Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 2019

Commission file number 000-02123

 

 

MILLS MUSIC TRUST

(Exact name of registrant as specified in its charter)

 

 

 

New York   13-6183792

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

c/o HSBC BANK USA, N.A.,

Corporate Trust, Issuer Services

452 Fifth Avenue, New York, NY

  10018
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: 212-525-1349

Securities registered pursuant to Section 12(g) of the Act:

Trust Units

(Title of class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☐  Yes    ☒  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ☐  Yes    ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ☐    Accelerated filer   ☐
Non-accelerated filer   ☐    Smaller reporting company   ☒
     Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act).    ☐  Yes    ☒  No

The aggregate market value of Trust Units held by non-affiliates as of the last day of the registrant’s most recently completed second fiscal quarter was $7,498,224.

Total Trust Units outstanding as of December 31, 2019 was 277,712.

 

 

 

Table of Contents

TABLE OF CONTENTS

 

PART I

     1  

ITEM 1. BUSINESS

     1  

ITEM 1A. RISK FACTORS

     2  

ITEM 1B. UNRESOLVED STAFF COMMENTS

     2  

ITEM 2. PROPERTIES

     2  

ITEM 3. LEGAL PROCEEDINGS

     3  

ITEM 4. MINE SAFETY DISCLOSURES

     3  

PART II

     4  

ITEM  5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

     4  

ITEM 6. SELECTED FINANCIAL DATA

     4  

ITEM  7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

     5  

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     7  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     7  

ITEM  9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

     13  

ITEM 9A. CONTROLS AND PROCEDURES

     13  

ITEM 9B. OTHER INFORMATION

     14  

PART III

     15  

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

     15  

ITEM 11. EXECUTIVE COMPENSATION

     16  

ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     16  

ITEM  13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

     16  

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     17  

PART IV

     18  

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

     18  

ITEM 16. FORM 10-K  SUMMARY

     18  

SIGNATURES

     19  

EX-31.1

  

EX-31.2

  

EX-32.1

  

EX-32.2

  

 

2

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PART I

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 1958.

 

1

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EMI has provided the Trust with a listing (the “2019 Listing”) of the top 50 earning songs in the Catalogue during the 2019 calendar year (the “Top 50 Songs”). The totals contained in the right most column of the 2019 Listing represent gross royalty payments EMI received for each of the Top 50 Songs, before it made deductions in accordance with the Asset Purchase Agreement. The 2019 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 2019 Listing is set forth below in the form that EMI provided to the Trust. There can be no assurance that the 2019 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 2019 Listing, and there can be no assurance by the Trust that the information EMI provided in the 2019 Listing is correct.

2019

Mills Music Trust Top 50 Songs

MILLS 50 TOP GROSSING TITLES—2019

RANK

  

SONG

 

WRITERS

  

Orig ©

Date

  

Renewal

Date

  

U.S.

PD

Year

  

Gross

Rev.

