EXHIBIT 10.13
PRODUCT DISTRIBUTION AGREEMENT
BETWEEN
INTEGRITY INCORPORATED,
AND
SONY MUSIC, A GROUP OF SONY MUSIC ENTERTAINMENT INC.,
DATED AS OF MARCH 4, 2002
EXCLUDING CONFIDENTIAL PORTIONS
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
INDEX TO THE CONFIDENTIAL PORTIONS
PAGE SECTION LINE(S)
1 1.01(b) 3
1 1.02(a)(2)(i) 4 and 5
5 2.01(b) 7
5 2.02(a)(1) 3, 4 and 8
6 2.02(a)(1) 1
6 2.02(a)(2) 3 and 4
6 2.02(c) 2 and 4
8 3.04(a)(1) 3, 6, 8, 9, 10, 12 and 13
8 3.04(a)(3) 4 and 5
8 3.04(b) 4
8 3.04(c)(1) 4 and 5
8 3.04(c)(2) 4
11 5A.01(a) 2
11 5A.01(b)(i) 1
11 5A.01(b)(ii) 2, 3, 5 and 6
11 5A.02 5
11 5.01(a)(1) 1
11 5.01(a)(2) 1
11 5.01(b) 2, 3, 4 and 9
12 5.01(b) 1
12 5.01(c) 1
12 5.02 5, 6, 7, 8 and 9
12 5.03(a) 1
12 5.05(a) 1 and 3
12 5.05(b) 3
13 5.07(a)(1)(i) 2
13 5.07(a)(1)(ii) 7, 8, 9, 10, 11 and 12
13 5.07(b)(2) 1 and 2
14 5.07(c)(2) 1 and 2
15 6.03 4
15 7.01(b) 9 and 12
16 7.03 13
18 8.01(a)(2)(i) 2
18 8.01(a)(2)(ii) 2
18 8.01(a)(2)(iii) 2
18 8.01(a)(2)(iv) 2, 7 and 9
18 8.01(b)(1)(i) 3 and 5
18 8.01(b)(1)(ii) 2
19 8.01(b)(1)(ii) 3
19 8.01(c) 10
20 8.03(b) 2
23 10.05.1 4 and 5
24 10.05.1 5
24 10.06 2 and 7
24 10.06.2 2
24 10.08(a) 1
24 10.08(b) 1 and 2
24 10.08(c) 1
25 10.10.2 4
26 10.17 2, 3, 7 and 8
26 10.20 1
28 10.28(b)(2) 9
28 10.28(c)(1) 2
28 10.28(c)(2) 2, 4, 7 and 8
34 Schedule B 2, 3, 4, 5, 6, 7, 9, 15, 17 and 19
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AGREEMENT MADE AS OF MARCH 4, 2002, BETWEEN INTEGRITY INCORPORATED, A DELAWARE
CORPORATION, 1000 CODY ROAD, MOBILE, ALABAMA 36695 (HEREINAFTER, "INTEGRITY" OR
"YOU"), AND SONY MUSIC, A GROUP OF SONY MUSIC ENTERTAINMENT INC., 550 MADISON
AVENUE, NEW YORK, NEW YORK 10022-3211 (HEREINAFTER "SONY", "WE" OR "US").
Reference is hereby made to the agreement dated as of December 12, 2001, between
you and Sony [SMU 01-408.2(1)] (the "Previous Agreement").
1. TERM; GRANT OF RIGHTS
1.01. (a) Notwithstanding anything to the contrary in
paragraph 1.01 of the Previous Agreement, the Term shall be a period of three
(3) years commencing as of January 1, 2002 and, unless terminated or extended as
provided herein, ending on December 31, 2004 (the "Term"). (Subject to the
provisions of paragraph 11.02 below, each successive twelve-month period during
the Term, commencing on the date hereof, is sometimes referred to herein as a
"Contract Year"; provided, however, that the first Contract Year shall begin on
April 1, 2002 and shall end on December 31, 2002.) Notwithstanding anything to
the contrary herein (but subject to the proviso below), the provisions of the
Previous Agreement shall govern Sony's rights and responsibilities with respect
to all Recordings hereunder during the period beginning on January 1, 2002 and
ending March 31, 2002 (i.e. to the extent the terms herein are inconsistent with
the terms of the Previous Agreement, the terms of the Previous Agreement shall
govern until March 31, 2002); provided, however, that Articles 5 and 8 below
(instead of Articles 5 and 8 in the Previous Agreement) shall govern our royalty
payment obligations to you with respect to the sale of Albums under the Previous
Agreement
(b) Notwithstanding the provisions of subparagraph
1.01(a) above and subject to the following sentence, in the event that Net Sales
Through Normal Retail Channels in the United States ("USNRC Net Sales") of
full-priced, Top Line Records hereunder equal or exceed [**](1) ([**](1)) units
during the final Contract Year, the Term shall be automatically extended for one
additional Contract Year (i.e., until December 31, 2005, unless terminated or
extended as provided herein). Notwithstanding the foregoing: (i) in the event
that another party acquires a controlling interest in Integrity at any time
prior to November 30, 2004, the preceding sentence shall not apply and (ii) in
the event that another party acquires a controlling interest in Integrity at any
time after November 30, 2004, Integrity may terminate the Term upon thirty (30)
days notice to Sony.
1.02. (a) (1) Subject to paragraph 2.04 below, you
grant to Sony and its Licensees the sole, exclusive and unlimited right,
privilege and license, under copyright and otherwise, throughout the Territory
in the Market, during the Term and (subject to subparagraph 1.04(a) below)
Sell-Off Period: (i) to manufacture Phonograph Records and Covered Videos (and
other Related Material in connection therewith) in any form and by any method
now or hereafter used for commercial exploitation, made from the Masters and
(ii) to sell, transfer or otherwise deal in such Phonograph Records and Covered
Videos (and other Related Material in connection therewith) under any
trademarks, trade names and labels (subject to paragraph 3.01).
(2) (i) Subject to subsection 1.02(a)(2)
(ii) below, Sony shall have the exclusive right to grant so-called "master use"
licenses authorizing synchronization of the Masters in feature-length theatrical
motion pictures and television commercials and television films and programs
(each such license is sometimes referred to herein as a "Master Use License").
Sony shall receive [**](1) percent ([**](1)%) of all fees (excluding Mechanical
Royalties) payable in connection with any such Master Use Licenses. Sony shall
not grant any Master Use License without your written consent; provided,
however,
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
that in the event you do not consent to a Master Use License proposed by Sony,
you shall not be permitted to grant (either directly or indirectly) a "master
use" license for the project in question to the licensee who would have received
the Master Use License in question.
(ii) Notwithstanding the provisions of
subsection 1.02(a)(i) above, you shall be permitted to grant Master Use Licenses
directly to third parties provided: (i) such third party has not previously
entered into discussions with Sony in connection with the Master Use License in
question and (ii) no intermediary receives any compensation or other
consideration in connection with any such Master Use License. Sony shall not
receive any portion of any fees in connection with any such licensing
arrangements.
(iii) Sony will in good faith explore
with Integrity the option of promoting Integrity's catalogue of song copyrights
for use in feature-length theatrical motion pictures and television commercials
and programs on terms similar to those set forth above for Master Use Licensing.
(b) You will execute, acknowledge and deliver to Sony
such instruments and documents and will otherwise cooperate with Sony, as it
shall reasonably request from time to time, for any of the purposes described in
this paragraph 1.02. You hereby irrevocably appoint Sony your attorney-in-fact
to take, at Sony's expense (subject to paragraph 9.05 below), any and all other
actions in your name and on your behalf to protect and enforce Sony's rights in
the Recordings Submitted hereunder in the Market during the period of Sony's
rights, if and to the extent deemed advisable by Sony. Notwithstanding the
foregoing, Sony shall give you ten (10) days' to execute any such instruments
and documents before signing them in your name.
1.03. (a) Sony and its Licensees shall have and may grant to
others the rights to use your name, the names, portraits, pictures and
likenesses of the Artists and all other persons, including producers, performing
services in connection with the Recordings Submitted hereunder (including,
without limitation, all professional, group, and other assumed or fictitious
names used by them), and biographical material concerning them, (collectively,
the "Material") as Related Material, as news or information, for the purposes of
trade, or for advertising purposes, in any manner and in any medium, all such
uses to be solely in connection with the marketing and exploitation of the
Recordings Submitted hereunder and Phonograph Records derived therefrom and in
institutional advertising (advertising designed to create goodwill and prestige
and not for the purpose of selling any specific product or service) for the
benefit of you or Sony as opposed to a third party institution.
(b) In connection with subparagraph (a) above, Sony will
use only Material which is supplied by you, provided (1) you supply such
Material on a timely basis, (2) such Material is reasonably adequate with regard
to both quantity and quality, and (3) such Material is current when supplied. In
the event that Sony intends to use Material not supplied by you because some or
all of the conditions set forth in the preceding sentence have not been met,
Sony agrees to provide you with at least seven (7) business days notice prior to
using any such Material not supplied by you; provided, however, that Sony's
inadvertent, good faith, non-repetitive failure to comply with this provision
shall not constitute a breach hereunder and you shall not be entitled to
injunctive relief to restrain the continuing use of any Material used in
contravention of this subparagraph. Subject to the preceding sentence, Sony will
use the Material in the form supplied by you unless your consent to alter the
form is obtained.
1.04. (a) During the six (6) month period following the
expiration of the Term or, with respect to each Reverting Licensed Master, the
six (6) month period following the date on which a Master becomes a Reverting
Licensed Master (subject to the provisions of paragraph 10.27.1 below)
("Sell-Off Period"), Sony shall have the non-exclusive right to sell or
otherwise dispose of Phonograph Records previously manufactured under this
agreement, subject to the terms and conditions of this agreement, including
applicable royalty and accounting terms. During the final six (6) months of the
Term, Sony shall
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not be permitted to manufacture S4W Albums or Phonograph Records embodying
Masters in quantities in excess of that which Sony reasonably expects to sell
during the Term.
(b) With respect to S4W Albums and Phonograph Records
embodying Masters initially released by Sony in the final six (6) months of the
Term, Sony shall have the non-exclusive right to sell or otherwise dispose of
such Records during the Sell-Off Period. With respect to S4W Albums and
Phonograph Records embodying Masters initially released by Sony in the final
three (3) months of the Term, Sony shall have, in addition to the right provided
in the previous sentence, the right to manufacture Records embodying such
Recordings during the three (3) month period immediately following the
expiration of the Term; provided, however, that Sony shall not manufacture
Records during this three (3) month period in quantities in excess of that which
Sony reasonably expects to sell during such period. A Record shall be deemed
released under this paragraph when Sony commences shipment of it.
(c) At the end of the Sell-Off Period, you shall have the
right to purchase some or all of the Phonograph Records in inventory from Sony
at manufacturing and shipping cost, provided you exercise your option to do so
thirty days prior to the end of the Sell-Off Period. To the extent you purchase
such Phonograph Records, you may dispose of them as you choose. If you do not
exercise your option to purchase such Phonograph Records, Sony will destroy
those remaining in inventory. At your request thirty (30) days prior to the end
of the Term, Sony will supply you with a written estimate of the approximate
number of Albums manufactured hereunder that remain in Sony's inventory.
(d) During the Sell-Off Period, Sony shall not make
Albums hereunder available at so-called "distress" or "closeout" prices.
1.05. During the Term, promptly following Sony's receipt of notice
from you indicating your desire therefor, Sony shall consider in good faith the
possibility of entering into a cost and profit sharing arrangement for recording
projects specified in such notice, on terms and conditions to be agreed.
1.06. (a) If Sony elects to distribute any Album, the rights
to which are wholly-owned or controlled by Sony (each such Album, a "Sony
Album"), in the United States in the Christian Booksellers Association market
during the Term, you shall have the option to be the exclusive distributor of
such Sony Album in the United States in the Christian Market during the Term and
in accordance with the terms set forth herein and subject to prior commitments
Sony may have with respect to such Sony Album. With respect to each such Album,
you shall have fifteen (15) business days after Sony sends you a copy of such
Album along with notice informing you that it would like to distribute such
Album in the Christian Booksellers Association market to notify Sony that you
would like to exercise your option under the preceding sentence. If you do not
so notify Sony, then your option to so distribute such Album shall terminate. If
you do timely exercise your option to distribute such Sony Album then the
following terms shall apply: (i) you shall be permitted to distribute such Album
in the United States in the Christian Booksellers Association market during the
Term, subject to existing commitments Sony may have with respect to such Sony
Album; (ii) you shall hire Sony to manufacture all units of the Sony Album
distributed by you at the manufacturing rates Epic is charged (such rates, as of
the date hereof, are set forth in Schedule B hereto); (iii) you will pay Sony a
royalty equal to the royalty you would have received had the Sony Album been an
Album hereunder exploited by Sony (under Articles 5 and 8 below) in accordance
with the terms herein; (iv) you will undertake general marketing and promotion
of the Sony Album equivalent to that which Sony is obligated to undertake under
the provisions of paragraph 3.04 below; (v) in connection with such
exploitation, you will be responsible for all costs that are customarily borne
by a record distributor operating under a master license; (vi) you shall not be
permitted to include any names, logotypes or trade symbols other than the
Integrity logotype or trade symbol (and the appropriate Sony logotype or trade
symbol designated by Sony) on the packaging or labels used in connection with
the Sony Album in question or on any materials associated with the marketing of
such Sony Album; (vii) you shall not object (and you
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shall exercise best reasonable efforts to ensure that no third party obligates
you to object) to the use of coding in Sony Albums that prevents Persons other
than Sony or Integrity from receiving credit for SoundScan sales of the Sony
Album in question; (viii) the coupling restrictions and coordinated release
obligations that apply to Sony under paragraphs 3.02 and 3.03, respectively,
with respect to your product shall, for the avoidance of doubt, apply to you
with respect to our product; (ix) the provisions of paragraphs 3.09 and 5.05
(and any other restrictions on the use of Masters set forth herein) shall, for
the avoidance of doubt, apply to you with respect to our product.
