FINANCIAL DATA

 

“Replay” was released in June of 2013 and only one BMI royalty distribution has been made so far for the title — Q3 of 2013.  80% of that quarter’s distribution was $2,392.08.

 

SOCIAL DATA 

 

*The social data below represents collected information by Next Big Sound about the artist Zendaya from July 16, 2013 to April 7, 2014. These charts are not limited to the song “Replay” and represent the artist as a whole. To download the full data, click here

**To view the full size of each chart/graph, please click on the image

 

Instagram Likes

Twitter Followers

Facebook Page Likes

YouTube Video Views

Vevo Video Views

20131221202702!Zendaya-Replay

OVERVIEW

“Replay” was released in 2013 as the lead single for Zendaya’s self-titled debut album Zendaya.  It debuted at number 77 on the Billboard Hot 100 and is still on the chart today, resting at its peak position of number 40.  The song has already been certified platinum and has made appearances on charts in Australia, New Zealand and Canada.

The song’s music video was released in August of 2013 and debuted on the Disney Channel.  Inspired by Janet Jackson’s video for “The Pleasure Principle”, the video currently has over 48 million views on YouTube.

Zendaya, at the age of 17, is a teen icon who’s made her name through the Disney network.   Zendaya starred in the hit Disney Channel show Shake It Up!, and was a breakout star and runner-up in season 16 of ABC’s Dancing With the Stars.  She’s currently planning to star in and co-produce a new spy series for the Disney Channel.

FEATURED TITLE

RESOURCES

PRIVATE OFFERING MEMORANDUM

 THE ROYALTY EXCHANGE, INC.

(Depositor and Servicer)

ROYALTY X HOLDINGS SERIES 2014-002
(Issuing Entity)

PROCEED RIGHT UNITS
PAYMENT DEPENDENT UPON

ALBUM ROYALTIES
PAYABLE FROM SALES OF TWO UNRELEASED BLACKHAWK ALBUMS
TO BE RELEASED BY LIPSKY MUSIC LLC d/b/a LOUD & PROUD RECORDS

1,000 Proceed Right Units
with each unit representing the right to receive 0.1% of the Royalty Proceeds

This is a private offering (the “Offering’) of 1,000 Proceed Right Units (each a “Unit” and collectively, the “Proceed Rights” as further defined below) issued by Royalty X Holdings Series 2014-002 (the “Series”), a series of Royalty X Holdings, LLC, a Delaware series limited liability company (the “Company”), and which represent the right to receive payments calculated based on the gross amount of proceeds actually received by the Series on account of the Series’ ownership of certain rights to royalty payments (the “Royalty Income Rights” as further defined herein) for a period of 5 years from their respective commercial release dates deriving from two unreleased Blackhawk Albums, as defined herein, to be released by Lipsky Music LLC d/b/a Loud & Proud Records (the “Record Label”), less a servicing fee of 2.5% of such gross amount (the “Servicing Fee”).

Important terms of the Proceed Rights include the following, each of which is described in detail in this Private Offering Memorandum (the “Memorandum”):

•           The Series will use the proceeds of this private offering to purchase the Royalty Income Rights.

•           The Series will distribute the payments received in connection with the Royalty Income Rights to the owners of the Proceed Rights in accordance with the terms described in this Memorandum.

  • The price of the Units will be determined through an Internet “Second-Price” auction conducted on the Royalty Exchange, Inc. (the “Royalty Exchange”) website.

•           Distributions made on a Unit will be limited to an amount equal to 0.1% of payments the Series actually receives with respect to the Royalty Income Rights, less a 2.5% servicing fee.  Securities Filing Fees (as defined herein) up to $5,000 in aggregate will be deducted pro-rata from first Proceed Rights distribution. There is no guarantee that the Series will receive Royalty Income Rights proceeds.

•           The Series will make payments only to the extent it actually receives Royalty Income Rights proceeds during the 5 year terms starting on the respective commercial release dates of each Blackhawk Album. There is no guarantee that the Series will continue to receive Royalty Income Rights proceeds during the entire 5 year terms.

•           The Royalty Exchange, which is the Depositor and Servicer for the Series as well as Managing Member of the Company and the Series, is not obligated in any manner on the Proceed Rights, which are the sole responsibility of the Series.

•           Proceed Rights are being offered solely through this Memorandum and solely to Accredited Investors (as defined below) without the use of a public offering.

•           All Units have significant restrictions on their transferability and resale and in any event may not be transferred without the consent of the Royalty Exchange, in its role as Managing Member of the Company and of each Series, which consent may be granted or withheld in the sole and absolute discretion of the Royalty Exchange.  Therefore, Investors must be prepared to hold the Units indefinitely.

This offering is highly speculative and the Proceed Rights involve a high degree of risk.  In making an investment decision, investors must rely upon their own examination of the Company and the Series and the terms of the offering, including the merits and risks involved.  Investing in the Proceed Rights should be considered only by persons who can afford the complete loss of their investment.  See “Risk Factors” beginning on page 11.

The Proceed Rights offered by this Memorandum have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), or under the securities laws of any applicable state or other jurisdiction (U.S. or foreign) and are being sold in reliance on exemptions from the registration requirements of the Securities Act and such laws.  The Proceed Rights have not been approved or disapproved by the Securities and Exchange Commission (the “SEC”) or any State or any other governmental agency or regulatory authority or any national securities exchange.  No such agency, authority or exchange has passed upon the accuracy or adequacy of this Memorandum or the merits of an investment in this offering.  Any representation to the contrary is unlawful.  The Proceed Rights may not be transferred without the consent of the Royalty Exchange.

Prospective Investors in Proceed Rights offered through the Royalty Exchange website should rely only on the information contained in this Private Offering Memorandum and not upon the information set forth on the general Royalty Exchange website unless specifically directed to information in such website by the Royalty Exchange. The information contained on the Royalty Exchange website is not incorporated by reference into this Memorandum.

 

 

 

 

THIS MEMORANDUM CONTAINS INFORMATION CONCERNING THE SERIES, THE COMPANY AND THE ROYALTY EXCHANGE THAT MAY BE MATERIAL NON‑PUBLIC INFORMATION AND SHOULD BE TREATED AS CONFIDENTIAL.  THIS MEMORANDUM IS BEING SUBMITTED TO PROSPECTIVE INVESTORS SOLELY FOR INVESTORS’ CONFIDENTIAL USE WITH THE EXPRESS UNDERSTANDING THAT, WITHOUT PRIOR EXPRESS WRITTEN PERMISSION, PROSPECTIVE INVESTORS WILL NOT RELEASE THIS DOCUMENT, DISCUSS THE INFORMATION CONTAINED IN THIS MEMORANDUM, MAKE REPRODUCTIONS OF OR USE THIS MEMORANDUM OR THE INFORMATION SET FORTH IN THIS MEMORANDUM FOR ANY PURPOSE OTHER THAN EVALUATING A POTENTIAL INVESTMENT IN THE PROCEED RIGHTS OFFERED BY THIS MEMORANDUM.

RECEIPT OF THIS MEMORANDUM CONSTITUTES THE RECIPIENT’S AGREEMENT THAT THE INFORMATION CONTAINED IN THIS MEMORANDUM WILL BE MAINTAINED IN STRICT CONFIDENCE BY THE RECIPIENT.

____________________

THE PROCEED RIGHTS ARE BEING OFFERED ONLY TO PERSONS WHOM THE ROYALTY EXCHANGE REASONABLY BELIEVES HAVE THE QUALIFICATIONS NECESSARY TO PERMIT THE PROCEED RIGHTS TO BE OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT, STATE SECURITIES LAWS AND RULES AND REGULATIONS PROMULGATED THEREUNDER.

THE INFORMATION PRESENTED IN THIS MEMORANDUM WAS PREPARED BY THE ROYALTY EXCHNAGE AND IS BEING FURNISHED SOLELY FOR USE BY PROSPECTIVE INVESTORS IN CONNECTION WITH THIS OFFERING.  NOTHING CONTAINED IN THIS MEMORANDUM IS, OR SHOULD BE RELIED ON AS, A PROMISE OR REPRESENTATION AS TO FUTURE PERFORMANCE.

THIS MEMORANDUM CONSTITUTES AN OFFER ONLY TO THE OFFEREE TO WHOM THIS MEMORANDUM IS INITIALLY DISTRIBUTED BY THE ROYALTY EXCHANGE.  THIS MEMORANDUM DOES NOT PURPORT TO BE ALL‑INCLUSIVE OR TO CONTAIN ALL OF THE INFORMATION THAT A PROSPECTIVE INVESTOR MAY DESIRE.  EACH INVESTOR MUST CONDUCT AND RELY ON ITS OWN EVALUATION OF THE SERIES, THE COMPANY AND THE ROYALTY EXCHANGE AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED IN MAKING AN INVESTMENT DECISION WITH RESPECT TO THE PROCEED RIGHTS.  SEE “RISK FACTORS” FOR A DISCUSSION OF FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE PURCHASE OF THE PROCEED RIGHTS.  PROVISIONS OF VARIOUS AGREEMENTS ARE SUMMARIZED IN THIS MEMORANDUM, BUT PROSPECTIVE INVESTORS SHOULD NOT ASSUME THAT THE SUMMARIES ARE COMPLETE.  THESE SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE AGREEMENTS.

THIS MEMORANDUM CONTAINS STATEMENTS WHICH CONSTITUTE “FORWARD‑LOOKING STATEMENTS.” THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS MEMORANDUM.  THESE FORWARD‑LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS REGARDING PLANS, INTENTIONS, BELIEFS, EXPECTATIONS AND ASSUMPTIONS, AS WELL AS OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS; AS WELL AS STATEMENTS, PROJECTIONS AND EXAMPLES PROVIDED BY THE RECORD LABEL.  THE SERIES, THE COMPANY AND THE ROYALTY EXCHANGE USE WORDS IN THIS MEMORANDUM SUCH AS “ANTICIPATES,” “BELIEVES,” “PLANS,” “EXPECTS,” “FUTURE,” “INTENDS” AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD‑LOOKING STATEMENTS.  YOU ARE CAUTIONED THAT FORWARD‑LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD‑LOOKING STATEMENTS DUE TO VARIOUS FACTORS, INCLUDING THOSE DESCRIBED IN THE “RISK FACTORS” SECTION.  THE INFORMATION CONTAINED IN THIS MEMORANDUM DESCRIBES IMPORTANT FACTORS THAT COULD CAUSE THESE DIFFERENCES.  THE SERIES, THE COMPANY AND THE ROYALTY EXCHANGE DO NOT INTEND TO UPDATE OR REVISE ANY FORWARD‑LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE PROCEED RIGHTS IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.  EXCEPT AS OTHERWISE INDICATED, THIS MEMORANDUM SPEAKS AS OF THE DATE HEREOF.   NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE SERIES, THE COMPANY OR THE ROYALTY EXCHANGE’S AFFAIRS AFTER THE DATE HEREOF.

PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE ANY STATEMENTS MADE IN THIS MEMORANDUM AS TAX OR LEGAL ADVICE.  THIS MEMORANDUM SHOULD BE REVIEWED BY EACH PROSPECTIVE INVESTOR AND ITS INVESTMENT, TAX OR OTHER ADVISORS, ACCOUNTANTS AND LEGAL COUNSEL.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING MADE BY THIS MEMORANDUM OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS MEMORANDUM, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SERIES, THE COMPANY OR THE ROYALTY EXCHANGE.  PRIOR TO THE CONSUMMATION OF THE PURCHASE AND SALE OF ANY PROCEED RIGHTS, THE SERIES, THE COMPANY AND THE ROYALTY EXCHANGE WILL AFFORD PROSPECTIVE INVESTORS AN OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS CONCERNING THE TERMS AND CONDITIONS OF THE PROCEED RIGHTS, THE BUSINESS AND OTHER RELEVANT MATTERS AND TO OBTAIN ADDITIONAL INFORMATION.

THE SALE OF THE PROCEED RIGHTS IS SUBJECT TO THE PROVISIONS OF, AND EACH OF THE INVESTORS PURCHASING UNITS WILL BE REQUIRED TO EXECUTE, A PROCEED RIGHT PURCHASE AGREEMENT, THE PRINCIPAL TERMS OF WHICH ARE SUMMARIZED ELSEWHERE IN THIS MEMORANDUM.

THE SERIES, THE COMPANY AND THE ROYALTY EXCHANGE RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO MODIFY, AMEND AND/OR WITHDRAW ALL OR ANY PORTION OF THIS OFFERING, INCLUDING THE NUMBER OF UNITS OFFERED, AND/OR TO ACCEPT OR REJECT IN WHOLE OR IN PART ANY PROSPECTIVE INVESTMENT IN THE PROCEED RIGHTS OR TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE NUMBER OF UNITS THAT SUCH INVESTOR DESIRES TO PURCHASE.  THE SERIES, THE COMPANY AND THE ROYALTY EXCHANGE SHALL HAVE NO LIABILITY WHATSOEVER TO ANY OFFEREE AND/OR INVESTOR IN THE EVENT THAT ANY OF THE FOREGOING SHALL OCCUR.

NOTICE TO RESIDENTS OF ALL STATES:

THE PROCEED RIGHTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PROCEED RIGHTS AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.  THE PROCEED RIGHTS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.  FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS MEMORANDUM.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE LIMITED LIABILITY COMPANY AGREEMENT OF THE COMPANY AND THE SERIES, THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.  INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME AND MUST BE ABLE TO WITHSTAND A TOTAL LOSS OF THEIR INVESTMENT.

