U.S. Distribution And Related Services Agreement*

1.0   Overview:       This U.S. Distribution and Related Services Agreement
(“Agreement”) dated as of May 31, 2005 by and between UMG Recordings, Inc., on
the one hand and Entertainment Distribution Company (USA) LLC (“Supplier”), on
the other hand, referred to collectively as the parties (“Parties”), describes
the terms, conditions, obligations, remedies, and other related matters
concerning the purchase and supply of certain distribution related services and
activities in the United States.   2.0   Definitions: Definitions are set forth
in Schedule 2.0 of this Agreement.   3.0   Term:

  3.1   Subject to the termination provisions of this Agreement, this Agreement
shall remain in force from the Effective Date through May 31, 2015 (the “Term”).
    3.2   At least 180 days prior to the expiration of the Term, senior
management of the Parties shall meet to discuss a possible extension of the
Term.

4.0   Customer Purchase Obligation:

  4.1   In each year of the Term, subject only to the exclusions set forth in
this Section 4.1, Customer shall purchase, and shall cause all members of the
Universal Music Group to purchase, 100% of its and their respective Distribution
Requirements from Supplier, excluding (i) any Distribution Requirements which
Customer or such Universal Music Group member is permitted to purchase from a
third party under Section 6.8 or 9.3 of this Agreement; (ii) Distribution
Requirements for one million CDs, HDFDs or VRs; (iii) Distribution Requirements
for any CDs, HDFDs, VRs or other Product as to which Customer or other members
of the Universal Music Group are not required to use Supplier to manufacture;
and (iv) Distribution Requirements that are contractually committed to third
parties, other than Supplier, under valid written agreements existing as of the
Effective Date.     4.2   Intentionally deleted     4.3   Intentionally deleted
    4.4   Subject to the provisions of Section 4.1, Customer agrees that it will
not permit any of the Distribution Requirements of any member of the Universal
Music Group to be transferred to another entity outside of the Universal Music
Group, without also assigning, in whole or in part, this Agreement so that any
transferred Distribution Requirements continue to be subject to this Agreement.
Nothing contained in this Article 4.0 is intended to limit Vivendi Universal
S.A. in any of its operations that are not part of or are acquired separately
from the Universal Music Group or (subject to the limitations in this
Section 4.4 and in Section 18) to limit the sale of the equity of, or of all or
substantially all of the assets of a

* A portion of this document is confidential and has been omitted in accordance
with Rule 24b-2 under the Securities and Exchange Act of 1934. Such omitted
confidential material is marked herein as follows: [*****].

 

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      Universal Music Group member, provided such operations or sale are subject
to the assignment obligations described in this Section 4.4.     4.5  
Notwithstanding anything contained in this Agreement to the contrary, except as
expressly provided in Sections 4.1 and 4.4, Customer shall have no obligation to
conduct its business in a manner that maximizes the Distribution
Orders/Activities to be requested from Supplier or minimizes the risks that such
Distribution Orders/Activities shall not be required by Customer, including,
without limitation, any obligation to extend or renew any agreements with third
parties. Suppler acknowledges that there are no minimum requirements associated
with this Agreement.

5.0   Supplier Supply Obligations:

  5.1   Supplier and Customer will meet not less frequently than quarterly for
planning purposes and to review, implement as necessary and approve matters as
required under this Agreement (e.g., under Sections 5.2 and 7.4).     5.2  
Supplier will supply the Distribution Orders/Activities set forth on Schedule
10.1 for all Product as requested by Customer, in accordance with the
requirements outlined in Article 6.0. These DOAs will at a minimum meet the
quality specifications outlined in Article 8.0. In the event that Customer
requests that Supplier supply any Distribution Orders/Activities which are not
set forth on Schedule 10.1 the Parties shall use the procedure set forth in
Section 10.5 to resolve the pricing for such requests.     5.3   Supplier may
not refuse (i) a Customer request to provide a Distribution Order/Activity for
any Product, or (ii) any Distribution Order/Activity not set forth on
Schedule 10.1 provided as to this clause (ii) (A) Customer and Supplier have
followed the procedure described in Sections 10.5.1 through and including 10.5.5
and (B) the requested Distribution Service is normally and customarily provided
by distributors in businesses substantially equivalent to Supplier’s business.  
  5.4   Supplier shall not have the right to subcontract the performance of the
DOAs to third parties, except (a) for any DOAs which are subcontracted by UML as
of the Effective Date, and (b) for any DOAs which Supplier does not have
capacity to supply without such subcontracting. In the event that Supplier
subcontracts the performance of any DOAs under this Agreement, as permitted
above, Supplier shall subcontract such work to the third-party logistics
providers listed on Schedule 5.4 hereto. Supplier may propose to Customer an
amended Schedule 5.4 to add or delete subcontractors at any time, and from time
to time, provided that such amendment shall not be effective unless and until
Customer approves such amendment, which approval shall not be unreasonably
withheld or delayed. Customer shall have the right to (i) add or delete
previously approved subcontractors at any time and from time to time provided
that, in the case of deletions (A) Customer’s deletion or change is not
unreasonable; (B) Customer

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consults with Supplier prior to the deletion or change; (C) Customer provides
Supplier with at least [*****] days prior written notice of the deletion or
change; (D) Customer permits Supplier, notwithstanding such deletion or change,
to continue to use such subcontractor to fulfill any commitments to such
subcontractor existing as of the date of receipt of such notice; and (E) after
any deletion, a commercially reasonable number of approved subcontractors, and
in any event no less than [*****], remain listed on Schedule 5.4 and any
amendments thereto.

  5.4.1   Any order subcontracted by Supplier shall remain subject to the terms
of this Agreement. Supplier shall inform Customer of any order subcontracted
within two Business Days of subcontracting any order.     5.4.2   All Supplier’s
agreements with subcontractors performing services for Customer will provide
that Customer will have the right to inspect such subcontractor’s facilities
upon reasonable advance written notice to Supplier, during normal subcontractor
hours of operation, without interference to subcontractor’s operations, and
subject to any reasonable access rules or confidentiality obligations imposed by
the subcontractor.     5.4.3   Notwithstanding any of the foregoing restrictions
in this Section 5.4, Supplier may outsource [*****]% of hand packaging services,
refurbishing and other non-automated services.

  5.5  Supplier shall maintain and employ facility security systems and
procedures that are no less effective in preventing theft, pirating,
unauthorized exhibition, copying or duplication of any of Customer’s proprietary
programs or other material delivered by Customer to Supplier or its designated
subcontractors than the security systems and procedures which Customer has
disclosed to Supplier in writing in advance of the date hereof, to the extent
such systems and procedures were prevailing at the existing UML manufacturing
facilities as of the Effective Date.     5.6  [*****]     5.7  The Parties
hereto acknowledge and agree that, notwithstanding any other provision of this
Agreement, the standards to which Supplier will be held in connection with the
Distribution Services to be provided by Supplier to Customer hereunder,
including without limitation, quality, turnaround, shipment, security and
reporting standards, shall as of the Effective Date be no greater than the
standards which UML was consistently meeting in the twelve-month period prior to
the Effective Date; provided, however, that, prior to adopting any standards
pursuant to the above provisions of this Section 5.7 that vary from those set
forth in this Agreement, Supplier shall first provide written notice to Customer
of such intention with a detailed description of the standards Supplier intends
to adopt and the basis for doing so; and provided further, the Parties
acknowledge and agree that, notwithstanding the foregoing provisions of this
Section 5.7, after [*****] of

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 the Term, Supplier will (a) meet the standards as set forth herein and
established hereunder, and (b) subject to Section 5.9, further meet industry
standards as required by Section 5.8.

  5.8   The Parties hereto acknowledge and agree that the standards applicable
to the Distribution Services to be provided by Supplier to Customer hereunder,
including without limitation, quality, the nature of services, security
standards, IT systems and support, will change over the Term. If the standards
applicable to similar distribution services provided by Supplier to any other
customer are higher than those applicable to Customer, those higher standards
shall also be applicable to the services provided by Supplier to Customer. In
addition, Supplier shall, to the extent the industry standards referenced herein
or which are generally required by buyers of services such as those provided by
Supplier hereunder, increase or improve such standards from those in effect on
the Effective Date, upgrade its operations and services to incorporate such
increased or improved standards for the benefit of Customer. Notwithstanding the
foregoing, Supplier shall not be required as a result of this Section 5.8 to be
the first or an early adopter of new standards or technology, but is required to
implement such new standards and technology as and when they become generally
used and available.     5.9   [*****]     5.10   Prior to adopting any standards
pursuant to the provisions of Sections 7.4, 7.5.2 or 7.6 that vary from the
Specified Standards (as defined below), Supplier shall first provide written
notice to Customer of such intention with a detailed description of the manner
in which the applicable Specified Standards are inconsistent with Prevailing
Practices and the standards Supplier intends to adopt that are consistent with
Prevailing Practices.     5.11   [*****]

6.0   DOA Timelines:

  6.1   Customer shall place Distribution Orders/Activities as to Product with
Supplier through Customer’s Legacy and/or WMS Systems, or Customer’s successor
system(s). Any order for DOAs received prior to [*****] on a Working Day, local
distribution center time, will be deemed placed on that Working Day for purposes
of Section 6.5 hereof; all other orders (e.g., those placed after [*****] on a
Working Day or any time on a non-Working Day) will be deemed received on the
opening of business the next Working Day for purposes of Section 6.5.     6.2  
Intentionally deleted     6.3   Intentionally deleted     6.4   Intentionally
deleted

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  6.5   Supplier will Ship, tender or process units which are the subject of
DOAs within the deadlines shown in 6.5.1 – 6.5.6 below. Supplier will make
commercially reasonable efforts to handle emergency Customer requests to Ship or
process DOAs in lesser time than described in 6.5.1 – 6.5.6.

  6.5.1   DOAs for Hits items received before [*****] (local distribution center
time) will Ship as follows:

                 

  •   Direct-to-Store DOAs   -   At a minimum, [*****]% will

              Ship same Working Day.
Balance will Ship next Working Day.
 
               

  •   All other DOAs   -   Will Ship [*****] Working Day.

      All non-Direct-To-Store DOAs for Hits items received after [*****] (local
distribution center time) will Ship not later than the end of the next Working
Day.     6.5.2   All DOAs for Catalog items received prior to [*****] (local
distribution center time) EST will Ship as follows:

                 

  •   Direct-to-store DOAs   -   At a minimum, [*****] % will

              Ship the next Working Day. Balance will Ship by the end of the
[*****] Working Day.
 
               

  •   All other DOAs   -   Will Ship the [*****] Working Day.

