MANUFACTURING AND DISTRIBUTION AGREEMENT

 

 

MANUFACTURING AND DISTRIBUTION AGREEMENT

This Agreement is made as of 28 July 2009 by and between Universal Music Canada Inc., 2450 Victoria Park Avenue, Suite 1, Toronto, Ontario M2J 5H3 (“Universal”) and UOMO Productions Inc., 161 Bay Street, 27 ^th Floor, Toronto, Ontario, M5J 2S1, G.S.T. [Number] (the “Company”).

ARTICLE I
TERM

1.1

The Term will consist of an initial contract period (the “First Contract Period”) and each of the renewal contract periods for which Universal has exercised the options pursuant to this Agreement (collectively, together with the First Contract Period, referred to as “Contract Periods”), unless terminated or extended pursuant to the provisions of this Agreement.

1.2

The Term will commence on the date hereof and continue for a First Contract Period ending on 30 June 2012, unless extended pursuant to this ARTICLE I or Section 12.2 hereof.

1.3

The Company hereby grants Universal 2 separate, successive and irrevocable options to extend the Term for additional Contract Periods (each renewal contract period referred to consecutively and in chronological order as the “Second Contract Period”, and the “Third Contract Period”).  Universal may exercise each option to extend the Term for an additional Contract Period by giving the Company notice of Universal’s election to do so at any time prior to the expiration of the particular Contract Period.  Each renewal Contract Period will run consecutively, commencing upon the expiration of the immediately preceding Contract Period (or, if Universal so advises, the then-current Contract Period will end on the date of Universal’s exercise notice and the next Contract Period will commence immediately thereafter) and will continue until the date that is 12 months from the date of commencement of the particular Contract Period.  

1.4

Notwithstanding the foregoing, in the event that, upon the date when the particular Contract Period would otherwise have expired, Universal has neither exercised Universal’s option to extend the Term for a further Contract Period, nor notified the Company that Universal does not wish to exercise such option, then the following provisions will apply:

(a)

The Company will forthwith notify Universal in writing that the option has not yet been exercised (the “Option Warning”).

(b)

Universal will be entitled to exercise Universal’s option at any time within 30 days after receiving the Option Warning.

(c)

The then-current Contract Period will be deemed to have continued until the earlier of:

 

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(i)

the date that Universal exercises the option, in which event the Term will be extended for a further Contract Period;

(ii)

the date that Universal gives the Company notice that Universal does not wish to exercise Universal’s option, in which event the Term will end on such applicable date, without imposing any further liability or additional obligations upon Universal in connection herewith; or

(iii)

the date 30 days after Universal receives the Option Warning.

ARTICLE II
RIGHTS

2.1

The Company hereby grants to Universal for the Term the following exclusive rights in the Territory:

(a)

To Manufacture, and to authorize others to Manufacture the Records and the containers therefor;

(b)

To Exploit, and to authorize others to Exploit, the Records in the Territory through all channels and by all methods now or hereafter known, including, without limitation: (i) Normal Retail Channels, including Exploitation of the Masters on Compilation Records released by Universal either solely by Universal or pursuant to a joint venture agreement; (ii) as Premium Records (subject to the Company’s prior written consent); (iii) Electronic Transmission; and (iv) Electronic Subscription; and

(c)

To license, through any method and by any means, including, without limitation, by way of joint venture, the Masters to any third party on a flat fee or royalty basis for the Manufacture and Exploitation of Compilation Records, provided that not more than two (2) Masters from any Album will be embodied on a single Compilation Record without the Company’s prior written consent.

2.2

In connection with Universal’s Exploitation of the Records, the Company hereby grants to Universal for the Term the following additional non-exclusive rights in the Territory:

(a)

To license, through any method and by any means, including, without limitation, the Masters to any third party on a flat fee or royalty basis for use as background music, synchronization in motion pictures and television soundtracks and other similar purposes, including, without limitation, use on transportation facilities;

(b)

To Market the Records in accordance with the terms hereof, and to cause or authorize others to do so;

 

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(c)

To perform the Records publicly and to permit the public performances thereof in any medium and by any means whatsoever, whether now known or hereafter developed (it being understood that the Company will receive all applicable “neighbouring rights” income); and

(d)

To use, and to authorize other Persons to use, solely in connection with Universal’s Exploitation and Marketing of Records hereunder, without liability to any Person: (i) the business names, and the trademarks or logos (“Marks”) of the Company; (ii) to the extent that the Company has such right, the Names, Likenesses, Marks and biographical material of each Artist; provided that no such use will be or imply a merchandising tie-in with, or endorsement of, any goods, wares, services or institutions, without the prior written approval of the Company; and (iii) to the extent that the Company has such right, the names, likenesses, Marks and biographical material of any producer and any other Person performing services with respect to the Masters; provided that no such use will be or imply a merchandising tie-in with, or endorsement of, any goods, wares, services or institutions, without the prior written approval of the Company.  With respect to any producer and any other Person performing services in connection with the Masters, the Company will use reasonable efforts to provide Universal with the rights set out in this Section.