(b) If Sony elects to distribute a Sony Album in Canada,
Australia, New Zealand, Singapore or the United Kingdom or any country in
Europe, the former republics of the Soviet Union or Latin America in the
Christian Booksellers Association market during the Term, you (or an Acceptable
Designee (defined below)) shall have the option (subject to the provisions of
paragraph 10.32 below) to be the exclusive distributor of such Sony Album in
such countries in the Christian Market during the Term and in accordance with
the terms set forth herein and subject to prior commitments Sony may have with
respect to such Sony Album. With respect to each such Album, you shall have
twenty-five (25) business days after Sony sends you a copy of such Album along
with notice informing you that it would like to distribute such Album in the
Christian Booksellers Association market to notify Sony that you would like to
exercise your option under the preceding sentence. If you do not so notify Sony,
then your option to so distribute such Album shall terminate. If you do timely
exercise your option to distribute such Sony Album then the following terms
shall apply: (i) you (or an Acceptable Designee) shall be permitted to
distribute such Album in the country or countries in question in the Christian
Booksellers Association market during the Term, subject to existing commitments
Sony may have with respect to such Sony Album; (ii) you shall hire Sony to
manufacture all units of the Sony Album distributed by you; (iii) you will pay
Sony a royalty equal to the royalty you would have received had the Sony Album
been an Album hereunder exploited by Sony (under Articles 5 and 8 below) in
accordance with the terms herein; (iv) you will undertake general marketing and
promotion of the Sony Album equivalent to that which Sony is obligated to
undertake under the provisions of paragraph 3.04 below; (v) in connection with
such exploitation, you will be responsible for all costs that are customarily
borne by a record distributor operating under a master license; (vi) neither you
nor any other Person shall not be permitted to include any names, logotypes or
trade symbols other than the Integrity logotype or trade symbol (and the
appropriate Sony logotype or trade symbol designated by Sony) on the packaging
or labels used in connection with the Sony Album in question or on any materials
associated with the marketing of such Sony Album; and (vii) the coupling
restrictions and coordinated release obligations that apply to Sony under
paragraphs 3.02 and 3.03, respectively, with respect to your product shall, for
the avoidance of doubt, apply to you with respect to our product; and (ix) the
provisions of paragraphs 3.09 and 5.05 (and any other restrictions on the use of
Masters set forth herein) shall, for the avoidance of doubt, apply to you with
respect to our product. As used herein, an "Acceptable Designee" is a Person who
is not a Major Record Company (or owned by a Major Record Company) and who
specializes in distribution in the Christian Booksellers Association market in
the country in question.
(c) Except as otherwise provided herein: (i) the rights,
responsibilities and terms that apply to Sony with respect to Sony's
distribution of your product hereunder shall apply to you with respect to your
distribution of our product hereunder, and (ii) the rights, responsibilities and
terms that apply to you with respect to Sony's distribution of your product
hereunder shall apply to Sony with respect to your distribution of our product
hereunder.
1A. SONGS 4 WORSHIP ALBUMS
1A.01. You grant to Sony and its Licensees the sole and exclusive
right, privilege and license, under copyright and otherwise, throughout the
Territory in the Market, during the Term and Sell-Off Period: (i) to manufacture
Phonograph Records embodying each S4W Album (and any Covered Videos and other
Related Material in connection therewith) in any form and by any method now or
hereafter known and (ii) to
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sell, transfer or otherwise deal in such Phonograph Records and Covered Videos
(and other Related Material in connection therewith) under any trademarks, trade
names and labels (subject to paragraph 3.01). Notwithstanding the foregoing,
Sony shall not be permitted to engage in direct response television advertising
of any S4W Album in any country of the Territory unless Integrity explicitly
grants such rights to Sony.
1A.02. Promptly following the complete execution of this agreement,
you and Sony agree to work together to develop a release schedule for each S4W
Album designated by you. During the Term, you and Sony shall work together to
determine the release schedule for each S4W Album in each country of the
Territory and to determine the overall number of such Albums to be released in
each such country.
2. SUBMISSION; DELIVERY
2.01. (a) Subject to subparagraph 2.01(c) below, you shall
Submit to Sony all Recordings to be initially released during the Term on any
label owned or controlled by you (i.e., as of the date of this agreement, the
Integrity, Vertical or Hosanna labels (or any successor labels thereto)) or any
other labels to which Integrity has rights (each such Recording is sometimes
referred to as a "New Master").
(b) Each Master made before the Term that is not an
Excluded Master is sometimes referred to hereinafter as an "Existing Master".
Sony will have the continuing right, throughout the Term, to select some or all
of the Existing Masters to be Submitted for possible distribution hereunder. At
Sony's request, you will promptly deliver to Sony a digital compact disc
containing the Existing Masters constituting an Album or other Record specified
by Sony to assist Sony in its selection of Existing Masters. You represent and
warrant that: (i) as of the date hereof the number of Existing Masters is
sufficient to constitute at least [**](1) ([**](1)) Albums appropriate for
distribution in the Market and (ii) you shall not enter into any agreement (by
which, for example, you assign, sell, transfer or otherwise encumber your rights
in any such Existing Masters during the Term) that diminishes or otherwise
affects Sony's rights hereunder to any such Existing Master, except as follows:
(i) you shall be permitted to sell all or a substantial portion of your catalog
of Existing Masters to a third party, provided that Sony's rights hereunder are
not affected by such transfer of rights and (ii) prior to December 31, 2004, you
shall be permitted to sell the rights to no more than two (2) agreements by
which you have acquired the rights to the Recordings of an Artist; provided,
however, that: (A) prior to April 1, 2003, you shall not be permitted to sell
the rights to more than one (1) such agreement, (B) in the event the Term is
extended for a fourth Contract Year under subparagraph 1.01(b) above, you shall
be permitted to sell the rights to one (1) such additional agreement, and (C) in
the event the person acquiring (either directly or indirectly) the rights to any
such agreement is not the Artist himself or herself (or the Artist's furnishing
party), then you agree to grant Sony First Refusal Rights with respect to the
sale of such agreement.
(c) Notwithstanding anything to the contrary herein: (i)
you shall be permitted to distribute Budget Albums and (ii) Sony shall not have
the right to distribute any Excluded Masters.
2.02. (a) (1) During the Term, you shall Submit a
sufficient number of New Masters (that is, in each case, "appropriate" (as
defined below) for distribution in the Market) to constitute a minimum of
[**](1) ([**](1)) Albums per Contract Year (each such Album, a "New Album") and,
subject to subparagraph 2.02(c) below, a minimum of [**](1) ([**](1)) such New
Albums shall be Submitted in each quarter of each Contract Year. A New Master
shall be deemed "appropriate" for distribution in the Market if, in Sony's good
faith judgment, it is reasonably similar to an Integrity or a Word Album
previously released by Sony in the Market that enjoyed meaningful success. Your
Submission of a sufficient number of appropriate New Masters to constitute a
minimum of [**](1) ([**](1)) New Albums in each quarter of any given
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
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Contract Year and a minimum of [**](1) ([**](1)) New Albums total per Contract
Year is sometimes referred to herein as the "Minimum Delivery Commitment".
(2) In each Contract Year, subject to the
provisions of paragraph 2.04 below and provided you have Submitted a sufficient
number of New Masters that are "appropriate" (as defined above) for distribution
in the Market to constitute a minimum of [**](1) ([**](1)) New Albums that are
intended for release on the Integrity, Vertical or Hosanna labels, Sony shall
release a minimum of [**](1) ([**](1)) such New Albums in the United States.
Each such Album shall be released on the corresponding Integrity-owned label.
(3) Albums embodying Masters that are, in Sony's
reasonable judgment, commercially satisfactory for a Latino audience in the
Market (because, for example, they embody Spanish and/or Portuguese Masters)
shall be released in the United States on the Sony Discos label (or its
replacement). Commercially satisfactory Albums embodying Masters that are
"child-oriented" (as determined by Sony in its reasonable discretion) shall be
released on the Sony Wonder label (or its replacement). All other Albums shall
be released on the Epic label (or its replacement). In the event that Sony
believes that the most appropriate label on which to release an Album hereunder
is different from the label set forth above, you agree to consider in good faith
Sony's request to release the Album in question on such other label.
(b) Omitted without implication.
(c) For purposes of subparagraph 2.02(a) above, in
determining whether the Minimum Delivery Commitment has been fulfilled, a
maximum of [**](1) ([**](1)) New Albums accepted by Sony per quarter (including
those carried forward) will be taken into account and any New Albums accepted by
Sony in excess of [**](1) ([**](1)) in any quarter of a Contract Year will be
treated as Submitted and accepted in the succeeding quarter of the Contract Year
concerned.
(d) Albums embodying Multiple Record Sets and Albums
which contain any previously released Recordings or "out-takes" from a recording
project prior to the Album (or other recording) project concerned shall not
apply in fulfillment of your Minimum Delivery Commitment.
(e) An Album will not be considered satisfactory for the
Minimum Delivery Commitment if it includes any endorsements (other than
endorsements affiliated with Integrity's ministry or ministers) or so-called
"commercial tie-ins" not approved by Sony in writing, or if it contains any
material (e.g., lyrics) which Sony deems patently offensive or which, in the
judgment of its attorneys might subject Sony or Sony's Licensees to unfavorable
regulatory action, violate any law, infringe the rights of any Person or subject
Sony or Sony's Licensees to liability for any reason.
2.03. Subject to the following sentence, no New Master accepted by
Sony will be exploited by Integrity or its affiliates or made available to any
Person other than Integrity or its affiliates for exploitation outside the
Territory or outside the Market, and no item of Related Materials will be used
by Integrity or its affiliates or made available to any such other Person for
use outside the Territory or outside the Market, until the earlier of: (i)
Sony's release thereof and (ii) the date that is four (4) months after your
Submission of such Master. Notwithstanding the foregoing, Integrity shall be
permitted to sell a New Master directly to consumers via its web site and
through direct-to-consumer clubs operated by Integrity up to eight (8) weeks
prior to Sony's release of such New Master.
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
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2.04. Within fifteen (15) days after the date of Submission of each
Album in accordance with paragraphs 2.01 and 2.02, Sony shall notify you whether
it has determined to acquire rights in and release the New Masters constituting
such Album in accordance with the provisions of this agreement. If Sony opts to
acquire the rights in such Album: (i) you shall deliver all Related Materials in
connection with such Album to Sony's New York offices within ten business (10)
days after you are notified of Sony's exercise of its option hereunder and (ii)
Sony shall release such Album in the United States within six (6) months after
Integrity's delivery thereof. If Sony does not opt to acquire rights in such
Album, then you shall be permitted to distribute such Album directly or through
a third party.
2.05. With respect to each Album accepted by Sony under paragraph
2.04 above, you shall timely provide Sony with final copies of all artwork
necessary for Sony's release of such Album in the Market. Sony shall not make
any material changes to any Related Materials (including artwork) without your
prior written consent; provided, however, that, with respect to each Album
distributed hereunder, Sony shall be permitted to include the logotypes or other
trade symbols used by the Sony label distributing such Album (as well as the
appropriate barcode information and other similar information) on the packaging
associated with such Album.
3. MARKETING
3.01. (a) Sony will print your logotype or other trade symbol,
designated by you (your "Mark"), and will print the logotype or other trade
symbol, designated by the distributed label concerned, on the Record labels and
Album covers used for Phonograph Records consisting entirely of Masters. The
Mark shall be no less prominent than the logotype or other trade symbols used by
Sony on the Album artwork; provided, however, that: (i) Sony's inadvertent
failure to comply with this provision shall not constitute a breach hereunder
(provided that Sony does not fail to comply with this provision more than two
times during the Term and provided that, if you have notified Sony of its
failure to comply with this provision, Sony shall correct the mistake on
manufacturing runs of the Album in question for which production commences more
than thirty (30) days after Sony receives notice of its failure to comply with
this provision) and (ii) in no event shall you be entitled to injunctive relief
to prevent Sony from distributing Albums manufactured prior to Sony's receipt of
notice from you that it has not complied with this subparagraph 3.01(a). You
hereby irrevocably grant to Sony the exclusive right, in the Territory and in
the Market, to use and to authorize others to use the Mark in the Territory
during the Term for advertising and purposes of trade and otherwise in
connection with its exploitation of Recordings hereunder; and the nonexclusive
right to so use the Mark in the Territory and in the Market during the Sell-Off
Period. You hereby represent and warrant that you have all rights necessary to
effectuate the grant of rights in this subparagraph 3.01(a), and all such uses
of the Mark shall be without any payment to you or any other Person.
(b) Your Mark, wherever used by Sony or its Licensees,
will be deemed an item of "Materials" covered by your warranties,
representations, and indemnification obligations under Article 9. Without
limiting Sony's rights under Article 9 or otherwise, Sony may refrain from
printing the Mark at any time when its use might violate any law or the rights
of any other Person, in Sony's reasonable judgment. If Sony so refrains, it will
notify you of such and of its reasons for so doing.
3.02. Sony will not, without your written consent: (i) couple Master
Recordings under this agreement with Recordings not embodying the Artist's
performances on any Record or (ii) create compilation Albums of Recordings
hereunder not approved by you.
