Exhibit
10.28


 





















 


 


EXECUTION COPY


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
ASTERISKS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.


 


US PICK, PACK AND SHIPPING SERVICES AGREEMENT


 


between


 


WARNER-ELEKTRA-ATLANTIC CORPORATION (“WEA”)

and


 


CINRAM  DISTRIBUTION LLC (“Company”)


 


Dated as of October 24, 2003


 


Capitalized terms not defined where they appear in the text are defined
in Paragraph 13.


 


1. Appointment. (a)


 


(i)    WEA hereby appoints Company to render, and
Company shall render, PP&S Services for one hundred percent (100%) of
Products in accordance with the terms hereof.


 


(ii)   Notwithstanding anything to the contrary
contained in Paragraph 1(a)(i), from and after the effective date of a Recorded
Music Major Transaction (the “RMMT Effective Date”), the appointment of
Company hereunder shall instead be to render, and Company shall render,
PP&S Services for at least the Specified Percentage (and, at WEA’s
election, more than the Specified Percentage) of Products in accordance with
the terms hereof. WEA shall use commercially reasonable efforts to provide that
the Combined Entity’s use of PP&S Services hereunder (i.e., mix of New Releases
and Catalog Titles) following the RMMT Effective Date remains generally
consistent with WEA’s use of PP&S Services hereunder prior to the RMMT
Effective Date. The “Specified Percentage” equals the fraction,
expressed as a percentage: (A) the numerator of which shall be one hundred
percent (100%) of the number of units of Products picked, packed and shipped in
the Territory by Company for WEA under this Agreement (and/or by WEA on its own
behalf, if applicable) during the twelve (12) complete calendar months
immediately preceding the RMMT Effective Date (the “WEA Output”); and
(B) the denominator of which shall be the WEA Output plus one hundred
percent (100%) of the number of units of Records in physical formats picked,
packed and shipped for sale in the Territory by or for the recorded music
business of the applicable Major during the same twelve (12)-month period. For
the avoidance of doubt, in calculating the WEA Output no units of products
picked, packed and shipped by Company (and/or WEA, if applicable) for WHV or
its affiliates shall be included.


 





















 


(iii)  WEA shall be solely responsible for: (A) all sales solicitation of
Products; (B) processing of all orders of units of Products by customers; (C)
invoicing and collection of customer accounts; and (D) the processing and
issuance of credits to customers.


 


(b)   Reservation of Rights. WEA hereby
reserves all rights in and to Products not otherwise expressly granted to
Company herein.


 


(c)   Reports. Company shall prepare for WEA
all of the same shipments, returns and inventory reports in the same format and
detail that WEA’s systems provided as of the date of this Agreement (it being
understood that Company shall not be required to prepare for WEA any reports
that would require Company to incur additional out-of-pocket expenses in order
to provide them, unless WEA agrees to pay any such actual out-of-pocket
expenses) and shall supply WEA with such reports on at least a monthly basis
during the Term. If Company provides more detailed reports to any other party
during the Term, Company shall, at WEA’s request, provide such more detailed
reports to WEA hereunder as of the date that Company commences providing such
more detailed reports to such other party, but subject to the same terms and
conditions under which such reports are provided to such other party (e.g., any
additional fees or amounts charged to such party for such more detailed
reports). Monthly and quarterly shipments and return reports shall include at
least the following information: selection number, artist name, selection
title, product configuration, gross units shipped, units actually returned, net
units and Fees. Nothing in such reports shall impart any
competitively-sensitive information about Company, Company’s affiliates or any
third parties for which Company renders any services or any personal data
possessed by Company.


 


(d)   Facilities. Company shall utilize “first-class”
facilities either directly or, subject to WEA’s prior approval, by subcontract,
for the prompt, timely, and satisfactory performance of the PP&S Services
committed hereunder. All distribution center locations used by Company in
connection with Products shall be subject to WEA’s prior approval (which
approval shall not be unreasonably withheld). WEA hereby acknowledges that
those distribution facilities owned and/or leased by WEA in the Territory
immediately prior to the commencement of the Term and which are being acquired
by Company pursuant to the Stock Purchase Agreement (the “Acquired
Facilities”) currently constitute “first-class” facilities and shall be
deemed. approved by WEA for Company’s use hereunder in connection with
Products. For the avoidance of doubt, WEA shall have no right to require
Company to provide Services hereunder at any Facility other than the Acquired
Facilities and Company shall have the right to close or relocate any of the
Acquired Facilities so long as Company ensures no degradation to Service Level
Requirements, shipping time, turnaround times or increased costs to WEA as a
result of such closure or change in location. Company acknowledges that
warehouses included in the Acquired Facilities permit [*] of all units of


 


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Products
Ordered to be delivered as required pursuant to such Order in the Territory
within [*] using standard shipping methods.


 


(e)
Company’s Undertakings.


 


(i)    Company shall render Services for WEA  to all
locations throughout the Territory for all orders for Products as designated by
WEA. The Services: (A) shall be rendered on a so-called “label blind” basis;
(B) shall be rendered in at least the same general manner, subject to at least
the same general standards and in at least the same general quality as provided
by Company to all other parties whose products are distributed by Company in
the Territory, but if any such services are not part of the standard Services
otherwise provided to WEA hereunder and the provision of such services is at a
higher cost to Company, then if WEA requests such services, such services shall
be provided to WEA hereunder, but subject to the same terms and conditions
provided to such other party. [*] provided, however, that nothing
contained in this clause (B) shall limit Company’s obligations set forth in
Paragraph 7 hereof; (C) shall be rendered in at least the same manner, subject
to at least the same standards and in at least the same quality as was provided
to WEA’s affiliates for the products of WEA’s affiliates immediately prior to
the commencement of the Term; (D) shall be rendered in accordance with “first-class”
standards that meet the highest quality available in the industry; and (E)  shall
be rendered in accordance with, or exceed, each of the service level
requirements set forth on Schedule A hereto (the requirements set forth on
Schedule A hereto being the “Service Level Requirements”);  provided,
however, that to the extent that the standards set forth in clauses (B)
and (D) of this Paragraph are not being met as of the commencement of the Term,
Company shall have a period of [*] from the commencement of the Term in which
to meet such standards.


 


(ii)   Company shall ship each Product without alteration in the same
configuration and format designated by WEA.


 


(iii)  Company shall accept the return of all units of Products previously
distributed by or on behalf of WEA  in the Territory prior to the
commencement of the Term.


 


(f)    Compliance with Law; Code of Conduct.
Company shall comply (i) with all laws and regulations in connection with
Company’s undertakings under this Agreement, except where the failure to do so
individually or in the aggregate is


 


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immaterial; and (ii) subject to relevant local laws including privacy
laws, with the code of conduct attached as Schedule B hereto.


 


(g)   Quarterly Meetings.
At least once every calendar quarter, WEA may meet with Company’s Chief
Executive Officer (or equivalent) and Chief Financial Officer (or equivalent)
to assess Company’s performance under this Agreement and its ongoing ability to
perform its obligations under this Agreement.


 


(h)   Shipping. If WEA is
responsible for shipping expenses, should WEA so elect, WEA shall have the
right to: (i) select the shipping agent(s) utilized by Company for shipping of
units of Products and/or other materials hereunder (and, in doing so, assume
the risk of loss for such units of Products in transit); or (ii) in lieu of
selecting such shipping agent(s), require that Company submit to WEA any
proposed shipping agent(s) which Company wishes to utilize hereunder for WEA’s
prior written approval. If, in a particular instance, WEA is not responsible
for shipping expenses or WEA does not exercise its rights pursuant to the
preceding sentence, Company shall utilize the same shipping agent(s) utilized
by Company for the shipping of a majority of the other products shipped by or
on behalf of Company.