2.3

Notwithstanding the foregoing rights granted to Universal, after the Commercial Release by Universal and/or Universal’s affiliates or licensees, as applicable, of each Album, the Company will have the following rights, during the Term in the Territory:

(a)

To distribute a reasonable number of copies (not to exceed 250) of each Album in compact disc form, for strictly promotional purposes, provided that such compact discs will not be offered by the Company for resale.  The cost of each such compact disc will be the Manufacturing cost therefor, as set forth in Schedule “A” attached hereto, as such cost may change upon 30 days prior written notice to the Company, plus the shipping costs therefor; and

(b)

To sell copies of each Album in compact disc form at the applicable Artist’s public performances and from the Company’s website or applicable Artist’s website.  The cost to the Company for compact discs to be sold at the applicable Artist’s public performances or through the Company’s or Artist’s website will be an amount per compact disc equal to the PPD therefor multiplied by the Distribution Fee (for example, if the PPD for the compact disc is $11.98, the cost to the Company per compact disc would be calculated as follows: $11.98 multiplied by the Distribution Fee of 20% equals $2.40), plus shipping costs therefore and plus the Manufacturing Costs (as indicated in Schedule “A”), provided, however, that Universal reserves the right to require that the Artist and Company not offer such compact discs for sale at certain of the Artist's performances or through the Company’s or Artist’s website if Universal determines, acting reasonably, that such sales might negatively affect Universal's ability to Exploit Records through Normal Retail Channels in the Territory.     

2.4

For greater certainty: (i) the indemnity in ARTICLE IX hereof applies to any and all claims, damages, liabilities, costs and expenses, including legal expenses and fees, arising out of the sale or distribution pursuant to Section 2.3 of compact discs by the Company; and (ii) the restriction on assignment in Section 13.7 applies to prevent the Company from assigning to any

 

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other Person any of the rights granted to the Company in Section 2.3 without Universal's prior written approval (for example, the Company may not authorize or permit any other Person to, directly or indirectly, by any means, distribute, sell or fulfil orders for Records without Universal's prior written approval).

2.5

Universal will not be obligated to exercise any of the rights granted to Universal pursuant to the provisions of this ARTICLE II if, in Universal’s sole discretion, the exercise of such rights: (i) would violate any statute, law or regulation or any rights of any Person; or (ii) would constitute a breach of this Agreement or of any other agreements to which Universal or the Company is a party.

2.6

Universal hereby acknowledges that the Company’s parent, Uomo Media Inc., has entered an agreement with Colgate Palmolive Canada (the “Colgate Agreement”) involving the promotional download of up to 30 seconds of the Master entitled “Fresh” featuring the Artist “Shawn Desman”.  Universal hereby agrees that the Colgate Agreement will not be deemed a breach of this Agreement.  

2.7

All rights not granted to Universal hereunder are reserved in their entirety by the Company, including, without limitation, the right to export the Records outside the Territory.

ARTICLE III
FEES; FUNDS; COSTS

3.1

Universal will retain a distribution fee (the “Distribution Fee”), quarterly, equal to the following:

(a)

In the case of Records Exploited through Normal Retails Channels (other than Compilation Records): 20% of Net Billing, reducing on a prospective basis to: (i) 19% of Net Billing at $2,000,000 in Net Billing; (ii) 18% of Net Billing at $4,000,000 in Net Billing; and (iii) 17% of Net Billing at $6,000,000 in Net Billing.   

(b)

In the case of Records Exploited through Electronic Transmission and through Electronic Subscription: 20% of Net Receipts.

(c)

In the case of Masters licensed by Universal to a third party on a flat fee or royalty basis for the Manufacture and Exploitation of Compilation Records: 20% of the Net Receipts therefrom; and

(d)

In the case of Masters licensed by Universal to any third party on a flat fee or royalty basis for use as background music, synchronization in motion pictures and television soundtracks and other similar purposes: 50% of the Net Receipts therefrom.

3.2

In the case of Masters Exploited by Universal on Compilation Records and Premium Records, Universal will pay the Company the following: 80% of the highest royalty rate payable for any other master included on such Compilation Record or Premium Record, as applicable.

 

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3.3

To the extent that the Company requests Universal to provide any services in addition to those set forth herein, such as marketing and/or promotion, and Universal agrees to provide such services, such services will be provided for an amount which is to be mutually agreed and negotiated by the parties hereto.  Any agreement to such effect will be detailed in writing and any charges relating thereto will be invoiced by Universal to the Company and will, at Universal’s election, be prepaid to Universal by the Company, or will be payable by way of Universal deducting these amounts from any payments or amounts otherwise due to the Company hereunder.  

