ITEM 1. BUSINESS
Organization and Background
Mills Music Trust (the “Trust”) was created by a Declaration of Trust, dated December 3, 1964 (the “Declaration of Trust”), for the purpose of acquiring from Mills Music, Inc. (“Old Mills”), the right to receive payment of a deferred contingent purchase price obligation (the “Contingent Portion”) payable to Old Mills. The obligation to pay the Contingent Portion arose as the result of the sale by Old Mills of its music and lyric copyright catalogue (the “Catalogue”) to a newly formed company pursuant to an asset purchase agreement dated December 5, 1964 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, payment of the Contingent Portion to the Trust continues until the end of the year in which the last copyright in the Catalogue expires and cannot be renewed.
The Contingent Portion amounts are currently payable by EMI Mills Music Inc. (“EMI”), the owner of the copyrighted materials contained in the Catalogue. The Trust has been advised that Sony/ATV Music Publishing LLC (“Sony/ATV”) is the administrator and manager of EMI and the Catalogue.
HSBC Bank, USA, N.A. is the Corporate Trustee of the Trust (the “Corporate Trustee”), and Lee Eastman and Michael E. Reiss are the Individual Trustees of the Trust (the “Individual Trustees” and together with the Corporate Trustee, the “Trustees”).
Proceeds from Contingent Portion Payments
The Trust receives quarterly payments of the Contingent Portion from EMI and distributes the amounts it receives to the registered owners of Trust Certificates (the “Unit Holders”) representing interests in the Trust (the “Trust Units”), after payment of, or withholdings in connection with, expenses and liabilities of the Trust. The Declaration of Trust provides that these are the Trust’s sole responsibilities and that the Trust is prohibited from engaging in any business activities.
Payments of the Contingent Portion to the Trust are based on royalty income which the Catalogue generates. The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust as its Contingent Portion payment obligation, in accordance with the terms of the Asset Purchase Agreement.
Calculation of the Contingent Portion
The amount of each payment of the Contingent Portion is based on a formula set forth in the Asset Purchase Agreement. For information regarding the calculation of the Contingent Portion and a related dispute between EMI and the Trust see “Contingent Portion Payments” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Cash Distributions to Unit Holders
The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
The Copyright Catalogue
The Catalogue is estimated to be composed of over 25,000 music titles (the “Copyrighted Songs”), of which approximately 1,600 produced royalty income in recent years. Based on information which EMI provided to the Trust, most of the royalty income generated by the Catalogue during recent years has been produced by a relatively small number of the Copyrighted Songs with copyrights established prior to 1960.
EMI has provided the Trust with a listing (the “2015 Listing”) of the top 50 earning songs in the Catalogue during the 2015 calendar year (the “Top 50 Songs”). The totals contained in the right most column of the 2015 Listing represent gross royalty payments EMI received for the Top 50 Songs, before it made deductions in accordance with the Asset Purchase Agreement. The 2015 Listing also contains the following additional information for each song title: the writer(s), the original copyright date and copyright renewal date and the date on which each copyright enters the public domain in the United States.
The 2015 Listing is set forth below in the form that EMI provided to the Trust. There can be no assurance that the 2015 Listing is indicative of the future performance of the Copyrighted Songs or that EMI will be able to retain its rights to the Copyrighted Songs during their full term of copyright protection. As of the date of this report, the Trust has not undertaken an audit to confirm the accuracy of the information contained in the 2015 Listing, and there can be no assurance by the Trust that the information EMI provided in the 2015 Listing is correct.
Mills Music Trust Top 50 Songs
Mills Trust Top 50 Grossing Titles-2015
(*) EMI has informed the Trust that there are three different copyrights associated with Down Hearted Blues.
(**) EMI advised the Trust that it has been unable to locate the 1980 renewal registration for Graduation Ball (Arrangement), and that it is therefore not possible to determine whether or not the song has entered the public domain.
(***) The Irish Suite consists of six movements, each containing its own copyright information as indicated. The Rakes of Mallow is scheduled to enter the public domain 95 years after the death of its author.
Accounting Policies
EMI typically makes payments to the Trust of the Contingent Portion in March, June, September and December for the prior calendar quarter. The payments received are accounted for on a cash basis, as are expenses of the Trust. The Declaration of Trust provides for the distribution of the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
The Trust’s financial statements reflect only cash transactions and do not include transactions that would be recorded in financial statements presented on the accrual basis of accounting, as contemplated by generally accepted accounting principles in the United States. The Trust does not prepare a balance sheet or a statement of cash flows.
