Productions, Inc. cfo. Esq. fislo [Producer] Now York, NY Asof, 22015 Music, LLC Tso [Artist] clo Esq. [Attomey] ‘Los Angeles, CA “Note that the Artist was represented by experienced counsel. Re: Deal Memorandum ‘Ladies and Gentlemen: ‘The following sets forth the terms on which (i) Tne. Company”) s/o and Music LLC (“you”) furnishing the services of. (CArtist”) agree to form ‘a California limited liability company (the “Venture”) to furnish the exclusive services of Artist ‘to a Distributor (as defined herein), (ii) Artist will furnish her exclusive recording services to the ‘Venture, and (iii) Company will furnish the services of, Producer”) to the Venture to produce the Wenture Masters (defined below). This agreement was essentially between two individuals: an artist and a producer who owned a production company. “Company” is the name of the producer's corporation. The Artist entered ‘into this agreement through a “furnishing” company as well. By entering into the deal as ‘companies rather than individuals, both parties secured “limited liability” and certain tax advantages. Limited liability means that even if a company consists of only one individual, the personal assets of that individual (such as their personal bank account, house and car) are not be subject to liability As used herein, the term “Distributor” shall mean Sony Music, Universal Music and Warner “Music, their wholly owned affiliated labels (collectively “Major Label”); a major independent record company, or an indie record label that is regularly distributed by a Major Label. This Agreement uses the word “Distributor” to refer to the record company with which the Company is trying to secure a deal. The definition of “Distributor” will vary, but it's in the interest of the Artist to narrow this definition to the three major labels—Warner, Sony, and Universal—and their whoily owned label affiliates such as Atlantic, Epic, Columbia, Republic, and Interscope, or a major independent such as Beggars Banquet (the Strokes), Big Machine (Taylor Swift), or Glassnotes (Mumford and Sons). But the Company may want a broader definition embracing companies with national distribution such as RED, ADA, and Caroline, which are owned by the majors but are essentially distributors who seldom provide advances or marketing support. The definition of “Distributor” is not as important in this Agreement as it could otherwise be because, as set forth in Para. 2, “the choice of the Distributor, as well as the terms and. provisions of the Distribution Agreement, shall be subject to the prior written approval” of the Artist 1. Organization of the Venture. Contemporaneously with the execution of this Deal ‘Memorandum, Company and you will cause to be filed Articles of Organization in the State of ‘Now Jerscy organizing a limited liability company called LLC”, such name deemed approved by both Company and you hereunder (or, if such name is not available, another name ‘mutually agreed upon by Company and Artist). The Venture shall be owned 20% by Company and 80% by you. Note that the Arlist will receive 80% of any income; the Company's royalty is limited to 20% ~ compared to 65% for the production company in the first agreement discussed above. 2. Artist Obligations. The term of this agreement (“Term”) shall commence upon the date of this Deal Memorandum and continue until the commercial release by a Distributor in the United States of the fourth (4*) full-length, studio album containing Artist's featured performances and delivered to such Distributor in fulfillment the Venture’s recording obligation to the Distributor. Notwithstanding the foregoing, if an agreement for Artist’s exclusive recording services between the Venture and a Distributor (a “Distribution Agreement”) has not bbeen executed, or substantially negotiated, within nine (9) months from the date of completion of production of the Initial Masters hereunder (the “Shopping Period”), upon written notice, via registered mail, return receipt requested, by Artist given to Company, the parties” obligations hereunder shall terminate and Artist shall be released from any further obligations to the Venture. The maximum duration of this Agreement is for four albums. But note that unless the Artist has approved a Distribution Agreement within nine months from the date af completion of production of the Initial Masters (séx tracks), the Artist has the right to terminate the deal with the Company. In such event, neither Company nor you shall have any right to exploit the Venture Masters without the express written permission of Company and you. All master recordings containing Artist's featured performances that are recorded during the Term, including without limitation the Initial Masters (defined below), shall be referred to as “Venture Masters” and shall be deemed “works made for hire” specially commissioned by the Venture. the contract terminates neither the Company nor the Artist has the right to exploit the Initial Masters without mutual approval. Again, this is very favorable for the Artist. In a pro-company. ‘agreement, the Company would exclusively own the copyrights in the recordings and be able to exploit and/or license any masters made during the term. In this agreement the Venture (that is ‘the Company and the Artist) jointly own the copyrights Notwithstanding the foregoing, if during the Shopping Period Venture receives a bona fide ‘written offer from a Distributor to enter into a Distribution Agreement and the Distribution Agreement is not fully executed prior to the expiration of the Shopping Period, then Shopping Period shall automatically be extended for an additional ninety (90) days. ‘Company needs this provision in order to wrap up any negotiation that are ongoing as ofthe end of the nine month shopping period. Further, notwithstanding anything to the contrary expressed in or implied by this Agreement, itis understood and agreed that the choice of the Distributor, as well as the terms and provisions of the Distribution Agreement, shall be subject to the prior written approval of Company and ‘you, such approval not to be unreasonably withheld or delayed; further, Company and you agree that if you choose not to enter into a Distribution Agreement with a Distributor during the Shopping Period then you shall not directly or indirectly deal with such Distributor (or its affiliates) for a period of twelve (12) months following the expiration of the Shopping Period. “Here it is made clear that the Artist has the right to approve the terms of the Distribution Agreement as well as the Distributor. This is absolutely key. Without the right to approve the Distribution Agreement, the Company could enter into a deal that is bad for the Artist, and the Artist would be powerless to prevent it. The Company may argue that the Distributor will not finalize the deal if the Artist does not sign an “inducement” letter confirming his assent to the agreement. But without the right to approve the deal, if the Artist did not sign the inducement letter, the Artist would arguably be in breach of the Agreement with the Company. The Artist should at least have approval of the major deal points including duration, number of options for additional albums, recording budget, advances, and royalties. 3. Company Obligations. Company agrees as follows: a. Engagement. Promptly after the execution of this Deal memorandum, Company ‘will cause Producer to record and deliver to the Venture six (6) Masters (the “Initial Masters”). In addition, provided that a Distribution Agreement is entered into or substantially negotiated during the Shopping Period, the Venture shall engage Company to, and Company will cause Producer to produce and deliver three (3) Venture Masters per album for potential inclusion on each of the first four (4) “commitment” albums to be delivered to the Distributor pursuant to the Distribution Agreement. For the purposes hereof, the Initial Masters and all other Venture Masters produced bby Producer shall be referred to as “Produced Masters”. The first four (4) “commitment” albums to be delivered to the Distributor pursuant to the Distribution Agreement are sometimes referred to as “First Album”, “Second Album”, “Third Album” and “Fourth Album’, respectively. Tn this Agreement, the Company was furnishing the services of a top notch producer. In addition to shopping the Artist to labels, the Agreement contemplates that the producer would also have a role in producing tracks for the Artist after he got signed. b. Producer Advance; Costs. In respect of the Initial Masters and any other Produced Masters on the First Album, the Venture shall pay, or cause the Distributor to pay, to Company, as advances, recoupable against the Producer's Royalty (the “Producer Advances”), ‘$15,000.00 per Master payable as follows: (1) $7,500.00 payable promptly upon execution of the Distribution Agreement, and (2) the balance promptly following delivery and acceptance by the tributor of technically satisfactory Masters. In addition, use of Company's studio in recording, edition and/or mixing any Produced Masters shall be billed in accordance with a budget that has been approved by both you and Company, which budget is attached hereto as Exhibit “A” (the “Approved Budget”). This provision and the next does not require the label 10 use the producer ’s tracks but does ‘guarantee that the producer would receive advances and a royalty (also referred to as “poimts”) con the first four albums. ©. Producer Royalty. The Venture shall pay Company (or cause the Distributor to pay to Company) a producer's royalty (the “Producer's Royalty”) of three