 
1    LITTLE DRUMMER
BOY 		  KATHERINE K DAVIS (33.34), HENRY ONORATI (33.33), HARRY SIMEONE (33.33)    11/13/1958    5/12/1986    2053      530,646.36  
2    SLEIGH RIDE
(VOCAL) 		  LEROY ANDERSON (50), MITCHELL PARISH (50)    10/24/1950    12/5/1977    2045      525,555.98  
3    LOVESICK BLUES   CLIFF FRIEND (50), IRVING MILLS (50)    4/3/1922    4/4/1949    1997      256,315.58  
4    STARDUST   HOAGY CARMICHAEL (50), MITCHELL PARISH (50)    1/5/1928    12/29/1955    2023      150,797.18  
5    HOLD ME, THRILL
ME, KISS ME 		  HARRY NOBLE (100)    10/21/1952    9/29/1980    2047      115,384.34  
6    It Don’t Mean A Thing
(If It Ain’t Got That
Swing) 		  DUKE ELLINGTON (50), IRVING MILLS (50)    10/28/1932    10/28/1959    2027      114,884.64  
7    I’VE GOT THE
WORLD ON A
STRING 		  HAROLD ARLEN (50), TED KOEHLER (50)    3/10/1932    11/10/1959    2027      102,942.79  
8    STRAIGHTEN UP
AND FLY RIGHT 		  NAT KING COLE (50), IRVING MILLS (50)    5/31/1944    3/17/1972    2039      102,310.14  
9    CORRINE CORRINA   BO CHATMAN (33.34), MITCHELL PARISH (33.32), J WILLIAMS (33.34)    12/5/1929    12/3/1957    2024      73,033.89  
10    SLEIGH RIDE
(INSTRUMENTAL) 		  LEROY ANDERSON (100)    12/30/1948    2/23/1976    2043      66,852.73  
11    Caravan—Vocal
Version 		  Duke Ellington (25), IRVING MILLS (50), JUAN TIZOL (25)    4/19/1937    4/13/1965    2032      58,580.55  
12    ST. JAMES
INFIRMARY 		  IRVING MILLS (100)    3/4/1929    2/28/1957    2024      50,501.08  
13    STORMY WEATHER
(KEEPS RAININ’
ALL THE TIME) 		  HAROLD ARLEN (50), TED KOEHLER (50)    4/13/1933    12/31/1959    2028      45,419.26  
14    MOONGLOW   EDDIE DE LANGE (33.34), WILL HUDSON (33.34), IRVING MILLS (33.32)    12/31/1933    12/31/1960    2028      45,047.62  
15    TYPEWRITER   LEROY ANDERSON (100)    10/6/1953    8/31/1981    2048      42,087.73  
16    MINNIE THE
MOOCHER 		  CAB CALLOWAY (33.34), CLARENCE GASKILL (33.33), IRVING MILLS (33.33)    4/7/1931    3/27/1959    2026      38,686.60  
17    In A Sentimental
Mood (Vocal) 		  Duke Ellington (50), MANNY KURTZ (25), IRVING MILLS (25)    11/29/1935    12/31/1962    2030      36,891.79  
18    VIEILLE CANAILLE   JACQUES PLANTE (10), SAM THEARD (90)    12/12/1929    12/12/1957    2024      35,397.01  
19    AIN’T
MISBEHAVIN’ 		  HARRY BROOKS (25), ANDY RAZAF (50), FATS WALLER (25)    7/8/1929    7/9/1956    2024      32,163.11  
20    YOU RASCAL YOU   SAM THEARD (100)    12/12/1929    12/12/1957    2024      32,008.11  
21    Prelude To A Kiss   Duke Ellington (33.34), IRVING GORDON (33.33), IRVING MILLS (33.33)    9/29/1938    9/8/1966    2033      28,563.29  
22    Caravan—
Instrumental Version 		  Duke Ellington (50), JUAN TIZOL (50)    4/19/1937    4/13/1965    2032      28,553.64  
23    SWEET LORRAINE   CLIFF BURWELL (50), MITCHELL PARISH (50)    12/31/1927    11/3/1954    2022      28,433.22  
24    SLEIGH RIDE
PROMENADE 		  LEROY ANDERSON (50), MITCHELL PARISH (50)    10/24/1950    12/5/1977    2072      25,884.29  
25    BUGLER’S
HOLIDAY 		  LEROY ANDERSON (100)    7/8/1954    2/3/1982    2049      24,087.15  