ARTICLE IV
RESERVES

4.1

Reserves against anticipated customer returns and/or credits in respect of the Records will be calculated, held and liquidated in the following manner and at the following times:

(a)

Subject to the other provisions of this Section 4.1, Universal may hold in reserve an amount of up to 20% of each applicable quarter’s Gross Billing.  At the end of each calendar year during the Term, at the request of either party, the amount of the reserve will be reviewed to determine if the amount held is reasonable, considering among other factors, the returns history of the Records and market conditions, and upon mutual good faith agreement, the reserve will be adjusted accordingly.

(b)

Subject to the other provisions of this Section 4.1, the reserve established with respect to each billing quarter to the extent not reduced by actual returns and/or credits will be liquidated and paid over to the Company as follows:

(i)

50% at the end of the 6 ^th month following the month in which such reserve was originally established (such reserve to be established on the accounting statement for the same billing quarter); and

(ii)

the balance at the end of the 12 ^th month following the month in which such reserve was originally established (such reserve to be established on the accounting statement for the same billing quarter).

(c)

In the event that the amounts held in reserve are insufficient to cover amounts for which Universal is obligated to credit Universal’s customers, the Company will, upon Universal’s request, immediately reimburse Universal for the amount of such credits to Universal’s customers or, at Universal's election, Universal may deduct the applicable amounts from monies otherwise payable to the Company, then or in the future.  Returns and/or credits will be first applied against the reserve account on a FIFO basis (i.e. to the earliest reserve period first.)

 

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(d)

Notwithstanding anything to the contrary contained herein, in the event that the Company is indebted to Universal hereunder when amounts held in reserve are to be liquidated, the credit for such reserves will first be used to offset any such indebtedness.

4.2

Notwithstanding anything to the contrary contained herein, in the event that the Company is indebted to Universal hereunder 180 days prior to the expiration or termination, for whatever reason, of the Term, then Universal will have the right to withhold reserves up to a maximum of 50% of each applicable quarter’s Gross Billing.

ARTICLE V
PAYMENTS AND ACCOUNTINGS

5.1

Within 60 days following the end of each fiscal quarter (as designated by Universal) during the Term, Universal will render to the Company a statement setting forth in detail all activities subject hereto, including an inventory analysis.  Together with such statement, Universal will remit the Net Proceeds, if any, shown to be payable to the Company on such statement.

5.2

All statements rendered by Universal are conclusively binding upon the Company and not subject to any objection by the Company for any reason unless specific objection in writing, stating the basis thereof, is given to Universal within 2 years from the date such statement is rendered (each statement will be deemed rendered when due unless the Company notifies Universal to the contrary within 120 days after the applicable due date specified in Section 5.1 above), and an audit pursuant to Section 5.3 below for that statement is completed within a reasonable time after such objection notice is given.  Failure to make specific objection or conduct the audit within such time periods will be deemed to be the Company’s approval of such statement, the Company’s waiver of such audit rights, and the Company’s waiver of the right to commence an action, suit or proceeding against Universal for additional amounts in connection with the applicable accounting period.  The Company will not have the right to commence an action, suit or proceeding against Universal in connection with any accounting for amounts payable hereunder, unless the Company commences the action, suit or proceeding within the applicable 2 year period referred to above. If the Company commences such action, suit or proceeding concerning accountings rendered by Universal under this Agreement, the scope of the proceeding will be limited to determination of the amounts due for the accounting periods concerned, and the court will have no authority to consider any other issues or award any relief except recovery of any amounts found owing.  The Company’s recovery of any such amounts will be the sole remedy available to the Company by reason of any claim related to Universal's accountings.  Without limiting the generality of the preceding sentence, the Company will not have any right to seek termination of the Term or avoid the performance of the Company’s obligations hereunder by reason of any such claim.

5.3

The Company may, at the Company’s own expense, audit Universal's books of account directly relating to this Agreement and which report the Exploitation of the Records for which amounts are payable hereunder.  The Company may make such audit only for the purpose of

 

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verifying the accuracy of statements sent to the Company hereunder and only as provided herein.  The Company will have the right to audit such books of account by notice to Universal at least 60 days prior to the date the Company intends to commence such audit.  Such audit will be conducted by either a reputable independent Chartered Accountant, Certified Public Accountant, Certified Management Accountant or Certified General Accountant, who is experienced in recording industry audits, will be conducted in such a manner so as not to disrupt Universal’s other functions, and will be completed promptly. The Company may make such an examination for a particular statement only once and only within 2 years after the date any such statement is rendered as provided in Section 5.2 above.  Any such audit will be conducted only during Universal’s usual business hours and at the place where Universal keeps the books of account to be examined. The Company’s auditor will review his or her tentative written findings with a member of Universal's finance staff designated by Universal before rendering a report to the Company so as to remedy any factual errors and clarify any issues that may have resulted from misunderstanding.

