Exhibit 99.3
MARKETING AND SERVICES
AGREEMENT
This Marketing and Services Agreement (the
“Agreement”) is made and is effective this 12th day of
January, 2005 by and between Traffix Music, Inc., a Delaware
corporation having an address at One Blue Hill Plaza, Fifth Floor,
Pearl River, New York 10965 (“Traffix Music”) and
Madacy Entertainment Group, Limited, a Canadian corporation having
an address at 3333 Graham Blvd., Suite 102, Montreal, Quebec,
Canada H3R 3L5 (“Madacy”) and EZ-Tracks L.P., a Quebec
limited partnership having a principal address at 3333 Graham
Blvd., Suite 102, Montreal, Quebec, Canada H3R 3L5
(“Partnership”).
Recitals
WHEREAS, Madacy owns, or has the distribution
rights to, in excess of 10,000 Masters as pre-recorded by third
party artists, including the Intellectual Property Rights (as
defined herein) attributable thereto; and
WHEREAS, Traffix Music is a marketer of
products and services through its proprietary and third party
media. Traffix Music and its affiliates have created a
software program accessible via the Internet whereby consumers can
download music for personal use (the “Program”), a form
of which is located at each of the Websites; and
WHEREAS, the parties hereto are desirous of
Madacy to license to the Partnership the right to sell, promote and
otherwise distribute to third parties a portion of the Madacy music
library; and
WHEREAS, the parties hereto
are desirous of Traffix Music to license to the Partnership the use
of the Program in connection with the operation of the Website and
the conduct of the business of the Partnership;
WHEREAS, the parties hereto are desirous of
Traffix Music providing certain services to the Partnership; namely
assistance and support with respect to the sales, promotion and
marketing of the Program in connection with the operation of the
Websites and the Business of the Partnership and the provision of
certain administrative services to the Partnership, all upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual
promises and covenants contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as
follows:
Any terms not otherwise
defined herein shall have the meanings ascribed thereto in
Schedule A to this Agreement.
EXECUTION
COPY
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ARTICLE I
OBLIGATIONS OF THE
PARTIES
1.01
During the Term, Madacy hereby grants the Partnership a
non-exclusive (subject to the restrictions contained in
Section 2.4 of the Partnership Agreement), royalty-free
license to such portions of its entire music, consisting of the
Madacy Songs and the Masters to the Madacy Songs, as the
Partnership reasonably requests and requires for the full and
proper exploitation of the Program in connection with the operation
of the Websites and the Business of the Partnership. The
Parties hereto agree that such requests shall take into account the
diversity and depth of Masters which have already been made
available hereunder (and the avoidance of any redundancy) and,
where applicable, the costs and efforts required to provide Masters
as compared to their anticipated benefit or value to the Program,
the whole subject to the following:
a. The License
shall only apply to Masters that Madacy has the right to license
for downloading and is entitled to make available to the
Partnership;
b. The License
shall permit the Partnership, and Traffix Music on behalf of the
Partnership in rendering its services under this Agreement, to use
the Masters for the following purposes:
i. For the download by an end-user of
Madacy Songs from the Websites for a fee; and
ii. For the download by an end-user of
Madacy Songs from the Websites for free as a premium for further
revenue generating activity.
For
greater certainty, the License shall not permit the Partnership or
Traffix Music in rendering its services under this Agreement to
provide the download of all or any part of Madacy Songs for use as
ring-tones, ring-backs or any other telephony use or any other use
other than direct marketing via the Channels of Distribution.
The Partnership shall have no rights to assign or sub-license its
rights hereunder;
c. The License
shall be subject to Madacy having obtained the appropriate
mechanical licenses (“Mechanicals”) to permit the use
of the Masters for downloading, which Madacy agrees to use
reasonable commercial efforts to obtain;
d. Madacy shall
make those Masters which require the obtaining of Mechanicals
available to the Partnership in batches as Mechanicals are
obtained. Madacy shall advise Traffix Music, on behalf of the
Partnership, on a weekly basis, of those Masters, if any, for which
Mechanicals have been obtained in such week and shall make such
Masters available to the Partnership as soon as possible
thereafter. Madacy shall exercise its reasonable commercial
efforts to obtain Mechanicals in a timely fashion;
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e. The Masters
which are the subject of this License are hereby listed on
Schedule B hereto. In addition, Schedule B shall be
amended from time to time during the Term of this Agreement as
Madacy makes further Masters available (ie. as Mechanicals are
obtained for additional batches of Masters or as additional Masters
are obtained by Madacy) or ceases to make Masters available (due to
its loss of rights to the Track or inability to make the Track
available for download).
