Management Services Agreement - Westward Ltd. and Cinemark USA Inc.
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement") is executed to be
effective as of November 23, 1999 (the "Effective Date") between Westward, Ltd.,
a Texas limited partnership (the "Owner"), and Cinemark USA, Inc., a Texas
corporation (the "Operator").
BACKGROUND
A. The Owner is engaged in the business of owning real estate in
Temple, Texas, upon which a 5-screen movie theatre is constructed (the
"Theatre"). Operator has expertise in the management and operation of movie
theatres and related activities.
B. The Owner desires to retain Operator to provide management services
with respect to all aspects of operating, maintaining and managing the Theatre,
and Operator is willing to provide such management services, upon the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Owner and Operator,
intending to be legally bound, agree as follows:
ARTICLE I
TERM OF AGREEMENT
1.1 INITIAL PERIOD. This Agreement commences on the Effective Date and
shall continue through November 22, 2002 (the "Initial Period"), unless earlier
terminated as provided herein.
1.2 ADDITIONAL PERIODS. This Agreement shall be extended at the option
of either party hereto for one or more additional periods of five (5) years each
(each an "Additional Period"), unless the Owner or Operator have delivered
written notice to the other at least 180 days but not more than 365 days prior
to the end of the then current period, electing not to extend this Agreement for
an Additional Period.
ARTICLE II
MANAGEMENT OF THEATRE
2.1 ENGAGEMENT OF OPERATOR. Subject to the terms and conditions of this
Agreement, (a) the Owner hereby engages Operator as its sole and exclusive agent
for operating, maintaining and managing the Theatre during the Term, and (b)
Operator hereby accepts such engagement and agrees to fulfill its duties
hereunder and to operate, manage, direct, maintain and supervise the Theatre
during the Term in a good, businesslike manner and at a standard comparable to
the theatres operated by Operator on its own behalf or for third parties.
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2.2 SPECIFIC DUTIES OF OPERATOR. Operator shall have the sole
responsibility and sole authority to make any and all decisions with respect to
the day-to-day operations at the Theatre. Without limiting the generality of the
foregoing, Operator shall have the following duties and authority, all at the
expense of the Owner:
(a) Operator shall determine and put into effect all policies
with respect to performance at the Theatre, including, without limitation,
showtimes, hours of operation, ticket prices and "goodwill" tickets.
(b) Operator shall keep Owner advised concerning all material
aspects of Operator's activities with respect to the management and operation of
the Theatre.
(c) Operator shall train theatre managers, assistant managers,
management trainees and other employees (collectively, the "Employees")
sufficient to direct, supervise and staff the Theatre's operation. Operator
shall determine the compensation, fringe benefits and employment duration of
all employees and the assignment of duties to be performed by such Employees,
and shall negotiate and settle any labor disputes. Operator shall procure and
maintain adequate workers' compensation insurance or other similar insurance as
may be required by law covering the Employees.
(d) Operator shall contract for and purchase, on behalf of and
in the name of the Owner, all merchandise, materials, supplies and accessories
to be used in connection with the operation and maintenance of the Theatre,
including without limitation, concessions used in connection with the Theatre.
(e) Operator shall remit when due to the proper governmental
authorities all taxes on box office admissions that are not measured by net
income and all sales taxes on other Theatre revenues on behalf of the Owner.
Operator shall also remit all other taxes payable with respect to operation of
the Theatre, including without limitation payroll taxes, and file such tax
returns as are required with respect to such taxes. Operator shall timely
provide to the Owner copies of all such tax returns filed and give the Owner
access to all financial or other records concerning such taxes.
(f) Operator shall obtain and maintain, for itself or on
behalf of and in the name of the Owner, as the case may be, all licenses,
permits and authorizations from any governmental authorities that are necessary
for the operation of the Theatre in the manner required by this Agreement. The
Owner agrees to execute and deliver any and all applications and other documents
and to otherwise cooperate to the fullest extent with Operator in applying for,
obtaining and maintaining all such licenses, permits and authorizations.
Operator shall at all times, and at its expense, remain qualified and licensed
to do business and be in good standing in the states in which the Theatre is
located.
