U.s. HDFD Manufacturing And Related Services Agreement

U.S. HDFD Manufacturing And Related Services Agreement*

1.0 Overview : This U.S. HDFD Manufacturing 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 HDFDs and related services in the United States. 2.0 Definitions : Definitions are set forth in Schedule 2.0 of this Agreement. 3.0 Term :

3.1 The Term of this Agreement shall commence on the Effective Date and end on May 31, 2015, subject to earlier termination pursuant to other provisions of this Agreement (the " Term" ). 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. 3.2 During the Term, pricing shall be established annually as set forth in Section 10.1.2.

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, [*****] % of its and their respective Manufacturing Requirements from Supplier, excluding (i) any Manufacturing Requirements which Customer or such Universal 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 U.S. Distribution Agreement, and (ii) 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. 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 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.

* 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 [*****].


Nothing contained herein 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 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 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.

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 Manufacturing Services set forth on Schedule 10.1 in accordance with the requirements outlined in Article 6.0 and Article 8.0. These Manufacturing Services will at a minimum meet the quality specifications 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 procedure set forth in Section 10.5 to resolve the pricing for 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 procedure described in Sections 10.5.1 through and including 10.5.5 and (ii) the requested Manufacturing Service is normally and customarily provided by manufacturers in businesses substantially equivalent to Supplier' s business. 5.4 Supplier shall have the right to subcontract (i) up to [*****]% of any particular Manufacturing Services in each [*****] in excess of Supplier' s Installed Capacity, and (ii) up to [*****]% of Supplier' s Installed Capacity of any particular Manufacturing Services in each [*****] (with no rollover of any unused subcontracting capacity), in each case to the Preferred Provider or, if the Preferred Provider is not the least expensive provider of the relevant Manufacturing Services, to the third party manufacturers and service providers listed on Schedule 5.4 hereto, provided however, 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

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respect to Spot Market Orders, or (b) other customers who purchase less than [*****]%, on an [*****] basis, of Universal Music Group' s Manufacturing Requirements. Supplier will use normal, customary and reasonable business judgment to identify, propose and select subcontractors that are capable of meeting all of the requirements described in this Agreement, particularly but not limited to those set forth in Section 6.5. 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) change the Preferred Provider at any time and from time to time, or (ii) add or delete previously approved subcontractors at any time and from time to time provided that in each case (A) Customer' s deletion or change is not unreasonable; (B) Customer 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 volume 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 (including the Preferred Provider), 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 any Manufacturing Services involving hand packaging, refurbishing and other non-automated services.

5.5 Supplier shall maintain and employ (and shall require all subcontractors to 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 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 Preferred Provider manufacturing facilities as of the Effective Date.

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5.6 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 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 5.6 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 further acknowledge and agree that, notwithstanding the foregoing provisions of this Section 5.6, after the [*****]of the Term, Supplier will (a) meet the standards as set forth herein, and (b) subject to Section 5.8, further meet industry standards as required by Section 5.7. 5.7 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 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 5.7 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. 5.8 [*****] 5.9 Prior to adopting any standards pursuant to the provisions of Sections 7.4, 7.5.1, 7.5.3 or 7.6.5 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. 5.10 [*****]

6.0 Forecasts, Orders, Production and Delivery :

6.1 Customer will provide [*****] a forecast for HDFDs that will cover a period of time of no less than [*****] months. The first [*****] weeks of each forecast

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will be divided into Work Week requirements (with each Work Week forecast being a " Work Week Forecast" ), with the remainder of the forecast divided into months. 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 made for Customer' s internal budgeting purposes.

6.2 Customer shall place purchase orders for Manufacturing Services through Supplier' s electronic order system (each, an " Order" ). 6.3 Customer shall provide Supplier (or shall provide the applicable subcontractor) 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) and disc label film. Customer shall use commercially reasonable efforts 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 rework is required.

6.3.1 If requested by Customer, Supplier will supply test pressings [*****] together with all applicable packaging) free of charge and will only commence the commercial manufacture of the relevant HDFDs after receipt of the appropriate approvals of the test pressing and packaging. Supplier must deliver to Customer the test pressings, in disc or other requested format, 3 calendar days following receipt of Input Materials. Customer will make reasonable efforts to minimize the number of instances in which test pressings are required

6.4 Orders will be considered workable (" Workable Orders" ) upon:

(a) Receipt by Supplier of Customer' s Order by [*****] Eastern Time 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 HDFD Orders unless otherwise agreed to in writing by Supplier; (b) Receipt from Customer of all of the Input Materials for the ordered Manufacturing Services. Supplier will use reasonable efforts 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 Section 6.3.1.