f. The
present License granted hereunder shall expressly not include the
artwork which Madacy uses for its CD products. Madacy shall
provide appropriate artwork to the Partnership to highlight/present
each genre of music being offered.
g. It is
acknowledged that any limitations on use or term of use of Masters
or artwork to which Madacy is subject shall equally apply to the
license of Masters or artwork by Madacy to the Partnership.
h. Other than as
set forth in paragraph (i) below, Madacy will be solely responsible
for all costs associated with acquiring the Madacy Songs (i.e.
purchasing the Masters and securing the third party
licenses). However, with respect to Publishing and Royalties
(a) the Partnership (and Traffix Music) will give Madacy direct
access to the Websites’ reporting database for the purposes
of permitting Madacy, as and when it desires in its sole
discretion, to analyze the composition and volume of downloads of
Madacy Songs and to generate a report of the name and number of the
songs downloaded from the Websites (such songs and the
corresponding Publishing and Royalty rates will be identified in
the library of Madacy Songs provided to the Partnership) for such
period as Madacy desires, and (b) Madacy will provide the
Partnership, within five (5) days of the end of each month, with an
invoice for the Publishing and Royalties due for the immediately
preceding month, (c) the Partnership will pay to Madacy the amount
determined in such monthly report within five (5) business days of
receipt of the invoice and (d) Madacy will remit the Publishing and
Royalties to the appropriate third party. Notwithstanding the
generality of the foregoing, each of Madacy and Traffix Music shall
be directly responsible for the amount of any Shortfall resulting
from a Proprietary Premium Program in accordance with
Section 1.05(a) hereof.
The
Partnership hereby acknowledges and agrees that the payment of
Publishing is required by applicable federal law and Royalties are
contractual obligations of Madacy. Accordingly, the payment to Madacy of
Publishing and Royalties will be made by the Partnership on a
priority basis to all other payments, reimbursements or
disbursements of the Partnership.
i. The
Parties acknowledge that Madacy has licensed the San Juan Songs
from SJMG and has obtained, in such license, the right to
sub-license substantially all of the San Juan Songs to the
Partnership. The Parties further acknowledge that Madacy is
responsible to pay to SJMG the San Juan Royalty and the San Juan
Guarantee. The Partnership hereby agrees that it shall pay to
Madacy with respect to each fiscal year of the Partnership a
royalty equal to the greater of (a) the San
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Juan Royalty with respect to such year and (b)
the San Juan Guarantee with respect to such year, so as to permit
Madacy to satisfy its obligations to SJMG under its license with
SJMG. Notwithstanding the generality of the foregoing and the
five (5) year initial term of Madacy’s license with SJMG of
the San Juan Songs and the guarantees thereunder, in the event
Madacy ceases, at any time, to license the Madacy Songs to the
Partnership, the Partnership’s obligations to Madacy under
this paragraph shall be limited to the amount which is otherwise
payable for the full fiscal year in which Madacy ceases to license
the Madacy Songs (being the greater of the San Juan Royalty and the
San Juan Guarantee with respect to such year) and all San Juan
Guarantees for subsequent years shall be the sole responsibility of
Madacy.
1.02
Traffix Music shall be responsible for the creation, maintenance
and hosting of the Websites (the ownership of which shall vest
exclusively in the Partnership), any developments and modifications
to the technology associated with the Program, the origination and
publication of all advertising on the Websites. Traffix Music
shall be solely responsible, for its own account, for all Traffix
Music Contributed Expenses. Traffix Music shall also be
responsible for administering for the account of the Partnership
the payment of all Partnership Out-of-Pocket Expenses, Marketing
Expenses, New Revenue Source Commissions and Accounting Expenses
incurred by Traffix Music for the account of the Partnership in
carrying out its obligations hereunder. In addition, each of
Traffix Music and Madacy may further incur certain Direct
Out-of-Pocket Expenses for the account of the Partnership.
Subject to the priority payment of all Publishing and Royalties in
accordance with Section 1.01(h) above, Traffix Music and
Madacy shall be reimbursed out of Gross Revenues for all such
expenses, other than Traffix Music Contributed Expenses, the whole
subject to Section 1.03 below.
1.03
During the Term, Traffix Music hereby grants the Partnership, a
non-exclusive (subject to the restrictions contained in
Section 2.4 of the Partnership Agreement), royalty-free
license to the use of the Program in connection with the operation
of the Website and the conduct of the Business of the Partnership,
except that such license shall be exclusive to the Partnership with
respect to the conduct of a business identical or materially
similar to the Business of the Partnership, and Traffix Music also
grants Madacy a non-exclusive, royalty-free license to the use of
the Program for the purposes set forth in Section 1.06 of this
Agreement (the license of the Program described in this
Section may be referred to as the “Program
License”).