 


(i)    Additional Services.
At WEA’s reasonable request, Company shall provide WEA with assembly, packing
and shipping services for “point of sale,” promotional and merchandising materials
to be utilized in connection with Products. Such services shall be provided by
Company to WEA on a non-exclusive basis only (and only to the extent that WEA
so requests any such services) and, to the extent so requested, shall be
provided to WEA [*].
Notwithstanding this Paragraph 1(i), Company shall only be required to provide
such services if either WEA (either itself or through any of its affiliates)
provided such services on its own behalf prior to the commencement of the Term
or if Company then-currently provides such services to any party (in which
case, if WEA requests such services and Company is not contractually prohibited
from providing such services to WEA, they shall be provided to WEA on the same
terms and conditions as are provided to such other party).


 


2. Title. Title to units of Products hereunder (including all
copyrights and trademarks contained therein) shall remain in WEA or WEA’s
affiliates. Company acknowledges that Products (including all intellectual
property contained therein and relating thereto) are protected under copyright
laws and that WEA is the rightful owner or license holder of such copyrights.
Company acknowledges that any removal of any such materials from Company’s approved  facilities
without WEA’s written approval, and any distribution of any such materials in
the Territory without WEA’s written approval, is an infringement of WEA’s
copyright. Company shall bear the risk of loss for units of Products in Company’s
possession, under Company’s control or in transit during any shipping of
Products between Facilities (to the extent that Company is responsible for
paying such shipping expenses).


 


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3.     Ordering Products. WEA shall cause
the manufacture of and delivery to Company of such stocks of Products as shall
be determined by WEA in WEA’s sole discretion.


 


4.     Company’s Financial Obligations. WEA
shall not be responsible for payment of any of Company’s (or Company’s
affiliates’) indirect or general overhead charges or the salaries of Company’s
(or Company’s affiliates’) employees or agents. All costs associated with the
rendering of Services shall be borne by Company. All charges for all packaging
materials (including boxes and filler materials) are at the cost of Company.
All actual, out-of-pocket,  non-overhead freight charges
incurred by or on behalf of Company for shipping of units of Products from
Company’s distribution warehouse facilities to WEA’s customers or otherwise at
WEA’s request shall be borne by WEA. To the extent that any shipping costs
hereunder are to be borne by WEA, WEA shall only be required to pay Company’s
actual, documented, out-of-pocket costs charged by such shipping company for
the shipment of units of Products and/or other materials hereunder, and such
costs shall be reimbursed to Company by WEA within [*] following Company’s
rendition of such invoice to WEA [*]. Company shall be solely responsible for
all costs or expenses related to the shipping of units of Products from WEA’s
manufacturer to the extent that Company or Company’s affiliate is
then-currently WEA’s manufacturer to Company’s distribution Facilities and for
the cost of any shipping between any Facilities (except if such shipping was
requested by WEA).


 


5.     Terms of Sale of Products. WEA shall
determine all terms of sale for Products.


 


6.     Other Obligations. (a) Storage.
Company shall accept and store all units of Products delivered to or otherwise
held by Company hereunder at no charge; provided, however, that
with respect to any particular Product, Company shall not be required to store
more units of such Product than is necessary to satisfy the next [*] demand
(such determination as to what constitutes [*] demand shall be made jointly by
WEA and Company based, where possible, upon actual, gross units of Products
ordered during the prior [*] and shall be made for all Products no more
frequently than semi-annually during the Term commencing no sooner than [*]
after the commencement of the Term). With respect to units of Products so
determined to be in excess of a [*] demand therefor, Company shall notify WEA
of the specific units of Products constituting such excess and within [*]
following WEA’s receipt of such notice, WEA shall (in WEA’s sole discretion)
either: (i) remove such excess units of Products (at WEA’s expense); (ii) direct
Company to destroy such excess units of Products (at WEA’s expense); or (iii) direct
Company to store such excess either: (x) at a Facility at a cost to WEA of [*]
or (y) offsite at Company’s or Company’s


 


5





















 


affiliates
leased facility approved in advance, in writing, by WEA and the actual,
documented, out-of-pocket expense charged by such facility to Company for such
storage shall be reimbursed to Company by WEA. Amounts owing under this
Paragraph 6(a) shall be invoiced by Company at month end and shall be payable [*]
from the date of the rendition of such invoice, [*]. Products shall be kept
segregated from all of Company’s other products or merchandise. The risk of
loss, due to any reason, of units of Products in Company’s possession or
control shall be borne by Company, as further described herein; provided,
however, that to the extent any such loss was directly caused by a WEA
Employee, Company shall not bear the risk of loss except to the extent such
loss is or would have been covered by Company’s property insurance as required
under this Agreement and as set forth on Schedule C hereto.


 


(b)   Insurance. During the Term, Company
shall: (i) comply with all provisions set forth on Schedule C hereto; and (ii)
at Company’s sole cost and expense, maintain adequate insurance coverage for:
(A) all Products while such Products are in Company’s possession, under Company’s
control or in transit to or from Company or its designees to any Facility; and
(B) the other matters set forth on Schedule C hereto. The insurance required
hereunder is not intended to limit Company’s liability as otherwise provided in
this Agreement.


 


(c)   Computer Access. In order that WEA be
able to monitor daily shipment, returns and inventory activity of Products,
Company shall give WEA access to Company’s computer system for the purpose of
providing WEA with real-time information stored therein relating to Products at
Company’s expense (but no access shall be allowed to information relating to
any other party’s products or any personal data possessed by Company). Such
system shall provide WEA with all of the same types of reports and information
currently provided by, and as may be available from, Company’s computer systems
in connection with other products distributed by Company. In connection
therewith, Company shall work with WEA to ensure that WEA is provided with at
least the same level of reports and information that WEA’s own systems provided
as of the commencement of the Term. Nothing in such reports or information
provided shall impart any competitively-sensitive information about Company,
Company’s affiliates or any third parties for which Company renders any
services or any personal data possessed by Company. Such access shall be
available to WEA [*] a day, [*] days a week, at all times during the Term.
Notwithstanding anything herein to the contrary, Company may perform system
maintenance and upgrades during which such systems may not be available; provided,
however, that such downtime does not exceed [*] per week. [*]


 


6





















 


(d)   Inspection. Subject
to the provisions set forth below, during the Term and for a period of [*] following the expiration or termination
of the Term, WEA shall have the right to inspect each WEA Facility and any
other facility utilized by Company in connection with Products, or the
provision of Services hereunder, during regular business hours (utilizing
either WEA’s own employees, third-party advisers or representatives, insurers,
or other experts retained by WEA). WEA may conduct such inspections of each
Facility or other facility up to [*].
During any such inspection, WEA may conduct physical inventories of units of
Products in Company’s possession or under Company’s control. WEA shall not have
access to any competitively-sensitive information relating to any other party’s
products, or any personal data possessed by Company during the inspections
permitted under this Paragraph 6(d).


 


(e)   Security. Company
shall maintain security standards that are at least equivalent to those
provided by other “first-class” distributors in the Territory, both in the
segregated area of the WEA Facilities for Products and throughout the WEA
Facilities, and shall at all times employ the utmost care and diligence to
prevent loss, damage, theft, disappearance, unauthorized destruction or usage
of Products. Company’s security procedures shall be subject to WEA’s prior
written approval. Company shall maintain such procedures as approved by WEA and
as may reasonably be given to Company from time to time throughout the Term. Notwithstanding
the foregoing, Company’s security measures (which shall include closed-circuit
television monitoring, pass-protected access, employee checking and spot
searching, etc.) shall be sufficient to ensure that Products and the
intellectual property embodied in such Products are in no way compromised,
stolen, “leaked” to the public (e.g., copying of recordings embodied on
Products which may lead to the availability of such recordings to the public
via the Internet or similar means) or otherwise
made available to any
unauthorized parties; provided, however, that for a period of
[*] from
the commencement of the Term, such security measures need be no more stringent
than those currently in place at the Acquired Facilities. Upon discovery of (i)
loss, damage, theft, disappearance, or destruction of Products exceeding [*]; or (ii) any unauthorized usage of
Products, Company shall notify WEA as soon as reasonably possible, and in any
event within [*] following such
discovery, and shall include in such notification sufficient detail to allow
WEA to investigate such incident (each, a “Security Breach Notice”).
Regardless of Company’s


 


7





















 


compliance with all security
measures set forth herein or with procedures approved by WEA, Company shall be
liable as provided herein for the loss, damage, theft, disappearance,
destruction or unauthorized usage of any Products.


