all royalties,
except mechanical royalties, payable hereunder or under any other agreement.
(iii) The Artwork and all other related material delivered to
Company will be subject to mutual approval by Company and Artist. If Company
rejects any Artwork, Company shall notify you of the reason for such rejection,
and, if possible, recommend changes to the Artwork which might make it
acceptable, and Artist shall have the right to revise and resubmit it for
Company's approval, subject to all of the conditions above (including, without
limitation, the delivery deadline fixed in subparagraph 21(a)(i)), except that
Company shall have no obligation to make any payments in connection with the
revising of the Artwork in excess of the amount set forth in subparagraph 21
(a)(ii) hereof.
(iv) All Artwork and related material delivered hereunder and all
rights therein shall be Company's property throughout the Territory in
perpetuity. All matters relating to Company's trademarks or any elements of the
album cover other than the Artwork shall be determined in Company's sole
discretion. Company shall have the right to affix to each record or container
hereunder an anti-counterfeiting or similar device which shall be determined in
Company's sole discretion. Company shall have the right to include or affix on
each record or container hereunder UPC bar coding.
(v) No Artwork will be deemed delivered until accepted by Company
and all requirements hereof have been fulfilled; provided, however, the Artwork
should be deemed delivered and accepted by Company if the Artwork has been
utilized by Company on the applicable Album.
(b) You and/or Artist will not use or authorize the use of the Album cover
artwork or any other materials created by or furnished by Company or the
expenses of which are reimbursed to you by Company in connection with
merchandise of any sort, including, without limitation, in connection with
printed sheet music, unless you receive Company's prior written approval.
(c) In the event that:
(i) Company manufactures Album jackets (including any inserts or
other special elements or materials) for which the production costs (e.g.,
artwork production or origination costs, excluding costs of separations) exceed
Twelve Thousand Five Hundred Dollars ($12,500) solely as a result of materials
supplied by you, you shall pay Company, upon Company's request, an amount equal
to the amount of any such excess production costs;
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(ii) the tape inlay card for any Album hereunder shall consist of
more than five (5) panels, printed in four colors on one side with the other
side printed in one color ("Four Over One"), you shall pay Company, upon
Company's request, an amount equal to the difference between the standard
manufacturing costs for a tape inlay card of five (5) panels printed Four Over
One and the manufacturing costs for such tape inlay card, times the number of
such tape inlay cards manufactured; and/or
(iii) the compact-disc liner notes booklet shall consist of more
than eight (8) pages, printed in four colors on the outside cover of the booklet
with the remaining pages printed in one color ("Four Over One"), you shall pay
Company, upon Company's request, an amount equal to the difference between the
standard manufacturing costs for a compact-disc liner note booklet of eight (8)
pages printed Four Over One and the manufacturing costs for such compact-disc
liner note booklet, times the number of such compact-disc liner note booklets
manufactured.
(iv) All sums for Album jackets. tape inlay cards and compact disc
liner notes booklets, which you are required to pay Company pursuant to
subparagraphs (i), (ii) and (iii) above are herein referred to as "Special
Packaging Costs".
(b) If you shall not promptly pay all Special Packaging Costs to Company.
Company shall have the right to deduct from all monies payable to you under this
agreement or any other agreement an amount equal to such Special Packaging
Costs,
21A. TOUR SUPPORT
(a) In the event that Artist desires to make a series of personal
appearances "Tour(s)") intended to be consecutive for the purpose of conducting
public performances in at least fifteen (15) major record markets in the United
States in connection with the release by Company of either or both of the First
and Second Albums, you shall notify Company within a reasonable time before
plans for the Tour(s) are finalized of the proposed itinerary and other
pertinent details of each such tour.
(b) Company will provide you with financial support for the Tours in
accordance with the terms set forth below:
(i) each Tour is undertaken by Artist in the United States only in
connection with the release of the First and/or Second Albums;
(ii) Company and you shall mutually agree, in writing, upon the
material details of each Tour (including, without limitation, venues, timing,
routing, duration, billing, budget, etc.) and the Tour shall not have materially
deviated from such details:
(iii) Company shall provide up to Fifty Thousand Dollars ($50,000)
to you in connection with each Tour undertaken by Artist in the United States in
connection with the release of the
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First and/or Second Albums, which shall be allocated between such Tours as
mutually agreed between you and Company, and
(iv) all payments made by Company to you or on your behalf in
connection with the Tour(s) shall constitute Advances.
(v) any changes to the details of the tour must be approved by
Company and the amount of the financial support for any tour can be decreased
if, in Company's sole opinion, an unapproved change materially deviates from the
details of an agreed tour.
22. INSURANCE
Company shall have the right to secure insurance with respect to Artist for
Company's own benefit. In this connection, Artist agrees to be available for one
(1) physical examination by a physician of your choice (who is acceptable to the
insurance carrier concerned) as and when reasonably requested to do so and to
complete such questionnaires and other documents which Company or any insurance
carrier may from time to time require in connection with securing and
maintaining such insurance. Company shall keep such information confidential,
except that Company may disclose such information solely to the applicable
insurance carrier(s). The failure by or inability of Artist to be insurable
shall not constitute a breach of this agreement. If Artist shall so request, in
writing, within sixty (60) days after the expiration of the Term of this
agreement, Company shall cancel any then existing insurance policy with respect
to Artist secured pursuant to this paragraph for Company's benefit.
23. ASSIGNMENT
Company shall have the right without your consent to assign this agreement in
whole or in part to any subsidiary, parent company, affiliate, or to any third
party acquiring a substantial portion of Company's assets or stock; provided,
however, that Company shall remain liable for all payments required to be made
to you hereunder. Neither you nor Artist shall have the right to assign this
agreement or any of your rights or obligations hereunder, except that you may
assign your right to receive royalties hereunder to an entity owned or
controlled by all members of Artist.
24. DEFINITIONS
For the purposes of this agreement, the following definitions shall apply:
(a) "Advance": A prepayment of royalties. Company may recoup Advances from
royalties to be paid or accrued to or on behalf of you or Artist pursuant to
this agreement or any other agreement. Advances paid under paragraph 7 shall not
be returnable to Company except as provided in this agreement or in other
circumstances in which Company is entitled to their return by reason of your
failure to fulfill your material obligations. Mechanical royalties shall not be
chargeable in recoupment of any Advances except those Advances which are
expressly recoupable from all monies payable under this agreement or any other
agreement.
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(b) "Album": A Record or a Multiple Record Set having no less than thirty
five (35) minutes of playing time, and which embodies at least ten (10) Masters
of different Compositions sold in a single package.
(c) "Any other agreement": Any other agreement with Company relating to
Artist's Recordings or relating to Artist as a recording Artist or as a producer
of Recordings of Artist's own performances.
(d) "Audiovisual Record": A Record which embodies, reproduces, transmits
or communicates visual images, including, without limitation, any Video, but
excluding New Technology Configurations and Cybersales.
(e) "Books and Records": That portion of Company's books and records which
specifically reports: (i) sales and other distributions of Records embodying
Masters recorded hereunder; (ii) net royalty receipts or the net amount received
from any other exploitation of Masters hereunder; and (iii) Recording Costs
incurred in connection with Masters hereunder and any sums specifically charged
against royalties hereunder; provided that such defined term shall not be deemed
to include any manufacturing records (e.g., inventory and/or production records)
or any other of Company's records.