(g) Operator shall have the right and duty on behalf of and in
the name of the Owner to contract for and purchase concessions and concession
supplies for the Theatre and to set prices for and sell such concessions and
concession supplies; to determine and put into effect advertising and all
business policies with respect thereto, and to do and perform any and all things
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ordinarily required in the operation thereof, all without limitation or
prejudice to the right and duty of Operator generally to supervise and manage
the operations of the Theatre concessions.
(h) Operator shall maintain all insurance coverage customarily
carried for comparable theatres in the jurisdiction where the Theatre is located
or which may be required by each Owner's lenders, if any, which shall include,
but not be limited to, terms, conditions and provisions typically contained in
the policies covering the theatres Operator owns or leases, provided, however,
such insurance coverage may not be less than is required under any of Owner's
mortgages on the real property. Each policy shall cover the Owner or any
mortgagee or beneficiary under any mortgage on the Theatre as a named insured
and shall waive any rights of subrogation against any named insured. All
insurance policies shall include loss payment clauses in the term reasonably
required by any mortgage or other agreement. Operator shall have the right to
maintain such coverage pursuant to policies covering other properties of
Operator, provided that the cost of such coverage is allocated to the Theatre in
a manner reasonably acceptable to the Owner and Operator.
(i) Operator shall immediately notify the Owner of any
casualty, disaster, loss, damage or injury occurring at the Theatre whether
covered by insurance or not. Operator shall not use the Theatre, or permit the
same to be used, for any purpose which will make void or voidable any such
insurance policies. Operator shall, upon request of the Owner, assist the Owner
in any reasonable manner, as the Owner may request, in the settlement of any
claim under any such insurance policies.
(j) Operator shall manage the operations of the Theatre in
substantial compliance with all applicable laws, regulations and other
requirements of all governmental and regulatory entities having jurisdiction
over the Theatre (collectively, "Regulatory Requirements") Operator shall not
unreasonably refuse or delay compliance with any specific instructions of the
Owner that are reasonably necessary to cause the Theatre to comply with the
Regulatory Requirements. The Owner shall cooperate with Operator in complying
with the Regulatory Requirements, including paying all costs of compliance,
including, without limitation, the costs of third party consultants and
reasonable attorneys' fees.
(k) Operator shall keep, maintain and make available for
inspection by any authorized representatives of the Owner upon its request, at
the principal office of Operator and at reasonable times and intervals,
sufficient records and other data and books of account reflecting accurately all
cash receipts and disbursements and income and expenditures in the management
and operation of the Theatre.
(l) To the extent Operator deems necessary in connection with
this Agreement, Operator shall enter into contracts on behalf of and in the name
of the Owner with architects, engineers, tradesmen and other independent
contractors to perform services with respect to the Theatre and supervise the
administration, and monitor the performance, of all work to be performed and
services to be rendered under all such contracts.
(m) On behalf of and in the name of the Owner, Operator shall
enter into such service, maintenance and other contracts, or otherwise obtain or
provide such service or maintenance as shall be necessary or appropriate for the
operation and maintenance of the
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Theatre, including without limitation, the equipment and systems located in or
servicing such Theatre, contracts for utilities, elevator maintenance, telephone
service, interior cleaning, window cleaning, landscape maintenance, rubbish
removal, parking lot maintenance, fuel, heating and air conditioning
maintenance, security, and vermin and insect extermination.
(n) On behalf of the Owner and after Owner has approved such
measures, Operator shall refurbish, remodel and renovate the Theatre, including
all landscaping and parking fields, replace or supplement operating equipment
and fixtures and make repairs, in each case as it deems reasonably necessary
from time to time to preserve the Theatre in good working order and condition.
The items of furnishings, fixtures and equipment so replaced or added shall be
and become, forthwith upon acquisition and installation and without further act
or action, the property of the Owner and part of the Theatre (except as may
otherwise be provided by the applicable lease or state law). All such
replacements and additions shall be purchased by Operator, on behalf of and in
the name of the Owner, at competitive prices, and the Owner shall reimburse
Operator for such expenses within five days of written request therefore.
(o) On behalf of Owner, Operator shall obtain the software for
all necessary management information systems and the necessary computer hardware
for such systems.
(p) Operator shall manage the Theatre in a manner that is
consistent with and does not violate or cause a default under any leases,
reciprocal easement agreements, covenants, common area maintenance agreements
and other agreements to which the Owner is a party affecting the Theatre,
including any mortgage on the Theatre or any covenants, easements or other
restrictions on the use of the Theatre.
