Exhibit 10.4
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this Agreement) is made as of the 19th day of
February, 1999
BETWEEN:
On-Line Film Services Inc., a corporation formed under the laws of British
Columbia, having an office at 208 - 0000 Xxxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxx
Xxxxxxxx, Xxxxxx,X0X 0X0
("Owner")
AND
CINESOURCE INC., a corporation formed under the laws of California having an
office at 0000 - 00xx Xxxxxx, Xxxxx Xxxxxx, Xxxxxxxxxx, 00000, X.X.X.
("Manager")
WHEREAS, pursuant to an agreement (the "Asset Purchase Agreement") made August
31, 1998 between Owner and Columbus Entertainment, Inc. ("Columbus"), Owner
purchased all rights, title and interest in and to a computer software program
developed by or for Columbus and known as the "Columbus Commercial Suite" and
Derivatives related thereto, for a Field of Use consisting of the production of
commercials, in the Ownership Territory, as those terms are defined in the Asset
Purchase Agreement; and
AND WHEREAS, Owner desires to retain Manager to provide certain marketing and
management services to assist Owner in providing services to production
companies, their producers, executives and all production personnel and others
in the Field of Use in the Service Territory, as those terms are defined herein.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency
of which is hereby acknowledged, and in consideration of the mutual
representations and covenants herein, the parties agree as follows:
1. DEFINITIONS
1.1 In this Agreement, the following terms shall have the following meanings:
"Annual Exclusivity Payment" means the annual amount payable by Manager to Owner
for the exclusive right to provide the Management Services, which amount shall
be calculated as set forth in Schedule "B" attached hereto.
"Annual Gross Operating Revenues" means the amount of Gross Operating Revenues
actually received during a particular calendar year (or part year on
termination) during the Term.
"Annual Incremental Revenues" means that portion of the Annual Gross Operating
Revenues which exceeds the corresponding Annual Minimum.
"Annual Minimum" means the targeted minimum amount of Annual Gross Operating
Revenues to be achieved in a particular calendar year during the Term,
calculated as set forth in Schedule "B" attached hereto.
"Asset Purchase Agreement" means that certain agreement made August 31, 1998, by
and between Owner and Columbus Entertainment, Inc., pursuant to which Owner has
purchased all rights, title and interest in and to the Columbus Commercial Suite
for the Field of Use in the Ownership Territory, as such terms are
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defined in the Asset Purchase Agreement, on the terms, conditions and provisions
set forth in the Asset Purchase Agreement.
"Business Marketing Plan" means the business marketing plan which shall be
prepared jointly each year by Manager and Owner and which shall serve as Owner's
marketing plan regarding the Management Services.
"Columbus" means Columbus Entertainment, Inc., the original owner and developer
of the Columbus Commercial Suite, and which beneficially owns all of the issued
and outstanding shares of the Manager.
"Columbus Commercial Suite" means the computer software program described in
Schedule "A" attached hereto, and which was developed by or for Columbus, and
which will be used to provide Columbus Commercial Suite Services to End Users
for compiling data in connection with the management of the production of
commercials in the entertainment industry, which software is the subject matter
of the Asset Purchase Agreement, and which Owner intends on including as part of
the Production Network for fees consistent with the Business Marketing Plan, and
which should allow Owner to collect the Annual Minimum.
"Columbus Commercial Suite Services" means the services to be provided by Owner
to End Users through the Production Network utilising the Columbus Commercial
Suit, with respect to the production of commercials.
"Cumulative Incremental Revenues" means the total amount of all Annual
Incremental Revenues calculated from the effective date of this Agreement until
the expiration or earlier termination of this Agreement.
"Dollar" and "$" means dollars in United States currency.
"End Users" means any entity, person, and/or production company who has
contracted for the Columbus Commercial Suite Services in the Service Territory.
"Gross Operating Revenues" means the total revenues actually received by Owner
resulting from the provision of the Columbus Commercial Suite Services in the
Service Territory during the Term.
"Management Fee" means the fee to be paid by Owner to Manager in each calendar
year of the Term, which fee shall equal one percent (1%) of the Annual Gross
Operating Revenues for such year, until the Cumulative Incremental Revenues
equal the Term Minimum at which time the Management Fee shall become fifteen
percent (15%) of the Annual Gross Operating Revenues for each year thereafter.
"Management Services" means the marketing and management services to be provided
by Manager to Owner during the Term, as further described in Schedule "C"
attached hereto.
"Owner's Gross Operating Revenues" means the Annual Gross Operating Revenues in
a calendar year less the Management Fee for such year.