(f) "Budget Record": A Record which is sold by Company or its Principal
Licensee(s) at a price which is below Company's or the applicable Principal
Licensee's then-prevailing suggested retail list price for Top Line Records,
which price is consistently applied by Company to such Records and which Records
are sold by Company or its Principal Licensee(s) as budget Records.
(g) "Club Operation": A business which is primarily engaged in the direct
marketing to consumers on a membership basis of audio and video products (for
example, Columbia House in the United States or Bertelsmann in Europe).
(h) "Commercially Satisfactory": Any Recording(s) required to be Delivered
hereunder shall not be considered satisfactory unless in Company's reasonably
applied business judgment: (i) it is technically satisfactory for Company's
requirements for the manufacture and sale of records; (ii) it embodies
performances by Artist that are "first class" (as the term is generally
understood in the record industry); and (iii) it is at least of the same
quality, and of the same style of music, as Artist's prior recorded performances
previously released pursuant to the terms of this agreement; provided, however,
for the purpose of this subparagraph (iii) only, in the case of the First Album,
such Recording(s) shall be of at least the same quality, and of the same style
of music, as Artist's demonstration recordings submitted to, and reviewed by,
Company.
(i) "Composition": A musical composition or medley consisting of words
and/or music, or any dramatic material and bridging passages, whether in the
form of instrumental and/or vocal music, prose or otherwise, irrespective of
length.
(j) "Container Charge": The applicable percentage, specified below, of the
Gross Royalty Base (net of all taxes included in such Gross Royalty Base Price)
applicable to the Records concerned:
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(i) Analog cassette tape embodying less than sixty (60) minutes of
recorded music and vinyl LP configurations - twenty percent (20%) of the Gross
Royalty Base.
(ii) Analog cassette tape embodying more than sixty (60) minutes of
recorded music-twenty-five percent (25%) of the Gross Royalty Base.
(iii) Records in the following configurations: compact disc,
Audiovisual Record, New Technology Configurations, Cybersales, and Records in
all other configurations - twenty percent (25%) of the Gross Royalty Base. There
shall be no Container Charge for Records packaged in Company's stock paper
sleeves without inserts or special elements.
(k) "Delivery," "Deliver," and "Delivered": The actual receipt by Company of a
completed, fully-edited, mixed, and equalized two-track stereo tape, in the
format customarily used by Company for the manufacture of Records (currently
1630 tape), for each configuration (e.g., compact disc, analog cassette tape) of
each Master comprising the applicable Recording Commitment, approved by Company
as Commercially Satisfactory, which tapes shall in all respects be in the proper
form for the production of the parts necessary for the manufacture or creation
of Records, together with Company's receipt of all materials, consents,
approvals, licenses and permissions in respect of each such Master. Your
Delivery obligation shall include all union session reports and the delivery of
a track-by-track list identifying the performers on each Master and describing
their performances and a fully completed "AFFILIATION EXHIBIT" in the form
annexed hereto. Each Master shall be subject to Company's approval as
Commercially Satisfactory, and shall not be deemed Delivered unless and until
such approval is given. Upon the request of Company, Artist shall re-record any
Composition until a Commercially Satisfactory Master shall have been obtained.
Only Masters Delivered in full compliance with the material provisions of this
agreement shall be applied in fulfillment of the Recording Commitment and no
payments shall be made to you in connection with any Masters which are not in
full compliance. Each Master shall be delivered to Company at [INSERT OUR
DELIVERY ADDRESS/POINT OF MANUFACTURING], or such other place as Company may
notify you in writing. For the purposes of calculating the Term and any other
time periods computed on the basis of the date of Delivery of the applicable
Recording Commitment (other than for purposes of any payments under
subparagraphs 7(a)(ii)(A)(2), 7(a)(iii)(B), 7(a)(iii)(C), 7(b)(iii), 79(f)(iii)
and 7(g), Delivery shall be deemed to have occurred upon the last day of the
month in which Company has accepted and approved as Commercially Satisfactory
hereunder all of the Masters constituting such Recording Commitment. All
Recordings of Artist's performances made during the Term, including, without
limitation, multi-tracks, session tapes, and outtakes, but excluding Masters
Delivered hereunder, shall be maintained in good condition at a location
selected or approved by Company and Company shall own such Recordings as
provided in paragraph 5 whether or not such Recordings are Delivered to Company.
Any payments made by Company following the physical delivery of Masters herein
but prior to Delivery shall not constitute a waiver of your Delivery obligations
hereunder or of Company's right to approve Masters as Commercially Satisfactory.
If you administer Recording Advances pursuant to subparagraph 7(a)(i) and thus
you are responsible for paying Recording Costs, then Delivery shall not be
deemed complete until: (1) you make all of the payments referred to in
subparagraph 7(a)(i); (2) furnish Company with all licenses required under
copyright for the recording of the musical Compositions and any other
copyrighted material reproduced in the Masters, and you make all payments
(except mechanical royalties) required under those licenses; (3) you pay or
furnish Company with waivers of all other
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payments (except "per-record royalties") to which any third party may become
entitled and all other costs in connection with those Recordings or their use in
the manufacture and sale of Records; and (4) you furnish Company with the name
of each vocalist who may be a "covered artist" under Appendix A to the American
Federation of Television and Radio Artists 1993-1996 National Code of Fair
Practice for Phonograph Recordings (or any applicable successor agreement) and
all required American Federation of Television and Radio Artists forms, duly
completed and executed. Your failure to notify Company of those vocalists shall
constitute your warranty and representation that no such "covered artist"
rendered services in connection with the Recordings.
(l) "EP": A Record embodying thereon four (4) to six (6) Masters,
provided, however, that in the event that more than one (1) of such Masters
embody the same Composition, such Record shall be deemed to be a Maxi-Single for
the purposes of this agreement.
(m) "Gross Receipts": All monies (including Advances other than returnable
Advances) actually received by Company in the United States, directly from the
applicable exploitation of Masters and/or Videos concerned. (For the purposes of
determining Gross Receipts, any royalties credited to Company's account but
charged in recoupment of a prior Advance made to Company and retained by the
payor by reason of that charge shall be deemed paid to Company and received by
Company when Company receives the accounting reflecting the credit and charge
concerned.) If any monies included in Gross Receipts is attributable to a Master
and/or Video hereunder and to other Recordings, the amount of that item to be
included in Gross Receipts hereunder shall be reasonably apportioned. If a use
of a Master and/or a Video on which a Net Receipts royalty or a Video Net
Receipts royalty is payable hereunder is made by an affiliate of Company or by a
joint venture as to which Company is a party, Company's discretion in
negotiating the amount of the compensation (if any) to be paid or credited to
Company for that use and included in Gross Receipts shall be conclusive,
provided that amount is fair and reasonable under the circumstances. (The
preceding sentence shall apply whether or not the user derives revenues from the
use, and the user's revenues shall not be deemed Gross Receipts.) Any such
amount shall be deemed fair and reasonable if it is comparable to compensation
then being negotiated by Company with unaffiliated users for comparable uses, or
if Company notifies you that it proposes to agree to the amount concerned and
you do not notify Company of your objection within five (5) business days. If
you make any such objection you shall also notify Company of your reasons
therefor and shall negotiate with Company in good faith to resolve the
difference underlying such objection if Company so requests. Notwithstanding the
foregoing or anything to the contrary expressed or implied elsewhere herein,
with respect to receipts payable for sales through a Club Operation, Gross
Receipts shall specifically not include any profits received by Company or any
Principal Licensee as a joint venturer in such Club Operation (e.g., The
Columbia House Company).
