Uplink Management Services Agreement - Colorado Satellite Broadcasting Inc. and 1248663 Ontario Inc.
UPLINK MANAGEMENT SERVICES AGREEMENT THIS AGREEMENT made as of the ______ day of __________, 1997. BETWEEN: COLORADO SATELLITE BROADCASTING, INC. a corporation incorporated under the laws of Colorado ("CSB") - and - 1248663 ONTARIO INC. a corporation incorporated under the laws of Ontario ("124") WHEREAS CSB is engaged in the adult movies business (the "Business"); AND WHEREAS under the terms of an Asset Purchase Agreement made September 5, 1997 among New Frontier Media, Inc., CSB and 124 (the "Asset Purchase Agreement"), the parties hereto have agreed to enter into this Agreement; AND WHEREAS CSB wishes to engage 124 and 124 wishes to be so engaged to provide the Services, as, defined in SECTION 1, on behalf of CSB; NOW THEREFORE THE PARTIES AGREE as follows in consideration of the payment of $2.00, the receipt and sufficiency of which is hereby acknowledged: ARTICLE 1. PROVISION OF SERVICES BY 124 124 agrees to operate, maintain, manage and sustain analog turnkey uplink, playback and editing facilities utilizing the Leased Assets to transmit CSB's programming on up to four C-Band satellite transponders serving the United States market (the "Services"). 124 warrants that the playback and uplink to such transponders, taken together, shall be available 99.5% of the time during each year of the Term (as defined below). 124's responsibilities hereunder shall include those duties set out in SCHEDULE "A". 124 expressly covenants to perform the Services and all functions necessary for the operation of the Uplink Facility as defined below. In order to assist 124 in this regard, CSB shall have one of its own employees at the Uplink Facility; such <PAGE> 2 employee shall be familiar with all current programming needs of CSB; such employee shall comply with all reasonable rules and regulations from time to time implemented by management of the Uplink Facility. ARTICLE 2. LEASE OF EQUIPMENT BY COLORADO 2.1 LEASE. in consideration of the provision of Services by 124 in accordance with the terms hereof, CSB agrees to lease to 124, for the Term those assets (the "Leased Assets") identified on SCHEDULE "B" for a nominal lease payment of US$2.00. 2.2 TITLE. Title to the Leased Assets shall at all times remain in CSB and at no time during the Term shall title become vested in 124. Immediately upon termination of this Agreement provided CSB is not then in default under this Agreement, 124 shall release the Leased Assets to CSB and the Leased Assets shall be removed from 124's premises at CSB's expense within 7 days after the final day of the Term. All Leased Assets will be returned to CSB in the operating order, repair and condition and in as good a condition as when originally delivered to 124, ordinary wear and tear excepted, and be free and clear of all liens other than those placed thereupon by CSB. 2.3 SECURITY INTEREST. CSB may register a security interest in the Leased Assets as against 124 under the PERSONAL PROPERTY SECURITY ACT (Ontario) as a cautionary filing for a period of three years which registration will be discharged upon termination of this Agreement and the fulfillment of any obligations owed by 124 to CSB under this Agreement. 2.4 REMOVAL OF LEASED ASSETS. The Leased Assets shall not be removed from the Uplink Facility (as defined below), or the New Uplink Facility (as defined below), without the prior written consent of CSB except where any of such Leased Assets require off-site repair and maintenance. 2.5 MAINTENANCE COSTS. All labor costs related to the maintenance of the Leased Assets shall be the responsibility of 124. 124 shall maintain industry-accepted maintenance and repair standards. Subject to SECTION 2.6, 124 shall invoice CSB, and CSB shall pay 124 upon receipt thereof, for all actual costs incurred to purchase replacement parts for the Leased Assets or to replace any of the Leased Assets. 124 shall not purchase any replacement part for the Leased Assets with a cost exceeding US$5,000 without the prior consent of CSB and 124 shall not be responsible for any service failure under this Agreement caused by any delay in obtaining such consent. 2.6 LOSS OR DESTRUCTION. In the event of any loss or destruction of any Leased Assets attributable solely to the negligence or wilful misconduct of 124, its subcontractors, or their employees, 124 shall provide a substitution therefor of comparable quality which substitution shall be deemed to form part of the Leased Assets. 2.7 ADDITIONAL ASSETS. Subject to SECTION 2.5, if 124 requires assets other than the Leased Assets to comply with its obligations hereunder, the responsibility for obtaining such assets, which shall not form part of the Leased Assets, shall be that of 124. <PAGE> 3 2.8 INSPECTION RIGHTS. CSB shall have access to the Leased Assets at all times. CSB shall have the right, during 124's normal business hours and upon reasonable notice to 124, to inspect 124's records with respect thereto provided that CSB will conduct no such inspection which is likely to disrupt 124's business operations. 