3.03. Subject to paragraph 2.03, Sony and you agree to reasonably
attempt to coordinate the release of each Album subject to this agreement with a
view toward the release of each such Album by Sony and you in the United States
being simultaneous. You shall not release an Album in Canada prior to its
release in the United States.
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3.04. (a) (1) During the Term, with respect to each New
Release Album (defined below) and subject to the provisions below, Sony will
incur Permitted Expenditures in connection with the general marketing and
promotion of the Masters embodied thereon in an amount equal to [**](1) percent
([**](1)%) of its U.S. Net Revenues (defined below) in that Contract Year with
respect to the New Release Album in question. Subject to the following sentence,
after any New Release Album achieves USNRC Net Sales of [**](1) units (but has
not yet achieved USNRC Net Sales of [**](1) units) the applicable percentage
pursuant to the first sentence of this section 3.04(a)(1) applied in connection
with sales in excess of such units with respect to that particular Album shall
be reduced to [**](1) percent ([**](1)%) of U.S. Net Revenues, with respect to
the New Release Album in question, earned after the date on which the [**](1)th
unit of such Album was sold. After any New Release Album achieves USNRC Net
Sales of [**](1) units the applicable percentage pursuant to the first sentence
of this section 3.04(a)(1) applied in connection with sales in excess of such
units with respect to that particular Album shall be reduced to [**](1) percent
([**](1)%) of U.S. Net Revenues, with respect to the New Release Album in
question, earned after the date on which the [**](1)th unit of such Album was
sold.
(2) A "New Release Album" is an Album Submitted
and accepted in accordance with paragraphs 2.01, 2.02, 2.03, and 2.04. Each such
Album will be considered a New Release Album only during the twelve (12) month
period immediately following such Album's initial release. Thereafter, each such
Album shall be referred to as a "Post-New Release Album".
(3) "U.S. Net Revenues" means total revenues
earned and received by Sony from the Net Sales of a New Release Album (for
purposes of section 3.04(a)(1) above) or an Album embodying Existing Masters
(for purposes of subparagraph 3.04(b) below) in the United States. U.S. Net
Revenues will be calculated net of reasonable reserves for returns (which in no
event shall exceed [**](1) percent ([**](1)%) of the number of Albums sold),
with such reserves being calculated with respect to such Revenues in a manner
equivalent to the calculation of reserves with respect to royalties.
(b) During the Term, with respect to each Album embodying
Existing Masters that is released in the United States as well as each Post-New
Release Album and subject to the provisions below, Sony will spend on the
general marketing and promotion of the Masters embodied thereon an amount equal
to [**](1) percent ([**](1)%) of its U.S. Net Revenues in that Contract Year
with respect to the Album in question.
(c) (1) During the Term, with respect to each New Release
Album and each Album embodying Existing Masters released outside of the United
States by a subdistributor that is wholly owned by Sony and subject to the
provisions below, Sony shall incur Permitted Expenditures in connection with the
general marketing and promotion of the Masters embodied thereon in an amount
equal to [**](1) percent ([**](1)%) of its Per-Country Foreign Net Revenues
(defined below) in that Contract Year with respect to the New Release Album in
question.
(2) "Per-Country Foreign Net Revenues" means
total revenues earned and received by Sony in the country in question from the
Net Sales of a Record in the foreign country in question. Per Country Foreign
Net Revenues will be calculated net of reasonable reserves for returns (which in
no event shall exceed [**](1) percent ([**](1)%) of the number of Albums sold),
with such reserves being calculated with respect to such Revenues in a manner
equivalent to the calculation of reserves with respect to royalties.
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confidential treatment.
8
(d) (1) If, with respect to any particular Album
referred to in subparagraphs 3.04(a), (b) or (c) above, during any particular
Contract Year, Sony spends less than the amount required under the subparagraph
in question (the difference between the amount required to be spent under the
subparagraph in question and the amount actually spent is sometimes referred to
as the "Shortfall Amount"), Sony will exercise best efforts to: (i) spend the
Shortfall Amount during first six (6) months of the Contract Year immediately
following the Contract Year during which the shortfall occurred (in addition to
the amount otherwise required to be spent under subparagraph 3.04(a), (b) or (c)
above, as the case may be) and (ii) ensure that no future shortfalls are
incurred with respect to the Album in question.
(2) Within forty-five (45) days following the
end of each quarter of a Contract Year hereunder, Sony shall furnish you with a
report indicating the expenditures made under this paragraph 3.04 (by Album
title, if applicable). In the event that you have not received any such report
within the time period specified above, you agree to so notify Sony, and
provided Sony furnishes such report within thirty (30) days of its receipt of
such notice, such failure to comply with the preceding sentence shall not
constitute a breach hereunder.
(e) For the avoidance of doubt: (i) the amounts payable by
Sony under subparagraphs 3.04(a), (b) and (c) above during the first Contract
Year shall be based on Sony's U.S. Net Revenues during the period beginning
April 1, 2002 and ending December 31, 2002 and (ii) in all cases, Sony shall not
be required to make expenditures under subparagraphs 3.04(a), (b) or (c) above
prior to April 1, 2002.
3.05. Following the complete execution of this agreement, Sony
agrees to launch, at Sony's sole expense, a one-time publicity campaign relating
to its distribution of Records hereunder with full-page, color advertisements in
Billboard Magazine and CCM Magazine. Provided you make yourself reasonably
available and provided you respond to Sony's request for your approval promptly
after Sony's request therefor, Sony agrees to exercise reasonable best efforts
to seek your approval (which shall not be unreasonably withheld) in the layout
and design of advertisements used under this paragraph 3.05.
3.06. (a) During the Term, Sony will pay the salary and
related employment expenses (including benefits) for a Director of Marketing (or
equivalent position) ("Marketing Employee") who will devote a substantial amount
of his or her time to the marketing of Albums hereunder. The Marketing Employee
shall spend approximately five (5) days per month at your offices in Mobile,
Alabama. As of the date hereof, you and Sony agree that Heidi Brown Lewis shall
serve as the Marketing Employee. You and Sony shall mutually approve the
candidate selected to replace Heidi Brown Lewis should she no longer occupy the
position of Director of Marketing (or its equivalent).
(b) During the Term, Sony will pay the salary and related
employment expenses (including benefits) for a Director of Sales (or equivalent
position) ("Sales Employee") who will devote all of his or her time to the sale
of Albums hereunder (except when reasonably necessary Integrity activities are
not sufficient to keep the Sales Employee fully occupied). The Sales Employee
shall spend approximately five (5) days per month at your offices in Mobile,
Alabama. You and Sony shall mutually approve the candidate selected as the Sales
Employee and any replacement thereof.
3.07. In promoting Albums embodying Masters distributed by Sony
hereunder, Sony shall develop marketing plans that utilize as many marketing
tools as reasonably appropriate (including, for the avoidance of doubt, new
technology tools). Integrity shall be permitted to approve the marketing plan
Sony develops for each such Album; provided, however, that: (i) Integrity must
make itself reasonably available for consultation on each such plan and must
respond to Sony's request for approval promptly (but in no event later than ten
(10) business days) after Sony's request therefor; (ii) in no event shall
Integrity's approval of any such marketing plan be unreasonably withheld; (iii)
in the event that Integrity does not approve any such plan, Sony shall work with
Integrity to make changes to its marketing plans that are
9
reasonable under the circumstances in question; (iv) in the event that Sony is
unable to implement all or part of any marketing plan hereunder as a result of
delays caused by Integrity, Sony shall not be deemed to have breached any
provision of this agreement requiring the timely fulfillment of Sony's marketing
obligations hereunder (provided the delays in Sony's implementation of the plan
in question were caused by Integrity's delays).
3.08. Sony agrees to develop and execute a mutually approved plan to
expand consumer awareness of the Integrity brand in the general retail market;
provided, however, that: (i) Integrity must make itself reasonably available for
consultation on such plan and must respond to Sony's request for approval
promptly after Sony's request therefor and (ii) Integrity's approval of such
marketing plan shall not be unreasonably withheld.
3.09. The Masters shall not be edited, remixed, resequenced or
otherwise altered (unless consented to in writing by Integrity).
3.10. Sony shall facilitate monthly sales conferences between
representatives of both Integrity and Sony. Sony shall exercise best efforts to
ensure that Bill Frolich and Steve Barnett are available to participate in such
conferences; provided, however, that: (i) in the event that either of such
employees no longer occupies his current position and Sony replaces such
employee with an employee whose responsibilities are substantially similar to
those of the employee in question, Sony shall exercise best efforts to ensure
that such replacement shall participate in such conferences and (ii) to the
extent that either of such employees is unable to participate in any such
conference due to factors reasonably beyond such employee's control or Sony's
control, Sony shall not be deemed to have breached its obligations hereunder
(provided that such employees participate in most of such conferences). On a
quarterly basis and subject to the schedules of the executives involved, Sony
shall attend strategy meetings arranged by you at your offices.
4. UNION PAYMENTS; SPECIAL PACKAGING COSTS
4.01. (a) All costs incurred in connection with the recording
of each Recording Submitted hereunder shall be your sole responsibility,
including, without limitation, all advances, union scale payments, if
applicable, and other compensation required to be made to Artists in connection
with the Masters, all costs of instrumental, vocal and other personnel and
arrangements and copying in respect of the recording of such Recordings, all
other amounts required to be paid pursuant to any applicable law or any
collective bargaining agreement with any union representing Persons who render
services in connection with such Recordings, if applicable, all other amounts
representing expenses incurred in connection with the recording of such
Recordings (including, without limitation, advances to producers and all studio
and engineering charges), the cost of metal parts, and payments to the AFM
Special Payments Fund and the Music Performance Trust Fund based upon record
sales (so-called "per-record royalties"), if applicable. All royalties payable
to the Artists and the producers in connection with the recording of such
Recordings, as well as royalties payable to persons involved in remixing such
Recordings (provided such remixing is done by Integrity or at Integrity's
request), will be your sole responsibility.
(b) All amounts referred to in subparagraph 4.01(a) above
and all Special Packaging Costs, will be your sole responsibility and will be
paid by you promptly (or reimbursed by you if paid by Sony). Those amounts will
also be recoupable from all moneys becoming payable to you by Sony under this
agreement or otherwise to the extent they have not actually been paid or
reimbursed as provided in the preceding sentence. All costs incurred with
respect to design and creation of Related Materials shall be your sole
responsibility and shall be paid by you only. All pictorial, graphic and
literary materials created by Sony for use in the marketing of Phonograph
Records derived from Recordings Submitted hereunder shall be paid by Sony under
paragraph 3.04 above.
10
4.02. Subject to the following sentence, you shall be responsible
for duplicating all Masters and Related Materials Submitted to Sony hereunder.
Sony shall reimburse you for your actual, out-of-pocket costs directly
associated with such duplication based upon Sony's receipt of the verifying
documentation submitted by you to Sony for the particular cost. Notwithstanding
anything to the contrary in this agreement, the expenses paid or incurred by
Sony under this paragraph 4.02 shall constitute not Advances hereunder.
5A. ADVANCES
5A.01. (a) Promptly following the complete execution of this
agreement, Sony shall pay you non-recoupable payment in the amount of [**](1)
Dollars ($[**](1)).
(b) (i) Sony shall pay you an Advance in the amount
of [**](1) Dollars ($[**](1)) for the first Contract Year of the Term. Such
Advance shall be paid no later than April 15, 2002.
(ii) With respect to each Contract Year of the
Term other than the first Contract Year, Sony shall pay you an Advance equal to
the greater of the following two amounts: (A) [**](1) Dollars ($[**](1)) and (B)
[**](1) of the amount earned by you under Article 5 below with respect to sales
during the Contract Year immediately preceding the Contract Year in question;
provided, however, that in no event shall the Advance payable to you with
respect to any Contract Year under this sentence exceed [**](1) Dollars
($[**](1)). Each Advance payable to you under this section 5A.01(b)(ii) shall be
payable in full, no later than thirty (30) days after the commencement of the
Contract Year concerned.
5A.02. In the event in any Contract Year you fail to fulfill the
Minimum Delivery Commitment in accordance with paragraph 2.02, the Advance for
that Contract Year shall be reduced (and necessary adjustments or repayments
shall be made) by multiplying the otherwise applicable Advance by a fraction,
the numerator of which is the actual number of appropriate new Albums Submitted
in the Contract Year concerned and the denominator of which is [**](1)
([**](1)).
5. ROYALTIES
5.01. (a) Sony will pay you a royalty in respect of Net Sales
of digital compact disc and tape cassette Albums consisting entirely of Master
Recordings Submitted hereunder marketed and sold by Sony or its Licensees
Through Normal Retail Channels for distribution in the United States as follows:
(1) $[**](1) for each tape cassette Album unit;
and
(2) $[**](1) for each digital compact disc Album
unit.
(b) The royalty amounts specified in subparagraph 5.01(a)
above are based on Sony's $[**](1) retail price category for digital compact
disc Albums (which bear a current published subdistributor unit price of
$[**](1)) and Sony's $[**](1) retail price category for tape cassette Albums
(which bear a current published subdistributor unit price of $[**](1)). In the
event Sony's published subdistributor price for any tape cassette Album unit or
digital compact disc Album unit varies from the foregoing, the royalty amount
specified in subparagraph 5.01(a) above will be increased or decreased so that
it equals such royalty amount multiplied by a fraction, the numerator of which
is the new subdistributor price and the denominator of which is the applicable
subdistributor price for the retail price category under the first sentence of
this subparagraph 5.01(b). (By way of example, your royalty on digital compact
disc Album in Sony's $[**](1)
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confidential treatment.