FOR NON‑UNITED STATES RESIDENTS:

IT IS THE RESPONSIBILITY OF ANY PERSON WISHING TO PURCHASE THE PROCEED RIGHTS TO SATISFY ITSELF AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OR JURISDICTION OUTSIDE THE UNITED STATES IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.

SUMMARY DESCRIPTION OF AUCTION PROCESS

The Royalty Exchange will utilize a “Second-Price” auction to set the price for the Units.  The Series will offer 1,000 identical Units for sale, so there is usually more than one winning bidder. Each bidder can bid for as many or as few of the Units as they are willing to pay for, subject to a minimum bid size of 10 Units. However, all winning bidders pay only the lowest qualifying (successful) bid. If there are more successful bids than Units available, priority goes to the bidders whose bids are the highest and then to bidders who submitted their bids first in time. In order to beat a competing bidder, a bidder must bid a higher price per Unit than the other bidder(s), regardless of the number of Units that are being bid for. Bidding is conducted in $1.00 increments. See full description of the “Second-Price” Auction under Plan of Distribution in About the Series and Proceed Rights below.


TABLE OF CONTENTS

NOTICE TO RESIDENTS OF ALL STATES……………………………………………………………………………….. ii

FOR NON‑UNITED STATES RESIDENTS………………………………………………………………………………… iii

ABOUT THIS MEMORANDUM………………………………………………………………………………………………. 1

THE OFFERING…………………………………………………………………………………………………………………. 3

QUESTIONS AND ANSWERS………………………………………………………………………………………………… 6

The Series and Catalog Q&As………………………………………………………………………………………….. 6

Royalty Exchange Q&As………………………………………………………………………………………………. 10

RISK FACTORS……………………………………………………………………………………………………………….. 11

ABOUT THE SERIES AND PROCEED RIGHTS…………………………………………………………………………. 15

Structure………………………………………………………………………………………………………………….. 15

Certain Other Provisions of the Limited Liability Company Agreement……………………………………….. 15

Description of the Proceed Rights…………………………………………………………………………………….. 16

Use of Proceeds………………………………………………………………………………………………………….. 16

Rights of Holders of Proceed Rights…………………………………………………………………………………. 16

Plan of Distribution…………………………………………………………………………………………………….. 16

Closing    ……………………………………………………………………………………………………………….. 17

Proceed Right Payment Flow…………………………………………………………………………………………. 17

Financial Eligibility Requirements…………………………………………………………………………………… 17

Distributions…………………………………………………………………………………………………………….. 18

Restrictions on Transfer………………………………………………………………………………………………… 19

ABOUT THE CATALOG AND ROYALTY INCOME RIGHTS…………………………………………………………. 20

The Catalog and Royalty Income Rights…………………………………………………………………………….. 20

Album Production and Release in General…………………………………………………………………………… 20

The Artist ……………………………………………………………………………………………………………….. 20

The Record Label……………………………………………………………………………………………………….. 20

Nielsen SoundScan……………………………………………………………………………………………………… 21

Transfer of the Roaylty Income Rights………………………………………………………………………………. 21

Examples of Album Royalty Revenue……………………………………………………………………………….. 21

Illustrative Examples of Hypothetical Proceed Right Payment…………………………………………………… 25

Related Transactions……………………………………………………………………………………………………. 22

Web Materials…………………………………………………………………………………………………………… 22

ABOUT ROYALTY EXCHANGE……………………………………………………………………………………………. 23

The Royalty-Based Asset Industry…………………………………………………………………………………….. 23

How the Royalty Exchange Platform Operates……………………………………………………………………… 23

Servicing  ……………………………………………………………………………………………………………….. 24

Executive Officers, Directors and Key Employees………………………………………………………………….. 25

GOVERNMENT REGULATION…………………………………………………………………………………………….. 27

CERTAIN US FEDERAL INCOME TAX CONSIDERATIONS………………………………………………………… 28

LIST OF ATTACHMENTS…………………………………………………………………………………………………. A-1

Exhibit A – Form of Proceed Right Purchase Agreement
Supplement I – Blackhawk Marketing Plan

 


ABOUT THIS MEMORANDUM

This summary highlights information contained elsewhere in this Memorandum.  You should read the following summary together with the more detailed information appearing in this Memorandum before deciding whether to purchase Units.

This Memorandum describes the Series’ offering of Proceed Rights.  Unless the context otherwise requires, “Series” refers to Royalty X Holdings Series 2014-002, a series of Royalty X Holdings, LCC, a Delaware Series Limited Liability Company (the “Company”), and the term “Royalty Exchange” refers to The Royalty Exchange, Inc. a North Carolina corporation, the depositor and servicer.

Forward-looking Statements

All forward‑looking statements in this Memorandum involve substantial risks and uncertainties regarding the business and operations of the Series, the Company and the Royalty Exchange and Royalty Income Right payments. Materials, examples and projections provided by the Record Label contain forward looking statements. All statements, other than statements of historical facts, included in this Memorandum regarding strategy, future operations, future financial position, future revenue, plans, objectives of management and expected growth are forward‑looking statements.  The words “anticipate,” “believe,” “expect,” “intend,” “may,” “plan,” “will,” “would” and similar expressions are intended to identify forward‑looking statements, although not all forward‑looking statements contain these identifying words.  Investors should read this Memorandum and any information incorporated by reference completely and with the understanding that actual future results may be materially different from what the Series, the Company, the Royalty Exchange or the Record Label expect.  The Series, the Company and the Royalty Exchange do not assume any obligation to update any forward‑looking statements, whether as a result of new information, future events or otherwise, except as required by law.

About the Series and Proceed Rights

The Series was created to purchase and hold the Royalty Income Rights, which are payments directed and actually paid to the Series by the Record Label, as defined below, for a period of 5 years from the respective commercial release dates of the Blackhawk Albums referenced in the “Catalog” as defined below.  The Series will have no other business operations other than the purchase of the Royalty Income Rights, the issuance of the Proceed Rights and the distribution of payments thereon as further described herein. The Series will only make payment on Proceed Rights to the extent that it actually receives payments on the Royalty Income Rights.  A Unit is the Investor’s right to 0.1% share of the Royalty Proceeds.  Royalty Proceeds means the gross amount of the proceeds actually received by the Series on account of the Series’ ownership of the Royalty Income Rights associated with the Catalog, less a 2.5% servicing fee, payable to the Royalty Exchange.

About the Catalog

            The Catalog consists royalty payments payable by Lipsky Music LLC d/b/a Loud & Proud Records (the “Record Label”) based on sales of unreleased sets of tracks (embodied in any form of reproduction now or hereafter known, including, without limitation, phonograph records, compact discs, audio cassettes and digital music files) performed by the artist Blackhawk (the “Artist’) as follows:

(i)              Blackhawk’s new studio album titled “Brothers of the Southland” with an anticipated release date on or around July 10, 2014; and

(ii)            Blackhawk’s new greatest hits album with a to-be-determined title and a to-be-determined but anticipated release date during November 2014 (collectively, the “Blackhawk Albums”).

The Record Label will pay the Series album royalties of $1.20 per United States album or album equivalent sold during the 5 year terms commencing on the respective release dates of the Blackhawk Albums. The U.S. album or album equivalent sales will be based upon sales numbers provided by Nielsen SoundScan. Payment are made semi-annually by the Record Label.

About the Royalty Exchange and the Company

Royalty Exchange, the depositor of the Royalty Income Rights, operates an online auction platform that provides royalty based asset owners the ability to offer for sale their royalty assets. The platform allows royalty asset owners to sell their royalty asset for compensation that they find attractive.  The platform also provides investors with the opportunity to invest in royalty streams on terms the investors find attractive.  Royalty Exchange also services certain royalty assets on an ongoing basis and will be acting as the servicer for the Series.

The Company may, from time to time, create additional series to purchase and hold other royalty income rights due from other catalogs or other royalty assets. Royalty Exchange may also act as depositor and servicer for issuances of other series by the Company. Neither the Series nor any Investor shall have any right, title or interest in such other series.

 

 


THE OFFERING

Issuing Entity Royalty X Holdings Series 2014-002, a series of Royalty X Holdings, LLC, a Delaware series limited liability company.
Depositor and Servicer The Royalty Exchange, Inc., a North Carolina corporation.
Offering 1,000 Proceed Right Units (each a “Unit” and collectively the “Proceed Rights”), each representing the right to 0.1% of the Royalty Proceeds.
Offering Price Offering Price is determined as a result of an Internet “Second-Price” auction to be conducted on the Royalty Exchange website. The minimum bid size is 10 Units and bidding is done in $1.00 increments.
Catalog The Catalog consists royalty payments payable by Lipsky Music LLC d/b/a Loud & Proud Records (the “Record Label”) based on sales of unreleased sets of tracks (embodied in any form of reproduction now or hereafter known, including, without limitation, phonograph records, compact discs, audio cassettes and digital music files) performed by the artist Blackhawk (the “Artist’) as follows:

(i)              Blackhawk’s new studio album titled “Brothers of the Southland” with an anticipated release date on or around July 10, 2014; and

(ii)            Blackhawk’s new greatest hits album with a to-be-determined title and a to-be-determined but anticipated release date during November 2014 (collectively, the “Blackhawk Albums”).

 

Royalty Income Rights The Royalty Income Rights are album royalties of $1.20 per United States album or album equivalent sold during the 5 year terms commencing on the respective release dates of the Blackhawk Albums payable by the Record Label. The U.S. album or album equivalent sales will be based upon sales numbers provided by Nielsen SoundScan. Payment will be made semi-annually by the Record Label.

The “Record Label” means Lipsky Music LLC d/b/a Loud & Proud Records and any successor in interest assignee or payment agent or designee thereof which actually pays the Royalty Income Rights to the Series.

An ‘album equivalent’ means and is calculated as follows: (x) the total number of album tracks which are individually purchased (as opposed to being included in the purchase of a whole album), divided by (y) the number of tracks on the album. For example, if 500,000 album tracks are individually purchased, and there are 10 tracks on the album, then the number of album equivalents resulting from such sales would be 50,000.

Royalty Proceeds Royalty Proceeds means the gross amount of the proceeds actually received by the Series on account of the Series’ ownership of the Royalty Income Rights, less 2.5% of the gross amount. The 2.5% is paid to the Royalty Exchange as servicer under a Collection Agreement. The Royalty Exchange will use a portion of the servicing fee to pay the administrative expenses of the Series. This 2.5% servicing fee will reduce the overall return to any Investor.
Distributions on Proceed Rights The Series will distribute to each owner of a Unit an amount equal to dollar amount the Royalty Proceeds * 0.1% * the number of Units owned by such owner.  The Series will make distributions within 30 days following the end of each calendar quarter in which payments are actually received by the Series. Proceed Rights are not guaranteed or insured by any third party or any governmental agency.
Conditions to Closing In order to close all Investors must have funded their Folio (as defined below) accounts and electronically executed a Proceed Right Purchase Agreement. If all the conditions to Closing are not satisfied or waived within 30 days after the Auction closing, the Offering will be withdrawn, unless extended with the written consent of the Investors and the Royalty Exchange.
Series Separateness In the event of a bankruptcy or similar proceeding of the Royalty Exchange, it is the intention of the Series and the Royalty Exchange that the independence and separateness of the Series from the Royalty Exchange will preclude the inclusion of the Royalty Income Rights held by the Series in the bankruptcy estate of the Royalty Exchange, although such separateness cannot be guaranteed by the Series, the Company or the Royalty Exchange. The Series is not allowed to encumber or pledge any of the Royalty Income Rights held by it.
Use of proceeds The Series will use the proceeds of this Offering to acquire the Royalty Income Rights.
Unit Custodian FOLIOfn Investments, Inc. (“Folio”) is a Virginia corporation that is a registered clearing broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority (“FINRA”). All Investors will have to open an account with Folio to be eligible to participate in this offering. Investors should review Folio’s terms and conditions when opening a Folio brokerage account. Folio is an independent third party and is not affiliated with the Series, Company or the Royalty Exchange. Folio and the Royalty Exchange have entered an Issuers Custody and Services Agreement whereby Folio agrees to act as custodian for the Proceed Rights.
Fees and Expenses Fees and Expenses paid by Investors at Closing:

  • Custodial Fee (one time at Closing)
    In addition to the gross amount of an Investor’s winning bid, Investors will pay a fee at Closing in the amount of 1.5% of the gross amount of Investor’s winning bid (the “Custodial Fee”). The Series will use the Custodial Fee to pay Folio for providing custodial services related to the Offering. For example:

$ bid per unit * number of units = $ amount bid at Auction
$200 per unit bid * 100 units bid = $20,000

$ amount bid at Auction * 1.5% Custodial Fee
$20,000 * 1.5% = $300 Custodial Fee

$ amount bid at Auction + Custodial Fee = total due from Investor
$20,000 + $300 = $20,300

Other Fees and Expenses:

  • Servicing Fee (ongoing, deducted from each Royalty Income Right payment received by the Series prior to the Series making a Proceed Right payment)
    As noted above, the Royalty Exchange will be paid 2.5% of the gross amount of proceeds actually received by the Series on account of the Series’ ownership of the Royalty Income Rights.
  • Securities Filing Fees (one time, paid from first Proceed Right payment)
    The Series is obligated to pay various securities filing fees in connection with the Offering, including state Blue Sky filing fees (the “Securities Filing Fees”). The Royalty Exchange, as depositor and servicer, will advance the Securities Filing Fees on behalf of the Series and will deduct the actual amount of the Securities Filing Fees pro-rata from the first Proceed Right payment made to the Investors. The exact amount of the Securities Filing Fees depends on both the number of states and the actual states in which Investors are residents, but in no event will the Securities Filing Fees charged to the Series exceed $5,000.00 in aggregate, or $5.00 per Unit.
  • Folio Account Fees (ongoing, as incurred)
    Investors will also be obligated to pay applicable Folio account fees, as published on the Folio website per its customer agreement. Investors should review Folio’s terms and conditions and fee schedule associated with opening and maintaining a Folio brokerage account.

