Manufacturing And Fulfillment Services Agreement

TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2


MANUFACTURING AND FULFILLMENT SERVICES AGREEMENT


THIS MANUFACTURING AND FULFILLMENT SERVICES AGREEMENT (the "Agreement") is made and entered into as of November 4, 1999 (the "Effective Date"), by and between MP3.COM, INC., a Delaware corporation ("MP3.com"), and CINRAM, INC., a Delaware corporation ("Cinram").


RECITALS


A. MP3.com is an on-line distributor and promoter of music and is engaged in electronic commerce and the distribution of Digital Automatic Music (DAM) CDs, Compilation CDs (as defined below) and other merchandise.


B. Cinram is an international manufacturer of CDs, DVDs, audiocassettes and videocassettes, and provides various fulfillment services to its customers.


C. The parties desire by this Agreement to set forth the terms and conditions for the engagement of Cinram as MP3.com's exclusive, worldwide manufacturer of certain products, including DAM CDs and Compilation CDs, and as MP3.com's exclusive, worldwide provider of fulfillment services for certain merchandise sold by MP3.com.


AGREEMENT


NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties agree as follows:


1. DEFINITIONS. As used in this Agreement, the terms set forth below have the following meanings:


1.1 "AFFILIATE" means any corporation or other entity which controls, is controlled by, or is under common control with, a party. A corporation or other entity will be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than 50% of the voting securities or other ownership interest of the other corporation or entity.


1.2 "BONA FIDE MANUFACTURER" has the meaning set forth in Section 7.2(b).


1.3 "BUSINESS DAY" means any day other than a Saturday or Sunday on which banks are not authorized or required to close in San Diego County, California.


1.4 "CD" means a digital audio compact disc.


1.5 "CD-R" means a CD that is capable of being recorded upon.


1.6 "CHANGE IN CONTROL" means (a) a sale, lease or other disposition of all or substantially all of the assets of Cinram or Cinram's parent, Cinram International ("CINRAM INTERNATIONAL") to any Third Party, (b) a merger, reverse merger, consolidation or reorganization of Cinram or Cinram International with or into a Third Party unless, immediately following any


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such transaction, the Persons who were the stockholders of Cinram or Cinram International, as applicable, immediately prior to such transaction, together with their Affiliates, possess, directly or indirectly, at least 50% of the voting power of the surviving entity in the merger, reverse merger, consolidation or reorganization, (c) the acquisition by a Third Party of securities of Cinram or Cinram International representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of Cinram or Cinram International, or (d) the individuals who at the beginning of any period of two (2) consecutive years constitute the Board of Directors of Cinram International, cease for any reason during such period to constitute at least a majority of the Board of Directors of Cinram International.


1.7 "COMPILATION CDS" means CDs compiled featuring works of one or more artists. Compilation CDs may include multi-media content, as well as audio files.


1.8 "CONFIDENTIAL INFORMATION" means any confidential or proprietary information of a party, including without limitation, names of customers, e-mail addresses, terms of contracts, technical know-how, processes, methods of operation, marketing methods, pricing policies, works in process, future developments, and engineering, manufacturing, marketing and business plans relating to such party, its present or future products, sales, suppliers, customers, employees, investors or business, whether in oral, written, graphic or electronic form. Notwithstanding the foregoing, Confidential Information will not include any information which the receiving party can prove by competent written evidence:


(a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available;


(b) is known by the receiving party at the time of receiving such information, as evidenced by its records;


(c) is hereafter furnished to the receiving party by a Third Party, as a matter of right and without restriction on disclosure; or


(d) is the subject of a written permission to disclose provided by the disclosing party.


1.9 "CONTENT SOFTWARE" means software owned by or licensed (with a right to sublicense) to MP3.com that is required to take MP3.com's content (including but not limited to redbook and MP3 audio formats as well as video, graphics and music and/or video software players) and proprietary aesthetic design and incorporate it into a comprehensive file that can then be burned onto a CD-R or other tangible media utilizing a just-in-time manufacturing process.