(n) "Master": A Recording embodying a performance by Artist of a single
Composition, or a medley of Compositions, which consists of sound only and is
used or useful in the recording, production, manufacture, and/or exploitation of
Records.
(o) "Maxi-Single": A Record embodying thereon three (3) Masters.
(p) "Mid-Price Record": A Record which is sold by Company or its Principal
Licensee(s) at a price which is below Company's or the applicable Principal
Licensee's then-prevailing suggested retail
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list price for Top Line Records, which price is consistently applied by Company
to such Records and which Records are sold by Company or its Principal
Licensee(s) as mid-priced Records.
(q) "Multiple Record Set": Two or more Records packaged and/or marketed as
a single unit.
(r) "Net Receipts": Gross Receipts from the exploitation of Masters after
deduction by Company of all direct out-of-pocket expenses, taxes, included
therein and adjustments incurred in the applicable exploitation of Masters
concerned, and/or in connection with the collection and receipt of those Gross
Receipts in the United States (including, without limitation, all copyright
payments, all reuse payments, all Trust Fund payments, and any other third party
payments and any legal fees incurred in collecting such monies). If any item
deducted from Gross Receipts in determining Net Receipts is attributable to a
Master hereunder and to other Recordings, the amount of that item to be deducted
in determining Net Receipts hereunder shall be determined by reasonable
apportionment.
(s) "Net Sales": One hundred percent (100%) of gross sales, less returns,
credits, and reserves against anticipated returns and credits.
(t) "Person": Any natural person, legal entity or other organized group of
persons or entities. (All pronouns, whether personal or impersonal, which refer
to Persons include natural persons and other Persons.)
(u) "Premium Record": A Record produced for use in promoting the sale of
merchandise other than Records, and which bears the name of the sponsor for whom
the Record is produced.
(v) "Principal Licensee": Company's licensee for the majority of Records
sold on behalf of Company in the territory concerned.
(w) "Record": any form of reproduction, distribution, transmission or
communication of Recordings now or hereafter known (including reproductions of
sound alone, or together with visual images) which is manufactured, distributed,
transmitted or communicated primarily for home use, institutional (e.g., library
or school) use, jukebox use, or use in means of transportation, including,
without limitation, any computer-assisted media (e.g., CD-ROM, DVD, CD Extra,
Enhanced CD) and Cybersales.
(x) "Recording": Any recording of sound, whether or not coupled with a
visual image, by any method and on any substance or material, whether now or
hereafter known, which is used or useful in the recording, production, and/or
manufacture of Records or for any other commercial exploitation of sound.
(y) "Recording Costs" Wages, fees, advances and payments of any nature to
or in respect of all musicians, vocalists, conductors, arrangers, orchestrators,
engineers, producers, copyists, etc.; payments to a trustee or fluid based on
wages to the extent required by any agreement between Company and any labor
organization or trustee; union session scale payable to Artist; all studio,
tape, editing, mixing, re-mixing, mastering and engineering costs; authoring
costs; all costs of travel by persons other than Company employees, per diems,
rehearsal halls, non-studio facilities and equipment, dubdown,
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rental and transportation of instruments; all costs occasioned by the
cancellation of any scheduled recording session; and all other costs and
expenses incurred in the production, but not the manufacture, of Masters and
Records hereunder, and any Demos hereunder, which are then customarily
recognized as recording costs in the recording industry. Notwithstanding
anything to the contrary contained herein, any Recording Costs for all remixes
from any particular Album which are paid, incurred or reimbursed by Company
after Delivery of the Masters constituting the Album concerned shall be
recoupable solely from royalties (other than mechanical copyright royalties)
payable to Artist hereunder and shall not be recoupable from Advances. If
Company furnishes any of its own facilities, materials, services or equipment
for which Company has a standard rate, the amount of such standard rate or if
there is no standard rate, the market value for the services or thing furnished
shall be deemed Recording Costs. Payments to the AFM Special Payments Fund and
the Music Performance Trust Fund based upon record sales (so-called "per-record
royalties") shall not be recoupable from your royalties or reimbursable by you.
(z) "Royalty Base Price": The amount specified below ("Gross Royalty
Base") applicable to the Record concerned, less the applicable Container Charge,
excise taxes, duties and other applicable taxes included within the Gross
Royalty Base:
(i) With respect to Records sold for distribution in United States,
the manufacturer's suggested retail price in the United States. Company may
elect, in Company's sole discretion, as of the date of commencement of any
accounting period hereunder (the 'New Base Effective Date") to compute royalties
for Net Sales of Records (other than Audiovisual Records) in the United States
occurring on or after the New Base Effective Date (the "New Base Net Sales")
utilizing a Royalty Base Price derived from the Wholesale Price of such Records
rather than the manufacturer's suggested retail price of such Records. Should
Company elect to do so, the following shall apply in computing royalties for New
Base Net Sales:
(A) The Gross Royalty Base shall be the Wholesale Price (as
defined in subparagraph 24 (hh)) rather than the manufacturer's suggested retail
price in the United States.
(B) New Basic U.S. Rates shall be determined for Singles,
Maxi-Singles. EPs and Albums in each form of Record other than New Technology
Configurations not previously released by Company and methods of Cybersales not
previously exploited by Company. The new Basic U.S. Rate for Singles,
Maxi-Singles, EPs and Albums in a particular form shall be determined by
multiplying the existing Basic U.S. Rate for such Records in such form by a
fraction, the numerator of which is the manufacturer's suggested retail price in
the United States for the majority of such Top Line Records in such form as of
the New Base Effective Date, and the denominator of which is the Wholesale Price
for the majority of such Top Line Records in such form as of the New Base
Effective Date. The New Basic U.S. Rates shall be utilized in lieu of the Basic
U.S. Rates to compute royalties for the New Base Net Sales and for no other
purpose. Notwithstanding the foregoing, on the date of the New Base Effective
Date only, the New Basic U.S. Rates when applied to the New Royalty Base Price
shall yield the same dollars-and-cents royalty amounts payable with respect to
Records immediately prior to the New Base Effective Date.
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(C) In computing royalties for New Base Net Sales of New
Technology Configurations released prior to the New Base Effective Date, the
applicable New Basic U.S. Rate shall be reduced as set forth in subparagraph 9
(e) (ii).
(D) In computing royalties for New Base Net Sales through
Cybersales, the applicable New Basic U.S. Rate shall be reduced as set forth in
subparagraph 9 (f).
(ii) With respect to Records sold for distribution outside the
United States, the manufacturer's suggested retail price (or its equivalent
constructed price) in the country of manufacture or sale, as Company is paid,
provided that if a retail related base cannot be established in a particular
country, then the base shall be that amount equal to the lowest wholesale price
payable by the largest category of Company's customers in the normal course of
business with respect to such Records sold for distribution during the
applicable semi-annual accounting period, multiplied by one hundred twenty-six
percent (126%), provided, however, if a published price to dealers ("ppd")
exists in the applicable country of sale then Company may apply the ppd in lieu
of the lowest wholesale price.
(iii) With respect to Audiovisual Records, the amount which Company
receives for each Audiovisual Record from Company's distributor, whether or not
affiliated with Company.
(iv) Notwithstanding anything to the contrary expressed or implied
elsewhere herein, the Gross Royalty Base for any Record sold by Cybersales shall
be the price paid by the consumer to Company or its Principal Licensee(s), as
applicable, for the Record concerned.