(q) Operator shall set programming times and location for the
Theatre, subject to the terms of any film licenses restricting Operator's
discretion with respect thereto.
(r) Operator shall receive, consider and respond to the
complaints of all guests and users of any of the services or facilities of the
Theatre.
(s) Operator shall book and license or cause to be licensed on
Owner's behalf, films and other attractions for exhibition in the Theatre,
including any cooperative advertising with film distributors.
(t) Operator shall render the necessary accounting and
bookkeeping services generally required in the management of the affairs and
operation of the Theatre.
ARTICLE III
COSTS AND EXPENSES
3.1 BANK ACCOUNTS. All monies advanced to the Theatre by the Owner and
all Theatre revenues and all other funds of the Owner with respect thereto shall
be deposited in a bank account or bank accounts (the "Owner Accounts")
designated by the Owner, and Operator shall have unrestricted use of such funds
as are reasonably required to be maintained in the Owner Accounts to reimburse
Operator for any costs to be borne by the Owner hereunder, to carry on the
operation of the Theatre, and to make payments, on a basis substantially the
same as that of
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Operator in the conduct of its business, of the expenses incurred to carry on
the operation of the Theatre. The Owner acknowledges that the operation of the
Theatre will require sufficient cash availability on an ongoing basis to enable
the business to be properly conducted and that the Owner will maintain
sufficient funds in the Owner Accounts for such purpose.
3.2 DISBURSEMENTS. Operator shall pay from the Owner Accounts, on
behalf of the Owner, the costs and expenses of operating the Theatre Checks or
other documents of withdrawal drawn upon the Operating Accounts shall be signed
by representatives of the Owner or Operator, as agent for the Owner.
3.3 EXPENSES. All costs, expenses, fees and charges with respect to the
use, operation or management of the Theatre, including, but not limited to, the
costs incurred by Operator in performing its duties under Article II hereof and
the cost of film rental payments, advertising, legal or professional cost,
salaries of managers and all other on-site employees shall be borne by the
Owner. Operator shall not be required or obligated to provide or advance any
moneys for any such costs, charges or expenses. However, Operator shall bear and
pay all of its own overhead, including the salaries of its own officers,
regional supervisory, administrative or accounting personnel.
ARTICLE IV
MANAGEMENT FEES AND REMITTANCE TO OPERATOR
4.1 BASE MANAGEMENT FEE. For the services rendered by Operator
hereunder, the Owner agrees to pay the Operator an annual base management fee
(the "Base Management Fee") equal to three percent (3%) of the aggregate
Revenues of the Theatre in each year. On or before the last day of each month,
the Owner shall pay Operator the portion of the Base Management Fee earned
during the preceding month based upon the monthly financial statements of the
Owner. Within thirty days of the end of each Owner's fiscal year, the Owner and
Operator will calculate the amount of the Base Management Fee for the preceding
fiscal year and any adjustments at December 31 of such year shall be promptly
settled by the parties.
ARTICLE V
TERMINATION
This Agreement may be terminated only in accordance with this Article.
5.1 TERMINATION FOR CAUSE BY OWNER. The Owner may terminate this
Agreement for Cause in accordance with this Section 5.1. The term "Cause" shall
mean that (i) Operator has breached the terms of this Agreement by committing
any act or acts of bad faith, willful misconduct or gross negligence that have,
individually or in the aggregate, had a material adverse effect on the business
or operations of the Owner, taken as a whole; or (ii) Operator has breached this
Agreement or failed to satisfy its obligations hereunder in any material respect
and such breach or default was not cured within thirty (30) days of receipt of
written notice from the Owner of such breach or default. However, if a longer
period is actually necessary in order to cure the Cause, Operator must have
commenced to cure the Cause and is diligently pursuing a cure for the Cause.
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5.2 TERMINATION UPON OTHER EVENTS. The Owner may terminate this
Agreement upon thirty (30) days prior written notice to Operator if an event of
default occurs and is continuing under the terms of any note, security agreement
or deed of trust against the Theatre.
5.3 EFFECT OF TERMINATION. If this Agreement is terminated for any
reason, any amounts accrued but not yet paid to Operator hereunder shall be
payable by the Owner at the time of such termination, and Operator shall deliver
to the Owner the originals of all books, records, contracts and all other
documents, certificates, permits or instruments relating to the Theatres.