"Production Network" means the computer and telecommunications facilities and
service bureau operated by Owner, through which Owner will provide "online
services" including but not limited to the Columbus Commercial Suite Services.
"Service Territory" means the whole world excluding Chile.
"Term" means ten (10) years commencing on August 31, 1998 and continuing until
August 31, 2008.
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"Term Exclusivity Payment" means the amount calculated as set out forth in
Schedule "B" attached hereto, which is payable by Manager to Owner pursuant to
Section 16 if the Cumulative Incremental Revenues do not reach the Term Minimum.
"Term Minimum" means the amount of $25,000,000.
2. APPOINTMENT OF MANAGER
2.1 Upon and subject to the terms and conditions of this Agreement, Owner hereby
retains Manager on an exclusive basis during the Term of this Agreement to
provide the Management Services to Owner within the Service Territory, and
Manager hereby accepts such appointment and agrees to provide the Management
Services to Owner.
3. MANAGEMENT SERVICES
3.1 Manager shall during the Term, provide the Management Services to Owner
consistent with the objectives and activities contemplated by the Business
Marketing Plan, and as jointly agreed upon by the parties from time to time.
3.2 Manager shall to use all reasonable efforts to comply with all applicable
laws in the provision of Management Services. Manager represents, warrants and
covenants with Owner that Manager has and will continue to have, sufficient
technical, financial and other resources to fulfil Manager's obligations
hereunder.
4. SUBCONTRACTOR
4.1 Manager shall have the right to retain an affiliate as a subcontractor or
supplier, to assist in providing the Management Services, provided that any such
subcontract or supply agreement shall not be in conflict or inconsistent with
this Agreement, and shall be subject to the prior consent of Owner not to be
unreasonably withheld.
5. GROSS OPERATING REVENUES
5.1 In support of Owner's provision of Columbus Commercial Suite Services to End
Users, Manager shall provide the Management Services with the objective, and
using all reasonable efforts, to maximise Gross Operating Revenues, in order
that the Annual Gross Operating Revenues equal or exceed the corresponding
Annual Minimum in each calendar year, and the Cumulative Incremental Revenues
during the Term exceed the Term Minimum.
All Gross Operating Revenues shall be collected by and shall accrue to the
account of Owner.
Owner represents and warrants that it will use its reasonable best efforts to
exploit the Columbus Commercial Suite and provide Columbus Commercial Suite
Services to maximise Gross Operating Revenues in order that the Annual Gross
Operating Revenues equal or exceed the corresponding Annual Minimum in each
calendar year, and the Cumulative Incremental Revenues during the Term exceed
the Term Minimum
Owner shall during the Term offer the Columbus Commercial Suite Services to End
Users only as a separate product with its own pricing, even when it is provided
through the Production Network, provided that Owner shall have the right to
offer the Columbus Commercial Suite Services as part of a group product offering
with one price if Owner can give assurances to Manager that the portion of the
group price which Owner allocates to the Columbus Commercial Suite Services is
reasonable.
6. MANAGEMENT FEES
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6.1 The consideration for all Management Services provided by Manager to Owner
for each calendar year during the Term shall be the Management Fee, which Owner
shall pay to Manager within 30 days of the end of such calendar year.
6.2 Manager shall not charge Owner for any expenses or costs incurred by Manager
in providing the Management Services. Such expenses and costs shall be for
Manager's account. Owner shall have no liability to Manager for any other fees
or charges, under this Agreement.
7. ANNUAL EXCLUSIVITY PAYMENT
7.1 If at the end of any calendar year during the Term (or part year upon expiry
or earlier termination), the Annual Gross Operating Revenues are less than the
applicable Annual Minimum for such year or part year, then there shall become
due and owing, and Manager shall be liable for, an Annual Exclusivity Payment to
Owner for the exclusive rights that it had received to provide the Management
Services in such year, calculated as set out in Schedule "B" hereto.
7.2 Manager shall pay each Annual Exclusivity Payment within 30 days of the end
of the calendar year, or part year, to which it applies.
8. GUARANTEE
8.1 Manager shall arrange for Columbus to guarantee to Owner the payment by
Manager of all payments required to be made pursuant to this Agreement, by
Columbus entering on the effective date of this Agreement into a guarantee in
form and substance satisfactory to Owner.
9. NON-COMPETITION
9.1 Manager shall not, and shall obtain the agreement of its directors and
shareholders that they shall not, provide, market in any manner, develop or sell
any products or services which are competitive with the Columbus Commercial
Suite or Columbus Commercial Suite Services, for End Users in the Field of Use.
