MEMORANDUM OF AGREEMENT BETWEEN AND AMONG MADACY ENTERTAINMENT LP (a Quebec limited partnership), EZ-TRACKS, LP (a Quebec limited partnership) and TRAFFIX, INC. (a Delaware corporation) Dated March 13, 2007
MEMORANDUM
OF AGREEMENT BETWEEN AND AMONG
MADACY
ENTERTAINMENT LP (a Quebec limited partnership),
EZ-TRACKS,
LP (a Quebec limited partnership) and
TRAFFIX,
INC. (a Delaware corporation)
Dated
March 13,
2007
WHEREAS
EZ-Tracks, LP (“EZ LP”) is a licensee of recorded music (“Masters”) pursuant to
the terms of a Marketing and Services Agreement dated January 22, 2005 (“M&S
Agreement”) by and between EZ LP, Madacy Entertainment LP, a limited partnership
organized under the laws of the Province of Québec (“Madacy”) as successor of
Madacy Entertainment Group, Limited (“Madacy”) and Traffix Music, Inc., a copy
of which is annexed hereto;
WHEREAS
the
M&S Agreement grants unto EZ a non-exclusive (subject to certain
restrictions) license to use the Masters (as defined in the M&S Agreement)
for certain internet-based direct marketing entertainment purposes;
WHEREAS
Madacy
has licensed the San ▇▇▇▇ Songs (as defined in the M&S Agreement) from SJMG
(as defined in the M&S Agreement) and the License includes a sublicense of
the San ▇▇▇▇ Songs.
WHEREAS
The
M&S Agreement provides that Madacy shall not enter, directly or indirectly
whether through an Affiliate or otherwise, into another relationship or business
enterprise which is identical or materially similar to , and directly
competitive with, the relationship set out therein and the Business (as such
term is defined in the M&S Agreement); for greater certainty, the M&S
Agreement provides that Madacy will not make its Masters available to any third
party in any transaction or relationship for zero or nominal cash consideration
(the foregoing restrictions described in this Whereas Clause are referred to
as
the “Madacy Non-Competitive Relationship Restrictions”).
WHEREAS
the
M&S Agreement was modified to extend the License to include certain
non-exclusive reciprocal mobile rights and service obligations pursuant to
a
document entitled “Marketing Agreement Modifications” (the “Modification”) dated
October 6, 2006, a copy of which is annexed hereto.;
WHEREAS
pursuant
to the terms of the M&S Agreement, the License is subject to automatic
renewals until December 31, 2013 (subject to certain financial conditions)
and
is subject to a further automatic five (5) year extension at any time up to
an
including December 31, 2013 in the event of a sales transaction involving EZ
or
Traffix, Inc. (“Traffix”);
WHEREAS
Madacy
and CIK Investments Inc. (formerly Madacy sp Inc.) (“CIK Investments”) are
parties to a Content Support Agreement (the “Support Agreement”) dated January
12, 2005 pursuant to which CIK Investments is obligated to pay to Madacy ten
percent (10%) of all distributions of profits received by CIK Investments from
its 49.5% partnership interest in EZ LP (the “CIK Interest”) and ten percent
(10%) of all proceeds of any sale of the CIK Interest;
WHEREAS
concurrently with the execution and delivery of this Agreement Traffix has
purchased from CIK Holdings Inc. (“CIK”), the successor to CIK Investments, the
CIK Interest (the “CIK Transaction”) pursuant to an agreement between CIK and
Traffix (the “CIK Interest Purchase Agreement”) and wishes the term of the
License to be modified to provide for a single term of ten (10) years from
January 1, 2007 to December 31, 2016 (rather than the successive renewals set
out above), subject to certain renewal rights as set forth herein;
WHEREAS
Madacy
shall be entitled to receive ten percent (10%) of the proceeds received by
CIK
from the CIK Transaction and considers such amount to be equal to the present
value of the amount which it would otherwise be entitled to receive on an annual
basis upon the automatic renewal of the License pursuant to the terms of the
M&S Agreement should such agreement continue to be automatically renewed for
its renewal terms;
WHEREAS
Madacy
is
desirous of modifying the terms of the License and the M&S Agreement in
consideration of CIK’s agreement to pay Madacy or insure that Madacy is paid ten
percent (10%) of the proceeds of the CIK Transaction and a continuation, for
the
same ten (10) year term (subject to the renewals provided for herein), of the
obligations of Traffix which permit Madacy to use certain services, websites
and
software of Traffix in providing premiums and brick-and-mortar download and
mobile services to its customers; the whole as more fully set out in the M&S
Agreement and the Modification (the M&S Agreement as modified by the
Modification is referred to as the M&S Agreement”);
WHEREAS
Madacy
has obtained a modification of its internet license of the San ▇▇▇▇ Songs from
SJMC so as to permit it to include such songs in the License for a concurrent
term of ten (10) years with five (5) one-year renewal options;
WHEREAS
Madacy
acknowledges that by virtue of the CIK Transaction, the License shall be a
direct license to Traffix in addition to EZ LP.