 


(f)    Salvage. At all
times and regardless of whether Company or its insurers are required to
compensate WEA for loss as required under this Agreement, WEA shall retain the
sole right to salvage for damaged Products. Company shall not surrender damaged
Products to insurers or any other party for destruction or disposal without
obtaining WEA’s prior written consent.


 


(g)   WEA Employees.. Company shall
throughout the Term, at the request of WEA, provide up to a maximum of [*]
full-time employees of WEA or its affiliates (the “WEA Employees”)
with, at Company’s expense: (i) reasonable office accommodations at such WEA
Facilities utilized for distribution and/or warehousing as may be specified
from time to time by WEA; (ii) individual computers; (iii) copy services and
any other similar office services in order to permit them to carry out their
functions; and (iv) all other
reasonable support functions as provided to them as of the date of this
Agreement. Company shall also provide telephone, Internet and fax access for
each WEA Employee, and WEA shall reimburse Company for Company’s actual,
documented, out-of-pocket costs therefor. Amounts owing under this Paragraph
6(g) shall be invoiced by Company at month end and shall be payable [*] from
the date of the rendition of such invoice; [*] WEA shall be responsible for the
direction of, and all compensation and related obligations for, the WEA
Employees. The WEA Employees shall operate in accordance with WEA’s code of
conduct and Company’s standard code of conduct contained in its employee policy
manual at the applicable WEA Facility (which code of conduct shall be subject
to WEA’s reasonable approval) and all other lawful policies adopted by Company
from time to time governing the conduct of all of its employees and
contractors. In the performance of their tasks, the WEA Employees shall not
have access to any competitively-sensitive information relating to any other
party’s products or any personal data possessed by Company.


 


7. Technology. Company shall reasonably update the WEA
Facilities at Company’s cost to keep up with new technology requirements,
including investing in technology, systems, equipment and processes to automate
distribution processes, packaging and assembly to provide at least the same
level of quality and service provided by other “first-class” distributors of
Records in the Territory. In the event that any investment in a fundamental new
technology (e.g., the conversion to automated systems) results in a decrease in
Company’s net costs (i.e., taking into account the cost of Company’s said
investment in implementing such new technology) by more than ten percent (10%),
the Fees shall be adjusted so that the net cost benefit is shared equally
between WEA and Company. Company shall maintain and update its information and
technology capabilities, at Company’s reasonable


 


8





















 


cost, to meet reasonable WEA requirements and maintain competitive
services for WEA and its customers.


 


8.
Invoices and Payments. (a) Rendition of Invoices. For each month
of the Term, Company shall prepare and render invoices to WEA on a weekly basis
setting forth all Fees owed by WEA hereunder for such week. Except with respect
to shipping charges to be borne by WEA as provided in Paragraph 4, the amount
due to Company pursuant to each such invoice shall be due and payable by WEA to
Company in US dollars on or before [*] following Company’s rendition of such
invoice; [*] Company shall submit all such invoices to WEA electronically
pursuant to instructions given by WEA to Company from time to time (and in
paper form, to the extent WEA so requests) and to the extent that Company’s and
WEA’s computer systems do not already provide for the electronic submission of
all such invoices, Company shall use Company’s reasonable efforts to work with
WEA starting upon the commencement of the Term to create a system whereby all
such invoices can be submitted electronically to WEA.


 


(b)
Audits. WEA shall have the right, at WEA’s sole expense, to examine
(and/or to appoint representatives to examine) Company’s (and Company’s
affiliates’) books and records in order to: (i) verify the correctness of any
invoice prepared and rendered by Company in accordance with Paragraph 8(a);
(ii) establish the applicability of the provisions contained in Paragraphs 11
and/or 14; or (iii) otherwise establish compliance by Company with its
obligations under this Agreement; provided,  however, that only independent, third-party auditors
(i.e., auditors other than WEA’s then-current outside auditor) shall be
utilized for the review of Company’s
books and records. Independent
third party auditors shall have access to all information necessary to
perform their duties, however nothing in any report provided to WEA or its
affiliates by any such independent third party auditors shall impart to WEA or
its affiliates any competitively-sensitive information about Company, Company’s
affiliates or any third parties for which Company renders any services. If any
such audit reveals that WEA and/or WEA’s affiliates have been overcharged,
Company shall reimburse WEA in the amount of the overcharge. If any such audit
reveals that WEA has been overcharged by an amount exceeding [*] for the audit
period, Company shall reimburse WEA in the amount of the overcharge plus
all fees paid by WEA to the auditors concerned in connection with such audit
and any other actual, documented, out-of-pocket expense incurred by WEA in
connection with such audit. [*] Regardless of the number of audits conducted
hereunder revealing the same specific overcharge to WEA, Company shall not be


 


9





















 


required
to repay to WEA the amount of any such overcharge more than once. WEA’s audit
right shall survive the expiration or termination of the Term for [*] Company
shall retain all books and records related to the performance of Services
hereunder after the expiration or termination of the Term for so long as WEA
may need to perform audits hereunder, but in no event for more than [*] after
the rendition of the invoice with respect to the Services to which such invoice
relates; provided, however, that before Company destroys any
books or records, Company shall deliver written notice of such intent to
destroy to WEA not more than [*], and not less than [*], before the intended
date of destruction. WEA shall have [*] after receipt of such notice to request
copies of the books and records to be destroyed, in which case Company shall
make copies of such books and records and deliver the same to WEA (but
excluding information related to other customers of Company) at WEA’s expense
(but at Company’s expense if such copies are of electronic files). As used
herein, “books and records” shall include, without limitation, physical data
and data stored in any electronic, magnetic or optical format.


 


9.     Post-Term Procedures. (a) Upon the
expiration or termination of the Term, Company shall immediately cause the
cessation of all Services and shall have no further rights or obligations with
respect to Products except as provided herein; provided,  however,
that upon WEA’s request, Company shall fill any then-currently outstanding
orders for units of Products pursuant to the terms of this Agreement. Within [*]
following the expiration or termination of the Term, Company shall provide WEA
with a list of all units of Products in Company’s possession or control on such
date. The mere expiration or termination of the Term shall not affect any
obligations of WEA to pay for Services rendered by Company prior to such
expiration or termination or any other obligation that is expressly provided
herein to survive the expiration or termination of the Term.


 


(b)
Within [*] following the expiration of the Term or [*] following the early
termination of the Term, WEA shall remove from the Facilities, or order at WEA’s
expense the destruction of all units of Products in Company’s possession or
control. The determination whether to remove or destroy such units of Products
shall be made by WEA in WEA’s sole discretion.


 


10.   Warranties, Representations, Covenants and
Indemnities. (a) Company warrants, represents and/or covenants, as the case
may be, that: (i) Company has the right, power and authority to enter into and
fully perform this Agreement; (ii) no agreement of any kind heretofore entered
into by Company shall interfere in any manner with the complete performance of
this Agreement; and


 


10





















 


(iii)
subject to WEA’s rights in the Products and WEA’s warranties and
representations set forth below, any items prepared by or otherwise furnished
by Company in connection with Products and Company’s performance of Services
hereunder will not violate any law or infringe upon the rights of any party.