11
retail price category (which bears a current published subdistributor unit price
of $[**](1)) would be $[**](1).) Notwithstanding anything to the contrary
herein, if Sony makes any Albums hereunder available, without your written
consent, to retailers at subdistributor prices that are lower than the amounts
set forth in the first sentence of this subparagraph 5.01(b), then you shall
receive the royalties set forth in subparagraph 5.01(a) above with respect
thereto.
(c) With respect to Singles, Sony will pay you a royalty
of [**](1) percent ([**](1)%), of the applicable Royalty Base Price in respect
of Net Sales of Phonograph Records (other than Audiovisual Records and other
Records under paragraph 5.01) consisting entirely of Master Recordings Submitted
hereunder and sold by Sony or its Licensees Through Normal Retail Channels in
the United States.
5.02. Sony will pay you a royalty computed at the applicable
percentage, indicated below, of the applicable Royalty Base Price in respect of
Net Sales of Phonograph Records (other than Audiovisual Records and other
Records under paragraph 5.01) consisting entirely of Master Recordings Submitted
hereunder and sold by Sony or its Licensees Through Normal Retail Channels in a
Distribution Country: [**](1) percent ([**](1)%) on Albums and [**](1) percent
([**](1)%) on Singles. If any Sony Licensee accounts to Sony on the basis of
less than [**](1)% of Net Sales Sony will account to you for the Records
concerned on the same basis, but not on less than [**](1)% of Net Sales. The
preceding sentence will not apply if the Licensee is owned in whole or in part
by Sony, directly or indirectly (i.e., Sony shall account on [**](1) percent
([**](1)%) of Net Sales in the country concerned).
5.03. (a) Sony will pay you [**](1) percent ([**](1)%) of
Sony's Foreign Album Net Receipts (defined below) in respect of Phonograph
Records (other than Audiovisual Records) consisting entirely of Master
Recordings Submitted hereunder and sold by Sony's Licensees Through Normal
Retail Channels in a Non-Distribution Country.
(b) "Foreign Album Net Receipts" means Foreign Album
Gross Receipts (defined below), after deduction and recoupment by Sony of all
direct out-of-pocket expenses, taxes, and adjustments paid in connection with:
(i) the production of Albums described in subparagraph 5.03(a) above, (ii) the
acquisition of rights in them or (iii) the collection and receipt of those
Foreign Album Gross Receipts in the United States. "Foreign Album Gross
Receipts" means all moneys actually earned and received by Sony in the United
States or credited to its account in the United States directly from the
exploitation of Albums described in subparagraph 5.03(a) above; provided,
however, that Sony agrees that proceeds from such exploitations shall either be
received or credited by Sony to its account in the United States no later than
the accounting period immediately following the accounting period during which
the exploitation in question occurs.
5.04. Omitted without implication.
5.05. (a) The royalty rate on any Budget Record shall
be [**](1) ([**](1)) of the of the applicable royalty rate prescribed in
paragraphs 5.02 or 5.07 herein. The royalty rate on a Mid-price Record or any
Record sold through military exchange channels outside the United States shall
be [**](1) ([**](1)) of the applicable royalty rate prescribed in paragraphs
5.02 or 5.07 herein.
(b) In the event Sony releases any Album consisting
entirely of Recordings Submitted hereunder as a Budget Record or a Mid-price
Record without your consent, Sony shall pay you a royalty for that Record in an
amount equal to [**](1) percent ([**](1)%) of the amount that would apply if the
Record were a Top-Line Record in the same configuration.
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confidential treatment.
12
5.06. Omitted without implication.
5.07. (a) (1) (i) Sony will pay you a royalty
computed and adjusted in accordance with this Article 5, at the rate of [**](1)
percent ([**](1)%) (subject to the next sentence) on USNRC Net Sales of
audiovisual Phonograph Records which contain Covered Videos.
(ii) The royalty rate in respect of
USNRC Net Sales of each Phonograph Record described in subsection 5.07(a)(1)(i)
above in excess of the following number of units, shall be the applicable rate
set forth below rather than the rate set forth in such subsection above.
USNRC NET SALES UNITS
ESCALATED ROYALTY RATE
[**](1) - [**](1) units
[**](1)%
[**](1) [**](1) units
[**](1)%
More than [**](1) units
[**](1)%
(2) For the purposes of this paragraph 5.07: (A)
Audiovisual records manufactured by Sony Music Entertainment Inc. or components
of SMI include only Records which are manufactured for the account of Sony Music
Entertainment Inc. or the component concerned; they do not include Records which
are manufactured for the account of anyone else, even though they may be
manufactured under rights derived from Sony Music Entertainment Inc. or a
component of SMI or distributed by Sony Music Entertainment Inc. or a component
of SMI; and (B) a "component" of SMI means a wholly or partly owned subsidiary
or affiliate of Sony Music Entertainment Inc., of Sony Corporation, or of any of
their subsidiaries, or a joint venture in which any of them or their
subsidiaries participates, which is the principal licensee of Sony Music
Entertainment Inc. for the distribution of Phonograph Records, other than
Audiovisual Records, in a particular territory.
(b) (1) Sony will pay you a royalty as provided in
this subparagraph 5.07(b) (the "Foreign Video Net Receipts Royalty") on sales of
audiovisual Phonograph Records which contain Covered Videos and are manufactured
and distributed by components of Sony Music International ("SMI", below).
(2) The Foreign Video Net Receipts Royalty will
be the amount equal to [**](1) percent ([**](1)%) of Sony's Foreign Video Net
Receipts (defined below).
(3) "Foreign Video Net Receipts" means Foreign
Video Gross Receipts (defined below), after deduction and recoupment by Sony of
all direct out-of-pocket expenses, taxes, and adjustments paid in connection
with the production of Covered Videos or the acquisition of rights in them, or
the collection and receipt of those Foreign Video Gross Receipts in the United
States. If any item of revenue or expenses is attributable to a Covered Video
and to other audiovisual works, the amount of that item includible in Foreign
Video Gross Receipts or deductible in computing Foreign Video Net Receipts will
be determined by apportionment. "Foreign Video Gross Receipts" means all moneys
actually earned and received by Sony in the United States or credited to its
account in the United States directly from the exploitation of Covered Videos
described in section 5.07(b)(1) above; provided, however, that Sony agrees that
proceeds from such exploitations shall either be received or credited by Sony to
its account in the
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
13
United States no later than the accounting period immediately following the
accounting period during which the exploitation in question occurs.
(c) (1) Sony will pay you a royalty as provided in
this subparagraph 5.07(b) (the "Catchall Video Net Receipts Royalty") on all
uses of a Covered Video which produce revenues directly for Sony Music, except
the uses described in subparagraphs 5.07(a) and (b) above.
(2) The Catchall Video Net Receipts Royalty
will be the amount equal to [**](1) percent ([**](1)%) of Sony's Catchall Video
Net Receipts (defined below). The uses on which the Catchall Video Net Receipts
Royalty will be payable include, without limitation, uses on Audiovisual Records
manufactured for distribution by divisions and components of Sony Music
Entertainment Inc. or Sony Corporation, or ventures in which they participate,
other than those specified in subparagraphs 5.07(a) or (b) above.
(3) "Catchall Video Net Receipts" means Catchall
Video Gross Receipts (defined below), after deduction and recoupment by Sony of
all direct out-of-pocket expenses, taxes, and adjustments paid in connection
with the production of Covered Videos or the acquisition of rights in them, the
exploitation of Covered Videos described in section 5.07(c)(1) above, or the
collection and receipt of those Catchall Video Gross Receipts in the United
States. If any item of revenue or expenses is attributable to a Covered Video
and to other audiovisual works, the amount of that item includible in Catchall
Video Gross Receipts or deductible in computing Catchall Video Net Receipts will
be determined by apportionment. "Catchall Video Gross Receipts" means all moneys
actually earned and received by Sony in the United States or credited to its
account in the United States directly from the exploitation of Covered Videos
described in section 5.07(c)(1) above; provided, however, that Sony agrees that
proceeds from such exploitations shall either be received or credited by Sony to
its account in the United States no later than the accounting period immediately
following the accounting period during which the exploitation in question
occurs.
6. MISCELLANEOUS ROYALTY PROVISIONS
Notwithstanding anything to the contrary contained in Article 5:
6.01. (Reference is hereby made to paragraph 3.02 above.) The
royalty rate on a Phonograph Record embodying Master Recordings Submitted
hereunder together with other Master Recordings will be computed by multiplying
the royalty rate or amount otherwise applicable by a fraction, the numerator of
which is the number of Sides embodying Master Recordings Submitted hereunder and
the denominator of which is the total number of Sides contained on such Record.
The royalty rate on an Audiovisual Record containing a Covered Video and other
audiovisual works will be determined by apportionment based on actual playing
time on the Record concerned.
6.02. Except as otherwise provided in paragraph 6.03, no royalties
shall be payable to you in respect of Phonograph Records sold substantially
below the normal wholesale price or distributed by Sony or its Licensees for
promotional purposes, as cutouts after the listing of such Records has been
deleted from the catalog of Sony or the particular Licensee, as "free," "no
charge" or "bonus" Records (whether or not intended for resale), to Sony
employees and their relatives, or to radio stations; provided, however, that
Sony shall not sell Top Line Records derived from any Masters as "cut-outs",
scrap or overstock within twenty-four (24) months after the initial release of
the Recording concerned on Records in the United States. Royalties will be
payable to you on "sampler" Records intended for free distribution to automobile
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
14
purchasers and containing Recordings of not more than two (2) Compositions made
under this agreement unless you have consented in writing to the distribution of
such Records.
6.03. Sony will pay you your normal royalty on Top Line Albums
distributed as "free" or "no-charge" which are intended for resale Through
Normal Retail Channels in the United States, other than those distributed in
special sales programs. If such Top Line Albums described in the preceding
sentence, distributed in such special sales programs, exceed [**](1)% of the
total number of Top Line Albums distributed under this agreement, calculated on
an Album by Album basis, Sony will pay you your normal royalty on the excess.
7. ROYALTY ACCOUNTINGS
7.01. (a) (i) Sony shall compute your royalties as of each
June 30th and December 31st for the prior six (6) months, in respect of each
such six (6) month period in which there are sales or returns of Records or any
other transactions on which royalties are payable to you hereunder or
liquidations of reserves established previously. On the next September 30th or
March 31st Sony shall send you a statement covering those royalties and shall
pay you any royalties which are due after deducting unrecouped Advances.
(Subject to the next sentence, royalties payable for any semi-annual accounting
period will not be used to recoup Advances paid after the end of that accounting
period. The preceding sentence will not apply to any Advances that Sony is not
obligated to pay under this agreement.)
(ii) Sony shall make Sony's sales figures for
Albums hereunder available to you on a monthly basis no later than seven (7)
business days following the end of the month in question; provided, however,
that Sony's non-repetitive, inadvertent failure to comply with this provision
shall not constitute a breach hereunder.
(b) Sony shall have the right to maintain reasonable
royalty reserves against anticipated returns and credits, or anticipated
payments referred to in subparagraph 5.07(c) above. Each such royalty reserve
shall be liquidated equally (and in full) over the two (2) semi-annual
accounting periods following the accounting period during which the applicable
reserve is initially established; provided, however, that in the event that the
distributor of Integrity's Albums in the Market after the Sell-Off Period agrees
to accept returns of Albums shipped by Sony during the Sell-Off Period, royalty
reserves in connection with Records distributed during the Sell-Off Period shall
be liquidated by the end of the Sell-Off Period. A royalty reserve shall not be
established for any Album during any particular semi-annual accounting period in
excess of [**](1) percent ([**](1)%) of the aggregate number of units of that
Album shipped to Sony's customers during that accounting period. (The preceding
sentence shall not apply to any Album sold subject to return privileges more
liberal than Sony's normal return policies.) A royalty reserve shall not be
established for any Single during any particular semi-annual accounting period
in excess of [**](1) percent ([**](1)%) of the number of units of that Single
shipped to Sony's customers, unless Sony anticipates returns and credits which
justify the establishment of a larger reserve in Sony's sole discretion. If Sony
makes any overpayment to you, you shall reimburse Sony for that overpayment;
Sony may also deduct any overpayment from any monies due or becoming due to you.
If Sony pays you any royalties on Records which are returned later or on other
transactions which are reversed, those royalties shall be considered
overpayments.
7.02. Sony shall compute your royalties in the same national
currency in which Sony's Licensee pays Sony for that sale, and Sony shall credit
those royalties to your account at the same rate of exchange at which the
Licensee pays Sony. For purposes of accounting to you, Sony shall treat any sale
outside of the United States as a sale made during the same six (6) month period
in which Sony receives Sony's Licensee's
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
15
accounting and payment for that sale. (For the purposes of this paragraph, only,
any royalties credited by a Licensee to Sony's account but charged in recoupment
of a prior advance made to Sony and retained by the Licensee by reason of that
charge shall be deemed paid to Sony and received by Sony when Sony receives the
Licensee's accounting reflecting the credit and charge concerned.) If any Sony
Licensee deducts any taxes from its payments to Sony, Sony may deduct a
proportionate amount of those taxes from your royalties. If, after a final audit
of Sony's tax returns by the Internal Revenue Service, Sony is allowed a credit
against Sony's U.S. income taxes for all or a portion of any taxes withheld by a
Sony Licensee from that Licensee's royalty remittances to Sony which were
deducted from your royalties, the amount of such tax credit attributable to your
royalties shall be credited to your account. The amount of the tax credit to be
credited to your account shall be reasonably determined by Sony in good faith;
such determination shall be conclusive and you shall not be entitled to examine
Sony's tax returns or any portion of them. If any law, any government ruling, or
any other restriction affects the amount of the payments which a Sony Licensee
can remit to Sony, Sony may deduct from your royalties an amount proportionate
to the reduction in the Licensee's remittances to Sony. If Sony cannot collect
payment in the United States in U.S. Dollars, Sony shall not be required to
account to you for that sale, except as provided in the next sentence. Sony
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.
