Document:

Ex-10.9

 

2005

UNIVERSAL INTERNATIONAL MUSIC B.V.

and

UNIVERSAL MANUFACTURING & LOGISTICS GMBH 

(to be renamed [EDC GERMANY GMBH])

MANUFACTURING AND RELATED SERVICES AGREEMENT*

	*	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: [*****].

 

 

	1.0  	Overview:
	 
	   	This Manufacturing and Related Services Agreement (“Agreement”) is dated May 31, 2005 and is
between Universal International Music, B.V., a company incorporated in The Netherlands with
registered office at Gerrit van der Veenlaan 4, 3743 DN Baarn, The Netherlands and
registered number 31018439 (“Customer”) and Universal Manufacturing & Logistics GmbH, a
company incorporated in Germany with registered office at Emil Berlinerstrasse 13, 30851
Langenhagen, Germany and registered number HRB52670 (as such party may be renamed,
(“Supplier”)), referred to collectively as the parties (“Parties”) and describes the terms
and conditions concerning the purchase and supply of CDs, DVDs and related services in
Europe.
	 
	2.0  	Definitions: Definitions are set out in Schedule 2.0 of the Agreement.
	 
	3.0  	Term:

	 	3.1  	Subject to the termination provisions of this Agreement, this Agreement shall
remain in force from the Effective Date until 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 in good faith to discuss an extension to the Term.

	4.0  	Purchase Obligation:

	 	4.1  	In each year of the Term and subject 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 Manufacturing Requirements
from Supplier, excluding (i) any Manufacturing Requirements which such Universal Music
Group member is permitted to purchase from a third party under Sections 6.8, 6.10 or
9.3 of this Agreement or Section 9.3 of the International Distribution Agreement; (ii)
the quantities set forth on Schedule 4.1(ii) as long as and to the extent that they are
contractually committed to the third parties set forth on Schedule 4.1(ii) under valid
written agreements existing as of the Effective Date; (iii) the quantities to protect
service levels in France and the United Kingdom as set forth in Schedule 4.1(iii); (iv)
orders for Special Projects; (v) IMS Service orders; and (vi) any Manufacturing
Requirements of a party who becomes a Universal Music Group member by acquisition after
the Effective Date, but only to the extent and for the period that such Manufacturing
Requirements are contractually committed to a third party as of the date of signing of
the relevant acquisition agreement.
	 
	 	   	It being understood by the Parties that if any of the agreements referenced on
Schedule 4.1(ii) are terminated, the number of CDs excluded from the Manufacturing
Requirements under the provisions of Section 4.1(ii) (“Excluded CDs”) shall be
reduced by the Manufacturing Requirements applicable to such agreement.

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	 	4.2  	Customer will provide Supplier with purchase orders and input materials in
accordance with the requirements outlined in Article 6.0.
	 
	 	4.3  	Intentionally deleted.
	 
	 	4.4  	Subject to the limitations set forth in Section 4.1, Customer agrees that it
will not permit any of the Manufacturing Requirements of any member of the Universal
Music Group to be exercised by, or transferred to another entity outside of the
Universal Music Group without also assigning, in whole or in part, this Agreement so
that any transferred Manufacturing Requirements continue to be subject to this
Agreement; provided however, that if Customer sells a Label to an entity outside of the
Universal Music Group, Customer’s sole obligation shall be to ensure that Supplier has
access to the Manufacturing Requirements of such Label after such sale for the
remaining term of this Agreement as Incremental Volume under provisions parallel to
those in Section 10.6. Nothing contained in this Section is intended to limit Vivendi
Universal S.A. or any of its operations that are not part of or are acquired separately
from the Universal Music Group or, (subject to the limitations in Section 18), to limit
the sale of the equity of, or of all or substantially all of the assets of a 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 and 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 its demand for Manufacturing Services
to be requested from Supplier or minimizes the risks that such Manufacturing Services
shall not be required by Customer, including, without limitation, any obligation to
extend or renew any agreements with third parties. Supplier acknowledges that there
are no minimum requirements associated with this Agreement.
	 
	 	4.6  	Customer shall purchase, and shall cause all members of the Universal Music
Group to purchase, [*****]% of its or their respective New Formats Manufacturing
Requirements from Supplier, to the extent that Supplier supplies such services.
Supplier shall use commercially reasonable endeavors to supply all such services to
Customer. Pricing for New Formats Manufacturing Services will be determined pursuant
to Sections 10.11 and 10.12. Customer and Supplier shall agree in good faith on all
other relevant terms (e.g. specifications, turnaround times) for such New Formats
Manufacturing Requirements, as set forth in Section 10.11.

	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, including, [*****]. Once each [*****], Supplier will discuss its
Technical Plan with Customer.

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	 	5.2  	Supplier will supply the Manufacturing Services set out in Schedule 10.1 in
accordance with the requirements outlined in Article 6.0. These Manufacturing Services
will at a minimum meet the quality specifications in use by Supplier immediately prior
to the Effective Date, as outlined in Article 8.0. In the event that Customer requests
that Supplier supply any Manufacturing Services which are not set forth on Schedule
10.1 the Parties shall use the procedures set forth in Sections 10.5, 10.11, 10.12 and
10.13 to resolve the pricing of such requests.
	 
	 	5.3  	Supplier may not refuse a Customer request to provide a Manufacturing Service
not set forth on Schedule 10.1 provided (i) Customer and Supplier have followed the
procedures described in Sections 10.5, 10.11, 10.12 and 10.13 and (ii) the requested
Manufacturing Service is normally and customarily provided by manufacturers in
businesses substantially equivalent to Supplier’s business at the time of Customer’s
request.
	 
	 	5.4  	Supplier shall have the right to subcontract up to [*****]% of any particular
Manufacturing Services in each [*****] (with no rollover of any unused subcontracting
capacity) provided to Customer hereunder to the third-party manufacturers and service
providers listed on Schedule 5.4 hereto, provided, however, if the remaining [*****]%
of the Manufacturing Services requested by Customer or any member of the Universal
Music Group exceeds 100% of Supplier’s capacity to provide such Manufacturing Services,
then Supplier may subcontract in excess of [*****]% of the Manufacturing Services
provided to Customer so long as the percentage of subcontracted Manufacturing Services
provided to Customer is no more than the percentage of subcontracted services provided
to any other customer of similar services. Notwithstanding the foregoing, Supplier may
subcontract a greater percentage of Manufacturing Services for Customer than it does
for (a) other customers with respect to Spot Market Orders, or (b) other customers who
purchase less than [*****]%, on an [*****] basis, of Universal Music Group’s
Manufacturing Requirements. Supplier may propose to Customer an amended Schedule 5.4,
adding or deleting 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 add or delete previously approved subcontractors at any time
and from time to time provided that, in the case of deletions, (i) Customer’s deletion
is not unreasonable; (ii) Customer consults with Supplier prior to the deletion; (iii)
Customer provides Supplier with at least [*****] days prior written notice of the
deletion; (iv) Customer permits Supplier, notwithstanding such deletion, to continue to
use such subcontractor to fulfill any volume commitments to such subcontractor existing
as of the date of receipt of such notice of deletion, provided however, that such
volume commitments to subcontractors cannot be longer than [*****] months without
Customer’s prior approval; and (v) after the deletion, a commercially reasonable number
of approved subcontractors, and in any event no less than the lower of (A) the number
of subcontractors qualified to perform the Manufacturing Services subcontracted, or (B)
[*****], remain listed on Schedule 5.4 and any amendments thereto.

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	 	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 any Manufacturing Services (i)
involving hand packaging, refurbishing and other non-automated services; or
(ii) constituting Excess Orders.

	 	5.5  	Supplier shall maintain and employ plant security systems and procedures that
are no less effective in preventing theft, pirating, unauthorized exhibition, copying
or duplication of any of Customer’s proprietary audio and/or audio visual product or
other material delivered by Customer to Supplier or its designated subcontractors than
the security systems and procedures disclosed to Supplier in writing prior to the
Effective Date, to the extent such systems and procedures were Prevailing Practices at
the existing Supplier manufacturing facilities as of the Effective Date.
	 
	 	5.6  	In addition to its obligations under Section 27, Supplier shall comply with all
applicable legislation and formal recommendations from the IFPI which are generally
implemented by IFPI members in each case in respect of the regulation of piracy
(including application of SID codes and/or similar future systems) provided that
Supplier shall have a reasonable time to comply with any such formal recommendations
from the IFPI and to the extent such systems and procedures were Prevailing Practices
at the existing Supplier manufacturing facilities as of the Effective Date.
	 
	 	5.7  	Supplier confirms that it is aware of the BIEM-IFPI Memorandum of Understanding
of August 1996 on the enforcement of copyrights and neighboring rights and the IFPI
Good Business Practice Guidelines and confirms that it will, , and throughout the Term,
abide by such memorandum and guidelines as if it were a member of the IFPI and agrees
that it will not knowingly manufacture at its facilities sound or other recordings
which have not been authorized by the lawful owners of rights in such recordings.
Supplier also recognizes that to the extent consistent with Prevailing Practices, it
will comply with the SID Code and the ISO Code.
	 
	 	5.8  	Supplier shall at all times during the Term have a fulltime dedicated account
manager with a full time deputy, who are only responsible for the daily liaison with
Customer and who shall be available to Customer daily from 8:00 a.m. to 5:00 p.m.
(Hanover time).

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	 	5.9  	At all times during the Term, and to the extent consistent with Prevailing
Practices, Supplier will maintain a minimum installed daily capacity of the lesser of
(a) the Minimum Installed Daily Capacity of CDs and (b) Minimum Installed Daily
Capacity of CDs multiplied by a fraction, [*****].
	 
	 	5.10  	At all times during the Term, and to the extent consistent with Prevailing
Practices, Supplier will maintain a minimum installed daily capacity of the lesser of
(a) Minimum Installed Daily Capacity of DVDs and (b) Minimum Installed Daily Capacity
of DVDs multiplied by a fraction, [*****].
	 
	 	5.11  	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 Manufacturing 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 the standards which Supplier was generally
meeting in the twelve-month period prior to the Effective Date; provided, however,
that; (a) notwithstanding the foregoing, Supplier shall meet its obligation to
manufacture and ship the aggregate number of Optical Discs in all Workable Orders in
each Work Week, so long as such amount ordered does not exceed the Maximum Weekly
Orders throughout the term of this Agreement, and the provisions of section 6.11 shall
apply, and (b) prior to adopting any standards pursuant this Section 5.11 or Section
5.16 that vary from those set forth in this Agreement, Supplier shall first provide
written notice to Customer of such intention with a reasonably detailed description of
the standards Supplier intends to adopt and the basis for doing so (a “Section 5.11
Notice”); provided, further, that the Parties further acknowledge and agree that
notwithstanding the foregoing, after the [*****] months of the Term, Supplier will (i)
meet the standards as set forth herein and established hereunder, and (ii) subject to
Section 5.13, further meet industry standards as required by Section 5.12.
	 
	 	5.12  	The Parties hereto acknowledge and agree that the standards applicable to the
Manufacturing 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
manufacturing 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 the standards which are generally required by
Major Music Company buyers of services such as those provided by Supplier hereunder,
increase or improve those standards 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 5.12 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.

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	 	5.13  	[*****]
	 
	 	5.14  	[*****]
	 
	 	5.15  	[*****]
	 
	 	5.16  	Notwithstanding the provisions of Sections 5.5, 5.6, 5.7, 5.9, 5.10, 6.3.2, 6.5
and 7.5, on and after the first anniversary of the Effective Date, the standards set
forth in each such section shall apply without reference to Prevailing Practices unless
Supplier has previously challenged and reasonably proven, in the manner set forth
below, that Prevailing Practices were inconsistent with the standards otherwise set
forth in such section (such standards, collectively, the “Specified Standards”).
[*****]

	6.0  	Forecasts, Orders, Production and Delivery:

	 	6.1  	Customer will provide each [*****] a forecast for Optical Discs that will cover
a period of time of no less than [*****] months. The first four weeks of each forecast
will be divided into Work Week requirements (with each Work Week forecast being a “Work
Week Forecast”), with the remainder of the forecast divided [*****]. No Customer
forecast shall be binding as an Order, but shall represent Customer’s good faith
estimate, at the time provided, of its anticipated requirements to meet expected
demand. Customer shall provide Supplier at least once a [*****] with Customer’s own
internal forecasts of manufacturing requirements made for Customer’s internal budgeting
purposes.
	 
	 	6.2  	Customer shall place purchase orders for Manufacturing Services through
Supplier’s electronic order system or by fax (each, an “Order”); provided, however,
that Customer shall use commercially reasonable endeavors to transition all orders to
Supplier’s electronic order system as soon as possible.
	 
	 	6.3  	Customer shall provide Supplier with all necessary input materials (“Input
Materials”) for each Order, including as applicable product bills of material,
production masters (or components to create a master), packaging components (or artwork
to produce same), metadata and disc label film, and (b) be responsible for obtaining
any necessary rights, clearances or approvals under IRMA or applicable law for Supplier
to manufacture the Optical Disc on Customer’s behalf. Customer shall use commercially
reasonable endeavors to provide all Input Materials in digital/electronic format ready
for component manufacturing. Supplier shall not charge Customer for any initiation
costs (e.g. mastering) unless material rework is required and Customer approves such
rework costs in advance. Supplier will for each new master conduct a bit to bit
control and evaluation, confirming the accuracy thereof.

	 	6.3.1  	Supplier will inspect all Input Materials for defects and
identify items which do not meet Customer specification, by the latest [*****]
(Hanover time) the day following the date of receipt and promptly notify
Customer of any such defects or specification failures identified by Supplier.
In

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	 	   	relation to Orders designated by Customer as priority items and received by
Supplier [*****]. Hanover time, Supplier shall undertake such inspection on
the day of receipt of relevant Input Materials.
	 
	 	6.3.2  	Supplier will check on an Order by Order basis whether the
received printed paper parts correspond to the Order requirement for paper
parts and are of the quantity, type and quality ordered and shall make such
paper parts available for processing[*****] of receipt but shall, at Customer’s
request prioritize the checking and availability of paper parts for specific
priority products in accordance with Prevailing Practices.
	 
	 	6.3.3  	For a limited number of artists [*****] Supplier will supply
test pressings of New Release [*****] to any Universal Music Group member
office in the Territory and will only commence the commercial manufacture of
the relevant CDs after receipt of the appropriate written approvals of the test
pressing and packaging. Customer will use reasonable endeavors to minimize the
number of instances in which CD test pressings are required by its artists.
	 
	 	6.3.4  	Supplier will supply test pressings of DVDs replicated by
Supplier [*****] and will only commence the commercial manufacture of the
relevant DVDs after receipt of the appropriate approvals of the test pressing
and packaging. Customer will use reasonable endeavors to minimize the number of
instances in which DVD test pressings are required.