NOW,
THEREFORE, IT IS AGREED AS FOLLOWS:
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1.
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Preamble:
The preamble shall be deemed to form part of this
Agreement.
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2.
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Term:
Article 5 of the M&S Agreement, other than Sections 5.02 and 5.04 (a)
which shall remain in full force and effect, is hereby deleted and
the
term of the M&S Agreement is hereby agreed to be a single fixed
10-year term commencing on January 1, 2007 and terminating on December
31,
2016 (“the “Fixed 10-Year Term”), subject to the renewal options set forth
in Section 3 below. The M&S Agreement is hereby amended to provide a
direct grant of the License to Traffix in addition to EZ LP, and
to
further provide that Traffix may use the License through any of its
subsidiaries subject to all of the other terms and conditions of
the
M&S Agreement as amended hereby and Traffix agrees to be responsible
for each subsidiary’s performance in accordance with the terms and
conditions of the M&S Agreement. Traffix shall have no obligation to
exploit the License through EZ LP.
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3.
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Renewal
Options:
At the end of the ten (10) year term, Traffix will be entitled, at
its
option, but subject to Section 6 hereof, to extend the License and
the
M&S Agreement for five (5) additional one-year terms in consideration
of an annual royalty of $500,000 per year (payable in 2 installments
on
January 1st
and July 1st
of
each year). If Traffix wishes to extend the License without the benefit
of
the Madacy Non-Competitive Relationship Restrictions, the annual
royalty
will be $350,000 per year (in lieu of $500,000 per year). Notwithstanding
the foregoing, in the event that there shall be, at any time, a Traffix
Bankruptcy Event, the foregoing extension options shall be
cancelled.
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4.
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Definitions:
For the purposes of this Agreement, the following definitions shall
apply
(in addition to those definitions set out in the M&S Agreement and the
Modification):
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a.
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“Prohibited
Business Activities”
shall mean those uses of the Masters which are expressly prohibited
under
the M&S Agreement. Notwithstanding and without limiting the generality
of the foregoing, the License shall not apply to, and the Masters
shall
not be used for, any of the following
activities:
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i.
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sublicensing
to a third party or the downloading by an end-user of any of the
Masters
from any website not owned by Traffix;
and
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ii.
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any
use which is directly competitive with the brick-and-mortar business
of
Madacy including, but not limited to, the use in, or associated with,
any
product which is sold in brick-and-mortar retail stores (e.g. a prepaid
download or ringtone card).
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For
greater certainty, the marketing of a premium program on the website of a third
party which links to a Traffix website for the redemption/downloading of a
Master shall not be considered to be an activity prohibited by clause (i) above
provided the Master remains on the servers of Traffix.
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b.
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“EZ-Tracks
Business”
means the internet-based direct marketing business now or hereafter
carried on by EZ LP and Traffix under the trade name “EZ-Tracks” (or such
other trade names as Traffix may use from time to time) and comprising
the
Permitted Business Activities.
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c.
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“Grey
Business Activities”
are all activities using the Masters permitted under the terms of
the
License which are not Permitted Business Activities or Prohibited
Business
Activities.
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d.
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“License”
means the license of Madacy Songs and Masters from Madacy during
the Term
hereof pursuant to the terms of the M&S Agreement, as amended by the
present Agreement.
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e.
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“Prohibited
Transferee”
means Apple Corp., ITunes, any corporation controlled or affiliated
with
Apple Corp. or ITunes or any successor
thereto;
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f.
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“Restricted
Transferee”
means Napster, Liquid Audio/▇▇▇-▇▇▇▇.▇▇▇, Best Buy, AOL,
RealNetworks/Rhapsody, Musicnet and includes any successor to any
Restricted Transferee pursuant to a purchase of their business or
change
of business name or otherwise.
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g.