percent (3%) of SRLP in respect of net sales of full-priced records through normal retail channels in the United States (CUSNRC’) embodying solely the Produced Masters. Notwithstanding the foregoing, in no event shall the Producer Royalty hereunder be lower than the royalty equivalent of three produced tracks per album, through the fourth album, Producer's Royalty on all other sales and cexploitations shall be reduced, adjusted, calculated and paid in the same proportion, and at the same times, as is the Venture’s basic “all in” royalty. As to records not consisting entirely of the Produced Masters, the royalty rat shall be prorated by multiplying such royalty rate by @ fraction, the numerator of which is the number of Produced Masters embodied thereon and the denominator of which is the total number of royalty bearing masters (including the Produced. Masters) embodied thereon. Producer's Royalty shall be paid retroactive to the first record sold or other exploitation after recoupment of the recoupable portion of all recording costs incurred connection with the Album on which they are embodied at the net artist rate (ie., the “all in royalty payable to the Venture less the Producer's Royalty payable to Company and the royalties payable to all other producers, mixers and engineers of such Masters), subject, however, to recoupment of the unrecouped portion of the Producer Advance. There shall be no reduction in the Producer's Royalty due to; (i) amounts payable to mixers or executive producers, or (ii) after delivery and acceptance of any Master, amounts payable to any third party producer. In calculating “recording costs” for recoupment purposes, “recording costs” shall not include any “in pocket” advances payable to the Venture or Artist. Producer's Royalty shall be paid directly to Company by the Distributor pursuant to an irrevocable letter of direction. 3% to S%is a normal producer royalty. Credit. The Venture shall instruct, and use reasonable efforts to cause, Distributor to accord Producer the following credit in all trade and consumer advertisements relating to any Produced Master of % page or larger, and in and on the outer packaging, label copy, liner notes ‘and labels of all records embodying the Produced Master: “Produced by > The Venture shall instruct, and use its best efforts to cause, Distributor to include Company's logo (the “Company Logo”) and Artist’s Logo (the “Artist Logo”) in all trade and consumer advertisements relating to any record embodying any Venture Master of Y page or larger, and in and on the outer packaging, label copy, liner notes and Labels of all records (including promotional and commercial singles) embodying any Venture Master. Each such logo shall be no less prominent, and no smaller in size, than any other logos (including the other party's logo) included on such records or in such advertisements, including, without limitation, Distributor’s ogo. In the event that any Distributor will not agrec to include both the Artist Logo and the ‘Company Logo on such terms, Company and Artist shall negotiate in good faith to determine which logos, if any, will be so included. © Controlled Compositions. Producer's interest in any compositions embodied on any Produced Masters shall be subject to any so-called “controlled composition” provisions contained in the Distribution Agreement between the Venture and Distributor. See comments for paragraph 10 in the first agreement. 4, Management, Voting and Control, a. The business and affairs of the Venture shall be managed by Company and you. Company and you will have joint decision making authority and all decisions made regarding the business and affairs of the Venture must be mutually approved by you and the Company, in writing, including, without limitation, those decisions relating to: (i) determining which Distributor(s) with which to enter into Distribution Agreement(s), and (ii) the release and/or exploitation of any Master(s). For the avoidance of doubt, the Venture shall not enter into any agreements or other undertakings regarding any Venture Master prior to the execution of a tribution Agreement, including, without limitation, any license agreement or otherwise, ut unanimous written consent of you and Company. b. Artist and Company further agree as follows: (i) Company"s counsel and Artist's ‘counsel and Artist shall jointly represent the Venture in connection with any Distribution Agreement(s) to be entered into by the Venture, and (fi) Artist’s counsel shall represent Artist’s interests in connection with any additional obligations that Artist may have to any Distributor (such as an obligation to deliver additional commitment albums). Company's counsel and Artist's counsel shall split any legal fees paid or reimbursed by any Distributor in connection with the Distribution