	 	6.4  	Orders will be considered workable (“Workable Orders”) upon:

	 	(a)  	Receipt by Supplier of Customer’s Order [*****] on a Working
Day (if received after such time, the Order will be deemed to have been
received the following Working Day), provided that such Order, when assessed
collectively with Customer’s other Orders, does not exceed the Maximum Weekly
Disc Orders unless otherwise agreed to in writing by Supplier;
	 
	 	(b)  	Receipt and approval, if required, from Customer, of all of the
Input Materials for the ordered Manufacturing Services. Supplier will use
reasonable endeavors to work with Customer to commence manufacture before all
Input Materials are available in order to reduce lead times for specific
Orders, if requested by Customer; and
	 
	 	(c)  	To the extent applicable, receipt of Customer’s written
approval of any test pressings or packaging provided to Customer under the
provisions of Sections 6.3.3 or 6.3.4.

	 	6.5  	Workable Orders for Optical Discs will be manufactured in the following lead
times to the extent consistent with Prevailing Practices:

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	 	6.5.1  	One Working Day: Maximum of [*****] selections,
designated by Customer, totaling no more than [*****] CDs and [*****] DVDs,
which can be packaged automatically with in-line stickering, shrink-wrapping
and inserts, etc. and excluding any items requiring any hand packing.
	 
	 	6.5.2  	Two Working Days: Maximum of [*****] CDs and [*****]
DVDs, designated by Customer and additional to the Optical Discs in 6.5.1,
which can be packaged automatically with in-line stickering, shrink-wrapping
and inserts, etc. and excluding any items requiring any hand packing.
	 
	 	6.5.3  	Three Working Days: Products that require hand
packing other than those considered items subject to Sections 6.5.4 or 6.5.5
below.
	 
	 	6.5.4  	Four Working Days: Products not otherwise identified
in Sections 6.5.1, 6.5.2, 6.5.3 and 6.5.5.
	 
	 	6.5.5  	Six Working Days: Products identified as “New
Releases” in the Customer system.
	 
	 	6.5.6  	Customer may designate any Workable Order for a 6.5.3 or 6.5.4
item not requiring hand packing to be manufactured within the lead times
described in 6.5.1 or 6.5.2 so long as the total orders in 6.5.1 or 6.5.2 do
not exceed the maximum limit described therein.

	 	   	Supplier will use commercially reasonable endeavors to provide faster service when
requested.
	 
	 	6.6  	Except as set forth in Section 7.2, Supplier shall deliver the Optical Discs
into the RSC as part of the pricing herein, in which case Product shall only be
considered delivered once Booked-On by the RSC and made available for picking and
dispatch. The booking-on will be made by Supplier prior to [*****], Hanover time, on
the designated due date. By way of example, for purposes of clarity, a Workable Order
received at Supplier’s Hanover plant prior to [*****] local time on a Working Day, if
designated by Customer a one-day lead-time must be booked-on to RSC.[*****] (Hanover
time) the next Working Day.
	 
	 	6.7  	An Order will be deemed fulfilled if the number of Optical Discs shipped are
within the variances set forth in Schedule 6.7, provided (i) where either (A) Supplier
has agreed in writing to ship exact quantities for certain customer shipments or for
certain Optical Discs or (B) where exact quantities are specified by Customer for
certain customer shipments or for certain Optical Discs as a result of a condition
imposed by a customer, and Supplier has been given timely notice of such requirement,
Supplier must ship the exact quantities specified, and (ii) invoices must be for the
actual number of Optical Discs shipped.
	 
	 	   	[*****]

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	 	6.8  	Without limitation of Customer’s other remedies hereunder, if Supplier is
unable or otherwise fails to fulfill any Workable Order in accordance with this
Agreement within [*****] days of the date required under this Agreement, then Customer
may secure the services of a third party or parties to fulfill the unfilled portion of
such Workable Order(s).
	 
	 	6.9  	Customer will not issue Orders for less than [*****] Optical Discs for any New
Release, or less than [*****] Optical Discs for any reorders, unless (a) an existing
(as of the Effective Date) contractual requirement between Customer and its third
party, non-Universal Music Group member customer requires otherwise, (b) the Parties
have agreed to lesser limits with respect to particular Incremental Volume, or (c) the
Order is for a non-commercial Optical Disc such as promo discs, DJ copies and copies
for Universal Music Group internal use, in which case no minimum order size applies.
	 
	 	6.10  	To the extent that any [*****] or more Customer Orders would exceed the Maximum
Weekly Disc Orders for such Work Week (to the extent any such Order exceeds such
quantities, an “Excess Order”), the Supplier shall, at its option, either accept such
Excess Order under the terms of this Agreement or offer to accept such Excess Order
with extended turnaround times, and shall provide Customer with notice of its offer
(along with the extended turnaround times required to fulfill such Excess Order) within
hours of receipt of the Excess Order; provided, however, that if Supplier does not
accept such Excess Order under the terms of this Agreement or Customer does not accept
Supplier’s offer to fulfill an Excess Order with extended turnaround times, Customer
shall be entitled to fulfill the Excess Order portion of such Order with any
third-party supplier set forth on Schedule 5.4. In the event that Supplier accepts any
such Excess Order under the provisions of this Section 6.10 (whether under the normal
turnaround times or otherwise), Supplier shall have, notwithstanding any restrictions
in Section 5.4, the right to subcontract such Excess Orders.
	 
	 	6.11  	In the event Supplier (a) fails to manufacture and Tender the aggregate number
of Optical Discs in all Workable Orders due in a given Work Week, so long as such
amount ordered does not exceed the Maximum Weekly Disc Orders or (b) fails to
manufacture and Tender any Workable Order within the lead times described in 6.5 and
6.6 (any of such orders in (a) or (b) hereafter shall be referred to collectively as
“Late Orders”), Customer shall have the right to debit its payables balance with
Supplier by the Late Order Fee for any such Late Order, which right shall be limited to
one Late Order Fee for each Late Order. Except with respect to the partial loss of
exclusivity provided for in Section 9.3.1 and the rights provided for in Sections
9.3.2, 9.3.3, 9.3.4, 9.3.5 and 9.3.6 the Late Order Fee shall be Customer’s sole
remedy, and Supplier’s sole liability, for any Late Orders. Supplier shall have the
right to dispute any Late Order Fee debit, and if such a debit is subsequently reversed
it shall bear interest as provided in Section 10.2.1.
	 
	 	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

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	 	   	member incidental to any Orders hereunder shall form any part of any agreement
between the Parties, including this Agreement, except for purchase order quantities
and descriptions, provided such items are consistent with the requirements of this
Agreement.
	 
	 	6.13  	On Customer’s request, Supplier shall use commercially reasonable endeavors to
increase its staffing levels or cause its staff, to the extent permitted by applicable
law, to work on non-Working Days or shall secure capacity at third-party facilities to
relieve restrictions on capacity affecting Supplier’s supply of Manufacturing Services.
	 
	 	6.14  	Customer shall retain, at all times, the right to prioritize any item, e.g. new
releases, singles, TV, campaign and chart Optical Discs above other categories of
Optical Discs.
	 
	 	6.15  	For [*****]% of the daily capacity allocated to Customer in accordance with
Customer’s planned demand, Customer can prioritize the Optical Discs for which it wants
“a next day” delivery (meaning available for shipment by [*****] Hanover time the
following Working Day). Should instructions under this provision conflict with the
time limits set out in Section 6.5, Supplier shall notify Customer and Customer shall
designate the Optical Discs that have priority.
	 
	 	6.16  	If Supplier cannot meet the turnaround times or the quality requirements set
out in this Agreement, Supplier shall inform Customer promptly on becoming so aware,
whereupon Customer shall have the right to prioritize different items of Optical Discs
to be manufactured by Supplier in addition to other remedies available to it.
	 
	 	6.17  	[*****]

	7.0  	Specific Related Services:
	 
	   	Supplier will provide the services to support the Manufacturing Services that are set forth
in this Article 7.0 (the “Specific Related Services”). Except as expressly provided herein,
the Specific Related Services will be performed by Supplier at no additional charge.
Specific Related Services shall be substantially similar to the current prevailing Supplier
practices immediately prior to the Effective Date, and shall include:

	 	7.1  	Supplier will evaluate Input Materials in accordance with Section 6.3 on an
Order by Order basis for defects and identify items out of Customer specification,
within a timely manner, as agreed on by the Parties. Unless otherwise specified, this
will be performed at no additional cost to Customer.
	 
	 	7.2  	At Customer’s request, Supplier will process for shipment Special Project
orders, Drop Shipment orders and NDU Orders, and will manage the provision of
third-party transport services to such locations as set forth in this Section 7.2
(“Direct Distribution”). Supplier will Tender by 2:00 pm (Hanover time) onwards on the
due date. By way of example, for purposes of clarity, a Direct Distribution Workable
Order received at Supplier’s Hanover plant prior to [*****] Hanover

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	 	   	time on a Working Day, if properly designated by Customer [*****] lead-time must be
Tendered for loading on a third-party lorry [*****] pm Hanover time the Working
Day.[*****] The management of transport services in relation to Direct Distribution
by Supplier shall be at no additional cost to the Customer.

	 	7.2.1  	Supplier shall load the Optical Discs, together with the
applicable dispatch documents, onto a lorry at Hanover or any successor
facility for dispatch to Universal Music Group member or customer warehouses,
as applicable.
	 
	 	7.2.2  	Supplier will, upon shipment of any such orders, transmit and
advance shipping notice (“ASN”) by electronic means to the applicable Universal
Music Group member, which ASN shall contain information as to the quantities
shipped, on an SKU-by-SKU basis, and the contents of the individual palettes.
	 
	 	7.2.3  	Intentionally deleted.
	 
	 	7.2.4  	Transport costs charged to Supplier in relation to such Direct
Distributions shall be charged to Customer at cost and on the same payment
terms as are provided by the transport provider to Supplier (“Transport
Charges”). Supplier will charge Customer the actual amount of any Transport
Charges it properly incurs and subsequently pays in relation to the
distribution of product. Customer will be invoiced by Supplier separately for
the Transport Charges on a country by country basis once per[*****]. In any
event payment terms for Transport Charges are such that Customer is obliged to
pay Supplier a minimum of [*****] prior to the date Supplier must meet its
payment obligations to transport providers for Transport Charges. Supplier
will supply Customer on request with copies of the invoices relating to
Transport Charges at the time of their receipt by Supplier.
	 
	 	7.2.5  	Supplier shall at Customer’s written request negotiate and
contract with transport providers in relation to the distribution of product
and will use its reasonable endeavors to ensure that the net Transport Charges
will be at the lowest levels practicable given the volume and make-up of
dispatched product and to consolidate manufacturing and distribution shipments
where practicable.
	 
	 	7.2.6  	Customer and Supplier shall consult in relation to all
agreements with transport providers for distribution of Universal Music Group
product provided that Customer has absolute discretion to determine all
providers of transport services and must approve all material terms of
agreements with transport providers and may designate an alternative transport
provider in the event of its dissatisfaction with any transport provider’s
services. Supplier is acting as Customer’s agent in connection with all
agreements, arrangements and dealings with transport providers.

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	 	7.3  	Supplier will provide services to support Customer’s promotional products
requirements commonly referred to as DJ Promo. Services include:

	 	7.3.1  	Promotional manufacturing orders, processed through the normal
manufacturing services function. Manufacturing lead times for DJ Promo orders
will [*****] Days. The aforementioned notwithstanding, Customer may designate
[*****] DJ Promo orders per [*****] Day to be manufactured in [*****] Days.
	 
	 	7.3.2  	Intentionally deleted

	 	7.4  	Supplier will at no additional cost to Customer provide and maintain certain
reports and electronic data feeds to the extent available to Customer as of the
Effective Date, including but not limited to:
	 
	 	   	[*****]
	 
	 	   	Supplier will supply Customer with on-line access to such information as Customer
shall reasonably require to (a) [*****]. Supplier will provide such additional
reports and electronic data 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 components and parts (including paper parts) in
Supplier’s possession and Supplier specifically agrees consistent with Prevailing
Practice to:

	 	7.5.1  	Store, at [*****] additional charge (except as set forth in
Schedule 10.1) and in accordance with the terms of this Agreement, all
manufacturing and packaging components supplied to it by Customer or procured
by Supplier on behalf of Customer (“Manufacturing Components”). Customer will
review all stocks of Manufacturing Components at least [*****] per year, and
will propose to Supplier Customer’s desired disposition (e.g., scrapping) of
all such materials which have not been the subject of Orders in the last
[*****] months, and shall work with Supplier in good faith to resolve any
storage issues faced by Supplier if not resolved pursuant to such disposition
instructions. All Manufacturing Components held by Supplier shall remain the
property of Customer.
	 
	 	7.5.2  	Maintain and provide to Customer on hand inventory balance
information and to employ systems and procedures such that, at any given
time[*****]% of said balances per component are within [*****]% of the actual
amount on hand.
	 
	 	7.5.3  	Carry out a [*****] cycle a physical inventory of all
Manufacturing Components and all other materials owned by Customer in the
custody of

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	 	   	Supplier such that each storage location will be checked [*****]. Supplier
will provide a monthly inventory report to Customer. Customer may amend the
stock control procedure to reflect the express requirements of its auditors
from time to time, or as reasonably required to address any failure to meet
the standards set forth in Section 7.5.2.
	 
	 	7.5.4  	Permit Customer to carry out an audit of all Manufacturing
Components and all other materials owned by Customer in the custody of Supplier
at any time at Customer’s cost, provided that Customer (i) gives Supplier at
least two weeks advance notice; (ii) conducts the audit during normal business
hours; (iii) conducts any such audit without interference to Supplier’s
business operations; and (iv) conducts such an audit no more than once per
year. Supplier shall supply all documentation, logistical and administrative
support reasonably requested by Customer for such audit.
	 
	 	7.5.5  	Be responsible for, and at Customer’s request pay Customer its
cost for, any Lost Inventory of Customer-owned printed or other components in
its possession exceeding [*****]% per SKU of the amount of such inventory
delivered to Supplier.

	 	   	Notwithstanding the foregoing, for certain non-standard, high cost packaging items
(by way of example, for purposes of clarity but without limitation, non-standard,
high cost packaging items include multi-disc boxes and multi-disc booklets)
specified from time to time by Customer, Supplier shall pay for Lost Inventory
exceeding [*****]% per SKU of the amount of such inventory delivered to Supplier.

	 	7.5.6  	At least twice per Working Day, provide Customer
electronically (a) on hand inventory balances by SKU and (b) receipts by SKU
from Customer’s vendors.
	 
	 	7.5.7  	Upon receipt of written notice from Customer of all deletions
from Customer’s catalogue, scrap, dispose of or return production parts for
such deleted items as instructed, [*****]charge and within [*****] Working Days
of such notice, and Supplier shall notify Customer promptly that this has
occurred.
	 
	 	7.5.8  	Retrieve from stock and prepare for shipment any Manufacturing
Components required in connection with dispatches under Section 7.2, orders
placed under Section 7.8, orders placed under Section 25, or for supplies to
Customer’s customers as reasonably requested and to facilitate the provision of
Manufacturing Services by third parties where this is permitted under this
Agreement.