(aa) "Single": A Record embodying thereon one (1) or two (2) Masters.
(bb) "Top Line Record" A Record bearing the same Gross Royalty Base as the
majority (or plurality) of the new Record releases in the same configuration of
Company's best selling artists.
(cc) "Territory": The world.
(dd) "USNRC Net Sales" - Net Sales of Top Line Records (other than
Audiovisual Records), on which royalties are payable, consisting entirely of
Masters recorded hereunder and sold by Company through normal retail channels in
the United States.
(ee) "Video": An audiovisual work featuring, primarily, the audio
soundtrack of one (1) or more Masters hereunder.
(ff) "Video Net Receipts": Gross Receipts from the exploitation of Videos,
after deduction by Company of all direct expenses, taxes included therein, and
adjustments incurred in connection with the Video Production Costs, the
acquisition of rights in the Video concerned, the applicable exploitation of the
Video concerned, and/or in connection with the collection and receipt of those
Gross Receipts in the United States (including, without limitation, all
copyright payments, all re-use payments under Company's agreements with the
American Federation of Musicians and any other third party payments and any
legal fees incurred in collecting such monies). If any item deducted from Gross
Receipts in determining Video Net Receipts is attributable to a Video hereunder
and to other Recordings or Videos,
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the amount of that item to be deducted in determining Video Net Receipts
hereunder shall be determined by reasonable apportionment. Video Net Receipts
shall be determined after deducting the foregoing as well as after deducting a
marketing and distribution fee equal to fifteen percent (15%) of the applicable
Gross Receipts in respect of any broadcast, telecast, cablecast or other
exploitation (excluding the sale of Audiovisual Records).
(gg) "Video Production Costs": All amounts paid or incurred in connection
with the production, conversion and delivery of Videos. Video Production Costs
include, without limitation, flat fee payments to the publishers of musical
works, unreimbursed costs and expenses incurred in the duplication and delivery
of copies of Videos to licensees, and all direct out-of-pocket costs (such as
for rights, artists (including Artist), producers and other personnel, travel
costs for persons other than Company employees, per-diems, facilities,
materials, services and use of equipment). If Company furnishes any of its own
facilities, materials, services or equipment for which Company has a standard
rate, the amount of such standard rate or if there is no standard rate, the
market value for the services or thing furnished shall be deemed Video
Production Costs. Notwithstanding the foregoing, mechanical royalties paid by
Company in respect of Videos shall not be included in Video Production Costs.
(hh) "Wholesale Price" - The amount which Company receives for each Record
from Company's distributor in the United States, whether or not affiliated with
Company.
The following terms are defined elsewhere in this agreement as follows:
(A) "Audition"- subparagraph 20(b)(i).
(B) "Basic U.S. Rate"- subparagraph 9(a).
(C) "Canadian 75% Rate" - subparagraph 12(a).
(F)) "Consumer Compilation" - subparagraph 6(c)(iii)(A).
(E) "Contract Period" - paragraph 2.
(F) "Controlled Composition" - subparagraph 12(a)(i).
(G) "Cybersales" - subparagraph 9(f).
(H) "Demos" - subparagraph 2O(b)(i)
(I) "Escalated U.S. Album Rate" - subparagraph 9(a)(ii).
(J) "Foreign Rate"- subparagraph 9(b).
(K) "Four Over One"- subparagraph 21 (a)(ii).
(L) "Group" - subparagraph 20(a)(i).
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(M) "Materials"- subparagraph 15 (a)(iv).
(N) "New Technology Configurations" - subparagraph 9(e)(ii).
(0) "Option Period"- paragraph 2.
(P) "Recording Advances" - subparagraph 7(b).
(Q) "Recording Commitment" - paragraph 3.
(R) "Re-recording Restriction" - subparagraph 15(a)(viii).
(S) "Sampled Material" - subparagraph 4 (b).
(T) "Sampling" - subparagraph 4 (b).
(U) "Special Packaging Costs" - subparagraph 21(c)(iv).
(V) "Staff Producer" - subparagraph 8(b).
(W) "Subject Masters" - subparagraph 13(d)(i).
(X) "Term" paragraph 2.
(Y) "U.S. 75% Rate" - subparagraph 12(a).
(Z) "U.S. Release Cure Period" - subparagraph 6(d).
(AA) "U.S. Release Deadline Period" - subparagraph 6(d).
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25. MISCELLANEOUS
(a) This agreement sets forth the entire agreement between the parties
with respect to the subject matter hereof. No modification, amendment, waiver,
termination or discharge of this agreement shall be binding upon Company unless
confirmed by a written instrument signed by an authorized officer of Company, or
binding upon you unless confirmed by a written instrument signed by you. A
waiver by either you or Company of any term or condition of this agreement in
any instance shall not be deemed or construed as a waiver of such term or
condition for the future, or of any subsequent breach thereof. All rights,
options and remedies in this agreement shall be cumulative and none of them
shall be in limitation of any other remedy, option or right available to Company
or to you. Should any provision of this agreement be adjudicated by a court of
competent jurisdiction as void, invalid or inoperative, such decision shall not
affect any other provision hereof; and the remainder of this agreement shall be
effective as though such void, invalid or inoperative provision had not been
contained herein. The headings of the paragraphs hereof are for convenience only
and shall not be deemed to limit or in any way affect the scope, meaning or
intent of this agreement or any portion thereof. All accountings and royalties
required herein, and all grants made herein, shall survive and continue beyond
the expiration or earlier termination of this agreement. Neither party shall be
entitled to recover damages or to terminate the Term by reason of any breach by
the other party of its material obligations, unless the latter party has failed
to remedy the breach within a reasonable time following receipt of notice
thereof. (The preceding sentence shall not apply to any recovery to which
Company may be entitled by reason of your failure to fulfill the Recording
Commitment hereunder.) If you claim that additional monies are payable to you
hereunder, Company shall not be deemed in material breach of this agreement
unless such claim is reduced to a final judgment by a court of competent
jurisdiction and Company fails to pay you the amount thereof within thirty (30)
days after Company receives notice of the entry of such judgment. In entering
into this agreement, and in providing services pursuant hereto, you and Artist
have and shall have the status of independent contractors. Nothing herein
contained shall contemplate or constitute you or the Artist as Company's agents
or employees, and nothing herein shall constitute a partnership, joint venture
or fiduciary relationship between you and Company.