Fees and Expenses will reduce the overall return to Investors.

Liquidity There is no market for the Proceed Rights. Transfers of Proceed Rights are significantly restricted.  Each transfer is subject to the prior written approval of Royalty Exchange, as Managing Member of the Series, which approval may be granted or withheld in Royalty Exchange’s sole and absolute discretion.  No transfer of Units will be approved if, in the opinion of Royalty Exchange in its sole and absolute discretion, such transfer would (a) violate relevant securities laws, including without limitation those related to the private placement of the Proceed Rights or (b) cause the Series to cease to be treated as a partnership for federal tax purposes.  Investors must be willing to hold the investment in the Proceed Rights for an indefinite period. See discussion of Restrictions on Transfer in About the Series below.
   

 


 

QUESTIONS AND ANSWERS

The information contained in this Questions and Answers section is not complete and should be
read with the other information contained in this Memorandum.

 

The Series and Catalog Q&As

Q:         Who is the Series?

A:         Royalty X Holdings Series 2014-002 (the “Series”), a series of Royalty X Holdings, LLC, a Delaware Series LLC (the “Company”), is designed to operate as a special purpose vehicle, or SPV, for the Investors. Royalty Exchange is the sole member and managing member of the Company and the Series.

Q:         What is the purpose of the Series?

A:         The Series is a separate and distinct entity from Royalty Exchange that holds the Royalty Income Rights derived from the Catalog.  The Royalty Exchange intends, but cannot guarantee, that the Series be “bankruptcy remote” from the Royalty Exchange so that the Royalty Income Rights held by the Series will not be included in the bankruptcy estate of the Royalty Exchange if the Royalty Exchange were to file for bankruptcy protection. See discussion of Structure in About the Series and Proceed Rights below.

Q:         What is the Catalog?

A:         The Catalog consists royalty payments payable by Lipsky Music LLC d/b/a Loud & Proud Records (the “Record Label”) based on sales of unreleased sets of tracks (embodied in any form of reproduction now or hereafter known, including, without limitation, phonograph records, compact discs, audio cassettes and digital music files) performed by the artist Blackhawk (the “Artist’) as follows:

(i)              Blackhawk’s new studio album titled “Brothers of the Southland” with an anticipated release date on or around July 10, 2014; and

(ii)            Blackhawk’s new greatest hits album with a to-be-determined title and a to-be-determined but anticipated release date during November 2014 (collectively, the “Blackhawk Albums”).

Q:         What are the Royalty Income Rights?

A:         The Royalty Income Rights are album royalties of $1.20 per United States album or album equivalent sold during the 5 year terms commencing on the respective release dates of the Blackhawk Albums payable by the Record Label. The U.S. album or album equivalent sales will be based upon sales numbers provided by Nielsen SoundScan. Payment will be made semi-annually by the Record Label.

Q:         What is an ‘album equivalent’?

A:         An ‘album equivalent’ means and is calculated as follows: (x) the total number of album tracks which are individually purchased (as opposed to being included in the purchase of a whole album), divided by (y) the number of tracks on the album. For example, if 500,000 album tracks are individually purchased, and there are 10 tracks on the album, then the number of album equivalents resulting from such sales would be 50,000.

Q:         Who is the Record Label?

A:         The “Record Label” means Lipsky Music LLC d/b/a Loud & Proud Records and any successor in interest assignee or payment agent or designee thereof which actually pays the Royalty Income Rights to the Series.

Q:         What are the Proceed Rights?

A:         The Proceed Rights are issued by the Series and represent a share of the Royalty Income Rights held by the Series.  The Series will make distributions to the owners of the Proceed Rights as described above under “Distributions on Proceed Rights.”  The obligation of the Series to make any payments on the Proceed Rights is limited to the Royalty Income Right payments the Series actually receives from the Record Label.  If the Series does not receive any Royalty Income Rights payments it will have no obligation to make any payment on the Proceed Rights.

Q:         Are Investors guaranteed payments on the Proceed Rights? What happens at the end of the respective 5 year terms of the Royalty Income Rights?

A:         No. Investors are only entitled to distributions on the Proceed Rights if the Series actually receives payment on the Royalty Income Rights. If there are no payments received on the Royalty Income Rights, there are no payments to Investors.  After 5 years from the commercial release date of the respective Blackhawk Albums, the Royalty Income Rights terminate and Investors are no longer entitled to any payments.

Q:         Are the Proceed Rights secured by any collateral?

A:         No.  The Series owns the Royalty Income Rights, but the Proceed Rights are not secured by any collateral, including the Royalty Income Rights or Catalog, and are not guaranteed or insured by any third party or backed by any governmental agency.

Q:         Are Royalty Exchange or the Company obligated to make distributions on the Proceed Rights?

A:         No.  The Series is the only party obligated to make payments or distributions on the Proceed Rights.

Q:         How is the price of the Proceed Right Units determined?

A:         The Royalty Exchange will utilize a “Second-Price” auction to set the price for the Units.  The Series will offer 1,000 identical Units for sale, so there is usually more than one winning bidder. Each bidder can bid for as many or as few of the Units as they are willing to pay for, subject to a minimum bid size of 10 Units. However, all winning bidders pay only the lowest qualifying (successful) bid. Bidding is conducted in $1.00 increments. See full description of the “Second-Price” Auction under Plan of Distribution in About the Series and Proceeds Rights below.

Q:         How is the Series separate and distinct from Royalty Exchange?

A:         In addition to other elements:

  • The Company is a Delaware series limited liability company.  The Series has been formed as a series of the Company.  The Royalty Exchange is the managing member of the Company and the Series.
  • The Series keeps separate books and records from the Company, each other Series of the Company, and the Royalty Exchange.
  • The Series has no bankruptcy recourse against the Royalty Exchange.
  • The Royalty Exchange does not guarantee any of the debt or securities of the Series.
  • The Series does not engage in any business other than the purchase of the Royalty Income Rights, holding the Royalty Income Rights and making distributions to Investors on the Proceed Rights.

Q:         Who are the investors in the Proceed Rights?

A:         Only investors that are “Accredited Investors” (as defined in the Securities Act and the rules and regulations there under) and that meet other eligibility requirements determined by the Royalty Exchange as the managing member of the Series may purchase Units.

Q:         How do investors receive payments on the Proceed Rights?

A:         Pursuant to the Collection Agreement between the Series and the Royalty Exchange, all royalty income received by the Series pursuant to the Royalty Income Rights is processed by the Royalty Exchange.  If and when the Royalty Exchange receives a royalty payment on behalf of the Series, such payment will be deposited in the Royalty Exchange’s master account. The Royalty Exchange will deduct the 2.5% servicing fee (and for the first distribution only, the Securities Filing Fees) and distribute the remainder to each Investor’s Folio brokerage account. Payment will be made no later than 30 days after the end of each quarter in which payments are actually received by the Series.

Q:         Who is Folio?

A:         FOLIOfn Investments, Inc. (“Folio”) is a Virginia corporation that is a registered clearing broker-dealer with the SEC and a member of the Financial Industry Regulatory Authority (“FINRA”). Folio, among other things, custodies non-public/unlisted security interests, facilitates the private offering of securities and holds cash and securities on behalf of its customers. Folio will custody the Proceed Rights for the Investors in brokerage accounts, established in Folio’s sole discretion, by such Investors pursuant to Folio’s requirements which may be in effect from time to time. Custodial and related services are performed for the Royalty Exchange and the Series pursuant to an Issuers Custody and Services Agreement. The Series will use the Custodial Fee to pay Folio for providing the custodial services related to this Offering. Folio has made no commitment to purchase any of the Proceed Rights, to act as underwriter, to conduct due diligence with respect to this Offering or the Royalty Exchange or the Series or any of their principals or anyone else, to make suitability determinations with respect to, or provide recommendations to, anyone, to act as an ‘investment advisor’ as defined under the Investment Advisers Act of 1940, to review or approve any purchases through the Series, review or approve these private placement materials, market or offer the Proceed Rights, nor does Folio have any activity or responsibility for or with respect to the performance of any Proceed Right.  All Investors will have to open an account with Folio to be eligible to participate in this offering and will be responsible for any then applicable Folio account fee, as published on the Folio website per its customer agreement.

Q:         How are the Proceed Rights being offered?

A:         We are offering the Proceed Rights to investors that are Accredited Investors and meet other eligibility requirements as described in this Memorandum pursuant to a private offering without a general solicitation.  All investors will be required to make certain representations and warranties regarding their investment intent, Accredited Investor status and ability to bear risk of the investment.

Q:         Will I receive a physical Proceed Right?

A:         No.  Folio will custody the Proceed Rights for the Investors in each Investor’s individual Folio brokerage account. The Series will issue one Master Proceed Right Certificate to Folio for the exclusive benefit of the Investors.

Q:         Are there any risks associated with an investment in Proceed Rights?

A:         Yes.  The Proceed Rights are highly speculative and the Proceed Rights involve a high degree of risk.  Investing in the Proceed Rights should be considered only by persons who can afford the loss of their entire investment.  There is no market for the Proceed Rights and the Units may not be transferred or resold without the prior written consent of the Royalty Exchange, which consent may be granted or withheld, for any reason or for no reason, in the sole and absolute discretion of the Royalty Exchange.  Investors must be willing to hold the investment in the Units for an indefinite period. Please see the section below titled “Risk Factors.”

Q:         How are the Proceed Rights treated for United States federal income tax purposes?

A:         The Company will be classified as a partnership for U.S. federal income tax purposes.   Each holder of Units will be treated as a partner in such partnership for U.S. federal income tax purposes, and therefore each holder of Units that is subject to U.S. federal income taxation will be required to report on its U.S. federal income tax return its distributive share of the items of income, gain, loss, deduction and credit of the Company, as determined under the operating agreement, subject to limitations and adjustments imposed under U.S. federal income tax rules.  Holders of Units should consult their own tax advisors with specific reference to their own situations.  See “Certain U.S. Federal Income Tax Considerations” on page 28.

Q:         In addition to the 2.5% servicing fee paid to Royalty Exchange by the Series, what other fees will the Investor pay?

A:        Fees and Expenses paid by Investors at Closing:

  • Custodial Fee (one time at Closing)
    In addition to the gross amount of an Investor’s winning bid, Investors will pay a fee at Closing in the amount of 1.5% of the gross amount of Investor’s winning bid (the “Custodial Fee”). The Series will use the Custodial Fee to pay Folio for providing custodial services related to the Offering. For example:

$ bid per unit * number of units = $ amount bid at Auction
$200 per unit bid * 100 units bid = $20,000

$ amount bid at Auction * 1.5% Custodial Fee
$20,000 * 1.5% = $300 Custodial Fee

$ amount bid at Auction + Custodial Fee = total due from Investor
$20,000 + $300 = $20,300

Other Fees and Expenses:

  • Servicing Fee (ongoing, deducted from each Royalty Income Right payment received by the Series prior to the Series making a Proceed Right payment)
    As noted above, the Royalty Exchange will be paid 2.5% of the gross amount of proceeds actually received by the Series on account of the Series’ ownership of the Royalty Income Rights.
  • Securities Filing Fees (one time, paid from first Proceed Right payment)
    The Series is obligated to pay various securities filing fees in connection with the Offering, including state Blue Sky filing fees (the “Securities Filing Fees”). The Royalty Exchange, as depositor and servicer, will advance the Securities Filing Fees on behalf of the Series and will deduct the actual amount of the Securities Filing Fees pro-rata from the first Proceed Right payment made to the Investors. The exact amount of the Securities Filing Fees depends on both the number of states and the actual states in which Investors are residents, but in no event will the Securities Filing Fees charged to the Series exceed $5,000.00 in aggregate, or $5.00 per Unit.
  • Folio Account Fees (ongoing, as incurred)
    Investors will also be obligated to pay applicable Folio account fees, as published on the Folio website per its customer agreement. Investors should review Folio’s terms and conditions and fee schedule associated with opening and maintaining a Folio brokerage account.

Fees and Expenses will reduce the overall return to Investors.

ROYALTY EXCHANGE Q&As

Q:         Who is Royalty Exchange?

A:         Royalty Exchange is the depositor of the Proceed Rights, and operates an online auction platform that provides royalty based asset owners the ability to offer for sale their royalty assets.  The Royalty Exchange also services royalty based assets on an ongoing basis and will be acting as the servicer for the Series.

Q:         What is the Royalty Exchange platform?

A:         The platform allows royalty asset owners to sell their royalty asset for compensation that they find attractive.  Their platform also provides investors with the opportunity to invest in royalty streams on terms the investors find attractive.

Q:         How does Royalty Exchange make money from the platform?

A:         For servicing the Series, Royalty Exchange will earn the Servicing Fee (2.5% of the gross amount of the proceeds actually received by the Series on account of the Series’ ownership of the Royalty Income Rights). Additionally, pursuant to the Royalty Exchange’s purchase agreement with the Record Label, Royalty Exchange will earn a commission paid by the Record Label, which will be paid by the Record Label from its net Offering proceeds.

Q:         What is Royalty Exchange’s role as servicer?