	 	7.6  	Supplier Ordering Components On Behalf of Customer

	 	7.6.1  	Supplier will order and receive components (other than Other
Existing Formats, which are subject instead to Section 7.7) (that will be owned
by

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	 	   	Customer), as requested by Customer, including printed components and
point-of-sale materials (any such components, “Components”), and pay the
applicable component vendors, following the order quantity and order timing
procedures as disclosed to the Supplier in writing prior to the Effective
Date . The agreements, if any, between the component vendors and the
Customer shall be utilized by the Supplier in placing such orders, and
Supplier agrees to comply with the payment and other terms applicable to the
ordering of product under such vendor agreements; provided that (a) Supplier
shall be Customer’s agent for the purposes of placing orders under such
agreements, (b) no modifications, renegotiations or amendments of such
agreements will be made without consultation with Supplier, and (c) such
agreements do not require payment to the third-party vendor prior to [*****]
days after shipment.
	 
	 	7.6.2  	Supplier will invoice Customer, within [*****]days following
the end of each, [*****] for the cost Supplier has paid (or will pay) for all
Components the Supplier purchased and received on behalf of Customer for
the[*****]. Supplier’s invoice (a) will include, as backup documentation,
copies of the applicable vendor invoices (or detailed EDI invoicing files), the
total of which shall agree with the Supplier’s invoice total, (b) will be
calculated in accordance with the Components Procurement Matrix provided in
Schedule 7.6.2, and (c) will take into account any prior invoices for such
materials. Customer shall pay Supplier a minimum of [*****] prior to the date
Supplier must meet its payment obligations to the applicable component vendors.
All such Components shall be owned by the Customer.
	 
	 	7.6.3  	Supplier will for the period Customer requests and in
accordance with Customer instructions add Customer-owned Component prices to
the prices set forth on Schedule 10.1, and reflect them in its invoices of
Manufactured Services to Customer, which Customer will pay in accordance with
the other terms of this Agreement.
	 
	 	7.6.4  	[*****], Supplier will calculate the sum of the Euro amounts
of Components included in its invoices of Manufacturing Services to Customer
for the [*****] and, to the extent not offset as set forth below, issue a
credit memo or other payment to Customer for the difference between the sum of
the calculated amount and the amount invoiced under Section 7.6.2. Customer
may offset the credit referenced in this Section 7.6.4 against the invoices
referenced under Section 7.6.3, provided both the invoice and the credit are
due on the same date.
	 
	 	7.6.5  	Supplier shall conform to all performance standards and
policies disclosed to Supplier pursuant to Section 7.6.1 with respect to the
ordering of Components on the behalf of Customer. If Supplier fails to meet
any such performance standards or policies, Supplier shall be responsible for
all of Customer’s direct costs attributable to such failure. [*****]

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	 	7.6.6  	Customer may, for any reasonable business purpose of Customer,
at any time elect to order some or all Components and/or pay Component vendors
directly. In the event Customer elects to order Components or pay Component
vendors directly under the foregoing provisions, (a) Supplier will cease
including the cost of Customer-supplied Components in its invoices of finished
product to Customer as of the effective date of such change, (b) Customer
shall provide Supplier with [*****] days written notice of its intention to
implement such change, (c) Customer shall reimburse Supplier for [*****] and
(d) Supplier and Customer shall agree to an equitable adjustment in the prices
on Schedule 10.1 to reflect the corresponding decrease in Supplier’s ongoing
costs. Supplier shall consult with Customer prior to incurring any costs
referred to in (c) above and shall use commercially reasonable efforts to
minimize any resulting cost to the Customer under this Section 7.6.6.
	 
	 	7.6.7  	Supplier will indemnify, defend and hold harmless the
Customer, and its Affiliates, its and their shareholders, officers, employees
and agents 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 such parties as
a result of Supplier’s failure to pay any amounts owed by Supplier to any
printed component vendor under this Section 7.6 when such amounts are due
(provided Customer has paid such amounts to Supplier).

	 	7.7  	Supplier Ordering Other Existing Formats On Behalf of Customer

	 	7.7.1  	Supplier will order and receive, at Customer’s request and in
accordance with Customer’s instructions, on a country-by-country basis, Other
Existing Formats (that will be owned by Customer) and pay the suppliers of such
formats. The agreements, if any, between the Other Existing Formats suppliers
and the Customer shall be utilized by the Supplier in placing such orders, and
Supplier agrees to comply with the payment and other terms applicable to the
ordering of product under such agreements; provided that (a) Supplier shall be
Customer’s agent for the purposes of placing orders under such agreements, (b)
no modifications, renegotiations or amendments of such agreements will be made
without Supplier’s cooperation, and (c) such agreements do not require payment
to the third-party supplier prior to [*****] after shipment. Supplier will
include the third-party charges for all such Other Existing Formats in its
invoices to Customer, and Customer will bear all such charges. Customer is
obliged to pay Supplier a minimum of [*****] prior to the date Supplier must
meet its payment obligations to Other Existing Format vendors. Supplier’s
invoice will include, as backup documentation, copies of the applicable vendor
invoices (or detailed EDI invoicing files), the total of which shall agree with
the Supplier’s invoice total.

-15-

 

	 	7.7.2  	Customer may, for any reasonable business purpose of Customer,
at any time elect to order some or all Other Existing Formats and/or pay such
Other Existing Formats vendors directly. In the event Customer elects to order
and receive Other Existing Formats and pay such vendors directly under the
foregoing provisions, (a) Customer shall provide Supplier with [*****] days
written notice of its intention to implement this change, (b) Customer shall
reimburse Supplier [*****] and (c) Supplier and Customer shall agree to an
equitable adjustment in the prices on Schedule 10.1 to reflect the
corresponding decrease in Supplier’s ongoing costs. Supplier shall consult
with Customer prior to incurring any costs referred to in (c) above and shall
use commercially reasonable efforts to minimize any resulting cost to the
Customer under this Section 7.7.2.
	 
	 	7.7.3  	Supplier will indemnify, defend and hold harmless the
Customer, and its Affiliates, its and their shareholders, officers, employees
and agents 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 such parties as
a result of Supplier’s failure to pay any amounts owed by Supplier to any
vendor under this Section 7.7 when such amounts are due (provided Customer has
paid such amounts to Supplier).
	 
	 	7.7.4  	All such Other Existing Formats purchased for Customer
hereunder shall be owned by the Customer.

	 	7.8  	Supplier shall schedule orders to [*****], in connection with the volumes
committed to such parties as set out in Schedule 4.1(ii), in accordance with
instructions provided by Customer as to the quantities and periods specified by
Customer.
	 
	 	7.9  	Supplier shall, provide the following IT services:

	 	(i)  	additions and changes to data, reports, interfaces and systems
if and when Customer requests such changes, at no additional cost to Customer
provided the scope and quantity of such changes are within the scope and
quantity of changes implemented by Supplier during calendar year 2003 or if
provided to any other customer of Supplier provided Customer pays all
incremental costs of implementation; and
	 
	 	(ii)  	plan, design and implement web enabled systems access for
Customer and its Affiliates’ employees to Supplier’s systems to the extent
related to Customer and its Affiliates’ Products and the services provided by
Supplier to Customer under this Agreement.

	 	If Customer’s requirements related to the clauses above would require staffing
beyond that available to Supplier at the Effective Date or additional costs or
expense, Supplier shall be entitled to charge Customer for such service or

-16-

 

	 	   	additional costs or expense, provided Supplier first notifies Customer of the
proposed charge for such service. If Supplier proposes a charge for a service under
the clauses above, Customer can elect to order such services or decline such
services.
	 
	 	7.10  	To the extent that any Customer changes to any Customer computer systems would
cause Supplier to incur any significant out-of-pocket 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, this Section 7.10, Supplier shall notify
Customer of such out-of-pocket costs and the reasons therefor, and Customer shall
within a reasonable time period approve such costs or work with Supplier to reduce or
eliminate such costs. Customer shall reimburse Supplier for all such costs chargeable
to Customer pursuant to this Section 7.10.

	8.0  	Product Quality:

	 	8.1  	All Optical Discs shall conform to the Input Material for such Optical Discs
provided by Customer.
	 
	 	8.2  	The quality of the Optical Discs manufactured by Supplier, and the Specified
Related Services provided by Supplier to Customer shall (a) conform to the standards
set forth in the relevant industry technology licensor manuals (e.g., CD manufacturing
levels will be sufficient to meet the Sony-Philips Red Book CD specifications, also
known as the Sony Philips Optical Disc Specifications), and (b) conform to the AQL
standards set forth in Schedule 8.2.1 for CDs and 8.2.2. for DVDs.
	 
	 	8.3  	Supplier will perform such inspections as are called for on Schedule 8.2.1 and
8.2.2 and shall certify and send the written results of all such inspections to
Customer for the previous calendar month within seven Working Days of the end of such
month.
	 
	 	8.4  	For the purposes of this Agreement, an “Epidemic Multiple Defectives Event” (or
“EMDE”) shall be deemed to have occurred if either (a) at least[*****]% or (b) more
than [*****] of the Optical Discs of any given Order(s) exhibit the same type of
defect, in which said defect renders the Optical Discs not merchantable or fit for
their intended purpose (such defective Optical Discs, “Epidemic Multiple Defectives”)
and (i) senior management of Supplier actually learns of such defect, or (ii) Customer
notifies Supplier in writing providing reasonable particulars of such defect. In the
event of an EMDE, Customer shall have the right, as its sole and exclusive remedy, to
elect either a refund or replacement remedy. In the event Customer elects a
replacement remedy, Supplier shall promptly deliver a non-defective replacement of the
defective Optical Discs to the applicable distributor, retailer and/or other customer who purchased any such defective

-17-

 

	 	   	copies,
at Supplier’s sole cost and expense. In the event Customer elects a refund remedy,
Supplier shall refund to Customer the price paid for the finished product containing
such defective Optical Discs. In the event of any EMDE, Customer agrees to use
reasonable endeavors to determine the extent of the problem among its customers, to
assist Supplier in resolving any problems with Epidemic Multiple Defectives in order
that Supplier may provide replacement Optical Discs promptly and to assist in
Customer’s mitigation of any negative effects on Customer.
	 
	 	8.5  	[*****]
	 
	 	8.6  	Intentionally deleted.

	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 Section 6.11 or
Section 10.7 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.

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	 	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 five-year
period, Customer shall have the right, as Supplier’s sole liability and as
Customer’s sole remedy for such Key Failure(s), to either (a) source up to
[*****]% of the Manufacturing Services with any other entity or entities for a
period of twelve months, or (b) receive from Supplier liquidated damages in the
amount [*****] payable in the form of a monthly credit towards Customer’s
accounts payable to Supplier in the amount of [*****].
	 
	 	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 Supplier’s sole liability and as
Customer’s sole remedy for such Key Failure(s), to either (a) source up to
[*****]% of the Manufacturing Services with any other entity or entities for a
period [*****] months, or for an additional [*****] 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 [*****].
	 
	 	9.3.3  	Notwithstanding Section 9.3.2, if two Key Failures under
“Production” or “Delivery” on Schedule 9.1 with respect to which Supplier has
received or delivered a Failure Notice occur between September 15th and
December 31st of the same calendar year, whether cured or not, Customer shall
have the right, as Supplier’s sole liability and as Customer’s sole remedy for
such Key Failure(s), either (a) to source up to [*****]% of the Manufacturing
Services with any other entity or entities for a period of [*****], or for an
additional 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 [*****].
	 
	 	9.3.4  	If three Key Failures of the same category (e.g., EMDE) 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 Supplier’s sole liability and as Customer’s sole remedy for
such Key Failure(s), to either (a) source up to [*****]% of the Manufacturing
Services with any other entity or entities for the remainder of the Term, or
(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 [*****].

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	 	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 Supplier’s sole
liability and as Customer’s sole remedy for such Key Failure(s), either (a) to
source up to [*****]% of the Manufacturing Services with any other entity or
entities for a period of twelve months, or for an additional [*****] 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
[*****].
	 
	 	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 Supplier’s sole
liability and as Customer’s sole remedy for such Key Failure(s), to either (a)
source up to [*****]% of the Manufacturing Services with any other entity or
entities for the remainder of the Term, or (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 [*****].
	 
	 	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 “Quality” or “Multiple Defective” 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
under the provisions of any sub-section of Section 9.3 shall be exercised, if
at all, in writing and within [*****] 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 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 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

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	 	   	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 pursuant to
Sections 9.3.1 through 9.3.6, such exclusive volume shall automatically
revert to Supplier. If Customer elects to source [*****]% of the
Manufacturing Services with another entity or entities for the remainder of
the Term under Section 9.3.4 or Section 9.3.6, Supplier shall be relieved of
its capacity and similar commitments under this Agreement for the remainder
of the Term.
	 
	 	9.3.10  	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; (b) the failure of Customer to timely provide any
required consents, approvals, instructions or assistance; or (c) any Customer
Affiliate’s breach of, or noncompliance with either the Transition Services
Agreement, the Share Purchase Agreement, the International Distribution
Agreement or the Lease Agreement.

	10.0  	Pricing, Rebate:

	 	10.1  	Schedule 10.1 contains the prices (excluding the prices associated with the
items set forth in Section 10.3) for Manufacturing Services and related configurations.
Subject to Section 10.9, these prices are fixed through the term of the Agreement,
with the exception(s) described in this Agreement, including without limitation
pursuant to Sections 10.3, 10.5, 10.6, 10.12 and 10.13. 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 any charges in writing.
	 
	 	10.2  	Supplier shall invoice Customer [*****]. Such invoices shall reflect the
prices contemplated by Sections 10.1 and 10.3, or as may be agreed upon by the Parties
pursuant to this Agreement. Each Supplier invoice shall identify on a country by
country basis all modular charges from Schedule 10.1 and any additional charges agreed
by the Parties which are applied to the Manufacturing Services. All prices stated in
this Agreement are exclusive of any applicable VAT or sales tax which shall be stated
separately on each invoice at the applicable rate and shall be payable by Customer to
Supplier at the same time as the invoice is payable. Invoices will be for the actual
number of Optical Discs shipped (if less than the number of Optical Discs comprised in
an Order). All prices and other amounts hereunder are to be charged and paid in Euros
unless expressly stated otherwise herein or as otherwise agreed in writing by the
Parties.

	 	10.2.1  	Customer shall pay interest on any amounts (excluding those disputed in good
faith, including without limitation, where the late payment is the

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	 	   	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.
	 
	 	10.2.2  	If Customer becomes delinquent in the payment of any amount (excluding
amounts disputed in good faith) in excess of, [*****] Supplier shall have 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 under this Agreement and will not entitle Customer to
terminate this Agreement or to any other damages or remedy.
	 
	 	10.2.3  	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.