26    RED ROSES FOR A
BLUE LADY 		  ROY C BENNETT (50), SID TEPPER (50)    12/30/1948    1/1/1976    2071      23,909.68  
27    I CAN’T GIVE YOU
ANYTHING BUT
LOVE 		  DOROTHY FIELDS (50), JIMMY MC HUGH (50)    3/6/1928    2/28/1956    2023      23,681.56  
28    Sophisticated Lady   Duke Ellington (50), IRVING MILLS (25), MITCHELL PARISH (25)    5/31/1933    5/31/1960    2028      22,441.27  
29    STARS FELL ON
ALABAMA 		  MITCHELL PARISH (50), FRANK S PERKINS (50)    9/14/1934    9/4/1962    2029      18,723.36  
30    The Mooch   DUKE ELLINGTON (50), IRVING MILLS (50)    12/31/1928    12/31/1956    2023      18,519.91  
31    SCARLET RIBBONS
(FOR HER HAIR) 		  EVELYN DANZIG (50), JACK SEGAL (50)    12/31/1949    12/30/1976    2044      17,208.80  
32    Rockin’ In Rhythm   HARRY CARNEY (33.33), Duke Ellington (33.33), IRVING MILLS (33.34)    4/9/1931    4/7/1959    2026      15,819.72  
33    Mood Indigo   BARNEY BIGARD (33.33), Duke Ellington (33.34), IRVING MILLS (33.33)    2/21/1931    12/31/1958    2029      15,660.20  
34    ZAZ ZUH ZAZ   CAB CALLOWAY (50), HARRY A. WHITE (50)    2/9/1934    2/1/1959    2029      14,396.18  
35    CONEY ISLAND
WASHBOARD 		  HAMPTON DURAND (25), NED KENNEDY (25), CLAUDE SHUGAT (25), HAROLD LEROY (25)    12/11/1926    11/24/1954    2021      14,057.94  
36    Solitude   EDDIE DE LANGE (33.34), Duke Ellington (33.34), IRVING MILLS (33.32)    9/21/1934    9/4/1962    2029      13,630.24  
37    ON THE
WATERFRONT 		  LEONARD BERNSTEIN (100)    7/29/1954    1/25/1982    2049      12,148.62  
38    DONA DONA
(HARGAIL
VERSION) 		  ARTHUR KEVESS (12.5), TEDDI SCHWARTZ (12.5), SHELDON SECUNDA (12.5), SHOLOW (62.5)    10/1/1940    5/16/1968    2030      11,952.53  
39    I’M GETTING
SENTIMENTAL
OVER YOU 		  GEORGE BASSMAN (50), NED WASHINGTON (50)    10/21/1932    10/21/1959    2045      11,899.74  
40    BIG JOHN’S
SPECIAL 		  HORACE HENDERSON (100)    11/9/1934    11/5/1962    2029      11,345.13  
41    YO SOY AQUEL   MANUEL ALEJANDRO (100)    11/3/1993    N/A    2088      10,826.14  
42    In A Sentimental
Mood (Instr.) 		  DUKE ELLINGTON (100)    11/29/1935    11/29/1962    2030      10,732.87  
43    A CHRISTMAS
FESTIVAL 		  LEROY ANDERSON (100)    11/6/1950    12/9/1977    2045      10,242.75  
44    Black And Tan
Fantasy 		  Duke Ellington (50), BUB MILEY (50)    7/16/1927    7/16/1954    2022      9,226.08  
45    CAROL OF THE
DRUM 		  KATHERINE DAVIS (100)    5/2/1941    10/2/1968    2036      8,241.82  
46    East St. Louis
Toodle-Oo 		  Duke Ellington (50), BUB MILEY (50)    2/10/1927    3/3/1954    2049      8,012.15  
47    GOOD QUEEN BESS   JOHNNY HODGES (100)    4/3/1941    4/4/1968    2036      7,979.63  
48    COTTON CLUB
STOMP 		  HARRY CARNEY (33.33), DUKE ELLINGTON (33.34), JOHNNY HODGES (33.33)    1/1/1928    1/1/1956    2023      7,590.78  
49    DIGA DIGA DOO   DOROTHY FIELDS (50), JIMMY MC HUGH (50)    6/9/1928    5/31/1956    2023      7,527.11  
50    AMERICAN SALUTE   MORTON GOULD (100)    3/31/1943    2/17/1971    2038      7,344.50  