7.03. Sony shall maintain Books and Records which you may examine,
at your expense. You may make those examinations only for the purpose of
verifying the accuracy of the statements sent to you under paragraph 7.01. You
may make such an examination for a particular statement only once, and only
within three (3) years after the date when Sony sends you that statement. (Sony
shall be deemed conclusively to have sent you each statement on the date
prescribed in paragraph 7.01 unless you notify Sony otherwise, with respect to
any particular statement within sixty (60) days after that date.) You may make
those examinations only during Sony's usual business hours, on reasonable
written notice for a reasonably convenient time, and at the place where Sony
keeps the Books and Records to be examined. You may appoint a certified public
accountant to make such an examination for you, but not if that accountant or
that accountant's firm has begun an examination of Sony's books and records for
any Person except you unless that examination has been concluded and any
applicable audit issues have been resolved. The rights hereinabove granted to
you shall constitute your sole and exclusive rights to examine Sony's books and
records. In the event that an "Underpayment" (defined below) exceeds [**](1)
percent ([**](1)%) of the gross earnings claimed by you under this paragraph
7.03 with respect to the period covered by the statements that are the subject
of an examination hereunder, then Sony shall reimburse you for reasonable,
out-of-pocket costs incurred by you directly in connection with such
examination. "Underpayment" shall mean those amounts Sony pays you that are
specifically meant to correct mistakes made by Sony in calculating the amounts
required to be paid to you hereunder with respect to the periods covered by the
statements that are the subject of the claim in question.
7.03.1. Notwithstanding the penultimate sentence of paragraph 7.03, if
Sony notifies you that the representative designated by you to conduct an
examination of Sony's Books and Records under paragraph 7.03 is engaged in an
examination on behalf of another Person ("Other Examination"), you may
nevertheless have your examination conducted by your designee, and the running
of the time within which such examination may be made shall be suspended until
your designee has completed the Other Examination, subject to the following
conditions:
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
16
(a) You shall notify Sony of your election to that effect
within fifteen (15) business days after the date of Sony's said notice to you;
(b) Your designee shall proceed in a reasonably
continuous and expeditious manner to complete the Other Examination and render
the final report thereon to the client and Sony; and
(c) Your examination shall not be commenced by your
designee before the delivery to Sony of the final report on the Other
Examination, shall be commenced within thirty (30) days thereafter, and shall be
conducted in a reasonably continuous and expeditious manner.
(The preceding provisions of this paragraph 7.03.1 shall not apply if Sony
elects to waive the provisions of the penultimate sentence of paragraph 7.03
which require that your representative shall not be engaged in any Other
Examination.)
7.04. You acknowledge that Sony's Books and Records contain
confidential trade information and you warrant and represent that neither you
nor Artist nor the representatives of you and/or Artist shall communicate to
others or use on behalf of any other Person any facts or information obtained as
a result of such examination of Sony's Books and Records.
7.05. If you have any objections to a royalty statement, you shall
give Sony specific notice of that objection and your reasons therefor within
three (3) years after the date when Sony is deemed to have sent you that
statement under paragraph 11.03. Each royalty statement shall become
conclusively binding on you at the end of that three (3) year period, and you
shall no longer have any right to make any other objections to the statement.
You shall not have the right to sue Sony in connection with any royalty
accounting, or to sue Sony for royalties on Records sold or Net Receipts derived
by Sony during any period a royalty accounting covers, unless you commence the
suit within twelve (12) months after the end of that three (3) year period. If
you commence suit on any controversy or claim concerning royalty accountings
rendered to you under this agreement, (i) any recovery thereon shall be limited
to money damages only, and (ii) neither you nor the Artist shall have any right
to seek termination of this agreement or avoid the performance of your
obligations hereunder by reason, in whole or in part, of any such claim. The
preceding three sentences shall not apply to any item in a royalty accounting if
you establish that the item was fraudulently misstated by Sony.
7.06. You hereby authorize and direct Sony to withhold from any
monies due you from Sony any portion thereof required to be withheld by the
United States Internal Revenue Service and/or any other governmental authority,
and to pay same to the United States Internal Revenue Service and/or such other
authority. No Advances or other payments shall be made pursuant to this
agreement until you have completed the Internal Revenue Service Form attached
hereto as Exhibit "A".
8. LICENSES FOR MUSICAL COMPOSITIONS
8.01. (a) (1) During the Term and the Sell-Off Period, you
hereby grant to Sony and Sony's Licensees an irrevocable license, under
copyright, to reproduce each Controlled Composition on Records of Master
Recordings hereunder other than Audiovisual Records, and to distribute those
Records in the United States and Canada.
(2) For that license, Sony (or Sony's Licensees,
as applicable) shall pay Mechanical Royalties, on the basis or Net Sales, at the
following rates:
17
(i) On Records (other than Compilation
Albums) sold for distribution in the United States: The rate equal to [**](1)
percent ([**](1)%) of the then-current minimum compulsory license rate
applicable to the use of Compositions on phonorecords under the United States
copyright law. (That minimum compulsory license rate is currently eight cents
(8(cent)) per Composition.)
(ii) On Records (other than Compilation
Albums) sold for distribution in Canada: The rate prescribed in subsection
8.01(a)(2)(i) above, or the rate equal to [**](1) percent ([**](1)%) of the
then-current lowest Mechanical Royalty rate prevailing in Canada on a general
basis on the applicable date specified in subsection 8.01(a)(2)(i) above with
respect to the use of Compositions on Top Line Records, whichever rate is lower.
(iii) On Compilation Albums sold for
distribution in the United States: The rate equal to [**](1) percent ([**](1)%)
of the then-current minimum compulsory license rate applicable to the use of
Compositions on phonorecords under the United States copyright law on date of
initial release of the Record concerned.
(iv) On Compilation Albums sold for
distribution in Canada: The rate prescribed in subsection 8.01(a)(2)(iii) above,
or the rate equal to [**](1) percent ([**](1)%) of the then-current lowest
Mechanical Royalty rate prevailing in Canada on a general basis on the
applicable date specified in subsection 8.01(a)(2)(iii) above with respect to
the use of Compositions on Top Line Records, whichever rate is lower.
The Mechanical Royalty on any Record referred to in paragraph 5.05 above shall
be [**](1) ([**]1) of the amount fixed above. If the Composition is an arranged
version of a public domain work, the Mechanical Royalty on that Composition
shall be [**](1) ([**]1) of the applicable amount fixed in subsection
8.01(a)(2)(i) or (ii) above, unless a different rate applies under section
8.01(a)(3) below. No Mechanical Royalties shall be payable for any Records
described in paragraph 6.03.
(3) If ASCAP or BMI accords regular performance
credit for any Controlled Composition which is an arranged version of a public
domain work, the Mechanical Royalty rate on that Composition shall be
apportioned according to the same ratio used by ASCAP or BMI in determining that
performance credit. Sony shall not be required to pay you at that rate unless
you furnish Sony with satisfactory evidence of that ratio.
(b) (1) (i) The maximum Mechanical Royalty for
all Compositions on Compilation Albums, including Controlled Compositions, shall
be limited to the lesser of: (i) the number of Compositions on the Album in
question multiplied by [**](1) percent ([**](1)%) of the then-current minimum
compulsory license rate applicable to the use of Compositions on phonorecords
under the United States copyright law (for Compilation Albums sold for
distribution in the United States) and [**](1) percent ([**](1)%) of the
then-current lowest Mechanical Royalty rate prevailing in Canada on a general
basis (for Compilation Albums sold for distribution in Canada) and (ii) the
amount of the Mechanical Royalty you would be required to pay for all
Compositions, including Controlled Compositions, on the Compilation Album
concerned in the Christian Booksellers Association market.
(ii) The maximum Mechanical Royalty for
all Compositions, including Controlled Compositions, on any Album other than a
Compilation Album shall be [**](1) ([**](1) times either: (i) the then-current
minimum compulsory license rate applicable to the use of Compositions on
phonorecords under the United States copyright law (for each such Album sold for
distribution in the United States) or (ii) the then-current lowest Mechanical
Royalty rate prevailing in Canada on a general basis (for
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
18
each such Album sold for distribution in Canada). The maximum Mechanical Royalty
on any Single will be limited to twice the applicable amount referred to above.
The maximum Mechanical Royalty on any Record which is not an Album or a Single
will be limited to the lesser of [**](1) ([**](1) or the actual number of tracks
on such Record times the applicable amount referred to above.
(2) You shall be solely responsible for all
Mechanical Royalties in excess of the applicable rates and/or the applicable
maximum Mechanical Royalties specified above.
(c) Sony will compute Mechanical Royalties on Controlled
Compositions as of the end of each calendar quarter in which there are sales or
returns of Records on which Mechanical Royalties are payable to you. On the next
May 15th, August 15th, November 15th, or February 15th, Sony will send a
statement covering those royalties and will pay any net royalties which are due.
Mechanical Royalty reserves maintained by Sony against anticipated returns and
credits will not be held for an unreasonable period of time; retention of a
reserve for three (3) calendar quarters after it is established will not be
considered unreasonable in any case (subject to the following sentence).
Mechanical Royalty reserves will not be established in accordance with practices
less favorable to you than those used generally by Sony for the purposes of its
accountings to music publishers represented by the Harry Fox Agency; provided,
however, that the maximum Mechanical Royalty reserve shall be [**](1) percent
([**](1)%) of the aggregate number of Album units shipped to Sony's customers.
If Sony makes any overpayment of Mechanical Royalties with respect to Controlled
Compositions to you, you will reimburse Sony for it; Sony may also recoup it
from any payments due or becoming due to you. If Sony pays any Mechanical
Royalties on Records which are returned later, those royalties will be
considered overpayments. If the total amount of the Mechanical Royalties which
Sony pays on any Record consisting of Master Recordings made under this
agreement (including Mechanical Royalties for Compositions which are not
Controlled Compositions) is higher than the limit fixed for that Record under
subparagraph 8.01(b), that excess amount will be considered an overpayment to
you also. Paragraphs 7.03 and 7.04 will apply to Mechanical Royalty accountings.
Mechanical royalty accounts, reserves and statements will be maintained
separately from those maintained for other royalties payable hereunder.
8.02. (a) Notwithstanding anything to the contrary herein, if
you negotiate a lower Mechanical Royalty than the amount set forth above with
respect to a non-Controlled Composition embodied on a Master distributed in the
Christian Booksellers Association market, you shall exercise best efforts to
secure such lower rate for Sony's use of such Master in the Market and Sony
shall avail itself of any such lower rates that are available to it. In all
events you will provide reasonable assistance in obtaining licenses covering any
such non-Controlled Composition for the United States providing for royalties at
the minimum rate applicable to the use of musical compositions on phonorecords
under the United States copyright law, and licenses for them for Canada
providing for royalties at the lowest rates prevailing in Canada on a general
basis with respect to the use of musical compositions on comparable Records, and
otherwise will be available for Sony to obtain on terms not less favorable to
Sony in any respect than those prescribed in the license generally used by Harry
Fox as of the date in question; and section 8.01(b) will continue to apply.
(b) You hereby agree that all Controlled Compositions
shall be available for licensing by Sony and Sony'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 Sony or
Sony's Licensees than
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
19
the terms prevailing on a general basis in the country concerned with respect to
the use of Compositions on comparable Records.
8.03. (a) At Sony's request, Integrity will grant to Sony and
Sony's Licensees an irrevocable license under copyright to reproduce each
Controlled Composition in Covered Videos, to reproduce, distribute and perform
those Covered Videos in any manner (including, without limitation, publicly and
for profit), to manufacture and distribute Audiovisual Records and other copies
of those Covered Videos, and to exploit them otherwise, to reproduce lyrics
(including translations thereof) of each Controlled Composition, in whole or in
part, on and in Records and in any other manner and to manufacture and
distribute those Records and exploit them otherwise, each by any method and in
any form known now or in the future, throughout the Territory, and to authorize
others to do so. Sony and Sony's Licensees shall not be required to make any
payment in connection with those uses (except as provided in subparagraph (b)
below), and that license shall apply whether or not Sony receives any payment in
connection with any use of any Covered Video. If any exhibition of a Covered
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, Sony and Sony's
Licensees shall have no liability by reason of any such exhibition.)
(b) Royalties shall be payable to you for the use of each
Controlled Composition in a Covered Video distributed for resale in the United
States at the rate of [**](1) ($[**](1) for each Net Sales unit of such Covered
Video. Royalties payable under this subparagraph 8.03(b) shall otherwise be
calculated, adjusted and paid in accordance with the provisions of paragraph
8.01 above.
9. WARRANTIES; REPRESENTATIONS; RESTRICTIONS; INDEMNITIES
9.01. You warrant and represent:
(a) You have the right and power to enter into
and fully perform this agreement.
(b) No Phonograph Records have been manufactured
from the New Masters for distribution in the Territory in the Market by you or
any other Person authorized by you.
(c) You will pay all royalties due to the
Artists and the producers in connection with the recording of the Recordings
Submitted hereunder, and to any persons involved in remixing (except to persons
involved in remixing engaged by Sony) the Recordings Submitted hereunder.
(d) (i) Each Person who rendered any
service in connection with, or who otherwise contributed in any way to the
making of the Recordings Submitted hereunder, or who granted to you your rights
referred to in this agreement, had the full right, power and authority to do so,
and was not bound by any agreement which would restrict such Person from
rendering such services or granting such rights.