      All non-Direct-To-Store DOAs for Catalog items received after [*****]
(local distribution center time) will Ship not later than [*****] Working Day
following the Working Day of receipt.     6.5.3   Notwithstanding the foregoing
provisions of this Section 6.5, in the event Customer has approved certain
classes of DOAs (by way of example for purposes of clarity but not limited to
Best Buy direct to store DOAs and west coast LTL direct to store orders) to ship
on a standard schedule, Supplier is exempted from the performance metrics in
6.5.1 and 6.5.2 for said classes of DOAs, and shall comply only with the agreed
applicable standard schedule.

  6.5.4   [*****] or greater of DOAs for products identified in Customer system
as New Releases will be tendered to carrier by Supplier on the specified tender
date. This metric will be evaluated and monitored by Customer randomly selecting
[*****] such New Release DOAs per [*****] and determining the actual date
tendered to the designated carrier date vs. Customer’s specified tender date.

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  6.5.5   Returned products will be processed in a manner such that an
electronic file is made available to Customer on average within [*****] Working
Days of receipt during a month. Said electronic file shall contain at a minimum
the information provided by the current [*****] system, including but not
limited to: customer number, customer’s reference number, selection number
returned and quantity returned per selection number. Returned products will be
reworked and available to return to shippable inventory within a [*****] Working
Days after receipt or less.     6.5.6   Supplier will maintain at least one “DJ
promo area” in one Distribution Center to be used to process DJ promo Product.
DJ promo units will Ship within [*****] of receipt of an order for DOAs for such
units unless product is not available in the DJ promo area or Distribution
Center, in which case orders will Ship within [*****] of the product’s arrival
in the DJ promo area. If DJ promo product is in a Distribution Center, but not
in the DJ promo area, such units must Ship within [*****] of receipt of an order
for DOAs for such units.

  6.6   Customer shall be responsible for ensuring that Supplier has sufficient
Universal Product and/or Universal Materials to fulfill all orders. To assist
Customer with this obligation, Supplier shall notify Customer as soon as it
becomes aware that any significant shortfall in required Universal Product
and/or Universal Materials may occur. Supplier shall also notify Customer of any
circumstances which might reasonably lead to late deliveries as soon as it
becomes aware of such circumstances and shall act in accordance with Customer’s
reasonable instructions in such situations.     6.7   Intentionally deleted    
6.8   Without limitation of Customer’s other remedies hereunder, if Supplier is
unable or otherwise fails to fulfill any DOA in accordance with this Agreement
within [*****] of the date required under this Agreement, then Customer may
secure the services of a third party or parties to fulfill such DOA(s).    
6.9   Intentionally deleted     6.10   Intentionally deleted     6.11   Required
Supplier Actions Concerning Late DOAs

  6.11.1   Subject to the limitations in this Section 6.11, individual shipping
order(s) described in Sections 6.5.1, 6.5.2, 6.5.3 and 6.5.4 not Shipped or
tendered by or before the deadlines described in Sections 6.5.1, 6.5.2, 6.5.3
and 6.5.4 will be known as “Late Order(s)”. In the event that at the end of
[*****] Working Days there are [*****] Late Order(s) not Shipped or tendered,
Supplier must at its own expense schedule all qualified employees to work the
maximum amount of overtime (either extended hours in a Working Day or on
non-Working Days) permitted under

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      federal/state law or union agreement(s) until there have been no Late
Orders for [*****] Working Days. Supplier will not charge Customer any amount
over and above the Standard Order Shipping Prices shown on Schedule 10.1 for the
above.

  6.11.2   In the event that at the end of each [*****] Working Days there are
[*****] Late Orders not Shipped or tendered, Supplier will Ship [*****] of all
Late Orders in its possession via [*****] until such time as there are no Late
Orders. Supplier will not charge Customer, i.e., Supplier will absorb and pay
the difference in cost between [*****] costs for the above and any overtime or
other expenses associated therewith.     6.11.3   In addition to the
requirements set forth in Sections 6.11.1 and 6.11.2, if as a result of any Late
Order Customer (i) incurs any incremental difference in shipping costs as a
result (e.g. late fee penalties imposed by its customers and paid by Customer),
or (ii) is required to make air (as opposed to ground) shipments, Supplier shall
promptly reimburse Customer for such incremental difference in costs and the
differential in shipping costs.     6.11.4   Customer hereby represents to
Supplier that UML’s prevailing practice during its 2003 and 2004 fiscal years
with respect to overtime premium costs [*****]. Customer may audit Supplier’s
books and records under Section 23.0 in connection with any compensation request
hereunder and either party make invoke the arbitration procedures set forth in
Section 14.0 in the event of a disagreement as to the amount, if any, of
compensation owed by Customer to Supplier for any given year.     6.11.5   The
remedies set forth in this Section 6.11 shall be Supplier’s sole liability and
Customer’s sole remedy for any Late Orders, except as otherwise set forth in
Section 9.3.

  6.12   No additional or conflicting terms and conditions on any purchase
orders or other documentation provided by Customer or any other Universal Music
Group member incident to any Orders hereunder shall form any part of any
agreement between the parties, including this Agreement, except for purchase
order quantities and descriptions.     6.13   Customer requests to scrap Product
will be completed within [*****] Working Days.     6.14   Supplier will maintain
an Overpacked Carton Percentage of [*****] or greater across all facilities
servicing Customer as tracked by the current UML Overpack Report (a form of
which is attached as Schedule 6.14). If in any month Supplier fails to meet the
Overpacked Carton Percentage of at least ,[*****] Customer may charge and
Supplier will pay Customer if charged, a [*****] fee for each carton below the
[*****]% Overpacked Carton Percentage level. The [*****] fee

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      shall be Customer’s sole remedy, and Supplier’s sole liability, for
Supplier’s failure to maintain an Overpack Carton Percentage of at least
[*****]% in any month.     6.15   Supplier will provide (and may subcontract) at
a minimum, the value-added services referred to as stickering, long boxing,
assortment creations, product cutting and display building. Supplier will ensure
the following minimum daily output levels for each of these services within
[*****] Working Days from receipt of request:

             
Stickering
    [*****] units/day    
Long boxing
    [*****] units/day    
Assortment Creation
    [*****] assortments/day    
Product Cutting
    [*****] units/day    
Display Building
    [*****] displays/day    

  6.16   [*****]     6.17   Limitations on Customer Order Transmissions

  6.17.1   New Release Orders

  ° Customer will consult with Supplier before transmitting orders for New
Release DOAs. Unless previously approved by Supplier, Customer will limit the
transmission of New Release orders to [*****] a week, unless Customer requires
an off cycle New Release shipment of less than [*****] SKUs. The first
transmission of orders for a specific release date will occur in a manner that
provides Supplier with at least [*****] days to process the orders prior to its
required tender date to the designated carrier. The [*****] transmission of
orders will not exceed [*****] units of non-case lot items without prior
approval by Supplier. [*****] transmission orders are not required to be
tendered to the designated carrier by the normal tender date.     ° On the
Monday prior to the street date for New Release products, Customer may transmit
orders for quantities of [*****] units or greater on items that have a total
quantity across all orders of [*****] units or greater. Orders will be
transmitted such that multiple items going to the same destination are combined
with one another.

7.0   Specific Related Services:       Supplier will provide the services to
support the Distribution Orders/Activities that are set forth in this
Article 7.0 (the “Specific Related Services”). There shall be no additional

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    cost to Customer for any of the specific Related Services, including those
listed in this Section 7.0, except as expressly provided to the contrary.
Specific Related Services shall be substantially similar to the existing UML
practices as of the Effective Date, and shall include:

  7.1   Intentionally deleted     7.2   Intentionally deleted     7.3  
Intentionally deleted     7.4   Supplier will provide and maintain certain
reports and electronic data feeds to the extent (a) available to Customer under
Prevailing Practices, and (b) applicable to Customer, including but not limited
to:

     Reports:

     [*****]

     Data Feeds:

     [*****]

Supplier will provide such additional reports and electronic data feeds as
Customer shall reasonably require, and the Parties shall mutually agree upon how
additional costs, if any are actually incurred by Supplier for any such reports
or electronic data feeds, will be shared or allocated.

  7.5   Supplier agrees and understands that it has normal and customary
custodial responsibilities for Customer-owned finished goods inventory in
Supplier’s possession and Supplier specifically agrees to:

  7.5.1   Provide for the safe and secure storage of Customer-owned products and
provide daily electronic information regarding inventory activity consistent
with existing UML practices. In the event that Customer’s inventory is damaged
or unaccounted for, as presented through inventory adjustments or physical
inventory results, Supplier will reimburse Customer at the current manufacturing
price for all units greater than a net impact of [*****] units annually.    
7.5.2   Provide cycle count services to maintain an Inventory Location Accuracy
Level of [*****] or greater (or such other percentage as is consistent with
Prevailing Practices). The cycle count program will review on a random basis a
[*****] minimum of [*****] of all warehouse bulk locations in a manner such that
each location is checked at least [*****] times per year. Supplier will provide
Customer with monthly results of these cycle count services. If the Inventory
Location Accuracy Level falls below [*****], Customer may conduct an audit of no
less than [*****] locations. If the

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      Inventory Location Accuracy Level of those locations is under [*****]%,
Customer may require Supplier to complete a full physical inventory within
[*****] days of notification. Said physical inventory will be completed at
Supplier’s expense which Customer may observe at its expense.     7.5.3  
Perform an annual physical inventory of the Returns work center and any
Customer-owned inventory not included in the cycle counting process at no cost
to Customer. The timing of this physical inventory will be mutually agreed upon.
Supplier agrees to perform additional physical inventories at Customer’s request
provided:

     A)   Requests for said inventories are made at least 30 days in advance.  
     B)   Customer will compensate Supplier for all out-of-pocket costs
associated with completing said inventory.

  7.5.4   Supplier will allow Customer agents or representatives from
Distributed Label companies to observe the cycle count process and/or physical
inventories provided:

     A)   Requests are made at least 30 calendar days in advance.        B)  
Customer or the Distributed Label representatives will observe at their own
expense.        C)   Customer and the Distributed Label representatives may not
adversely impact the normal business activities of Supplier.

  7.6   Supplier will process receipts of Customer’s Inventory in a manner that
provides electronic data regarding the receipt (e.g. item and quantity received
against a specific Customer purchase order) to Customer’s legacy or similar
computer system so that said inventory is available for shipment against
Customer’s Orders, and has been updated in Customer’s inventory system, within
[*****] hours of the product’s arrival at Supplier’s distribution location, or
in such other manner as is consistent with Prevailing Practices. Supplier will
provide expedited receiving for up to [*****] SKUs per day (or such other number
as is consistent with Prevailing Practices) as requested by Customer, which SKUs
will be processed within [*****] hours (or such other amount of time as is
consistent with Prevailing Practices) if Customer identifies the carrier and
trailer number in which the Product is being transported. In addition, Supplier
will provide Customer with a daily report summarizing any discrepancy between
what was received and what was indicated as shipped by the relevant
manufacturer. Supplier will assist Customer in the resolution of any receiving
discrepancy between Customer and its vendors. To the extent that any Customer
changes to any Customer computer systems would cause Supplier to incur any costs
in connection with adapting to, conforming to, custom programming for, or
otherwise interfacing with such systems in order to facilitate the efficient
performance of its obligations under this Agreement, including without
limitation, Section 6.1 and this Section 7.6, Customer shall reimburse Supplier
for all such costs.