A:         Pursuant to an agreement between the Series and Royalty Exchange (the “Collection Agreement”) Royalty Exchange collects the Royalty Income Rights payments and accounts and distributes payments to each Investor’s Folio brokerage account their pro rata portion of the Royalty Proceeds.

Q:         What are the general terms of the Collection Agreement?

A:         Royalty Exchange has the exclusive right to collect the gross Royalty Income Rights payments which are payable to the Series and derive from the Catalog. Royalty Exchange retains the 2.5% servicing fee and the remainder is deposited into the Royalty Exchange’s Issuer Folio account for distribution to the Investors in their Folio brokerage accounts. From the first payment only, the Royalty Exchange will also deduct the Securities Filing Fees from the payment to Investors. Royalty Exchange’s obligation under the Collection Agreement is limited to the receiving of monies and Royalty Exchange has no liability in connection with the Series ownership or other interests in the Catalog, including any claim for infringement or the rights of any third party. In the event Royalty Exchange can no longer act as servicer, the Series has the right to appoint another party to act as servicer. The Series cannot guarantee at what price and terms another party would agree to act as servicer and such price may be higher than the servicing fee paid the Royalty Exchange.


RISK FACTORS

An investment in the Proceed Rights involves a high degree of risk.  In deciding whether to purchase Proceed Rights, you should carefully consider the following risk factors.  Any of the following risks could have a material adverse effect on the value of your investment.

RISKS RELATING TO THE ROYALTY INCOME RIGHTS AND CATALOG ON WHICH PAYMENTS UNDER THE PROCEED RIGHTS ARE DEPENDENT

You may lose some or all of your investment in the Proceed Rights because the Proceed Rights are highly risky and speculative.  Only investors who can bear the loss of their entire purchase price should purchase the Proceed Rights.

The Proceed Rights are highly risky and speculative because payments on the Proceed Rights depend entirely on payments received by the Series from the Record Label, which depends entirely upon sales of the Blackhawk Albums, and which further depends upon receipt of all proceeds for sales from Record Label’s distributors; all of which are entirely out of the control of the Series, the Company and the Royalty Exchange.  Proceed Rights are suitable purchases only for investors of adequate financial means.  If you cannot afford to lose all of the money you plan to invest in Proceed Rights, you should not purchase Proceed Rights.

Payments on the Proceed Rights depend on the Record Label.

Bankruptcy, intervening judgments, failure by Record Label to release the Blackhawk Albums, Record Label ceasing its operations, Record Label deleting the Blackhawk Albums from its catalog or Record Label losing rights in or to the Blackhawk Albums (from a dispute between Record Label and the Artist or otherwise) may prevent Record Label from selling the Blackhawk Albums at any time.  Additionally, Record Label is required by contract to make payments to the Royalty Exchange on sales of the Blackhawk Album but it is possible that Record Label may breach such agreement or refuse to pay such royalties.

In addition, the Record Label relies on the continued contributions of its executive officers and key technical people. If the Record Label were to lose the services of Mr. Lipsky, its founder, the process to replace him would involve significant time and expense and could significantly delay or prevent release of the Blackhawk Albums.

In the event the Record Label, for any or no reason, does not release the Blackhawk Albums within certain time periods, the Royalty Exchange will be automatically granted a license to release the Blackhawk Albums pursuant to the Royalty Agreement with Record Label. The Royalty Exchange would then look to assign the license to another record label or distributor, who would release the Blackhawk Albums, however, there is no guarantee or assurance that the Royalty Exchange will be able to find a record label or distributor to release the Blackhawk Albums or that any such record label or distributor would be able to successfully market the Blackhawk Albums.

Payments of royalties also depend on accurate and timely accountings to Record Label by its distributors, which the Royalty Exchange cannot guarantee.  It is possible that Record Label may lose its distributors and for a period of time may not have any bona fide distributor in place to distribute the Blackhawk Albums.

Payments on the Proceed Rights depend in part on there being no claims against the Record Label or the Artist with respect to the Blackhawk Albums referenced in the Catalog, including without limitation, the performances, contributions of others, intellectual property or other rights embodied therein or associated therewith.  In the event that a claim for infringement or any other claims arises, the Record Label may or may not choose to defend it or settle the dispute in its sole discretion and such action may result in either the delay or temporary or permanent cessation of distribution of master recordings on the Blackhawk Albums. The Royalty Exchange makes no warranties or representations regarding the master recordings embodied on the Blackhawk Albums and cannot guarantee that such master recordings do not violate or infringe on any third party rights.

Payments on the Proceed Rights depend entirely on the amount of U.S. albums or album equivalents sold based upon sales numbers provided by Nielsen SoundScan. The Record Label owns and controls the Blackhawk Albums and neither you, the Series, the Company nor the Royalty Exchange has control over how the Blackhawk Albums are exploited throughout the United States.

The statements, examples, projections, Blackhawk Marketing Plan and Record Label video (available on the Royalty Exchange auction website) are provided by the Record Label and are based on its experience and contain forward looking statements. The Record Label is not obligated to act in accordance with the statements contained in the Blackhawk Marketing Plan.  Nor is the Record Label required to provide the Series, the Royalty Exchange, or you with any notice whatsoever in the event that the Record Label’s actions are inconsistent with the anticipated marketing contained in the Blackhawk Marketing Plan. The views and opinions expressed therein are solely those of Mr. Lipsky and the Record Label and are provided for information only and should not be interpreted as investment advice or any recommendation to invest in the Offering.  Neither the Series, the Company nor the Royalty Exchange can verify the forward looking projections, statements and examples therein.

You are only investing in Royalty Income Right payments and have no claim or rights in or to the Blackhawk Albums, copyright, related, neighboring, intellectual property or other rights whatsoever in the Catalog in any country throughout the world.

Payments on the Proceed Rights depend entirely on the Royalty Income Right payments, if any, the Series receives.  None of the Series, the Company, or the Royalty Exchange will be responsible for marketing, promoting, distributing or otherwise managing the Blackhawk Albums referenced in the Catalog.  If the Record Label fails to make any Royalty Income Right payments to the Series, you will not receive any payments on your Proceed Right.

Payments on the Proceed Rights depend entirely on the Royalty Income Right payments, if any, the Series receives.  The Series will make payments on the Proceed Rights only if the Series receives actual payment from the Record Label on the Royalty Income Rights.

Payments on the Proceed Rights depend on the release of the Blackhawk Albums.

The Blackhawk Albums are not yet released. If the albums are not released, investors will not receive Proceed Right payments on the unreleased albums.

There are no historical royalty payments made in connection with the Catalog.

As the Blackhawk Albums are yet to be released there is no payment history and there is no guarantee that any payments will be made.

Future payments are dependent in part on the continued commercial success of the Artist. Negative publicity may damage the reputation of the Artist and reduce the amount of future payments. 

Reputational risk is the risk of loss stemming from damages to an artist’s reputation.  It includes the risk that negative publicity will cause a decline in an artist’s customer base.  The Royalty Income Right payments are dependent on future sales of the albums comprising the Catalog, which may fluctuate based on the Artist’s reputation. Additionally, there is no guarantee that the Artist will actively promote or market the Albums, including, the performance of live shows.  There is no guarantee that the Artist will continue as a going concern and there is inherent risk that the Artist may cease to be a function musical group at any time.

Album and album equivalent sales are based on sales numbers provided by Neilsen SoundScan and may be inaccurate, incomplete or incorrect.

Album and album equivalent sales are reported by Neilsen SoundScan based on sales figures collected by and reported to them. The sales numbers reported may be inaccurate, incomplete or incorrect which would affect the Royalty Income Rights payments.

The Proceed Rights have no liquidity.  Any transfer of a Proceed Right may only be effected with the prior written consent of the Royalty Exchange, which consent may be granted or withheld, for any reason or for no reason, in the sole and absolute discretion of the Royalty Exchange.  Investors should be prepared to hold the Proceed Rights indefinitely.

The Proceed Rights are being issued pursuant to an exemption from the Securities Act and may not be transferred except as provided in the Limited Liability Company Agreement of the Company and the Series and in accordance with applicable securities laws.  There is no market for the Proceed Rights. Transfers of Proceed Rights are significantly restricted.  Each transfer is subject to the prior written approval of the Royalty Exchange, as Managing Member of the Series, which approval may be granted or withheld in the Royalty Exchange’s sole and absolute discretion.  No transfer of Proceed Rights will be approved if, in the opinion of the Royalty Exchange in its sole and absolute discretion, such transfer would (a) violate relevant securities laws, including without limitation those related to the private placement of the Proceed Rights or (b) cause the Series to cease to be treated as a partnership for federal tax purposes.  Investors must be willing to hold the investment in the Proceed Rights for an indefinite period.

RISKS RELATED TO THE SERIES

The Company is a newly formed entity and has no operating history upon which prospective investors may base an evaluation of its likely performance.  There is no assurance that an investment in the Proceed Rights will be successful.

The holders of the Units will have no right or power to take part in the management or control of the business of the Series.

The Company is comprised of multiple series, such as the Series.  The Company is intended to qualify as a series limited liability company under Delaware law, with each series holding its own assets and being responsible for its liabilities to the exclusion of each other series.  If the Company were to fail to qualify as a series limited liability company the Series may be deemed to have exposure to the liabilities of the other series, which could negatively impact the assets of the Series.

RISKS RELATED TO THE ROYALTY EXCHANGE

The Royalty Exchange has a limited operating history.  As an online company in the early stages of development, it faces increased risks, uncertainties, expenses and difficulties.

If the Royalty Exchange is not successful the Series could be negatively impacted.  To be successful, the number of sellers and investors utilizing the Royalty Exchange platform will need to increase, which will require the Royalty Exchange to increase its facilities, personnel and infrastructure to accommodate the greater servicing obligations and demands on the Royalty Exchange platform.  It must constantly add new hardware and update its software and website, expand its customer support services and retain an appropriate number of employees to maintain the operations of the Royalty Exchange platform, as well as to satisfy its servicing obligations for the series. At this early stage in its development, the Royalty Exchange has funded substantially all of its operations with proceeds from venture capital financings.  If it is unable to obtain additional funds, it may be forced to reduce or terminate its operations.

In addition, the Royalty Exchange relies on the continued contributions of its executive officers and key technical people. If the Royalty Exchange were to lose the services of Mr. Peace, its founder and President, the process to replace him would involve significant time and expense and could significantly delay or prevent achievement of its business objectives.

The Royalty Exchange has limited servicing experience.

If the Royalty Exchange is not successful, its ability to service the Royalty Income Rights could be negatively impacted.  At this early stage in its development, the Royalty Exchange has funded substantially all of their operations with proceeds from venture capital financings.  If the Royalty Exchange is unable to obtain additional funds, it may be forced to reduce or terminate their operations.

The Series relies on the Royalty Exchange to service the Royalty Income Rights pursuant to the Collection Agreement. If the Royalty Exchange is unable to continue servicing the Royalty Income Rights, the Series would be forced to find another party to service the Royalty Income Rights which may involve delay and higher servicing costs.

In the event the Royalty Exchange can no longer act as servicer, the Series has the right to appoint another party to act as servicer. The Series cannot guarantee that it would be able to find another servicer or at what price and terms another party would agree to act as servicer and such price may be higher than the servicing fee paid the Royalty Exchange.

The Series relies on a third party, Folio, to act as custodian for the Proceed Rights and to facilitate the distribution of funds on behalf of the Series to investors.  If the Series is unable to continue utilizing these services, payments on the Proceed Rights may be adversely affected.

If Folio is unable to provide its services, or the Series cannot continue to obtain these services, or if the Series cannot transition to another service provider quickly, distributions to the holders of the Proceed Rights could be delayed or halted until other arrangements are made.

The Royalty Exchange is exposed to certain Internet-related risks.

If the security of the Royalty Exchange’s confidential seller and investor information stored in its systems is breached or otherwise subjected to unauthorized access, an investor’s secure information may be stolen, its reputation may be harmed, and the Royalty Exchange may be exposed to liability. Additionally, confidential investor information is shared with Folio and with Royalty Exchanges’ third-party marketing website service. The Royalty Exchange has no control over the security of these two sites.

The Royalty Exchange’s ability to service the Royalty Income Rights or maintain accurate accounts may be adversely affected by computer viruses, physical or electronic break‑ins and similar disruptions. The highly‑automated nature of the Royalty Exchange’s platform may make it an attractive target and potentially vulnerable to computer viruses, physical or electronic break‑ins and similar disruptions.

Any significant disruption in service on the Royalty Exchange’s website or in its computer systems could reduce the attractiveness of its platform and result in a loss of members.

Any disruption in service on the Royalty Exchange’s website or in its computer systems during an auction could affect the ability of investors to place and manage bids, which could adversely affect an auction resulting in a delay, withdrawal or voiding of an auction.

 

 

 


ABOUT THE SERIES AND PROCEED RIGHTS

Read this section carefully as it describes the operations of the Series and Royalty Exchange and how royalty payments are made. Past performance is no guarantee of future results and results may vary substantially from those set forth below.

Structure

Royalty X Holdings Series 2014-002 (the “Series”) is a series of Royalty X Holdings, LLC, a Delaware series limited liability company (the “Company”) established in March 2014 and governed by the Limited Liability Company Agreement. The Royalty Exchange is the sole member and managing member of the Company and the Series.  The Series was created to be a special purpose vehicle to hold the Royalty Income Rights derived from the Catalog.  The Series is a separate and distinct entity from the Royalty Exchange.  However, there can be no guarantee that a court will respect the separate nature of the Series and its ownership of the Royalty Income Rights.

Among other things:

•           The Series will keep separate books and records from the Royalty Exchange.

