EXHIBIT 10.4
Sony Discos Inc.
000 Xxxxxxx Xxxx
Xxxxx Xxxxx, Xxxxxxx 00000
May 9, 1997
Xxxxx Xxxxxxx Music, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Gentlemen:
Below is a summary of the main commercial points of our agreement for Sony
Discos to exclusively distribute in the United States and Puerto Rico all
records owned or controlled by Xxxxx Xxxxxxx Music, Inc. and/or any entity owned
or controlled by Jetty Xxxxxxx Music, Inc.; Xxxxx Xxxxxxx and/or any entity
owned or controlled by him other than Sonido Records, Inc. or any of its
successors or assigns (collectively, "JMM") during the term of this agreement.
The term will be three (3) years, commencing May 15, 1997, subject to Articles
II and III below. Although this will be a binding agreement, the parties agree
to promptly negotiate in good faith a more formal document with the remaining
terms and conditions.
I. Sony Discos' Responsibilities:
1. Provide warehousing facilities to store the product subject to the
distribution agreement.
2. Solicit sales orders from all customers that are currently approved and
that may be approved in the future to do business with Sony Discos.
3. Service sales orders (pick, pack and ship), for the distributed label
product in the same manner as Sony Discos currently services all sales
orders.
4. Maintain consigned inventory quantities of the distributed label product
at reasonable levels in accordance with inventory control procedures
currently in practice for all stock of finished product.
JMM, Inc.
May 9, 1997
Page 2
5. Make determinations as to the credit worthiness of customers and ship
credit orders solely at the discretion of Sony Discos in accordance with
Sony Discos' credit approval policies and procedures. Bad credit risk
will be borne by Sony Discos.
6. Accept and process returns from customers (but not returns of product
sold before the term of this agreement or returned thereafter). Saleable
product returned by customers will be returned to stock. Damaged product
will be returned to JMM or destroyed at its option.
7. Provide monthly informational reports of sales and returns in units and
dollars and weekly unit sales reports by region. Sony Discos will provide
BDS and Soundscan monitoring services.
8. Submit a monthly statement with the net value of the sales, less: a
reserve for future returns of 20%; our distribution fee and any other
agreed deductions. Each monthly reserve for returns will be liquidated in
the sixth monthly accounting statement following the monthly statement in
which the reserve was established. Payment of net proceeds is to be made
on the 60th day following the end of the month of sale.
9. To manufacture cassettes and compact discs on behalf of JMM, if JMM
chooses to manufacture with Sony Discos, and the parties agree to engage
in good faith discussions with respect to same.
10. Provide 1 free office space and 2 free secretarial spaces to JMM at Sony
Discos' offices at 0000 X.X. 00xx Xxxxx, Xxxxx, Xxxxxxx, during the Term,
but only for so long as Sony maintains an office at such location.
Thereafter, the parties will discuss in good faith JMM's space
requirements. JMM will be responsible for all phone and fax charges or
other out-of-pocket expenses (e.g., secretary).
11. Include JMM product in Sony's co-op advertising programs and Sony Discos
will consult with JMM as to same. The cost of such advertising, not to
exceed 3% of gross value (i.e., invoice value before discounts and free
goods), will be deducted from proceeds (or billed to JMM) when Sony
Discos customers are credited. Notwithstanding the foregoing, JMM will
not be responsible for the cost of any co-op advertising item or
expenditure in excess of $5,000 unless Sony Discos receives JMM's prior
approval in respect of such item or expenditure.
JMM Inc.
May 9, 1997
Page 3
12. To offer JMM the opportunity for Sony Discos to administer the mechanical
royalty payments for JMM repertoire, subject to recharge of such royally
payments to JMM.
II. Distributed Label Responsibilities:
1. a. To deliver to Sony Discos during each contract year of the term: (i) not
less than four (4) newly recorded, commercially satisfactory, previously
unreleased single disc albums by different artists (collectively, "Studio
Albums"), and (ii) not less than four (4) commercially satisfactory,
previously unreleased single disc television advertised compilation
albums comprised of repertoire from the existing back catalog of Sonido
Records as mutually determined by Sony Discos and JMM (collectively, "TV
Compilation Albums"). If JMM does not fulfill its delivery commitment to
Sony Discos under this paragraph II-1.a. for a particular contract year
of the tern, such contract year will be automatically extended until JMM
fulfills its delivery commitment for that contract year. Any product
submitted by JMM hereunder and rejected by Sony Discos may be distributed
by JMM or a third party at JMM's option.
b. Promptly following complete execution hereof, JMM, will deliver to Sony
Discos: (i) 1 Studio Album entitled "Fania All-Stars", as part of its
first year delivery commitment; and (ii) 3 back catalog albums, each
comprising "Best of Fania All-Stars" tracks, which albums will not be
applied towards JMM's delivery commitment hereunder.
2. To manufacture and deliver to Sony Discos consigned inventory of
distributed product (including artwork) in reasonable levels in
accordance with Sony Discos' inventory control procedures and reasonable
quality requirements.
3. To pay all royalties, including copyright, due under JMM's contractual
agreements or otherwise and to provide Sony Discos, upon request, with
proof of such payment. Any such monies paid by Sony Discos at your
request or with your consent (which will not be unreasonably withheld),
will be deducted from payments to JMM. If JMM decides to have Sony Discos
process copyright payments under paragraph 12 above, JMM will deliver all
necessary label copy information to Sony Discos, and will reasonably
assist Sony Disco, in obtaining any necessary mechanical licenses in Sony
Discos' name or for its behalf.
JMM Inc.