 


(b)   Company agrees to and does hereby indemnify,
save and hold WEA and its affiliates, and each of their respective officers,
directors and employees (collectively, for the purposes of this Paragraph 10(b)
only, “WEA”) harmless to the maximum extent permitted by law from any and
all loss and damage (including court costs and reasonable attorneys’ fees as
and when incurred) arising out of, connected with or as a result of: (i) any
inaccuracy, inconsistency with, failure of, or breach or threatened breach by
Company of any warranty, representation, agreement, undertaking or covenant
contained in this Agreement; and/or (ii) any and all damages or injuries of any
kind or nature whatsoever (including death resulting therefrom) to any persons,
whether employees of Company or otherwise, and to any property caused by,
resulting from, arising out of or occurring in connection with the execution of
the work under this Agreement (including as a result of product liability
claims) whether such damages or injuries are or are alleged to be based upon
Company’s active or passive negligence or participation in the wrong or upon
any breach of any statutory duty or obligation on the part of Company (except
to the extent such damages or injuries directly result from any act of WEA’s
employees located at Company’s facilities and are not otherwise covered by the
property insurance Company is required to maintain hereunder as set forth on
Schedule C hereto, or result from a breach of any warranty, representation,
agreement, undertaking or covenant of WEA contained herein). The foregoing
indemnity shall be applicable only to such claims as have been reduced to
judgment or settled with Company’s written approval. WEA shall give Company
prompt notice of any claim to which the foregoing indemnity applies and Company
shall assume the defense of any such claim through counsel of Company’s choice
and at Company’s sole expense. WEA shall have the right to participate in such
defense through counsel of WEA’s choice and at WEA’s expense.


 


(c)   WEA warrants, represents and/or covenants, as
the case may be, that: (i) WEA has the right, power and authority to enter into
and fully perform this Agreement; (ii) no agreement of any kind heretofore
entered into by WEA shall interfere in any manner with the complete performance
of this Agreement; and (iii) Material embodied in Products as supplied by WEA
shall not violate any law or infringe upon the rights of any third party. As
used herein “Material” shall include all musical compositions, names,
biographical materials and likenesses, photographic, video or motion picture
images, sound recordings, intellectual properties, packaging and artwork.


 


(d)   WEA agrees to and does hereby indemnify, save
and hold Company and its affiliates, and each of their respective officers,
directors and employees (collectively, for the purposes of this Paragraph 10(d)
only, “Company”)


 


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harmless
to the maximum extent permitted by law from any and all loss and damage
(including court costs and reasonable attorneys’ fees as and when incurred)
arising out of, connected with or as a result of: (i) any inaccuracy,
inconsistency with, failure of, or breach or threatened breach by WEA of any
warranty, representation, agreement, undertaking or covenant contained in this
Agreement; (ii) any and all damages or injuries of any kind or nature
whatsoever (including death resulting therefrom) to any persons, whether
employees of Company or otherwise, and to any property caused by, resulting
from, arising out of or occurring in connection with any act of WEA’s employees
located at Company’s facilities, except to the extent such damages and injuries
are covered by the property insurance Company is required to maintain hereunder
as set forth on Schedule C hereto; and/or (iii) any products liability claims
for manufacturing defects directly related to Products not manufactured by
Company, any affiliate of Company or on behalf of Company. The foregoing
indemnity shall be applicable only to such claims as have been reduced to
judgment or settled with WEA’s written approval. Company shall give WEA prompt
notice of any claim to which the foregoing indemnity applies and WEA shall
assume the defense of any such claim through counsel of WEA’s choice and at WEA’s
sole expense. Company shall have the right to participate in such defense
through counsel of Company’s choice and at Company’s expense.


 


11.
Breach, Cure and Termination. (a) WEA may terminate the Term by written
notice to Company following either: (i) a breach of this Agreement by Company
that is specified in Paragraph 11(b); or (ii) any other material breach of this
Agreement by Company. [*] There shall be a cure period of [*] following written
notice to Company, for any breach referred to in Paragraph 11(a)(ii).


 


(b)
The breaches of this Agreement referred to in Paragraph 11 (a)(i) are any of
the following: [*]


 


(ix) any willful and malicious breach by Company of
any material provision hereof.


 


(c)
In addition, WEA may terminate the Term:


 


(i) by written notice to Company within [*]
following the later of: (A) a Change of Control; and (B) written notice to WEA
from Company that a Change of Control has occurred;


 


(ii) by written notice to Company following an
Insolvency Event;


 


(iii) by written notice to Company following either:
(A) the termination of the term of the US Manufacturing Agreement other than as
a result of a breach by WEA or the expiration of the term thereunder by passage
of time or (B) any material breach by Company under the US Manufacturing
Agreement (i.e., a breach which would then-currently


 


12





















 


permit WEA to terminate the term thereof and with respect to which WEA’s
right to terminate has not been waived); and


 


(iv) upon [*] written notice to Company, following
the occurrence of a Recorded Music Major Transaction; provided, however,
that in no event shall any termination under this clause (iv) be effective
prior to the date which is eighteen (18) months from the commencement of the
Term.


 


(d) Any termination of this Agreement under this Paragraph 11 will not
relieve Company of liability for breaches hereof arising prior to such
termination nor shall it relieve WEA from any liability to pay for Services
rendered prior to such termination.


 


(e)


 


(i)    If
because of an “act of God”, inevitable accident, fire, lockout, strike or other
labor dispute, riot or civil commotion, act of public enemy or other cause of a
similar nature not reasonably within Company’s control (a “Force Majeure
Event”), Company is materially hampered in the performance of its
obligations under this Agreement, or its normal business operations are delayed
or become impossible or commercially impracticable, then Company shall have the
option, by giving WEA written notice, to suspend its obligations under this
Agreement affected by such Force Majeure Event, effective upon receipt by WEA
of such notice, for the duration of any such contingency. Should Company
suspend its obligations under this Agreement pursuant to this Paragraph 11(e),
such suspension shall not constitute a breach hereunder and Company shall not
be subject to price rebates under Paragraph 14 with respect to any occurrences
during the pendency of such suspension. Immediately upon Company’s assertion of
its right to suspend its obligations under this Agreement, WEA shall have the
right to distribute Products itself or through third parties during the
pendency of such suspension. Further, should Company suspend its obligations
under this Agreement, WEA shall, on and. from the date which is [*] months after the occurrence of (which may be earlier than Company’s assertion of suspension under) a
Force Majeure Event, have the right to terminate the Term of this Agreement by
notice in writing to Company unless prior to the date of such termination
Company has by notice in writing to WEA ended the suspension of Company’s
obligations under this Agreement. For the avoidance of doubt, should WEA
exercise its right of termination under this Paragraph 11(e), no cure period
shall be associated with Company’s failure to perform its obligations
hereunder.


 


(ii)   In
addition, within [*]
of becoming aware of any circumstance or event which may reasonably be
anticipated to cause


 


13





















 


or constitute a Force Majeure Event, Company
shall notify WEA of such circumstance or event. For the avoidance of doubt,
such notice shall not constitute an assertion by Company of its right to
suspend its obligations hereunder.


 


(iii) If for any reason, Company is unable to
provide any Services hereunder in connection with any Order(s) for a period
exceeding [*]
and such inability is reasonably likely to result in Company being unable to
meet the Service Level Requirements set forth herein, WEA shall have the right
to immediately contract with a third party to provide all or any portion of
such services for such period of time as may be reasonably necessary for WEA to
obtain the services required to fulfill any such Order(s). Once WEA is
reasonably satisfied that Company is again able to provide the required
Services, WEA shall return the contracted Services to Company as soon as it is
reasonably able to do so, provided, however, that the return of
such Services to Company shall be subject to any reasonable commitment WEA has
made to the applicable third party that such Services would remain with such
third party for a period of time. Company shall reimburse WEA upon demand for
any and all incremental out-of-pocket charges that WEA reasonably incurs as a
result of transferring its Services under this Paragraph 11(e)(iii).