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Customer also agrees to cooperate with Supplier and use all reasonable efforts to make all Orders submitted hereunder into Workable Orders, and Customer acknowledges that Supplier shall not be liable for any failure to perform hereunder to the extent such failure is caused by Customer' s failure to provide approvals required hereunder or perform its other obligations hereunder.

6.5 In the event Supplier manufactures HDFDs at a plant or plants owned, controlled or managed by Supplier the following lead times for Workable Orders will apply:

6.5.1 One Working Day : Maximum of [*****] selections at any time, designated by Customer, totaling no more than [*****]% of Supplier' s Installed Capacity. Items included must be automated (no hand packing required) including any inserts. 6.5.2 Two Working Days : Maximum of [*****]% of Supplier' s Installed Capacity, designated by Customer and additional to the HDFDs in 6.5.1. 6.5.3 Three Working Days . Products not requiring hand packing and not included in Sections 6.5.5 or 6.5.6 below. 6.5.4 Five Working Days : Products that require hand packing and that are not considered items subject to Sections 6.5.5 or 6.5.6 below. 6.5.5 Seven Working Days : Products identified as " New Releases" in the Customer system. These items have a future date specified for in-store sales. 6.5.6 Ten Working Days : Products identified as " Deep Catalog" in the Customer system. 6.5.7 Customer may designate any Workable Order for a 6.5.3, 6.5.4, 6.5.5 or 6.5.6 item 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.

For purposes of summary and clarity, any Workable Order for an item not a New Release or Deep Catalog and not designated by Customer for shorter lead times as described in Sections 6.5.1 or 6.5.2 will be manufactured in five Working Days. Supplier will use commercially reasonable efforts to provide faster service when requested. In the event Supplier does not manufacture at a plant or plants owned, controlled or managed by Supplier the following lead times for Workable Orders will apply:

6.5.8 New Releases (products identified as " New Releases" in the Customer system and not previously mastered): 7 Working Days.

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6.5.9 Reorders (selections previously mastered): 5 Working Days.

6.6 An Order will be deemed fulfilled if:

6.6.1 Shipments are made by Supplier prior to [*****] local plant time, on the designated due date. By way of example, for purposes of clarity, a Workable Order received by Supplier prior to [*****] Eastern Time on a Working Day, if designated by Customer a one-day lead-time must Ship by [*****] p.m. Supplier' s local time the next Working Day (if subject to Section 6.5.1), and by [*****] p.m. the Subcontractor' s local time seven Working Days later if subject to Section 6.5.7. 6.6.2 The number of HDFDs Shipped is within the variances set forth in Schedule 6.6, provided (i) where either (A) Supplier has agreed in writing to ship exact quantities for certain Customer shipments or for certain HDFDs or (B) where exact quantities are specified by Customer for certain customer shipments or for certain HDFDs 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 HDFDs shipped. In no event will Supplier deliver less than the quantity ordered.

6.7 Intentionally deleted. 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 three days of the date required under this Agreement, then Customer may secure the services of a third party or parties to fulfill the unfulfilled portion of such Workable Order(s). 6.9 Customer will not issue Orders less than [*****] HDFDs for any line item (i.e., excluding promotional items), unless a contractual requirement between Customer and its third party, non-Universal Music Group member customer requires otherwise. 6.10 To the extent that any one or more Customer Orders would exceed the Maximum Weekly HDFD Orders for such Work Week (to the extent any such Order exceeds such quantities, an " Excess Order" ), the Supplier shall either, at its option, reject or accept such Excess Order, and shall provide Customer with notice of its rejection or acceptance within 24 hours of receipt of the Excess Order; provided, however, that if Supplier rejects such Excess Order, Customer shall be entitled to fulfill the Excess Order portion of such Order with any third party supplier. 6.11 In the event Supplier (a) fails to manufacture and Ship the aggregate number of HDFDs in all Workable Orders in a given Work Week, so long as such amount ordered does not exceed the Maximum Weekly HDFD Orders or (b) fails to manufacture and Ship Workable Orders 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

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" 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 each Late Order. 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 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, provided such items are consistent with the requirements of this Agreement. 6.13 Supplier' s warehouse shall confirm receipt of each shipment of goods shipped to Supplier' s warehouse hereunder, and Supplier must confirm to Customer that the shipper and receiver information match within 48 hours of receipt. To the extent the shipper and receiver information does not match, Customer' s payment period shall be extended by one day for every day that such confirmation is delayed past such 48-hour period.