(ii) All costs and expenses which have
become due with respect to the making of the Recordings Submitted hereunder and
Related Materials have been paid and all such costs which come due will be paid.
(iii) All necessary "first use" licenses
for the recording of the Compositions performed on the Recordings Submitted
hereunder have been obtained from the copyright
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
20
owners, and all moneys payable under such licenses or otherwise by reason of
such recording have been paid or will be paid when due.
(iv) To the extent applicable, all the
Recordings Submitted hereunder were made in accordance with the rules and
regulations of the American Federation of Musicians ("AFM") (if applicable), the
American Federation of Television and Radio Artists ("AFTRA") (if applicable),
and all other unions having jurisdiction. Without limiting the generality of the
preceding sentence and to the extent applicable: (1) the requirements of
paragraph 17 of the Phonograph Record Labor Agreement between the AFM and Sony
Music, effective as of November, 1987 (or the corresponding provisions of any
successor agreement) have been satisfied (which warranty and representation is
included for the benefit of AFM, among others, and may be enforced by the AFM or
by such person or persons as it may designate); and (2) all artists whose
performances embodied on the Purchased Recordings Submitted hereunder were
recorded in the United States of America have been paid the minimum rates
specified in the AFTRA Code of Fair Practice for Phonograph Recordings or the
applicable Code then in effect at the time each of the Existing Recordings
Submitted hereunder was made, and all payments due to the AFTRA Pension and
Welfare Funds have been made.
(e) Subject to the terms and conditions of this
agreement, Sony shall have the sole and exclusive rights in the Territory in the
Market to manufacture, advertise, distribute, sell and otherwise exploit and
deal in the Recordings Submitted hereunder and Phonograph Records and other
reproductions derived therefrom, free from any liability or obligation to make
any payments therefor, except: (1) the Mechanical Royalty payments to copyright
owners in connection with the manufacture or sale of Phonograph Records derived
from the Recordings Submitted hereunder, (2) the royalties and advances payable
to you pursuant to this agreement..
(f) No Materials, as hereinafter defined, or any
use thereof, will violate any law or infringe upon or violate the rights of any
Person provided they are used in accordance with this agreement. "Materials," as
used in this Article, means: (1) all Recordings Submitted hereunder, (2) all
Compositions embodied on the Recordings Submitted hereunder (subject to Sony's
obtaining mechanical licenses, subject to the terms hereof), (3) each name used
by the Artists, individually or as a group, in connection with Recordings
Submitted hereunder featuring their performances, (4) all Related Materials, and
(5) all other musical, dramatic, artistic and literary materials, and other
intellectual properties, if any, furnished or specifically requested by you, or
any Artist (provided the Artist did not furnish such directly to Sony without
your knowledge that it was provided for this purpose) and contained in or used
in connection with the Recordings Submitted hereunder, any Record made
therefrom, or the packaging, sale, distribution, advertising, publicizing or
other exploitation thereof.
(g) You will be responsible for all applicable
union payments and other obligations, including AFM and AFTRA if applicable.
(h) To the extent you have the right to do so,
you will obtain copyright (and registrations of copyright) in the Masters in the
United States in your name. You will take all possible steps to ensure that
copyright protection is available in the remainder of the Territory.
9.02. If either party becomes aware of any unauthorized recording,
manufacture, distribution, sale, or other activity by any third party contrary
to the restrictions in this agreement, it will notify the other party of it and
will cooperate with such other party in any action or proceeding commenced
against such third party.
9.03. You will not:
21
(a) transfer, relinquish, or encumber any rights
in any Recording Submitted hereunder (except the Excluded Masters), whether
existing or to be produced in the future, which may be subject to Sony's rights
under this agreement, or
(b) subject to the last sentence of paragraph
9.03, transfer, relinquish, or encumber any rights in any contract pursuant to
which you are entitled to Recordings embodying the performances of an Artist.
(c) subject to the last sentence of paragraph
9.03, transfer, release, or encumber any of your rights under agreements with
recording artists or others providing for the rendition of recording services or
the production or furnishing of such Recordings.
Notwithstanding anything to the contrary herein, you shall have the right to
terminate any recording agreement you may have with an Artist or any
distribution agreement you may have with a distributed label. In addition, you
shall have the right to terminate any agreement covering any of the Masters and
to direct Sony and its Licensees to cease manufacturing and distribution
hereunder of any of such Masters or any of the Related Materials or other
material provided by you to Sony hereunder, in the event of any claim or threat
of litigation (which Sony determines to have a reasonable chance of success)
that such Masters concerned or any Related Material concerned violates any law
or infringes upon any rights of any party. If the claim or threat of litigation
is based on any reason other than those listed above, your right to direct Sony
to cease manufacture and distribution will be subject to Sony's consent which
will not be unreasonably withheld. In such event, or in the event of a judgment,
settlement or law requiring the transfer or cessation of distribution or
manufacture of a Master or Related Material, of which you notify Sony, Sony
agrees to cease manufacturing and distribution of any Phonograph Records
embodying such Master or any such Material, subject to its rights to sell off
existing Phonograph Records or Related Material in inventory.
9.04. The rights granted to the parties in this agreement are unique
and extraordinary, and the loss thereof cannot be adequately compensated in
damages, and the parties shall be entitled to injunctive relief to enforce the
provisions of this agreement.
9.05. (a) You shall at all times indemnify and hold harmless
Sony and any Licensee of Sony from and against any and all claims, losses,
damages, liabilities, costs and expenses, including, without limitation, legal
expenses and reasonable outside counsel fees, arising out of any breach or
alleged breach by you of any warranty or representation made by you in this
agreement or any other act or omission by you or the Artist, provided the claim
concerned has been settled or has resulted in a final judgment against Sony or
Sony's Licensees. Pending the resolution of any such claim, Sony may withhold
monies which would otherwise be payable to you under this agreement in an amount
consistent with such claim, unless you make bonding arrangements, satisfactory
to Sony in Sony's reasonable discretion, to assure Sony of reimbursement for all
damages, liabilities, costs and expenses (including, without limitation, legal
expenses and reasonable outside counsel fees) which Sony or Sony's Licensees may
incur as a result of that claim. If no action or other proceeding for recovery
on such a claim has been commenced within twelve (12) months after its assertion
Sony shall not continue to withhold monies in connection with that particular
claim under this subparagraph 9.05(a) unless Sony believes, in Sony's reasonable
judgment, that such a proceeding may be instituted notwithstanding the passage
of that time.
(b) If Sony pays more than Five Thousand Dollars ($5,000)
in settlement of any such claim, you shall not be obligated to reimburse Sony
for the excess unless you have consented to the settlement, except as provided
in the next sentence. If you do not consent to any settlement proposed by Sony
for an amount exceeding Five Thousand Dollars ($5,000) you shall nevertheless be
required to reimburse Sony for the full amount
22
paid unless you make bonding arrangements, satisfactory to Sony in Sony's
reasonable discretion, to assure Sony of reimbursement for all damages,
liabilities, costs and expenses (including, without limitation, legal expenses
and reasonable outside counsel fees) which Sony or Sony's Licensees may incur as
a result of that claim.
10. DEFINITIONS
10.01. "Advance" - a prepayment of royalties. Sony may recoup
Advances from royalties to be paid or accrued to or on behalf of you pursuant to
this agreement only, subject to the last sentence of this paragraph. Advances
paid under Article 5A hereof shall not be returnable to Sony except as provided
in paragraph 5A.02 above and Article 11 hereof. Mechanical Royalties shall not
be chargeable in recoupment of any Advances except those which are expressly
recoupable from all monies payable under this agreement.
10.02. (a) "Album" - one (1) or more audio-only Records, at
least forty (40) minutes in playing time, and embodying at least eight (8) Sides
of different Compositions sold in a single package. (b) "Single" - a vinyl
audio-only Record not more than seven (7) inches in diameter, or the equivalent
in non-vinyl configurations. (Audiovisual Records are not Albums or Singles.)
(c) "Audiovisual Record" - any Record which embodies, reproduces, transmits or
otherwise communicates visual images whether or not the interaction of a
consumer is possible or necessary for the visual images to be utilized or
viewed.
10.03. "Artist" - any Person whose performance is reproduced in a
Master.
10.04. (a) "Audiophile" Records, units, etc. - Records (other
than Audiovisual Records) marketed in specially priced catalog series by reason
of their superior sound quality or other distinctive technical or artistic
characteristics. (All Records made for digital playback (including, for example,
compact discs) are Audiophile Records.)
(b) "Standard" Records, units, etc.. - Records other than
Audiophile Records and Audiovisual Records.
10.05. "Books and Records" - that portion of Sony's books and records
which specifically report sales of Records embodying the Master Recordings
produced hereunder and/or specifically report Net Receipts received by Sony from
any other commercial exploitation of such Master Recordings for which a royalty
is payable to you hereunder; provided that the term "Books and Records" shall
not be deemed to include any manufacturing records (e.g., inventory and/or
production records) or any other of Sony's records.
10.05.1. "Budget Album" - an Album that complies with each of the
following conditions and restrictions: (i) at all times it is sold at a retail
price that does not exceed the price for so-called "budget" (as that term is
commonly understood in the United States phonorecord industry) Albums (as of the
date hereof the suggested retail price of so-called a "budget" Album is
understood to be [**](1) ($[**](1) or less in the compact disc configuration and
[**](1) ($[**](1) or less in the tape cassette configuration), (ii) it shall not
predominantly include Recordings of one Artist if Sony is distributing any Album
that predominantly includes Recordings by the same Artist, (iii) the general
"look and feel" of the packaging of the Album is different from the "look and
feel" of the packaging of Albums distributed on the Integrity, Vertical and
Hosanna labels (or successor labels thereto), (iv) it cannot be marketed under
the same brand name or title (e.g., WoW) as is used by Sony on any Album
distributed by Sony hereunder, (v) it does not use substantially the same
sequence of Recordings contained on an Album distributed by Sony or have the
same
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
23
title as any Album distributed by Sony hereunder, (vi) it is distributed and
marketed solely as a Fairhope Records release with no mention (other than as
required in legal notices (e.g., so-called "p" lines)) of Integrity, Vertical or
Hosanna or any other label through which your Recordings are distributed, and
(vii) the Masters embodied on the Album are predominantly owned by Integrity.
Notwithstanding anything to the contrary herein: (i) no more than [**](1)
percent ([**](1)%) of the Recordings from any Album distributed by Sony shall be
permitted to be included on Budget Albums and (ii) any Master that has not been
previously released by Integrity that is included on a New Album shall not be
included on a Budget Album prior to the date that is one (1) year after Sony's
initial release of the New Album in question.
10.06. "Budget Record" - A Record (except those subject to the next
sentence), whether or not previously released, bearing a Gross Royalty Base more
than [**](1) percent ([**](1)%) lower than the Gross Royalty Base applicable to
the Top Line Records in the same configuration (e.g., long-playing album,
two-disc long-playing album, twelve-inch single, tape cassette, compact disc,
etc.) released by Sony or its Licensees in the territory concerned. "Mid-price
Record" with respect to cassettes and digital compact disc Albums, sold for
distribution in the United States, whether or not previously released, will be
those bearing a subdistributor price more than [**](1) percent ([**](1)%) lower
than the subdistributor price applicable to Top Line Records in the same
configuration released by Sony or its Licensees in the United States.
10.06.1. "Christian Market" - the Christian market (i.e, the Christian
Booksellers Association and other distribution channels (i.e., Integrity's
proprietary websites, e-mail databases and direct mailings to Integrity's
Christian customers) used by Integrity as of the date hereof to specifically
target Christian customers). Notwithstanding anything to the contrary herein, in
the event that Sony determines at any time during the Term that the distribution
channels used by Integrity (other than the Christian Booksellers Association)
overlap with Sony's own distribution channels in the secular market, then Sony
shall notify you thereof and you and Sony agree to discuss possible solutions to
the problem in question. In the event that you are unable to reach a mutually
acceptable solutions, then such overlapping distribution channels shall be
excluded from the Christian Market.
10.06.2. "Compilation Album" - shall mean a compilation Album that: (A)
solely embodies Masters; (B) has an initial suggested retail list price equal to
or greater than $[**](1); and (C) embodies Recordings of twenty (20) or more
Compositions.
10.07. "Composition" - a single musical composition, irrespective of
length, including all spoken words and bridging passages and including a medley.
Recordings of more than one (1) arrangement or version of the same Composition,
reproduced on the same Record, shall be considered, collectively, a recording of
one (1) Composition for all purposes under this agreement.
10.08. "Container Charge" - The applicable percentage, specified
below, of the Gross Royalty Base applicable to the Records concerned:
(a) Audiophile Records - [**](1) percent ([**](1)%).
(b) Other Records - [**](1) percent ([**](1)%) on analog
vinyl Records and [**](1) percent ([**](1)%) on analog cassette Records.
(c) Audiovisual Records - [**](1) percent ([**](1)%).
(The foregoing container charges would apply in any instance in which royalties
are calculated as a percentage of the applicable Royalty Base Price, rather than
as the penny-rate royalties set forth in paragraph '
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(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
24
5.01 above.) For the avoidance of doubt, the royalties set forth in subparagraph
5.01(a) above shall not be reduced by any Container Charges.
10.09. "Controlled Composition" - that portion of a Composition
wholly or partly owned or controlled by you or Integrity's Hosanna! Music
(ASCAP), Integrity's Praise! Music (BMI) or Integrity's Allelulia! Music (SESAC)
(each an "Integrity Publisher") or by an affiliate of you or any Integrity
Publisher or in which you or any Integrity Publisher or an affiliate thereof has
any interest.