	 	10.3  	Supplier shall issue a [*****] to Customer depending on changes in Supplier’s
costs for polycarbonate, polystyrene and Packaging Components via the following
formulas:

	 	10.3.1  	Polycarbonate adjustment (raw material for optical disc) for CDs. At the end
of each [*****] following the Effective Date, Supplier will calculate: (i) the
Polycarbonate Reference Price minus (ii) Supplier’s daily average net price per
kilogram for polycarbonate for the calendar quarter (or portion thereof) with
the remainder (iii) multiplied by the number of CDs manufactured by Supplier
and shipped to the Customer in the calendar quarter (or portion thereof) which
are Cost-Based Optical Discs multiplied by the gross (input) polycarbonate
content per CD of [*****]. If this calculation produces a negative result,
that Euro amount will be charged to Customer, subject to Sections 10.3.7 –
10.3.10 below. If this calculation produces a positive result, that Euro
amount will be credited to Customer, subject to Sections 10.3.7 — 10.3.10
below. The initial Polycarbonate Reference Price shall be [*****] per
kilogram. The Polycarbonate Reference Price shall be reset at the end of each
of Customer’s [*****] to equal the average price paid per kilogram by Supplier
for polycarbonate during the previous [*****] month period, provided that the
change in the Polycarbonate Reference Price from the previous Customer fiscal
year is greater than plus or minus [*****]%. Upon each such readjustment of
the

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	 	   	Polycarbonate Reference Price, the prices in Schedule 10.1 shall be updated
accordingly.
	 
	 	10.3.2  	Intentionally deleted.
	 
	 	10.3.3  	Polycarbonate adjustment (raw material for optical disc) resulting from disc
recycling activity. At the end of each [*****] following the Effective Date,
Supplier will calculate: (i) the number of CDs supplied by Customer to Supplier
for recycling multiplied by (ii) the net recycled material output from the
recycling process per CD of [*****] multiplied by (iii) Supplier’s daily
average net price per kilogram for polycarbonate for the calendar quarter (or
portion thereof) just ended reduced by the departmental cost of the recycling
activity of [*****] kilogram. This Euro amount will be credited to Customer,
subject to Sections 10.3.7 – 10.3.10 below. This procedure shall remain in
place as long as Supplier retains the polycarbonate recycling operation.
	 
	 	10.3.4  	Adjustment in respect of “bought-in” polystyrene packaging. At the end of
each [*****] following the Effective Date, for each Packaging Component,
Supplier will calculate: (i) the Packaging Components Reference Price minus
(ii) Supplier’s daily average net price for the Packaging Component for the
calendar quarter, with the remainder (iii) multiplied by the number of finished
goods containing the Packaging Component manufactured by the Supplier and
shipped to Customer for such quarter (or portion thereof). If this calculation
produces a negative result, that Euro amount will be charged to Customer,
subject to Sections 10.3.7 — 10.3.10. If this calculation produces a positive
result, that Euro amount will be credited to Customer subject to Sections
10.3.7 — 10.3.10. The initial Packaging Components Reference Prices shall be
as set forth in Schedule 10.3.4. The Packaging Components Reference Price
shall be reset at the end of each of Customer’s [*****] to equal the average
price paid by Supplier for each Packaging Component during the previous [*****]
month period, provided that the change in the Packaging Components Reference
Price from the previous Customer fiscal year is greater than plus or minus
[*****]%. Upon each such readjustment of the Packaging Components Reference
Prices, the prices in Schedule 10.1 shall be updated accordingly.
	 
	 	10.3.5  	Adjustment in respect of polystyrene packaging molded on site. At the end of
each [*****] following the Effective Date, Supplier will calculate: (i) the
Polystyrene Reference Price minus (ii) Supplier’s daily average net price per
kilogram of Polystyrene for the calendar quarter, with the remainder (iii)
multiplied by the number of Supplier injection-molded products shipped to
Customer multiplied by (iv) the corresponding gross polystyrene content thereof
as set forth below. If this calculation produces a negative result, that Euro
amount will be charged to Customer, subject to Sections 10.3.7 - 10.3.10. If
this calculation produces a positive result,

-23-

 

	 	   	that Euro amount will be credited to Customer subject to Section 10.3.7 -
10.3.10. The initial Polystyrene Reference Price shall be Euro [*****].
The Polystyrene Reference Price shall be reset at the end of each of
Customer’s [*****] to equal the average price paid per kilogram by Supplier
for polystyrene during the previous [*****]-month period, provided that the
change in the Polystyrene Reference Price from the previous Customer fiscal
year is greater than plus or minus [*****]%. Upon each such readjustment of
the Polystyrene Reference Price, the prices in Schedule 10.1 shall be
updated accordingly. For the purposes of this Section 10.3.5, the gross
polystyrene content of the injected-molded products is: for a three-piece
box, [*****] per finished product; for a two-piece box, [*****] per finished
product; and for a multipack [*****] without trays, and [*****] with trays,
per finished product.
	 
	 	10.3.6  	[*****]
	 
	 	10.3.7  	Supplier agrees and understands that the terminology contained in Sections
10.3.1 through 10.3.5, “... Supplier’s daily average net price...” includes all
discounts, rebates and any and all other economic related considerations
Supplier receives from its suppliers of polycarbonate, polystyrene and
Packaging Components.
	 
	 	10.3.8  	Supplier will perform the calculations described in Sections 10.3.1 through
10.3.6 within [*****] Working Days following the end of each calendar [*****]
and submit the results to Customer, along with data and records that support
the calculation of Supplier’s daily average net price. Customer will have the
right to request additional data and records and/or audit Supplier’s financial
records concerning Supplier’s daily average net price.
	 
	 	10.3.9  	In the event Customer agrees with Supplier’s calculation of the charges or
credits for changes in Supplier’s prices for Packaging Components, polystyrene
and polycarbonate, Customer will notify Supplier to issue debit or credit
memo’s within [*****] Working Days of receipt of the data and calculations
described in Section 10.3.8. In the event Customer does not agree with
Supplier’s calculation of the charges or credits for changes in Supplier’s
prices for Packaging Components, polystyrene and polycarbonate, Customer will
promptly schedule a meeting with Supplier to discuss approaches to resolve the
disagreement.
	 
	 	10.3.10  	Should New Formats be priced as Cost-Based Optical Discs the Parties shall
adopt the methodology of 10.3.1 to 10.3.6 above in adjusting the raw material
charges to be paid by Customer in respect of either the Optical Disc and/or the
non-paper packaging applied to it.

	 	10.4  	All prices will be Free Carrier (FCA) International Chamber of Commerce (ICC)
International Commercial Terms (INCOTERMS 2000) from Supplier’s

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	 	   	manufacturing location. Subject to the terms and conditions of the International
Distribution Agreement, (a) Customer will have the right to select all carriers and
will pay all associated freight costs, and (b) Supplier will coordinate with such
carriers and make appropriate arrangements for pick-ups on Customer’s account.
However, if sourced from a manufacturing location that results in a higher
transportation cost than if produced at the Hanover location, Supplier will issue a
credit to Customer equal to the additional costs to deliver the product to the RSC.
	 
	 	10.5  	Subject to Section 10.10, in the event a CD configuration which is not listed
on Schedule 10.1 (except for New Format configurations) 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 Manufacturing Services.

	 	10.5.1  	Customer will request the Manufacturing Service from Supplier in writing.
	 
	 	10.5.2  	Supplier will propose a price equal to [*****].
	 
	 	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 Manufacturing
Service 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 confidential information
of Supplier.
	 
	 	10.5.6  	Following the completion of Customer’s audit, the 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 configuration or
service not contained in Schedule 10.1, which price shall be calculated using
the formula set forth in Section 10.5.2. Once such price is determined, such
Manufacturing Service 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 Optical Disc
manufacturing volumes other than for Universal Music Group Manufacturing Requirements
for distribution in one or more European Countries, including volumes (a)
then-currently committed to other manufacturers as described in Section 4.1(ii); (b)
from non-Universal Music Group companies or labels with which it has no written
agreements as of the Effective Date; (c) for Special Project orders for any SKUs in
volumes forecast to be greater than [*****] units per SKU; and (d) Manufacturing
Requirements of a party who becomes a Universal Music Group member by acquisition after
the Effective Date to the extent and for

-25-

 

	 	   	the period that such Manufacturing Requirements are contractually committed to a
third party as of the date of signing of the relevant acquisition agreement. All
and any such Optical Disc manufacturing, to the extent for distribution in one or
more European Countries (as of the Effective Date), will be hereafter referred to as
“Incremental Volumes”. For purposes of clarity, examples of such Incremental
Volumes would include, but not be limited to, the CD volumes committed to third
parties as described in Section 4.1(ii) (but only to the extent that some or all of
such volume becomes available to other third-party manufacturers under the terms of
any such third-party agreement and during the time that such agreement remains in
effect) or Optical Discs manufactured pursuant to a future P&D Agreement.
	 
	 	   	For the purposes of clarity, upon the termination of any of the supply agreements
with the third parties mentioned above and described in Section 4.1(ii), the
previously Excluded CD volumes shall become part of the Universal Music Group’s
Manufacturing Requirements and are not Incremental Volumes.
	 
	 	   	On each occasion on which Customer gains access to any Incremental Volumes which
could be placed under this Agreement, Customer shall notify Supplier of the volumes,
terms (including those which may be country or deal-specific, e.g., a requirement
for direct distribution, landed price and landed lead times but other than pricing),
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”). 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. Notwithstanding the foregoing, Supplier
must advise Customer within [*****] Working Days of its interest in supplying
Incremental Volume for Special Projects.
	 
	 	   	If Supplier’s Incremental Volume Proposal is [*****] to other proposals Customer
receives (which must be based on the same terms and conditions set forth in the
Incremental Volume Offer) and is otherwise substantially the equivalent of any other
proposal, [*****] of all proposals, Customer shall order the Incremental Volume from
Supplier on the terms and conditions set forth in the Supplier Incremental Volume
Proposal and in this Agreement (provided in the event of a conflict, the terms of
the Supplier Incremental Volume Proposal will prevail). If Customer does not have
an obligation to order the Incremental Volume from Supplier under the foregoing
provision, then notwithstanding

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	 	   	Section 4.1, Customer may purchase such Incremental Volume from a third party;
provided, however, [*****]
	 
	 	10.7  	Without limiting Supplier’s obligations to meet the standards set forth in this
Agreement, within [*****] days of the end of each,[*****] Supplier will provide
Customer a credit equal [*****]% of the total amount of all invoices paid in such
quarter as compensation for defectives. In the event either of the Parties can
reasonably demonstrate that the long term, average defective rate is materially
different than [*****] of manufactured Optical Discs, the Parties agree to conduct good
faith negotiations to establish a different percentage as a basis to compensate
Customer for defective manufacturing. The foregoing remedy shall be Supplier’s sole
liability for defective units, and Customer’s sole remedy, except as set forth in
Section 8.4 and Article 9.

	 	10.8.1  	Supplier shall pay to Customer in the form of a rebate to be used against
all then-outstanding invoices of Supplier to Customer, and to be paid in cash
to the extent in excess of all then outstanding invoices.

	 	 	 
	December 15, 2005

	 	Euros 2,000,000
	May 31, 2006

	 	Euros 2,600,000
	May 31, 2007

	 	Euros 4,600,000
	May 31, 2008

	 	Euros 4,600,000

	 	10.8.2  	In each year of the Term on December 15 Supplier shall pay to Customer the
amount of 325,000 Euros in the form of a rebate to be used against all
then-outstanding invoices of Supplier to Customer, and to be paid in cash to
the extent in excess of all then outstanding invoices.

	 	10.9  	Either Party shall have the right to dispute the accuracy of the Aggregate 2003
Manufacturing Costs, as a whole, or the Allocated 2003 Manufacturing 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 Manufacturing Costs or any Allocated 2003 Manufacturing Costs in
writing [*****] of the Effective Date and request an adjustment of the
Aggregate 2003 Manufacturing Costs and/or any Allocated Manufacturing Costs,
either up or down, as required to accurately reflect the Euro amount of such
error(s) or omission(s) (any such requested adjustments, the “Requested Cost
Adjustment”). A Requested Cost Adjustment may only be requested to the extent
it relates to a variance in costs at the Supplier Hanover facility in 2003.
	 
	 	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

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	 	   	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 Manufacturing Costs and the Allocated 2003 Manufacturing Costs shall be
modified as follows:

	 	10.9.2.1  	If the dispute involves an error in the allocation of the Allocated
2003 Manufacturing 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 a 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 cost items are contained such that, had the adjusted costs been
used to calculate the Aggregate 2003 Manufacturing Costs, based on the
2003 Product Mix, the Aggregate 2003 Manufacturing Costs would not have
changed.
	 
	 	10.9.2.2  	If the dispute involves increasing or adding a cost item or amount
to the Aggregate 2003 Manufacturing Costs, the Final Cost Adjustment
for such cost item shall be added to the Aggregate 2003 Manufacturing
Costs, and to the relevant line items of the Allocated 2003
Manufacturing Costs such that, had the adjusted costs been used to
calculate the Aggregate 2003 Manufacturing Costs, based on the 2003
Product Mix, the Aggregate 2003 Manufacturing 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 Manufacturing Costs, the Final Cost Adjustment
for such cost item shall be subtracted from the Aggregate 2003
Manufacturing Costs, and from the relevant line items of the Allocated
2003 Manufacturing Costs such that, had the adjusted costs been used to
calculate the Aggregate 2003 Manufacturing Costs, based on the 2003
Product Mix, the Aggregate 2003 Manufacturing 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
Manufacturing Costs as described in Section 10.9.2 above, the Parties shall
adjust the prices (for Optical Discs, other than the [*****] per Optical Discs
margin reflected therein) shown on Schedule 10.1 to take

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	 	   	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, Section 14.0 procedures shall not be used and (A) the arbitrator shall
be a single person who shall be a CPA (or equivalent) based in London,
England and then in practice at a recognized public 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.
Once the prices for all configurations 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.

	 	   	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  	Notwithstanding any other provision of this Article 10, in the event Supplier
uses third parties to provide for certain parts of Manufacturing Services, particularly
packaging or assembly services for non-standard configurations, that are not identified
and priced in Section 10.1, Supplier’s price to Customer for such parts of the
Manufacturing Services shall be equal to Supplier’s price from the third party.
	 
	 	10.11  	The initial prices for DVD configurations shall be as set forth in Schedule
10.1. Customer and Supplier will follow the procedure described in this Section 10.11
to reestablish the pricing for DVD configurations, and to establish and re-establish
the pricing for New Format configurations (collectively “DVD and New Format
Configuration Pricing”), from time to time.

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	 	10.11.1  	Customer may, at any time other than between September 15 and December 31 of
any year, notify Supplier that it wishes to establish a market price for a new
New Format configuration. In addition, Customer shall on [*****] anniversary
of the Effective Date or at any time other than between September 15 and
December 31 of any other year, at least once per [*****] and no more often than
[*****] period, notify Supplier that it wishes to re-establish a market price
for all current DVD and New Format configurations; provided, however, that
Customer may reestablish a market price for New Format configurations every
[*****] in the [*****] years after the establishment of an initial market price
therefor. Such notices shall be referred to as a “Market Pricing Notice”. At
the time of delivery of such Market Pricing Notice, or within [*****] days
thereof, Customer shall submit to Supplier, in writing, the Market Pricing
Information, and will make available to Customer (and to any arbitrator
selected under Section 10.11.6) copies of the quotations upon which such Market
Pricing Information is based.
	 