(b) THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW
YORK AND ITS VALDITY, CONSTRUCTION, PERFORMANCE AND BREACH SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY
PERFORMED THEREIN. YOU AGREE TO SUBMIT YOURSELF TO THE JURISDICTION OF THE
FEDERAL OR STATE COURTS LOCATED IN NEW YORK CITY IN ANY ACTION WHICH MAY ARISE
OUT OF THIS AGREEMENT AND SAID COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER
ALL DISPUTES BETWEEN COMPANY AND YOU OR LUXX PERTAINING TO THIS AGREEMENT AND
ALL MATTERS RELATED THERETO. IN THIS REGARD, ANY PROCESS IN ANY ACTION OR
PROCEEDING COMMENCED IN THE COURTS OF THE STATE OF NEW YORK ARISING OUT OF ANY
CLAIM, DISPUTE OR DISAGREEMENT UNDER THIS AGREEMENT MAY, AMONG OTHER METHODS, BE
SERVED UPON YOU BY DELIVERING OR MAILING THE SAME, VIA REGISTERED OR CERTIFIED
MAIL, ADDRESSED TO YOU AT THE
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ADDRESS PROVIDED HEREIN FOR NOTICES TO YOU; ANY SUCH DELIVERY OR MAIL SERVICE
SHALL BE DEEMED TO HAVE THE SAME FORCE AND EFFECT AS PERSONAL SERVICE WITHIN THE
STATE OF NEW YORK. NOTHING CONTAINED IN THIS SUBPARAGRAPH 25(b) SHALL PRECLUDE
COMPANY FROM JOINING YOU OR LUXX IN AN ACTION BROUGHT BY A THIRD PARTY AGAINST
COMPANY IN ANY JURISDICTION, ALTHOUGH COMPANY'S FAILURE TO JOIN YOU OR LUXX IN
ANY SUCH ACTION IN ONE INSTANCE SHALL NOT CONSTITUTE A WAIVER OF ANY OF
COMPANY'S RIGHTS WITH RESPECT THERETO, OR WITH RESPECT TO ANY SUBSEQUENT ACTION
BROUGHT BY A THIRD PARTY AGAINST COMPANY. NOTHING CONTAINED HEREIN SHALL
CONSTITUTE A WAIVER OF ANY OTHER REMEDIES AVAILABLE TO COMPANY.
(c) This agreement shall not become effective until executed by all
parties.
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the day
and year first above written.
PUSH RECORDS, INC.
By: /s/ [Illegible]
------------------------------
/s/ Katrina Chester
- -----------------------------------
Katrina Chester
Social Security Number: ###-##-####
/s/ Ian Hatton
- -----------------------------------
Ian Hatton
Social Security Number:
/s/ David Silver
- -----------------------------------
David Silver
Social Security Number: ###-##-####
/s/ Tony Fennell
- -----------------------------------
Tony Fennell
Social Security Number: ###-##-####
p/k/a "LUXX"
------
49
<PAGE>
AFFILIATION EXHIBIT
Group Instruments AFofM Vocalist Lead Singer Publishing Co.
Member Played Member AFTRA Member
Katrina Chester Yes |_| Yes |X| Yes |X| CHESTER MUSIC
- ----------- ----------- -------------
----------- No |X| No |_| No |_| ASCAP |X|
----------- BMI |_|
-----------
-----------
-----------
- --------------------------------------------------------------------------------
Group Instruments AFofM Vocalist Lead Singer Publishing Co.
Member Played Member AFTRA Member
IAN HATTON GUITAR Yes |_| Yes |_| Yes |_| HATTON MUSIC
- ----------- ----------- ------------
----------- No |X| No |_| No |X| ASCAP |X|
----------- BMI |_|
-----------
-----------
-----------
- --------------------------------------------------------------------------------
Group Instruments AFofM Vocalist Lead Singer Publishing Co.
Member Played Member AFTRA Member
TONY FENNELL BASS Yes |_| Yes |_| Yes |_| FENNEL MUSIC
- ----------- ----------- ------------
----------- No |X| No |_| No |X| ASCAP |X|
----------- BMI |_|
-----------
-----------
-----------
- --------------------------------------------------------------------------------
Group Instruments AFofM Vocalist Lead Singer Publishing Co.
Member Played Member AFTRA Member
DAVE SILVER DRUMS Yes |_| Yes |_| Yes |_| SILVERADO MUSIC
- ----------- ----------- ---------------
----------- No |X| No |_| No |X| ASCAP |X|
----------- BMI |_|
-----------
-----------
-----------
- --------------------------------------------------------------------------------
Group Instruments AFofM Vocalist Lead Singer Publishing Co.
Member Played Member AFTRA Member
Yes |_| Yes |_| Yes |_| ------------
- ----------- ----------- No |_| No |_| No |_| ASCAP |_|
----------- BMI |_|
-----------
-----------
-----------
-----------
- --------------------------------------------------------------------------------
Group Instruments AFofM Vocalist Lead Singer Publishing Co.
Member Played Member AFTRA Member
Yes |_| Yes |_| Yes |_| ------------
- ----------- ----------- No |_| No |_| No |_| ASCAP |_|
----------- BMI |_|
-----------
-----------
-----------
-----------
- --------------------------------------------------------------------------------
[LETTERHEAD OF PUSH RECORDS]
September 22, 1997
Whole Oates Enterprises
A General Partnership Consisting of
Daryl Hall and John Oates
c/o Jill Berliner, Esq.
King Purtich, Holmes, Paterno & Berliner, Esqs.
2121 Avenue of the Stars
Los Angeles, CA 90067
Gentlemen:
The following letter sets forth certain material terms of an agreement
between Whole Oates Enterprises, A General Partnership consisting of Daryl Hall
and John Oates (for all purposes herein the term "Artist" shall refer to
recordings and performances) for a worldwide exclusive (solely as to Artist's
performances together) recording agreement with PUSH Records, Inc. ("Company").
Daryl Hall and John Oates shall each be free to record and release solo
recordings and to work on any and all outside solo projects as long as those
projects do not interfere with their respective material obligations hereunder.
The terms outlined below are subject to being finalized in a full and more
formal agreement which will follow immediately upon confirmation that the basic
terms presented are acceptable to Artist.
1. Term and Product Commitment: Initial term is one (1) LP.
2. Options: Two (2) separate exclusive options (LP 2 and LP 3) each for one
(1) LP, for a potential total (including the initial period and all options) of
three (3) LPs. Each option is exercisable, if at all, by Company, if at any time
within ten (10) years after the release of LP 1 Artist notifies Company that
Artist intends to record an LP. Both options shall lapse if not exercised by
Company within thirty (30) days of receipt by Company of written notice from
Artist of Artist's intention to record such LP(s). Each
<PAGE>
respective option is exercisable only if the following performance plateaus are
met by the preceding LP within twelve (12) months after the release of the
respective preceding LP:
UNITS SOLD (USNRC only)
OPTION PRIOR LP
------ --------
1 200,000 (LPl)
2 325,000 (LP2)
3. Territory: The world.
4. Delivery and Release Obligation: (a) LP 1, "Marigold Sky" was delivered on
August 22, 1997 and Company shall release LP 1 in the United States within one
hundred and eighty (180) days after delivery. Company shall release LP 2 and LP
3 within one hundred twenty (120) days after the date of delivery. If LP 2 or LP
3 are delivered between November 1 and January 1 then the respective release
periods are tolled by the same number of days as there are between the date of
delivery and January 1.
(b) Company shall have the exclusive
right to distribute Artist's product hereunder in all foreign territories,
provided that LP 1 shall be released in the following foreign territories on or
before the release deadline listed. If LP 1 is not released in a foreign
territory on or before the applicable deadline date set forth below then forty
five (45) days after receipt by Company of written notice from Artist of
Artist's intent to seek distribution in such territory from a third party,
Company shall release LP 1 in such territory or Artist shall be free to seek
distribution in such territory from a third party and Company's exclusive rights
thereto in such territory shall lapse.
TERRITORY RELEASE DEADLINE
--------- ----------------
Canada March 31, 1998
Japan March 31, 1998
United Kingdom March 31, 1998
E.U. March 3l, 1998
R.O.W. (territory by territory) June 30, 1998
(c) Any LP not released by Company shall
be subject to reversion as provided in paragraph 15 below.