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  7.7   Supplier will assist Customer in identifying transportation savings
opportunities. At a minimum, Supplier will identify when a shipment to a
Customer’s customer would be less expensive using a truckload carrier instead of
a Less Than Truckload (“LTL”) carrier that Customer originally designates.    
7.8   Other Logistics Services         Supplier will provide Customer with
logistics advice and recommendations as requested, particularly with respect to
matters that could affect Customer’s service to its clients or the cost of
providing DOAs.         Examples of these areas of advice/recommendation
include, but are not limited to:

  •   New Release Inventory Allocations

     [*****]

  •   Transportation Management

     [*****]

  7.9   Claims Administration. Customer’s customers may report freight damage or
undelivered product to Customer. The following process will be used by Customer
and Supplier to resolve these freight claims, and Supplier will act as described
in 7.9.3 through 7.9.5.

  7.9.1   Customer will submit detailed claim reports to Supplier within six
months of original date of shipments. Information provided will at a minimum
meet current reporting practices as of July 1, 2004.     7.9.2   Customer will
not report claims for less than [*****] or [*****] units.     7.9.3   Supplier
will make normal and customary attempts to collect claims payments from
carriers. However, Supplier will not be liable for any claim in part or in whole
that is not approved by the carrier.     7.9.4   All proceeds collected in
settlement of Customer’s reported claims will be paid to Customer within [*****]
days of receipt by Supplier.     7.9.5   Supplier will provide Customer with
documentation as to the cause regarding any claim that is denied or not paid in
full.

  7.10   Transportation Administration

  7.10.1   Supplier will, upon Customer’s request and following Customer’s
instructions, coordinate and route shipments from Supplier’s manufacturing
facilities to locations designated by Customer. In addition, Supplier will, at
Customer’s request and following Customer’s

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      instructions, coordinate and route shipments from Customer’s manufacturing
vendors (other than Supplier) to the extent that Customer has at least a
six-month contract with said manufacturing vendors. The actual charges incurred
by Supplier from freight vendors for such shipments (without markup of any kind)
will be payable by Customer to Supplier within [*****] Working Days of receipt
by Customer of normal and customary supporting documentation.     7.10.2  
Supplier will, upon Customer’s request and following Customer’s instructions,
coordinate and route shipments from all of Customer’s other manufacturing
vendors. The actual charges incurred by Supplier from freight vendors for such
shipments (without markup of any kind) will be payable by Customer to Supplier
within [*****] Working Days of receipt by Customer of normal and customary
supporting documentation. Additionally, some shipments referred to in Section
7.10.1 may require expedited service requiring non-standard communication with
Supplier’s carriers. The administration of the first [*****] such shipments in
each [*****] month period of the Term (measured by each anniversary of the
Effective Date) will be coordinated and routed by Supplier at no additional
charge to Customer. With respect to any additional such shipments during a
particular twelve month period, Supplier may charge Customer, and upon such
charge Customer will pay Supplier, [*****] per shipment coordinated and routed.

  7.11   Data Interfaces. Customer shall provide Supplier with the data and
reports reasonably necessary for Supplier to perform the Distribution Services
hereunder in a reasonable format agreed by the Parties. During the term of the
Information Technology Transition Services Agreement, Customer shall provide
such data and reports to Supplier pursuant to Supplier’s access to Customer’s
systems as provided in such IT TSA. In consideration of the foregoing, Customer
shall be entitled, on the first Working Day of each month during the Term (or as
soon thereafter as Customer shall elect), to debit the amount of [*****] against
all then-outstanding invoices of Supplier to Customer.

8.0   Shipping Quality:

  8.1   Supplier will prepare and label product for shipping in a manner
consistent with Prevailing Practices to minimize damage during transport, and
enable a carrier to correctly identify a shipment.     8.2   Supplier will
perform random quality inspections of outbound shipments and maintain an Order
Line Accuracy level equal to the actual results obtained by employing the
procedures described in Schedule 8.2 during the first 90 days of the Term (such
results, the “Order Line Accuracy Standard”). Supplier will provide Customer
with monthly results of these inspections. If Order Line Accuracy falls below
the Order Line Accuracy Standard, Customer at its sole reasonable

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      discretion may require Supplier to increase the quantity of shipments and
lines inspected.

9.0   Key Failures.

  9.1   A “Key Failure” is an occurrence of any of the events identified as a
“KPI Repeated Failure Event” on Schedule 9.1 of this Agreement. As soon as it
becomes aware of a Key Failure, Customer or Supplier shall notify the other of
the Key Failure, specifying the nature of the Key Failure and the data sources
used to identify such Key Failure (each such notice is a “Failure Notice”).    
9.2   Any Key Failure which is not cured in accordance with this Section 9.2 is
an “Uncured Key Failure,” provided that Customer has provided Supplier (or
Supplier has provided Customer) with an associated Failure Notice within [*****]
days of the Key Failure. A Key Failure which is cured under this Section 9.2
shall not relieve Supplier of any other remedies to which Customer may be
entitled under Sections 6.11, 6.14, or 8.2 of this Agreement. In order to cure a
Key Failure, Supplier must do each of the following:

  9.2.1   Within seven calendar days of receipt of a Failure Notice identifying
such Key Failure from Customer, or delivery of a Failure Notice by Supplier,
after consultation with Customer, provide to Customer a detailed, written
correction action plan (“CAP”), with defined and traceable milestones, metrics
and timelines which address the causes of the Key Failure and describes how
Supplier will monitor and manage the relevant business practices/processes to
ensure that the causes of the Key Failure are successfully addressed;    
9.2.2   During the six-week period following the date of Supplier’s receipt or
sending of the Failure Notice (the “Cure Period”), on each Tuesday, provide
Customer with a written report describing the progress on the CAP and any Key
Failures during the preceding Work Week (ending on the immediately preceding
Saturday); and     9.2.3   By the end of the Cure Period, successfully address
the causes of the Key Failure, and provide Customer with a written report of the
relevant business practices/process implemented.

  9.3   The effects of Key Failures and Uncured Key Failures shall be as
follows:

  9.3.1   On the first Uncured Key Failure with respect to which Supplier has
received or delivered a Failure Notice during any [*****]-year period, Customer
shall have the right, as its sole liability and as Customer’s sole remedy for
such Key Failure(s), to either (a) source up to [*****]% of its DOAs and/or at
the option of the Customer up to [*****]% of the manufacturing services for the
SKUs whose DOAs are outsourced (such combination of DOA and manufacturing
services as elected by Customer, the “Elected Services”) with any other entity
or entities for a period of

13

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      [*****] months, or (b) receive from Supplier liquidated damages in the
amount of [*****], payable in the form of a monthly credit towards Customer’s
accounts payable to Supplier in the amount of [*****] per month for [*****]
months.     9.3.2   On the second Uncured Key Failure with respect to which
Supplier has received or delivered a Failure Notice during any [*****]-year
period, Customer shall have the right, as its sole liability and as Customer’s
sole remedy for such Key Failure(s), to either (a) source up to [*****]% of its
Elected Services with any other entity or entities for a period of [*****]
months, or for an additional [*****]-month period in the event that Customer is
then-currently exercising a prior sourcing right under any sub-section of
Section 9.3, or (b) receive from Supplier liquidated damages in the amount of
[*****] payable in the form of a monthly credit towards Customer’s accounts
payable to Supplier in the amount of [*****] per month for [*****] months.    
9.3.3   Notwithstanding Section 9.3.2, if two Key Failures under “Hits/Catalog
Shipping” or “New Release On Time Delivery” on Schedule 9.1 with respect to
which Supplier has received or delivered a Failure Notice occur between
August 15th and November 30th of the same calendar year, whether cured or not,
Customer shall have the right, as its sole liability and as Customer’s sole
remedy for such Key Failure(s), to either (a) source up to [*****]% of the
Elected Services with any other entity or entities for a period of [*****]
months, or for an additional [*****]-month period in the event that Customer is
then-currently exercising a prior sourcing right under any sub-section of this
Section 9.3, or (b) receive from Supplier liquidated damages in the amount of
[*****] payable in the form of a monthly credit towards Customer’s accounts
payable to Supplier in the amount of [*****] per month for [*****] months.    
9.3.4   If three Key Failures of the same category (e.g., Hits/Catalog Shipping)
with respect to which Supplier has received or delivered a Failure Notice occur
during any rolling [*****]-year period, whether cured or not, Customer shall
have the right, as its sole liability and as Customer’s sole remedy for such Key
Failure(s), to either (a) source up to [*****] of the Elected Services with any
other entity or entities for [*****] of the Term, (b) terminate this Agreement;
or (c) receive from Supplier liquidated damages in the amount of [*****] payable
in the form of a monthly credit towards Customer’s accounts payable to Supplier
in the amount of [*****] per month for [*****] months.     9.3.5   On the fourth
Key Failure with respect to which Supplier has received or delivered a Failure
Notice during any rolling [*****]-year period, whether cured or not, Customer
shall have the right, as its sole liability and as Customer’s sole remedy for
such Key Failure(s), to either (a) source up to [*****] of the Elected Services
with any other entity or entities for a

14

--------------------------------------------------------------------------------

 

      period of [*****] months, or for an additional [*****]-month period in the
event that Customer is then-currently exercising a prior sourcing right under
any sub-section of this Section 9.3, or (b) receive from Supplier liquidated
damages in the amount of ,[*****] payable in the form of a monthly credit
towards Customer’s accounts payable to Supplier in the amount of [*****] per
month for [*****] months.     9.3.6   On the fifth key failure with respect to
which Supplier has received or delivered a Failure Notice during any rolling
[*****]-year period, whether cured or not, Customer shall have the right, as its
sole liability and as Customer’s sole remedy for such Key Failure(s), to either
(a) source up to [*****] of the Elected Services with any other entity or
entities for [*****] of the Term, (b) terminate this Agreement, or (c) receive
from Supplier liquidated damages in the amount of [*****] payable in the form of
a monthly credit towards Customer’s accounts payable to Supplier in the amount
of [*****] per month for [*****] months.     9.3.7   For purposes of clarity,
the parties agree that (a) Customer shall never have a right to source any more
than [*****] under the provisions of Sections 9.3.1, 9.3.2, 9.3.3 and 9.3.5, and
(b) where the provisions of more than one sub-section of Section 9.3 would
provide Customer with a remedy with respect to any new Key Failure event,
Customer may elect only one of such remedies. In addition, to the extent that an
event that would constitute a Key Failure under “Picking Accuracy” on
Schedule 9.1 is uncured and continuing during the applicable Cure Period, such
event may not constitute another Key Failure until the end of the applicable
Cure Period in accordance with Section 9.2.     9.3.8   Customer’s right to
invoke any remedy available to Customer with respect to a particular event under
the provisions of any sub-section of Section 9.3 shall be exercised, if at all,
in writing and within [*****] days after the date upon which such right first
accrues to Customer (e.g., at the end of the cure period or on the occurrence of
a Key Failure and receipt of a Failure Notice, as applicable), and any period of
loss of exclusive volume and DOAs under any sub-section of Section 9.3 shall
commence upon such date, except in the case where a period of loss of exclusive
volume and DOAs under any sub-section of this Section 9.3 is currently running,
in which case the new period shall commence upon the expiration of the current
period.     9.3.9   In the event that Customer exercises any right to source any
volumes with third parties under any sub-section of this Section 9.3, Customer
shall provide Supplier with timely notice of such third-party sourcing, and
Supplier’s capacity commitments under this Agreement shall be reduced by the
amount of such third-party sourcing. Upon the conclusion of any period in which
Customer has elected to outsource exclusive volume

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      pursuant to Sections 9.3.1 through 9.3.6, such exclusive volume shall
automatically revert to Supplier.