 


(f) If WEA purports to terminate this
Agreement under this Paragraph 11, each party hereto shall have the right to
seek any remedy or other relief available under applicable law (except as
limited by Paragraph 15(o)), and each party hereto shall have the right to
assert any defenses available under applicable law; provided, however,
that under no circumstances shall any party from whom WEA obtains services in
substitution for any or all Services to be provided hereunder have any
liability whatsoever to Company arising out of or related to any actual or
purported termination of this Agreement by WEA, even if in violation of this
Agreement and Company shall take no action against any such party in connection
with the provision of such services by such party to WEA.


 


12. Confidentiality. (a) Each of
Company and WEA shall, and shall cause its affiliates, and its and its
affiliates’ directors, officers, employees and agents (each, a “Recipient”)
to, maintain in confidence the material terms of this Agreement, except that
WEA may disclose this Agreement on a confidential basis in connection with a
potential Recorded Music Major Transaction, to a potential assignee under
Paragraph 15(c) or to third parties and WEA affiliates as may be necessary in
the ordinary course of business (provided, that any such disclosure shall be
limited to those persons who agree to be bound by the provisions of this
Paragraph). The restriction in the preceding sentence shall not apply to information
that: (i) becomes generally available to the public other than as a result of
disclosure by such Recipient contrary to this Agreement; (ii) was available to
such Recipient on a non-confidential basis prior to its disclosure to such
Recipient; (iii) becomes available to such


 


14





















 


Recipient on a non-confidential basis from a source other than any
other Recipient unless such Recipient knows that such source is bound by a
confidentiality agreement or is otherwise prohibited from transmitting the
information to such Recipient by a contractual obligation; (iv) is
independently developed by such Recipient without reference to confidential
information received from any other party; (v) is required to be disclosed by
applicable law or legal process; provided that any Recipient disclosing
pursuant to this clause (v) shall notify the other party at least five (5) days
prior to such disclosure so as to allow such other party an opportunity to
protect such information through protective order or otherwise; (vi) is
required to be disclosed by any listing agreement with, or the rules or
regulations of, any security exchange on which securities of such Recipient or
any of its affiliates are listed or traded; or (vii) is required to be
disclosed by a party in order to perform its obligations under the Agreement; provided
that any such disclosure shall be limited to those persons who have a need to
know such information and who agree to be bound by the provisions of this
Paragraph 12. No party hereto shall make a press release or public announcement
concerning this Agreement without the prior written consent of the other party
hereto.


 


(b) Company shall, and shall cause its
affiliates, and its and its affiliates’ directors, officers, employees and
agents to, maintain in confidence all information that: (i) is in its or their
possession by reason of Company’s performance of Services hereunder; and (ii)
relates to the Products (including, without limitation, shipment and return volumes,
shipping destinations, pricing information and other terms of sale). WEA shall,
and shall cause its affiliates, and their directors, officers, employees and
agents to, maintain in confidence all information that: (x) is in its or their
possession by reason of Company’s performance of Services hereunder; and (y)
relates to the pricing, methods of distribution or other proprietary
information of Company. The restrictions in the two preceding sentences shall
not apply to information that: (A) becomes generally available to the public
other than as a result of disclosure by such Recipient contrary to this
Agreement; (B) was available to such Recipient on a non-confidential basis
prior to its disclosure to such Recipient; (C) becomes available to such Recipient
on a non-confidential basis from a source other than any Recipient unless such
Recipient knows that such source is bound by a confidentiality agreement or is
otherwise prohibited from transmitting the information to such Recipient by a
contractual obligation; (D) is independently developed by such Recipient
without reference to confidential information received from any other party;
(E) is required to be disclosed by applicable law or legal process; provided
that any Recipient disclosing pursuant to this clause (E) shall notify the
other party at least five (5) days prior to such disclosure so as to allow such
other party an opportunity to protect such information through protective order
or otherwise; or (F) is required to be disclosed by any listing agreement with,
or the rules or regulations of, any security exchange on which securities of
such Recipient or any of its affiliates are listed or traded. Notwithstanding
anything to the contrary above, WEA and its affiliates  shall be permitted to disclose any
information on a confidential basis in connection with a potential Recorded
Music Major Transaction,


 


15





















 


to a potential assignee under  Paragraph 16(c) or to third parties and WEA
affiliates as may be necessary in the ordinary course of business (provided,
that any such disclosure shall be limited to those persons who agree to be
bound by the provisions of this Paragraph).


 


(c) The obligations of WEA and Company under
Paragraphs 12(a) and 12(b) shall survive for [*] years following the expiration or
termination of the Term.


 


(d)


 


(i)    Notwithstanding
anything to the contrary set forth in this Paragraph 12, the parties hereby
agree that, as of the earliest of: (A) the date of the public announcement of
discussions relating to the transactions contemplated by the Stock Purchase
Agreement (the “Transaction”); (B) the date of the public announcement
of the Transaction; and (C) the date of the execution of an agreement (with or
without conditions) to enter into the Transaction, each party (and each
employee, representative or other agent of such party) may disclose to any and
all persons, without limitation of any kind, the tax treatment and tax
structure of the Transaction and all materials of any kind (including opinions
or other tax analyses) that are provided to such party relating to such tax
treatment and tax structure.


 


(ii)   The
parties acknowledge that: (A) (x) the identity of any existing or future party
(or any affiliate of such party) to the Transaction; and (y) any specific
pricing information or other commercial terms, including the amount of any
fees, expenses, rates or payments arising in connection with the Transaction,
are not included in the meaning of the terms “tax treatment” and “tax structure”
as referred to in clause (i) of this Paragraph 12(d); and (B) nothing in this
Agreement shall in any way limit any party’s ability to consult any tax advisor
(including a tax advisor independent from all other entities involved in the
Transaction) regarding the tax treatment or tax structure of the Transaction.


 


13. Definitions. (a) Certain Terms.


 


(i)    “Acquired
Facility” shall mean any of the United States facilities which are being
acquired by Company in connection with the Stock Purchase Agreement.


 


(ii)   “Armed
Forces Post Exchanges” shall mean United States military posts, ships’
stores or other United States armed forces facilities.


 


16





















 


(iii) “Business Days” shall mean
Monday through Friday inclusive except for any United States national public
holiday which shall fall on any of those days.


 


(iv)  “Catalog
Titles” shall mean any (Product or Component thereof) following such
Product’s “street date.”


 


(v)   “Change
of Control” shall mean (i) any merger or consolidation of Company or Parent
with a Major or its affiliates or any sale, transfer, issuance or other
disposal (in one transaction or in a series of transactions) of all or more
than [*] of
the shares of capital stock, partnership interests, membership interests in a
limited liability company or other equity ownership interests (“Equity
Interests”) of Parent or Company (or any subsidiary of Parent or Company
engaged in the business of providing PP&S Services, in each case, whether
now owned or hereafter acquired) to a Major or its affiliates; (ii) the failure
by Parent to own, directly or indirectly, beneficially and of record, Equity
Interests in Company representing at least [*] of each of the aggregate ordinary voting power and aggregate
equity value represented by the issued and outstanding Equity Interests in
Company; (iii) Parent or Company sells all or substantially all of its assets;
or (iv) any other event which results in Parent no longer controlling the
direction or management of Company.


 


(vi)  “Combined
Entity” shall mean the entity or entities formed as a result of any
Recorded Music Major Transaction.


 


(vii) “Contract Year” shall mean each
separate, consecutive one (1)-year period of the Term, the first such period to
commence on the first day of the Term.


 


(viii) “Facility” shall mean any
facility owned and/or leased and controlled by Company or one of Company’s
affiliates.


 


(ix) “Fees” shall be in US dollars and
shall mean the pick, pack and ship fees and the various amounts set forth on
Schedule D hereto, in each case, subject to adjustment as provided in this
Agreement.


 


(x)    “Hit
Titles” shall mean Catalog Titles designated by WEA as such based upon
current or anticipated sales and delivery requirements. [*]


 


17





















 


(xii) “International Manufacturing
Agreement” shall mean the International Manufacturing and Packaging
Agreement between WMI and Company dated as of the date hereof.