ITEM 1A.
ITEM 1A. RISK FACTORS
The Trust is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
The Trust does not own any property. The administrative office of the Trust is located at the offices of the Corporate Trustee, HSBC Bank, USA, N.A., Corporate Trust Issuer Services, 452 Fifth Avenue, New York, New York 10018. Except for fees paid to the Corporate Trustee in accordance with the Declaration of Trust, no expense is being charged or paid by the Trust for the office space and office equipment of the Corporate Trustee that is being utilized for the Trust. See Note 3, “Related Party Transactions,” under Part II, Item 8, “Financial Statements and Supplementary Data” for information regarding payments by the Trust to the Trustees.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Trust filed a Summons with Notice on October 4, 2013 with the Supreme Court of the State of New York seeking damages of not less than $2,614,948 from EMI (the “Summons with Notice”) in connection with certain disputed matters discussed in the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
On February 28, 2014, the Trust, EMI and EMI Consortium Music Publishing Inc. agreed to settle (the “Settlement”) all disputed claims (the “Settled Claims”) of the Trust and EMI for all periods of time prior to October 1, 2011 (the “Settlement Period”). Pursuant to the Settlement, EMI paid the Trust the amount of $625,000 in full and final settlement of the Settled Claims, and the Trust voluntarily discontinued the Summons with Notice without prejudice and without cost subject to the terms of the Settlement.
The Settlement does not cover any claims for any periods of time after the Settlement Period. As such, the Trust has not agreed to settle any claims relating to certain Underpayments (as such term is defined below) which arose after the Settlement Period, and has not agreed on the method for calculating the Contingent Portion under the Asset Purchase Agreement. For information regarding the Underpayments see “Contingent Portion Payments” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Trust Units are traded on the over-the-counter market and quoted on the OTC Pink Marketplace under the symbol “MMTRS”.
Price Range of Trust Units
The following table sets forth the high and low bid amounts for the Trust Units (as reported by Yahoo! Finance) during each quarter of the two most recent calendar years. Quotations represent inter-dealers prices, without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Unit Holders
As of December 31, 2015 there were 123 Trust Unit holders of record. The Trust is unable to estimate the total number of persons that beneficially own Trust Units in “street name” through brokers or the other institutions which are the holders of record.
Dividends
The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust. See the table under Part II, Item 6, “Selected Financial Data” for information about cash disbursements made to Unit Holders.
Recent Sales of Unregistered Securities
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below for the five years ended December 31, 2015 is not necessarily indicative of results of future operations, and should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary/Data” of this report to fully understand factors that may affect the comparability of the information presented below.
* Based on 277,712 Trust Units outstanding
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The Copyright Catalogue
The Catalogue is estimated to be composed of over 25,000 music titles, of which approximately 1,600 produced royalty income in recent years. Based on the 2015 Listing, the Trust derives its receipts principally from copyrights established prior to 1958 in the Unites States. The receipts fluctuate based on consumer interest in the nostalgia appeal of older songs and the overall popularity of the songs contained in the Catalogue. The Catalogue also generates royalty income in foreign countries in which copyright is claimed.
A number of factors create uncertainties with respect to the Catalogue’s ability to continue to generate royalty income on a continuing, long-term basis for the Trust. These factors include: (i) the effect that foreign and domestic copyright laws and any changes thereto have or will have on renewal rights (e.g., vesting of renewal term rights), (ii) the length of the term of copyright protection under foreign and domestic copyright laws, (iii) reversionary rights that may effect whether EMI is able to retain its rights to the Copyrighted Songs during certain renewal terms (e.g., statutory termination of transfers or “copyright recapture”) and (iv) ongoing disputes regarding the payment and calculation of the Contingent Portion.
The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust in accordance with its Contingent Portion payment obligation.
The Trust’s income is dependent, in part, on EMI’s ability to maintain its rights in the Copyrighted Songs through copyright protection. As the copyrights for the Copyrighted Songs expire, less royalty income will be generated, and the size of each payment of the Contingent Portion will be reduced accordingly.