  9.4   Notwithstanding any other provision of this Agreement, any failure of
Supplier to perform any of its obligations under this Agreement shall not be
considered a default, breach, Key Failure or Uncured Key Failure to the extent
that such failure is caused by (a) any Customer breach of, or noncompliance with
this Agreement or any other agreement between Customer and Supplier; (b) the
failure of Customer to timely provide any consents, approvals, instructions or
assistance required hereunder; or (c) any Customer breach of, or noncompliance
with, the Transition Services Agreement, the U.S. CD Manufacturing Agreement,
the U.S. HDFD Manufacturing Agreement, or the Asset Purchase Agreement.

10.0   Pricing:

  10.1   Base Pricing

  10.1.1   Schedule 10.1 contains (i) the prices for DOAs, excluding prices for
Transportation Services which are described in 10.2, and prices associated with
the items described in Section 10.6 in each case existing as of the Effective
Date and (ii) a list of all no-charge DOAs. These prices are fixed through the
term of the Agreement, with the exception(s) described in this Agreement,
including, without limitation, pursuant to Sections 10.5, 10.6 and 22.0. The
Parties agree that Supplier will not charge, and Customer will not pay for, any
service or activity that is not listed on Schedule 10.1 or elsewhere referenced
or included in this Agreement unless Customer has approved such services and
charges in writing.

  10.2   Transportation Prices

  10.2.1   Supplier will be responsible for all non-small package
carrier-related transportation costs and services related to:

  °   Delivery of packaged items or SKUs from (i) Customer’s manufacturing
locations to designated distribution points, or (ii) from or to a distribution
center.     °   Delivery of packaged items or SKUs from either manufacturing
locations or distribution centers to Customer’s customers.     °   Payment of
carrier freight charges, which will be reimbursed by Customer on a pass-through
basis.

These will be called collectively “Transportation Services”.

  10.2.2   Supplier shall assist Customer in identifying methods to minimize the
costs of Transportation Services to the Customer.     10.2.3   Prices for
Transportation Services as of the Effective Date are contained in
Schedule 10.2.1. Supplier will change the prices in Schedule 10.2.1 on

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      January 1, 2006 and each successive January 1 thereafter until the end of
the Term to reflect Supplier’s then-current actual rates from its carriers, such
prices called the “New Transportation Prices”. To the extent that Supplier’s
prices do not change from the prior year, the Schedule 10.2.1 price shall
continue unchanged. To the extent that the new rates from Supplier’s providers
of Transportation Services are lower than those of the preceding year, the New
Transportation Prices will be equal to the prices in Schedule 10.2.1 for the
prior year minus [*****] of the change in the rates of the Supplier’s providers
of Transportation Services. To the extent that new rates from Supplier’s
providers of Transportation Services are higher than those of the preceding
year, the New Transportation Prices will be equal to the prices in
Schedule 10.2.1 for the prior year plus [*****] of the change in the rates of
the Supplier’s providers of Transportation Services.     10.2.4   In the event
Supplier’s providers of Transportation Services charge Supplier fuel surcharges
or ancillary fees not contained in Schedule 10.2.1, Supplier may pass such
surcharges and fees through to Customer on Customer’s DOAs.     10.2.5   Prior
to January 1 of each year before the implementation of New Transportation
Prices, if Customer can present evidence of lower price opportunities through
carriers of equivalent capabilities, then Supplier will utilize those carriers.
    10.2.6   As of the Effective Date, Customer will retain its direct
relationship with its designated small package carrier (the “Carrier”), permit
Supplier to ship Customer’s DOAs using Customer’s Carrier account and Customer
will pay the Carrier directly. During the Term, Customer may direct Supplier to
provide the Carrier’s services directly in which case the Supplier’s small
package carrier’s (as approved by Customer) rates will become part of
Schedule 10.1.2.

  10.3   Supplier may invoice Customer each Working Day upon shipment and
Customer shall pay all invoices within [*****] calendar days of receipt of
invoice. Such invoices shall reflect the prices contemplated by Sections 10.1
and 10.2, or as may be agreed upon by the Parties pursuant to Section 10.5.

  10.3.1   Customer shall pay interest on any amounts (excluding those disputed
in good faith, including without limitation, where the late payment is the
result of Supplier’s action or inaction, e.g. Supplier’s warehouse receipt does
not match Supplier’s invoice) past due under this Agreement at a monthly rate
equal to the lesser of (a) the London Interbank Offered Rate (“LIBOR”) + 0.5% or
(b) the maximum rate permitted by law.     10.3.2   If Customer becomes
delinquent in the payment of any amount (excluding amounts disputed in good
faith) in excess of [*****] Supplier shall have

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      the right to suspend some or all shipments hereunder pending such payment,
and any such failure to make shipments will not be a default, breach, Key
Failure or Uncured Key Failure of this Agreement and will not entitle Customer
to terminate this Agreement or to any other damages or remedy.     10.3.3   In
the case of a disputed invoice, Customer will pay the undisputed amount of the
invoice and Customer and Supplier will work together in good faith to resolve
the disputed amount. In the event an agreement cannot be reached on the disputed
amount within [*****] days of the invoice due date, either Supplier or Customer
may submit the matter to arbitration as provided in Article 14.0 “Dispute
Resolution” to resolve the disputed amount, but without the need for or right to
preliminary discussions provided for in Article 14.0. Upon resolution of the
dispute, Customer will pay the Supplier the amount, if any, determined to be due
to Supplier.

  10.4   Intentionally deleted     10.5   In the event a DOA which is not listed
on Schedule 10.1 is required by Customer or any Universal Music Group member,
the following procedure will be followed by Customer and Supplier to establish a
price for said DOAs.

  10.5.1   Customer will request the DOA from Supplier in writing.     10.5.2  
Within [*****] Working Days of receipt of a written request described in
Section 10.5.1 above from Customer, Supplier will propose a price equal [*****]
Supplier will supply documentation to Customer that supports the calculation of
its proposed price.     10.5.3   Customer may accept or reject Supplier’s
proposed price.     10.5.4   In the event Customer accepts Supplier’s proposed
price, such DOA and associated price shall be added to Schedule 10.1.    
10.5.5   In the event Customer rejects Supplier’s proposed price, Customer may
audit the documentation supporting the calculation of Supplier’s proposed price.
[*****]. All of the foregoing information constitutes trade secrets of Supplier,
unless otherwise publicly disclosed by Supplier.     10.5.6   Following the
completion of Customer’s audit, parties will meet and engage in good faith
negotiations concerning Supplier’s proposed price. In the event an agreement
cannot be reached on the proposed price within [*****] days of Supplier’s
proposal of a price, either Supplier or Customer may invoke Article 14.0
“Dispute Resolution” to determine the price for a DOA not contained in
Schedule 10.1, provided, that solely for purposes of resolving disputes under
this Section 10.5 AAA procedures shall not be used and: (A) the arbitrator shall
be a single person who shall

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      be a CPA currently in practice at a national accounting firm which firm
shall be selected by the parties mutually, and which shall be asked to name the
person to so act, (B) there shall be no discovery, (C) each party shall submit,
on the tenth business day after the arbitrator is named, its proposed price and
any support it has for the price as proposed (including, e.g., any documentation
submitted under Section 10.5.2 and the results of any audit under
Section 10.5.5), and (D) the arbitrator shall choose, within ten business days
of the submissions under clause (C) between the price proposed by Supplier and
the price proposed by Customer, without change, addition or deletion, based on
which price is closer (in the arbitrator’s view, as informed by the documents
submitted pursuant to clause (C)) to Supplier’s [*****]. Once such price is
determined, such DOA and associated price shall be added to Schedule 10.1.

  10.6   The Parties agree and understand that subsequent to the Effective Date,
but within the Term of this Agreement, Customer may have access to DOA volumes
other than for Universal Music Group Distribution Requirements, including
volumes (a) from non-Universal Music Group companies or labels with which it
currently has no written agreements; (b) for sale in countries or territories
not in the United States and not included as European Territories under the
European Agreement; (c) for sale by Universal Music Group’s special
markets/special products business unit through non-traditional distribution
outlets; and (d) from a party who becomes a Universal Music Group member by
acquisition after the Effective Date to the extent and for the period that such
party’s volumes are contractually committed to a third party as of the date of
signing of the relevant acquisition agreement. All and any such DOAs will be
hereafter referred to as “Incremental Volumes”.         On each occasion on
which Customer gains access to any Incremental Volumes which could be placed
under this Agreement (i.e., DOAs to be performed within the United States),
Customer shall notify Supplier of the volumes, terms, conditions, and any other
relevant information related to such Incremental Volume necessary for Supplier
to prepare a proposal to supply such Incremental Volume to Customer (each such
notice, an “Incremental Volume Offer”). Notwithstanding anything to the contrary
in this Agreement, however, Customer shall not be required to offer any DOA
Incremental Volumes unless Customer can also offer Supplier the associated
manufacturing as “Incremental Volume” under one of the U.S. Manufacturing
Agreements. Within [*****] days of its receipt of an Incremental Volume Offer,
Supplier must advise Customer of its interest in supplying such Incremental
Volume which is the subject of the Incremental Volume Offer, and set forth in
such acceptance its proposal all the necessary terms for such acceptance, which
shall include all the terms set forth in the Incremental Volume Offer (each such
acceptance, the “Supplier Incremental Volume Proposal”). Supplier’s decision not
to submit, or its failure to provide a Supplier Incremental Volume Proposal
within the [*****] days, shall mean that, notwithstanding Section 4.1, Customer
may take the Incremental Volume subject to the Incremental Volume Offer to any
entity.

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  10.7   Intentionally deleted     10.8   On each of the dates specified below,
Customer shall be entitled to debit the amount set forth below (across from each
applicable date) against all then-outstanding invoices of Supplier to Customer
or other obligations owed by Customer to Supplier, and to be paid by Supplier on
each such date, in cash, to the extent such amount is in excess of all then
outstanding invoices or other such obligations.