ARTICLE VI
SUCCESSORS AND ASSIGNS
6.1 ASSIGNMENT BY OPERATOR. Operator shall not assign its rights and
obligations under this Agreement without the prior approval of the Owner, which
approval Owner agrees to not unreasonably withhold. After an assignment of this
Agreement following receipt of approval for any assignment as provided for in
the preceding sentence, Operator's liability hereunder shall terminate for any
of its obligations on the date of such assignment. It is understood and agreed
that any approval given by the Owner to any assignment shall not be deemed a
waiver of the covenant herein contained against assignment in any subsequent
case.
6.2 ASSIGNMENT BY OWNER. Owner shall not assign its rights and
obligations under this Agreement without the approval of the Operator, which may
be withheld in Operator's sole and absolute discretion. After an assignment of
this Agreement following receipt of approval for any assignment as provided for
in the preceding sentence, the Owner's liability hereunder shall terminate for
any of its obligations on the date of such assignment. It is understood and
agreed that any approval given by Operator to any assignment shall not be deemed
a waiver of the covenant herein contained against assignment in any subsequent
case.
6.3 BINDING ON SUCCESSORS. Except as otherwise provided herein, the
terms, provisions, covenants, undertakings, agreements, obligations and
conditions of this Agreement shall be binding upon and shall inure to the
benefit of the successors in interest and the permitted assigns of the parties
hereto with the same effect as if mentioned in each instance where the party
hereto is named or referred to and shall be appurtenant to and run with the
Theatre and shall be binding on any subsequent owner of any interest in the
Theatre.
ARTICLE VII
INTELLECTUAL PROPERTY
7.1 THEATRE BRANDING. During the term of this Agreement, the Theatre
shall be operated, marketed and branded as a Cinemark theatre. Owner
acknowledges that Operator is the owner of a sublicense, and its affiliates own
and use all registered names, logos, insignias, trade dress and other
intellectual property specified on Exhibit "A" (collectively, the "Cinemark
Trademark Rights") in the operation of any Cinemark theatre, including the
Theatre.
7.2 GRANT OF LICENSE. Operator hereby grants Owner during the term of
this Agreement the conditional, limited and non-exclusive right, without
royalties or other consideration, to use the Cinemark Trademark Rights in
connection with the operation of the
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Theatre in accordance with this Agreement and for no other purpose. Owner
acknowledges and agrees that:
(a) The license granted to Owner hereunder shall not restrict
Operator and its affiliates' use of the Cinemark Trademark Rights in any manner,
including without limitation, competing with the Theatre, or the Owner or its
partners.
(b) Owner shall not, by virtue of the operation of the
Theatre, acquire any right to any of the Cinemark Trademark Rights, and any
goodwill derived from use of the Cinemark Trademark Rights in connection with
the Theatre shall inure to the benefit of Operator and its affiliates.
(c) The license to use the Cinemark Trademark Rights granted
hereunder shall terminate upon termination of this Agreement, and Operator and
its affiliates shall be under no obligation to offer or extend such license for
any purpose, upon termination due to sale of the Theatre or otherwise.
(d) Owner shall not contest or dispute Operator and its
affiliates' ownership of the Cinemark Trademark Rights.
(e) The Theatre shall use only labeling, packaging,
advertising, promotional and other items using the Cinemark Trademark Rights
that have been approved by Operator, which shall ensure that Owner is
maintaining appropriate quality standards regarding the use of the Cinemark
Trademark Rights in a manner consistent with the quality standards of Operator
and its affiliates.
ARTICLE VIII
GENERAL COVENANTS
8.1 RELEASE OF OPERATOR. Operator, its directors, agents, officers,
employees and affiliates, as agents of the Owner, shall not be liable to the
Owner or to any other person or entity for any act or omission continued in the
performance of this Agreement unless such act constitutes bad faith, gross
negligence, fraud or willful and wanton misconduct. Notwithstanding any other
provision of this Agreement, in no event shall the Owner make any claims against
Operator on account of any alleged errors of judgment made in good faith in the
operation of the Theatre.
8.2 INDEMNIFICATION OF OWNER. Operator hereby agrees to defend,
indemnify and hold harmless the Owner, its agents, directors, employees,
officers and affiliates from and against any claim, liability, loss, damage,
cost or expense (including reasonable attorneys' fees) arising out of or
incurred in connection with (a) Operator's operation of the Theatre in a grossly
negligent manner, or arising from Operator's bad faith, material
misrepresentation, or fraudulent or willful and wanton misconduct, or (b)
Operator's breach of this Agreement.