 


(xiii) “International PP&S Agreement”
shall mean the International Pick, Pack and Shipping Services Agreement between
WMI and Company dated as of the date hereof.


 


(xiv) “Key Release” shall mean a New
Release of which greater than [*] and less than [*]
units have been Ordered.


 


(xv) “Key Release Date” shall mean the
date by which the Orders for a Key Release are required to be shipped pursuant
to Schedule A hereto.


 


(xvi) “Major” shall mean any one of
the following companies: Sony Music Entertainment Inc., Bertelsmann Music
Group, EMI Group plc or Universal Music Group (or their successors).


 


(xvii) “New Release” shall mean any
Product (or Component thereof) prior to and including such Product’s “street
date.” For the purposes of Schedule A hereto, all promotional units of Products
shall be treated as New Releases.


 


(xviii) “Order” shall mean a request
made by WEA for the rendering of any PP&S Services in connection with units
of Products or other materials hereunder. An “Order” may be for individual
Products or other materials, may be for multiple Products or other materials
and may specify multiple quantities of the same Product or other materials to
be delivered to single and/or multiple locations.


 


18





















 


(xix) “Order Cycle Time” shall mean
the period from the date and time that Company receives an Order to the date
and time Company actually ships such Order.


 


(xx) “Parent” shall mean Cinram
International Inc.


 


(xxi) “Platinum Release” shall mean a
New Release for which greater than [*] have been Ordered.


 


(xxii) “Platinum Release Date” shall
mean the date by which the Orders for a Platinum Release are required to be
shipped pursuant to Schedule A hereto.


 


(xxiii) “PP&S Services” shall mean
(i) physical distribution; (ii) processing of returns for scrap or return to
inventory; (iii) inventory control and warehousing; and (iv) shipping services
for units of Products; in all cases, in orders and quantities as requested and
approved by WEA to all locations in the Territory as designated by WEA. For the
avoidance of doubt, all determinations regarding the handling of units of
Products and other materials hereunder, including the handling of returns,
stickering, preparation for shipment (e.g., boxing, etc.) and shipment
of units of Products shall be made solely by WEA.


 


(xxiv) “Products” shall mean all
Records for which WEA requires PP&S Services to be performed during the
Term in the Territory and for which WEA has the unilateral right to control the
identity of the party who renders such PP&S Services. Following a Recorded
Music Major Transaction, “Products” shall mean all Records for which the
Combined Entity requires PP&S Services to be performed during the Term in
the Territory and for which the Combined Entity has the unilateral right to
control the identity of the party who renders such PP&S Services. It has
been WEA’s general custom to use its commercially reasonable efforts to acquire
the unilateral right to control the identity of the party who renders PP&S
Services in connection with Records. WEA shall continue to do so during the Term,
in accordance with past practice. “Products” shall not include Records to be
distributed during the Term in the Territory by Word Entertainment.


 


(xxv) “Recorded Music Major Transaction”
shall mean a joint venture, merger, or other combination of all or a
substantial portion of the recorded music businesses of Warner Music Group with
all or a substantial portion of the recorded music businesses of any Major.


 


(xxvi) “Records” shall mean all
physical forms of recording and reproduction by which sound may be recorded now
known or which may hereafter become known, manufactured or sold primarily for
home use,


 


19





















 


jukebox
use, or use on or in means of transportation, including magnetic recording
tape, film, electronic video recordings and any other physical medium or device
for the production of artistic performances manufactured or sold primarily for
home use, jukebox use or use on or in means of transportation, whether
embodying: (i) sound alone; or (ii) sound synchronized with visual images, e.g.,
“sight and sound” devices, but only so long as such forms of recording and
reproduction contain performances of works by recording artists.


 


(xxvii) “Services” shall mean the PP&S
Services and all other services to be provided by Company under this Agreement.


 


(xxviii) “Stock Purchase Agreement” shall
mean the Stock Purchase Agreement among AOL Time Warner Inc., Parent and
Company dated as of July 18, 2003.


 


(xxix) “Term” shall mean the three (3)-year
period commencing on the Closing Date, as such term is defined in the Stock
Purchase Agreement, subject to earlier termination in accordance with Paragraph
11.


 


(xxx) “Territory” shall mean the United
States, its territories and possessions, including Puerto Rico, and Armed
Forces Post Exchanges serviced from distribution points in the US.


 


(xxxi) “US Manufacturing Agreement” shall
mean the US Manufacturing and Packaging Agreement between WEA and Company dated
as of the date hereof.


 


(xxxii) “WEA Facility” shall mean any Facility
at which Company provides Services to WEA hereunder.


 


(xxxiii) “WHV” shall mean Warner Home Video
Inc.


 


(xxxiv) “WMI” shall mean WEA International
Inc.


 


(b) Other Definitional and Interpretative Provisions.


 


(i)    The
words “hereof’, “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Paragraph and Schedule references
are to this Agreement unless otherwise specified.


 


(ii)   The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.


 


20





















 


(iii) Unless the context requires otherwise, other
grammatical forms of defined words or expressions used herein have
corresponding meanings. [*]


 


This
Paragraph 14 shall not limit WEA’s other rights against Company for breach
hereof, but any amounts paid by Company pursuant to this Paragraph 14 shall
reduce any amounts otherwise payable by Company with respect to such breach.


 


15.
Miscellaneous. (a) Entire Agreement, Modification. This Agreement
contains the entire understanding of the parties hereto relating to the subject
matter hereof and supersedes all previous agreements or arrangements between
the parties, both written and oral, hereto relating to the subject matter
hereof, except that nothing in Paragraph 3 shall limit the obligations of
Company under the US Manufacturing Agreement. This Agreement cannot be changed
except by an instrument signed by the authorized signatories of the parties
hereto.


 


(b) Waiver. Any party to this Agreement may: (i) extend the time
for the performance of any of the obligations or other acts of the other party
hereto; (ii) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered by the other
party pursuant hereto; or (iii) waive compliance with any of the agreements or conditions of the
other party hereto contained herein. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party to be
bound thereby. Any waiver of any term or condition shall not be construed as a
waiver of any subsequent breach or a subsequent waiver of the same term or
condition, or a waiver of any other term or condition, of this Agreement. The
failure of either hereto party to assert any of its rights hereunder shall not
constitute a waiver of any of such rights.


 


21





















 


(c) Assignment. Company shall not have
the right without WEA’s prior written consent (which consent may be granted or
withheld in the sole discretion of WEA) to assign this Agreement or any of the
rights granted to Company hereunder; provided, however, that Company shall
be permitted to assign this Agreement to Parent and any wholly owned subsidiary
of Parent. WEA shall have the right without Company’s consent to assign this
Agreement, in whole or in part, to any subsidiary, parent company or affiliate
of WEA, or to any third-party acquiring all or substantially all of WEA’s
assets or equity; provided, however, that, in each case,
notwithstanding such assignment, WEA at all times shall remain directly and
fully liable to Company for the performance of the obligations of WEA
hereunder. [*]


 


(e) Further Assurances. Company and WEA each agree to execute
and deliver all such other and additional instruments and documents and to do
such other acts and things as may be necessary to more fully effectuate this
Agreement.


 


(f) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of, and shall be enforceable by, each of the parties
hereto and their respective permitted assigns.


 


(g) Notices. 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 Paragraph 15(g)):


 


WEA:                                       c/o Warner Music Group Inc.


75
Rockefeller Plaza


New
York, New York 10019


Attn:
EVP & CFO


Fax:
(212) 258-3121


 


22





















 


with a copy to:


 


Warner Music Group Inc.


75 Rockefeller Plaza


New York, New York 10019


Attention:
EVP & General Counsel


Fax:
(212) 258-3092


 


Company:                                          Cinram International Inc.