          Date   Amount
December 15, 2005
  $ 500,000  
May 31, 2006
  $ 900,000  
May 31, 2007
  $ 1,300,000  
May 31, 2008
  $ 1,300,000  

  10.9   Either party shall have the right to dispute the accuracy of the
Aggregate 2003/04 Distribution Costs, as a whole, or the Allocated 2003/04
Distribution Costs, on a line item basis, as follows:

  10.9.1   Either Party may notify the other Party of an error or omission in
the Aggregate 2003/04 Distribution Costs or any Allocated 2003/04 Distribution
Costs (which it discovers within [*****] months of the Effective Date) in
writing within [*****] months of the Effective Date and request an adjustment of
the Aggregate 2003/04 Distribution Costs and/or any Allocated Distribution
Costs, either up or down, as required to accurately reflect the dollar amount of
such error(s) or omission(s) (any such requested adjustments, the “Requested
Cost Adjustment”).     10.9.2   Within 15 days of receiving notification of a
Requested Cost Adjustment, Customer and Supplier will meet and conduct good
faith negotiations and attempt to reach agreement on whether such adjustments
are appropriate and in the correct amount. Either party may audit the other’s
books, records and supporting documentation supporting the calculation of the
data in, or the data used in preparing, Schedule 10.1 and the Requested Cost
Adjustment. Such audits shall be performed with reasonable advance written
notice, during normal business hours, and in a manner not disruptive of the
audited party’s operations. Once a Requested Cost Adjustment has been agreed or
determined hereunder (the “Final Cost Adjustment”), the Aggregate 2003/04
Distribution Costs and the Allocated 2003/04 Distribution Costs shall be
modified as follows:

  10.9.2.1   If the dispute involves an error in the allocation of the Allocated
2003/04 Distribution Costs, the Final Cost Adjustment shall be added to or
subtracted from the existing cost allocation for any and each disputed line item
which contains the cost item and the amount of the Final Cost Adjustment shall
be offset by an equal

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      subtraction (in the case of an addition above) or addition (in the case of
a subtraction above) for one or more other cost items in the relevant line items
in which such other costs are contained such that, had the adjusted costs been
used to calculate the Aggregate 2003/04 Distribution Costs, based on the 2003/04
Distribution Mix, the Aggregate 2003/04 Distribution Costs would not have
changed. As an example of the application of the following, if pursuant to this
Section 10.9.2.1 the pricing on Schedule 10.1 for “Pick” was increased, that
element of each DOA which included “Pick” would be increased by the same amount,
but an offsetting decrease would have to be found in another cost item or items
which, when applied to the DOAs which include such other cost item(s), and
further applied to the 2003/04 Distribution Mix, would cause the Aggregate
2003/04 Distribution Costs to remain unchanged.     10.9.2.2   If the dispute
involves increasing or adding a cost item or amount to the Aggregate 2003/04
Distribution Costs, the Final Cost Adjustment for such cost item shall be added
to the Aggregate 2003/04 Distribution Costs, and to the relevant line items of
the Allocated 2003/04 Distribution Costs such that, had the adjusted costs been
used to calculate the Aggregate 2003/04 Distribution Costs, based on the 2003/04
Distribution Mix, the Aggregate 2003/04 Distribution Costs would have increased
by the amount of the Final Cost Adjustment.     10.9.2.3   If the dispute
involves reducing or removing a cost item or amount from the Aggregate 2003/04
Distribution Costs, the Final Cost Adjustment for such cost item shall be
subtracted from the Aggregate 2003/04 Distribution Costs, and from the relevant
line items of the Allocated 2003/04 Distribution Costs such that, had the
adjusted costs been used to calculate the Aggregate 2003/04 Distribution Costs,
based on the 2003/04 Distribution Mix, the Aggregate 2003/04 Distribution Costs
would have decreased by the amount of the Final Cost Adjustment.

  10.9.3   Once a Final Cost Adjustment has been made to the Allocated 2003/04
Distribution Costs as described in Section 10.9.2 above, the Parties shall
adjust the prices (other than the [*****] per unit shipped or handled margin
reflected therein) shown on Schedule 10.1 to take into account the adjustments
described in Sections 10.9.2.1 through 10.9.2.3. In the event an agreement
cannot be reached on any cost changes or any changes in Schedule 10.1 within two
weeks of the commencement of negotiations under Section 10.9.2, either Party may
invoke Section 14.0 (Dispute Resolution) to determine the appropriate
Schedule 10.1 prices, provided that solely for purposes of resolving disputes
under this Section 10.9,

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      AAA procedures shall not be used and (A) the arbitrator shall be a single
person who shall be a CPA currently in practice at a national accounting firm
which firm shall be selected by the parties mutually, and which shall be asked
to name the person to so act, (B) there shall be no discovery (other than that
which has occurred pursuant to Section 10.9.2), (C) each party shall submit, on
the tenth business day after the arbitrator is named, its proposal on price
adjustments and any support it has for its position (including, e.g., any
documentation submitted under Section 10.9.1 and the results of any audit under
Section 10.9.2), and the arbitrator shall make a determination, within 10 days
of such submissions, of how the prices on Schedule 10.1 shall be adjusted,
provided that such determination must comply with the parameters set forth in
this Section 10.9. If the parties fail to invoke the arbitration provision, the
prices on Schedule 10.1 shall remain unadjusted, and if one party fails to
submit its proposal timely to the named arbitrator, the arbitrator shall accept
the other party’s proposal provided such proposal meets the parameters set forth
in this Section 10.9.     10.9.4   Once the prices for all DOAs are agreed or
determined pursuant to this Section 10.9, such new prices shall be deemed to
amend Schedule 10.1 accordingly, and shall be applied both retroactively (to the
Effective Date) and prospectively, and all amounts owing from one Party to the
other as a result of such adjustment shall be paid within thirty days of the
final determination of the changes in such prices.     10.9.5   Recourse to the
procedures and remedies set forth in this Section 10.9 shall be Customer’s sole
liability, and Supplier’s sole remedy, in the event of a breach by Customer of
its representation and warranty in Section 12.2(D).

  10.10   On each of the dates specified below, Supplier shall be entitled to
invoice Customer the amount set forth below (across from each applicable date)
and Customer shall pay all such invoices within 15 calendar days of receipt of
invoice. The terms of Sections 10.2.1, 10.2.2 and 10.2.3 shall apply to the
Parties concerning the aforementioned invoices.

          Date   Amount
December 15, 2005
  $ 300,000  
December 15, 2006
  $ 300,000  
December 15, 2007
  $ 300,000  
December 15, 2008
  $ 300,000  
December 15, 2009
  $ 300,000  
December 15, 2010
  $ 300,000  
December 15, 2011
  $ 300,000  
December 15, 2012
  $ 300,000  
December 15, 2013
  $ 300,000  
December 15, 2014
  $ 300,000  

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11.0   Intentionally deleted   12.0   Representations of the Parties

  12.1   Representations of Supplier:         As of the Effective Date, and at
all times during the Term, Supplier represents and warrants as follows:

  (A)   Supplier is a valid existing limited liability company and in good
standing under the laws of the State of Delaware. Supplier has the corporate
power and authority required to carry on its activities as they are now
conducted.     (B)   Supplier has full legal right and corporate power, without
the consent of any other person to execute, deliver and to perform its
obligations under this Agreement.     (C)   All corporate and other actions
required to be taken by Supplier to authorize the execution, delivery and
performance of this Agreement and all transactions contemplated hereby have been
duly and properly taken. No consent, approval or authorization of, or filing of
any certificate, notice application, report or other document with any
governmental authority is required on the part of Supplier in connection with
the valid execution and delivery of this Agreement or the performance by
Supplier of any of its obligations hereunder.

  12.2   Representations of Customer:         As of the Effective Date, and at
all times during the Term, Customer represents and warrants as follows:

  (A)   It is a valid existing corporation and in good standing under the laws
of its state of incorporation. It has the corporate power and authority required
to carry on its activities as they are now conducted.

  (B)   It has full legal right and corporate power, without the consent of any
other person to execute, deliver and to perform its obligations under this
Agreement.

  (C)   All corporate and other actions required to be taken by it to authorize
the execution, delivery and performance of this Agreement and all transactions
contemplated hereby have been duly and properly taken. No consent, approval or
authorization of, or filing of any certificate, notice application, report or
other document with any governmental authority is required on the part of it in
connection with its valid execution and

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      delivery of this Agreement or the performance by it of any of its
obligations hereunder.     (D)   The Aggregate 2003/04 Distribution Costs
accurately reflect the weighted average of UML’s actual, recurring, aggregate
stand-alone cost of providing the DOAs for the Universal Music Group’s
Distribution Requirements for calendar years 2003 and 2004, after certain
adjustments mutually agreed upon by Customer and Supplier, as set forth on
Schedule 10.1.     (E)   Customer has the right to authorize Supplier to perform
the DOAs on Customer’s behalf as contemplated by this Agreement.

  12.3   Warranty Disclaimers:

EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, ALL WARRANTIES AND CONDITIONS,
WHETHER EXPRESS OR IMPLIED BY STATUTE, COMMON LAW OR OTHERWISE (INCLUDING, BUT
NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
OR NON-INFRINGEMENT) ARE HEREBY EXCLUDED.

13.0   Termination:

  13.1   This Agreement may be terminated:

  (a)   By mutual written consent of the parties at any time; or     (b)   By
Customer pursuant to Section 9.3.4 or Section 9.3.6; or     (c)   In the event
there is a Change of Control during the Term of this Agreement, notwithstanding
any other provision of this Agreement, Customer may terminate this Agreement
upon 90 calendar days written notice to Supplier, which notice must be provided
within three months of Supplier’s written notice to Customer of such Change of
Control; or     (d)   By Customer, in the event Supplier is adjudged insolvent,
makes a general assignment for the benefit of its creditors, effects a voluntary
or compulsory liquidation or dissolution, files a petition for relief under
applicable bankruptcy or insolvency law or a receiver is appointed on account of
Supplier’s insolvency;     (e)   By Customer, if Supplier has materially
breached its obligations under Section 5.5, without cure (after written notice
by Customer and a reasonable opportunity to do so) of such breach, [*****] or
more times in any [*****]-month period. For the purposes of this
Section 13.1(e), “cure” shall mean undertaking the same cure process as is set
forth in Sections 9.2.1 through 9.2.3 for Key Failures. For purposes of this

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      Section 13.1(e), “material breach” shall mean a breach that results in
material loss to Customer (e.g., a master); or     (f)   By Customer, if
Supplier has materially breached its obligations under Section 10.8 or
Section 18 (with respect to assignment to a Competitor), without cure (after
written notice by Customer and reasonable opportunity to do so) of such
breaches.