1.10 "CONTROLLED AFFILIATE" means an Affiliate of MP3.com that is majority-owned by MP3.com or as to which MP3.com is expressly authorized to select the manufacturer of products or the provider of fulfillment services for such Affiliate.


1.11 "DAMAGES" has the meaning set forth in Section 14.1.


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1.12 "DAM CDS" means fully-packaged CDs, which contain multiple songs and which may contain multimedia features, including graphics, video, song lyrics and artist biographical information, as well as an embedded music and/or video player. Content contained on each DAM CD may be in multiple digital formats.


1.13 "DVD" means digital versatile disc.


1.14 "EQUIPMENT" means the hardware required to manufacture DAM CDs.


1.15 "FULFILLMENT PRODUCTS" means the products set forth on Exhibit A, as amended from time to time upon the mutual written agreement of the parties pursuant to Section 3.3.


1.16 "FULFILLMENT SERVICES" means (a) the picking, packaging and shipping of all orders for Products, and (b) the performance of the related services, all as set forth on Exhibits B and B-1, each as amended from time to time upon the mutual written agreement of the parties.


1.17 "FULLY OPERATIONAL" means, with respect to Cinram, that Cinram is meeting its performance obligations under this Agreement, including the Service Levels, the Specifications and manufacturing of Manufactured Products all at a volume per day which meets the forecast levels provided by MP3.com.


1.18 "IMPROVEMENTS" means all improvements, enhancements, modifications, alterations, translations or derivative works of the Manufacturing Software and/or the Content Software made or developed by or on behalf of Cinram or MP3.com during the Term.


1.19 "MAJOR LABELS" means any record company owned or distributed by or affiliated with any of BMG Entertainment, EMI Records, Sony Music Entertainment, Inc., Universal Music Group and Warner/Elektra/Atlantic Corporation.


1.20 "MANUFACTURED PRODUCTS" means the products set forth on Exhibit A, as amended from time to time upon the mutual written agreement of the parties pursuant to Section 3.3, which are to be manufactured according to the Specifications by Cinram for MP3.com hereunder.


1.21 "MANUFACTURING AND FULFILLMENT FEES" has the meaning set forth in Section 7.1.


1.22 "MANUFACTURING PLAN" means the plan set forth on Exhibit C for the scale-up of Cinram's facilities to enable the performance of Manufacturing Services and Fulfillment Services, as amended from time to time upon the mutual written agreement of the parties.


1.23 "MANUFACTURING SERVICES" means the manufacturing of Manufactured Products in accordance with the terms of this Agreement, including the services set forth on Exhibits B and B-1, each as amended from time to time upon the mutual written agreement of the parties.


1.24 "MANUFACTURING SOFTWARE" means software owned by or licensed (with a right to sublicense) to MP3.com that is required to take content, from MP3.com or any other customer (including but not limited to redbook and MP3 audio formats as well as video, graphics and music and/or video software players), and "burn" such content onto a CD-R or other tangible


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media utilizing a just-in-time manufacturing process, but shall not include any software that constitutes Content Software.


1.25 "NEW PRODUCT" has the meaning set forth in Section 3.3.


1.26 "PERSON" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including, without limitation, any governmental entity or department, bureau or agency thereof.


1.27 "PROBLEM PRODUCTS" means Fulfillment Products shipped to Cinram which cannot be processed by Cinram without imposing an unreasonable hardship on Cinram, including Fulfillment Products which arrive with insufficient paperwork or are faulty or damaged.


1.28 "PRODUCTS" means the Fulfillment Products and the Manufactured Products.


1.29 "SERVICE LEVELS" means the service levels set forth in Exhibits B and B-1, each as amended from time to time upon the mutual written agreement of the parties.


1.30 "SPECIAL SERVICE FEES" has the meaning set forth in Section 7.3.


1.31 "SPECIAL SERVICES" has the meaning set forth in Section 6.3.


1.32 "SPECIFICATIONS" means the specifications set forth on Exhibit D, as amended from time to time upon the mutual written agreement of the parties.


1.33 "TERM" has the meaning set forth in Section 10.