Based on the 2015 Listing, the Top 50 Songs obtained copyright registration under the U.S. Copyright Act of 1909 (the “1909 Act”) between 1922 and 1958. For copyrighted works subject to the 1909 Act, copyright law generally provides for a possible 95 years of copyright protection, subject to certain factors, including the initial registration date of each copyright and compliance with certain statutory provisions including notice and renewal. The Copyright expiration dates for the Top 50 Songs range between 1997 and 2076, as set forth in the 2015 Listing.
The Copyrighted Songs are subject to statutory rights of termination of transfers, which may impact whether EMI is able to retain its ownership of the Copyrighted Songs during their respective terms of copyright protection. For copyrights governed by the 1909 Act, this termination right vests at the end of two different renewal terms, which vary for each Copyrighted Song. As the owner of the Catalogue, EMI (and not the Trust) is responsible for administrating the Catalogue and seeking renewals of the Copyrighted Songs. The Asset Purchase Agreement provides that EMI is obligated to use its best efforts to secure renewals.
Contingent Portion Payments
Payments of the Contingent Portion to the Trust are ordinarily made on a quarterly basis, approximately two to three months after a quarter ends. The Trust distributes the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
The amount of each payment of the Contingent Portion is based on a formula provided in the Asset Purchase Agreement. Prior to the first quarter of 2010, the Contingent Portion was calculated as an amount ranging from 65% to 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty expenses. In addition, the Contingent Portion was guaranteed to be at least a minimum of $167,500 per quarter (the “Minimum Payment Obligation”).
Beginning with the first quarter of 2010, the Asset Purchase Agreement provides for certain changes with respect to the calculation of the Contingent Portion. One such change is that the Minimum Payment Obligation is no longer in effect. The Trust is also of the view that the Contingent Portion payable to the Trust changed to a fixed 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty related expenses (the “New Calculation Method”). However, EMI has disputed that the New Calculation Method is the correct interpretation of the Asset Purchase Agreement. As a result of EMI not applying the New Calculation Method, EMI’s payments of the Contingent Portion have been deficient, in the Trust’s view, by the following amounts (the “Underpayments”):
As of the date hereof, the Trust has not received the Underpayments, and EMI has expressly disagreed with the Trust. The Trust can offer no assurance that it will be able to recover any of the Underpayments or that it will resolve favorably the ongoing dispute relating to the New Calculation Method with respect to future payments of the Contingent Portion.
The Trust also asserted that even under EMI’s own interpretation of the formula set forth in the Asset Purchase Agreement governing calculation of the Contingent Portion payment to be made to the Trust in each quarterly period, EMI had over-deducted gross royalty income (the “EMI Error”) for the quarterly periods beginning with the third quarter of 2012 through the second quarter of 2014 and for the fourth quarter of 2014. In a letter dated July 15, 2015 EMI agreed with the Trust’s assessment, and on July 17, 2015 the Corporate Trustee confirmed receipt of an EMI payment to the Trust in the aggregate amount of $203,706, reflecting the cumulative amount of the EMI Error during the quarters ending with the fourth quarter of 2014.
The Trust has engaged Prager Metis CPAs, LLC to conduct a special audit of the books and records of EMI administered by Sony/ATV to resolve the ongoing dispute and also determine whether there have been any other material royalty omissions or expense over-deductions for the periods ending September 30, 2015.
Unit Holder Distributions and Trust Expenses
Recent Payments
During the year ended December 31, 2015, the Trust received a total of $959,047 from EMI, $203,706 of which was attributable to the EMI Error discussed immediately above relating to periods prior to the fourth quarter of 2014. The remaining balance was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2015 calendar year.
During the year ended December 31, 2014, the Trust received a total of $1,365,103 from EMI, $625,000 of which was attributable to Settled Claims relating to periods prior to October 1, 2011. For more information regarding the Settled Claims see Part 1, Item 3, “Legal Proceedings.” The remaining balance was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2014 calendar year.
Recent Distributions
During the year ended December 31, 2015, the Trust made cash distributions to Unit Holders in the aggregate amount of $746,208 ($2.6869 per Trust Unit), as compared to cash distribution to Unit Holders in the aggregate amount of $860,780 ($3.0996 per Trust Unit) during the year ended December 31, 2014. As noted in the paragraphs directly above, a portion of the distributions made in 2015 and 2014 were attributable to the EMI Error and Settled Claims, respectively. For computation details regarding the distributions made during the year ended December 31, 2015, please refer to the quarterly distribution report, dated December 28, 2015, attached as Exhibit 99.1 to the Current Report on Form 8-K, which the Trust filed with the Securities and Exchange Commission on December 28, 2015.