May 9, 1997
Page 4
4. To accept returns or authorize the destruction of product considered by
Sony Discos to be obsolete or damaged, in accordance with Sony's policies
and practices. JMM will be solely responsible for inventory obsolescence.
5. To include Sony Discos' distribution credit and bar codes on all product
distributed by Sony Discos, in a form and location approved by JMM and
Sony Discos.
6. To be solely responsible for all marketing and promotion activities and
expenses, including DJ and promotional servicing and television
advertising (including the production costs for the ad spot itself). Sony
Discos will use reasonable efforts, consistent with its good faith
business judgment, to assist JMM in obtaining television advertising
time, provided that Sony Discos will have no financial obligation in
respect of any such advertising.
7. To be solely responsible for accepting all returns of product distributed
prior to the commencement of Sony Discos' distribution, or after Sony
Discos' distribution.
8. To consult with Sony Discos in the setting of wholesale prices for
distributed label product, which prices shall be consistent with then-
current Sony pricing standards and policies.
III. Advance, Distribution Fee and Other Charges:
Advances:
a. Sony Discos will pay JMM an advance in the amount of $250,000 (the
"Initial Advance") as follows: (i) $150,000 of such Initial Advance
promptly following complete execution of this agreement; and (ii) the
balance of such Initial Advance promptly following complete execution of
the more formal agreement referred to above, but in no event later than
the later of: (a) 45 days following complete execution of this agreement;
and (b) promptly following JMM's fulfillment of its delivery obligation
to Sony Discos under II.1.b. above.
b. If at anytime during the first or second contract years of the term, or
the first 6 months of the third contract year of the term, total advances
charged to JMM's account are recouped (based on the last monthly
accounting statement rendered prior to that date), and JMM is then
current in its delivery obligation to Sony Discos under II-1.a. above for
the contract year concerned, then, Sony Discos will promptly (i.e.,
within 15 days from the date the accounting statement concerned is
rendered) pay JMM an additional advance of $250,000 ("rollover
JMM, Inc.
May 9, 1997
Page 5
advance"). If any advances are unrecouped as of the end of the term, the
term (including JMM's delivery obligations to Sony under II-1.a. above)
will be automatically extended until Sony Discos renders a statement
showing that all advances have been recouped (the "extended term"). For
the avoidance of doubt, Sony Discos will not be obligated to pay JMM a
rollover advance during the final 6 months of the third contract year of
the term or the extended term, as applicable.
All advances will be recouped from 100% of the proceeds accruing to JMM
hereunder.
Distribution Fee:
Sony Discos' distribution fee and other charges for performance of the above
services will be as follows:
a) (i) In respect of each Studio Album, a 16% distribution fee calculated on the
gross value (i.e., invoice value before discounts and free goods) of all
shipments. Notwithstanding the foregoing, in the event that product is
distributed by Sony Music Distribution ("SMD") instead of by Sony Discos
directly, then the applicable distribution fee will be 18.5% in lieu of
the fee set forth in the immediately preceding sentence.
(ii) In respect of each TV Compilation Album, a 14.5% distribution fee
calculated on the gross value (i.e., invoice value before discounts and
free goods) of all shipments. Notwithstanding the foregoing, in the event
that product is distributed by SMD instead of by Sony Discos directly,
then the applicable distribution fee will be 17% in lieu of the fee set
forth in the immediately preceding sentence.
b) Free goods discounts (actual) up to 8% will be JMM's responsibility and
Sony Discos will be entitled to its full distribution fee on such units.
Discounts in excess of 8% may be granted upon prior approval by JMM.
c) A charge of $.25 per unit for processing returns in excess of 12.5% of
sales in any sales month.
d) If JMM chooses to do its manufacturing with Sony Discos, the parties will
agree upon competitive pricing.
e) In the event that subparagraph (d) above applies, if charges to JMM
exceed the amount due to JMM in any month, JMM will promptly pay Sony
Discos the balance.
JMM, Inc.
May 9, 1997
Page 6
IV. Miscellaneous:
1. Key Man: The parties acknowledge that the full time and active
participation of Xxxxx Xxxxxxx in the management of JMM is essential to
this agreement. In the event that during the term of this agreement,
Xxxxx Xxxxxxx fail for any reason to be engaged in the full time and
active management of JMM, Sony Discos will have the option to terminate
this agreement and any then-remaining unrecouped advances will be repaid
immediately to Sony Discos. (Until such payment is made, Sony Discos may
continue to distribute all records hereunder and apply all proceeds in
recoupment of these advances.)
2. Warranty: JMM warrants and represents that Sony Discos' exercise of its
rights hereunder will not infringe the rights of any third party. JMM
will indemnify and hold Sony discos harmless with respect to any breach
or alleged breach of this warranty and representation.
3. Restricted Recordings: Sony Discos will have no obligation to distribute
any records delivered by JMM under this agreement featuring the
performances of any artists who are currently residing in or citizens of
Cuba.
4. Choice of Law/Venue: New York courts (only), both state and federal. New
York law applicable to contracts entered into and performed entirely
within that State.
5. Sell-Off: Sony Discos will have the non-exclusive right, in accordance
with this agreement, to distribute and sell product delivered to Sony
Discos on or before the end of the term for a period of 6 months
following the end of the term ("sell-off period").
Please sign below to signify your acceptance of the above terms.
XXXXX XXXXXXX MUSIC, INC. SONY DISCOS INC.
By: /s/ Xxxxx Xxxxxxx By: /s/ ILLEGIBLE
----------------------------------- -------------------------------
An Authorized Signatory An Authorized Signatory
Fed. Tax I.D.#: _______________________
ASSENTED AND AGREED:
/s/ Xxxxx Xxxxxxx
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XXXXX XXXXXXX