10. REPORTING
10.1 Manager shall furnish to Owner quarterly reports containing a statement in
reasonable detail setting forth a summary of its activities.
10.2 Periodic meetings shall be arranged between Manager and Owner, on a
mutually acceptable schedule, to review the progress of the Management Services.
11. OBLIGATION TO PROTECT COPYRIGHT AND TRADEMARKS
11.1 Manager hereby acknowledges that Owner owns the Columbus Commercial Suite
in the Field of Use including copyrights and all other intellectual property
rights associated therewith, and that Manager, its directors, shareholders and
affiliates are not acquiring any proprietary rights, title, license or interest
in the Columbus Commercial Suite, all of which shall remain with Owner. Manager
is appointed to provide Management Services on condition that Manager shall at
all times protect the interests of Owner in the Columbus Commercial Suite.
11.2 Owner shall have the right to review all marketing and advertising plans
and strategies to be executed by Manager with respect to Columbus Commercial
Suite Services, and to require such changes as Owner may reasonably request so
as to protect the interests of Owner.
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11.3 Owner shall have the right to take any action it deems necessary to protect
its intellectual property rights in the Columbus Commercial Suite, including
filing lawsuits in the event of infringement and filing for copyright and
trademark registrations. If Owner fails to take any action regarding any alleged
infringement of the rights of Owner in the Columbus Commercial Suite, Manager
may, at its own expense, take such action only after having obtained the written
consent of Owner, which consent shall not be unreasonably withheld.
USE OF INDEPENDENT CONTRACTORS
12.1 Manager shall, at its expense, have the right to use independent
contractors to perform such work as in its reasonable opinion may be convenient
or necessary for the support, maintenance, marketing, promoting and supply of
Management Services, including computer programmers, technicians, systems
consultants, marketing consultants and business consultants, provided that it
first notifies and receives the approval of Owner, which shall not be
unreasonably withheld.
13. BUSINESS PLAN
13.1 Manager agrees to prepare with Owner an annual Business Marketing Plan by
the 28th day of February in each year, which shall be followed by Manager in
providing the Management Services. Owner, acting reasonably, may suggest
revisions to the Business Marketing Plan, and Manager will use its reasonable
best efforts to accommodate such suggested revisions.
14. TERM
14.1 This Agreement shall become effective upon its execution by the parties
hereto and, unless terminated earlier in accordance with its provisions, shall
remain in effect for an initial Term until August 31,2008.
14.2 Manager shall have the right to renew this Agreement for an additional 10
years at a Management Fee of 15%, and upon the terms and conditions in existence
at the end of the initial Term of this Agreement, such right of renewal to be
exercised by giving Owner at least 60 days' prior written notice, provided that;
(a) Manager is not in breach of this Agreement at either the date of notice of
renewal, or the date of renewal, and
(b) as of the date of renewal, the Cumulative Incremental Revenues equal or
exceed the Term Minimum.
15. EARLY TERMINATION
15.1 Owner may terminate this Agreement upon 30 days' prior written notice to
Manager in the event that:
(a) Manager or Columbus is declared bankrupt or becomes an insolvent person,
makes an assignment for the benefit of its creditors or attempts to avail itself
of any applicable statute relating to insolvent debtors;
(b) Manager or Columbus takes steps to wind-up, dissolve or liquidate, except
for internal corporate reorganisations, mergers or shareholder reorganisations,
or otherwise ceases to function as a going concern or is prevented from
performing its duties hereunder for a period greater than 30 days;
a trustee, receiver, receiver and manager or other custodian (interim or
permanent) of any of the assets of Manager or Columbus is appointed by private
instrument or by court order or if any execution,
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sequestration, or other analogous process of any court becomes enforceable
against Manager or Columbus or the assets of either or if distress or process is
made against the assets or any part thereof of Manager or Columbus, unless
within 30 days of such occurrence such process has been discharged;
(d) Manager or Columbus ceases to carry on the business carried on by it
pursuant to this Agreement for a period of 120 days;
(e) Manager ceases to provide the Management Services, or is otherwise in
material breach of this Agreement, for reasons other than events or occurrences
beyond the reasonable control of the Manager which have not been caused by
Manager's negligence, and which Manager was unable to prevent by the exercise of
reasonable diligence, provided that no termination shall occur as the result of
such failure if such failure is cured before the 30th day following the date of
notification by Owner to Manager of such failure to comply.
15.2 Failure to attain any Annual Minimum shall not be sufficient reason to
result in the termination of this Agreement or the loss of the exclusive
Management Services rights of Manager.