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 to the contrary, including, without limitation, in Section 10.1 and Section 10.9, the Specific Related Services will be performed by Supplier at no additional cost to Customer. Specific Related Services shall include:

7.1 Supplier will evaluate all Input Materials for defects and identify items out of Customer specification, within a timely manner, as agreed on by the Parties. 7.2 Supplier will process for shipment up to [*****] orders directly to Customer' s customers on a daily basis. Customer will pay any carrier costs associated with this service. 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 be three Working Days. The aforementioned notwithstanding, Customer may designate two DJ Promo orders per Working Day to be manufactured in two Working Days.

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7.3.2 Supplier will receive and process specific Customer shipping instructions that are directed to Supplier' s DJ Promo Department. Lead-time for distribution is included in the manufacturing lead times (i.e., the Product shall ship or be available for shipping by the end of the manufacturing lead times). Supplier will store DJ Promo Input Materials for up to [*****] calendar days at no cost to Customer. At the end of [*****] calendar days, as directed by Customer, Supplier will either continue to store the materials at a monthly fee as noted in Schedule 10.1, destroy the materials or ship them to a Customer-designated location via a Customer-designated carrier, as directed by Customer. Customer is responsible for any carrier fees associated with DJ Promo distribution services.

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: [*****] 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 to:

7.5.1 To the extent consistent with Prevailing Practices, 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 are within +/- [*****]% of the actual amount on hand. 7.5.2 Once per 12 months, at Customer' s direction and under Customer' s supervision, conduct a physical inventory of all Customer-owned components and parts in its possession. Customer will pay Supplier its actual, incremental costs incurred to perform such physical inventory(ies). Customer and Supplier agree to establish cycle counts as soon as reasonably practical. 7.5.3 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 [*****]% of the amount delivered to Supplier (or such other percentage as is consistent with Prevailing Practices). 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, multi-disc booklets and Customer-owned DVDs) specified from

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time to time by Customer, Supplier shall pay for Lost Inventory exceeding [*****]% of the amount delivered to Supplier (or such other percentage as is consistent with Prevailing Practices).

7.5.4 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. 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, this Section 7.5.4, Customer shall reimburse Supplier for all such costs.

7.6 Supplier Ordering Printed Components On Behalf of Customer

7.6.1 Supplier will order and receive components (that will be owned by Customer) and pay printed component vendors, following the order quantity and order timing procedures shown in Schedule 7.6.1, provided that Customer may change or supplement such schedule from time to time by written notice to Supplier. The agreements, if any, between the printed 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 to Supplier. 7.6.2 Supplier will invoice Customer, within [*****] days following the end of each calendar month, for the cost Supplier has paid or incurred for all printed components the Supplier purchased and received on behalf of Customer for the month. Supplier' s invoice (a) will include, as backup documentation, copies of the print 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 sample variance report provided in Schedule 7.6.2, and (c) will take into account any prior invoices for such materials. Customer will pay Supplier' s invoice in accordance with the other terms of this Agreement. All such printed components shall be owned by the Customer. 7.6.3 Supplier will include Customer-owned printed components, invoiced at the prices set forth in Schedule 10.1, in its invoices of Manufactured Services to Customer, which Customer will pay in accordance with the other terms of this Agreement.

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7.6.4 [*****] following the end of each calendar month, Supplier will calculate the sum of the dollar amounts of printed components included in its invoices of Manufacturing Services to Customer for the month and issue a credit memo or check to Customer for the difference between the sum of the calculated amount and the amount invoiced under Section 7.6.2. 7.6.5 Supplier shall conform to all performance standards set forth on Schedule 7.6.1 with respect to the ordering of printed components on the behalf of Customer to the extent consistent with Prevailing Practices. Subject to Section 5.6, if Supplier fails to meet any such performance standards, Supplier shall be responsible for all of Customer' s direct costs attributable to such failure. 7.6.6 Customer may, for any reasonable business purpose, at any time elect to order printed components and pay printed component vendors directly. In the event Customer elects to order printed components itself and pay printed component vendors directly under the foregoing provisions, (a) Supplier will cease including the cost of Customer-supplied printed components in its invoices of applicable finished product to Customer as of the effective date of such change, (b) Customer' s shall provide Supplier with [*****] days written notice of its int ...