	 	10.11.2  	“Market Pricing Information” means the individual prices for each type of
DVD or New Format configuration, or other relevant Manufacturing Service,
obtained within [*****] days of the Market Pricing Notice from [*****]
identified Qualified Manufacturers, based on an annual volume of at least
[*****]% of Customer’s DVD and New Formats volume in the [*****]-month period
prior to the Market Pricing Notice and on order lot sizes and lead times
similar to Customer’s, unless the lower of such prices is less than [*****]
multiplied by the higher of such prices, in which case the Market Pricing
Information must include three prices for each DVD or New Format configuration,
or other relevant Manufacturing Service, obtained within [*****] days of the
Market Pricing Notice from three Qualified Manufacturers, such prices based on
an annual volume of least [*****]% of Customer’s DVD and New Formats volume in
the prior [*****]-month period and on order lot sizes and lead times similar to
Customer’s.
	 
	 	10.11.3  	Intentionally deleted.
	 
	 	10.11.4  	The Supplier shall have [*****] business days after receipt of the Market
Pricing Information to object to such Market Pricing Information, provided the
only grounds for such objection [*****]. If Supplier makes such an objection
the matter shall be subject to arbitration as set forth in Section 10.11.6
below.
	 
	 	10.11.5  	For each DVD and New Format configuration, [*****] shall become the
effective DVD and New Format Configuration Pricing (and be reflected on
Schedule 10.1) on the 30th day after the delivery of the Market Pricing
Information ([*****] day, the “Market Price Reset Date”). If an arbitration
under Section 10.11.6 is still pending on such [*****] day, on the date the
arbitrator makes a final determination of such dispute, the

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	 	   	[*****] (as determined by such arbitrator) shall be retroactively effective
as of the Market Price Reset Date.
	 
	 	10.11.6  	For purposes of resolving a dispute under this Section 10.11, UNCITRAL
procedures shall not be used and (A) the arbitrator shall be an individual who
shall be a Certified Public Accountant (or equivalent) based in London, England
and then in practice at a recognized public accounting firm which firm shall be
selected by the parties mutually, and the firm shall be asked to nominate the
person to be the arbitrator, (B) there shall be no discovery other than under
Section 10.11.1, (C) Supplier shall present its evidence that the prices
proposed by Customer under Section 10.11.1 (“Proposed Prices”) do not meet the
parameters of the definition of Market Pricing Information, with a copy to
Customer; (D) Customer shall have [*****] days thereafter to respond to
Supplier’s submission; (E) the arbitrator shall rule within [*****] days
thereafter on all issues, or may during such period require either party to
obtain and provide additional Proposed Prices; (F) any additional Proposed
Prices obtained by order of the arbitrator shall be [*****] and (G) the
arbitrator shall set the Revised Average Market Prices as the new DVD or New
Format Configuration Pricing, as applicable.
	 
	 	10.11.7  	In the event neither party timely invokes the arbitration provisions of
Section 10.11.6, the Average Market Prices based on the Market Pricing
Information as provided by Customer shall be the new DVD or New Format
Configuration Pricing, as applicable, effective as of the Market Pricing Reset
Date.
	 
	 	10.11.8  	[*****]
	 
	 	10.11.9  	The parties may change the market-based pricing mechanism set forth in this
Section 10.11 to a cost-based formulation upon the mutual written agreement of
the parties, and the parties shall discuss such a transition in good faith if
requested by either party.
	 
	 	10.11.10  	In the case of Market Pricing Notices with respect to the initial
establishment of New Format configurations, (a) such Market Pricing Notice
shall include any requested terms associated with such New Format
configuration, [*****] (b) the Market Pricing Information therefor shall be
based upon such Associated Terms, and (c) upon the establishment of prices for
such New Format configurations under this Section 10.11, whether by agreement
of the Parties or by arbitration under Section 10.11.6, such Associated Terms,
as they may be amended by agreement of the Parties or by any arbitrator under
Section 10.11.6, shall become part of this Agreement.

	 	10.12  	Subject to Section 10.10, in the event Customer or any Universal Music Group
member requires any manufacturing, mastering, pressing, assembly or similar

-31-

 

	 	   	service not listed on Schedule 10.1 and which is not the manufacture of a CD, DVD or
New Format configuration (“Priced Manufacturing Services”), the following procedure
will be followed by Customer and Supplier to establish a price for such services.

	 	10.12.1  	As to all Priced Manufacturing Services, Customer will request the Priced
Manufacturing Service from Supplier in writing (a “Quote Request”).
	 
	 	10.12.2  	Within [*****] of a Quote Request, Supplier will propose a price for the
requested services subject to such Quote Request equal to [*****] Supplier will
supply documentation to Customer that supports the calculation of its Supplier
Cost Bid.
	 
	 	10.12.3  	On the [*****] after the Quote Request, Customer may accept or reject
Supplier’s Cost Bid. In the event Customer accepts Supplier’s Cost Bid as to
the subject of the Quote Request, the price accepted by Customer shall be added
to Schedule 10.1.
	 
	 	10.12.4  	In the event Customer rejects Supplier’s Cost Bid (or Supplier does not
provide such information), Customer may audit Supplier’s books and records
related to that information required to create Supplier’s Cost Bid. [*****].
All of the foregoing information constitutes confidential information of
Supplier.
	 
	 	10.12.5  	In all events under this Section 10.12, the price for the Priced
Manufacturing Services subject to the Quote Request shall be the [*****].
	 
	 	10.12.6  	Supplier may object to the Market Pricing Information provided by Customer,
if any, provided Supplier may do so only in the [*****] days after the delivery
of the Market Pricing Information and the only grounds for such objection can
be that the Market Pricing Information does not [*****].
	 
	 	10.12.7  	Following the completion of any Customer audit under this Section 10.12,
parties will meet and engage in good faith negotiations concerning Supplier’s
Cost Bid and the Market Pricing Information, if any. In the event an
agreement cannot be reached on the proposed price within [*****] days of the
Quote Request, either Supplier or Customer may invoke Article 14.0 “Dispute
Resolution” to determine the price. If an arbitration under this Section 10.12
is still pending on the Price Reset Date, on the date the arbitrator makes a
final determination of such dispute, the lowest of the Market Pricing
Information (as determined by such arbitrator) and Supplier’s Cost Bid, on a
configuration by configuration basis, shall be retroactively effective as of
the Price Reset Date.
	 
	 	10.12.8  	Regardless of whether the price for the Priced Manufacturing Services is set
via agreement of the Parties or otherwise under this Section 10.12, all

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	 	   	Priced Manufacturing Services set under this Section 10.12 shall be reviewed
at least [*****] and shall be readjusted using the same mechanisms as are
set forth in this Section 10.12.
	 
	 	10.12.9  	In the event an agreement cannot be reached on any prices within [*****]
days of a Quote Request, either Supplier or Customer may invoke Article 14.0
(“Dispute Resolution”) to determine the price for the Manufacturing Service
which is the subject of the applicable Quote Request. For purposes of
resolving a dispute under this Section 10.12 however, the procedures set forth
in Section 14.0 shall not apply and the following shall apply (A) there shall
be one arbitrator only who shall be a Certified Public Accountant (or
equivalent) based in London, England and then in practice at a recognized
public accounting firm and the firm shall be selected by the parties mutually,
and the firm shall nominate the person to be the arbitrator, (B) there shall be
no discovery other than under Sections 10.12.2 and 10.12.4, (C) Supplier shall
present its evidence that the prices proposed by Customer under Section 10.12.4
(“Proposed Prices”) do not meet the parameters of the definition of Market
Pricing Information, in each case such submissions to be made no later than the
[*****] day after the arbitrator is named, with a copy to the other party; (D)
Customer and Supplier shall each have [*****] days thereafter to respond to the
other’s submission; (E) the arbitrator shall rule within [*****] days
thereafter on all issues, or may during such period require Customer to obtain
and provide additional Proposed Prices; (F) any additional Proposed Prices
obtained by order of the arbitrator shall be averaged by the arbitrator with
all other Proposed Prices which the arbitrator determines meet the parameters
of the definition of Market Pricing Information (the resulting average, the
“Revised Market Pricing Information”) and (G) the arbitrator shall select
[*****].
	 
	 	10.12.10  	In the event neither party timely invokes the arbitration provisions of
this Section 10.12, the lowest of the Market Pricing Information as provided by
Customer and Supplier’s Cost Bid shall be the new pricing effective as of the
Pricing Reset Date.
	 
	 	10.12.11  	Once a price is determined for the subject of a Quote Request, the subject
and its associated price shall be added to Schedule 10.1, and/or Schedule 10.1
shall be amended to reflect the new pricing.
	 
	 	10.12.12  	Notwithstanding the foregoing provisions of this Section 10.12, Supplier
will not charge Customer prices for Priced Manufacturing Services higher than
the prices that Supplier is paying third-party subcontractors under Section 5.4
for similar volumes of the relevant Priced Manufacturing Services on similar
terms. Customer may audit Supplier’s records of the prices paid to such
third-party suppliers of Priced Manufacturing Services, in the manner described
in Section 23.

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	 	10.13  	Supplier will use normal and customary endeavors to obtain the lowest and best
net price from any third-party providers of products and services such as
polycarbonate, polystyrene and jewel boxes, transport services, paper parts components
and hand packing services.
	 
	 	10.14  	At Customer’s request, Supplier shall invoice the Universal Music Group
members placing Orders under this Agreement on behalf of Customer, with instructions
for such Universal Music Group member to pay such invoice directly to Customer.

	11.0  	Patent Charges Paid by Supplier for Optical Discs Sold to Customer:

	 	11.1  	To the extent that the pricing of DVD and New Formats is derived from a market
price which is inclusive of patent charges Customer shall not be liable to Supplier for
Patent Charges and Supplier shall indemnify Customer in respect of Patent Charges
payable in relation to product so priced.
	 
	 	11.2  	In relation to Cost-Based Optical Discs or DVDs derived from market pricing
which is exclusive of Patent Charges, Customer must pay Supplier for Patent Charges
within five business days prior to the date that such Patent Charges are due to the
respective licensors. Customer will pay only the actual cost of Supplier’s Patent
Charges net any form of rebate and Customer will have no obligation to compensate
Supplier for any compliance, administration or legal costs related to the Patent
Charges paid by Supplier, except as set forth in Section 11.6 below.
	 
	 	11.3  	To support its claim for payment pursuant to Section 11.2, above, Supplier
shall present evidence of payment of Patent Charges on a [*****] basis, consisting of
proof of funds transferred along with normal and customary back-up documentation,
including the number of Optical Discs and royalty rates that form the basis for the
Patent Charges.
	 
	 	11.4  	[*****].
	 
	 	11.5  	[*****].
	 
	 	11.6  	[*****].
	 
	 	11.7  	To the extent that, subsequent to receipt by Supplier of any Patent Charge
payment from Customer, Supplier is relieved of its obligation to pay the Patent Charge
then Supplier will make an appropriate refund to Customer, less any out-of-pocket costs
incurred by Supplier in obtaining such relief.
	 
	 	11.8  	Should Supplier sub-contract the provision of any Manufacturing Services it
shall not be entitled to charge Customer a Patent Charge per Optical Disc in excess of
the amount that would have been charged to Customer had Supplier manufactured such
Optical Disc in-house.

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	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 private limited liability stock
company (GmbH) and in good standing under the laws of Germany. 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 private limited liability stock company
and in good standing under the laws of the Netherlands. 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 delivery
of this Agreement or the performance by it of any of its obligations hereunder.

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	 	(d)  	The Aggregate 2003 Manufacturing Costs accurately reflect the
Supplier’s actual, recurring, aggregate stand-alone cost of providing
Manufacturing Services in relation to total Supplier manufacturing volume in
2003 (“Total Volume”), after those certain adjustments mutually agreed upon by
Customer and Supplier and are set forth on Schedule 12.2 (d).
	 
	 	(e)  	The Allocated 2003 Manufacturing Costs when divided by Total
Volume and allocated to CD and DVD replication (as shown in Schedule 12.2 (d))
results in the departmental cost per disc included in the disc price set forth
in Schedule 10.1.
	 
	 	(f)  	The third-party contracts referenced on Schedule 4.1(ii)
(“Third Party Contracts”) attached hereto are the complete list of all
contracts or arrangements which any Universal Music Group entity is a party to,
as of the Effective Date, under which any amount of the Universal Music Group
Manufacturing Requirements is committed to any party under such joint venture
or other contract or arrangement.
	 
	 	(g)  	The amounts set forth in Schedule 4.1(ii) as the volumes
contractually committed under all Third Party Contracts as of the Effective
Date are complete and accurate.
	 
	 	(h)  	The Manufacturing Requirements of the Universal Music Group and
its third party business in calendar year 2003 totaled not less than [*****]
million Optical Disc units, and no corporate reorganizations have occurred in
or since such period which could reasonably be expected to reduce such
Manufacturing Requirements. Of such [*****] million aggregate Optical Discs
set forth in the preceding sentence, certain amounts are attributable to orders
from customers that have time limited agreements with the Universal Music
Group, as set forth on Schedule 12.2G.
	 
	 	(i)  	Customer has the right to authorize Supplier to perform the
Manufacturing Services on Customer’s and the Universal Music Group’s behalf
(including, without limitation, the purchase of materials and components on
behalf of Customer and the Universal Music Group).

	 	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,
NON-INFRINGEMENT) ARE HEREBY EXCLUDED.

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	13.0  	Termination:

	 	13.1  	This Agreement may be terminated:

	 	(a)  	By mutual written consent of the Parties at any time;
	 
	 	(b)  	By Customer pursuant to Section 9.3.4 or Section 9.3.6;
	 
	 	(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 may only be served in the period from such Change of Control to
three months of Supplier’s giving Customer written notice to Customer of such
Change of Control;
	 
	 	(d)  	By Customer in the event Supplier is adjudged insolvent, makes
a general assignment for the benefit of its creditors, or files a petition for
relief under applicable bankruptcy or insolvency law; or a receiver is
appointed on account of Supplier’s insolvency; or
	 
	 	(e)  	By Customer, if Supplier has materially breached its
obligations under any of Sections 5.5 or 27, without cure (after written notice
by Customer) of such breaches, [*****] or more times in any [*****] 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 Section 13.1(e) “material breach” shall mean
that such breach resulted in a material loss to Customer and/or Universal Music
Group.
	 
	 	(f)  	By Customer, if Supplier has materially breached its
obligations under Section 10.8.1 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  	Effect of Distribution Agreement Termination
	 
	 	   	In the event that the International Distribution Agreement is terminated by Customer
during the Term of this Agreement due to Supplier’s breach, Customer shall have the
right to terminate this Agreement unless Supplier agrees, and does, reimburse
Customer for the costs of transportation from Supplier’s manufacturing facilities to
the location(s) from which Customer will distribute the Optical Discs manufactured
by Supplier under this Agreement.
	 
	 	13.3  	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 either Party of any payment
obligations outstanding at the time of such termination or expiration.