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“Traffix
Bankruptcy Event”
means, Traffix shall (i) apply for, shall consent to, or shall acquiesce
in the appointment of a custodian, trustee or receiver for itself
or for a
substantial part of its property; or, in the absence of such application,
consent or acquiescence, a custodian, trustee or receiver shall be
appointed for Traffix or for a substantial part of Traffix’s property, or
(ii) make an assignment for the benefit of creditors; or (iii) be
the
subject of any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency
law.
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h.
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“Permitted
Business Activities”
shall mean the internet-based direct marketing activities of Traffix,
using the Masters, now or hereafter carried on by EZ LP or Traffix
at any
time during the term of the
License.
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5.
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Restriction
on use of the Masters:
For greater certainty and notwithstanding any other provision of
the
M&S Agreement and the present Agreement, the License shall not, at
any
time, permit the licensee to carry on, directly or indirectly, in
any
manner whatever, a Prohibited Business
Activity.
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6.
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Assignability:
The parties hereto acknowledge and agree that the License of Masters
is
for the exclusive benefit of Traffix and is not assignable to third
parties except in connection with a Traffix Sale Event (as such term
is
defined in the CIK Interest Purchase Agreement). Notwithstanding
the
foregoing, Madacy hereby agrees that the License shall be assignable
by
Traffix to a third party, other than a Prohibited Transferee, in
the
context of an EZ-Tracks Sale (as such term is defined in the CIK
Interest
Purchase Agreement) subject to the following terms and
conditions:
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a.
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In
the event that the EZ-Tracks Sale occurs prior to January 1, 2014,
the
five (5) one-year renewal options set out in Section 3 above shall
be
cancelled;
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b.
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In
the event that the EZ-Tracks Sale occurs after December 31, 2013
and
before January 1, 2019, the five (5) one-year renewal options set
out in
Section 8 below shall be reduced to permit such renewals as are required
to permit the transferee to have the benefit of the License for a
term of
three (3) years commencing on the date of the assignment and terminating
on the third anniversary of such
date;
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c.
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In
the event of any EZ-Tracks Sale to a Restricted Transferee, the assignee
of the License shall be entitled to use the Masters for the exclusive
purpose of carrying on any Permitted Business Activity carried on
by
Traffix on or prior to the date of the assignment. For greater certainty,
a Restricted Transferee shall not be entitled to use the Masters
for any
Grey Business Activity.
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d.
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In
the event of any EZ-Tracks Sale to a third party (other than a Prohibited
Transferee or Restricted Transferee), should such third party use
the
Masters for any Grey Business Activity, the transferee shall pay
a royalty
to Madacy for such use as follows:
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i.
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From
the date of the assignment of the License to the third anniversary
of such
assignment, such use of the Masters shall be royalty free;
and
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ii.
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From
the third anniversary to the end of the term, the assignee shall
pay a
royalty to Madacy equal to ten percent (10%) of its net sales (gross
sales
less bad debts) resulting from all Grey Business Activity uses of
the
Masters.
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For
greater certainty, all Permitted Business Activity uses of the Masters shall
continue to be royalty free for the remaining term of the License.
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e.
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Notwithstanding
any other provision of this Agreement, if at the time of any assignment
of
the License by Traffix to a third party, such third party is licensing
the
Masters from Madacy, the License shall be deemed to expressly prohibit
the
use of the Masters in the business for which the third party has
licensed
such Masters from Madacy (e.g. Traffix shall not be entitled, by
way of
assignment or otherwise, to supersede or interfere with any existing
licensing relationship between Madacy and a third party
licensee).
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f.
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In
the event that Traffix shall, at any time, be the subject of any
Traffix
Bankruptcy Event, Traffix shall have no further rights of assignment
of
the License or of the benefits of the M&S Agreement and the five (5)
one-year renewal options set out in Section 3 above shall be
cancelled.
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g.
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In
the event that Madacy shall be, at any time, the subject of a merger,
acquisition or other corporate restructuring, the terms of the present
Agreement shall continue to apply mutatis
mutandis
and bind any successor or assign of Madacy and the transfer of the
rights
and obligations of Madacy hereunder pursuant to such event shall
not be
considered to be a breach of the present
Agreement.
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7.