10.10. "Covered Video" - An Audiovisual Record embodying a Master and
owned, or controlled by you with respect to the Territory and the Market.
10.10.1. "Distribution Country" - a country outside of the United
States that is in the Territory and in which Sony distributes Albums hereunder
via a subdistributor that is owned or controlled by Sony.
10.10.2. "Excluded Master" -- is a Master to which Integrity does not
have distribution or exploitation rights because of a restriction in the
agreement between Integrity and the owner of the rights of the Master concerned;
provided, however, that (i) with respect to Existing Masters, in no event shall
the number of Excluded Masters exceed [**](1) percent ([**](1)%) of the overall
number of Existing Masters and (ii) no Master previously exploited by Sony
(other than a Reverting Licensed Master) shall constitute an Excluded Master.
10.11. "Existing Master" shall have the meaning assigned to such term
in subparagraph 2.01(b) above.
10.11.1. "First Refusal Rights" - No Person other than Sony shall be
granted the rights concerned unless you first notify Sony in writing of all of
the material terms of the proposed agreement with such Person and give Sony the
option to secure such rights pursuant to those terms. If Sony does not accept
your offer within twenty (20) business days after Sony's receipt thereof, you
may then enter into that proposed agreement with such Person, provided that
agreement is consummated within one hundred and twenty (120) days after the end
of that thirty (30)-day period upon those same terms. If that agreement is not
consummated within the latter one hundred and twenty (120)-day period, no Person
except Sony shall be granted those rights unless you first again offer to enter
into an agreement with Sony as provided above. Sony shall not be required, as a
condition of accepting any such offer, to agree to any material terms which it
cannot fulfill as readily as any other Person (e.g., employment of a particular
Person under contract to that other Person).
10.12. "Licensees" a licensee of rights from Sony, including, without
limitation, wholly or partly owned subsidiaries, affiliates and other divisions
and components of Sony Music Entertainment Inc.
10.13. "Long Form Video" - any Covered Video other than a Promotional
Video.
10.13.1. "Major Record Companies" - Persons who distribute their own
Records directly to wholesalers and retailers on a nation-wide basis throughout
the United States. (Those companies, at the date of this agreement, are Sony,
BMG Entertainment, The EMI Group, Universal Music Group, Inc. and The Warner
Music Group.)
10.14. "Market" - Brick & Mortar Retailers (defined below) in the
secular market (i.e., all exploitation channels which do not have a meaningful
connection to Christianity that is apparent to the consumers concerned) and
Sony-affiliated web sites (for sales of Phonograph Records only). As used
- ---------------------
(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
25
herein, a "Brick & Mortar Retailer" means a Person who is a retailer that is
engaged in the business of selling Phonograph Records in the Territory via a
physical structure situated on real property (as that term is generally
understood in the United States real estate industry).
10.15. "Masters" - All Master Recordings (other than Recordings
embodied on S4W Albums), now existing or the recording of which is completed and
ready for release during the Term, wholly or partly owned or controlled by you
or any of your affiliates with respect to the Territory and the Market.
10.16. "Master Recording" - Every 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 intended by you for use in the
recording, production and/or manufacture of Phonograph Records.
10.16.1. "Mechanical Royalties" - Royalties payable to any Person for
the right to reproduce and distribute copyrighted musical compositions on
Phonograph Records other than Audiovisual Records.
10.17. "Mid-price Record" - A Record (except those subject to the
next sentence), whether or not previously released, bearing a Gross Royalty Base
at least [**](1) percent ([**](1)%), but not more than [**](1) percent
([**](1)%), lower than the Gross Royalty Base applicable to the Top Line Records
in the same configuration (e.g., long-playing album, two-disc long-playing
album, twelve-inch single, tape cassette, compact disc, etc.) released by Sony
or its Licensees in the territory concerned. "Budget Record" with respect to
cassettes and digital compact disc Albums, sold for distribution in the United
States, whether or not previously released, will be those bearing a
subdistributor price at least [**](1) percent ([**](1)%), but not more than
[**](1) percent ([**](1)%), lower than the subdistributor price applicable to
Top Line Records in the same configuration released by Sony or its Licensees in
the United States.
10.18. "Minimum Delivery Commitment" shall have the meaning assigned
to such term in section 2.02(a)(1) above.
10.19. "Multiple Record Set" - two (2) or more Records packaged
and/or marketed as a single unit.
10.20. "Net Sales" - [**](1) percent ([**](1)%) of gross sales, less
returns, credits, and reserves against anticipated returns and credits.
10.20.1. "New Album" - shall have the meaning assigned to such term in
section 2.02(a)(1) above.
10.21. "New Master" shall have the meaning assigned to such term in
section 2.02(a)(1) above.
10.22. "New Release Album" shall have the meaning assigned to such
term in section 3.04(a)(2) above.
10.22.1. "Non-Distribution Country" - a country outside of the United
States that is in the Territory and is not a Distribution Country.
10.22.2. "Permitted Expenditures" - Out-of-pocket expenses related to
marketing and promotion that do not include salaries of Sony staff employees,
travel of the Sales Employee and the Director of Marketing, or regular overhead
expenses normally paid by Sony in the operation of its business.
10.23. "Person" and "Party" - any individual, corporation,
partnership, association or other organized group of persons or legal successors
or representatives of the foregoing.
- ---------------------
(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
26
10.24. "Phonograph Record" is a Record as embodied by the
manufacturer and/or distributor in a physical, non-interactive Record
configuration (e.g., vinyl LP's, cassettes, compact discs, videocassettes) prior
to its distribution to the consumer, as opposed to the transmission or
communication of a Record to the consumer prior to being embodied in a physical
Record configuration, whether or not it may at some point be embodied in a
physical Record configuration, by the consumer or under the consumer's direction
or control.
10.24.1. "Post-New Release Album" - shall have the meaning assigned to
such term in section 3.01(a)(2) above.
10.25. "Promotional Video" - a Covered Video embodying the
performance of only one Composition (or medley).
10.25.1. "Recording" - every recording of sound, whether or not coupled
with a visual image, by any method and on any substance or material, or in any
other form or format, 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.
10.26. "Records" - all forms of reproductions, now or hereafter
known, manufactured or distributed primarily for home use, school use, juke box
use, or use in means of transportation, including Records of sound alone and
Audiovisual Records.
10.27. "Related Material" - All pictorial, graphic and literary
material, in final form, now existing or produced in the future, wholly or
partly owned or controlled by you or furnished by you to Sony created for or
used in the packaging and marketing of Phonograph Records derived from
Recordings Submitted hereunder, including but not limited to album package
artwork (photographic and otherwise), liner notes, album insert material and
other advertising and promotion material. Covered Videos are also Related
Material.
10.27.1. "Reverting Licensed Master" - a Master that meets the
following criteria and is subject to the following restrictions: (i) it is
embodied on a Compilation Album currently distributed by Sony, (ii) Integrity
has acquired rights to it by means of a license of limited duration, and (iii)
Integrity's rights to it expire during the Term and such rights are not
renewable. Notwithstanding anything to the contrary herein, no Master shall
become a Reverting Licensed Master unless you have provided Sony with at least
sixty (60) days advance notice and in all cases the provisions of subparagraph
1.04(a) shall apply to each Reverting Licensed Master.
10.28. "Royalty Base Price" - the amount specified below ("Gross
Royalty Base") applicable to the Phonograph Records concerned, less all taxes
and less the applicable Container Charge, except as provided in the following
sentence. "Less the taxes" means less the excise, purchase, value added, or
similar taxes included in the Gross Royalty Base.
(a) WITH RESPECT TO SINGLES AND AUDIOVISUAL RECORDS SOLD
FOR DISTRIBUTION IN THE UNITED STATES: The Gross Royalty Base for an Audiovisual
Record is Sony's published subdistributor price applicable to the price series
of the unit concerned. Royalties shall be calculated separately with respect to
each price series in which units of a particular Record release are sold during
the semi-annual accounting period concerned. References to published prices in
this subparagraph 10.07(a) refer to those in effect at the commencement of the
accounting period in which the sale concerned occurs.
27
(b) WITH RESPECT TO RECORDS (EXCLUDING AUDIOVISUAL
RECORDS) SOLD FOR DISTRIBUTION OUTSIDE OF THE UNITED STATES: The Gross Royalty
Base is the applicable amount specified in sections 10.28(b)(1) or (2) below, in
the country of sale, at the commencement of the accounting period concerned:
(1) If the Records concerned have a suggested
retail list price in the country concerned, the Gross Royalty Base shall be such
suggested retail list price, inclusive of taxes included in the price.
(2) If section 10.07(b)(1) above does not apply,
the Gross Royalty Base shall be the royalty base generally used by Sony's
principal Licensee in the country concerned to calculate the royalties that
Licensee pays to recording artists, inclusive of taxes ("Licensee Base"). If
this section 10.07(b)(2) applies and the Licensee Base is not a "retail-related
base" (i.e., it is not a royalty base intended to be an equivalent of or
substitute for an actual or hypothetical retail price), the Gross Royalty Base
shall be the retail price, inclusive of taxes, which may be established by Sony
or its Licensee(s) in conformity with the general practice of the Record
industry in such country; and, if there is no such established retail price in
such country, the Gross Royalty Base shall be the sum of the manufacturer's
published price to dealers with respect to the Record concerned, multiplied by
[**](1) percent ([**](1)%), plus taxes.
(c) WITH RESPECT TO AUDIOVISUAL RECORDS SOLD FOR
DISTRIBUTION OUTSIDE OF THE UNITED STATES: The Gross Royalty Base is the
applicable amount specified in sections 10.07(c)(1) or (2) below, in the country
of sale, at the commencement of the accounting period concerned:
(1) If the Records concerned have a suggested
retail list price in the country concerned, the Gross Royalty Base shall be
[**](1) ([**](1) of such suggested retail list price, inclusive of taxes.
(2) If section 10.07(c)(1) above does not apply,
the Gross Royalty Base shall be [**](1) ([**](1) of the Licensee Base. If this
section 10.07(c)(2) applies and the Licensee Base is not a "retail-related base"
(i.e., it is not a royalty base intended to be an equivalent of or substitute
for an actual or hypothetical retail price), the Gross Royalty Base shall be
[**](1) ([**](1) of the retail price, inclusive of taxes, which may be
established by Sony or its Licensee(s) in conformity with the general practice
of the Record industry in such country; and, if there is no such established
retail price in such country, the Gross Royalty Base shall be [**](1) ([**](1)
of the sum of the manufacturer's published price to dealers with respect to the
Record concerned, multiplied by [**](1) percent ([**](1)%), plus taxes.
10.29. "S4W Album" - shall mean each "Song 4 Worship" Album owned or
controlled by you or your affiliates or licensees.
10.30. "Special Packaging Costs" - costs incurred by Sony in creating
and producing Album covers, sleeves, and other packaging elements requested by
you, in excess of the following amounts: (a) those engraving costs necessary to
satisfy the criteria set forth in clause (b) below; and (b) packaging
manufacturing costs equal to those necessary to manufacture the following
packaging elements: (1) for LPs, a four-color jacket, a one-color inner sleeve,
and a three-color label (in addition to black print lettering on such label);
(2) for cassettes including digital compact cassettes, a six-panel inlay card
with a four-color front panel and black and white other panels, and a standard
color Noelco box; and (3) for compact discs and other configurations not
described above, an eight-page booklet with four-color front and back pages and
black and white other pages, and a standard color jewel box. "Color" in the
preceding sentence means those colors for which Sony is charged a standard fee.
The packaging elements referred to in clauses (b)(1), (2)
- ---------------------
(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
28
and (3) above are deemed for purposes of this paragraph 10.24 to be on standard
weight paper or cardboard. Notwithstanding anything to the contrary herein Sony
agrees to provide you with advance notice prior to incurring any Special
Packaging Costs. If Sony determines that the use of any such materials will
incur Special Packaging Costs, Sony shall work with you in good faith to develop
packaging alternatives that would reduce or eliminate the amount of the Special
Packaging Costs in question. In the event that you and Sony reach a mutually
acceptable alternative to the packaging in question, Sony shall use such
alternative (whether or not the alternative in question still includes certain
packaging and/or design elements that result in costs in excess of the amounts
customarily permitted hereunder) without charging any Special Packaging Costs to
your account. If you and Sony are unable to reach a mutually acceptable
alternative under the preceding sentence, you shall have the option of
redesigning the packaging in question so that no Special Packaging Costs are
incurred. Notwithstanding anything to the contrary herein, no Special Packaging
Costs shall be incurred in connection with Multiple Record Sets consisting of
two (2) compact discs so long as the packaging elements prepared by you in
connection with such Multiple Record Set are consistent with prior WoW
compilation Albums distributed by Sony. Notwithstanding anything to the contrary
above, no Special Packaging Costs shall result from any of the following: (i)
the "color" chosen by you for the jewel cases used for compact discs is "clear",
(ii) the number of pages in the compact disc booklets is twelve for saddle
stitch booklets or the number of panels for folding booklets is six panels on
each side (i.e. twelve-sides), and (iii) the number of colors used on the front
and back of the back inlay panel on compact discs is four for each such side.
10.31. "Submit" (i) with respect to a Master Recording, means the
delivery to Sony, at its offices in New York, New York, of the complete album
embodying such Recording in the form of a digital compact disc, and (ii) with
respect to a Covered Video means the delivery to Sony, at its offices in New
York, New York, of the materials set forth in Schedule A hereto; provided that a
Covered Video may be Submitted after Submission of the Album containing the
Recording in the Video, if the Covered Video is produced after Submission of
such Album. In all cases, "Submission" of either a Recording or a Covered Video
shall not be deemed to have occurred unless and until Sony's Senior Vice
President, A&R Administration, has received notice thereof in writing.