•           The Series will have no recourse against the Royalty Exchange.

•           The Royalty Exchange will not guarantee any of the debt or securities of the Series.

The Series has and will have no other operations other than raising capital through the sale of Proceed Rights, purchasing the Royalty Income Rights and making distributions of the Royalty Proceeds based on the Royalty Income Right payments actually received.

The Series is the only party who is obligated on the Proceed Rights being offered by this Memorandum.

The Series will enter a Collection Agreement with the Royalty Exchange pursuant to which the Royalty Exchange will provide various servicing and administrative services to the Series.

 

Certain Other Provisions of the Limited Liability Company Agreement

The Series is governed by the Limited Liability Company Agreement of the Company, as amended and/or restated from time to time.  The following summary of certain terms of the Limited Liability Company Agreement is not complete and is qualified in its entirety by the actual Limited Liability Company Agreement, which is available upon request from Royalty Exchange.  Purchasers of Units are not members of the Series; rather, Units represent assignments of the income of the Series.

 

  • No Voting Rights.  Royalty Exchange is the Managing Member of the Series and has complete authority to make any and all decisions and to take any and all actions on behalf of the Series without the consent of any Unit holder.  The Unit holders will not participate in the management of the Series or otherwise have a voice in the operations of the Series or the selection and/or removal of Royalty Exchange as Managing Member.
  • Indemnification.  The Limited Liability Company Agreement contains exculpatory and indemnification provisions that that limit the remedies that might otherwise be available to the Unit Holders.
  • Termination.  The Series will terminate on the last day of first full calendar month following the expiration of the Royalty Income Right(s) held by the Series, provided that the Managing Member may extend the term if the Managing Member deems such extension necessary to wind up the business and affairs of the Series.  The Series may be terminated at an earlier date only with the consent of a majority in interest of the Unit holders.
    • Restriction on Transferability of the Units.  Transferability of the Units is specifically restricted under the Limited Liability Company Agreement and is subject to the prior written consent of Royalty Exchange, which consent may be withheld in Royalty Exchange’s sole and absolute discretion.

Description of the Proceed Rights

Proceed Rights are the Investors’ right to a pro-rata share of the Royalty Proceeds commencing on the closing date of this Offering. Royalty Proceeds means the gross amount of proceeds actually received by the Series on account of the Series’ ownership of Royalty Income Rights associated with the Catalog less the 2.5% Servicing Fee. A Unit provides the holder with no other rights than the right to 0.1% of the Royalty Proceeds.

The Series has no obligation to make any payments on the Proceed Rights unless, and then only to the extent that, the Series has actually received Royalty Income Right payments deriving from the underlying Catalog acquired by the Series, less the Servicing Fee.

Securities Filing Fees, not to exceed $5,000 in aggregate, will be deducted pro-rata from the first Proceed Rights payment.

Use of Proceeds

The Series will use the proceeds from the sale of Proceed Rights to purchase the Royalty Income Rights.

Rights of Holders of Units

Holders of Units will only have a right to Royalty Income Right payments held in their Series and will have no claims or rights to any payments from any royalty income rights held in any other series of the Company.

Plan of Distribution

The Proceed Rights will only be offered pursuant to an exemption from the Securities Act to Accredited Investors.  There will be no underwriters or underwriting discounts or commissions paid on the Proceed Rights. However, a Custodial Fee of 1.5% of the purchase price paid for the Proceed Rights will be paid by each Investor at Closing.

The Royalty Exchange will utilize a “Second-Price” auction to set the price for the Proceed Rights.  The Series will offer 1,000 identical Units for sale, so there is usually more than one winning bidder. Each bidder can bid for as many or as few of the Units as they are willing to pay for, subject to minimum bid size of 10 Units. However, all winning bidders pay only the lowest qualifying (successful) bid. If there are more successful bids than Units available, priority goes to the bidders whose bids are the highest and then to bidders who submitted their bids first in time. In order to beat a competing bidder, a bidder must bid a higher price per Unit than the other bidders, regardless of the number of Units that are being bid for. Bidding is conducted in $1.00 increments.

Here is an example of how an auction might work:

If the Series were to auction 1,000 units.

1.         Bidder “A” bids for 300 units at $22.00 each.

2.         Bidder “B” bids for 600 units at $21.00 each.

3.         Bidder “C” bids for 250 units at $18.00 each.

4.         Bidder “D” bids for 150 units at $17.00 each

The outcome of this auction would be:

1.         Bidder “B” wins 600 units at $18.00 each

2.         Bidder “A” wins 300 units at $18.00 each.

3.         Bidder “C” wins 100 units at $18.00 each

 

The price is $18.00 per unit as that was the lowest successful bid at which all of the units are sold (hence the second price).  All bidders are required to buy the number of units at which a successful auction is concluded even if that number of units is lower than the number of units in their original bid, see Bidder “C” in the example above.

 

The auction may be extended if i) the bids fail to meet the Reserve Price (the minimum price at which the Record Label is willing to sell the Royalty Income Rights) and the Record Label agrees to extend the auction beyond its normal timeframe, or ii) if a bidder places a bid within the last 5 minutes of the auction, the auction will automatically be extended for 5 minutes.

 

When the auction concludes, the Royalty Exchange provides each Investor an invoice which lists the number of Units the Investor won, the winning bid amount and the 1.5% Custodial Fee.  Within 48 hours of auction closing, Investors must fund their Folio brokerage account and electronically execute the Proceed Right Purchase Agreement (the “PR Purchase Agreement”).

Closing

Closing will occur when i) all Investors have funded their accounts; ii) all Investors have executed and returned the PR Purchase Agreement and iii) the Royalty Income Rights have been acquired by the Royalty Exchange and deposited with the Series. At Closing the Royalty Exchange will direct Folio to settle the transaction, then funds will be transferred from Investors’ Folio brokerage accounts and placed in the Royalty Exchange’s Folio account and the Master Proceed Right Certificate will be issued to Folio, for the exclusive benefit of the Investors, and the appropriate number of Units credited to each Investor’s Folio brokerage account.

 

The auction may fail to close and this offering may be withdrawn in the sole discretion of the Royalty Exchange. Events for which the Royalty Exchange may withdraw the Offering include, but are not limited to i) the amount of the bids fail to reach the Reserve Price; ii) the quantity of Units bid for does not reach the quantity of Units being offered; iii) an Investor fails to fund their account and/or fails to execute the PR Purchase Agreement and the Royalty Exchange is unable to place such Investor’s Units with another Investor; or iv) other closing conditions cannot be satisfied or waived, in the sole discretion of the Royalty Exchange. If the conditions to Closing are not satisfied or waived with 30 days after the Auction closing, the Offering will be withdrawn, unless extended by the written consent of all of the Investors and the Royalty Exchange.

Proceed Right Payment Flow

Royalty Income Right payments will flow from the Record Label to the Royalty Exchange as servicer under the Collection Agreement, which directs the Royalty Exchange to collect all payments on behalf of the Series.  The Royalty Exchange will retain 2.5% of the Royalty Income Right payments actually received (the “Servicing Fee”). Royalty Exchange will use the Servicing Fee to pay the expenses of the Series on behalf of the Series and retains the balance of the Servicing Fee, if any. The balance of the gross Royalty Income Right payments (97.5%) will be deposited in the Royalty Exchange’s Folio account no later than 30 days of the end of the quarter in which payments are received and the Royalty Exchange will then instruct Folio to disburse those funds to each Investor’s individual Folio brokerage account based on their Unit ownership. Actual Securities Filing Fees, not to exceed $5,000 in aggregate, will be deducted pro-rata from the first Proceed Right payment. Investors will have access to the monies available in their Folio brokerage account.  Folio will charge additional fees for other transactions (such as purchasing other securities) which occur in an Investor’s Folio brokerage account, pursuant to the Folio customer agreement.

Financial Eligibility Requirements

The Proceed Rights are highly risky and speculative. Investing in the Proceed Rights should be considered only by persons who can afford the loss of their entire investment. Only Accredited Investors may purchase Proceed Rights.

An Accredited Investor means:

(1)      A natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of the person’s purchase of the Proceed Rights exceeds $1.0 million, NOTE: in calculating net worth i) the person’s primary residence shall not be included as an asset and ii) in the event the debt on the person’s primary residence exceeds the market value, such excess debt shall be included as a liability;

(2)      A natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

(3)      A bank as defined in Section 3(a)(2) of the Securities Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a Small Business Investment Company licensed by the United States Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if the plan has total assets in excess of $5.0 million; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of that Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5.0 million or, if a self‑directed plan, with investment decisions made solely by persons that are accredited investors;

(4)      A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

(5)      An organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended; a corporation; a Massachusetts or similar business Series; or a partnership; in each case, not formed for the specific purpose of acquiring the Proceed Rights and with total assets in excess of $5.0 million;

(6)      The Royalty Exchange’s directors or executive officers;

(7)      A trust, with total assets in excess of $5.0 million, not formed for the specific purpose of acquiring the Proceed Rights, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; or

(8)      An entity in which all of the equity owners are accredited investors (as defined above).

Distributions

The Record Label generally makes payments on the Royalty Income Rights semi-annually.  The Royalty Exchange, as servicer on behalf of the Series, will make payments on the Proceed Rights no later than thirty (30) days after the end of each calendar quarter in which payments are actually received.  The Royalty Exchange will hold the funds in a master royalty account and may not invest the funds. The Royalty Exchange currently does not earn interest on the master royalty account, although in the future the Royalty Exchange may make the master royalty account an interest bearing account. Investors are not entitled to interest earned, if any, while the funds are in the master royalty account.

In the event the aggregate Royalty Proceeds are less than $500 in any quarter, the Royalty Exchange, as managing member in its sole discretion, may cause the Series to hold payment of Royalty Proceeds until the balance of Royalty Proceeds exceeds $500.

Investors will have access to the royalty payment statements provided by the Record Label by accessing the Royalty Exchange website. Investors will have access to Folio account statements and transactions through the Folio website.

Neither the Series nor any holder of Units has any recourse against Royalty Exchange in connection with their servicing of the Royalty Income Rights pursuant to an agreement by and between the Series and Royalty Exchange.

Restrictions on Transfer

Transfers of Proceed Rights are significantly restricted.  Each transfer is subject to the prior written approval of Royalty Exchange, as Managing Member of the Series, which approval may be granted or withheld in Royalty Exchange’s sole and absolute discretion.  No transfer of Proceed Rights will be approved if, in the opinion of Royalty Exchange in its sole and absolute discretion, such transfer would (a) violate relevant securities laws, including without limitation those related to the private placement of the Proceed Rights or (b) cause the Series to cease to be treated as a partnership for federal tax purposes.
In deciding whether to permit a transfer, it is expected that Royalty Exchange will consider the following:

  • Under the federal securities laws applicable to private placements such as this offering, a purchaser of Units generally must hold the Units for at least one year from initial issuance.
  • In order for the Series to avoid being characterized as a “publicly traded partnership” for federal income tax purposes, no more than 2% of the outstanding Proceed Rights of the Series may be transferred in a calendar year (calculated on a monthly basis).
    • There are, however, certain transfers that are permitted under federal tax laws and regulations and are not counted against the 2% cap, including:
      • Transfers upon death of a proceed right holder;
      • Transfers to certain family members;
      • So-called “block transfers,” which generally are transfers by a proceed rights holder of more than 2% of the outstanding proceed rights; or
      • Establishment of a specific type of program designed to match buyers and sellers of proceed rights, subject to certain conditions as prescribed by the U.S. Internal Revenue Code of 1986, as amended.

 

Investors are reminded that no assurance can be given that any transfer will be approved, since approval will depend on all of the facts and circumstances and relevant legal requirements at the time permission to transfer is requested.  Consequently, Investors should be prepared to hold the Units indefinitely.


 

ABOUT THE CATALOG AND ROYALTY INCOME RIGHTS

Past performance is no guarantee of future results and results may vary substantially from those set forth below. There are no historical royalty payments. Future payments are dependent on the future sale of the Blackhawk Albums referenced in the Catalog, which is largely dependent on continued commercial success of the Artist.

The Catalog and Royalty Income Rights

The Catalog consists royalty payments payable by Lipsky Music LLC d/b/a Loud & Proud Records (the “Record Label”) based on sales of unreleased sets of tracks (embodied in any form of reproduction now or hereafter known, including, without limitation, phonograph records, compact discs, audio cassettes and digital music files) performed by the artist Blackhawk (the “Artist’) as follows:

(i)              Blackhawk’s new studio album titled “Brothers of the Southland” with an anticipated release date on or around July 10, 2014; and

(ii)            Blackhawk’s new greatest hits album with a to-be-determined title and a to-be-determined but anticipated release date during November 2014 (collectively, the “Blackhawk Albums”).

The Royalty Income Rights are album royalties of $1.20 per United States album or album equivalent sold during the 5 year terms commencing on the respective release dates of the Blackhawk Albums payable by the Record Label. The U.S. album or album equivalent sales will be based upon sales numbers provided by Nielsen SoundScan. Payment will be made semi-annually by the Record Label.

An ‘album equivalent’ means and is calculated as follows: (x) the total number of album tracks which are individually purchased (as opposed to being included in the purchase of a whole album), divided by (y) the number of tracks on the album. For example, if 500,000 album tracks are individually purchased, and there are 10 tracks on the album, then the number of album equivalents resulting from such sales would be 50,000.

Investors are not investing in, and have no rights in or to the Blackhawk Albums or any performances embodied therein or any intellectual property of any kind or nature.