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San
▇▇▇▇ Music:
Section 1.01(i) of the M&S Agreement incorporates into the License a
sublicense from Madacy of the rights which Madacy has obtained to
use the
▇▇ ▇▇▇▇▇▇▇; the whole in consideration of a reimbursement by EZ LP
of the
internet license fee payable by Madacy to SJMG. The license and sublicense
includes the exclusive right of use by Madacy of a limited number
of the
▇▇ ▇▇▇▇▇▇▇ for the purpose of sublicensing to internet retailers.
Concurrently with the present Agreement, CIK and Madacy have obtained
a
modification of the terms of the license of ▇▇ ▇▇▇▇▇▇▇ to provide
for a
modification of the term of such license to mirror the Fixed 10-Year
Term.
In addition, such modification provides that for the duration of
the
initial 10-year term of the sublicense, no further royalties are
payable
to SJMG and that during each of the five (5) renewal option years,
a
royalty equal to ten percent (10%) of the royalty payable to Madacy
shall
be payable for a continuation of the sublicense. Accordingly, the
parties
hereto agree that Section 1.01(i) of the M&S Agreement is hereby
amended to provide:
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a.
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that
the license and sublicense of the ▇▇ ▇▇▇▇▇▇▇ shall be free of royalty
for
the Fixed 10-Year Term;
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b.
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The
license and sublicense of the ▇▇ ▇▇▇▇▇▇▇ shall include all new recordings
which SJMC acquires or records.
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c.
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that,
in the event that Traffix elects to exercise any of its renewal options,
as set forth below, Traffix shall pay to Madacy, in addition to the
annual
royalty set forth in Section 8 below (i.e. $500,000 or $350,000,
as the
case may be), an additional royalty for SJMC equal to five percent
(5%) of
the Madacy royalty (i.e. $25,000 or $17,500, as the case may be,
and
Madacy shall be responsible for the payment of the balance of any
royalty
payable to SJMC).
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d.
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Traffix
hereby agrees that it shall prepare, for information purposes only,
a
quarterly report to Madacy of all downloads, uses or other disseminations
of the Masters, with a separate report regarding uses of the ▇▇
▇▇▇▇▇▇▇.
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8.
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Mobile
Rights:
The extension of the License to include ringtones, ringbacks and
other
telephone uses is set out in the Modification (hereafter such extension
is
referred to as the “Ringtone License Extension”). The terms of the
Modification are incorporated herein subject to the following
changes:
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a.
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All
references to “EZ” are hereby replaced with
“Traffix”.
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b.
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The
last sentence of Section 1 and all of Section 5 of the Modification
is
hereby deleted;
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c.
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Section
3 of the Modification is hereby deleted and replaced with the
following:
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“Traffix
will pay Madacy a royalty equal to the greater of (i) 10% of the sales proceeds
on any mobile use of the License (where the ringtone or group of ringtones,
etc.
are the subject of a sale, as opposed to where the ringtone is obtained pursuant
to a subscription or premium) and (ii) $0.10 for each ringtone which is
downloaded, delivered or otherwise conveyed by Traffix (by direct sale, premium,
subscription or otherwise). In addition, Traffix will be responsible for all
third-party music publishing costs/performance rights relating to the
distribution of the song. The term “sales proceeds” does not refer to the sales
proceeds paid on a Traffix Sale Event or EZ-Tracks Sale.
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9.
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General
Provisions:
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a.
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Traffix
shall continue to be responsible for all third party royalty and
publishing payments owing with respect to the use of the music such
as
artist royalties, mechanical royalties, copyright payments for streaming,
digital downloading, mobile, synchronization, performance or otherwise.
Provided that Madacy arranges for Traffix to be entitled to be responsible
for royalty reporting and payment Section 1.01(h) of the M&S Agreement
is hereby modified to provide that Traffix shall be directly responsible
for all royalty reporting and payment with respect thereto. Madacy
agrees
to assist Traffix in the engaging of a Royaltyshare for the purpose
of
administering such payment obligations. Traffix agrees to hold Madacy
harmless from any claims for unpaid royalties resulting from Traffix’s use
of the Masters on or after January 1, 2007. In accordance with the
foregoing, the last sentence of the first paragraph and the entire
second
paragraph of Section 1.01(h) and the entirety of Section 1.01(d)
of the
M&S Agreement are hereby deleted and Section 1.01(c) of the M&S
Agreement is hereby deleted and replaced with the
following:
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“The
License shall be subject to Traffix having obtained the appropriate music
publishing licenses (“Mechanicals”) to permit the use of the Masters for
downloading, streaming, mobile use and such other uses as Traffix makes of
the
Masters under the License.”