  13.2   Upon any termination or expiration of this Agreement, all of the
provisions of this Agreement will terminate, except for the following
provisions, which will survive in perpetuity: Sections 13.2, 13.3, 14.0, 15.0,
20.0, 21.0, 24.0 and 31.0. No termination or expiration of this Agreement will
relieve Customer or Supplier of any payment obligations outstanding at the time
of such termination or expiration.     13.3   At the expiration of the Term or
upon earlier termination, Customer will be entitled to repossess all of its
property, including finished goods and packaging components provided (or paid
for) by it to Supplier over the Term. Supplier will pack such property
appropriately and make it available for pick up by Customer with a clear
dispatch and content note per shipment in agreement with Customer. Customer
commits to take back such property within 120 days after the expiration of the
Term or earlier termination. Customer shall reimburse Supplier for any direct
out-of-pocket packaging, retrieval or storage costs incurred by Supplier for
this service during this period, unless Customer terminated this Agreement
pursuant to Section 9.3.4, 9.3.6 or 13.1(e).

14.0   Dispute Resolution:       During the pendency of any dispute, the
Agreement shall continue to be in force and the Parties shall abide by all terms
of the Agreement. Any dispute concerning the interpretation of this Agreement or
any party’s performance under any provision of this Agreement (including,
without limitation, any dispute regarding a proposed increase to the prices set
forth on Schedule 10.1 pursuant to Section 5.9 or 5.11) shall be discussed by
the parties, and if the parties are unable to reach agreement concerning such
matter, it shall be submitted to arbitration in accordance with the then-current
commercial arbitration rules of the American Arbitration Association (“AAA”).
The number of arbitrators selected shall be three. Each party shall select one
arbitrator and the two arbitrators selected shall select the third arbitrator.
The arbitration shall take place in the City of New York. Judgment upon any
arbitration award may be entered in any court of competent jurisdiction.
Arbitration shall occur over consecutive business days and in no event shall an
arbitration procedure continue for more than two weeks. This Agreement shall be
enforced and interpreted under the laws of the State of New York, without regard
for its conflicts of laws rules or choice of law principles.

  14.1   Notwithstanding the foregoing, either party may pursue the remedy of
specific performance of any provision contained herein, or seek a preliminary or
permanent injunction against the breach of any such provision or in aid of the

25

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      exercise of any power granted herein, or any combination thereof, in any
court having jurisdiction thereof without resort to arbitration.     14.2   In
the event of any arbitration between the parties hereto with respect to any of
the transactions contemplated herein or the subject matter hereof, the
prevailing party shall, in addition to such other relief as the arbitrators may
award, be entitled to recover reasonable attorney’s fees, expenses and costs of
investigation, all as actually incurred, including without limitation,
attorneys’ fees, expenses and costs of investigation incurred in any case or
proceeding under any bankruptcy, insolvency or reorganization proceeding. The
non-prevailing party shall bear the cost of such arbitration.

15.0   Retention of Rights:       All finished goods, packaging and other
materials provided by Customer in connection herewith, and all rights therein,
shall remain the exclusive property of Customer. Customer shall not provide
Supplier with any original or irreplaceable materials under this Agreement.
Notwithstanding the above, to the extent Customer nevertheless provides Supplier
with any such original or irreplaceable materials, Supplier shall use
commercially reasonable efforts to ensure the safety and security of such
materials but shall not be liable for any damages other than those specified in
Section 21.1 below, in the event that such materials are lost, damaged,
destroyed or stolen.   16.0   Binding Effect and No Other Agreements:       This
Agreement and the U.S Manufacturing Agreements together constitute the entire
agreement between the Parties on the subjects herein contained and supercede,
cancel and terminate all other understandings between the parties with respect
to the subject matter hereof.

17.0   Amendments:       No modification of or supplement to this Agreement
shall be effective unless signed in writing by each Party.   18.0   Successors
and Assigns; Assignment:       The rights and obligations of the Parties
hereunder shall attach to their successors and permitted assigns. Supplier shall
have the right to assign this Agreement or any of the rights granted to Supplier
hereunder, including without limitation, the right to assign any interests under
this Agreement to (a) lenders providing financing to Supplier from time to time
and (b) to any third party acquiring all or substantially all of Supplier’s
assets or equity, provided that such third party is not a Competitor and agrees
in writing to assume all of Supplier’s obligations hereunder. Except as provided
in this Section 18.0, Supplier shall not assign, or grant any lien or
encumbrance on, any property of Customer (including finished goods). Customer
shall not have the right, without Supplier’s prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed, to assign
this Agreement or any of the rights, obligations or interests of

26

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    Customer hereunder, in whole or in part, by operation of law, pursuant to a
change of control, or otherwise; provided, however, that Customer shall have the
right without Supplier’s consent to assign its rights and obligations under this
Agreement to any Affiliate of Parent or to any third party acquiring all or
substantially all of Customer’s assets or equity, provided that (i) such
Affiliate or third party agrees in writing to assume all of Customer’s
obligations hereunder, and (ii) Customer and such third party has confirmed in
writing to Supplier that (A) it then-currently has Distribution Requirements
substantially similar to or greater than Customer’s then-current Distribution
Requirements, and (B) its then-current forecasts for Distribution Requirements
for the remainder of the Term are substantially similar to or greater than
Customer’s then-current forecasts for Distribution Requirements for the
remainder of the Term. Notwithstanding the foregoing, in the event a
non-Affiliate third party acquires all or substantially all of Customer’s assets
or equity, such third party shall thereafter only be bound by the purchase
commitment in Section 4.1 for the DOAs that are Customer’s and any other member
of the Universal Music Group’s DOAs (i.e. no Customer Affiliate not part of the
Universal Music Group immediately prior to the transaction shall be bound by
this Agreement).   19.0   Compliance:       Any express or implied waiver by any
Party of any breach hereof by any other Party, including by any Party failing to
notify any other Party of a breach hereof by such other Party, shall not operate
as a waiver of, or estoppel with respect to, any subsequent or other failure by
such other Party to comply with the terms and conditions in this Agreement,
notwithstanding any custom, practice or course of dealing to the contrary.  
20.0   Confidentiality:       Except as may be required by law, no Party shall
disclose to any third party any confidential information on business or
technology of any other party obtained in connection with this Agreement for
three years from the date of the disclosure of any such confidential information
without the prior written consent of the other Party. If goods purchased under
this Agreement are to be specifically fabricated for Customer, Supplier agrees
to keep confidential the processes, methods and designs used or applied in
producing each such item.   21.0   Indemnification:       Each Party (the
“Indemnifying Party”) hereto agrees to and does hereby indemnify, defend and
hold harmless, the other party and its parent, subsidiaries, affiliated
companies, and its and their shareholders, officers, employees and agents
(“Indemnified Party”) from any and all third party claims, demands, causes of
action, liability, judgments, damages, costs and expense (including reasonable
attorney’s fees) asserted against, imposed upon or suffered by an Indemnified
Party to the extent any such claims are caused by the Indemnifying Party’s
performance of this Agreement, including but not limited to any claims for
bodily injury, death or property damage, product liability and any infringement
of any proprietary right, patent, copyright or trademark.

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  21.1   Supplier agrees to be expressly and solely responsible for any property
of Customer while such property is in the care or custody of or under the
control of Supplier or any subcontractor, whether or not such possession
constitutes a legal bailment, and in the event of any damage to or loss of such
property while in the possession of Supplier or any subcontractor, if the
property is not an original or irreplaceable item or items, Supplier shall
promptly pay Customer the full replacement value of such property or the costs
to repair the damage or restore the loss to any such property, as applicable,
regardless of cause. If Customer has provided Supplier or any subcontractor with
original or irreplaceable items which are damaged or lost while in possession of
Supplier or any subcontractor, Supplier shall be liable only for the cost of
repair or replacement as if the lost or damaged original were a copy.

22.0   Favored Nations:

  22.1   As to Significant Customers. In the event Supplier provides any DOAs to
a Significant Customer under similar or more favorable (to the other customer)
terms and conditions to those described in Sections 1.0 through 10.0, 13.0, 21.0
and 25.0 herein for net prices for such DOAs (including all discounts, rebates
and all other economic-related considerations) lower than those then in effect
for Customer under Section 10.0 and this Section 22.1, Supplier will lower
Customer’s prices for such DOAs such that they are equivalent to the prices paid
by said Significant Customer effective as of the date of the first invoice to
the Significant Customer, and for the duration that such Significant Customer
receives such lower prices.     22.2   As To Other Customers. In the event
Supplier provides any DOAs under similar or more favorable terms and conditions
to those described in Sections 1.0 through 10.0, 13.0, 21.0 and 25.0 herein to a
customer other than a Significant Customer (an “MFN Customer”) for net prices
for such DOAs (including all discounts, rebates, and all other economic related
considerations) lower than those then in effect for Customer under Section 10.0
and Section 22.1 (said lower configuration price(s) called the “MFN
Configuration Price”), Supplier will:

  (a)   immediately notify Customer in writing of such sale and the pricing
therefor; and

  (b)   15 days following the end of each calendar quarter during which the MFN
Customer receives the MFN Configuration Price, issue the Customer a credit to
Customer’s payables equal to the number of units for each configuration for
which DOAs were provided to the MFN Customer(s) multiplied times the MFN Factor
shown in Schedule 22.0.

  22.3   For purposes of clarity, only Section 22.1 or Section 22.2 shall apply
to any one sale to another customer, but each section may be used multiple
times, whether for the same or different customers, and both sections may be
operative at the same time (e.g., (1) if Significant Customer A receives a lower
price than

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      Customer, Customer’s prices shall be adjusted under Section 22.1, and if
Significant Customer B receives an even lower price than Customer’s adjusted
prices, Customer’s prices shall be reduced again; (2) If MFN Customer I receives
a lower price than Customer, Customer shall receive a rebate as to MFN Customer
I under Section 22.2, and if MFN Customer II receives a lower price than
Customer (but not as low as MFN Customer I), Customer shall also receive a
rebate as to MFN Customer II under Section 22.2(calculated for that MFN Customer
II), and (3) if Customer’s prices are lowered as a result of Section 22.1, and
then an MFN Customer receives an even lower price, Customer shall retain the
prices set pursuant to Section 22.1, and shall be entitled to the rebate set
forth in Section 22.2 for the latter sale).