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 to the Unit Holders of the amounts received by the Trust in Contingent Portion payments 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. 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. UNRESOLVED STAFF COMMENTS

None.

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.

 

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ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

3

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PART II

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.

 

Calendar Period

   High      Low  
     $        $  

2018

     

First Quarter

     27.75        22.00  

Second Quarter

     27.00        20.95  

Third Quarter

     25.99        22.00  

Fourth Quarter

     34.00        22.75  

2019

     

First Quarter

     34.00        24.07  

Second Quarter

     35.00        25.51  

Third Quarter

     32.99        26.55  

Fourth Quarter

     32.50        26.90  

Unit Holders

As of December 31, 2019 there were 110 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. SELECTED FINANCIAL DATA

The information set forth below for the five years ended December 31, 2019 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.

 

Year Ended December 31   Receipts From EMI     Cash Distributions to Unit Holders     Cash Distributions Per Unit*  
2019   $ 2,058,976     $ 1,805,109     $ 6.50  
2018   $ 1,036,335     $ 790,184     $ 2.85  
2017   $ 886,165     $ 595,328     $ 2.14  
2016   $ 833,248     $ 607,852     $ 2.19  
2015   $ 959,047     $ 746,208     $ 2.69  

 

*

Based on 277,712 Trust Units outstanding

 

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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 2019 Listing, the Trust derives its receipts principally from copyrights established prior to 1958 in the United 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 affect 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 2019 Listing, all but one of 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 2088, as set forth in the 2019 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%

 

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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”):

 

Quarterly Payment Period

  

Amount of

Deficiency

 

March 31, 2016

   $ 79,889  

September 30, 2016

   $ 37,529  

March 31, 2017

   $ 85,359  

September 30, 2017

   $ 41,557  

March 31, 2018

   $ 98,901  

September 30, 2018

   $ 75,712  

March 31, 2019

   $ 71,489  

June 30, 2019

   $ 41,786  

September 30, 2019

   $ 68,571  
  

 

 

 

Total

   $ 600,793  

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.

Recent Audit Settlement Payment

In January 2016, the Trustees engaged Prager Metis CPAs, LLC (“Prager”), an accounting firm specializing in auditing royalty income, to conduct a special audit of the books and records of EMI administered by Sony/ATV to determine if payments of the Contingent Portion by EMI have been properly made in accordance with the Asset Purchase Agreement during the period beginning on October 1, 2011 and ending on December 31, 2015 (the “Audit Period”). Prager’s final report (the “Prager Report”) was delivered to Sony/ATV on August 14, 2017. The audit cost the Trust an aggregate of $130,284, all of which has been paid to date. The Prager Report identified multiple asserted royalty omissions and expense over-deductions from the Contingent Portion during the Audit Period.

As of April 23, 2019, EMI, the Trust and the Trustees entered into an audit settlement agreement pursuant to which EMI agreed to pay the Trust $1,000,000 in full and final settlement (the “2019 Settlement”) of (i) all Trust claims related to the underpayments identified by the Prager Report and (ii) that portion of the Underpayments attributable to the Audit Period. The 2019 Settlement does not cover any claims for any periods of time after expiration of the Audit Period, nor does it adjust the parties’ entitlements arising from the consequences of any future writer royalty underpayment audits relating to the Audit Period.

Unit Holder Distributions and Trust Expenses

Recent Payments

During the year ended December 31, 2019, the Trust received a total of $2,058,976 from EMI, $1,000,000 of which was attributable to the 2019 Settlement payment and the remainder of which was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2019 calendar year. During the year ended December 31, 2018, the Trust received a total of $1,036,335 from EMI, all of which was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2018 calendar year.

 

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Recent Distributions

During the year ended December 31, 2019, the Trust made cash distributions to Unit Holders in the aggregate amount of $1,805,109 ($6.50 per Trust Unit), as compared to cash distribution to Unit Holders in the aggregate amount of $790,184 ($2.85 per Trust Unit), during the year ended December 31, 2018. For computation details regarding the distributions made during the year ended December 31, 2019, please refer to the quarterly distribution report, dated December 23, 2019, 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 23, 2019.

Cash and Administrative Expenses

As of December 31, 2019 the Trust had $1,425 unpaid administrative expenses for services rendered to the Trust. As of March 20, 2020, the Trust had received invoices for an aggregate of $14,472 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 years ended December 31, 2019 and 2018.

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. QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Accounting Firm and financial statements begin on page 8 of this report.

 

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LOGO

Report of Independent Registered Public Accounting Firm

The Trustees and Unit Holders of Mills Music Trust

Opinion on the Financial Statements

We have audited the accompanying statements of cash receipts and disbursements of Mills Music Trust (the “Trust”) for the years ended December 31, 2019 and 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the cash receipts and disbursements of the Trust for the years ended December 31, 2019 and 2018, in conformity with 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, as described in Note 1 to the financial statements.