Notwithstanding
the generality of the foregoing, the parties hereto acknowledge that the
requesting, negotiating and obtaining of Mechanicals is a cumbersome and time
consuming task. Moreover, the parties hereto acknowledge that obtaining
publishing rights for mobile applications requires significant time and effort
as the granting of such rights are at the complete discretion of the music
publisher. As a consequence of the foregoing, Madacy hereby agrees that it
shall
assist Traffix in the music publishing process by either (i) obtaining the
licenses directly from the music publishers and administering the royalty
reporting process, (ii) obtaining the licenses on behalf of Traffix or (iii)
any
combination thereof (the “Music Publishing Services”). For the purposes hereof,
the following shall apply:
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i.
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If
Madacy is administering the music publishing for the account of Traffix,
Traffix shall provide Madacy with details of all publishing owing
within
ten (10) days of each month-end and remit all such amounts owing
forthwith
to Madacy (the failure to so comply shall constitute a material breach
of
the M&S Agreement);
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ii.
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Madacy
shall be entitled to reimbursement of all direct costs incurred
administering the music publishing for the account of Traffix including,
but not limited to, Traffix’s pro rata share of the cost of any employees
of Madacy providing such licensing and administration services (it
being
acknowledged that Madacy shall hire an employee for the exclusive
purpose
of undertaking mobile licensing for Traffix), fees from Royaltyshare
or
any replacement third party royalty administration company and such
other
direct costs as Madacy reasonably incurs in providing such service
(such
costs to be comparable to the direct costs Madacy incurs on its own
behalf
in the music publishing licensing and reporting
functions);
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iii.
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If,
after December 31, 2009, the parties determine, acting reasonably,
that
the licensing process is sufficiently routine so as to permit Traffix
to
assume its direct responsibilities for the continuing obtaining,
administration and compliance with publishing licenses, Traffix will
assume such responsibilities.
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b.
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Traffix
shall be entitled to use the Masters in the exploitation of its websites
but shall not, under any circumstances, be entitled to sub-license
the
Masters to any third party (other than Madacy and affiliates of Madacy).
For greater certainty, all uses by Traffix of the Masters shall be
through
digital download dissemination from the websites of Traffix and shall
not
be through a dissemination or download of the Masters on the websites
of
any other party.
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c.
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For
greater certainty, Traffix shall not use the Masters for any purpose
which
is competitive with the brick and mortar business or internet bulk
licensing for a fee (i.e. ITunes) business conducted by Madacy although
Traffix shall be entitled to allow downloading by an end-user (i.e.,
consumer) of Songs from its websites for a fee as provided in the
M&S
Agreement .
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d.
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All
references in the M&S Agreement to “Partnership” or “the “Partnership”
are hereby replaced with “Traffix”.
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e.
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The
parties hereto acknowledge that the territory of the License is the
World
subject to any restrictions on use which may be applicable to any
of the
Masters (including the San ▇▇▇▇ ▇▇▇▇▇▇▇) (e.g. the licensors of the
Masters cannot give Traffix any greater rights to the Masters than
they
have). Traffix hereby acknowledges that Madacy and SJMG may not have
complete or unrestricted rights of exploitation of every master recording
and, in particular, may have significant restrictions on use of certain
parts of their respective master recording catalogues outside North
America. Madacy hereby agrees to notify Traffix, in writing, of any
territorial restrictions (present and future) on use of the
Masters.
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f.
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Section
1.02 of the M&S Agreement is hereby modified by deleting the last 2
sentences of the first paragraph and replacing them with the
following:
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The
parties hereto acknowledge and agree that Madacy shall incur, from time-to-time,
certain direct out-of-pocket expenses directly relating to the assisting of
Traffix in the exploitation of its business and hereby agrees to reimburse
Madacy for such costs upon request. For greater certainty, at the time of
entering into of the present Memorandum of Agreement, Traffix is presently
reimbursing Madacy for approximately $25,000 per annum in salaries for personnel
dedicated to the exploitation of Traffix’s websites and Madacy shall continue to
provide such services to Traffix in consideration of the reimbursement of
Madacy’s direct out-of-pocket costs.
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g.
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Section
1.04 of the M&S Agreement is hereby
deleted.
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h.
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The
first paragraph of Section 1.05 of the M&S Agreement is hereby deleted
and replaced with the following:
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“During
the Term and subject to the terms and conditions of this Agreement,
Madacy
shall not enter,
directly or indirectly, into
another relationship or business enterprise
which
is
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.”