Cash and Administrative Expenses
As of December 31, 2015 the Trust had no unpaid administrative expenses for services rendered to the Trust. As of March 30, 2016, the Trust had received invoices for an aggregate of $50,951 in unpaid administrative expenses for services rendered to the Trust.
Inflation
The Trust does not believe that inflation has materially affected its activities.
Liquidity and Capital Resources
The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust. See the table headed “Statement of Cash Receipts and Disbursements” under Part II, Item 8, “Financial Statements and Supplementary Data” for information regarding cash disbursements made to Unit Holders for the two years ended December 31, 2015.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Trust’s financial condition, changes in financial condition, revenues or expenses, results of operations or liquidity that is material to investors.
Item 7A.
Item 7A. QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Accounting Firm and financial statements begin on page 10 of this report.
Report of Independent Registered Public Accounting Firm
The Trustees and Unit Holders
Mills Music Trust
We have audited the accompanying statements of cash receipts and disbursements of Mills Music Trust for the years ended December 31, 2015 and 2014. These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, these financial statements were prepared on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the cash receipts and disbursements of Mills Music Trust for the years ended December 31, 2015 and 2014, on the basis of accounting described in Note 1.
Attention is directed to Note 1 to the financial statements for information concerning a dispute with respect to certain amounts believed to be owed to Mills Music Trust.
/s/ CORNICK, GARBER & SANDLER, LLP
CORNICK, GARBER & SANDLER, LLP
New York, New York
March 30, 2016
MILLS MUSIC TRUST
STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
TWO YEARS ENDED DECEMBER 31, 2015
* Includes $203,706 EMI Error payment in 2015. For further information see Note 1, “Unit Holder Distributions and Trust Expenses”.
** Includes $625,000 settlement in 2014. For further information see Note 1, “Unit Holder Distributions and Trust Expenses”.
See accompanying Notes to Statement of Cash Receipts and Disbursements.
The Trust does not prepare a balance sheet or a statement of cash flows.
MILLS MUSIC TRUST
NOTES TO STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS
TWO YEARS ENDED DECEMBER 31, 2015
NOTE 1. ACCOUNTING POLICIES AND GENERAL INFORMATION
Organization and Background
Mills Music Trust (the “Trust”) was created by a Declaration of Trust, dated December 3, 1964 (the “Declaration of Trust”), for the purpose of acquiring from Mills Music, Inc. (“Old Mills”), the right to receive payment of a deferred contingent purchase price obligation (the “Contingent Portion”) payable to Old Mills. The obligation to pay the Contingent Portion arose as the result of the sale by Old Mills of its music and lyric copyright catalogue (the “Catalogue”) to a newly formed company pursuant to an asset purchase agreement dated December 5, 1964 (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, payment of the Contingent Portion to the Trust continues until the end of the year in which the last copyright in the Catalogue expires and cannot be renewed.
The Contingent Portion amounts are currently payable by EMI Mills Music Inc. (“EMI”), the owner of the copyrighted materials contained in the Catalogue. The Trust has been advised that Sony/ATV Music Publishing LLC (“Sony/ATV”) is the administrator and manager of EMI and the Catalogue.
HSBC Bank, USA, N.A. is the Corporate Trustee of the Trust (the “Corporate Trustee”), and Lee Eastman and Michael E. Reiss are the Individual Trustees of the Trust (the “Individual Trustees” and together with the Corporate Trustee, the “Trustees”).
Proceeds from Contingent Portion Payments
The Trust receives quarterly payments of the Contingent Portion from EMI and distributes the amounts it receives to the registered owners of Trust Certificates (the “Unit Holders”) representing interests in the Trust (the “Trust Units”), after payment of, or withholdings in connection with, expenses and liabilities of the Trust. The Declaration of Trust provides that these are the Trust’s sole responsibilities and that the Trust is prohibited from engaging in any business activities.
Payments of the Contingent Portion to the Trust are based on royalty income which the Catalogue generates. The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust as its Contingent Portion payment obligation, in accordance with the terms of the Asset Purchase Agreement.
Cash Distributions to Unit Holders
The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
Contingent Portion Payments
Payments of the Contingent Portion to the Trust are ordinarily made on a quarterly basis, approximately two to three months after a quarter ends. The Trust distributes the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
The amount of each payment of the Contingent Portion is based on a formula provided in the Asset Purchase Agreement. Prior to the first quarter of 2010, the Contingent Portion was calculated as an amount ranging from 65% to 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty expenses. In addition, the Contingent Portion was guaranteed to be at least a minimum of $167,500 per quarter (the “Minimum Payment Obligation”).