2255 Markham Road


Scarborough, Ontario M1B 2W3


Canada


Attn:
Dave Rubenstein


Fax:
(416) 298-0612


 


with a copy to:


 


Ervin, Cohen & Jessup
LLP


9401 Wilshire Boulevard, 9th Floor


Beverly
Hills, California 90212


Attn:
Howard Z. Berman, Esq.


Fax:
(310) 859-2325


 


(h)   Headings. The
descriptive headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.


 


(i)    Severability. If any
term or other provision of this Agreement is invalid, illegal or incapable of
being enforced by any federal, state, local or foreign statute, law, ordinance,
regulation, code, order, other requirement or rule of law or by public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party hereto. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties hereto as closely as possible in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible.


 


(j)    No Agency. WEA and
Company each shall have the status of an independent contractor and nothing
herein contained shall contemplate or constitute WEA as Company’s agent or
employee or Company as WEA’s agent or employee. This Agreement does not
constitute or acknowledge any partnership or joint venture between WEA and
Company.


 


23





















 


(k) No Third Party Beneficiaries.
Except for the provisions of Paragraphs 10(b) and 10(d) relating to indemnified
parties, this Agreement shall be binding upon and inure solely to the benefit
of the parties hereto and their permitted assigns and nothing herein, express
or implied, is intended to or shall confer upon any other party any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.


 


(l) GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN
THAT STATE. EXCEPT AS PROVIDED ON SCHEDULE C HERETO, ALL ACTIONS AND
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE HEARD AND
DETERMINED IN ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW
YORK, AND THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING AND IRREVOCABLY
WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH
ACTION OR PROCEEDING. EACH PARTY HERETO IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
OF SUCH PROCESS TO SUCH PARTY AT ITS ADDRESS SPECIFIED IN PARAGRAPH 15(g). THE
PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS PARAGRAPH
15(l) SHALL AFFECT THE RIGHT OF EITHER PARTY HERETO TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. THE CONSENTS TO JURISDICTION SET FORTH IN
THIS PARAGRAPH 15(l) SHALL NOT CONSTITUTE GENERAL CONSENTS TO SERVICE OF
PROCESS IN THE STATE OF NEW YORK AND SHALL HAVE NO EFFECT FOR ANY PURPOSE
EXCEPT AS PROVIDED IN THIS PARAGRAPH 15(l) AND SHALL NOT BE DEEMED TO CONFER
RIGHTS ON ANY PARTY OTHER THAN THE PARTIES HERETO.


 


(m) WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY. EACH PARTY HERETO: (i) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,


 


24





















 


EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER; AND (ii)
ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS PARAGRAPH 15(m) .


 


(n)   Consents.
Except as specifically provided to the contrary herein, if any consent,
approval or authority is required from either party hereto, such consent,
approval or authority shall not be unreasonably  withheld or delayed. [*]


 


(p)   Counterparts. This
Agreement may be executed in one or more counterparts, and by the parties
hereto in separate counterparts, each of which when executed shall be deemed to
be an original but all of which taken together shall constitute one and the
same agreement.


 


25





















 


If the foregoing is acceptable, please acknowledge the same by signing
in the appropriate places below.


 


	
   

  	
  WARNER-ELEKTRA-ATLANTIC
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  David H. Johnson

  	
   

  
	
   

  	
   

  	
   Name:
  David H. Johnson

  
	
   

  	
   

  	
   Title:
  Vice President and Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CINRAM
  DISTRIBUTION LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lewis Ritchie

  	
   

  
	
   

  	
   

  	
   Name:
  LEWIS RITCHIE

  
	
   

  	
   

  	
   Title:
  TREASURER

  



 





















 


List of Attached Schedules


 


Schedule
A: Service Level Requirements


Schedule
B: WEA’s Code of Conduct for
Third-Party Service Providers


Schedule
C: Insurance Coverage


Schedule D: Fees 





















 


Schedule A


 


Service Level Requirements


 


[*]





















 


Schedule B


 


WEA’s Code of Conduct For Third Party Service
Providers


 


1.     Company will not (without
WEA’s written consent) manufacture merchandise utilizing any properties the
copyright or trademark to which is owned or licensed exclusively by WEA or its
wholly owned or controlled affiliates other than Products in accordance with
this Agreement.


 


2.     Company shall not use child
labor in the manufacturing, packaging or distribution of Products. The term “child”
refers to a person younger than the local legal minimum age for employment or
the age for completing compulsory education, but in no case shall any child
younger than fifteen (15) years of age (or fourteen (14) years of age where
local law allows) be employed in the manufacturing, packaging or distribution
of Products.


 


3.     Company shall only employ
persons whose presence is voluntary. Company shall not use any forced or
involuntary labor, whether prison, bonded, indentured or otherwise.


 


4.     Company shall treat each
employee with dignity and respect, and shall not use corporal punishment,
threats of violence, or other forms of physical, sexual, psychological or
verbal harassment or abuse.


 


5.     Company shall not
discriminate in hiring and employment practices, including salary, benefits,
advancement, discipline, termination, or retirement on the basis of race,
religion, age, nationality, social or ethnic origin, sexual orientation,
gender, political opinion or disability.


 


6.     Company recognizes that
wages are essential to meeting employees’ basic needs. Company shall comply, at
a minimum, with all applicable wage and hour laws, including minimum wage,
overtime, maximum hours, piece rates and other elements of compensation, and
shall provide legally mandated benefits. If local laws do not provide for
overtime pay, Company shall pay at least regular wages for overtime work.
Except in extraordinary business circumstances, Company shall not require
employees to work more than the lesser of (a) forty-eight (48) hours per week
and twelve (12) hours overtime or (b) the limits on regular and overtime hours
allowed by local law, or, where local law does not limit the hours of work, the
regular work week in such country plus twelve (12) hours overtime. In addition,
except in extraordinary business circumstances, employees will be entitled to
at least one (1) day off in
every seven (7)-day period. Company agrees that, where local industry standards
are higher than applicable legal requirements, it will meet the higher
standards.


 


7.     Company shall provide
employees with a safe and healthy workplace in compliance with all applicable
laws, ensuring, at a minimum, reasonable access to potable water and sanitary
facilities, fire safety, and adequate lighting and ventilation. Company also
shall ensure that the same standards of health and safety are applied in any


 





















 


housing it provides for employees. Company shall provide WEA with all
information WEA may request about manufacturing, packaging and distribution
facilities for the Products.


 


8.     Company
shall respect the rights of employees to associate, organize and bargain
collectively in a lawful and peaceful manner, without penalty or interference,
in accordance with applicable laws.


 


9.     Company
shall comply with all applicable laws, including those pertaining to the
manufacture, pricing, sale and distribution of Products.


 


10.   Company
shall comply with all applicable environmental laws.


 


2





















 


Schedule C


 


Insurance Coverage


 


NOTE: The following insurance requirements are intended to provide
insurance coverage under this Agreement and each of the other service
agreements being entered into between the parties hereto and their affiliates
as of the date hereof. Accordingly, to the extent any such other agreements
require insurance coverage thereunder that is duplicative of the insurance
coverage provided for below, such insurance coverage need not be duplicated
under such other agreements.


 


Property Insurance, Including Extra Expense and Business Interruption:
Company at all times and at its own cost and expense shall insure WEA’s
property as defined and required in this Agreement under so-called “all risk”
policies of insurance, including but not limited to coverage for extended
perils, earthquake, windstorm, flood, and collapse; open cargo, war risk cargo
and terrorism. Company shall purchase an insurance policy that indemnifies WEA
for non-physical damage to source material, if available on a commercially
reasonable basis and is warranted by the risk profile of the Company. WEA’s
property shall consist of and not be limited to source material, finished goods
and inventory, returned stock, master recordings, digital files, DVDs, CDs and all printing and packaging material.