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	 	13.4  	At the expiration of the Term or upon earlier termination, Customer will be
entitled to repossess all of its manufacturing and packaging components (e.g. tapes,
paper parts, packaging, etc.) provided by it to Supplier over the Term. Supplier will
pack such parts appropriately and make them 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 components within 120 days after the expiration of the Term
or earlier termination. In the event of termination as a result of Supplier’s breach,
Supplier shall bear any packaging, retrieval or storage costs incurred by Supplier for
this service during this period. In the event of any other expiration or termination,
Supplier shall notify Customer of all such costs prior to incurring them, and Customer
and Supplier shall split all such costs equally.
	 
	 	13.5  	If this Agreement is terminated by Customer as a result of any of the items set
out in sections 13.1 (b), (c), (d) or (e) Supplier shall pay Customer the following
amounts:

	 	 	 	 	 
	Date of termination	 	Amount payable (€)	 
	Effective Date – December 15, 2005
	 	 	13,800,000	 
	December 16, 2005 – May 31, 2006
	 	 	11,800,000	 
	June 1, 2006 – May 31, 2007
	 	 	9,200,000	 
	June 1, 2007- May 31, 2008
	 	 	4,600,000	 

	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 shall be discussed by the Parties, and if the Parties are unable to reach
agreement concerning such matter, the dispute shall be settled by arbitration by three
arbitrators (the “Arbitral Tribunal”) appointed in accordance with the UNCITRAL Arbitration
Rules (the “UNCITRAL Rules”) in force at the time of commencement of the arbitration. The
language of the arbitration shall be English. Each Party shall select one arbitrator and
the two arbitrators selected by the Parties shall select the third arbitrator, who shall act
as chairman and shall be a practicing solicitor or barrister admitted in New York and/or
England and Wales for a continuous period of at least 10 years as at the date of
commencement of the arbitration. The arbitration shall take place in London or New York,
the selection of which shall be made by Customer. Any court of applicable jurisdiction may
grant interim relief as set forth in Section 14.1 (notwithstanding any provision of the
UNCITRAL Rules to the contrary). The Arbitral Tribunal, once fully constituted, shall have
the power to order on a provisional basis any relief which it would have power to order in a
final award. The Arbitral Tribunal shall apply New York law to any questions regarding the
validity of this clause (insofar as any such questions are separable from questions as to
the validity of the agreement of which this clause forms part) including but not limited to
any question as to the authority of the signatories to this Agreement. The IBA Rules on the
Taking of Evidence in International

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	   	Commercial Arbitration (the “IBA Rules of Evidence”) shall apply to any arbitration in
accordance with this clause. In case of any inconsistency with any clause of this Agreement
or with the UNCITRAL Rules, the IBA Rules of Evidence shall prevail but solely as regards
the presentation and reception of evidence. 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.

	 	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 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.

	15.0  	Retention of Rights:
	 
	   	All Input Materials and other source and graphic materials provided by Customer in
connection herewith, and all rights therein, shall remain the exclusive property of
Customer. All work product, if any, produced hereunder specifically and solely for Customer
and incorporation into Customer Optical Discs, artwork or other materials, from its
inception, will be considered a “work made for hire” for Customer, which entitles Customer
to, among other things, the copyright and all other rights, title and interest therein and
such work product shall be and remain the sole 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
endeavors 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 International Distribution Agreement 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.

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	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 Customer’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 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 have confirmed in writing to Supplier that
(A) it then-currently has Manufacturing Requirements substantially similar to or greater
than Customer’s then-current Manufacturing Requirements, and (B) its then-current forecasts
for Manufacturing Requirements for the remainder of the Term are substantially similar to or
greater than Customer’s then-current forecasts for Manufacturing 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 volume that
is Customer’s and any other member of the Universal Music Group’s volume (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 waiver by any Party of any breach hereof by the other Party shall not be deemed a waiver
of such Party’s obligation for future compliance 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

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	   	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.
Notwithstanding the foregoing, except as may be required by law, Supplier agrees to keep
confidential (a) all Customer-specific product specifications, and (b) all Customer order
information, in perpetuity.
	 
	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. For the avoidance of doubt, claims in relation to patent
charges shall be made in accordance with Section 11.6

	 	21.1  	Supplier agrees to be expressly and solely responsible for any property of
Customer (including, without limitation, masters, components, paper parts, etc.) while
such property is in the care or custody of or under the control of Supplier, 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, 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, notwithstanding
Section 15.0, Customer has provided Supplier with original or irreplaceable items which
are damaged or lost while in possession of Supplier, 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 Companies. In the event Supplier sells any
Manufacturing Services to a Significant Company under similar or more favorable (to the
other customer) terms and conditions to those described in Sections 1.0 through 10.0,
13, 21 and 25 herein for net prices for such Manufacturing Services (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 Manufacturing Services such that they are equivalent to the
prices paid by said Significant Company effective as of the date of the first invoice
to the Significant Company, and for the duration that such Significant Customer
receives such lower prices.

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	 	22.2  	As To Other Customers. In the event Supplier sells any Manufacturing
Services under similar or more favorable terms and conditions to those described in
Sections 1.0 through 10.0, 13, 21 and 25 herein to a customer other than a Significant
Company (an “MFN Customer”) for net prices for such Manufacturing Services (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 sold to the MFN Customer(s) multiplied by 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 Company A receives a lower price than Customer, Customer’s
prices shall be adjusted under Section 22.1, and if Significant Company 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 Companies and which are fulfilled using assets
and facilities other than those purchased or leased by Supplier from Customer under the
Share Purchase Agreement or Lease Agreement, or (c) with respect to orders from a
Significant Company if such orders are fulfilled using assets and facilities purchased by
Supplier from such Significant 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

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	 	   	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.

	24.0  	Notice:
	 
	   	All notices, requests, claims, demands and other communications hereunder shall be in
writing (in the English language) 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 International Music, B.V.

Gerrit van der Veenlaan 4

3743 DN Baarn

The Netherlands

Attn: The Directors

Fax: +31 35 6245 796
	 
	   	With a copy to:
	 
	   	General Counsel

Universal Music International Ltd

8 St. James’s Square

London SW1Y 4JU

England

Fax: 44 20 7747 4473

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	   	If to SUPPLIER:
	 
	   	Entertainment Distribution Company

c/o Glenayre Technologies, Inc.

11360 Lakefield Drive

Duluth, Georgia 30097

Attn: Chief Financial Officer

Telephone: (770) 283-2525

Fax: (770) 497-3992
	 
	   	With copies to:
	 
	   	Entertainment Distribution Company LLC

360 Madison Avenue

Suite 500

New York, NY 10017

Attn: Chief Financial Officer

Telephone: (212) 981-6917

Fax: (212) 869-6418
	 
	   	and
	 
	   	Greenberg Traurig, LLP

3290 Northside Parkway, N.W.

Suite 400

Atlanta, GA 30327

Attn: James Altenbach

(678) 553-2212

	   	Any notice delivered after 5:00 p.m. (local time of recipient) shall be deemed delivered on
the next business day following. For this purpose, “business day” means any day other than
a Saturday, Sunday, or a day which is a public holiday in the place both of dispatch and of
the recipient of the notice.
	 
	25.0  	Force Majeure:

	 	25.1  	Notwithstanding any provision hereof to the contrary, Supplier shall not be
liable for any damages incurred by Customer or payments, debits or credits hereunder
whatsoever 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.

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	 	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 manufacturing 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  	Anti-Piracy:
	 
	   	Supplier agrees to either maintain, or obtain within 1 year of the Effective Date of this
Agreement and subsequently maintain, IRMA (or its successor body’s) Anti-Piracy
Certification at its Hanover location during the term of this Agreement, unless (i) IRMA
ceases to provide this certification, or (ii) it obtains Customer’s written approval that it
need not comply with this section.
	 
	28.0  	Press Aheads:
	 
	   	Supplier is prohibited without Customer’s prior written approval from pressing ahead stock
of Customer or from retaining over-pressings or keeping stock of semi-finished product in
anticipation of future Customer orders. To avoid possible capacity bottle necks in the
quarters ended September and December, the Parties will agree in good faith the terms
applicable to a “press aheads” program, if so required.
	 
	29.0  	Consents and Approvals:
	 
	   	Neither Party shall unreasonably withhold, condition or delay any consents, authorizations
or approvals required under this Agreement.
	 
	30.0  	Employee Purchase Program:
	 
	   	Supplier’s employees located in Hanover will have the benefit of the employee product
purchase plan in effect as of the Effective Date unless and until modified by Customer.

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	   	All orders and sales of Product pursuant to such employee product purchase plan shall be
made through Supplier, which shall be responsible for all payments therefor. Customer shall
not be required to pay any fee in connection with such sales.
	 
	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/ Yorek Koehn      /s/ B. Weichmann	 	By:	 	/s/ C. Van Dijk      /s/ Th. Roos
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Its:

	 	Yorek Koehn       Dr. Bodo Weichmann	 	Its:	 	Director
      Director
	

	 	 
	 	 	 	 
	 
	Date:

	 	May 31,
2005	 	Date:	 	May 31,
2005

Manufacturing Agreement Signature Page

 

 

SCHEDULE 2.0

Definitions

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

“2003 Product Mix” means the Universal Music Group’s 2003 Manufacturing Requirements
expressed as a product mix on a line-item-by-line-item 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 Manufacturing Costs” means the total cost of operating Supplier facility in
calendar year 2003 after certain adjustments mutually agreed between the Parties, and set
forth on Schedule 12.2 (d).

“Allocated 2003 Manufacturing Costs” means the Aggregate 2003 Manufacturing Costs divided by
the Total Volume and allocated to CD and DVD replication (as shown in Schedule 12.2(d))
which results in the departmental cost per disc included in the disc price set forth in
Schedule 10.1.

“Booked-On” means to book onto Supplier’s warehousing computer system and make available for
pick, pack and ship activities.

“Business Day” means any weekday on which banks in the federal state of Lower Saxony,
Germany are open.

“CD” means optical discs (CD-Audio and CD-ROM) in all formats manufactured by Supplier prior
to 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.

“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.

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

“Cost-Based Optical Discs” means CD’s and, if and for the time period that Customer is
purchasing any other Optical Discs hereunder on a cost-based basis under any provision of
this Agreement, such other Optical Discs.

“Drop Shipment” means (a) a direct shipment to an NDU or its distributor or, (b) to a
customer of Customer in quantities no less than [*****] of any SKUs shipped in such
shipment.

-47-

 

“DVD” means the following optical disc formats: DVD-V, 5 and 9; SACD non-hybrid 5 and 9.

“European Countries” means Austria, Belgium, Czech Republic, Denmark, Finland, France,
Germany, Hungry, Ireland, Italy, Luxemburg, Malta, Poland, Portugal, Slovakia, Slovenia,
Spain, Sweden, The Netherlands, the United Kingdom, Norway and Switzerland.

“Effective Date” means the date of the Closing of the Share Purchase Agreement, as such term
is defined in the Share Purchase Agreement.

“Facility Fixed Costs” means all fixed cost categories referred to in the Aggregate 2003
Manufacturing Costs.

“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 utility or carrier delays or outages, interference by any governmental authority, or
any other event(s) beyond the reasonable control of Supplier (including a computer virus
beyond a party’s reasonable control).

“IMS Service” means the import music services activity of Supplier and of Universal Music
Group members by which certain Optical Discs are imported into the Territory with packaging
and labeling intended for distribution.

“International Distribution Agreement” means that certain Distribution and Related Services
Agreement, by and between Supplier and Customer, entered into on the Effective Date.

“Label” means a record sales and marketing company.

“Late Order Fee” is a Euro number equal to (a) the number of Optical Discs Supplier is
obligated to Tender in such Work Week pursuant to the terms of this Agreement minus the
number of those Optical Discs actually Tendered in such Work Week, times (b) [*****]. For
purposes of this definition, Excess Orders shall not be subject to a Late Order Fee unless
Supplier notifies Customer that it will fulfill such Excess Orders and such Excess Orders
thereafter become Workable Orders.

“Lease Agreement” means that certain Lease Agreement as defined in the Share Purchase
Agreement.

“Lost Inventory” shall be calculated on a component reference number by component reference
number basis (each such unique component an “Inventory Component”), subtracting as of a
particular date the Amount Used of such Inventory Components and the Actual Inventory of
such Inventory Component from the Amount Delivered, where (i) “Amount Used” means the
quantity of such Inventory Components manufactured by Supplier into products prior to the
particular date, (ii) “Amount Delivered” means the quantity of such Inventory Components
delivered by Customer’s vendor to Supplier

-48-

 

(based on receiving information supplied by Supplier) prior to the particular date, and
(iii) “Actual Inventory” means the quantity of such Inventory Components on-hand as
determined by a physical count as of the particular date.

“Major Music Company” means Sony-BMG Music Entertainment, Inc, EMI Group Plc and Warner
Bros. Records, Inc or any of their successors.

“Manufacturing Requirements” means, as applied to a member of the Universal Music Group, (a)
all requirements by the member of the Universal Music Group for Manufacturing Services for
its own account with respect to (i) Optical Discs to be sold within the Territory and (ii)
Optical Discs to be exported from the Territory by any Universal Music Group member located
within the Territory, and (b) any requirements for Manufacturing Services for a
third-party’s account with respect to Optical Discs to be sold within the Territory by such
third party, for as long as any Universal Music Group member has the contractual right to
control the identity of the provider of the Manufacturing Services to such third party,
provided that such Universal Music Group member had such right as the Effective Date.

“Manufacturing Services” means mastering of Customer supplied files, molding and printing
Optical Discs, assembling of Optical Discs into designated configurations with Supplier or
Customer components, the Specific Related Services described in Section 7 of the Agreement
and any service or activity priced pursuant to Section 10.1. The term “Manufacturing
Services” means any particular Manufacturing Service as well as all Manufacturing Services
collectively.

“Maximum Weekly Disc Orders” means the product of [*****] times the first Work Week Forecast
for such Work Week provided by Customer to Supplier pursuant to Section 6.1. As an example,
on April 2, 2005, the forecast would for the first time include a Work Week Forecast for the
Work Week commencing April 25, 2005; assume that Work Week Forecast for April 25, 2005 shows
a forecasted need of [*****] Optical Discs. On April 9, 2004, the forecast again includes a
Work Week Forecast for the Work Week commencing April 25 2005, now revised to show a
forecasted need of [*****] Optical Discs. The Maximum Weekly Disc Orders for the Work Week
commencing April 25, 2005 [*****], based on the first forecast provided by Customer for such
week.

“Minimum Installed Daily Capacity of CDs” means the minimum installed daily capacity of
Supplier for CDs, [*****]. “Minimum Installed Daily Capacity of DVDs” means the minimum
installed daily capacity of Supplier for DVDs, [*****]. “NDU” means a distribution facility
in any location owned and/or used by the Universal Music Group.

“NDU Orders” means orders of Optical Disc units which are both (a) shipped to an NDU, and
(b) for which Optical Disc RSC is not holding stock.