5.4

The Company acknowledges that Universal's books of account contain confidential trade information.  Neither the Company nor the Company’s representatives will at any time communicate to others or use on behalf of any other Person any facts or information obtained as a result of their examination of Universal's books of account; except pursuant to a court order, statute or government regulation, provided that the Company gives prior written notice to Universal of such required disclosure.

ARTICLE VI
THE COMPANY’S OBLIGATIONS

6.1

The Company will deliver the Masters to Universal, at the Company’s sole cost and expense, and all other parts necessary to Manufacture the Records, at a mutually agreed upon place and time.  Each Master will be delivered in the form of 1 fully edited, mixed, mastered, equalized and leadered 8mm DDP Exabyte and will be accompanied by PQ codes, and ISRC codes supplied by the Company.  Each Master delivered hereunder will be of a quality reflecting the then “state of the art” analogue and/or digital recording techniques as Universal may from time to time require and will be technically satisfactory to Universal for the Exploitation of the Records.  Each Master will be clearly marked to identify the applicable Artist as the recording artist, and to show the title(s) of the Composition(s) and recording date(s), and will be accompanied by a studio mastering sheet and a studio mastering tape check.  In addition, the Company will furnish Universal with all information, licenses, releases, assignments, consents and clearances required by Universal for the Manufacture and Exploitation of the Records and Universal’s Marketing, if any, in connection therewith, including, without limitation, the label copy, names of all composers and lyricists, the lyrics themselves, the publishing line, music performing rights society affiliations, timings, credits to arrangers, accompanists, musicians or others, names of the engineers and producer(s), lists of musicians with instruments played, studios used, names of side artists, liner credits, Mechanical Licenses, Synchronization Licenses and all rights clearances (for example, publishing and master sample clearances).  

 

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6.2

Together with the delivery of each Master, the Company will deliver to Universal, at the Company’s sole cost and expense, finished digital CDR artwork in Macintosh format, to be used by Universal for each Record and the inserts therefor.   The Company will deliver such artwork in compliance with the requirements provided to the Company by Universal’s Art Department.

6.3

The Company will be solely responsible for and will directly pay all Recording Costs incurred with respect to the Masters, and parties having contributed thereto who, for any reason whatsoever, may be entitled to receive remuneration, including, without limitation, royalties and other payments to the applicable Artists, producers, musicians, and copyright proprietors, and payments to applicable unions, including the American Federation of Musicians or the American Federation of Television and Radio Artists.  

6.4

The Company will be solely responsible for and will pay all costs and expenses incurred with respect to the Manufacture of the Records and the containers and inserts therefor, such standard per-Record cost of Manufacture being as set forth in Schedule “A” attached hereto, as same may change upon 30 days prior written notice to the Company.  

6.5

The Company will be solely responsible for and will perform, on a reasonable basis, all Marketing functions in connection with the Records, other than with respect to the Marketing functions, if any, Universal specifically agrees, in its sole discretion, to undertake at the

 

Company’s request. The Company will be solely responsible for and will pay all costs and expenses with respect to the Marketing of the Records.  In the event that Universal pays or incurs any costs or expenses with respect to the Marketing of the Records with the Company’s prior written consent, Universal will reimburse itself from monies otherwise payable to the Company; provided, however, that if there are insufficient monies available pursuant to the foregoing, the Company will reimburse Universal the applicable amounts within 10 days of Universal’s written demand therefor..

6.6

Upon Universal’s request, the Company will promptly supply Universal, at the Company’s sole cost and expense, with photographs and biographical material of the Artist and each producer, copies of all applicable Marks, all existing Marketing material (including, without limitation, point-of-sale display material) and copies of existing Videos for use by Universal in the Exploitation of Records, and Universal’s Marketing, if any, with respect thereto.  The Company’s submission of any material which includes the foregoing will be deemed to be instructions to Universal to use the foregoing, as submitted.

6.7

Universal will accept and process any and all returns of the Records which were distributed by the Company or a third party prior to the date of this Agreement, on the Company’s behalf and will deduct the costs of same from monies otherwise payable to the Company under this Agreement.

6.8

Promptly after Universal's written request, the Company will, at the Company’s sole expense, remove from Universal's warehouse, or order the destruction of, Surplus Product.  The Company will be deemed to have ordered the destruction of such Surplus Product within twenty-one (21) days after the date of Universal's written request to remove such Surplus Product (and

 

 

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will promptly pay such destruction costs), unless Universal receives from the Company within said twenty-one (21) days, written instructions for the immediate delivery of such Surplus Product to a public warehouse or other non-Universal location at the Company’s sole expense.  

6.9

If Universal, in its sole discretion, pays on the Company’s behalf any of the c