5. Funds:(a) The Recording fund for LP 1 delivery of which is hereby
acknowledged, including any and all monies paid pursuant to the termination
agreement with Arista Records, is Four Hundred Thousand Dollars ($400,000) which
will be administered by the Company, provided, however, that any and all
recording costs actually incurred for LP 1 shall be deemed to be within said
fund. The payment in the amount of Two Hundred Sixteen Thousand Two Hundred
Seven and 96/100 ($216,207.96) Dollars, made by Company on or about June 10,
1997, to Arista Records, Inc, on behalf of Artist, pursuant to the agreement
between Artist and Arista Records, Inc.
2
<PAGE>
dated June 3, 1997 (the "Termination Agreement") shall be applied against the
fund for LP 1. In addition, Artist will be paid an advance of One Hundred Fifty
Thousand Dollars ($150,000) of which One Hundred Thousand ($100,000) Dollars
will be paid upon full execution of this memorandum agreement. The balance of
the advance will be paid upon full execution of the long form agreement.
(b) The Recording fund for LP 2 (Option 1) and LP 3 (Option 2),
including all options, is based upon a formula of three fourths (3-4) of U.S.
royalties with a maximum reserve of 15% calculated as of the earlier of the date
of delivery or the first eighteen (18) months of sales following the initial
release of the prior LP, with the following minimums and maximums:
LP # Minimum Maximum
---- ------- -------
2 $500,000 $750,000
3 $500,000 $800,000
(c) All funds pursuant to subparagraphs 5(a) and 5 (b), including
the advance provided for in 5(a) are recoupable. Artist shall have the right to
administer the Funds for any LP subsequent to the first LP, which will be
payable one half (1/2) on commencement of Recording; one quarter (1/4) on
completion of tracking; and one quarter (1/4) on delivery and acceptance.
(d) Additionally, for each royalty bearing USNRC soundscan unit
sold, calculated as net sales (i.e. subject to reserves, returns and credits in
accordance with Company's distribution agreement), for each LP hereunder, Artist
shall be paid a non recoupable cash bonus of Twenty Nine Cents ($0.29) which
shall be paid to Artist with the semi annual accounting for the period during
which aggregate net sales equal or exceed Two Thousand Five Hundred units which
bonus on aggregate sales as provided, shall be paid without regard to the
recouped status of Artist's account.
6. Royalties: (a) "All in" royalty is paid on one hundred percent (100%) of
sales of top line (SRLP) product at USNRC.
(b) U.S. Royalty Rates
LP # Basic All In Royalty Rate
---- -------------------------
1 & 2 19%
3 20%
(c) Foreign Royalty Rates will be established on a territory
by territory basis and will pay no less than the rate calculated as a percentage
of the applicable U.S. rate as follows (not to exceed 75% of Company's royalty,
as same may be escalated, and no lower than the minimums stated below without
Artist's consent):
(i) Japan, Canada and United Kingdom - 80% but not less than
the local equivalent of 63%.
(ii) Rest of EU, Australia and New Zealand - 75% but not less
than the local equivalent of 58%
3
<PAGE>
(iii) Rest of World - 60% but not less than the local
equivalent of 53 %
(d) Audiovisual royalties: In U.S. on Net Sales of Top Line
- - 18%; foreign rate - 14%; 50% of Video Net Receipts where sold by a third party
licensee. Commercial exploitation(s) of videos shall require the prior written
consent of Artist.
(e) Royalty rates for each LP will escalate, prospectively, one
half (1/2%) percent upon sales of the applicable LP reaching five hundred
thousand (500,000) USNRC soundscan units with an additional prospective royalty
rate escalation of one half (1/2%) percent upon sales reaching seven hundred
fifty thousand (750,000) USNRC soundscan units with an additional prospective
royalty rate escalation of one half (1/2%) percent upon sales reaching one
million (1,000,000) USNRC soundscan units. Subsequent LP rates will be no lower
than the highest rate of the previous LP. Notwithstanding the foregoing the
maximum escalated rate for LP2 shall be 20.5% and the maximum escalated rate for
LP3 shall be 21.5%.
(f) The compact disc (CD) rate is one hundred percent (100%) of
basic royalty rate. Container/packaging charge is 25% for CDs and 20% for
cassettes. Customary free goods not to exceed twenty percent (20%) for LPs and
twenty-three percent (23%) for singles. Company shall have the right to offer
special free goods up to an additional ten (10%) percent. Customary reduced
royalty rates apply for mid price, budget, cut outs, clubs, PX, etc
6A. ACCOUNTING.
(a) Statements as to royalties payable hereunder shall be sent by Company
to you within sixty (60) days after the expiration of each semi annual period
for the preceding semi annual period ending the last fiscal day of June or
December. Notwithstanding the foregoing, Company may, if Company elects, change
the aforesaid time and dates, provided, however, in the event of such change,
statements shall be rendered to you no less frequently than semi-annually.
Notice of such change shall be provided with the first accounting sent pursuant
to the changed time and dates. Concurrently with the rendition of each
statement, Company shall pay you all royalties shown to be due by such
statement, after deducting all Recording Costs paid by Company, all payments
made therefor to or on behalf of you and Artist, and all Advances made to you
and Artist prior to the rendition of the statement. Company may maintain
reasonable reserves; each such royalty reserve shall be liquidated evenly over
the next four semi-annual accounting periods following the accounting period in
which it is established. Company shall not establish any royalty reserve during
any particular accounting period: (i) with respect to Albums in excess of thirty
percent (30%), or (ii) with respect to Singles, Maxi-Singles, and EPs in excess
of forty percent (40%), of the aggregate number of Albums or Singles, or
Maxi-Singles, or EPs, as the case may be, shipped to Company's customers, unless
Company anticipates in its good faith judgment returns and credits which justify
the establishment of a larger reserve. You shall be deemed to have consented to
all accountings rendered by Company hereunder and said
4
<PAGE>
accountings shall be binding upon you and not subject to any objection by you
for any reason unless specific objection, in writing, stating the basis thereof
is given to Company within two (2) years after the date Company is deemed to
have rendered the applicable statement, and after such written objection, unless
suit is instituted within three (3) years after the date Company is deemed to
have rendered the applicable statement. Company shall be deemed conclusively to
have rendered you each statement on the date prescribed in this paragraph 6(a)
unless you notify Company otherwise with respect to any particular statement
within sixty (60) days after the date that Company has failed to render that
statement.
(b) You shall have the right at your sole cost and expense to appoint a
Certified Public Accountant or other qualified individual with experience in
record industry audits, who is not then currently engaged in an outstanding
audit of Company to examine Books and Records as same pertain to sales of
Records subject hereto as to which royalties are payable hereunder, provided
that any such examination shall be for a reasonable duration, shall take place
at Company's offices during normal business hours on reasonable prior written
notice and shall not occur more than once in any calendar year. You may examine
Books and Records with respect to a particular statement only once.
7. Stock Options: Upon execution of this agreement Daryl Hall and John Oates
shall each be individually granted options for 15,000 shares of common stock in
Paradise Music & Entertainment, Inc. exerciseable at the lower of $6 dollars per
share or the market price at the time of grant. The options shall lapse if not
exercised within seven years after the date of the agreement. Company shall
represent and warrant that the shares of Paradise Music and Entertainment, Inc.
are registered and traded on NASDAQ under the symbol PDSE.