1.04
Traffix Music will be responsible for marketing the Program to all
Channels of Distribution, other than the Madacy Channels (defined
below). Madacy will be responsible for marketing the Program
to brick-and-mortar businesses as well as to any current or future
customers of Madacy’s hard-copy entertainment products (the
“Madacy Channels”). Traffix Music will be solely
responsible for media buying necessary to generate traffic and
sales. Traffix Music may not commit to, or incur, aggregate
marketing and/or advertising expenses on behalf of the Partnership
in
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excess of the greater of (a) $10,000 per month,
and (b) the amount set out in the marketing/advertising budgets
established from time to time by Madacy.
In
the event Traffix Music uses any of its proprietary media for
marketing the Program, it shall be entitled to reimbursement for
the value of such media, which value shall be the lowest rate such
media is made generally available to Traffix Music’s
customers; however, Traffix Music shall not use more than $5,000.00
of such media in the aggregate in any calendar month (and $30,000
in any calendar year) without the written consent of the
Partnership.
Each of Traffix Music and Madacy, in their
capacity as independent contractors hereunder, shall use its
reasonable commercial efforts to assist the Partnership in the
promotion, marketing, distribution, sales and Upsales of the Madacy
Songs via the Websites and the services promoted thereby and to
assist the Partnership in the generation of Gross Revenues
therefrom, including, without limitation, through the promotion of
Website Sales, Websites’ Database Sales and New Revenue
Source Sales; provided, however, that neither Contractor shall have
any obligation or other liability whatsoever for any acts or
failures to act of the other (or such other’s
Affiliates). Such efforts shall be performed in accordance
with all applicable industry standards and federal, provincial,
state and local government rules, regulations or requirements now
in effect or which may hereafter be in effect in the conduct of its
activities. To the extent that Madacy or Traffix Music
wishes, in providing such assistance to the Partnership or
otherwise, to construct a marketing arrangement that is out of the
ordinary course ( i.e. , involves extra web development, or
requires a non-compete), then such deal shall be subject to the
prior approval of the Partnership and Madacy.
1.05
During the Term and subject to the terms and conditions of this
Agreement, neither Contractor shall enter, directly or indirectly,
into another relationship or business enterprise which, materially
similar to, and directly competitive with the relationship set out
herein and/or the Business. For greater certainty, Madacy
hereby agrees that it shall not make its Masters available in bulk
in any transaction or relationship for zero or nominal cash
consideration.
Notwithstanding the foregoing, the Parties
hereby agree that during the term of the Agreement between the
Parties:
i. Madacy and
its Affiliates shall be entitled, at all times, to make their
recorded music available for download, on a non-exclusive basis, to
any entity which is providing the services of an on-line music
store on a fair market value pay-per-download basis;
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ii. Madacy and its
Affiliates shall be entitled, at all times, to make their recorded
music available for download, on a pay-for-use basis, to any of its
present or future Madacy Channel customers or Affiliates customers
and Madacy and its Affiliates shall further be entitled to offer
exclusively for download to such customers any packages (pre-set
selection of recorded music) which they have made or make
exclusively available to such customer for sale via its Madacy
Channel (the individual songs of such package being still available
individually to the Websites); and
iii. Madacy and its
Affiliates shall be entitled, at all times, to enter into,
participate in, or carry out such promotional, marketing or
licensing activities with their brick-and-mortar customers in
support of their CD and DVD sales (or any replacement configuration
thereof) as they deem appropriate or necessary, in their sole
discretion acting reasonably, to create, maintain or enhance their
business or relationship with such customer (e.g. provide free
downloads of a limited number of songs/tracks as a promotion or
give-away to retail customers in support of brick-and-mortar
sales).
Other than as set forth above, neither
Contractor may create, supply, support, operate, or otherwise be
involved with, either directly or indirectly, a website that is
materially similar to the Websites and directly competitive with
the Business of the Partnership. It is further acknowledged
and agreed that a number of Madacy Songs may be controlled by
Madacy on a non-exclusive basis. As such, other parties may
retain rights to such Madacy Songs for use via download or
otherwise. Such use shall not be deemed a breach of this
Agreement.
The Parties hereby agree that
Madacy shall be the exclusive provider of music-for-download
content to the Partnership (ie. any music that the Partnership
licenses/obtains/uses in the exploitation of its Business will
emanate from/flow through Madacy). Any other product (ie.
other than music) may be sourced directly by the Partnership and
Traffix Music in rendering its services to the Partnership under
this Agreement.