2.9 LICENSES, ETC. 124 shall maintain in effect, all licenses certificates, permits, approvals and consents required by applicable law or by any governmental body, agency or authority in connection with the use, operation and maintenance of the Leased Assets and the Uplink Facility and no proceedings which may result in the revocation, cancellation, suspension or modification of any such licenses, certificates, permits, approvals or consents shall occur without notice to CSB. 2.10 CONDITION OF ASSETS. CSB leases the Leased Assets to 124 on an as-is, where-is basis and except as otherwise expressly stated in this Agreement, CSB expressly disclaims and makes no representation or warranty of any sort in respect of the Leased Assets. 124 expressly covenants that it has reviewed all the Leased Assets and that the same are sufficient and necessary for the provision of the Services. ARTICLE 3. TERM The term of this Agreement (the "Term") shall run for a period of a period of 3 years from the "Closing" (as that term is defined in the Asset Purchase Agreement). ARTICLE 4. PRICE 4.1 MONTHLY FEE. CSB agrees to pay to 124 the sum of US$80,000 per month plus applicable taxes (the "Monthly Fee"). The Monthly Fee shall be payable by wire transfer or by delivery of a certified cheque to be received by 124 on the _____ day of each calendar month during the Term. 4.2 TAXES. CSB will be subject to any goods and services tax under the EXCISE TAX ACT (Canada) and any other consumer, retail, use or value-added tax that may be chargeable in respect of the Monthly Fee. 4.3 INTERRUPTION. In the event of interruptions of the Services as a result of failure by 124 to satisfy the terms and conditions hereof (which failure is not coincidental with an event of Force Majeure), the Monthly Fee payable by CSB to 124 during the next calendar month shall be reduced pro rata having regard to the proportion that the time of the interruptions of services bears to the total number of hours in such month. <PAGE> 4 ARTICLE 5. EARLY TERMINATION 5.1 PAYMENT ON EARLY TERMINATION. If CSB desires to terminate this Agreement prior to the end of the Term, CSB shall give 124 not less than 30 days prior written notice of its desire to do so and shall pay to 124, not as a penalty but as a pre-estimation of damages sustained by 124, an amount equivalent to the product of US$21,800 and the number of full calendar months then remaining in the Term (the "Early Termination Fee"). CSB shall pay one-half of the Early Termination Fee or US$200,000 (whichever is greater) on the effective date of the termination and the remainder of the Early Termination Fee on the first to occur of the first anniversary of the effective date of termination or on the date which is half way between the effective date of termination and the date on which this Agreement was originally intended to expire, whichever first occurs. 5.2 SPECIAL CIRCUMSTANCES. "Special Circumstances" exist when 124 is unable to provide playback and uplink to CSB's four transponders so that the programming on the transponders, taken together, is operative 99.5% of the time during each year of the Term or when the action of transporting tape recordings from CSB to 124 for play-back consistently encounters unreasonable delays due solely to new statutory, regulatory or policy-oriented governmental enforcements (and which delays cannot be avoided by CSB and/or 124 acting reasonably) or where such transportation becomes illegal. If Special Circumstances exist, CSB may terminate the Agreement on 60 days notice to 124 and upon payment by CSB to 124 of all amounts owing hereunder to the effective date of termination, which amounts shall not be paid where 124 is otherwise in default hereunder. ARTICLE 6. DEFAULT 6.1 EVENTS OF DEFAULT. An event of default ("Event of Default") hereunder shall be deemed to occur upon: (a) any merger of 124 or conveyance, transfer or loan on substantially all of the stock or assets of 124 other than to Douglas J. Duncan, Stuart K. Duncan or a company controlled by them or either of them; (b) the failure of 124 or CSB to observe or perform any covenant set out in this Agreement, provided such failure has continued for 30 days after notice thereof is given by the party not in default to the party in default (and further provided that the failure need only continue for 5 days if the default relates to a failure by CSB to pay the Monthly Fee); (c) the insolvency, bankruptcy, assignment for the benefit of creditors, voluntary or involuntary petitioning for creditors' relief or the appointment of a transferee or receiver by or for any party hereto; or (d) the commencement of any proceeding which may result in the revocation, cancellation, suspension or modification of any license, certificate, permit, <PAGE> 5 approval or consent required to operate the Leased Assets or the Uplink Facility, which proceedings are not adjourned, dismissed, or abandoned within 30 days after commencement thereof. 