Basis for Opinion

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Other Matter

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
CERTIFIED PUBLIC ACCOUNTANTS

We have served as the Trust’s auditor since 2003.

New York, New York

March 20, 2020

 

Cornick, Garber & Sandler LLP

555 Madison Avenue, New York, NY 10022-3301  T 212.557.3900  F 212.557.3936

50 Charles Lindbergh Blvd., Uniondale NY 11553-3600  T 516.542.9030  F 516.542.9035

   cgscpa.com

 

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MILLS MUSIC TRUST

STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS

YEARS ENDED DECEMBER 31, 2019 AND 2018

 

     2019     2018  

Receipts from EMI

   $ 2,058,976 (1)    $ 1,036,335 (2) 

Undistributed Cash at Beginning of Year

   $ 65     $ 65  

Disbursements – Administrative Expenses

   $ (253,886 )    $ (246,151 ) 
  

 

 

   

 

 

 

Balance Available for Distribution

   $ 1,805,155     $ 790,249  

Cash Distributions to Unit Holders

   $ 1,805,109     $ 790,184  
  

 

 

   

 

 

 

Undistributed Cash at End of Year

   $ 46     $ 65  
  

 

 

   

 

 

 

Cash Distributions Per Unit (based on 277,712 Trust Units Outstanding)

   $ 6.50     $ 2.85  

 

(1)

The proceeds received by the Trust for the year ended December 31, 2019 include an audit settlement pursuant to which EMI agreed to pay the Trust $1,000,000. For further information see “Recent Audit Settlement Payment” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

(2)

The proceeds received by the Trust from EMI for the year ended December 31, 2018 include an overpayment in the amount of $32,967.

See accompanying Notes to Statements of Cash Receipts and Disbursements.

The Trust does not prepare a balance sheet or a statement of cash flows.

 

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MILLS MUSIC TRUST

NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS

YEARS ENDED DECEMBER 31, 2019 AND 2018

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”).

 

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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”):

 

Quarterly Payment Period

   Amount of
Deficiency 		 

March 31, 2016

   $ 79,889  

September 30, 2016

   $ 37,529  

March 31, 2017

   $ 85,359  

September 30, 2017

   $ 41,557  

March 31, 2018

   $ 98,901  

September 30, 2018

   $ 75,712  

March 31, 2019

   $ 71,489  

June 30, 2019

   $ 41,786  

September 30, 2019

   $ 68,571  
  

 

 

 

Total

   $ 600,793  

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.

Recent Audit Settlement Payment

In January 2016, the Trustees engaged Prager Metis CPAs, LLC (“Prager”), an accounting firm specializing in auditing royalty income, to conduct a special audit of the books and records of EMI administered by Sony/ATV to determine if payments of the Contingent Portion by EMI have been properly made in accordance with the Asset Purchase Agreement during the period beginning on October 1, 2011 and ending on December 31, 2015 (the “Audit Period”). Prager’s final report (the “Prager Report”) was delivered to Sony/ATV on August 14, 2017. The audit cost the Trust an aggregate of $130,284, all of which has been paid to date. The Prager Report identified multiple asserted royalty omissions and expense over-deductions from the Contingent Portion during the Audit Period.

As of April 23, 2019, EMI, the Trust and the Trustees entered into an audit settlement agreement pursuant to which EMI agreed to pay the Trust $1,000,000 in full and final settlement (the “2019 Settlement”) of (i) all Trust claims related to the underpayments identified by the Prager Report and (ii) that portion of the Underpayments attributable to the Audit Period. The Settlement does not cover any claims for any periods of time after expiration of the Audit Period, nor does it adjust the parties’ entitlements arising from the consequences of any future writer royalty underpayment audits relating to the Audit Period.