Beginning with the first quarter of 2010, the Asset Purchase Agreement provides for certain changes with respect to the calculation of the Contingent Portion. One such change is that the Minimum Payment Obligation is no longer in effect. The Trust is also of the view that the Contingent Portion payable to the Trust changed to a fixed 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty related expenses (the “New Calculation Method”). However, EMI has disputed that the New Calculation Method is the correct interpretation of the Asset Purchase Agreement. As a result of EMI not applying the New Calculation Method, EMI’s payments of the Contingent Portion have been deficient, in the Trust’s view, by the following amounts (the “Underpayments”):
As of the date hereof, the Trust has not received the Underpayments, and EMI has expressly disagreed with the Trust. The Trust can offer no assurance that it will be able to recover any of the Underpayments or that it will resolve favorably the ongoing dispute relating to the New Calculation Method with respect to future payments of the Contingent Portion.
The Trust also asserted that even under EMI’s own interpretation of the formula set forth in the Asset Purchase Agreement governing calculation of the Contingent Portion payment to be made to the Trust in each quarterly period, EMI had over-deducted gross royalty income (the “EMI Error”) for the quarterly periods beginning with the third quarter of 2012 through the second quarter of 2014 and for the fourth quarter of 2014. In a letter dated July 15, 2015 EMI agreed with the Trust’s assessment, and on July 17, 2015 the Corporate Trustee confirmed receipt of an EMI payment to the Trust in the aggregate amount of $203,706, reflecting the cumulative amount of the EMI Error during the quarters ending with the fourth quarter of 2014.
The Trust has engaged Prager Metis CPAs, LLC to conduct a special audit of the books and records of EMI administered by Sony/ATV to resolve the ongoing dispute and also determine whether there have been any other material royalty omissions or expense over-deductions for the periods ending September 30, 2015.
Unit Holder Distributions and Trust Expenses and
Recent Payments
During the year ended December 31, 2015, the Trust received a total of $959,047 from EMI, $203,706 of which was attributable to the EMI Error discussed immediately above relating to periods prior to the fourth quarter of 2014. The remaining balance was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2015 calendar year. During the year ended December 31, 2014, the Trust received a total of $1,365,103 from EMI, $625,000 of which was attributable to Settled Claims relating to periods prior to October 1, 2011. For more information regarding the Settled Claims see Part 1, Item 3, “Legal Proceedings.” The remaining balance was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2014 calendar year.
Recent Distributions
During the year ended December 31, 2015, the Trust made cash distributions to Unit Holders in the aggregate amount of $746,208 ($2.6869 per Trust Unit), as compared to cash distribution to Unit Holders in the aggregate amount of $860,780 ($3.0996 per Trust Unit) during the year ended December 31, 2014. As noted in the paragraphs directly above, a portion of the distributions made in 2015 and 2014 were attributable to the EMI Error and Settled Claims, respectively. For computation details regarding the distributions made during the year ended December 31, 2015, please refer to the quarterly distribution report, dated December 28, 2015, attached as Exhibit 99.1 to the Current Report on Form 8-K, which the Trust filed with the Securities and Exchange Commission on December 28, 2015.
Cash and Administrative Expenses
As of December 31, 2015 the Trust had no unpaid administrative expenses for services rendered to the Trust. As of March 30, 2016, the Trust had received invoices for an aggregate of $50,951 in unpaid administrative expenses for services rendered to the Trust.
Accounting Policies
Payments from EMI to the Trust of the Contingent Portion are typically made in March, June, September and December for the prior calendar quarter. The payments received are accounted for on a cash basis, as are expenses. The Declaration of Trust provides for the distribution of all funds received by the Trust to the Unit Holders after expenses are paid.
The Trust’s financial statements reflect only cash transactions and do not include transactions that would be recorded in financial statements presented on the accrual basis of accounting, as contemplated by generally accepted accounting principles in the United States. The Trust does not prepare a balance sheet or a statement of cash flows.
NOTE 2. FEDERAL INCOME TAXES
No provision for income taxes has been made since the liability therefore is that of the Unit Holders and not the Trust.