Album Production and Release in General

A record label typically enters into an exclusive recording contract with an artist to market the artist’s recordings in return for royalties on the selling price of the recordings.  A contract either provides for the artist to deliver completed recordings to the label, or for the label to undertake the recording with the artist. For artists without a recording history, the label is often involved in selecting producers, recording studios, additional musicians, and songs to be recorded, and may supervise the output of recording sessions. For established artists, a label is usually less involved in the recording process.  The Label is responsible for the distribution of the album(s) and for the advertisement and marketing of the album(s).

The Artist

Blackhawk is an American country music group founded in 1992 by Henry Paul (lead vocalsmandolinacoustic guitar), Van Stephenson (background vocalselectric guitar), and Dave Robbins (background vocals, keyboards). Reuniting for the Blackhawk Albums are two of the Artist’s founding members, Henry Paul and Dave Robbins.

The Record Label

Lipsky Music LLC d/b/a Loud & Proud Records is an independent record label founded in 2007 by Tom Lipsky. Labels under Lipsky’s direction in the past have had releases by Neil Young, Lynyrd Skynyrd, KISS, Robert Plant, Morrissey, Earth Wind & Fire, The Allman Brothers Band, Widespread Panic, Iron Maiden, Megadeth, Bad Company and more. In a previous joint venture with Roadrunner Records, Loud & Proud was responsible for new albums by Rush, Lenny Kravitz, Rob Zombie, Lynyrd Skynyrd, KISS, Kenny Wayne Shepherd and The Steve Miller Band. Loud & Proud’s current roster includes five-time Emmy Award winning actor and musician Jonathan Jackson (currently on ABC’s Nashville) and his band Enation, rock band The Winery Dogs, jam band The String Cheese Incident, Multi-Platinum country artists Blackhawk, Seattle’s alternative Walking Papers, critically-acclaimed singer/songwriter Willie Nile, and classic rockers Starship featuring Mickey Thomas. Loud & Proud Records is a registered trademark of Lipsky Music, LLC, and is distributed in the U.S. and Canada by RED.

Nielson SoundScan

Nielsen SoundScan is a sales and information tracking system created by Mike Fine and Mike Shalett. SoundScan is the official method of tracking sales of music and music video products throughout the United States and Canada. Data is collected weekly and made available every Wednesday to subscribers that include record companies, publishing firms, music retailers, independent promoters, film and TV companies, and artist managers. SoundScan is the sales source for the Billboard music charts, making it the official source of sales records in the music industry.

Sales data from cash registers is collected from 14,000 retail, mass merchant, and non-traditional (online stores, venues, digital music services, etc.) outlets in the United States, Canada, UK and Japan.

The requirements for reporting sales to Nielsen SoundScan are that the store has Internet access and a point of sale (POS) inventory system. Submission of sales data to Nielsen SoundScan must be in the form of a text file consisting of all the UPCs sold and the quantities per UPC on a weekly basis. Sales collected from Monday-Sunday or Sunday-Saturday are reported to SoundScan every Monday and made available to SoundScan subscribers every Wednesday.

Transfer of the Royalty Income Rights

The Royalty Exchange will acquire the Royalty Income Rights pursuant to a Royalty Agreement with the Record Label. In the event the Record Label, for any or no reason, does not release the Blackhawk Albums within certain time periods, the Royalty Exchange will be automatically granted a license to release the Blackhawk Albums pursuant to the terms of the Royalty Agreement. The Royalty Exchange would then look to assign the license to another record label or distributor, who would release the Blackhawk Albums, however, there is no guarantee or assurance that the Royalty Exchange will be able to find a record label or distributor to release the Blackhawk Albums or that any such record label or distributor would be able to successfully market the Blackhawk Albums.

Examples of Album Royalty Revenue

Historical royalty payments are no indication of future royalty payments. Future payments are dependent on the future Album sales, which are entirely dependent on factors outside of the control of the Series, the Company, the Royalty Exchange and the Proceed Right holders.

The Financial Data for Blackhawk web listing is incorporated by reference. All examples are based on Tom Lipsky’s business judgment and experience.

Illustrative Examples of Hypothetical Proceed Right Distributions

Scenario 1 – First Proceed Right Distribution:
For example, if the Series were to receive payment based on the sale of 20,000 Albums sold in the first half of 2015, and this was the first Proceed Right Distribution, and the investor held one Unit, the investor would receive the following:

    $24,000.00     20,000 albums * $1.20

(5,000.00)    Less Securities Filing Fees (assuming maximum fees)

         (600.00)    Less 2.5% Servicing Fee payable to the Royalty Exchange

$18,400.00     Gross Royalty Proceeds payable to investors in July 2015

          $18.40     Per Unit

Scenario 2 – Proceed Right Distribution (after the first Distribution):
For example, if the Series were to receive payment based on the sale of 20,000 Albums sold in the first half of 2015, and the investor held one Unit, the investor would receive the following:

    $24,000.00     20,000 albums * $1.20

         (600.00)    Less 2.5% Servicing Fee payable to the Royalty Exchange

$23,400.00     Gross Royalty Proceeds payable to investors in July 2015

$23.40     Per Proceed Right Unit

The Series will make Proceed Right Distributions rounded down to the nearest cent and excess funds will be held until the next distribution.

Related Transactions

The Royalty Exchange and Lipsky Music, LLC entered into an Independent Sales Contractor Agreement in 2014. Pursuant to this agreement Lipsky Music, LLC agrees to “assist the Royalty Exchange in ‘signing’ contracts with Sellers to auction items on the on The Royalty Exchange.”  In return for services Lipsky Music, LLC receives monthly retainer payments as well as compensation for completed transactions.

Mr. Lipsky is a member of Royalty Exchange’s Board of Advisors, a position for which members do not receive compensation.

Web Materials

The Auction Listing pages from the Royalty Exchange website are incorporated by reference.

 

 


 

ABOUT ROYALTY EXCHANGE

This section is to provide you with an understanding of the Royalty Exchange platform and its performance in general.  The terms and fees associated with different offerings may vary, so consult The Offering section above for terms and fees applicable to the Series.

Royalty Exchange is an online auction platform that, since 2011, has enabled royalty based asset owners the ability to offer for sale their royalty assets through our online live auction platform and provides servicing for owners of royalty assets. This online auction platform will be used to offer the Proceed Rights issued by the Series.  The Royalty Exchange will provide servicing for the Series.

The Royalty Exchange aims to operate the platform in such a way that royalty asset owners will receive acceptable compensation on their asset sales, while providing a broad range of royalty based investments previously unavailable to investors seeking them. The auction platform operates only online for both buyer and seller and registration, processing and payment systems are automated and electronic.  The Royalty Exchange encourages, and sometimes requires, the use of electronic payments as the preferred means to remit cash payments on investments purchased

The Royalty Exchange generates revenue by charging costs and commissions to the seller of a royalty payment and by acting as servicer for the Series as well as other royalty payments. The servicing fee is 2.5% of each royalty disbursement going forward. Additional revenue is generated by providing royalty advances to holders of royalty producing assets through terminable royalty purchase agreements. Revenue on advances is earned by charging a discount rate fee to any advances.  Advances are offered in one to three year terms.

The Royalty Exchange has positioned itself in the royalties investment market as a royalty-based alternative investment platform.

The Royalty Exchange attracts royalty assets owners and investors to its website, www.royaltyexchange.com, through a variety of sources.  We drive traffic through referrals from other parties (which include online communities, social networks and marketers), through search engine results and through online and offline advertising.  We are not dependent on any one source of traffic to our website.

The Royalty-Based Asset Industry

Prior to this offering of Proceed Rights, the Royalty Exchange has been focused on offering royalty-based assets for sale through its online live auction format. Such a format is very new to investors and sellers of these asset types.  Royalty Exchange uses its website as the platform where both investors and sellers can participate in the offering and purchase of royalty assets.  Royalty-based assets have historically been relatively difficult to buy and sell due to having no common marketplace to offer the assets on, creating an illiquid market. The Royalty Exchange platform changes that by centralizing royalty based offerings in one marketplace, thereby creating liquidity to asset holders and investors. As the provider of a sales and investing platform, Royalty Exchange provides asset analysis services to sellers as well as screening of investors for investor eligibility. Live online auctions of these assets also reduces the overhead costs normally associated with live in person auctions as well as brings these assets to a much larger potential audience due to it not being location based.  We believe that Royalty Exchange also creates a more efficient process to seller and investor, speeding the transaction far beyond historical industry standards and delivering value to both sides more quickly.

How the Royalty Exchange Platform Operates

Registration

For both sales of royalty-based assets or sales of Proceed Rights, new members first register as general Royalty Exchange members.  During registration new members must agree to the terms and conditions of the Royalty Exchange website. General registration requires a valid email account. To be eligible to bid on an auction, members must answer accredited investor questions such that the Royalty Exchange reasonably believes they are Accredited Investors. Members are then given Buyer status.  To be eligible to bid in a securitized auction, the member must have been given Buyer status prior to the start date of that particular auction, and must establish a brokerage account with Folio, which is at Folio’s sole discretion and pursuant to its requirements that may be in effect from time to time.

 

Live Auctions

 

The development, listing and completion of the live auction process on Royalty Exchange is unique in the industry and offers sellers the chance to get potentially higher valuations for their assets due to investors competing to buy the royalty-based assets in an open bidding format. A potential seller contacts Royalty Exchange and provides information on the royalty-based asset they wish to sell. The Royalty Exchange reviews the asset, performs due diligence on the asset and determines if the asset is a suitable candidate for an auction. The seller sets a reserve price, offering materials are created and the auction begins.

Reasons why an auction may fail to sell:

  • Not enough interest in the asset and no offer is made prior to auction end.
  • Auction bids do not meet required reserve set by seller.
  • Internet transmission problem requires auction to be canceled.
  • Auction winners cannot provide funds for purchase to complete sale.

If the royalty-based assets do not sell at auction:

  • The assets may be offered again at the same price or lower
  • The assets may not be offered again and are returned to the asset owner

 

The “Second-Price” Auction

The Royalty Exchange will utilize a “Second-Price” auction to set the price for the Proceed Rights.  See discussion of the Second-Price Auction in the “About the Series” section above.

Servicing

Pursuant to an agreement between the Series and Royalty Exchange (the “Collection Agreement”), Royalty Exchange collects the Royalty Income Rights payments and allocates the payments by sound recording to the proper Series. Royalty Exchange also accounts and distributes to the Investors their pro rata portion of the Royalty Proceeds.

Royalty Exchange has the exclusive right to collect the gross Royalty Income Rights payments which are payable to the Series and derive from the Catalog. The Royalty Exchange will usually passes along the 97.5% of the gross Royalty Income Rights payments it receives to the Series retaining 2.5% of the gross amount of the proceeds actually received on account of the Series’ ownership of the Royalty Income Rights. However, in rare instances, the gross Royalty Income Rights payments received includes monies which are actually due a third party rather than the Series.  If a valid claim for payment from the gross Royalty Income Right payments paid to Royalty Exchange is made by a third party payee, Royalty Exchange is authorized to make payment to such third party payees. Royalty Exchange’s obligations under the Collection Agreement are limited to the receiving of monies and Royalty Exchange has no liability in connection with the Series ownership or other interests in the Catalog, including any claim for infringement or the rights of any third party.

 

Executive Officers, Directors and Key Employees

The following table sets forth information regarding the Royalty Exchanges’ executive officers, directors and key employees as of January 1, 2014:

 

Name

Age

Position(s)

Executive Officers and Directors:    
Sean Peace 45 Executive Officer, Director, and President
Reggie Calloway 60 Executive Officer, VP of West Coast Sales
Josh Borg 41 Director
Don Rainey 54 Director

 

Sean Peace

Sean Peace has served as the President, Founder, Board of Directors member, and Executive Officer of Royalty Exchange since May 2011.  From November 2008 to May 2011 Sean served as the Founder and President of Songvest, a music online marketplace which allowed fans to buy the royalty streams of songs as high end memorabilia.  Prior to these two startup companies Sean was a partner and consultant at several companies focusing on business development, operations, and strategic alliances.  From 1997 – 2008 Sean held a variety of positions at SAS, a global software company, focusing on sales, partner strategy, and strategic account development of SAS software. Sean was known for being an innovative sales leader who excelled at finding net new revenue.  Prior to SAS Sean founded and was Vice President, from 1993 – 1997, of Falconer Group. Sean received his Bachelor of Economics from the University of North Carolina Chapel Hill in 1991.

 

Don Rainey

Don Rainey has served as a Director, and has been on the Board of Directors, of Royalty Exchange since July 2013.  Don became a Venture Capitalist in 2000, first with Intersouth Partners, and currently with Grotech Ventures, which he joined as a general partner in September 2007. Don serves on the Board of Directors of James Madison Innovations, Inc., a non-profit corp. which helps commercialize intellectual property produced at James Madison University (JMU). In 2012, Don was named to the Board of Directors of the Innovation and Entrepreneurship Investment Authority (IEIA), which is the parent authority for The Center for Innovative Technology (CIT).  In 2010, Don was appointed to a third term as an emerging technology consultant to the Chief Information Officer of the U.S. Department of Defense. Don is an organizing board member of MindShare forum. In this role, he helps startup CEOs build long-term, sustainable companies. He was President of Attitude Network, one of the first entertainment networks on the Internet and one of the ten largest websites at the time. He sold the company to TheGlobe.com for $49M in 1999.  Don also served as a founding board member for Accipiter, a leading Internet advertising management company acquired by CMGI in 1998. Earlier, Don was the COO at DaVinci Systems and completed a sale to ON Technology, which went public five months later.  Don received his B.B.A. from James Madison University in 1982 and his Masters in Bioscience Management from George Mason University in 2008.