8. Mechanical Royalties: For compositions written or controlled by Daryl Hall
and/or John Oates ("Controlled Compositions"), Company will pay seventy five
(75%) of the U.S. minimum statutory rate in the U.S. at the time of release on
LP royalty bearing sales not to exceed ten (10) times the U.S. minimum statutory
rate for LPs, five (5) times for EPs, three (3) times for 12" maxi-singles and
two (2) times for 7" singles (free license for video). In the event that any
single, maxi-single, EP or LP contains other Compositions in addition to
Controlled Compositions and the aggregate mechanical royalty rate for said
single, maxi-single, EP or LP exceeds the applicable maximum aggregate
mechanical royalty rate provided above for Controlled Compositions, the
aggregate mechanical royalty rate for the Controlled Compositions contained
thereon shall be reduced by the aforesaid excess over said applicable rate.
Additionally, Company shall have the right with respect to any single,
maxi-single, EP or LP, the aggregate mechanical royalty rate for which exceeds
the applicable maximum aggregate mechanical royalty rate provided above for
Controlled Compositions, to deduct the excess payable thereon from all monies
payable to you pursuant to this agreement or any other agreement. The foregoing
shall not apply to any monies otherwise payable to Artist by All Access
Entertainment Management Group, Inc. ("Management") pursuant to any personal
management agreement between Management and Artist. Mechanical royalty payments
on Records subsequently returned are considered overpayments.
5
<PAGE>
9. Independent Promotion: Fifty percent (50%) of all expenses paid or
incurred by Company in connection with the independent promotion and/or
marketing of Masters in the United States, its territories and Canada (i.e.,
promotion or marketing by Persons other than regular employees of Company) shall
constitute Advances; provided, however, that no more than One Hundred Fifty
Thousand Dollars ($150,000) paid or incurred for the promotion of any particular
Album hereunder shall be recoupable against your royalties without your consent,
not to be unreasonably withheld. You and Company agree that Video Production
Costs and any payments in connection with Artist's Tours if any shall not
constitute independent promotion or marketing expenses.
10. Creative Control: LP 1 "Marigold Sky" is accepted as is. For LP 2 and 3,
if at all, Artist shall approve all material, producers and recording studio in
consultation with Company. For LP1, LP2, and LP3 Company and Artist shall
mutually approve all packaging, budgets and singles. Delivery standard is
technically satisfactory.
11. LP Artwork: Company and Artist shall mutually approve the design and
execution of the artwork for all releases. Artist will have the right to prepare
LP artwork pursuant to a non-recoupable budget of $15,000.
12. Video: Company agrees to cause to be produced at least two (2) promotional
videos in connection with each LP which is released in the United States
provided that promotional Videos continue to be a meaningful marketing tool for
artists similar in style to Artist, pursuant to the prevailing custom and
practice in the industry in the United States at the time of Company's release
of the applicable LP. Company shall approve budgets and Company and Artist will
mutually approve the director, all creative elements, and track selection of all
videos. Company shall approve a budget which is otherwise reasonable and not in
excess of Seventy Five Thousand ($75,000) Dollars, for each video to be
produced. Fifty (50%) percent of video production costs are recoupable from
record royalties and one hundred (100%) percent of video production costs are
recoupable from video royalties.
13. Marketing: Company and you shall mutually approve marketing plans company
intends to implement for the LP concerned. Company shall use its good faith
business judgment regarding the need to supplement marketing and promotion plans
of distributors/licensees in foreign release territories. Fifty (50%) percent of
the cost to Company of such supplemental marketing and promotion in foreign
territories shall be recoupable.
14. Marketing Restrictions Company shall not, without Artist's approval:
(a) sell LPs hereunder as Premium LPs
(b) license masters for synchronization for any motion picture,
Television show or home video device
(c) remix, re-edit or resequence any masters after delivery
(d) release any demonstration Recordings
(e) license any master for synchronization with television
commercials (other than to advertise the LPs made hereunder)
6
<PAGE>
(f) release any so-called "outtakes"
(g) couple, or, license to a third party for coupling, any Masters
on any particular Record offered for sale to the public, except with
respect to samplers, uses on transportation carriers, and Consumer
Compilations. The term "Consumer Compilation" means a Record embodying
Recordings (including one (1) or more Masters) that are sequenced and/or
selected by the consumer.
15. Ownership of Masters:
(a) All Recordings made or furnished to Company by you or "Artist" under
this agreement or during the Term from the inception of the recording thereof,
and all reproductions derived therefrom, together with the performances embodied
thereon, shall be the property of Company in perpetuity for the Territory free
from any claims whatsoever by you or "Artist" or any other person. Company shall
have the exclusive right throughout the Territory to copyright those Recordings
in Company's name as the author and owner of them and to secure any and all
renewals and extensions of copyright throughout the Territory except that
Company's right to exploit the Masters, including LP 1, LP 2 and LP 3, in
foreign territories shall lapse if LP 1 is not released in accordance with the
release deadlines in paragraph 4 hereof. Each such Recording shall be considered
a "work made for hire" for Company; if any such Recording is determined not to
be a "work made for hire," it will be deemed transferred to Company by this
agreement, together with all rights in it. You and "Artist" hereby irrevocably
and unconditionally waive any and all moral and like rights that "Artist" has in
the Recordings and in the performances embodied therein and hereby agree not to
make any claim against Company or any Person authorized by Company to exploit
the Recordings based on such moral or like rights. Without limiting the
generality of the foregoing, and except as otherwise expressly limited herein,
Company and any Person authorized by Company shall have the exclusive and
unlimited right to all the results and proceeds of "Artist's recording services,
limited to performances and recordings by Daryl Hall and John Oates together,
rendered during the Term, including, but not limited to, the exclusive,
unlimited and perpetual rights throughout the Territory:
(i) to manufacture, advertise, sell, lease, license, distribute or
otherwise use, exploit or dispose of, in any or all fields of use by any method
now or hereafter known, Records embodying Masters;
(ii) to release Records derived from Masters under any name,
trademark or label which Company or its subsidiaries, affiliates or licensees
may from time to time elect;
(iii) to perform such Masters publicly and to permit public
performances thereof by means of radio broadcast, television or any other method
now or hereafter known; and
(iv) to reproduce, adapt, transmit, communicate or otherwise use
Masters, all upon such terms and conditions as Company may elect, or at its
discretion, to refrain therefrom.
7
<PAGE>
(v) All masters shall be "works for hire" and Company shall own all
masters including all copyrights therein except that if sales for LP 1 do not
equal or exceed one million units within seven (7) years after the date of the
initial commercial release of LP 1, then, ownership, including all copyright
therein, of all masters comprising LP 1 shall revert to Artist subject to
payment to Company, by or on behalf of you and or Artist, of any unrecouped
balance. Ownership of all other masters delivered by you or Artist to Company,
including all masters comprising LP 2 and LP 3 shall, subject to payment to
Company, by or on behalf of you and or Artist, of any unrecouped balance, revert
to Artist seven years after the initial commercial release of said masters and
no later than seven years after the initial commercial release of LP 3. If LP 2
or LP 3 are not released as provided for in paragraph 4 above, then subject to
payment to Company, by or on behalf of you and or Artist, of any unrecouped
balance the masters comprising, respectively, LP 1 and or LP 2 shall revert to
Artist.
16. WARRANTIES AND REPRESENTATIONS; INDEMNITIES
You warrant and represent that:
You have the right and legal capacity to enter into this agreement, and
you are not subject to any prior obligations or agreements, whether as a party
or otherwise, which would restrict or interfere in any way with the full and
prompt performance of your obligations hereunder, and you shall fully and
promptly perform your obligations hereunder.