NOTE 3. RELATED PARTY TRANSACTIONS
The Trustees are paid in accordance with the Declaration of Trust, which provides that each Trustee shall receive annual compensation of $2,500, provided that such aggregate compensation to the Trustees as a group may not exceed 3% of the Contingent Portion amounts received by the Trust in any year. The Declaration of Trust also provides for the reimbursement of expenses reasonably incurred in the performance of a Trustee’s duties to the Trust, including clerical and administrative services. Accordingly, the Trustees are entitled to receive annual compensation and reimbursement for services performed for the Trust, including the Corporate Trustee’s services as the Registrar and Transfer Agent of the certificates representing the Trust Units. The Declaration of Trust also provides that if a Trustee performs unusual or extraordinary services, reasonable compensation for such services shall be paid, subject to the terms and conditions of the Declaration of Trust.
Pursuant to the Declaration of Trust, disbursements were made as follows to the Corporate Trustee for the two years ended December 31, 2015 and December 31, 2014:
(1) The Individual Trustees were elected on August 29, 2013. While no payments were made to the Individual Trustees during the 2013 calendar year, the Individual Trustees had invoiced the Trust for 2013 compensation and expenses in the aggregate amount of $3,243, which amounts were paid in April 2014.
(2) These services are performed by the Corporate Trustee.
See Part I, Item 2, “Properties” for further information about the administrative office for the Trust, which is provided by the Corporate Trustee.
NOTE 4. THE COPYRIGHT CATALOGUE
The Catalogue is estimated to be composed of over 25,000 music titles, of which approximately 1,600 produced royalty income in recent years. Based on the 2015 Listing, the Trust derives its receipts principally from copyrights established prior to 1958 in the Unites States. The receipts fluctuate based on consumer interest in the nostalgia appeal of older songs and the overall popularity of the songs contained in the Catalogue. The Catalogue also generates royalty income in foreign countries in which copyright is claimed.
A number of factors create uncertainties with respect to the Catalogue’s ability to continue to generate royalty income on a continuing, long-term basis for the Trust. These factors include: (i) the effect that foreign and domestic copyright laws and any changes thereto have or will have on renewal rights (e.g., vesting of renewal term rights), (ii) the length of the term of copyright protection under foreign and domestic copyright laws, (iii) reversionary rights that may effect whether EMI is able to retain its rights to the Copyrighted Songs during certain renewal terms (e.g., statutory termination of transfers or “copyright recapture”) and (iv) ongoing disputes regarding the payment and calculation of the Contingent Portion.
The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust in accordance with its Contingent Portion payment obligation.
The Trust’s income is dependent, in part, on EMI’s ability to maintain its rights in the Copyrighted Songs through copyright protection. As the copyrights for the Copyrighted Songs expire, less royalty income will be generated, and the size of each payment of the Contingent Portion will be reduced accordingly.
Based on the 2015 Listing, the Top 50 Songs obtained copyright registration under the U.S. Copyright Act of 1909 (the “1909 Act”) between 1922 and 1958. For copyrighted works subject to the 1909 Act, copyright law generally provides for a possible 95 years of copyright protection, subject to certain factors, including the initial registration date of each copyright and compliance with certain statutory provisions including notice and renewal. The Copyright expiration dates for the Top 50 Songs range between 1997 and 2076, as set forth in the 2015 Listing.
The Copyrighted Songs are subject to statutory rights of termination of transfers, which may impact whether EMI is able to retain its ownership of the Copyrighted Songs during their respective terms of copyright protection. For copyrights governed by the 1909 Act, this termination right vests at the end of two different renewal terms, which vary for each Copyrighted Song. As the owner of the Catalogue, EMI (and not the Trust) is responsible for administrating the Catalogue and seeking renewals of the Copyrighted Songs. The Asset Purchase Agreement provides that EMI is obligated to use its best efforts to secure renewals.