    Notwithstanding any other provision of this Section 22, Customer shall
receive no price adjustment or other benefit under this Section 22: (a) with
respect to orders from other Supplier customers which are Spot Market Orders, or
(b) with respect to orders from other Supplier customers which are not
Significant Customers and which are fulfilled using assets and facilities other
those purchased by Supplier from Customer under the Asset Purchase Agreement, or
(c) with respect to orders from a Significant Customer if such orders are
fulfilled using assets and facilities purchased by Supplier from such Major
Music Company.   23.0   Audit Rights:

  (a)   Customer shall have the right to inspect Supplier’s books and records
related to its performance under this Agreement, including Section 22.0 hereof,
provided such right shall not be exercised more than once per calendar year and
provided, further, that any information subject to a confidentiality agreement
with a third party shall only be subject to inspection by an independent third
party auditor hired by Customer that enters into a confidentiality agreement
with Supplier that maintains the confidentiality of third party information and
permits the auditor to report on Supplier’s performance to Customer. Such audits
shall be performed with reasonable advance written notice, during normal
business hours, and in a manner not disruptive of Supplier’s operations.    
(b)   Supplier shall have the right to inspect Customer’s books and records
related to its performance under Section 4.1 of this Agreement, provided such
right shall not be exercised more than once per calendar year and provided,
further, that any information subject to a confidentiality agreement with a
third party shall only be subject to inspection by an independent third party
auditor hired by Supplier that enters into a confidentiality agreement with
Customer that maintains the confidentiality of third party information and
permits the auditor to report on Customer’s performance to Supplier. Such audits
shall be performed with reasonable advance written notice, during normal
business hours, and in a manner not disruptive of Customer’s operations.

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24.0   Notice:       All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective Parties at the
following addresses (or at such other address for a Party as shall be specified
in a notice given in accordance with this Section 24.0):

If to CUSTOMER:

Universal Manufacturing and Logistics
10 Universal City Plaza
Suite 350
Universal City, CA 91608
Attn: Peter N. Scifres
Fax: (818) 733-1125

With a copy to:

Universal Music Group
2220 Colorado Blvd.
Santa Monica CA 90404
Attn: Executive Vice President Business & Legal Affairs
Fax: (310) 865-9954

If to SUPPLIER:

Entertainment Distribution Corporation
360 Madison Avenue, Suite 500
New York, NY 10017
Attn:CFO
Fax: (212) 253-4166

and

Entertainment Distribution Company (USA) LLC
11360 Lakefield Drive
Duluth, GA 30097
Attn: CFO
Fax: (770) 497-3992

With copies to:

Greenberg Traurig, LLP
The Forum
3290 Northside Parkway, Suite 400
Atlanta, GA 30327

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Attn: James S. Altenbach, Esq.
Fax: (678) 553-2445

25.0   Force Majeure:

  25.1   Notwithstanding any provision hereof to the contrary, Supplier shall
not be liable for any damages incurred by Customer whatsoever or Late Order Fees
due to delays or failures in Supplier’s performance of its obligations under
this Agreement due to a Force Majeure Event, and such delays or failures shall
not be deemed a breach of this Agreement.     25.2   Immediately upon becoming
aware of the Force Majeure Event, Supplier will (a) use commercially reasonable
efforts to end or circumvent the Force Majeure Event, (b) keep Customer apprised
of those efforts on a timely basis, and (c) communicate with, coordinate with
and assist Customer in resolving any impact on Customer caused by the Force
Majeure Event.     25.3   If a Force Majeure Event continues for a period longer
than [*****] days, then Customer shall have the right to place Orders during the
pendency of such Force Majeure Event with other Distribution companies, provided
that (a) such Orders shall not be for volumes in excess of the volumes Customer
would ordinarily contract for during such period, and (b) upon notice from
Supplier that Supplier can resume performance under the terms of this Agreement,
Customer shall cease placing such Orders with such third parties and place them
with Supplier under the terms of this Agreement.     25.4   Notwithstanding the
[*****] day period in Section 25.3, if there would be no doubt in the mind of a
reasonable person that Supplier would be unable to resume performance under the
terms of this Agreement within [*****] days of the Force Majeure Event, then
Customer shall have the right to immediately seek the remedy provided under
Section 25.3, without waiting for the [*****]-day period to elapse; provided,
however, that Customer shall consult with Supplier and coordinate its activities
with Supplier’s in such circumstance.

26.0   Designated Person:       Customer and Supplier each agree that each will
designate a single organization, department, and/or person to be the primary
point of contact with the other with the ability to take action as may be
required pursuant to this Agreement.   27.0   Intentionally deleted   28.0  
Intentionally deleted   29.0   Consents and Approvals:       Neither Party shall
unreasonably withhold, condition or delay any consents, authorizations or
approvals required under this Agreement.

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30.0   Employee Purchase Program:       Supplier and Customer will implement a
mutually agreeable employee-purchase program.   31.0   Governing Law:       The
Agreement shall be governed by the laws of the State of New York without giving
effect to any applicable conflict of laws provisions.   32.0   Counterparts:  
    This Agreement may be executed in one or more counterparts (and by
facsimile), all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties.   33.0   Enforcement:      
Customer shall be entitled to enforce the provisions of this Agreement on behalf
of each member of the Universal Music Group who places Orders with Supplier.
Customer shall be responsible for all actions or omissions by such parties as if
such actions or omissions were Customer’s hereunder.

                  Supplier       Customer
 
               
By:
  /s/ THOMAS COSTABILE      
By:
  /s/ MICHAEL OSTROFF              
 
               
Its:
  EVP & COO       Its:   EXECUTIVE VICE PRESIDENT

           
 
                Date: May 31, 2005       Date: May 31, 2005

Distribution Agreement (US)

 

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SCHEDULE 2.0
Definitions

The following capitalized terms shall have the meanings attributed to such terms
in the following subsections.

“2003/04 Distribution Mix” means, the Universal Music Group’s 2003/04
Distribution Requirements expressed as a breakdown of DOAs on a DOA-by-DOA basis
and included on Schedule 10.1.

“Affiliate” means, as to any person or entity, any person or entity controlling,
under common control with or controlled by such person or entity.

“Aggregate 2003/04 Distribution Costs” means the cost data set forth on Schedule
10.1.

“Allocated 2003/04 Distribution Costs” means the Aggregate 2003/04 Distribution
Costs, allocated on a DOA-by-DOA basis, and included on Schedule 10.1 hereto.

“Asset Purchase Agreement” means that certain Asset Purchase Agreement, by and
among Supplier, as purchaser, and UML and Universal Music and Video
Distribution, Corp., as sellers, dated May 9, 2005.

“Business Day” means any weekday on which banks in Los Angeles, California are
open.

“Catalog” means any packaged item or stock keeping unit not a Hit or New
Release.

“CD” means optical discs (CD-Audio and CD-ROM) in all formats utilized by
Customer as of the Effective Date and any optical disc of any diameter or shape
that is consistent with Phillips Red, Yellow, Green and Orange Book Standards or
any Philips specification for Non-Standard CDs.

“CD Manufacturing Agreement” means that Manufacturing and Related Services
Agreement between Customer and Supplier dated as of the Effective Date, and
related to the manufacturing of CDs.

“Change of Control” means the acquisition by a Competitor, directly or
indirectly, and whether by sale, pledge, proxy agreement or otherwise, of
[*****] or more of the voting or equity economic interests in Supplier, or the
sale of all or substantially all of Supplier’s assets to a Competitor, or any
acquisition by a Competitor of voting or equity economic interests in or assets
of Supplier that results in such Competitor owning or holding, as applicable,
[*****] or more of the voting or equity economic interests in Supplier, or all
or substantially all of Supplier’s assets.

“Competitor” means any entity owned or controlled by a Major Music Company or
one of its Affiliates.

“Customer” means UMG Recordings, Inc. and, unless the context otherwise
requires, all other members of the Universal Music Group, provided, however,
that where a notice,

 

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delivery or similar action on the part of “Customer” is required in this
Agreement such action may be taken by UMG Recordings, Inc. alone.

“Direct-to-Store” means DOAs that result in Products shipping from Supplier’s
shipping points directly to a retail outlet where said Products will be offered
for sale to consumers (e.g., shipments to a Best Buy store are
“Direct-to-Store”, but not shipments to a Best Buy distribution center).

“Distribution Centers” means the WCDC, the ECDC and the MDC as they may exist
from time to time, and any other distribution center owned, controlled or
managed by Supplier and used to provide DOAs under this Agreement.

“Distributed Labels” means companies not part of the Universal Music Group to
which any member of the Universal Music Group provides manufacturing or
distribution services, which services are performed in whole or in part by
Supplier.

“Distribution Orders/Activities” has the meaning set forth in “DOAs.”

“Distribution Requirements” means, as applied to a member of the Universal Music
Group, (i) all requirements by the member of the Universal Music Group for DOAs
for its own account with respect to Universal Product to be sold by a member of
the Universal Music Group and distributed from a location within the United
States, and (ii) any requirements for DOAs for a third party’s account for CDs,
HDFDs or VRs to be sold and distributed from a location within the United States
for as long as a Universal Music Group member has the unilateral contractual
right to provide or control the provision of the DOAs to such third party,
provided that such Universal Music Group member had such unilateral right as of
the Effective Date (it being understood that if the third-party contract
requires that the DOA must go to the provider of manufacturing services for such
third party, a Universal Music Group member does not unilaterally control the
identity of the DOA provider).

“DOAs” means any specific related service identified in Section 7, and any
service or activity priced on Schedule 10.1.

“Effective Date” means the effective date of this Agreement, June 1, 2005.

“European Agreement” means the International Distribution and Related Services
Agreement entered into as of the Effective Date between Supplier (through its
subsidiary, EDC Germany GmbH) and Universal International Music B.V., related to
the terms, conditions, obligations, remedies, and other related matters
concerning the purchase and supply of optical discs and related services for the
territories referenced therein (the “European Territories”).

“Facility Fixed Costs” means all fixed cost categories referred to in
Schedule 10.1.

“Force Majeure Event” means fire, flood, storm, earthquake, landslide, volcanic
activity or other acts of God; acts of terrorism or vandalism; riot, war, civil
disturbance or insurrection; strikes, lockout or other labor unrest; power,
transportation, Internet or other

 

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utility or carrier delays or outages, interference by any governmental
authority, or any other event(s) beyond the reasonable control of Supplier.

“HDFD” means the following optical disc formats: (DVD-V, 5, 9, 10, 14 or 18;
DVD-A 5, 9, 10, 14 or 18; and SACD hybrid, non-hybrid 5 or 9).

“Hits” means Customer’s top selling packaged items or SKUs and all of its
packaged items or stocked keeping units at the WDPC and ECDC. Customer will
generally limit the SKUs designated as “Hits” from [*****] but retains sole
discretion to designate how many and which packaged items are designated as
Hits.

“Inventory Location Accuracy Level” means the number of inventory locations in
which the amount physically counted or verified at a given inventory location
equals the amount shown on an on-hand inventory report for that location,
divided by the total number of inventory locations counted.

“Major Music Company” means Sony BMG, EMI Group or Warner Music Group, or any of
their successors.

“New Release” means any packaged item or stock keeping unit not yet available
for sale by Customer’s customers. In the event an order is both a New Release
and is a Direct-to-Store DOA, the New Release timelines in Section 6.5.3 shall
prevail.