1.06
Each of the Contractors may use the Program as a premium or
give-away (“Premium”) to generate sales for its own
(non-3 rd party) products/services (“Proprietary
Premium Program”) and any revenue generated from the sales of
such Party’s products/services shall belong solely to such
Contractor; however, any revenue generated on the Websites from the
consumers who receive such premiums will be included as Website
Sales (e.g., if the consumer redeems his free songs and purchases
more music, or if the consumer clicks on an advertising banner,
then such additional revenue is included). In addition,
Premium programs may be carried out solely for the benefit of the
Business (ie. they are not being carried out in support of the
business of either of the Contractors) (“Partnership Premium
Program”). Notwithstanding the generality of the
foregoing, the following shall apply to any Premium:
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a. With respect to
Proprietary Premium Programs, the Contractor carrying out the
premium deal shall be directly and personally liable to the
Partnership for Publishing and Royalties with respect
thereto. In the event that the revenues generated from a
Proprietary Premium Program are insufficient and give rise to a
Shortfall (ie. the revenues from the program are less than the
Publishing and Royalties with respect thereto), the Contractor
carrying out the Proprietary Premium Program shall be directly
responsible for the payment of such Shortfall.
b. With respect to
Partnership Premium Programs, in the event that one or more
Partnership Premium Programs are carried out in any fiscal quarter
of the Partnership and an aggregate Shortfall is realized from
these Premium programs and there are insufficient Gross Revenues in
such fiscal quarter from all of the revenue sources of the Websites
to fully cover off the Shortfall (any remaining Shortfall after the
application of other Gross Revenues hereinafter referred to as a
“Net Partnership Shortfall”) the amount, if any, of the
Net Partnership Shortfall shall be borne and funded equally by the
Contractors .
c. It is expressly
understood and agreed that no Party shall carry out any Premium
program unless such program has a registration, survey or other
revenue generating benefit (save and except for the effecting of
Proprietary Premium Programs by Madacy for its customers which sell
entertainment product in CD or DVD (or any “hard”
replacements thereof format)).
d. No Party shall,
without the express prior written approval of Madacy, carry out any
Premium program which permits the download or access by any one
participant of more than twenty-five (25) tracks (songs) of which
no more than ten (10) tracks (songs) may be subject to Publishing
or Royalties.
Notwithstanding the foregoing, in the event
that any Premium program has a pre-determined associated revenue
stream at least equal to the maximum potential Publishing and
Royalty cost of such Premium, the foregoing limitation shall not
apply (e.g. a Premium which has a fixed $1.50 revenue from the
party providing the premium shall be entitled to have such number
of tracks (songs) as have an aggregate Publishing and Royalty cost
of up to $1.50). The Parties further agree to review the
foregoing limitation from time to time to determine its
reasonableness and appropriateness
1.07
The Database will be owned by the Partnership. Each
Contractor shall be permitted to use the Database, but at its own
cost and expense, for the marketing and promotion of any Exempt
Sales. If a Contractor elects to promote its own
products/services in the media of the Websites (e.g., banners, exit
traffic) on a cost per acquisition basis or otherwise, then such
Contractor shall pay for such media at the lowest rate it offers to
third parties for similar media buys (provided such rates are
consistent with market norms), and such fees shall be deemed
Website Sales. In the event of a License Extension, Madacy
shall continue to have free access to the Database during such
extended term.
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ARTICLE 2
ADMINISTRATION, BILLINGS AND
COLLECTIONS
2.01
Traffix Music shall provide all of the administration services
required the Partnership. In particular, Traffix Music shall
be responsible for the fulfillment, billing, collection and
customer service relating to any sales that occur on the Websites
and shall maintain, on a current basis, all of the books and
records of the Partnership (accounting, legal and otherwise).
Each Contractor shall be responsible for the fulfillment, billing,
collection and customer service relating to any other sales of the
Program.
2.02
Each Contractor shall submit to the Partnership, on a monthly basis
commencing on the one month anniversary of the Effective Date, all
records, information and reports prepared by that Contractor
relating to (i) any sales or other distributions made in the prior
month that resulted in any Gross Revenues, and (ii) any Partnership
Expenses (copies of such invoices) incurred in the prior month, as
well as (iii) such other information as is reasonably required to
determine compliance with the terms of this Agreement.
Traffix Music will be responsible (at its cost) for the
reconciliation of all such records, and will deliver to the
Partnership (with a copy to Madacy) an accounting in the form of
monthly (unaudited) statements. All revenue generated from
the Program will be delivered to Traffix Music , and Traffix Music
will deposit all such amounts in a separately identified bank
account in the name of the Partnership.