6.2 OCCURRENCE OF DEFAULT. Where an Event of Default has occurred, the party not in default shall be entitled to rescind this Agreement upon notice to the other party, which rescission shall be effective on the date and time specified in such notice. ARTICLE 7. INSURANCE 124 is not required to maintain insurance on the Leased Assets, however it shall maintain comprehensive general liability insurance of not less than $2,000,000 per occurrence. CSB shall insure the Leased Assets for their replacement cost. Each party will, upon request from the other, provide evidence reasonably satisfactory to the other that such insurance is in full force and effect. ARTICLE 8. FACILITIES The services of 124 shall be principally carried on at 2500 Don Reid Drive, Ottawa, Ontario, K1M 8P5 (the "Uplink Facility"). If 124 wishes to relocate the Uplink Facility to a new facility, (the "New Uplink Facility"), the cost of such relocation including uplink moving and installation costs will be borne by 124. CSB will be responsible for all reasonable costs, approved by CSB in writing, in advance, such approval not to be unreasonably withheld, associated with any necessary tenant finishes at the New Uplink Facility where such finishes are solely attributable to the provision of the Services. Subsequent to approval of such finishes by CSB, 124 shall submit invoices for same to CSB subsequent to completion of such finishes and upon receipt of invoices from the contractor providing such finishes, excluding invoices for cost-overruns which will not be the responsibility of CSB except as expressly agreed to in writing by CSB in advance; CSB shall pay such invoices upon receipt. ARTICLE 9. INDEMNIFICATION 9.1 INDEMNIFICATION OF CSB. 124 shall hold harmless and indemnify CSB, its subsidiaries, affiliates, agents and their respective officers, directors, employees and customers and each of them from any portion of any loss, cost, damage, claim, expense or liability, including but not limited to, liability or alleged liability, as a result of injury to, or death of, any person or damage to, or destruction or loss of any property arising out of, as a result of, or in connection with the performance of this Agreement and directly or indirectly caused by the acts or omissions, negligent or otherwise, or willful misconduct of 124 or a contractor or an agent or a representative of 124, be it active or passive, except where such loss, cost, damage, claim, expense or liability arises in material respect from the gross negligence or willful misconduct of CSB, its officers, directors and other employees or agents. As used in the preceding sentence, the words "any person" shall include, but shall not be limited to, a contractor or an agent of 124 or <PAGE> 6 CSB, or an employee of CSB, 124 or any such contractor or agent; and the words "any property" shall include, but shall be limited to, property of CSB and CSB's customers, or any such contractor or agent or an employee of any one of them. Upon the request of CSB, 124 shall, at no cost or expense to CSB defend any suit asserting claim for any loss, damage or liability specified above, and 124 shall pay any costs and legal fees that may be incurred by CSB in connection with any such claims or suits or in enforcing the indemnity granted above. 9.2 INDEMNIFICATION OF 124. CSB shall hold harmless and indemnify 124, its subsidiaries, affiliates, agents and their respective officers, directors, employees and customers and each of them from any portion of any loss, cost, damage, claim, expense or liability, including but not limited to, liability or alleged liability, as a result of injury to, or death of, any person or damage to, or destruction or loss of any property arising out of, as a result of, or in connection with the performance of this Agreement and directly or indirectly caused by the acts or omissions, negligent or otherwise, or willful misconduct of the CSB or a contractor or an agent or a representative of CSB, be it active or passive, except where such loss, cost, damage, claim, expense or liability arises in material respect from the gross negligence or willful misconduct of 124, its officers, directors and other employees or agents. As used in the preceding sentence, the words "any person" shall include, but shall not be limited to, a contractor or an agent of 124 or CSB, or an employee of CSB 124 or any such contractor or agent and the words "any property" shall include, but shall be limited to, property of 124, or any such contractor or agent or an employee of any one of them. Upon the request of 124, CSB shall, at no cost or expense to 124 defend any suit asserting claim for any loss, damage or liability specified above, and CSB shall pay any costs and legal fees that may be incurred by 124 in connection with any such claims or suits or in enforcing the indemnity granted above. ARTICLE 10. FORCE MAJEURE 10.1 DEFINITION. "Force Majeure" shall mean any of the following: prohibition of acts by government or public agency, riot, war, hostility, strikes, epidemics, fire, flood, earthquake, storm, tidal wave or other acts of nature (including other extreme weather conditions), and all other reasonably unpredictable or unforeseeable events beyond the control of the parties hereto. 10.2 EFFECT OF FORCE MAJEURE. Neither party shall be liable for its failure to perform any of its obligations hereunder during any time period in which its, or its contractor's or vendor's performance, is delayed by Force Majeure precluding performance, provided the cause for such failure is beyond reasonable control and without the material fault or negligence of the nonperforming party or its subcontractors, and further provided that the party suffering from such delay notifies the other party of the delay as provided in SECTION 10.3 (an "Excusable Delay"). 