1.34 "THIRD PARTY" means any Person other than MP3.com or Cinram or an Affiliate of MP3.com or Cinram.


2. MANUFACTURING PLAN; PURCHASE AND SALE OF EQUIPMENT. The parties agree that as soon as practicable after the Effective Date, the parties will work to develop a detailed project plan setting forth the rights and responsibilities of each party with respect to getting Cinram Fully Operational. The parties agree that such project plan will be generally consistent with the Manufacturing Plan. To the extent Cinram purchases any Equipment from MP3.com, Cinram will purchase such Equipment at its then current book value.


3. EXCLUSIVE RIGHTS; JOINT MARKETING.


3.1 MANUFACTURING RIGHTS. Subject to the terms and conditions of this Agreement and during the Term, except as set forth in the Manufacturing Plan, (a) Cinram will have the exclusive, world-wide right and obligation to provide Manufacturing Services for MP3.com and its Controlled Affiliates, and (b) MP3.com agrees that it will purchase all of its and its Controlled Affiliates' requirements for Manufacturing Services exclusively from Cinram and that, except for such purchases from Cinram, neither MP3.com nor any of its Controlled Affiliates will perform, purchase, order or solicit bids from (except as set forth in Sections 5.4, 7.2(b) and 16.1(b)) any Third Party for Manufacturing Services; provided, however, that MP3.com and its


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Controlled Affiliates shall retain the right to perform, purchase, order or solicit bids for Manufacturing Services for research, development and testing purposes to the extent that such Manufacturing Services do not result in production of more than [***] units per day of each item so produced.


3.2 FULFILLMENT RIGHTS. Subject to the terms and conditions of this Agreement and during the Term, (a) Cinram will have the exclusive, world-wide right and obligation to provide all Fulfillment Services for MP3.com and its Controlled Affiliates, and (b) MP3.com agrees that it and its Controlled Affiliates will purchase Fulfillment Services exclusively from Cinram and that neither MP3.com nor its Controlled Affiliates will contract or have any arrangements with, or solicit bids from (except as set forth in Sections 5.4, 7.2(b) and 16.1(b)), any Third Party for Fulfillment Services; provided, however, that MP3.com and its Controlled Affiliates shall retain the right to perform and/or contract or have any arrangements with, or solicit bids from, any Third Party for Fulfillment Services for research, development and testing purposes to the extent that such Fulfillment Services do not result in fulfillment of services for more than [***] units per day of each item so provided.


3.3 [***]


3.4 [***]


*** CONFIDENTIAL TREATMENT REQUESTED


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4. GRANT OF LICENSES.


4.1 MANUFACTURING SOFTWARE AND CONTENT SOFTWARE. Subject to the terms and conditions of this Agreement, MP3.com hereby grants to Cinram (a) a non-exclusive, non-transferable, worldwide, irrevocable, fully-paid license (without the right to sublicense) to use the Manufacturing Software owned by MP3.com and, to the extent sublicensing is permitted under any applicable licenses, licensed to MP3.com, and (b) during the Term, a non-exclusive, non-transferable, worldwide, fully-paid license (without the right to sublicense) to use the Content Software owned by MP3.com and, to the extent sublicensing is permitted under any applicable licenses, licensed to MP3.com, solely to perform Manufacturing Services and Fulfillment Services for MP3.com and its Affiliates in accordance with this Agreement. Notwithstanding the foregoing, Cinram will have no right to use the Content Software for or on behalf of any Third Party. Except as set forth in this Section 4.1, MP3.com reserves all other rights in the Manufacturing Software and the Content Software.


4.2 IMPROVEMENTS. Subject to the terms and conditions of this Agreement, each party hereby grants to the other party a non-exclusive, non-transferable, worldwide, irrevocable (except as set forth in Section 11 hereof), fully-paid license to use, without the right to sublicense, solely for its internal business purposes, any Improvements created during the Term. Every six (6) months during the Term, each party will provide to the other party (a) a report which sets forth in reasonable detail all Improvements made or developed by or on behalf of such party during such six (6) month period, and (b) all supporting documentation related thereto.