NOTE 5. OTHER MATTERS
In October 2014, the Trust made a payment to Wilks, Lukoff & Bracegirdle, LLC (“Wilks”) in the amount of $76,216. The payment was for compensation and reimbursement in respect of fees and expenses of Wilks in connection with the Trust’s Unit Holder meeting held on August 29, 2013, at which the Individual Trustees were elected. In consideration for the payment, Wilks agreed to release the Trust and its affiliates from all claims and demands arising prior to September 30, 2014, including a prior request made by Wilks for compensation and reimbursement in the amount of $200,000.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in this report under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Trust’s management, which is comprised of the Trust Officer of the Corporate Trustee and the Chief Financial Individual providing accounting services to the Trust, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Trust’s management has evaluated the effectiveness of the design and operation of the Trust’s disclosure controls and procedures as of December 31, 2015. Based upon that evaluation and subject to the foregoing, the Trust’s management concluded that the design and operation of the Trust’s disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to accomplish their objectives.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Trust is responsible for establishing and maintaining adequate internal control over financial reporting for the Trust as defined in Rule 13a-15(f) under the Exchange Act. The Trust’s internal control over financial reporting is designed to provide reasonable assurance to management regarding the preparation and fair presentation of published financial statements and the reliability of financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Trust’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework. Based on management’s assessment, the Trust believes that, as of December 31, 2015, the Trust’s internal control over financial reporting is effective based on those criteria.
This annual report does not include an attestation report of the Trust’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Trust’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Trust to provide only management’s report in this annual report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in the Trust’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2015 that materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Trust does not have, nor does the Declaration of Trust provide for, officers, a board of directors or any employees. HSBC Bank, USA, N.A. is the Corporate Trustee of the Trust, and Lee Eastman and Michael E. Reiss are the Individual Trustees of the Trust. Pursuant to the Declaration of Trust, Trustees of the Trust serve until their removal, resignation, incapacity, or in the case of Individual Trustees, their death.
HSBC Bank, USA, N.A.-The Corporate Trustee (or its predecessor, Marine Midland Bank) has been the Corporate Trustee of the Trust since February 1965 and is a national banking association organized under the laws of the United States.
Lee Eastman-Mr. Eastman has been a partner at the law firm Eastman & Eastman since 1997. He is also responsible for the day to day operations of MPL Communications, Inc. and MPL Music Publishing, Inc. and is a principal of various music publishing interests. Mr. Eastman currently serves on the board of the National Music Publishers’ Association and as executive vice-president on the board of Literacy Partners, Inc. Mr. Eastman graduated from Stanford University in 1992 and from Stanford Law School in 1997. He has served on the Board of Visitors and has lectured on intellectual property at Stanford Law School.
Michael E. Reiss-Mr. Reiss has served on a number of civic, philanthropic and community boards, including the Hinsdale Central High School Foundation, the Chicago Chapter of the Cystic Fibrosis Foundation, the Discovery Science Center of Southern California and the Coach Care Medical Foundation. From 2006 until present, Mr. Reiss has been a Member of Buttonwood Tree Management, LLC and a general partner of Buttonwood Tree Value Partners, LLC, a California investment partnership with investments that include Trust Units of Mills Music Trust. From 2010 until present, Mr. Reiss has served as Trustee for the Peggy J. Wilson Declaration of Trust and the Peggy J. Wilson Irrevocable Life Insurance Trust. Mr. Reiss is responsible for fiduciary management of these trusts, including general operations, investment management and accounting oversight. From 1992 until present, Mr. Reiss has served as President of M.E. Reiss, Ltd. and Chief Administrator and Investment Advisor for the James M. Wilson and Peggy J. Wilson trusts. From 2002 until present, Mr. Reiss has been an investment member of the following companies: McHenry Ventures, LLC, McHenry IL, Lemont Ventures, LLC, Lemont, IL; Buffalo Grove Ventures, LLC, Buffalo, IL; and Green Trails Ventures, LLC, Lisle, IL. Mr. Reiss’s activities in connection with these roles include acquisition and management of commercial real estate investments in the greater Chicago area. Mr. Reiss attended Eastern Illinois University from 1982 until 1986, where he received a Bachelor of Arts degree. Prior to that, Mr. Reiss attended the University of San Diego from 1975 until 1977 and also attended the College of DuPage from 1973 until 1975, where he received an Associates Degree.
Code of Ethics
On December 23, 2014, the Trust adopted a code of ethics (as defined in Item 406 of Regulation S-K under the Securities Act of 1933) applicable to the Individual Trustees and the trust officers of the Corporate Trustee. A copy of the Code of Ethics will be provided to any person without charge upon written request to the Trust at its administrative office, c/o HSBC BANK USA, N.A., Corporate Trust, Issuer Services, 452 Fifth Avenue, New York, NY. In addition, the Trust relies on the Corporate Trustee to abide by HSBC Bank, USA, N.A.’s Statement of Business Principles and Code of Ethics, which is available on the Corporate Trustee’s website at http://www.us.hsbc.com.