For
greater certainty, notwithstanding the non-exclusive nature of the License,
Madacy has agreed, and continues to agree, that it shall not make its Masters
available in bulk
in
any transaction or relationship for zero or nominal cash consideration. For
further clarity, nothing contained in the present Agreement or otherwise (other
than the Madacy Non-Competitive Relationship Restrictions) restricts or shall
restrict, in any way:
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(i)
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Madacy’s
exploitation of its own Masters in its present and future
brick-and-mortar, digital, mobile and licensing businesses;
and
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(ii)
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Madacy’s
ability to license or sub-license its Masters to third parties for
a fee
or other form of consideration.
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i.
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The
third paragraph of Section 1.05 of the M&S Agreement is hereby amended
to be only applicable to Madacy by replacing “neither Contractor may” with
“Madacy shall not”.
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j.
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The
final paragraph of Section 1.05 of the M&S Agreement (Madacy as
exclusive supplier of content to the Partnership) is hereby
deleted.
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k.
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Section
1.06 of the M&S Agreement is hereby deleted and replaced with the
following:
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“Madacy
may use the Program as a premium or give-away (“Premium”) to generate sales for
its own (non-3rd
party) brick-and-mortar products/services and any revenue generated from the
sales of Madacy’s products/services shall belong solely to
Madacy.”
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l.
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Section
2 of
the Modification is hereby deleted and replaced with the
following:
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a.
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“Traffix
and EZ LP heretofore developed and maintained a dedicated fulfillment
website (“Fulfillment Website”) that provides music downloads and ringtone
products to fulfill premiums or prepaid products offered by Madacy
in
connection with its promotion of sales in support of Madacy’s
brick-and-mortar business (“Premium/Prepaid Products”). Traffix shall
continue to provide Madacy and its subsidiaries with access to such
Fulfillment Website for Madacy’s or its subsidiaries’ offering of
Premium/Prepaid Products, and if requested by Madacy or its subsidiaries
to develop modifications to such Fulfillment Website or additional
Fulfillment Websites for the offering of Premium/Prepaid Products
(such
modifications and additions collectively referred to as “Fulfillment
Website Additions and Modifications”), Traffix will use its reasonable
commercial efforts to develop such additional or modified Fulfillment
Websites, consistent with Traffix’s past practices in relation to the
frequency and complexity of Madacy’s requests to EZ LP and Traffix for
site development work and modifications and the resources that Traffix
was
required to devote or obtain in order to provide such site development
work and maintain such Fulfillment Websites, and Madacy or its
subsidiaries, as the case may be, shall be responsible to reimburse
Traffix for direct labor and any other direct costs incurred in providing
the development and maintenance of such Fulfillment Websites. For
greater
certainty, Madacy shall be responsible for the foregoing direct costs
related to the development and maintenance of Fulfillment Websites
but
shall not be charged any service charges or fees relating to the
use of
the developed sites.
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| In the event of any dispute or issue between Traffix or Madacy with regard to this Section 2(a) or the Service Fee payable for Fulfillment Websites, the sole remedy of Traffix or Madacy, as the case may be, for a default (subject to the notice and cure provisions provided for in Section 5.02 of the M&S Agreement) in performance of their respective obligations with respect to the Fulfillment Websites or the Fulfillment Website Additions and Modifications shall be to seek recovery of actual damages resulting from such default and in no event shall Madacy be entitled to terminate the M&S Agreement or the License under the M&S Agreement as amended by this Agreement as a result of any such default by Traffix, provided, however, that if Traffix fails to provide Madacy with substantially the same access that Madacy enjoys as of this date to the existing Fulfillment Websites and the features of the existing Fulfillment Websites (other than for reasons beyond Traffix’s control such as but not limited to interference from third parties with the operations of the internet or interruptions in the operation of the Fulfillment Websites by viruses or equipment failures), then Madacy shall be entitled to terminate the Ringtone License Extension granted under the Modification as amended by this Agreement subject to the notice and cure provisions of Section 5.02 of the M&S Agreement. In addition to the foregoing, in the event that Traffix ceases, at any time, to provide Madacy with substantially the same access that Madacy enjoys as of this date to the existing Fulfillment Websites and the features of the existing Fulfillment Websites, Traffix shall, in partial mitigation of its damages to Madacy hereunder, assist Madacy in finding a replacement company to provide such services. |
|
b.