Unit Holder Distributions and Trust Expenses

Recent Payments

During the year ended December 31, 2019, the Trust received a total of $2,058,976 from EMI, $1,000,000 of which was attributable to the 2019 Settlement payment and the remainder of which was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2019 calendar year. During the year ended December 31, 2018, the Trust received a total of $1,036,335 from EMI, all of which was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2018 calendar year

 

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Recent Distributions

During the year ended December 31, 2019, the Trust made cash distributions to Unit Holders in the aggregate amount of $1,805,109 ($6.50 per Trust Unit), as compared to cash distribution to Unit Holders in the aggregate amount of $790,184 ($2.85 per Trust Unit), during the year ended December 31, 2018. For computation details regarding the distributions made during the year ended December 31, 2019, please refer to the quarterly distribution report, dated December 23, 2019, 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 23, 2019.

Cash and Administrative Expenses

As of December 31, 2019 the Trust had $1,425 unpaid administrative expenses for services rendered to the Trust. As of March 20, 2020, the Trust had received invoices for an aggregate of $14,472 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 Trustees for the years ended December 31, 2019 and December 31, 2018:

 

Trustee Fees Paid by the Trust

  

2019

    

2018

 

Individual Trustee fees (1)

   $ 5,000      $ 5,000  

Corporate Trustee fees

   $ 2,500      $ 2,500  

Corporate Trustee Transfer Agent Registrar fees(2)

   $ 15,000      $ 15,000  
  

 

 

    

 

 

 

Totals

   $ 22,500      $ 22,500  

 

(1)

The Individual Trustees were elected on August 29, 2013.

(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.

 

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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 2019 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 affect 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 2019 Listing, all but one of 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 2088, as set forth in the 2019 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

None.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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

 

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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, 2019. 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, 2018. 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, 2019, 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, 2019 that materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

 

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PART III

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 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 Associate’s 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 acts as Chief Financial Individual providing accounting services for the Trust.

 

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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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

To the best knowledge of the Corporate Trustee as of December 31, 2019, the only persons who beneficially owned more than 5% of the Trust Units are as follows:

 

Name and Address of Beneficial Owner

   Number of Trust
Units Owned 		     Percent of
Trust Units
Outstanding (1) 		 

MPL Communications, Ltd.(2)

41 West 54th Street

New York, New York 10019

     79,609        28.67 % 

Michael Reiss(3)

104 West Chestnut

Suite 356 Hinsdale, IL 60521

     18,385        6.62 % 

First Eagle Investment(4)

Management, LLC

1345 Avenue of the Americas

NY, NY 10018

     31,592        11.38 % 

 

(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, Ltd.

(3)

Michael Reiss is an Individual Trustee of the Trust.

(4)

As reported on Schedule 13G/A filed with the SEC on January 30, 2015.

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, 2019. The Trust does not have any compensation plans under which the Trust Units are authorized for issuance.

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

 

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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. 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 $22,000 in 2019 and $24,750 in 2018.

Audit-Related Fees

$18,000

Tax Fees

None.

All Other Fees—For Quarterly Reviews of Form 10Q

$4,000

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 acts as Chief Financial Individual providing accounting services for the Trust.

 

17

Table of Contents

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

     Page  

1. FINANCIAL STATEMENTS

  

Report of Independent Registered Accounting Firm

     8  

Statements of cash receipts and disbursements – years ended December 31, 2019 and 2018

     9  

Notes to statements of cash receipts and disbursements – years ended December 31, 2019 and 2018

     10  

2. FINANCIAL STATEMENT SCHEDULES

  

3. EXHIBITS

  

 

Exhibit
No. 		 

Description

    4(a)   Declaration of Trust dated as of December 3, 1964(1)
    4(b)   Asset Purchase Agreement dated December 5, 1964(2)
  31.1   Certification by the Chief Financial Individual providing accounting services pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2   Certification by the Trust Officer of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1*   Certification by the Chief Financial Individual providing accounting services pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32.2*   Certification by the Trust Officer for the Corporate Trustee Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL (eXtensible Business Reporting Language) Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

(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

ITEM 16. FORM 10-K SUMMARY

Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The Trust has elected not to include such summary information.

 

18

Table of Contents

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.

 

March 20, 2020       Mills Music Trust
              (Registrant)
    By:  

/s/ Garfield Barrett

      Garfield Barrett
      Trust Officer of the Corporate Trustee
      HSBC Bank USA, N.A.

 

19

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