“Overpacked Carton Percentage” means, for shipping orders with more than 1
carton going to the same customer location and on the same customer purchase
order, the actual number of cartons overpacked into consolidated cartons in such
orders in a month divided by the total number of cartons in such orders in a
month.

“P&D Agreement” means a production and distribution agreement between Universal
Music Group and a non-Universal Music Group third party entered into after the
Effective Date, or any other agreement between Universal Music Group and a
non-Universal Music Group third party entered into after the Effective Date
under which Universal may or does direct the sourcing of any Distribution
Orders/Activities for any such third party.

“Parent” means Polygram Holdings, Inc.

“Prevailing Practices” means the procedures, timeframes, service levels or
response times generally followed by UML during the 12 months prior to the
Effective Date.

“Product” means Universal Product, any other CDs, HDFDs or VRs for which a
member of the Universal Music Group will provide distribution or marketing
services, or any other Universal Materials or music carriers (including without
limitation VHS and audiocassettes) which any member of the Universal Music Group
distributes in the United States.

“Ship” means making DOAs available to the selected carrier for transportation
from the Supplier’s facilities and coordinating with and assisting such carrier,
in a manner

 

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consistent with Prevailing Practices, but does not include actual transportation
of the DOAs from the Supplier’s facility.

“Significant Customer(s)” means any Major Music Company and any of the entities
listed on Schedule 22.1.

“SKUs” means stock keeping units.

“Spot Market Orders” means orders for Distribution Services that (i) originate
from a customer that Supplier supplies a small number of orders per year to and
in general does not have an ongoing relationship with; (ii) originate from a
customer for which Supplier does not provide ancillary services such as long
term component storage and promotional mailings; and (iii) are ordered in large
quantities, significantly greater than Customer’s average order size.

“Transition Services Agreement” means that certain Information Technology
Transition Services Agreement between Supplier and UML, dated as of May 31,
2005.

“UML” means Universal Music Group Manufacturing and Logistics, Inc.

“Universal Materials” means point-of-sale advertising and marketing materials
supplied by or on behalf of Customer to Supplier and related to Universal
Product.

“Universal Music Group” means Parent, Customer and each subsidiary, sister
company or Affiliate directly or indirectly more than [*****]% owned by Parent
or Customer (or any of their respective successors or permitted assigns). For
purposes of clarity, (i) no entity whose CDs are distributed by a member of the
Universal Music Group (but which is not directly or indirectly more than
[*****]% owned by Parent or Customer) shall be a member of the Universal Music
Group, and (ii) on the date on which an entity is no longer directly or
indirectly more than [*****]% owned by Parent or Customer (or their respective
successors or permitted assigns), it shall cease to be a member of the Universal
Music Group.

“Universal Product” means CDs, HDFDs and VRs manufactured for the account of a
member of the Universal Music Group for sale within the United States.

“U.S. Manufacturing Agreements” means that certain CD Manufacturing and Related
Services Agreement, by and between Supplier and Customer and entered into on the
Effective Date and that certain HDFD Manufacturing and Related Services
Agreement, by and between Supplier and Customer and entered into on the
Effective Date.

“VR” means vinyl records in 7”, 10” or 12” diameters.

“Working Day” means those days as agreed by Customer and Supplier set forth at
the commencement of the Term as Schedule 2.11 hereto and updated as mutually
agreed upon by Customer and Supplier.

 

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“Work Week” means a seven-day period commencing on each Sunday during the term
and ending at 11:59 p.m. the next Saturday (regardless of whether any day
therein is a Working Day or Business Day).

 

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The following terms have the meanings set forth in the Sections indicated.

         
Term
  Section  
AAA
    14.0  
Agreement
    1.0  
CAP
    9.2.1  
Carrier
    10.2.6  
Cure Period
    9.2.2  
Customer
    1.0  
Distribution Order/Activities (DOAs)s
    6.4  
ECDC
    5.6  
Elected Services
    9.3.1  
EMDE
    8.4  
Epidemic Multiple Defectives
    8.4  
Excess Order
    6.10  
Failure Notice
    9.1  
Incremental Volume Offer
    10.6  
Incremental Volumes
    10.6  
Indemnified Party
    21.0  
Indemnifying Party
    21.1  
Key Failure
    9.1  
Late Orders
    6.11  
LTL
    7.7  
MDC
    5.6  
New Transportation Prices
    10.2.3  
Order Line Accuracy
  Schedule 8.2
Parties
    1.0  
Section 5.11 Notice
    5.11  
Specific Related Services
    7.0  
Specified Standards
    5.11  
Supplier Incremental Volume Proposal
    10.6  
Supplier
    1.0  
Term
    3.1  
Transportation Services
    10.2.1  
Uncured Key Failure
    9.2  
WCDC
    5.6  

 

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SCHEDULE 2.11
Working Days

Monday through Friday, 8:00am to 10:00pm, excluding holidays.

 

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SCHEDULE 5.4
Pre-Approved Subcontractors

      Entity   Type of Service

 

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SCHEDULE 6.14
Form of UML Overpack Report

Overpack Report
January 2004

                                                                               
                                                                               
                                                            Fishers Detail      
  Gloversville       Reno       Fishers       096       191       192       193
        %     Cartons       %     Cartons       %     Cartons       Eligible    
%     Cartons       Eligible     %     Cartons       Eligible     %     Cartons
      Eligible     %     Cartons   Date     Ovrpk’d     Ovrpk’d       Ovrpk’d  
  Ovrpk’d       Ovrpk’d     Ovrpk’d       Cartons     Ovrpk’d     Ovrpk’d      
Cartons     Ovrpk’d     Ovrpk’d       Cartons     Ovrpk’d     Ovrpk’d      
Cartons     Ovrpk’d     Ovrpk’d                                              
12/22/2003
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]               [*****]         [*****]    
  [*****]       [*****]  
12/23/2003
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
12/24/2003
                                                                               
                                                                             
12/25/2003
                                                                               
                                                                             
12/26/2003
                                                                               
                                                                             
 
                                                                               
                                                                             
12/29/2003
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
12/30/2003
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
12/31/2003
                                          [*****]       [*****]         [*****]
      [*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]         [*****]       [*****]       [*****]
 
1/1/2004
                                                                               
                                                                             
1/2/2004
                                                                               
                                                                             
 
                                                                               
                                                                             
1/5/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/6/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
 
                                                                               
                                                                             
1/7/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/8/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/9/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]               [*****]         [*****]       [*****]    
  [*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]  
 
                                                                               
                                                                             
1/12/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/13/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/14/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/15/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/16/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]               [*****]         [*****]       [*****]    
  [*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]  
 
                                                                               
                                                                             
1/19/2004
                                                                               
                                                                             
1/20/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]         [*****]       [*****]       [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  

 

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Overpack Report
January 2004

                                                                               
                                                                               
                                                                    Fishers
Detail         Gloversville       Reno       Fishers               096       191
      192       193         %     Cartons       %     Cartons       %    
Cartons               Eligible     %     Cartons       Eligible     %    
Cartons       Eligible     %     Cartons       Eligible     %     Cartons   Date
    Ovrpk’d     Ovrpk’d       Ovrpk’d     Ovrpk’d       Ovrpk’d     Ovrpk’d    
          Cartons     Ovrpk’d     Ovrpk’d       Cartons     Ovrpk’d     Ovrpk’d
      Cartons     Ovrpk’d     Ovrpk’d       Cartons     Ovrpk’d     Ovrpk’d    
                                         
1/21/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]                 [*****]               [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/22/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]                 [*****]               [*****]         [*****]      
[*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
1/23/2004
      [*****]       [*****]         [*****]       [*****]         [*****]      
[*****]                 [*****]       [*****]       [*****]         [*****]    
  [*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  
TOTAL
              [*****]         [*****]       [*****]         [*****]      
[*****]                 [*****]       [*****]       [*****]         [*****]    
  [*****]       [*****]         [*****]       [*****]       [*****]        
[*****]       [*****]       [*****]  

[*****]

 

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SCHEDULE 8.2
AQL Standards – Required Inspections

An order line will be considered accurate if the quantity and sku as physically
verified match the quantity and sku on the packing list. Order Line Accuracy
will be equal to the number of accurate lines evaluated during the period
divided by the total lines evaluated during the period, then this result
multiplied times 100.

Supplier will conduct the following type of audits of randomly selected cartons
of orders ready for shipment, evaluating the number of order lines specified,
each calendar month, unless otherwise directed by Customer, if Customer is so
permitted under 8.2.

  •   Fishers new release area, case area: [*****] lines     •   Fishes new
release area, loose area: [*****] cartons, all the lines in each carton     •  
Fishers catalog and/or hits area, lose pick: [*****] lines     •   WCDC/ECDC,
all areas, loose pick: [*****] lines

In case pick areas at any location Supplier will conduct an evaluation of all
pallets, ready for shipping, and verify that the total quantity of units on the
pallet equals the total units on the packing list(s). In the event the verified
units on a pallet fails to equal the total units on the packing list(s),
Supplier must conduct an evaluation of all the cartons on the pallet to compare
each sku line with the sku lines on the packing list; determine the source of
the discrepancy; and correct the discrepancy. Supplier is not required to report
to the Customer on the results of these evaluations. Customer may designate a
limited, business reasonable number of customers from whom Supplier must 100%
audit at the line level all case pick and loose pick orders and/or lines.

Supplier will prepare and send to Customer 5 days after the end of each calendar
(or fiscal if mutually agreed on) month the following report on the results of
Supplier’s evaluations of Order Line Accuracy.

                                              Number of Lines       Number of
Lines               Audit Area     Accurate       Evaluated       Order Line
Accuracy      
(Fishers New Release case; Fishers new release loos; Fishers catalog hits; and
WDCD/EDCD all)
                                 
 
                                 
 
                                 

 

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SCHEDULE 9.1
Key Failure Events (Distribution)

                                Definition As                 Described in
Contract     KPI Repeated Failure     KPI     Section:     Event    
Picking Accuracy
      8.2       Monthly order line accuracy is below [*****] for more than
[*****] month in a [*****] month rolling period    
New Release On Time
Tendering
      6.5.4       On time tendering falls below [*****]% for more than [*****]
instore dates in a rolling [*****] month period OR on time tendering is below
[*****]% for [*****] instore date in a rolling [*****] month period    
Hits/Catalog On Time
Shipping
      6.5.1,6.5.2,6.11       Air shipments are required per clause 6.11 more
than [*****]times in a rolling [*****] month period    
DJ promo On Time
Shippings
      6.5.6       More than [*****] occurrences in a rolling [*****] month
period of such DJ Promo DOA(s) shipped more than [*****] hours after the receipt
of the order for the DOA.    

 

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SCHEDULE 10.1
Pricing

[*****]

 

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SCHEDULE 10.2.1
Transportation Pricing

[*****]

 

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SCHEDULE 22.0

If Customer Configuration Price minus

          MFN Configuration Price Is:   Then the MFN Factor Is:  
$[*****]
  [*****]