16. TERM EXCLUSIVITY PAYMENT
On the expiry of the initial Term, or on any earlier termination of this
Agreement for any cause or reason whatsoever, if the Cumulative Incremental
Revenues are less than the Term Minimum, then there shall become due and owing,
and Manager shall be liable for, the Term Exclusivity Payment, for the exclusive
rights that it had received to provide the Management Services, calculated as
set out in Schedule "B" hereto, and together with all outstanding Exclusivity
Payments, if any, they shall be paid in full by Manager to Owner within 30 days
of such date of expiration or termination.
17. APPOINTMENT OF OTHER MANAGERS
17.1 Owner shall not have the right to appoint additional independent managers
to provide the same Management Services in the Service Territory in respect of
the Columbus Commercial Suite Services for the Field of Use during the Term,
without the prior written consent of Manager.
18. RIGHT TO REVIEW
18.1 Owner may at any time, at its own expense, review the performance by
Manager of the Management Services, and provide recommendations with respect
thereto.
DISCLAIMER
19.1 EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH HEREIN, OWNER MAKES NO FURTHER
REPRESENTATIONS OR WARRANTIES, EITHER EXPRESSED OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ANY CONDITION OR WARRANTY OF
MERCHANTABLE QUALITY OF THE COLUMBUS COMMERCIAL SUITE OR ITS FITNESS FOR ANY
PARTICULAR PURPOSE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A
COURSE OF DEALING OR USAGE OF TRADE. IN NO EVENT WILL OWNER BE LIABLE FOR (I)
DAMAGES CAUSED BY MANAGER'S FAILURE TO PERFORM ITS COVENANTS; (II) DAMAGES
CAUSED BY UPDATES OR ALTERATIONS DONE TO THE COLUMBUS COMMERCIAL SUITE BY
MANAGER WITHOUT OWNER'S WRITTEN APPROVAL; OR (III) ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES INCURRED BY MANAGER. MANAGER SHALL INDEMNIFY OWNER AGAINST
ALL CLAIMS ASSERTED BY THIRD PARTIES AS A RESULT OF SUCH ACTS OR OMISSIONS OF
MANAGER. OWNER'S LIABILITY FOR DAMAGES TO MANAGER FOR ANY CAUSE, REGARDLESS OF
THE FORM OF ACTION, SHALL NOT EXCEED THE AGGREGATE FEES PAID FOR MANAGEMENT
SERVICES UNDER THIS AGREEMENT.
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20. NOTICES
20.1 The addresses for delivery of notices to each party are as follows:
to Owner: On-Line Film Services Inc.
208 - 0000 Xxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx,
X0X 0X0, Xxxxxx
to Manager: Cinesource Inc.
0000 - 00xx Xxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx
00000, X.X.X.
20.2 Unless otherwise expressly provided in this Agreement, any notice, request,
direction, consent, waiver, extension, agreement or other communication that is
or may be given or made hereunder shall be in writing and either personally
delivered to the addressee or to a responsible officer of the addressee or sent
by courier or facsimile or e-mail transmission. The parties hereto may change
their respective address for notice given in the manner aforesaid. Any notice
given by facsimile transmission or e-mail shall be deemed to have been received
on the next business day after transmission. Any notice given by personal
delivery shall be deemed to have been received on the business day on which it
is delivered and left with the recipient at the recipient's address for notice.
21. RELATIONSHIP OF PARTIES
21.1 Nothing in this Agreement shall constitute any of the parties the partner
or joint venturer of another. The relationship of Manager to Owner shall be that
of an independent contractor.
22. ASSIGNMENT
22.1 Manager may not assign this Agreement or any of its interests herein
without the prior written consent of Owner.
23. SEVERABILITY
If any provision of this Agreement is determined to be void, invalid or
unenforceable in whole or in part, such invalidity or unenforceability will
attach only to such provision or part thereof, and the remaining part of such
provision and all other provisions hereof will continue in full force and
effect.
24. BENEFIT OF AGREEMENT
24.1 This Agreement will inure to the benefit of and be binding upon the parties
hereto and their respective legal representatives, successors and assigns.
25. ENTIRE AGREEMENT
25.1 This Agreement constitutes the entire agreement between the parties with
respect to its subject matter and cancels and supersedes any prior
understandings and agreements between the parties with respect thereto.
26. AMENDMENTS
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26.1 No amendments to this Agreement will be valid or binding unless set forth
in writing and duly executed by both of the parties hereto.
27. WAIVER
27.1 No waiver of any breach of any provision of this Agreement will be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided in writing in the written
waiver, will be limited to the specific breach waived.