Company shall not be required to make any payments of any nature for or in
connection with the acquisition, exercise or exploitation of any of Company's
rights hereunder, except as specifically provided in this agreement including
but not limited to the payment by Company on behalf of Artist pursuant to the
Termination Agreement. You shall be solely responsible for all royalties (except
mechanical royalties as provided herein) payable to producers, mixers, remixers
and others contributing to the recording of Masters engaged by you or with your
consent and all mechanical royalties in excess of the applicable rates and/or
the applicable maximum aggregate mechanical royalty rates.
The Materials or any use thereof, as authorized hereunder, shall not
violate any law and shall not infringe upon or violate the rights of any Person
(including, without limitation, contractual rights, copyrights, rights of
publicity and rights or privacy) and that each track-by-track list identifying
the performers on each Master and describing their performances which you
furnish to Company is and shall be true, accurate and complete. "Materials," as
used in this subparagraph means: Masters hereunder (including any Sampled
Material embodied therein); all Controlled Compositions, each name used by
"Artist", individually or as a group, in connection with Masters hereunder; all
photographs and likenesses of "Artist"; and all other musical, dramatic,
artistic and literary materials, ideas, and other intellectual properties
furnished by you or "Artist", contained in or used in connection with any
Masters hereunder or their packaging, sale, distribution, advertising,
publicizing or other exploitation supplied by or approved by your or "Artist".
Company's acceptance and/or utilization of Masters, Materials, or track-by-track
lists hereunder shall not constitute a waiver of your representations,
warranties or agreements in respect thereof, or a waiver of any of Company's
rights or remedies.
8
<PAGE>
You will insure that there will be delivered to Company all licenses
required under copyright for the recording of the musical compositions and any
other copyrighted material reproduced in the Recordings, and you will make all
payments (except mechanical royalties) required under those licenses;
The parties hereto agree to and do hereby indemnify, save and hold each
other harmless from any and all loss and damage (including court costs and
reasonable attorneys' fees) arising out of, connected with or as a result of any
third party claim resulting or derived from any inconsistency with, failure of,
or breach or threatened breach by you of any warranty, representation contained
in this agreement including, without limitation, any claim by any third party in
connection with the foregoing, which has resulted in a judgment against Company
or which has been settled with your consent, which consent shall not be
unreasonably withheld, it being agreed that such consent shall only be required
for settlements in excess of Five Thousand Dollars ($5,000.00). In addition to
any other rights or remedies Company may have by reason of any such
inconsistency, failure, breach, threatened breach or claim, Company may obtain
reimbursement from you, on demand, for any payment made by Company at any time
after the date hereof with respect to any loss, damage or liability (including
anticipated and actual court costs and reasonable attorneys' fees) resulting
therefrom. Such amounts may also be deducted from all monies becoming payable to
you by Company under this agreement or any other agreement to the extent to
which they have not been reimbursed to Company by you. The foregoing shall not
apply to any monies otherwise payable to Artist by All Access Entertainment
Management Group, Inc. ("Management") pursuant to any personal management
agreement between Management and Artist. If the amount of any such claim or loss
has not been determined, Company may withhold sums due you in an amount
consistent with such claim or loss pending such determination unless you post a
bond in a form and from a bonding company acceptable to Company in an amount
equal to Company's estimate of the amount of the claim. Such withheld sums shall
be released if suit is not filed within twelve (12) months after Company is
notified of or receives a communication with respect to such claim; provided,
however, that if such claim is thereafter asserted, Company shall maintain the
right to begin once again to withhold monies. Company shall give you notice of
any third party claim to which the foregoing indemnity applies and you shall
have the right to participate in the defense of any such claim through counsel
of your own choice and at your expense; provided that Company shall have the
right at all times, in Company's sole discretion, to retain or resume control of
the conduct thereof.
Company shall have the right without your consent to assign this agreement
in whole or in part to any subsidiary, parent company, affiliate, or to any
third party acquiring a substantial portion of Company's assets or stock;
provided, however, that Company shall remain liable for all payments required to
be made to you and all other material obligations hereunder. Neither you nor
"Artist" shall have the right to assign this agreement or any of your rights or
obligations hereunder, except that you may assign your right to receive
royalties hereunder to an entity owned or controlled by all members of "Artist".
THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK AND
ITS VALIDITY, CONSTRUCTION, PERFORMANCE AND BREACH SHALL BE GOVERNED BY THE
LAWS OF
9
<PAGE>
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED
THEREIN. THE PARTIES HERETO AGREE TO SUBMIT YOURSELF TO THE JURISDICTION OF THE
FEDERAL OR STATE COURTS LOCATED IN NEW YORK CITY IN ANY ACTION WHICH MAY ARISE
OUT OF THIS AGREEMENT AND SAID COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER ALL
DISPUTES BETWEEN COMPANY AND YOU OR "ARTIST" PERTAINING TO THIS AGREEMENT AND
ALL MATTERS RELATED THERETO. IN THIS REGARD, ANY PROCESS IN ANY ACTION OR
PROCEEDING COMMENCED IN THE COURTS OF THE STATE OF NEW YORK ARISING OUT OF ANY
CLAIM, DISPUTE OR DISAGREEMENT UNDER THIS AGREEMENT MAY, AMONG OTHER METHODS, BE
SERVED UPON THE PARTIES HERETO BY DELIVERING OR MAILING THE SAME, VIA REGISTERED
OR CERTIFIED MAIL, ADDRESSED TO THE RESPECTIVE PARTIES AT THE ADDRESSES PROVIDED
HEREIN FOR NOTICES; ANY SUCH DELIVERY OR MAIL SERVICE SHALL BE DEEMED TO HAVE
THE SAME FORCE AND EFFECT AS PERSONAL SERVICE WITHIN THE STATE OF NEW YORK.
NOTHING CONTAINED IN THIS SUBPARAGRAPH SHALL PRECLUDE THE PARTIES HERETO FROM
JOINING THE OTHER PARTY IN AN ACTION BROUGHT BY A THIRD PARTY AGAINST EITHER
PARTY IN ANY JURISDICTION, ALTHOUGH THE FAILURE TO JOIN THE OTHER PARTY IN ANY
SUCH ACTION IN ONE INSTANCE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS WITH
RESPECT THERETO, OR WITH RESPECT TO ANY SUBSEQUENT ACTION BROUGHT BY A THIRD
PARTY AGAINST EITHER PARTY HERETO. NOTHING CONTAINED HEREIN SHALL CONSTITUTE A
WAIVER OF ANY OTHER REMEDIES AVAILABLE TO EITHER PARTY EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED FOR HEREIN.
Neither party shall be entitled to recover damages or to terminate the
Term by reason of any breach by the other party of its material obligations,
unless the latter party has failed to remedy or commenced to remedy the breach
within a reasonable time following receipt of notice thereof. Neither party
shall be deemed in breach of any of its obligations unless and until specific
notice is sent by registered or certified mail, return receipt requested, of the
nature of such default and the party claimed to be in breach shall have failed
to either cure or commence to cure such breach within thirty (30) days of its
respective receipt of such written notice.
Push Records Inc.
By:
---------------------------------------
Brian Doyle, President, dated
AGREED AND ACCEPTED BY:
Whole Oates Enterprises, A General Partnership
By:
---------------------------------------
Daryl Hall, General Partner, dated
By:
---------------------------------------
John Oates, General Partner, dated
10
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<PERIOD-END> JUN-30-1997
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0
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