2.03
The Partnership shall have the right, but not more than twice in
any twelve month period, during normal business hours and upon
reasonable advance notice, to cause (at its expense) the books and
records of the Contractors to be inspected and audited by an
independent third-party accountant or firm of accountants;
provided , that , in all instances such
inspection/audit does not unreasonably interfere with that
Party’s business activities. In the event that as a
result of such inspection and audit, it is determined that a Party
underreported sales or other distributions or over reported
expenses by an amount that exceeds five percent (5%) of the amount
so reported, the Party responsible for the
underreporting/overreporting shall pay the entire cost of the
examination and audit, together with interest at the rate of eight
percent (8%) per annum on the amount of the
underreported/overreported amount from the date such reporting was
made until the date the proper amount is reported and properly
recorded.
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ARTICLE 3
RELATIONSHIP BETWEEN
PARTIES
The
Parties acknowledge and agree that at all times each Contractor
shall be an independent contractor with respect to the other, and
both Contractors shall be independent contractors with respect to
the Partnership. Each Contractor shall be the employer of its
own personnel engaged in the performance of this Agreement.
Neither Contractor shall be considered an agent or employee of the
other or of the Partnership. Neither Contractor shall
knowingly do anything that would cause any third party to consider
the Contractors as anything other than independent
contractors. The parties further acknowledge that the
activities contemplated herein (ie. the business of generating
revenues from the use of the Program, the Websites and the
Database) and all of the benefits thereto and obligations therefrom
(including, but not limited, the goodwill being generated
therefrom) are for the benefit of the Partnership.
ARTICLE 4
TAXES
Each Party shall be solely responsible for
payment of any and all federal, state and local sales, use, value
added and excise taxes, and any other taxes or duties of any nature
whatsoever assessed upon or with respect to the services provided
by it hereunder or otherwise arising from this Agreement and the
transactions contemplated hereby.
ARTICLE 5
DURATION
5.01
The License shall commence on the Effective Date and shall be in
effect for an initial fixed term expiring on December 31, 2005
as it may be extended in accordance with the provisions of this
Agreement (the “Term”). Thereafter, but subject
to Sections 5.04 and 5.04 hereof, the License shall be
automatically extended for up to four (4) successive terms of two
(2) years provided that each such extension shall be subject to the
Partnership (i) generating more than two million ($2,000,000) of
net profits (as set out in its audited financial statements) in the
immediately preceding term (such amount shall be $1.0 million with
respect to the initial license term terminating on
December 31, 2005) and (ii) distributing in cash to its
partners a minimum of seventy-five percent (75%) of such net
profits in such term failing which the License shall expire without
further extension (both of the foregoing financial criteria are
hereinafter collectively referred to as the “Minimum
Financial Objectives”). Notwithstanding the foregoing,
in the event that the distribution to Madacy sp Inc. with respect
to any term is inadequate to satisfy the foregoing minimum
distribution requirement for the automatic renewal of the License
(ie. less than $990,000, or $495,000 with respect to the initial
term), Traffix Music or any of its Affiliates shall be entitled,
but not obligated, to pay to Madacy sp Inc. the amount of the
shortfall in which case the Minimum Financial Objectives shall be
deemed to have been
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achieved. In the event that either or
both of the Minimum Financial Objectives have not been satisfied,
Madacy shall have the right (but not the obligation) to renew the
License on a year-by-year basis. The term of the present
Agreement with regard to all other matters shall be equal to the
Term.
5.02
Any Party may terminate this Agreement at any time for a material
breach of the terms hereof or of the terms of the Partnership
Agreement by another Party or its Affiliates by giving prior
written notice of such termination. Such notice shall specify
in reasonable detail the breach upon which the termination is
based. After receipt of such notice, the recipient shall have
thirty (30) days to correct or cure such alleged breach. If
such breach is cured timely, then the notice shall be null and void
and the Agreement shall not terminate. Otherwise, the
Agreement shall be deemed terminated.
5.03
In the event of a breach of Section 1.03 of this Agreement due
to a Party making a sale to the other Party’s client in
violation of the terms of such Section, then in addition to all
other remedies available under this Agreement, at law or in equity,
all revenue generated from such sale by the violating Party shall
be deemed Website Sales and subject to the Net Profit sharing
provisions of this Agreement.
5.04
Notwithstanding the provisions of Section 5.01 hereof, in the
event that Madacy or Madacy sp Inc. shall cease, at any time, to
have an interest in the Business or in the Partnership pursuant to
either a sale by the Partnership of the Business or of all or
substantially all of its assets or a Traffix Sale (as such term is
defined in the Limited Partnership Agreement of the Partnership),
Madacy hereby agrees
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