5. MANUFACTURING SERVICES.


5.1 PLACE OF PERFORMANCE. The Manufacturing Services will be performed by Cinram at Cinram's place of business in Anaheim, California, and/or at such other business locations in the 48 contiguous United States as Cinram may maintain from time to time, or such other location as mutually agreed by Cinram and MP3.com; provided, however, that Cinram may out-source certain Manufacturing Services to a Third Party on a temporary basis, subject to the prior written consent of MP3.com, so long as Cinram remains primarily responsible for providing such out-sourced Manufacturing Services.


5.2 SERVICE LEVELS. The Service Levels define certain minimum standards of performance which Cinram will maintain in rendering the Manufacturing Services. Cinram will use commercially reasonable efforts to provide Manufacturing Services in accordance with the Service Levels. In circumstances in which this Agreement does not stipulate certain Service Levels with respect to a particular Manufacturing Service, Cinram and MP3.com will mutually agree in writing upon the Service Levels with respect to such Manufacturing Service, and Cinram will use commercially reasonable efforts to provide such Manufacturing Service in


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accordance with such agreed upon Service Levels. Cinram's failure to perform the Manufacturing Services in accordance with the Service Levels will be subject to the default and cure provisions set forth in Exhibit B-1.


5.3 SPECIFICATIONS. Cinram will perform the Manufacturing Services in accordance with the Specifications. If Exhibit D does not set forth the Specifications with respect to certain Manufacturing Services, Cinram and MP3.com will mutually agree in writing upon the Specifications for such Manufacturing Services, and Cinram will use commercially reasonable efforts to perform such Manufacturing Services in accordance with such Specifications. Cinram's failure to perform the Manufacturing Services in accordance with the Specifications will be subject to the default and cure provisions set forth in Exhibit B-1.


5.4 MUSICAL CONTENT AND GRAPHICS MATERIAL. MP3.com will make all content with respect to the Manufactured Products available to Cinram in accordance with the Manufacturing Plan, but in all cases in a manner so as to permit Cinram to manufacture the Manufactured Products within the Specifications. Cinram retains the right, in its sole reasonable discretion, to decline to produce any Manufactured Product if it has been notified of or reasonably believes any content or other components of such Manufactured Product infringe any trademarks, service marks, trade names, copyrights, trade secrets or other intellectual property rights of any Third Party. In order to assist Cinram in complying with the requirements set forth under the International Recording Media Association ("IRMA") Anti-Piracy Compliance Program, MP3.com acknowledges and agrees that (a) Cinram will incorporate a code in all audio and video glass masters and any CD, DVD or other similar product indicating the location of production of such product, (b) except as provided in clause (d) hereof and in Section 11.3(e), Cinram will maintain one source copy of each CD, DVD or other similar product forwarded to it by MP3.com for one year, (c) Cinram may in its sole discretion investigate the ownership of any and all materials provided to it for duplication or reproduction, and (d) if Cinram reasonably determines, or in its sole reasonable discretion has reason to believe, that MP3.com does not possess the power or authority to duplicate or reproduce a product or materials, Cinram may quarantine such product or materials forwarded to Cinram and, within ten (10) Business Days, return such product or materials to MP3.com at MP3.com's sole cost and expense; provided, however, if Cinram refuses to duplicate or reproduce a product or materials pursuant to clause (d) hereof, Cinram thereby waives its rights to exclusivity under Section 3 with respect to such product or materials.


5.5 WARRANTY. Cinram represents and warrants, for a period of one (1) year from the date of delivery with respect to each Manufactured Product supplied under this Agreement, that such Manufactured Product will be free from material defects in materials and workmanship and will materially conform to the Specifications.


6. FULFILLMENT SERVICES.


6.1 PLACE OF PERFORMANCE. The Fulfillment Services will be performed by Cinram at Cinram's place of business in Anaheim, California, and/or at such other business locations in the 48 contiguous United States as Cinram may maintain from time to time, or such other location as mutually agreed by Cinram and MP3.com; provided, however, that ...