 


Either dedicated policies or portfolio (blanket) coverage forms may
provide the “all risk” property insurance, providing that the per occurrence
limit of insurance available with respect to the WEA property at any Company
location for property damage, business interruption, and extra expense shall
not be less than [*]
except, that coverage for California Earthquake shall be no less than [*] per occurrence and in aggregate;
and Terrorism for WEA Manufacturing Alsdorf shall be no less than [*] per occurrence and in aggregate.
Further, the limits of insurance applicable to the extended perils and the
perils of earthquake, flood and terrorism shall be an annual aggregate. The
deductible on said policies shall be the sole responsibility of Company and be
of no greater amount than is commercially reasonable for a company of its
financial standing. These policies shall be primary to any policy maintained by
or on behalf of WEA. WEA may, at any time, review the amount of insurance
required hereunder, and may, from time to time, but in no event more than
annually, require a lower or higher amount depending on the best available
estimate of the aggregate exposure to loss arising from damage to WEA’s
property under this Agreement.


 


The open cargo and war risk cargo insurance policies shall provide per
shipment limits of indemnity of no less than [*] and contain a warehouse coverage
endorsement. In the event that the [*]
limit of insurance is not adequate to fully insure any given shipment under
this Agreement, Company shall purchase additional insurance to cover the full
replacement cost of the shipment. The deductible
on these policies shall be no greater than what is commercially
reasonable for an enterprise with Company’s financial


 





















 


standing. The deductible shall be the responsibility of Company and
this coverage shall be primary to any coverage maintained by WEA.


 


All policies shall provide for a reimbursement value with respect to
WEA’s property at replacement cost for new property of like kind and quality,
with no deduction for depreciation, and shall include WEA, its partners,
officers, employees, and affiliates as loss payees under the policies as their
interest may appear, and shall provide that no act or omission on the part of
Company as the title insured shall prejudice a direct claim by the additional
insured. All property policies shall include a waiver of subrogation in favor
of WEA. Further, Company agrees to secure terms with its insurer that in the
event that Company fails to pay premium resulting in a cancellation of coverage
that WEA will be given the opportunity to maintain coverage for its insured
property under the policy; and Company will reimburse WEA within [*] of notice for the expense
incurred.


 


Public Liability Insurance:
Company shall also be required to obtain and maintain comprehensive general
liability insurance and a follow-form “umbrella liability” policy, providing
insurance against claims for bodily injury, including death, property damage,
personal and advertising injury, blanket contractual liability, broad form
property damage liability, explosion, collapse and underground hazard, and
products and completed operations, for such claims occurring or alleged to have
occurred in the course of any operations or activities contemplated by this Agreement,
in such amounts as from time to time are carried by prudent owners of
comparable operations, but in no event less than [*] per occurrence and [*]
in the annual aggregate, and covering as additional insureds all the WEA
individuals and entities for which and to the extent it is responsible under
this Agreement.


 


Workers’ Compensation and Employers’
Liability Insurance:


 


The Workers’ Compensation policy shall include the following coverage:


 


	
  1.

  	
  Coverage A

  	
  Statutory

  
	
  2.

  	
  Coverage B

  	
  Employers’ Liability

  
	
   

  
	
  Bodily Injury by Accident

  	
  [*]
  each accident

  
	
  Bodily Injury by Disease

  	
  [*]
  policy limit

  
	
  Bodily Injury by Disease

  	
  [*]
  each employee

  



 


Company shall maintain any other employment related insurance coverage
required by any jurisdiction having control over any employees or operations
used in connection with this Agreement.


 


Automobile Liability Insurance:
Company shall purchase and maintain automobile liability and follow-form “umbrella
liability” insurance for all owned, non-owned and hired vehicles with limits of
not less than [*] combined
single limit for bodily injury and property damage. This insurance coverage
must include all automotive and truck equipment used in the


 


2





















 


performance of the work under this Agreement, and must include the
loading and unloading of same.


 


Environmental Liability Insurance:
In the event Company encounters and must perform or engage a contractor to
perform work related to the remediation or abatement of “hazardous material”
which includes, without limitation, any flammable explosives, radioactive
materials, hazardous materials, hazardous waste, hazardous or toxic substances,
or related materials defined in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), the Superfund Amendments and Reauthorization Action of 1986 (Pub. L. No.
99-499, 100 stat. 1613 (1986)), the Hazardous Material Transportation Act, as
amended (49 U.S.C. Section 1801, et seq.) and in the regulations adopted and
publications promulgated pursuant thereto, or any other federal, state or local
environmental law, ordinance, rule, or regulation (or applicable law in any
jurisdiction outside the US), Company, or any contractor performing such work
on behalf of Company, shall provide “contractor’s pollution liability”
insurance, as applicable to the work to be performed, covering claims from
third party injury and property damage as a result of pollution conditions
emanating from on-site, under the site, or off the site arising out of its
operations and completed operations. Completed operations coverage shall remain
in effect for no less than [*].
Minimum liability limits, including excess liability coverage, shall be [*] each occurrence and [*] in the aggregate.


 


The automobile liability insurance must contain provisions for thirty
(30) days prior written notice of cancellation, nonrenewal, material change or
reduction of insurance sent by certified mail return receipt requested, and
waiver of subrogation in favor of WEA, additional insureds and all other such
entities, as maybe reasonably requested by WEA.


 


3





















 


Provisions Applicable to All
Policies of Insurance Required Hereunder: Policies of insurance shall be underwritten
by an insurer with an AM Best rating of no less than A- and a financial size
class of VII or better (or an equivalent rating from an alternate rating
agency), and may be an admitted or non-admitted carrier. Any insurer not meeting
these criteria must be approved in writing by WEA’s risk management department
whose authorization shall not be unreasonably
withheld. Satisfactory evidence of insurance shall be provided before
the commencement of this Agreement and shall be evidenced at each renewal by a
binder and certificate of insurance at least ten (10) days before expiration of
coverage and upon request of WEA, on an annual basis or as necessitated by a
material change in coverage or legal action. Company shall forward to WEA a
copy of all required policy forms upon request. With respect to property
located outside the U.S, any loss payable to WEA shall be adjusted and paid in
the currency of the United States of America, subject to the rate of exchange
published in The Wall Street Journal on the date of the loss. If Company elects
to maintain insurance for property located outside the US, where the policy is
denominated in a currency other than the US dollar, such policy limits and deductibles shall at all times be
sufficient to meet the US dollar denominated requirements set forth on this
Schedule C.


 


Each of WEA and Company agrees to negotiate
in good faith to attempt to resolve any disagreement which in any way affects
any insurance required to be carried hereunder. In the event that such good
faith negotiation does not result in the resolution of any such disagreement
within a fifteen (15) day period, the parties shall retain an arbitrator to
make a fair and reasonable determination as to any such disagreement (the “Insurance
Arbitrator”). The Insurance Arbitrator shall be a retired executive or attorney
with substantial experience in the insurance industry, preferably in the field
of manufacturing, shall be independent of each of WEA and Company, and shall
endeavor to provide a determination of any dispute among the parties within
thirty (30) days of being retained, but in each case, as quickly as possible.
The parties shall jointly appoint the Insurance Arbitrator and the identity of
the Insurance Arbitrator shall be satisfactory to each of the parties. The
parties shall share equally in the cost and expense of retaining the Insurance
Arbitrator. If the parties cannot agree upon a person to act as the Insurance
Arbitrator within thirty (30) days of the expiry of the fifteen (15) day
negotiation period specified in this Paragraph
6, then the Arbitrator shall be selected by the American Arbitration
Association. Any arbitration hereunder shall be conducted in conformance with
the rules established by the American Arbitration Association. Any
determination made by the Insurance Arbitrator shall be final and binding on
each of the parties. For the avoidance of doubt, Company shall at all times
including during the pendency of any dispute and until such time as such
dispute is resolved be required to continue to procure insurance policies at
its sole expense in full force and effect as required in this Agreement and as
specified herein.


 


4





















 


Schedule A


 


Service Level Requirements


 


[*]