10.3 NOTIFICATION. If one party has been prevented from performing its responsibilities stipulated in this Agreement because of an event of Force Majeure, it shall notify the other party writing within fourteen (14) days after the occurrence of such event and shall act to mitigate damages, if possible. If any event of Force Majeure occurs, no party shall be liable for any damage, increased costs or losses that another party may sustain by reason of Excusable Delay. The party claiming Force Majeure shall take appropriate measures to mitigate or remove the effects of <PAGE> 7 Force Majeure and, within the shortest possible time, resume as soon as possible performance under this Agreement affected by the event of Force Majeure. ARTICLE 11. DISPUTE RESOLUTION If a dispute arises from or in connection with this Agreement, the claiming party shall promptly notify the other party in a dated notice that a dispute has arisen and describe the nature of the dispute. If no settlement can be reached through consultation, a demand in writing may be made by either party to the other that such dispute, controversy or claim be submitted to arbitration. Each of 124 and CSB shall be entitled to appoint one arbitrator and the two arbitrators so chosen shall select a third arbitrator. All arbitrations authorized by this Agreement shall be conducted in accordance with the rules of the Arbitration and Mediation Institute of Ontario and the ARBITRATION ACT, 1991 (Ontario). If either party does not reasonably comply with a final decision or award made by the arbitrators, such non-complying party shall bear all costs and expenses, including attorney's fees incurred by the other party in obtaining enforcement of the decision or award. Otherwise, all costs of the arbitration authorized by this Agreement shall be borne equally by the parties unless otherwise ordered in the arbitration award. The parties agree not to take any steps or actions to prevent or delay the enforcement of the decision or award. ARTICLE 12. COSTS Should any dispute be commenced between the parties concerning any provision of this Agreement or the rights and duties of any party in relation thereto, the party prevailing in such dispute shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for its attorneys fees in such connection with enforcing its rights or defending itself, as the case may be. ARTICLE 13. NOTICE Any notice, demand or other communication required or permitted to be given to any party to this Agreement shall be in writing and shall be either personally delivered or sent by registered mail, courier or telecopier. Any notice given pursuant to this Agreement shall be sent to the intended recipient at its address as follows: To: Colorado Satellite Broadcasting Inc. 1050 Walnut Street Suite 301 Boulder, Colorado U.S.A. 80302 Attention: Mark Kreloff <PAGE> 8 To: 1248663 Ontario Inc. 2500 Don Reid Drive Ottawa, Ontario Canada K1H 8P5 Attention: Graham Fournier or such other address, facsimile number or individual as may be designated by notice by any party to the other. Any communication given by personal delivery shall be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered mail, on the 5th business day following the deposit thereof in the mail and, if given by facsimile, on the day of transmittal thereof. If the party giving any communication knows or ought reasonably to know of any difficulties with the postal system which might affect the delivery of mail, any such communication shall not be mailed but shall be given by personal delivery or by telex. ARTICLE 14. ENTIRE AGREEMENT This Agreement constitutes the entire Agreement between parties pertaining to its subject matter and supersedes all prior and contemporaneous agreements, understandings, negotiations, discussions, whether oral or written of the parties. ARTICLE 15. ASSIGNMENT Neither party may, without the prior written consent of the other party, assign, sublease or otherwise transfer its rights or obligations hereunder. Notwithstanding the foregoing, the parties acknowledge that 124 may and intends to subcontract its rights and obligations hereunder to Fifth Dimension Satcom Inc. ("Satcom") provided that Satcom shall throughout the Term be controlled directly or indirectly by Stuart K. Duncan and/or Douglas J. Duncan. 124 shall be responsible for all acts and omissions of Satcom in relation to the performance of such subcontract. ARTICLE 16. GOVERNING LAW This Agreement shall be given by and construed in accordance with the laws in force in the Province of Ontario and federal laws applicable therein. ARTICLE 17. NO PARTNERSHIP The parties agree that this Agreement is an agreement for the purchase of services and does not create any partnership or joint venture between the parties. <PAGE> 9 ARTICLE 18. COUNTERPARTS This Agreement and amendment thereto may be executed in any number of counterparts, all of which taken together, shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. ARTICLE 19. SUCCESSORS AND ASSIGNS This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. IN WITNESS WHEREOF the parties have executed this Agreement. COLORADO SATELLITE BROADCASTING, INC. Per: 1248663 ONTARIO INC. Per: <PAGE> SCHEDULE "A" SERVICES 124 shall (a) review scheduling; (b) maintain film title inventory; (c) provide DIVICAM digital capabilities along with DVD play-back operations; (d) provide notification to CSB of any interruption of services to CSB's subscribers as soon as reasonably possible after 124 becomes aware of such interruption; (e) provide an employee on-site at the Uplink Facility on a twenty-four hour basis, which employee shall have the technical expertise to respond quickly and effectively to any problems experienced by CSB's subscribers; and (f) provide office facilities for a representative of CSB who shall have full access on a twenty-four hours basis to the Uplink Facility.