|
Traffix
also understands that Madacy wishes to develop e-commerce sites that
would
permit the purchase of music downloads and ringtones in support of
Madacy’s brick-and-mortar business with retailers (any such site referred
to as an “E-Commerce Website”). Madacy hereby acknowledges that the
creation of a E-Commerce Website is a complex undertaking, that would
require, among other things, the establishment by Madacy of its own
merchant accounts and short codes and that Traffix does not have
experience in the development of e-commerce websites. Traffix agrees
to
review requests submitted to it by Madacy for the development of
E-Commerce Websites and Traffix shall promptly respond to Madacy
and
advise Madacy whether Traffix is able to assist Madacy in the development
of an E-Commerce Website and if Traffix agrees that it can undertake
such
a project Traffix will use reasonable commercial efforts consistent
with
Traffix’s past practices in relation to the frequency and complexity of
Madacy’s requests to EZ LP and Traffix for site development work and site
modifications and the resources that Traffix was required to devote
or
obtain in order to provide such site development work and maintain
the
Fulfillment Websites. If Traffix is able to develop E-Commerce Websites
in
accordance with Madacy’s requests, Madacy and its subsidiaries shall have
access to such E-Commerce Websites in consideration of payment to
Traffix
of the Service Fee (as defined below). Notwithstanding the foregoing,
Traffix shall not, under any circumstances, be responsible for any
music
publishing costs related to such activities involving the Fulfillment
Websites and the E-Commerce
Websites.
|
| “In no event shall a default by Traffix or Madacy under the M&S Agreement as amended by this Agreement be deemed to have occurred with respect to any dispute or issue that arises with respect to the provisions of this Section 2(b) or the Service Fee payable for E-Commerce Websites, including, but not limited to, Traffix advising Madacy that it is unable to develop an E-Commerce Website in response to a Madacy request for such development, or any default or alleged default by Traffix in the development or maintenance of any E-Commerce Website, or any dispute regarding payments due from Madacy to Traffix in connection with the development of E-Commerce Websites. If Traffix agrees to develop an E-Commerce Website for Madacy, and a dispute arises between Traffix and Madacy with respect to such E-Commerce Website, then the sole remedy for a default by either with respect to performance of any of their respective obligations with respect to development or operation of such E-Commerce Website shall be to seek recovery of actual damages resulting from such default.” |
|
m.
|
Section
4 of the Modification is hereby deleted and replaced with the
following:
|
“The
following fees (“Service Fee”) shall be paid by Madacy in consideration for
Traffix’s development and provision of Fulfillment Websites and E-Commerce
Websites:
1. The
Service Fee for Traffix’s development and provision of Fulfillment Websites
shall equal Traffix’s direct labor and any other direct costs relating to any
necessary website development work and provision of necessary services and
equipment involved in providing the development and maintenance of such
Fulfillment Website.
2. The
Service Fee payable by Madacy for Traffix’s development and provision of
E-Commerce Websites shall equal the greater of:
(i) One
hundred percent (100%) of Traffix’s direct labor and any other direct costs
relating to any necessary website development work and provision of necessary
services and equipment involved in providing the development and maintenance
of
such E-Commerce Website plus five percent (5%) of Madacy’s gross profit from the
sale or license of the ringtone or download products offered on the E-Commerce
Website; and
(ii) Ten
percent (10%) of Madacy’s gross profit from the sale or license of the ringtone
or download products offered on the E-Commerce Website.”
|
n.
|
For
the purposes hereof, “gross profit” shall mean the gross revenue less
returns, rebates, discounts, advertising allowances, and reasonable
reserves relating to such gross revenues and music publishing
costs/performance rights.”
|
|
o.
|
Sections
2.01 and 2.01 of the M&S Agreement are hereby deleted. Traffix’s
reporting obligation under its License shall be limited to the periodic
reporting of usage of the Masters, the whole are more fully described
in
Section 7(d) above. Moreover, the audit provisions of Section 2.03
of the
M&S Agreement are hereby restricted to apply only to Traffix’s
records regarding use of the Masters and payment of the Publishing
and
Royalties.
|
|
10.