10.32. "Territory" - (i) with respect to all S4W Albums, the
"Territory" shall be India; and (ii) with respect to all other Albums, the
"Territory" shall be the United States, Canada, Australia, New Zealand,
Singapore, the United Kingdom, Europe, the former republics of the Soviet Union,
Latin America, the Middle East and Africa (excluding South Africa and excluding
distribution through so-called "street vendors"); provided, however, that: (A)
solely for purposes of Sony's distribution of Masters hereunder and solely on a
quarterly basis until December 31, 2003 or December 31, 2004 if the Term is
extended for a forth Contract Year under subparagraph 1.01(b) above (i.e.
Integrity can add countries to the Territory either for S4W albums or all other
Albums once per quarter until December 31, 2003 or December 31, 2004, as the
case may be), Sony and Integrity agree that countries in which Integrity
currently has a third party general market distributor shall be added, on a
case-by-case basis, to the "Territory" to the extent that Integrity decides, in
its sole discretion, to terminate its relationship with such distributor; (B)
for purposes of Integrity's distribution of Sony's product under subparagraph
1.06(b) above, the definition of "Territory" shall only include Canada,
Australia, New Zealand, Singapore, the United Kingdom, Europe, the former
republics of the Soviet Union and Latin America (but solely to the extent that:
(X) Integrity's distribution of Sony's product in the country in question would
not violate any pre-existing commitments Sony may have with respect to such
product in such country, (Y) Christian distribution channels are separate from
secular distribution channels in the country in question, and Sony does not have
an established presence in the Christian distribution channels in question and
(Z) Sony determines in its good faith discretion and on a country-by-country
basis that sales of the Album in question are appropriate in the Christian
Market).
10.33. "Through Normal Retail Channels" - sales other than as
described in paragraph 6.02 above.
29
10.34. A "Top Line" - a Record bearing the same Gross Royalty Base as the
majority (or plurality) of the new Record releases in the same configuration
(other than classical releases, including but not limited to Sony Classical and
Masterworks releases) of Sony's best selling artists.
11. REMEDIES
11.01. If at any time you fail to fulfill the Submission commitment
set forth in subparagraph 2.01(b) above, or any of your other material
obligations under this agreement for any reason, and such failure continues for
thirty (30) days (the "Cure Period") after Sony has given you notice thereof and
during the Cure Period you have not undertaken good faith efforts to cure the
breach in question which have resulted in a partial cure of such breach, Sony
shall have the following options:
(a) to suspend Sony's obligations to make payments to you
under this agreement until you have cured the default;
(b) to terminate the Term at any time, whether or not you
have commenced curing the default before such termination occurs.
Sony may exercise each of those options by sending you the appropriate notice.
No exercise of an option under this paragraph shall limit Sony's rights to
recover damages by reason of your default, Sony's rights to exercise any other
option under this paragraph, or any of Sony's other rights or remedies under
this agreement (including, but not limited to under paragraph 5A.02 above) or
otherwise. In the event that you partially cure any such breach during the Cure
Period but do not fully cure the breach in question within sixty (60) days after
the end of the Cure Period, then the options set forth in clauses (a) and (b)
above shall be available to Sony with respect to the breach in question.
11.02. If because of any of the following events (any such event, a
"Force Majeure Event"): act of God; inevitable accident; fire; lockout, strike
or other labor dispute; riot or civil commotion; act of public enemy; enactment,
rule, order or act of any government or governmental instrumentality (whether
federal, state, local or foreign); failure of technical facilities; failure or
delay of transportation facilities; illness or incapacity of any performer or
producer; or other cause of a similar or different nature not reasonably within
Sony's control; Sony is materially hampered in the recording, manufacture,
distribution or sale of Records, then, without limiting Sony's rights, Sony
shall have the option (a "Suspension Option") by giving you notice to suspend
the running of the then current Contract Year as well as any of Sony's
obligations hereunder for the duration of any such contingency plus such
additional time as is necessary so that Sony shall have no less than thirty (30)
days after the cessation of such contingency in which to exercise Sony's option,
if any, to extend the Term. Notwithstanding the preceding sentence, in the event
that Sony is reasonably unable to provide you with notice that it intends to
exercise the Suspension Option hereunder, such Suspension Option will be deemed
to have been exercised as of the first day of the Force Majeure Event giving
rise to such option. If any suspension imposed under this paragraph by reason of
an event affecting no Record manufacturer or distributor except Sony continues
for more than six (6) months, you may request that Sony, by notice, terminate
the suspension by notice given to you within sixty (60) days after Sony's
receipt of your notice. If Sony does not do so, the Term shall terminate at the
end of that sixty (60) day period (or at such earlier time as Sony may designate
by notice to you), and all parties shall be deemed to have fulfilled all of
their obligations under this agreement except those obligations which survive
the end of the Term (such as warranties, re-recording restrictions, and the
obligation to pay royalties).
30
12. NOTICES
12.01. 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 or by registered or certified mail at the appropriate address
below or at a substitute address designated by notice by the party concerned.
TO YOU: The address shown above.
Attn: Vice President, Business Affairs
TO SONY: 550 Madison Avenue
New York, New York 10022-3211
Each notice to Sony shall be addressed for the attention of Sony's Senior Vice
President, Business Affairs & Administration, and a copy of each notice to Sony
shall be sent simultaneously to the Sony Music Entertainment Inc. Law Department
for the attention of Sony's Senior Vice President and General Counsel. Sony
shall undertake to send a copy of each notice sent to you to the attention of
the President of Integrity Incorporated at the address first set forth above,
but Sony's failure to send any such copy shall not constitute a breach of this
agreement or impair the effectiveness of the notice concerned. Notices shall be
deemed given when mailed 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.
13. MISCELLANEOUS
13.01. The parties hereto agree that: (i) all understandings and
agreements heretofore made between them with respect to the subject matter
hereof are merged in this agreement, which fully and completely expresses their
agreement with respect to the subject matter hereof and (ii) except as
specifically set forth herein, all prior agreements among the parties with
respect to such subject matter are superseded by this agreement which integrates
all promises, agreements, conditions and understandings among the parties with
respect to such subject matter.
13.02. Each party hereto may assign its rights under this agreement
in whole or in part to any subsidiary, affiliated or controlling corporation, to
any Person owning or acquiring a substantial portion of its stock or assets, or
to any partnership or other venture in which it participates, and such rights
may be assigned by any assignee to the same Persons described above. Sony may
also assign its rights to any of its Licensees if advisable in Sony's sole
discretion to implement the license granted. No assignment under this paragraph
shall relieve the assignor of any of its obligations. Sony shall notify you in
advance of any such assignment under the second sentence of this paragraph
provided all of Sony's rights are assigned.
13.03. THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF NEW YORK,
AND THE VALIDITY, INTERPRETATION AND LEGAL EFFECT OF THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED
INTO AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO ANY CONFLICT OF LAW PRINCIPLES UNDER NEW YORK LAW). THE NEW YORK COURTS
(STATE AND FEDERAL), SHALL HAVE SOLE JURISDICTION OF ANY CONTROVERSIES REGARDING
THIS AGREEMENT; ANY ACTION OR OTHER PROCEEDING WHICH INVOLVES SUCH A CONTROVERSY
SHALL BE BROUGHT IN THOSE COURTS IN NEW YORK COUNTY AND NOT ELSEWHERE. THE
PARTIES WAIVE ANY AND ALL OBJECTIONS TO VENUE IN THOSE COURTS AND HEREBY SUBMIT
TO THE JURISDICTION OF THOSE COURTS. ANY PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY, AMONG OTHER METHODS, BE SERVED UPON YOU BY DELIVERING IT OR
MAILING IT, BY REGISTERED OR CERTIFIED MAIL, DIRECTED TO THE ADDRESS FIRST ABOVE
WRITTEN OR SUCH OTHER ADDRESS AS YOU MAY DESIGNATE PURSUANT TO ARTICLE 17. ANY
SUCH PROCESS MAY, AMONG
31
OTHER METHODS, BE SERVED UPON THE ARTIST OR ANY OTHER PERSON WHO APPROVES,
RATIFIES, OR ASSENTS TO THIS AGREEMENT TO INDUCE SONY TO ENTER INTO IT, BY
DELIVERING THE PROCESS OR MAILING IT BY REGISTERED OR CERTIFIED MAIL, DIRECTED
TO THE ADDRESS FIRST ABOVE WRITTEN OR SUCH OTHER ADDRESS AS THE ARTIST OR THE
OTHER PERSON CONCERNED MAY DESIGNATE IN THE MANNER DESCRIBED IN ARTICLE 13. 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.
13.04. In entering into this agreement, and in providing services
pursuant hereto, you and Sony have and shall have the status of independent
contractors and nothing herein contained shall contemplate or constitute you or
Sony as one another's agent, employee, or joint venturer.
13.05. This agreement shall not become effective until executed by
all proposed parties hereto.
INTEGRITY INCORPORATED
By: /s/ Jerry Weimer
-------------------------------------
Name: Jerry Weimer
-----------------------------------
Title: Executive Vice President
-----------------------------------
and Chief Operating Officer
SONY MUSIC, a Group of
Sony Music Entertainment Inc.
By: /s/ Ron Wilcox
-------------------------------------
Name: Ron Wilcox
-----------------------------------
Title: SVP, BA & ADM.
----------------------------------
Our taxpayer identification number (social security number or employer
identification number) is 63-0952549. Under the penalties of perjury, I certify
that this information is true, correct and complete.
/s/ Don Mayes
----------------------------------------
For INTEGRITY INCORPORATED
Name: Don Mayes
-----------------------------------
Title: Vice President of Business Affairs
----------------------------------
32
SCHEDULE A
DELIVERY REQUIREMENTS FOR THE HOME VIDEO
A. VIDEO
1. A first generation Digital Beta master on Sony Digital Beta
videotape conforming to NTSC specifications with non-drop
frame SMPTE time code in the following sequence and format:
a) Start SMPTE time code at 57:30:00 and run
continuously to end of tape.
b) 60 seconds of color bars starting at 58:00:00 with
1KHz tones at 0 VU +/- 1db to be recorded on all active audio tracks.
c) 60 seconds of black, no tones, starting at 59:00:00.
d) FBI Warning (to be supplied by SMV). THIS MUST START
AT ONE HOUR EVEN (1:00:00:00)
e) 1 second black.
f) Sony Music (or label) logo (to be supplied by Sony
Music).
g) 1-2 seconds black.
h) The program. A copyright notice reading " (c) 2001
Sony Music Entertainment Inc." or such other notice as Sony Music designates
will run at the end of the program.
i) After program and credits, MOS (no audio), black with
time code to end of tape.
B. AUDIO
1. With the Digital Beta "0" reference level set at -20db,
average program levels should be -10db, with program peaks not to exceed -5db.
2. Stereo audio derived from the original first generation sound
mix will be laid onto Audio Tracks 1 and 2 of the Digital Beta master. Tracks 3
and 4 will be left open (unless required for foreign language dubbing or
separate music and effects tracks if requested by Sony Music).
C. ADDITIONAL DELIVERY MATERIALS
1. Music Cue Sheet
a) In the customary form, including the title of each
composition, the composer(s), the running time, the publisher(s), and the
performing rights society information. Where applicable, the cue sheet will
indicate whether the music usage is foreground or background, and whether it is
live performance or music video.
2. Transcript
a) A complete transcript of any dialogue or narration
contained in the program.
3. Additional Copies
a) A Digital Beta "clone" of the Digital Beta master,
with time code identical to the original master, conforming to all of the
specifications prescribed in paragraphs A and B above.
b) If requested, a D2 "clone" NTSC sub-master videotape
of the program, conforming to all the specifications prescribed in paragraph A.1
above.
33
c) Two (2) three-quarter inch (3/4") videocassettes of
the program, one (1) of which will have visible time code.
d) All original film and video tape elements relating to
the production of the program, including all masters of the Outtakes, still
photographs, audio source material, etc.
4. Elements Inventory
a) All delivery elements prescribed in paragraph C.3(d)
will be boxed and inventoried using the inventory form provided by Sony Music
containing the following information:
1. Artist and program title.
2. Location and date(s) of production.
3. Production company name, address and phone
number.
4. Director's name.
5 Itemized description of the contents of each
box.
b) The production will be assigned a project number by
Sony Music, and each box of elements will be assigned a letter within that
project number (i.e.) 10A, 10B, 10C, 10D, etc.)
c) Three (3) copies of the completed inventory of the
contents of each box will be distributed as follows:
1. One (1) copy to be placed inside the box.
2. One (1) copy to be affixed to the outside of
the box.
3. One (1) copy to be delivered to Sony Music.
SCHEDULE B
1 CD In a Jewel Box F'02 F'03
Bare Disc $[**](1) $[**](1)
Edge Label $[**](1) $[**](1)
EAS (1) $[**](1) $[**](1)
Packaging $[**](1) $[**](1)
Total Mfg $[**](1) $[**](1)
Artwork (2) $[**](1) $[**](1)
Total $[**](1) $[**](1)
(1) Security System for Retail
(2) Based upon 12 pg. Standard Booklet
45 Minute Cassette
Cassette & Packaging $[**](1) $[**](1)
Artwork $[**](1) $[**](1)
Total $[**](1) $[**](1)
- ---------------
(1) Indicates information which has been redacted pursuant to a request for
confidential treatment.
34
EXHIBIT A
(Appended in accordance with paragraph 7.06)
[IRS Form]
35