Audit Committee
The Trust is not a corporate entity and thus does not have an Audit Committee. The Trust has established a policy with regard to audit, audit-related and certain non-audit engagements of its independent auditors. Under this policy, the Trust annually approves certain limited, specified recurring services which may be provided by the Trust’s accountant or independent auditors. All other engagements for services to be performed by the Trust’s independent auditors must be separately pre-approved by the Trust. Joel Faden of Schulman Lobel et al. LLP, formerly of Joel Faden, CPA, P.C., acts as Chief Financial Individual providing accounting services for the Trust.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Trust does not have, nor does the Declaration of Trust provide for, officers, a board of directors or any executives.
The Trustees are paid in accordance with the Declaration of Trust, which provides that each Trustee shall receive annual compensation of $2,500, provided that such aggregate compensation to the Trustees as a group may not exceed 3% of the Contingent Portion amounts received by the Trust in any year. The Declaration of Trust also provides for the reimbursement of expenses reasonably incurred in the performance of a Trustee’s duties to the Trust, including clerical and administrative services. Accordingly, the Trustees are entitled to receive annual compensation and reimbursement for services performed for the Trust, including the Corporate Trustee’s services as the Registrar and Transfer Agent of the certificates representing the Trust Units. The Declaration of Trust also provides that if a Trustee performs unusual or extraordinary services, reasonable compensation for such services shall be paid, subject to the terms and conditions of the Declaration of Trust. See Note 3, “Related Party Transactions” under Part II, Item 8, “Financial Statements and Supplementary Data” for information regarding payments by the Trust to the Trustees made in accordance with the Declaration of Trust.
The Declaration of Trust does not provide for any bonuses, stock awards, option awards, non-equity incentive plan compensation or nonqualified deferred compensation earnings. The Trust does not have severance agreements nor does it provide post-retirement benefits to any of the Trustees.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
To the best knowledge of the Corporate Trustee as of December 31, 2015, the only persons who beneficially owned more than 5% of the Trust Units are as follows:
(1) Based on 277,712 Trust Units outstanding.
(2) Lee Eastman, an Individual Trustee of the Trust, is responsible for the day to day operations of MPL Communications, Inc.
(3) As reported on Schedule 13G/A filed with the SEC on January 30, 2015.
(4) As reported on Schedule 13D filed with the SEC June 6, 2006. These units are beneficially owned through Burr Ridge Operations, Inc. Michael Reiss is an Individual Trustee of the Trust.
The Trust does not have, nor does the Declaration of Trust provide for, officers, a board of directors or any employees. There were no Trust Units owned or pledged by the Corporate Trustee as of December 31, 2015. The Trust does not have any compensation plans under which the Trust Units are authorized for issuance.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Trust does not have, nor does the Declaration of Trust provide for a board of directors. Pursuant to the Declaration of Trust, trustees of the Trust serve until their removal, resignation, incapacity, or in the case of individual trustees, their death. The Trustees are paid only in accordance with the Declaration of Trust. See Note 3, “Related Party Transactions” under Part II, Item 8, “Financial Statements and Supplementary Data” for information regarding payments by the Trust to the Trustees in accordance with the Declaration of Trust.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
Fees paid to Cornick, Garber & Sandler, LLP for professional services rendered for the audit of the Trust’s annual statement of cash receipts and disbursements and the review of its interim quarterly financial statements included in its quarterly reports on Forms 10-Q aggregated $20,750 in 2015 and $20,980 in 2014.
Audit-Related Fees
$15,500
Tax Fees
None.
All Other Fees-For Quarterly Reviews of Form 10Q
$5,250
Audit Committee
The Trust is not a corporate entity and thus does not have an Audit Committee. The Trust has established a policy with regard to audit, audit-related and certain non-audit engagements of its independent auditors. Under this policy, the Trust annually approves certain limited, specified recurring services which may be provided by the Trust’s accountant or independent auditors. All other engagements for services to be performed by the Trust’s independent auditors must be separately pre-approved by the Trust. Joel Faden of Schulman Lobel Zand Katzen Williams & Blackman LLP (formerly Joel Faden, CPA, P.C.) acts as Chief Financial Individual providing accounting services for the Trust.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(1) Incorporated by reference to Exhibit 4.1 to the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
(2) Incorporated by reference to Exhibit 4.2 to the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
* Furnished, not filed
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.