28. EXECUTION
28.1 This Agreement may be executed in counterparts and delivered by facsimile
copy by either of the parties. Each executed counterpart shall be deemed to be
an original and such counterparts shall together constitute one and the same
agreement.
IN WITNESS WHEREOF the parties hereto have executed this agreement.
ONLINE FILM SERVICES INC. CINESOURCE INC.
By: ______________________________ By: ______________________________
Its President Its President
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SCHEDULES
A. Columbus Commercial Suite
B. Minimum and Exclusivity Payments
Management Services
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SCHEDULE "A"
Columbus Commercial Suite
Columbus Commercial Suite Software Description
Its a relational database application utilizing Filemaker Pro 4.0 as its engine
which is able to run locally or on a LAN. Its made up of a number of Filemaker
Pro database documents that function together as a separate modular application
and generate reports.,
It is software specifically designed to mirror the way production office people
work today and it utilizes some software owned and under license from Columbus
Systems Inc.
The software delivers a mechanism for creating purchase orders, call sheets,
production reports, time cards, start close paperwork, deal memos and staff and
crew lists, travel authorizations, as well as project tracking.
The Columbus suite consists of software modules specifically tailored for use by
companies and individuals producing television commercials.
The VFX module is designed specifically for Visual Effects Producers. Tracks
shots, elements, storyboards, vendors, costs, and more. The perfect solution for
generating Call Sheets and Production reports and either printing them hard copy
for signature, or saving as an Acrobat PDF file to e-mail back to the office or
studio.
It enables departmental co-ordinators to produce their cost reports for use by
the production accountant more efficiently.
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SCHEDULE "B"
MINIMUM AND EXCLUSIVITY PAYMENTS
Annual Minimum
1999- $750,000.00
2000 and thereafter-for any such year (the Subject Year);
if the Annual Gross Operating Revenues in the prior calendar year did not exceed
such year's corresponding Annual Minimum, then the Annual Minimum for the
Subject Year shall be equal to the prior year's Annual Minimum, and if the
Annual Gross Operating Revenues in the prior calendar year (Prior AGOR ) did
exceed such year's corresponding Annual Minimum (Prior AM), then the Annual
Minimum for the Subject Year shall be an amount calculated as follows = (1.03 x
Prior AM) - (0.03 x Prior AGOR ).
Annual Exclusivity Payments
For any calendar year ;
if the Annual Gross Operating Revenues equal or exceed the Annual Minimum for
such year, then the Annual Exclusivity Payment is $0.
if the Annual Gross Operating Revenues for such year (AGOR) are less than the
Annual Minimum for such year (AM), then the Annual Exclusivity Payment shall be
an amount calculated as follows = 0.14 x (AM-AGOR).
Term Exclusivity Payment
The Term Exclusivity Payment shall be an amount calculated as follows =
0.14 x (Term Minimum-Cumulative Incremental Revenue)
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SCHEDULE "C"
MANAGEMENT SERVICES
1. Programming Consultation
Provide a mutually agreed level of consultation for any modifications to the
Columbus software as it applies the Commercial production business. Particularly
with respect to the contribution of expertise in the business of commercial
production and programming of Filemaker Pro. Cinesource will consult in the
integration and functionality of the Casting Workbook into the Columbus
software.
2. Cross-promotion
Cinesource and Online will mutually cross promote the Columbus software and the
Casting Workbook at public events like trade shows and seminars. Cinesource will
make reference to the Casting Workbook in support materials circulated by
Cinesource. Such examples to include but not limited to providing space on
distribution information materials of its software for the Casting Workbook
logo, a brief "one-liner" and contact information. Cinesource and Online will in
good faith actively promote respective software programs.
3. Columbus software functionality
Pop-up help or directions to the Casting Workbook topics will be placed in the
Columbus software on content related to the casting process.
4. Investment Seminar Participation
Cinesource will assist, as mutually agreed, in the presentation of the Columbus
software at investment seminars presented by OnLine for purposes of promoting
the company.
5. Casting Workbook integration with Columbus
Online and Cinesource will mutually agree upon the construction and design of a
casting module that is homogeneous with the Columbus software. Online will be
responsible for the first prototype of this module that will be designed to join
producers and casting directors with specific project information. Some
information could consist of deal memos, contracts and agreements; suggestion
lists for actors; resumes, photos, audio clips and video clips; casting director
short lists; script and various versions (specifically "sides" for actors and
casting director breakdowns); final cast lists to the producers; and any other
casting related functions.
6. Links to Website
Where practical, links to the Casting Workbook at Xxxxxxxxxx.xxx will be placed
in the Columbus software.
Management Final
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