 

Josh Borg

Josh Borg has served as a Director of Royalty Exchange, as well as a member of the Board of Directors, since June 2013.  Josh, a co-founder and Managing Director of 20 Gates Management, and has almost 20 years’ experience in structured finance and asset management.  Joining Credit Suisse in 2000, he grew to be a Director in the Conduit and Credit Products Group, covering esoteric ABS, CDOs, synthetics, U.S. munis, distressed workout and balance sheet/regulatory capital solutions. In this role, he also spearheaded the bank’s effort to actively manage down impaired investment vehicles and to maximize asset recovery. From 1997-2000, Mr. Borg worked on the buy side at CGA Investment Management, a boutique asset manager specializing in mezzanine ABS, MBS and CMBS sectors. From 1994 to 1997, he held various positions in Fixed Income Trading at Wells Capital Management, the asset management arm of Wells Fargo Bank. Josh received his BA in Economics from Occidental College and is a Chartered Financial Analyst. Josh is a FINRA registered securities principal (Series 7, 24, 53, 63, & 79).

 

Reggie Calloway

Reggie serves as an Executive Officer at Royalty Exchange.  Reggie joined Sean Peace as a Co-Founder of Royalty Exchange in May 2011 and is the VP of West Coast Sales.  Prior to Royalty Exchange Reggie was VP of Sales and Acquisitions for startup Songvest from May 2008 until the launch of Royalty Exchange in 2011.  In 2006 Reggie became President of Spiral Galaxy Entertainment.  A company focused on developing new entertainment programs as well as the training and motivation of new music artists and companies.  Previous to this, at Calloway Productions and Enterprises, a company founded by Reggie in 1986, Reggie ran a successful publishing, recording, and production business.  Reggie is best known as the founder and leader of the multiplatinum group Midnight Star.  Reggie was also a composer and producer for the group from 1976 – 1990.  Reggie serves as a Board of Directors for the School of Performing Arts in Cincinnati, OH, is a Grammy nominated song writer, a two time BMI Songwriter and Publisher Award winner, and has had one Diamond, one Double-Platinum, three Platinum, and ten Gold Albums.

 

Customer Support:

Royalty Exchange provides customer support to our sellers and investors. For most investors their customer service experience is entirely web-based. We provide to both seller and investor detailed frequently asked questions (FAQs) on our website. Royalty Exchange also provides customer support to sellers and investors by email and phone.  Our customer support team is located in North Carolina and can be reached by phone at 919-848-0445 and by email at customer.service@royaltyexchange.com.

 


GOVERNMENT REGULATION

Overview

We believe we are in compliance with the various governmental rules and regulations that affect our business.  These rules and regulations are subject to continuous change, however, and a material change could have an adverse effect on our compliance efforts and ability to operate.

Electronic Signatures in Global and National Commerce Act/Uniform Electronic Transactions Act

The federal Electronic Signatures in Global and National Commerce Act (“ESIGN”) and similar state laws, particularly the Uniform Electronic Transactions Act (“UETA”), authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures.  ESIGN and UETA require businesses that want to use electronic records or signatures in consumer transactions to obtain the consumer’s consent to receive information electronically.  When a borrower or investor registers on the platform, Royalty Exchange obtains his or her consent to transact business electronically and maintains electronic records in compliance with ESIGN and UETA requirements.

New Laws and Regulations

From time to time, various types of federal and state legislation are proposed and new regulations are introduced that could result in additional regulation of, and restrictions on, the business of consumer lending.  We cannot predict whether any such legislation or regulations will be adopted or how this would affect our business.  In addition, the interpretation of existing legislation may change or may prove different than anticipated when applied to our novel business model.


CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

INTERNAL REVENUE SERVICE CIRCULAR 230 NOTICE:  TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICE CIRCULAR 230, PROSPECTIVE BUYERS OF PROCEED RIGHTS ARE HEREBY NOTIFIED THAT:  (1) ANY DISCUSSION OF FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH TAXPAYER UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”); (2) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF INTERESTS IN THE COMPANY; AND (3) PROSPECTIVE BUYERS OF PROCEED RIGHTS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

 

Introduction

The following is a summary of certain aspects of the U.S. federal income taxation of the Company and the holders of Proceed Rights which should be considered by a prospective holder of Proceed Rights.  The summary provides only a general discussion and does not represent a complete analysis of all tax consequences relevant to acquiring, holding or disposing of Proceed Rights.  The Company has not sought a ruling from the IRS or any other federal, state or local agency with respect to any of the tax issues affecting the Company, nor have they obtained opinions of counsel with respect to any federal tax issues.

 

This summary of certain aspects of the U.S. federal income taxation of the Company is based upon the Code, judicial decisions, Treasury Regulations (the “Regulations”) and rulings in existence on the date hereof, all of which are subject to change, possibly with retroactive effect. This summary does not discuss the impact of various proposals to amend the Code which could change certain of the tax consequences of an investment in the Company. This summary also does not discuss all of the tax consequences that may be relevant to a particular holder of Proceed Rights or to certain holders of Proceed Rights subject to special treatment under the U.S. federal income tax laws, such as insurance companies, banks and certain other financial institutions, trusts and (except to the limited extent set forth below) tax-exempt organizations.  Moreover, each prospective holder of Proceed Rights should also note that this summary does not address any foreign, state or local tax consequences of an investment in the Company, or the interaction of U.S. federal tax laws and any income or estate tax treaties between the U.S. and any other jurisdiction.

 

The U.S. federal income tax considerations discussed in this summary are applicable to holders of Proceed Rights who are U.S. persons.  Holder of Proceed Rights who are not U.S. persons should consult their own tax advisors regarding the United States income tax consequences of an investment in the Company.  For purposes of this summary, a “U.S. person” generally is any U.S. citizen or resident individual, any corporation organized under U.S. law (or other entity organized under U.S., law that is treated as a corporation for U.S. federal income tax purposes), any estate the income of which is includible in its gross income for U.S. federal income tax purposes regardless of source, and any trust if a court within the U.S. is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

 

In addition, this discussion does not address the tax treatment of partnerships or persons who hold their Proceed Rights through partnerships or other entities which are transparent for U.S. federal income tax purposes.  A partner in a partnership or other transparent entity that will hold Proceed Rights should consult his, her or its own tax advisor regarding the tax consequences of the ownership and disposition of Proceed Rights through a partnership or other transparent entity, as applicable.

THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY.  NOTHING HEREIN IS OR SHOULD BE CONSTRUED AS LEGAL OR TAX ADVICE TO ANY PROSPECTIVE HOLDER OF PROCEED RIGHTS.  ACCORDINGLY, EACH PERSON CONSIDERING AN INVESTMENT IN THE COMPANY SHOULD CONSULT HIS, HER, OR ITS OWN TAX ADVISOR TO UNDERSTAND FULLY THE POSSIBLE FEDERAL INCOME AND OTHER TAX CONSEQUENCES TO IT OF SUCH AN INVESTMENT.

 

Tax Classification of the Company and Holders of Proceed Rights

The Company will be classified as a partnership for U.S. federal income tax purposes.   Each holder of Proceed Rights will be treated as a partner in such partnership for U.S. federal income tax purposes.

 

Taxation of Holders of Proceed Rights on Income and Losses of the Company

As long as the Company is classified as a partnership for U.S. federal income tax purposes, the Company will not be responsible for the payment of any U.S. federal income taxes associated with its operations.  Instead, each holder of Proceed Rights that is subject to U.S. federal income taxation will be required to report on its U.S. federal income tax return, for each year during which the holder of Proceed Rights is a holder of Proceed Rights of the Company, its distributive share of the items of income, gain, loss, deduction and credit of the Company, as determined under the operating agreement, subject to limitations and adjustments imposed under U.S. federal income tax rules.  Holders of Proceed Rights should consult their own tax advisors with specific reference to their own situations.

 

Holders of Proceed Rights will be required to report their share of the Company’s income on their respective income tax returns without regard to whether they have received cash (or in-kind) distributions.  Thus, holders of Proceed Rights may be liable for income taxes on income allocated to them in a given year in excess of the amount of any distributions received by them during that year and may be required to pay taxes on their share of the Company’s taxable income using cash from other sources.

 

Holders of Proceed Rights’ Tax Basis in its Interest

A holder of Proceed Rights’ tax basis in its interest will include the amount of money and/or the tax basis of property (if any) that the holder of Proceed Rights contributes to the Company, increased principally by the holder of Proceed Rights’ distributive share of Company income and Company liabilities (if any), and decreased, but not below zero, principally by (i) the amount of cash distributions from the Company to the holder of Proceed Rights and the adjusted tax basis of any distributions in kind from the Company to the holder of Proceed Rights, (ii) the amount of the holder of Proceed Rights distributive share of Company losses and (iii) the amount of any decrease in the holder of Proceed Rights’ share of Company liabilities.

 

Returns; Tax Audits

The Company decides how to report the partnership items on the Company’s tax returns. In certain cases, the Company may be required to file a statement with the IRS disclosing one or more positions taken on its tax return, generally where the tax law is uncertain or a position lacks clear authority. All holders of Proceed Rights are required under the Code to treat the partnership items consistently on their own returns, unless they file a statement with the IRS disclosing the inconsistency. Given the uncertainty and complexity of the tax laws, it is possible that the IRS may not agree with the manner in which the Company’s items have been reported. In the event the income tax returns of the Company are audited by the IRS, the tax treatment of the Company’s income and deductions generally is determined at the partnership level in a single proceeding rather than by individual audits of the holders of Proceed Rights.  Any such audit by the IRS could result in adjustments to the Company’s returns.  Any such adjustments could subject holders of Proceed Rights to additional tax, interest and penalties, as well as incremental accounting and legal expenses.  In addition, audit of the Company’s returns could lead to audits of the individual returns of the holder of Proceed Rights, resulting in adjustments and additional tax with respect to non-Company items.

 

Sale of Proceed Rights

A holder of Proceed Rights generally will recognize capital gain or loss on the sale of its Proceed Rights, except for any gain attributable to certain ordinary income items that may be held by the Company.  The difference between the amount realized upon the sale of a holder’s Proceed Rights and the holder’s adjusted tax basis in the Proceed Rights will determine the amount of gain or loss recognized.  For this purpose, the amount realized will include the holder of Proceed Right’s share of any liabilities of the Company.

In general, the sale by a holder of its Proceed Rights in the Company will not affect the Company’s ongoing operations.  If, however, Proceed Rights representing 50% or more of the Company were to be sold (not including redemptions) within a twelve-month period, then the Company would terminate for tax purposes.

 

LIST OF ATTACHMENTS

Exhibit A – Form of Proceed Right Purchase Agreement

Supplement I – Blackhawk Marketing Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

These figures are for 75% of the writer’s share of international ASCAP public performance royalty revenue generated over the past three years by a collection of songs composed by Lem Springsteen. This auction is for the international royalty revenue only, and does not include US royalty revenue. This collection includes titles performed by pop artist Ultra Naté and EDM artist Eric Prydz. Ultra Naté’s “Free” accounted for 83% of this listing’s revenue over the past three years. Eric Prydz’s “Every Day” accounted for 6.7% of this listing’s revenue over the past three years, and 33% over the last two quarters.


*The financial data below represents royalty revenue from 2010-2013. To download the raw royalty data, click here
**To view the full size of each chart/graph, please click on the image

 

TOTAL ROYALTY REVENUE (2010-2013)

*See below for figures

Total Revenue

 

HOW STABLE IS THIS REVENUE STREAM?

The average and total yearly revenue generated by this listing from 2011-2013 is shown below:

Total and Average Yearly Revenue

 

WHY DOES THIS CHART FLUCTUATE?

Revenues for music royalties vary from quarter to quarter for many reasons. Public performance royalties are collected internationally from hundreds of sources, so variance is inherent, but delayed distribution from performing rights organizations, inconsistent touring, seasonal popularity and one-time licenses can also be causes of peaks and valleys in performance charts.

For more information about royalties, visit our information page.

 

FREE

*See below for figures

Free

 

HOW DO THESE RELATE TO TOTAL REVENUES?

“Free”, the 1997 hit single by pop singer Ultra Naté, accounted for 83% of this listing’s royalty revenue over the past three years. The chart’s peak in Q1 of 2011 is attributable to a larger-than-average royalty payment originating in Italy.

 

EVERY DAY

*See below for figures

Every Day

 

HOW DOES THIS RELATE TO TOTAL REVENUES?

“Every Day”, the 2012 hit single from Swedish DJ Eric Prydz, accounted for 6.7% of this listing’s revenue over the past three years. However, the song has only been generating royalty revenue for the past three quarters; over the past two quarters, the song generated 33% of this listing’s revenue.

 

ROYALTY PAYMENT TOP COUNTRIES OF ORIGIN

*See below for figures

Country of Origin

 

HOW DOES THIS RELATE TO TOTAL REVENUES?

Italy and the United Kingdom are the largest sources of royalty payments for this listing. Royalty payments from the United Kingdom accounted for 35% of this listing’s revenue over the past three years; payments from Italy accounted for 31% of this listing’s revenue over that time.

 

ASCAP ROYALTY REVENUE BY SONG

 
Data by Song
 

To download the raw royalty data in .xlsx format, click here

RISK FACTORS

An investment in the Proceed Rights involves a high degree of risk.  In deciding whether to purchase Proceed Rights, you should carefully consider the following risk factors.  Any of the following risks could have a material adverse effect on the value of your investment.