Agreement and the Venture shall be responsible for paying, or shall make appropriate arrangements for discharging, all reasonable legal foes of Artist's counsel and ‘Company's counsel in connection with any Distribution Agreement(s) that are not paid or reimbursed by the Distributor. This is a very favorable provision for the Artist as it not only gives him approval but let's his attorney actively engage in negotiations with the label, 5. Allocations and Distributions, a. All advances and royalties (including audit settlements) received by the Venture, or credited to the Venture against an advance previously paid to the Venture, shall be distributed 8 follows: i, First, to the reimbursement of any actual out-of-pocket expenses incurred by the Venture, or by Artist or Company with the Venture’s prior written approval, in connection with the Initial Masters, including the Approved Budget, and in soliciting or ‘negotiating any Distribution Agreement (including, without limitation, legal fees incurred ‘by the Venture pursuant to paragraph 4(b) above); and ii, Then, after payment of any Producer Advances, Producing Royalty (subject always to recoupment of recording costs and/or the Producer Advances on the terms sct forth above) and/or the Approved Budget amount due to Company, 80% to you and 20% to Company. b. Company and Artist agree to require, as a condition of any Distribution Agreement, any Distributor to agree to account direetly to: (i) Company for any Producer Royalties that may become payable, (ii) you for 80% of all royalties that may be payable to the ‘Venture under any Distribution Agreement (net only of the Producer Royalties payable to Company, if any); and (iii) Company for 20% of all royalties that may be payable to Venture under any Distribution Agreement (net only of the Producer Royalties payable to Company, if any). For the avoidance of doubt, as between Company and Artist, subject to the payment of the Producer Advances due to Company pursuant to paragraph 3(b) above, 80% of all “in pocket” advances payable under any Distribution Agreement shall be payable to you. ‘Note the Company's compensation is limited to monies payable by the label, not to any monies ‘that the Artist may earn in the entertainment business. This is not a 360 deal, which is a good thing for the Artist. ©. __Exceptas expressly otherwise provided herein, each of you and Company shall be responsible for payment of its own attomey’s fees, personal management commissions and/or business management commissions out of its share of distributions and/or payments by the Venture. Under no circumstances shall the Venture be responsible for payment of commissions in respect of personal managers, business managers or other advisors engaged by Artist, Producer or ‘Company unless such person was retained expressly to represent the Venture with the prior written consent of both Artist and Company. 6. Other, The Venture shall maintain accurate books and records of all monies paid to or collected by the Venture pursuant to any Distribution Agreement(s). The Ventures books and records relating thereto may be inspected during regular business hours by a certified public accountant or attorney at law designated by Company or you and at the inspecting party's ‘expense, at the place where same arc regularly, maintained, upon thirty (30) days" written notice to the Venture; provided, however, that such examination shall not be permitted more than once a calendar year. b. Neither party may assign, convey, sell, transfer, give, liquidate, encumber, or in any way alienate (“Transfer”) all or any part of his or its respective membership interest in the ‘Venture without the prior written consent of the non-transferring party, which consent may be given or withheld in the sole discretion of such non-transferring party. Any attempted Transfer of all or any part of a membership interest without the necessary consent, or as otherwise permitted hereunder, shall be mull and void and shall have no effect whatsoever. Unlike the first agreement, the Company is not trying to give ttself the right to sell the contract 7. Definitive Agreement. You and Company hereby acknowledge that it is the parties’ ‘mutual intent to enter into a more formal operating agreement (the “Operating Agreement”), as ‘well as a long-form producer agreement (the “Producer Agreement”) and a Furnishing ‘Agreement, at a later date. You and Company hereby agree to negotiate in good faith the terms of such agreements, provided that such agreements shall not contain any provision contrary to any ‘material provision set forth herein, unless mutually agreed in writing by both parties. Until such. time, this Deal Memorandum shall serve as the operating agreement between the parties, regarding the Venture. ACCEPTED AND AGREED TO: PRODUCTIONS, INC.