“New Formats” means all optical disc formats except for (a) CDs and DVDs currently
manufactured by Supplier immediately prior to the Effective Date and (b) Other Existing
Formats.

-49-

 

“New Formats Manufacturing Requirements” means, as applied to a member of the Universal
Music Group, (a) all requirements by the member of the Universal Music Group for New Formats
Manufacturing Services for its own account with respect to (i) New Formats to be sold within
the Territory and (ii) New Formats to be exported from the Territory by any Universal Music
Group member located within the Territory, and (b) any requirements for New Formats
Manufacturing Services for a third party’s account with respect to New Formats to be sold
within the Territory for as long as any Universal Music Group member has the unilateral
contractual right to control the identity of the provider of the New Formats Manufacturing
Services to such third party, provided that such Universal Music Group member had such
unilateral right as of the Effective Date.

“New Formats Manufacturing Services” means mastering, manufacturing, assembly of New Formats
into designated configurations with Supplier or Customer components, the Specific Related
Services described in Section 7 of the Agreement and any related service or activity priced
pursuant to Section 10.1. The term “New Formats Manufacturing Services” means any
particular New Formats Manufacturing Service as well as all New Formats Manufacturing
Services collectively.

“Optical Discs” means CDs, DVDs and any New Formats for which a price has been established
under Section 10.11.

“Other Existing Formats” means LP vinyl, music cassette, VHS, DVD-Audio and SACD (to the
extent not in the definition of DVD).

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

“Parent” means Universal Music Group, Inc.

“Packaging Components” means bought in from external supplier standard three-piece jewel
boxes, standard two-piece jewel boxes, brilliant-type boxes, Amaray-type DVD boxes (used for
CDs), or any other primary packaging component that is used in more than [*****] of annual
shipments of CDs from Supplier to Customer in the calendar year.

“Patent Charges” means charges for optical disc patent royalties, copy protection technology
royalties or similar technology license costs incurred by Supplier in relation to the
Manufacturing Services and New Format Manufacturing Services provided by Supplier to
Customer as a result of Customer Orders.

“Prevailing Practices” means the procedures, timeframes, service levels or response times
generally followed and with respect to section 6.5 generally and in aggregate equivalent to
those followed by Supplier during the 12 months prior to the Effective Date.

“Qualified Manufacturer” means any manufacturer [*****].

-50-

 

“Regional Music Company” means as to each country in the Territory, any recorded music
company whose market share in such country is 35% or more of the Universal Music Group’s
market share for music in such country, in each case as measured in the most recently ended
calendar year.

“RSC” means the regional distribution facility owned by Supplier which shall initially be
located in Hanover, Germany

“Significant Companies” means the entities listed on Schedule 22.1.

“Share Purchase Agreement” means that certain Share Purchase Agreement entered into between
Blitz 05-107 GmbH, Supplier and Universal Music GmbH, dated May 31, 2005.

“Special Projects” means (a) joint venture repertoire product which involves a profit
sharing arrangement with any non-Universal Music Group member third party (such as [*****]);
(b) so called non-traditional product such as kiosk sales, premiums, cover mounts,
give-aways and music club product, which are (i) generally distributed outside normal
Universal Music Group retail or wholesale channels, and (ii) distributed in the Territory;
and (c) non-commercial promotional product for distribution in territories outside Germany.

“Spot Market Orders” means orders for Manufacturing 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.

“Technical Plan” means Supplier’s technical planning guide, updated on an annual basis,
which sets forth the output of each individual piece of equipment, and a statement of all of
the assumptions upon which such output is based.

“Tender” means making Optical Discs available to RSC or to the selected carrier for
transportation from the Supplier’s facilities and coordinating with and assisting such
carrier, in a manner consistent with Supplier’s prevailing practices, but does not include
actual transportation of the Optical Discs from the Supplier’s facility.

“Territory” means the United Kingdom, Denmark, Norway, Sweden, Finland, France, Spain,
Portugal, Italy, Germany, Switzerland, Austria, Belgium, the Netherlands and Luxembourg.

“Transition Services Agreements” means the Bilateral Information Technology Transition
Services Agreement between Supplier and Universal Music International Ltd.

“Universal Music Group” means (i) Parent, (ii) Customer and (iii) each subsidiary 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

-51-

 

entity whose Optical Discs 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.

“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 weekly as mutually agreed upon
by Customer and Supplier in connection with the forecasts provided under Section 6.1.

“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).

-52-

 

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

	 	 	 
	Term	 	Section
	 
	Act
	 	14.0
	Agreement
	 	1.0
	Arbitral Tribunal
	 	14.0
	ASN
	 	7.2.2
	Associated Terms
	 	10.11
	CAP
	 	9.2.1
	Cure Period
	 	9.2.2
	Customer
	 	1.0
	Direct Distribution
	 	7.2
	EMDE
	 	8.4
	Epidemic Multiple Defectives
	 	8.4
	Excess Order
	 	6.10
	Excluded CDs
	 	4.1
	Failure Notice
	 	9.1
	IBA Rules of Evidence
	 	14.0
	Incremental Volume Offer
	 	10.6
	Incremental Volumes
	 	10.6
	Indemnified Party
	 	21.0
	Indemnifying Party
	 	21.1
	Input Materials
	 	6.3
	Key Failure
	 	9.1
	Late Orders
	 	6.11
	Manufacturing Components
	 	7.6.1
	Market Price Reset Date
	 	10.11
	Market Pricing Notice
	 	10.11
	MFN Configuration Price
	 	23.2
	MFN Customer
	 	23.2
	Non-CD Market Price
	 	10.11
	Order
	 	6.2
	Parties
	 	1.0
	Proposed Prices
	 	10
	Quote Request
	 	10.11.1
	Revised Market Pricing Information
	 	10.11
	Specific Related Services
	 	7.0
	Supplier Incremental Volume Proposal
	 	10.6
	Supplier Pricing Information
	 	10.11
	Supplier
	 	1.0
	Term
	 	3.1
	Transport Charges
	 	7.2.4
	UNCITRAL Rules
	 	14.0
	Uncured Key Failure
	 	9.2
	Work Week Forecast
	 	6.1
	Workable Orders
	 	6.4

-53-

 

SCHEDULE 2.11

Working Days

See attached.

-54-

 

			
	Universal Manufacturing & Logistics GmbH

Hannover
	 	Page 41

Working days CD-manufacturing Technical Planning CY 2 0 0 4

(Job time plan: 5 2/3 days a week 01.-37. CW; 7.0 days a week 38.-48. CW, 5 2/3 day a week 47.-52, CW)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Working days	 	 	JAN	 	 	 	FEB	 	 	 	MAR	 	 	 	APR	 	 	 	MAY	 	 	 	JUN	 	 	 	JUL	 	 	 	AUG	 	 	 	SEP	 	 	 	OCT	 	 	 	NOV	 	 	 	DEC	 	 	 	Total	 	 
	 	monthly	 	 	31.0	 	 	 	29.0	 	 	 	31.0	 	 	 	30.0	 	 	 	31.0	 	 	 	30	 	 	 	31.0	 	 	 	31.0	 	 	 	30.0	 	 	 	31.0	 	 	 	30.0	 	 	 	31	 	 	 	366.0	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	of It:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	- Saturdays
	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	52.0	 	 
	 	- Sundays
	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	52.0	 	 
	 	- Regular working days
	 	 	 	21.0	 	 	 	 	20.0	 	 	 	 	23.0	 	 	 	 	20.0	 	 	 	 	19.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	21.0	 	 	 	 	22.0	 	 	 	 	23.0	 	 	 	 	257.0	 	 
	 	- Holidays
	 	 	 	1.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.0	 	 	 	 	2.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5.0	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Other downtimes, adjustments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.3	 	 	 	 	1.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.3	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4.3	 	 	 	 	7.8	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	- Plant holidays
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	- Working on holidays
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	- Adjustment working days
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.3	 	 	 	 	1.3	 	 
	 	- Holidays on Saturdays
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.0	 	 	 	 	1.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.0	 	 	 	 	4.0	 	 
	 	- Holidays on Sundays
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.0	 	 	 	 	2.0	 	 
	 	- Employee meetings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.3	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.3	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.5	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Available working days
	 	 	 	30.0	 	 	 	 	29.0	 	 	 	 	31.0	 	 	 	 	25.8	 	 	 	 	28.0	 	 	 	 	30.0	 	 	 	 	31.0	 	 	 	 	31.0	 	 	 	 	29.8	 	 	 	 	31.0	 	 	 	 	30.0	 	 	 	 	26.7	 	 	 	 	353.2	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	- Regular working days
	 	 	 	21.0	 	 	 	 	20.0	 	 	 	 	23.0	 	 	 	 	19.8	 	 	 	 	19.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	21.8	 	 	 	 	21.0	 	 	 	 	22.0	 	 	 	 	21.7	 	 	 	 	255.3	 	 
	 	- Saturdays
	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	3.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	2.0	 	 	 	 	48.0	 	 
	 	- Sundays
	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	3.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	3.0	 	 	 	 	50.0	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Shifts beyond 5 days
operation time a week:
	 	 	 	10.0	 	 	 	 	8.0	 	 	 	 	8.0	 	 	 	 	6.0	 	 	 	 	8.0	 	 	 	 	8.0	 	 	 	 	10.0	 	 	 	 	8.0	 	 	 	 	16.0	 	 	 	 	30.0	 	 	 	 	16.0	 	 	 	 	4.0	 	 	 	 	132.0	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	- on Saturdays
	 	 	 	10.0	 	 	 	 	8.0	 	 	 	 	8.0	 	 	 	 	6.0	 	 	 	 	8.0	 	 	 	 	8.0	 	 	 	 	10.0	 	 	 	 	8.0	 	 	 	 	10.0	 	 	 	 	15.0	 	 	 	 	10.0	 	 	 	 	4.0	 	 	 	 	105.0	 	 
	 	- on Sundays
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	6.0	 	 	 	 	15.0	 	 	 	 	6.0	 	 	 	 	 	 	 	 	 	27.0	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Operational working days
	 	 	 	24.3	 	 	 	 	22.7	 	 	 	 	25.7	 	 	 	 	21.8	 	 	 	 	21.7	 	 	 	 	24.7	 	 	 	 	25.3	 	 	 	 	24.7	 	 	 	 	27.1	 	 	 	 	31.0	 	 	 	 	27.3	 	 	 	 	23.0	 	 	 	 	299.2	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

- 55 -

 

			
	Universal Manufacturing & Logistics GmbH
	 	Page 42
	Hannover	 	 
	 	 	 
	Demand of working days CD-manufacturing / Utilization	 	 
	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Working days	 	 	JAN	 	 	 	FEB	 	 	 	MAR	 	 	 	APR	 	 	 	MAY	 	 	 	JUN	 	 	 	JUL	 	 	 	AUG	 	 	 	SEP	 	 	 	OCT	 	 	 	NOV	 	 	 	DEC	 	 	 	Total	 
	monthly	 	 	31.0	 	 	 	29.0	 	 	 	31.0	 	 	 	30.0	 	 	 	31.0	 	 	 	30.0	 	 	 	31.0	 	 	 	31.0	 	 	 	30.0	 	 	 	31.0	 	 	 	30.0	 	 	 	31.0	 	 	 	366.0	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	of it:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	- Saturdays
	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	52.0	 
	- Sundays
	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	5.0	 	 	 	 	4.0	 	 	 	 	4.0	 	 	 	 	52.0	 
	- Holidays
	 	 	 	1.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.0	 	 	 	 	2.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5.0	 
	- Plant holidays
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	- Adjustment of job time by
plant agrrements
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.3	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.3	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.3	 	 	 	 	1.8	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Regular working days
	 	 	 	21.0	 	 	 	 	20.0	 	 	 	 	23.0	 	 	 	 	19.8	 	 	 	 	19.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	21.8	 	 	 	 	21.0	 	 	 	 	22.0	 	 	 	 	21.7	 	 	 	 	255.2	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Demand of working days
	 	 	 	15.1	 	 	 	 	14.1	 	 	 	 	16.1	 	 	 	 	12.5	 	 	 	 	14.8	 	 	 	 	14.4	 	 	 	 	16.4	 	 	 	 	15.4	 	 	 	 	20.7	 	 	 	 	24.5	 	 	 	 	24.6	 	 	 	 	19.8	 	 	 	 	208.5	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Demand of expension working days
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3.5	 	 	 	 	2.6	 	 	 	 	 	 	 	 	 	6.1	 
	Add. available working time
	 	 	 	3.3	 	 	 	 	2.7	 	 	 	 	2.7	 	 	 	 	2.0	 	 	 	 	2.7	 	 	 	 	2.7	 	 	 	 	3.3	 	 	 	 	2.7	 	 	 	 	5.3	 	 	 	 	10.0	 	 	 	 	5.3	 	 	 	 	1.3	 	 	 	 	44.0	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Needed working time
	Days	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3.5	 	 	 	 	2.6	 	 	 	 	 	 	 	 	 	6.1	 
	beyond 5 days a week
	Shifts	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	10.6	 	 	 	 	7.8	 	 	 	 	 	 	 	 	 	18.4	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Needed days/week
	Days	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.0	 	 	 	 	5.7	 	 	 	 	5.7	 	 	 	 	5.0	 	 	 	 	5.1	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Utilization 7 days a week
	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	71.4	%	 	 	 	81.5	%	 	 	 	80.7	%	 	 	 	71.4	%	 	 	 	73.3	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Planned operational working days

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	- Regular working days
	 	 	 	21.0	 	 	 	 	20.0	 	 	 	 	23.0	 	 	 	 	19.8	 	 	 	 	19.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	22.0	 	 	 	 	21.8	 	 	 	 	21.0	 	 	 	 	22.0	 	 	 	 	21.7	 	 	 	 	255.2	 
	- Saturdays
	 	 	 	3.3	 	 	 	 	2.7	 	 	 	 	2.7	 	 	 	 	2.0	 	 	 	 	2.7	 	 	 	 	2.7	 	 	 	 	3.3	 	 	 	 	2.7	 	 	 	 	3.3	 	 	 	 	5.0	 	 	 	 	3.3	 	 	 	 	1.3	 	 	 	 	35.0	 
	- Sundays
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.0	 	 	 	 	5.0	 	 	 	 	2.0	 	 	 	 	 	 	 	 	 	9.0	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total working days
	 	 	 	24.3	 	 	 	 	22.7	 	 	 	 	25.7	 	 	 	 	21.8	 	 	 	 	21.7	 	 	 	 	24.7	 	 	 	 	25.3	 	 	 	 	24.7	 	 	 	 	27.1	 	 	 	 	31.0	 	 	 	 	27.3	 	 	 	 	23.0	 	 	 	 	299.2	 