RISKS RELATING TO THE ROYALTY INCOME RIGHTS AND CATALOG ON WHICH PAYMENTS UNDER THE PROCEED RIGHTS ARE DEPENDENT

You may lose some or all of your investment in the Proceed Rights because the Proceed Rights are highly risky and speculative.  Only investors who can bear the loss of their entire purchase price should purchase the Proceed Rights.

The Proceed Rights are highly risky and speculative because payments on the Proceed Rights depend entirely on payments received by the Series from the Record Label, which depends entirely upon sales of the Blackhawk Albums, and which further depends upon receipt of all proceeds for sales from Record Label’s distributors; all of which are entirely out of the control of the Series, the Company and the Royalty Exchange.  Proceed Rights are suitable purchases only for investors of adequate financial means.  If you cannot afford to lose all of the money you plan to invest in Proceed Rights, you should not purchase Proceed Rights.

Payments on the Proceed Rights depend on the Record Label.

Bankruptcy, intervening judgments, failure by Record Label to release the Blackhawk Albums, Record Label ceasing its operations, Record Label deleting the Blackhawk Albums from its catalog or Record Label losing rights in or to the Blackhawk Albums (from a dispute between Record Label and the Artist or otherwise) may prevent Record Label from selling the Blackhawk Albums at any time.  Additionally, Record Label is required by contract to make payments to the Royalty Exchange on sales of the Blackhawk Album but it is possible that Record Label may breach such agreement or refuse to pay such royalties.

In addition, the Record Label relies on the continued contributions of its executive officers and key technical people. If the Record Label were to lose the services of Mr. Lipsky, its founder, the process to replace him would involve significant time and expense and could significantly delay or prevent release of the Blackhawk Albums.

In the event the Record Label, for any or no reason, does not release the Blackhawk Albums within certain time periods, the Royalty Exchange will be automatically granted a license to release the Blackhawk Albums pursuant to the Royalty Agreement with Record Label. The Royalty Exchange would then look to assign the license to another record label or distributor, who would release the Blackhawk Albums, however, there is no guarantee or assurance that the Royalty Exchange will be able to find a record label or distributor to release the Blackhawk Albums or that any such record label or distributor would be able to successfully market the Blackhawk Albums.

Payments of royalties also depend on accurate and timely accountings to Record Label by its distributors, which the Royalty Exchange cannot guarantee.  It is possible that Record Label may lose its distributors and for a period of time may not have any bona fide distributor in place to distribute the Blackhawk Albums.

Payments on the Proceed Rights depend in part on there being no claims against the Record Label or the Artist with respect to the Blackhawk Albums referenced in the Catalog, including without limitation, the performances, contributions of others, intellectual property or other rights embodied therein or associated therewith.  In the event that a claim for infringement or any other claims arises, the Record Label may or may not choose to defend it or settle the dispute in its sole discretion and such action may result in either the delay or temporary or permanent cessation of distribution of master recordings on the Blackhawk Albums. The Royalty Exchange makes no warranties or representations regarding the master recordings embodied on the Blackhawk Albums and cannot guarantee that such master recordings do not violate or infringe on any third party rights.

Payments on the Proceed Rights depend entirely on the amount of U.S. albums or album equivalents sold based upon sales numbers provided by Nielsen SoundScan. The Record Label owns and controls the Blackhawk Albums and neither you, the Series, the Company nor the Royalty Exchange has control over how the Blackhawk Albums are exploited throughout the United States.

The statements, examples, projections, Blackhawk Marketing Plan and Record Label video (available on the Royalty Exchange auction website) are provided by the Record Label and are based on its experience and contain forward looking statements. The Record Label is not obligated to act in accordance with the statements contained in the Blackhawk Marketing Plan.  Nor is the Record Label required to provide the Series, the Royalty Exchange, or you with any notice whatsoever in the event that the Record Label’s actions are inconsistent with the anticipated marketing contained in the Blackhawk Marketing Plan. The views and opinions expressed therein are solely those of Mr. Lipsky and the Record Label and are provided for information only and should not be interpreted as investment advice or any recommendation to invest in the Offering.  Neither the Series, the Company nor the Royalty Exchange can verify the forward looking projections, statements and examples therein.

You are only investing in Royalty Income Right payments and have no claim or rights in or to the Blackhawk Albums, copyright, related, neighboring, intellectual property or other rights whatsoever in the Catalog in any country throughout the world.

Payments on the Proceed Rights depend entirely on the Royalty Income Right payments, if any, the Series receives.  None of the Series, the Company, or the Royalty Exchange will be responsible for marketing, promoting, distributing or otherwise managing the Blackhawk Albums referenced in the Catalog.  If the Record Label fails to make any Royalty Income Right payments to the Series, you will not receive any payments on your Proceed Right.

Payments on the Proceed Rights depend entirely on the Royalty Income Right payments, if any, the Series receives.  The Series will make payments on the Proceed Rights only if the Series receives actual payment from the Record Label on the Royalty Income Rights.

Payments on the Proceed Rights depend on the release of the Blackhawk Albums.

The Blackhawk Albums are not yet released. If the albums are not released, investors will not receive Proceed Right payments on the unreleased albums.

There are no historical royalty payments made in connection with the Catalog.

As the Blackhawk Albums are yet to be released there is no payment history and there is no guarantee that any payments will be made.

Future payments are dependent in part on the continued commercial success of the Artist. Negative publicity may damage the reputation of the Artist and reduce the amount of future payments. 

Reputational risk is the risk of loss stemming from damages to an artist’s reputation.  It includes the risk that negative publicity will cause a decline in an artist’s customer base.  The Royalty Income Right payments are dependent on future sales of the albums comprising the Catalog, which may fluctuate based on the Artist’s reputation. Additionally, there is no guarantee that the Artist will actively promote or market the Albums, including, the performance of live shows.  There is no guarantee that the Artist will continue as a going concern and there is inherent risk that the Artist may cease to be a function musical group at any time.

Album and album equivalent sales are based on sales numbers provided by Neilsen SoundScan and may be inaccurate, incomplete or incorrect.

Album and album equivalent sales are reported by Neilsen SoundScan based on sales figures collected by and reported to them. The sales numbers reported may be inaccurate, incomplete or incorrect which would affect the Royalty Income Rights payments.

The Proceed Rights have no liquidity.  Any transfer of a Proceed Right may only be effected with the prior written consent of the Royalty Exchange, which consent may be granted or withheld, for any reason or for no reason, in the sole and absolute discretion of the Royalty Exchange.  Investors should be prepared to hold the Proceed Rights indefinitely.

The Proceed Rights are being issued pursuant to an exemption from the Securities Act and may not be transferred except as provided in the Limited Liability Company Agreement of the Company and the Series and in accordance with applicable securities laws.  There is no market for the Proceed Rights. Transfers of Proceed Rights are significantly restricted.  Each transfer is subject to the prior written approval of the Royalty Exchange, as Managing Member of the Series, which approval may be granted or withheld in the Royalty Exchange’s sole and absolute discretion.  No transfer of Proceed Rights will be approved if, in the opinion of the Royalty Exchange in its sole and absolute discretion, such transfer would (a) violate relevant securities laws, including without limitation those related to the private placement of the Proceed Rights or (b) cause the Series to cease to be treated as a partnership for federal tax purposes.  Investors must be willing to hold the investment in the Proceed Rights for an indefinite period.

RISKS RELATED TO THE SERIES

The Company is a newly formed entity and has no operating history upon which prospective investors may base an evaluation of its likely performance.  There is no assurance that an investment in the Proceed Rights will be successful.

The holders of the Units will have no right or power to take part in the management or control of the business of the Series.

The Company is comprised of multiple series, such as the Series.  The Company is intended to qualify as a series limited liability company under Delaware law, with each series holding its own assets and being responsible for its liabilities to the exclusion of each other series.  If the Company were to fail to qualify as a series limited liability company the Series may be deemed to have exposure to the liabilities of the other series, which could negatively impact the assets of the Series.

RISKS RELATED TO THE ROYALTY EXCHANGE

The Royalty Exchange has a limited operating history.  As an online company in the early stages of development, it faces increased risks, uncertainties, expenses and difficulties.

If the Royalty Exchange is not successful the Series could be negatively impacted.  To be successful, the number of sellers and investors utilizing the Royalty Exchange platform will need to increase, which will require the Royalty Exchange to increase its facilities, personnel and infrastructure to accommodate the greater servicing obligations and demands on the Royalty Exchange platform.  It must constantly add new hardware and update its software and website, expand its customer support services and retain an appropriate number of employees to maintain the operations of the Royalty Exchange platform, as well as to satisfy its servicing obligations for the series. At this early stage in its development, the Royalty Exchange has funded substantially all of its operations with proceeds from venture capital financings.  If it is unable to obtain additional funds, it may be forced to reduce or terminate its operations.

In addition, the Royalty Exchange relies on the continued contributions of its executive officers and key technical people. If the Royalty Exchange were to lose the services of Mr. Peace, its founder and President, the process to replace him would involve significant time and expense and could significantly delay or prevent achievement of its business objectives.

The Royalty Exchange has limited servicing experience.

If the Royalty Exchange is not successful, its ability to service the Royalty Income Rights could be negatively impacted.  At this early stage in its development, the Royalty Exchange has funded substantially all of their operations with proceeds from venture capital financings.  If the Royalty Exchange is unable to obtain additional funds, it may be forced to reduce or terminate their operations.

The Series relies on the Royalty Exchange to service the Royalty Income Rights pursuant to the Collection Agreement. If the Royalty Exchange is unable to continue servicing the Royalty Income Rights, the Series would be forced to find another party to service the Royalty Income Rights which may involve delay and higher servicing costs.

In the event the Royalty Exchange can no longer act as servicer, the Series has the right to appoint another party to act as servicer. The Series cannot guarantee that it would be able to find another servicer or at what price and terms another party would agree to act as servicer and such price may be higher than the servicing fee paid the Royalty Exchange.

The Series relies on a third party, Folio, to act as custodian for the Proceed Rights and to facilitate the distribution of funds on behalf of the Series to investors.  If the Series is unable to continue utilizing these services, payments on the Proceed Rights may be adversely affected.

If Folio is unable to provide its services, or the Series cannot continue to obtain these services, or if the Series cannot transition to another service provider quickly, distributions to the holders of the Proceed Rights could be delayed or halted until other arrangements are made.

The Royalty Exchange is exposed to certain Internet-related risks.

If the security of the Royalty Exchange’s confidential seller and investor information stored in its systems is breached or otherwise subjected to unauthorized access, an investor’s secure information may be stolen, its reputation may be harmed, and the Royalty Exchange may be exposed to liability. Additionally, confidential investor information is shared with Folio and with Royalty Exchanges’ third-party marketing website service. The Royalty Exchange has no control over the security of these two sites.

The Royalty Exchange’s ability to service the Royalty Income Rights or maintain accurate accounts may be adversely affected by computer viruses, physical or electronic break‑ins and similar disruptions. The highly‑automated nature of the Royalty Exchange’s platform may make it an attractive target and potentially vulnerable to computer viruses, physical or electronic break‑ins and similar disruptions.

Any significant disruption in service on the Royalty Exchange’s website or in its computer systems could reduce the attractiveness of its platform and result in a loss of members.

Any disruption in service on the Royalty Exchange’s website or in its computer systems during an auction could affect the ability of investors to place and manage bids, which could adversely affect an auction resulting in a delay, withdrawal or voiding of an auction.

Private Offering Memorandum (PDF)

Exhibit A – Form of Proceed Right Purchase Agreement (PDF)

 

 

This is a private offering of unregistered securities which are highly speculative and involve a high degree of risk. To be eligible to bid, you must review and confirm the Private Offering Memorandum. You will be prompted for this prior to bidding. Historical royalty payments are no indication of future royalty payments.

These figures are for 100% of the writer’s share and publisher’s share of BMI public performance royalties generated over the past 3 years by a collection of 82 songs written and recorded by Diane Arkenstone. Titles available in this listing span the past decade of Diane’s work and are primarily from her four albums African Skies, Echoes of Egypt, Spirits of the Rainforest and Following the Equator. This listing generated an average of $7,640 per year over the last three years, of which 42.7% was generated by Sirius satellite radio royalties.


*The financial data below represents royalty revenue from 2010-2013. To download the raw royalty data, click here
**To view the full size of each chart/graph, please click on the image

 

TOTAL ROYALTY REVENUE (2010-2013)

*See below for figures

Total Royalty Revenue

 

HOW STABLE IS THIS REVENUE STREAM?

The total and average yearly revenues generated by this listing over the past three years are shown below:

Average and Total Yearly Royalties

WHY DOES THIS CHART FLUCTUATE?

Revenues for music royalties vary from quarter to quarter for many reasons. Public performance royalties are collected internationally from hundreds of sources, so variance is inherent, but delayed distribution from performing rights organizations, inconsistent touring, seasonal popularity and one-time licenses can also be causes of peaks and valleys in performance charts.

For more information about royalties, visit our information page.

 

TOP REVENUE SOURCES

*See below for figures

Sources

 

HOW DO THESE RELATE TO TOTAL REVENUES?

This chart shows the top sources of royalty income for this listing. Since 2010, play on Sirius satellite radio has been responsible for 42.7% of royalties generated by this listing. Trailing Sirius are television royalties at 28.5%. Other substantial sources of royalty revenue for this listing include Pandora, Rhapsody, Music Choice, Muzak and terrestrial radio.

 

BMI ROYALTY REVENUE BY SONG

Data by Title

 

To download the raw royalty data in .xlsx format, click here