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ARTICLE IX
NOTICES
All notices to be given hereunder shall be given in writing and shall
be deemed given (i) when delivered by messenger with receipt obtained, (ii) when
received if sent by overnight delivery service with receipt retained, (iii) when
sent by telecopy if notice is also sent the same day by overnight delivery
service, or (iv) by the United States mails (and, if mailed, shall be deemed
received five (5) business days after the postmarked date thereof) with postage
prepaid, registered or certified, and delivered or addressed to:
If to Owner: 3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attn: Lee Roy Mitchell
If to Operator: Cinemark USA, Inc.
3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attn: President
Cinemark USA, Inc.
3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attn: Vice President - General Counsel
Either party hereto may change the address for notices hereunder by such party
giving notice of such change to the other party hereto in the manner hereinabove
provided.
ARTICLE X
MISCELLANEOUS
10.1 SPECIFIC PERFORMANCE. The parties declare that it is impossible to
measure in money the damages that will accrue to a party hereto by reason of a
breach of this Agreement by a party hereto or a failure of a party hereto to
otherwise perform any of the obligations under this Agreement. Therefore, if any
party shall institute any action or proceeding to enforce the provisions hereof,
any person against whom any such action or proceeding is brought hereby waives
the claim or defense therein that such party has or had an adequate remedy at
law, and such person shall not urge in any such action or proceeding the claim
or defense that such remedy at law exists. Further, the parties hereto expressly
agree that any non-breaching party shall have the right to injunctive relief for
breach of any of the terms hereof, plus damages for such breach to the maximum
extent permitted by law.
10.2 NO WAIVER. No failure by Operator or the Owner to insist upon the
strict performance of any covenant, agreement, term or condition of this
Agreement, or to exercise any right or remedy consequent upon a breach thereof,
shall constitute a waiver of any such breach of such covenant, agreement, term
or condition. No waiver of any breach shall affect or alter this Agreement, but
each and every covenant, agreement, term and condition of this Agreement shall
continue in full force and effect with respect to any other then existing or
subsequent breach thereof.
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10.3 FURTHER ASSURANCES. Each party hereto shall further execute and
deliver all such other appropriate supplemental agreements and other instruments
and take such other action as may be necessary to make this Agreement fully and
legally effective, binding and enforceable as between the parties hereto and as
against third parties, or as the other party may reasonably request.
10.4 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas applicable to agreements made
and to be performed entirely within such State.
10.3 PARTIAL INVALIDITY. If any term or provision of this Agreement or
the application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement and the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, as the case may be, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
10.6 ENTIRE AGREEMENT. This instrument, together with the exhibits
hereto, shall constitute the entire agreement between the parties with respect
to the management of the Theatre.
10.7 AMENDMENTS. Neither this Agreement nor any term or provision
hereof may be changed, waived or discharged or terminated orally, but only by an
instrument in writing signed by the party against which the enforcement of the
change, waiver, discharge or termination is sought.
10.8 CAPTIONS. The captions to the sections of this Agreement are for
the convenience of reference only and in no way define, limit or describe the
scope or intent of this Agreement or any party thereof, nor in any other way
affect this Agreement or any part thereof.
10.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which, when taken together, shall constitute one and the
same Agreement.
10.10 AUTHORITY, BINDING AGREEMENT. Each party to this Agreement
represents and warrants that (i) it is a company duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
organization, (ii) it has the requisite power to execute, deliver and perform
this Agreement, (iii) the execution, delivery and performance by it of this
Agreement has been duly and validly authorized by all necessary corporate
actions, and (iv) this Agreement constitutes the legal, valid and binding
obligations of such party, enforceable against such party in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditor's rights
generally.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
OPERATOR:
CINEMARK USA, INC.
By: /s/ ROBERT COPPLE
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Name: Robert Copple
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Title: Vice President - CFO
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OWNER:
WESTWARD, LTD.
By: CINEMARK OF UTAH, INC
its General Partner
By: /s/ LEE ROY MITCHELL
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Name: Lee Roy Mitchell
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Title: President
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EXHIBIT "A"
CINEMARK TRADEMARK RIGHTS
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