Utilization capacity based on planned operational working days

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Month	 	 	JAN	 	 	 	FEB	 	 	 	MAR	 	 	 	APR	 	 	 	MAY	 	 	 	JUN	 	 	 	JUL	 	 	 	AUG	 	 	 	SEP	 	 	 	OCT	 	 	 	NOV	 	 	 	DEC	 	 	 	Total	 	 
	 	Demand CD-manufacturing
	 	 	 	6,744	 	 	 	 	6,018	 	 	 	 	7,303	 	 	 	 	6,260	 	 	 	 	7,760	 	 	 	 	7,422	 	 	 	 	7,371	 	 	 	 	7,935	 	 	 	 	11,525	 	 	 	 	16,173	 	 	 	 	15,493	 	 	 	 	9,995	 	 	 	 	110,000	 	 
	 	Bottleneck capacity net
	 	 	 	10,846	 	 	 	 	9,674	 	 	 	 	11,635	 	 	 	 	10,928	 	 	 	 	11,370	 	 	 	 	12,710	 	 	 	 	11,353	 	 	 	 	12,748	 	 	 	 	15,071	 	 	 	 	20,437	 	 	 	 	17,213	 	 	 	 	11,592	 	 	 	 	155,576	 	 
	 	Surplus
	 	 	 	4,102	 	 	 	 	3,656	 	 	 	 	4,333	 	 	 	 	4,668	 	 	 	 	3,610	 	 	 	 	5,287	 	 	 	 	3,982	 	 	 	 	4,812	 	 	 	 	3,546	 	 	 	 	4,264	 	 	 	 	1,720	 	 	 	 	1,597	 	 	 	 	45,576	 	 
	 	Utilization capacity
	 	 	 	62.2	 	 	 	 	62.2	 	 	 	 	62.8	 	 	 	 	57.3	 	 	 	 	68.2	 	 	 	 	58.4	 	 	 	 	64.9	 	 	 	 	62.2	 	 	 	 	76.5	 	 	 	 	79.1	 	 	 	 	90.0	 	 	 	 	86.2	 	 	 	 	70.7	 	 

 

Schedule 4.1(ii)

Third Party Contracts

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	Contractually	 	 	 	 
	 	Manufacturer	 	 	Committed Volume	 	 	Time period	 
	 	 	 	 	 	 	 	 	 
	 	[*****]
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	 	 	 	 	 
	 	[*****]
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 
	 	[*****]
	 	 	[*****]	 	 	[*****]	 
	 	[*****]
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	 	 	 	 	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	 	 	 	 	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	 	 	 	 	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	[*****]	 	 	[*****]	 
	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 

Customer represents that both contracts allow tolerances of [*****]% at quarter’s end to be carried
forward as excess or shortfall because exact quantity planning per quarter is not possible.

-57-

 

Schedule 4.1(iii)

Sourcing of UK and French Product

[*****]

-58-

 

SCHEDULE 5.4

Pre-Approved Subcontractors

     [*****]

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	Sorting for Waste	 	 	Off Site Storage	 
	 	Legal Name of	 	 	 	 	 	 	 	 	Disposal / Recycling	 	 	Price per Pallet	 
	 	Company	 	 	Address	 	 	Hand packing (€)	 	 	(€)	 	 	and Month in €	 
	 	

[*****]

	 	 	

 [*****]
	 	 	

[*****]
	 	 	

	 	 	

 [*****]	 
	 	

[*****]

	 	 	

[*****]
	 	 	

	 	 	

	 	 	

 [*****]	 
	 	

[*****]

	 	 	

[*****]
	 	 	

[*****]
	 	 	

	 	 	

	 
	 	

[*****]

	 	 	

[*****]
	 	 	

	 	 	

[*****]
	 	 	

	 
	 	

[*****] 1)

	 	 	

[*****]
	 	 	

[*****]
	 	 	
 

	 	 	

[*****]	 
	 

	1)	 	Hour rate depends on volume of hours purchased per annum; [*****] hours the rate will go
down.
	 
	 	 	The pallet store of [*****] can only be used as interim and in case [*****] is full

-59-

 

SCHEDULE 6.7

Permitted Variances

     All Workable Orders will be subject to variance by Supplier from the purchase order quantity
per the following schedule:

	 	 	 	 	 	 
	 
	 	Order Size	 	 	Variance in Units	 
	 	200 – 1000

	 	 	[*****]	 
	 	1001 – 2000

	 	 	[*****]	 
	 	2001 – 5000

	 	 	[*****]	 
	 	5001 – 10000

	 	 	[*****]	 
	 	10001 – 20000

	 	 	[*****]	 
	 	20001 – 50000

	 	 	[*****]	 
	 	50001 +

	 	 	[*****]	 
	 

-60-

 

SCHEDULE 7.6.2

Paper Part Procurement Matrix

     [*****]

-61-

 

SCHEDULE 8.2.1

AQL Standards – Required Inspections (CDs)

Finished Goods Audit and Minimum Acceptable Quality Level % For CD

Initial Evaluation Period

     Beginning on the Effective Date and continuing for a period of nine months (the “Initial
Evaluation Period”), the Parties will evaluate the actual operating quality level. Based upon that
evaluation, the Parties will mutually agree upon the Minimum Acceptable Quality Level for the
remainder of the Term.

Audit Plan

     Once per calendar month, Customer will have shipped to Supplier a quantity of products
(“Products” mean finished goods ready for sale to Customers customer) not to exceed 300 individual
items. The products will be selected by Customer from inventory lots which to the Customer’s best
knowledge represent Product manufactured by Supplier within the most recent 45 days.

Evaluation Process and criteria

     Each individual product will be evaluated by Supplier. Customer may observe the evaluation
process of up to 100% of the Products sent to Supplier, provided it has given Supplier five Working
days notice of its intent to observe said Evaluation Process. Supplier will evaluate each product
by all of the criteria shown below, determining in each instance if the evaluation result is “Pass”
or “Fail”. The aforementioned collectively is the “Evaluation Process”

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Pass/Fail (under
	 	 	 	 	 	 	 	 	minimum
	 	 	 	 	Minimum	 	specification=Fail;
	 	 	 	 	Specification	 	otherwise=Pass)
	 	 	Criteria	 	or	 	(Yes=Pass)
	 	 	For CD	 	Yes/No	 	(No=Fail)
	1

	 	Bler
	 	<=220 counts
	 	 
	2

	 	Burst
	 	<=6
	 	 
	3

	 	E32
	 	 	0	 	 	 
	4

	 	13-Min l 3 / l top
	 	=>.300
	 	 
	5

	 	Eccentricity
	 	<=70
	 	 
	6

	 	Birefringence
	 	 	+/-100	 	 	 
	7

	 	Print on disc matches music on disc
	 	 	Y/N	 	 	 
	8

	 	Disc matches packaging
	 	 	Y/N	 	 	 
	9

	 	Print (colors, legibility, etc) on disc
matches proof
	 	 	Y/N	 	 	 
	10

	 	Wrap tight and neat
	 	 	Y/N	 	 	 
	11

	 	No damage in print or jewel case
	 	 	Y/N	 	 	 

-62-

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Pass/Fail (under
	 	 	 	 	 	 	 	 	minimum
	 	 	 	 	Minimum	 	specification=Fail;
	 	 	 	 	Specification	 	otherwise=Pass)
	 	 	Criteria	 	or	 	(Yes=Pass)
	 	 	For CD	 	Yes/No	 	(No=Fail)
	12

	 	Correct sticker(s)
	 	 	Y/N	 	 	 
	13

	 	Stickers in correct position and orientation
	 	 	Y/N	 	 	 
	14

	 	Correct and legible spine label
	 	 	Y/N	 	 	 
	15

	 	Correct and readable barcode
	 	 	Y/N	 	 	 
	16

	 	Correct tray color
	 	 	Y/N	 	 	 
	17

	 	Correct position (multidisc sets)
	 	 	Y/N	 	 	 
	18

	 	Wrong product in brownpack and /or
Wrong content label in brownpack
	 	 	Y/N	 	 	 

Quality level

     “Fails” in Criteria 1.- 18. are Fatal Errors. In addition, if on any given product there are
3 or more “Fails” in Criteria 10.-17. that will also be considered a Fatal Error for that product.
The Quality level will be the number of products in the month with 1 or more Fatal Errors divided
by the total number of products evaluated in the month.

-63-

 

SCHEDULE 8.2.2

AQL Standards – Required Inspections (DVDs)

Finished Goods Audit and Minimum Acceptable Quality Level % For DVD

Initial Evaluation Period

     Beginning on the Effective Date and continuing for a period of nine months (the “Initial
Evaluation Period”), the Parties will evaluate the actual operating quality level. Based upon that
evaluation, the Parties will mutually agree upon the Minimum Acceptable Quality Level for the
remainder of the Term.

Audit Plan

     Once per calendar month, Customer will have shipped to Supplier a quantity of products
(“Products” mean finished goods ready for sale to Customers customer) not to exceed 300 individual
items. The products will be selected by Customer from inventory lots which to the Customer’s best
knowledge represent Product manufactured by Supplier within the most recent 45 days.

Evaluation Process and criteria

     Each individual product will be evaluated by Supplier. Customer may observe the evaluation
process of up to 100% of the Products sent to Supplier, provided it has given Supplier five Working
days notice of its intent to observe said Evaluation Process. Supplier will evaluate each product
by all of the criteria shown below, determining in each instance if the evaluation result is “Pass”
or “Fail”. The aforementioned collectively is the “Evaluation Process”

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Pass/Fail (under
	 	 	 	 	 	 	 	 	minimum
	 	 	 	 	Minimum	 	specification=Fail;
	 	 	 	 	Specification	 	otherwise=Pass)
	 	 	Criteria	 	or	 	(Yes=Pass)
	 	 	For CD	 	Yes/No	 	(No=Fail)
	1

	 	P1 Error
	 	< 280
	 	 
	 
	2

	 	Radial 1
	 	< 22
	 	 
	3

	 	P0 fails
	 	 	0	 	 	 
	4a

	 	I 14 H
	 	 	18-30	 	 	 
	4b

	 	I 14 V
	 	< 0.15
	 	 
	4c

	 	I V D
	 	< 0.33
	 	 
	5

	 	Eccentricity
	 	< 50
	 	 
	6a

	 	Birefringence
	 	 	+/- 100	 	 	 
	6b

	 	Jitter
	 	Max. 8
	 	 
	7

	 	Print on disc matches content on disc
	 	 	Y/N	 	 	 

-64-

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Pass/Fail (under
	 	 	 	 	 	 	 	 	minimum
	 	 	 	 	Minimum	 	specification=Fail;
	 	 	 	 	Specification	 	otherwise=Pass)
	 	 	Criteria	 	or	 	(Yes=Pass)
	 	 	For CD	 	Yes/No	 	(No=Fail)
	8

	 	Disc matches packaging
	 	 	Y/N	 	 	 
	9

	 	Print (colors, legibility, etc) on disc
matches proof
	 	 	Y/N	 	 	 
	10

	 	Wrap tight and neat
	 	 	Y/N	 	 	 
	11

	 	No damage in print or jewel case
	 	 	Y/N	 	 	 
	12

	 	Correct sticker(s)
	 	 	Y/N	 	 	 
	13

	 	Stickers in correct position and orientation
	 	 	Y/N
	 	 	 
	14

	 	Correct and legible spine label
	 	 	Y/N	 	 	 
	15

	 	Correct and readable barcode
	 	 	Y/N	 	 	 
	16

	 	Correct tray color
	 	 	Y/N	 	 	 
	17

	 	Correct position (multidisc sets)
	 	 	Y/N	 	 	 
	18

	 	Wrong product in brownpack and /or
Wrong content label on brownpack
	 	 	Y/N	 	 	 

Quality level

     “Fails” in Criteria 1.- 9. are Fatal Errors. In addition, if on any given product there are
3 or more “Fails” in Criteria 10.-17. that will also be considered a Fatal Error for that product.
The Quality level will be the number of products in the month with 1 or more Fatal Errors divided
by the total number of products evaluated in the month.

-65-

 

SCHEDULE 9.1

Key Failure Events (Manufacturing)

	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Definition and	 	 	KPI Repeated Failure	 
	 	KPI	 	 	Performance Standard	 	 	Event	 
	 	Weekly Production

	 	 	Making and tendering
Customer’s aggregate
Workable Orders due of
Optical Discs in a Work
Week as described in
Section 6.11(a)
	 	 	Supplier fails to
perform in accordance
with Section 6.11(a) for
any [*****] Work Weeks
in a
[*****]-rolling-week
period	 
	 	Order Tendering

	 	 	Meeting lead time
parameters as described
in Sections 6.5 and 6.6,
subject to Section 6.10
	 	 	Except with respect to
Excess Orders under
Section 6.10, Supplier
fails to perform in
accordance with Section
6.11(a) or 6.11(b) for
any [*****] Work Weeks
in [*****]-rolling-week
period	 
	 	Quality

	 	 	Maintaining average
outgoing quality level
as described in Section
8.2
	 	 	Supplier fails to
achieve AQL defined in
Section 8.2 and Schedule
8.2 for any [*****]
months in a rolling
[*****]-month period	 
	 	Multiple Defective

	 	 	Avoiding Epidemic
Multiple Defective
Events (EMDEs) as
described in Section 8.4
	 	 	[*****] EMDE’s in any
calendar [*****] or
[*****] EMDE’s in any
calendar [*****] or
[*****] EMDE’s in any
rolling [*****] months	 
	 

-66-

 

SCHEDULE 10.1

Pricing

     [*****]

-67-

 

SCHEDULE 10.3.4

Packaging Component Reference Prices

     [*****]

-68-

 

SCHEDULE 12.2d

Bare Disc Material Cost

     [*****]

-69-

 

Schedule 12.2G

     [*****]

-70-

 

SCHEDULE 22.1

Significant Customers

Each Major Music Company

Each Regional Music Company

-71-Ex-10.10

 

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: [*****].

 

 

	 	   	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

2

 

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

3

 

 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

4

 

	 	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.

5

 

	 	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

6

 

	 	   	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

7

 

	 	   	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

8

 

	   	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

9

 

	 	   	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.

10

 

	 	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

11

 

	 	   	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

12

 

	 	   	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

 

	 	   	[*****] 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

15

 

	 	   	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

16

 

	 	   	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

17

 

	 	   	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

18

 

	 	   	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.

19

 

	 	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

20

 

	 	   	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,

21

 

	 	   	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	 

22

 

	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

23

 

	 	   	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

24

 

	 	   	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

 

	 	   	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

 

	   	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.

27

 

	 	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

28

 

	 	   	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.

29

 

	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

30

 

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.

31

 

	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)

 

 

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,

 

 

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

 

 

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

 

 

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.

 

 

“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).

 

 

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	 

 

 

SCHEDULE 2.11

Working Days

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

 

 

SCHEDULE 5.4

Pre-Approved Subcontractors

	 	 	 
	Entity	 	Type of Service

 

 

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
	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 

 

 

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
	 	 	 	 	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 	 	 	 	[*****]	 	 	 	[*****]	 	 	 	[*****]	 

[*****]

 

 

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)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

 

 

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.	 
	 

 

 

SCHEDULE 10.1

Pricing

[*****]

 

 

SCHEDULE 10.2.1

Transportation Pricing

[*****]

 

 

SCHEDULE 22.0

If Customer Configuration Price minus

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}]]