|
New
Recordings:
Madacy will make available, as part of the continuing License, all
new
recordings which it is entitled to make available (ie. any owned
recordings and any recordings which are sub-licensable) subject to
Traffix
being responsible for any third party payments relating to the use
of such
Masters. Madacy agrees to continuously deliver all new recordings
to
Traffix on an orderly and timely basis and, in no event, less frequently
than once per month. Notwithstanding the generality of the foregoing,
in
the event that Madacy is ever the subject of a merger or acquisition
or
other reorganization with another entity, Madacy shall continue to
make
available all new recordings which it is entitled to make available
and
which are obtained as part of the continuing carrying on of Madacy’s
business. Such continuing obligation shall not, however, extend to
any
recordings owned or controlled by the other entity or its affiliates
at
the time of the merger or acquisition or other reorganization or
which are
acquired subsequently by the other entity or its affiliates in the
carrying on of its business. Notwithstanding the generality of the
foregoing, in the event that such merger, acquisition or other
reorganization occurs prior to December 31, 2008, and, following
such
merger, acquisition or other reorganization, Madacy ceases to conduct
business as a separate business entity, the entity other than Madacy
that
survives the merger, acquisition or other reorganization shall continue
until at least December 31, 2008 to provide Traffix with new recordings
of
music at levels consistent with the past practices of Madacy.
|
|
11.
|
Representations:
Madacy on its behalf and Traffix on its behalf, and on behalf of
Traffix
Music, Inc., hereby repeat their respective representations, warranties
and covenants in Articles 7 and 8 of the M&S Agreement with respect to
the present Memorandum of Agreement except
that:
|
|
a.
|
Section
7(a) is hereby deleted in its entirety and replaced with the
following:
|
“Madacy
is a limited partnership, validly existing and in good standing under the laws
of the province of Quebec and has all requisite power and authority to operate
its business as and where presently being conducted.”
|
b.
|
The
reference in Section 7(b) to “corporate power” is replaced with the word
“power”.
|
|
c.
|
the
reference in Section 7(c) to “the Certificate of Incorporation or Bylaws
of Madacy” are hereby replaced with “the limited partnership agreement of
Madacy and the terms of the documents governing the Madacy Entertainment
Income Trust (the “Trust”)”; and
|
|
d.
|
Section
7(e) is hereby deleted in its entirety and replaced with the
following:
|
“No
consent, approval or authorization of, or registration or filing with, any
Person (including but not limited to any lender of Madacy’s) or governmental
authority or agency is required in connection with the execution, delivery
and
performance of this Agreement by Madacy, including, without limitation, the
licensing of the rights to the Madacy Songs and Masters to
Traffix and authorization of their use by Traffix or its subsidiaries as
provided in this Agreement; the consent of the Trustees of the Trust
to
the execution and delivery of this Agreement by Madacy has been obtained and
has
not been modified or rescinded.”
|
12.
|
Indemnification:
Section 10.02 is hereby deleted and replaced with the
following:
|
Indemnification
by Madacy.
Madacy shall indemnify and hold Traffix
harmless from any loss, damage, expense, Costs, cause of action, demand,
penalty, fine or claim, including the cost of any litigation or administrative
proceeding and counsel fees, arising out of any breach by Madacy of any
representations or warranties contained herein. Notwithstanding the generality
of the foregoing, the parties hereto acknowledge and agree that Traffix’s
recourse for damages resulting from a termination of the Agreement shall be
against CIK in accordance with the terms of the CIK Interest Purchase Agreement
.
|
13.
|
The
reference in Article 9 of the M&S Agreement to “Madacy Entertainment
Group, Limited is hereby replaced with “Madacy Entertainment LP” and
notices to the Partnership are hereby
deleted.
|
|
14.
|
All
provisions and terms of the M&S Agreement, as amended by the
Modification, shall remain in full force and effect save and except
for
such changes and modifications set out in the present Agreement.
|
The
parties acknowledge that they have required that this Agreement and all related
documents be prepared in English.
Les
parties reconnaissent avoir exigé que la présente convention et tous les
documents connexes soient rédigés en anglais.
AGREED
TO
THIS 13th
DAY OF
MARCH, 2007.
| Traffix, Inc. | EZ Tracks, LP | |||
| By: Traffix SP-EZ ULC, its general partner | ||||
| Per: | /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ | Per: | /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ | |
|
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ |
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ |
|||
| CEO | ||||
|
Madacy
Entertainment LP
By:
Madacy Holding Inc., its general partner
|
||||
| Per: | /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | |||
|
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ President
|
The
following party intervenes in the present Memorandum of Agreement for the
purpose of taking cognizance of its terms.
| CIK Holdings Inc. | ||||
| Per: | /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | |||
|
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ |
||||
|
President
|