EXHIBIT 10.40
(Translated from German
to English)
FRAMEWORK OPERATOR AGREEMENT
between Novotel Hotelbetriebs GmbH
Ungsteinerstrasse 33
81539 Munich
for all Novotels in Germany
pursuant to Annex
hereinafter referred to as "Hotel"
and Prodac GmbH
Max-Planck-Strasse 38
50858 Cologne
hereinafter referred to as "Prodac"
(S) 1 FUNDAMENTALS
This agreement governs the cooperation of the parties to the agreement for the
equipping of the Hotel with up-to-date audiovisual information and entertainment
technology.
The parties to the agreement assume a relationship based on trust. Prodac shall
provide continuous information concerning the most recent state of the art.
Prodac shall install in the Hotel without charge a hotel video communication
system for paid channels.
For this Prodac shall install in each guest room in the television set a fee
recording unit by means of which the hotel guest can choose among the free
general television channels offered and the paid channels.
Within the framework of the operator agreement Prodac shall deliver or install
the following components per Hotel:
- - A pay-TV center in 8-player operation for the transmission of 8 top films
per day
- - A radio center to receive and convert 3 channels
- - A personal welcome
- - Message transmission
- - Billing view
- - Quick check out
- - Multilingual system - German, English
- - VT infochannel for airline data, stock exchange, restaurant, leisure
offerings, etc.
- - Hotel channel for hotel and/or city film (the Hotel provides the film)
- - Childproofing through password and through reception
- - Guest-controlled remote controls
- - Separate statement for the hotel guest
- - Monthly changing movie program
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[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 2
- - 1 TV set for the Hotel lobby
- - Video games (see Annex to the agreement)
- - Feed of a children's TV channel (if receivable at the location)
Moreover, Prodac provides
- - Advertising (see Annex)
The valid proof of the components delivered is the acceptance protocol.
(S) 2 VIDEO PROGRAM
Prodac shall offer Novotel the following programs:
Channel 1
2 German-language feature films
Channel 2
2 erotic films in the German/English language, Hard-Core Non-Stop
Channel 3
2 English/French language feature films
Channel 4
2 erotic films in the German/English language, Hard-Core Non-Stop
The program package shall be changed monthly. The return shipment of the movies
shall take place quarterly by mail only. For each unreturned cassette, Prodac
shall charge DM10.00. Alternatively, the Hotel shall pledge delivery of a
written oath to destroy the cassettes.
The Hotel shall bill the guests according to the printout of the central
computer for connection to all paid channels at DM[***]. Within a period of 24
hours, beginning at 12 noon through 12 noon of the next day, the connections to
the program of the Hotel shall be calculated only once. Prodac reserves the
right to adapt the fee to current costs.
If the Hotel should rent to minors/children guest rooms in which video films not
authorized for children are accessible through the Prodac program to, the Hotel
is obligated to block access in the relevant guest rooms.
The video channels may be partially or completely blocked by the video center
for each guest room so that children cannot tune into the video program.
The films delivered by Prodac shall be broadcast in all guest rooms of the
Hotel. The Hotel expressly guarantees that the programs shall not be broadcast
beyond the boundaries of the Hotel grounds and shall not be made accessible to
any recipient who is not a guest or user of the Hotel establishment.
Specifically, the Hotel guarantees that the Prodac programs cannot be received
in areas which are connected to the antenna network of the Hotel and do not
belong to the Hotel.
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[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 3
The Hotel must likewise ensure that the video cassettes delivered to the Hotel
cannot be used by third parties for purposes outside the scope of the agreement.
The Hotel further ensures that it shall make its best efforts to protect the
video cassettes against unauthorized use as well as unauthorized exploitation
and/or commercial use.
If Prodac has evidence that the Hotel has delivered video cassettes, from the
program delivered by Prodac, to a third party which is not contractually bound
to Prodac, or that a third party associated with the Hotel has caused such a
delivery, or that after expiration of the period of exploitation agreed to, a
film is being used or has been further used in the Hotel, Prodac is entitled to
demand a contractual penalty independent of monies owed in the amount of
DM10,000.00 for each case of a breach of contract discovered or - if still
possible in light of the time lapsed - to terminate the agreement without
advance notice.
(S) 3 DURATION/TERMINATION
The agreement takes effect on the date signed. It ends on October 1, 2001,
without requiring any special notice of termination from Novotel.
The parties shall meet 6 months before expiration of the agreement to discuss
the conditions of extending or renewing the agreement.
Prodac is entitled to finance the entire delivery through a leasing agreement
with Philips Mietsystem GmbH (hereinafter referred to as PMG) and likewise, to
assign the rights from this operator agreement, in particular to transfer the
sales from the pay TV operation to PMG by assignment.
The company Prodac is entitled to assign its rights from this agreement to third
parties.
(S) 4 COURSE
Prodac shall make available to the Hotel VHS program cassettes and/or scrambled
total transfers of signals from cable broadcasting or direct satellite
broadcast, which are intended exclusively for broadcast within the framework of
the Hotel TV program.
The programs are copyright protected. Any use of the programs other than that
specified is prohibited. The playback permit is restricted to the contractual
broadcast of the programs in the Hotel. The company Prodac expressly ensures
that it owns the rights in the programs offered for the use according to the
contract and that the Hotel can incur no obligations and costs from the claims
of any third parties. Prodac exempts the Hotel from copyright claims of third
parties. Prodac shall provide the Hotel, upon request of the same, evidence of
the licensing of the rights through appropriate declarations of the licensors.
Any GEMA [German music rights organization] fees for the broadcasts of the
feature film videos with background music in the Hotel are handled by Prodac.
The contractual and payment agreement must in any event be concluded directly
between GEMA and Prodac.
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 4
(S) 5 RETENTION OF TITLE
The Hotel acquires no ownership rights in the components provided by Prodac. The
Hotel pledges to inform Prodac immediately of any infringements on Prodac's
title.
(S) 6 EXCLUSIVITY
During the period of this agreement, the Hotel shall offer no other commercial
programs which are in direct competition with the pay-TV system.
(S) 7 OPERATION
For the video center, the Hotel makes available an area which is lockable,
dustfree, and cool so that trouble-free continuous operation may be guaranteed.
Likewise, a 220 volt connection and an antenna connection must be provided in
this area and must be built in.
The feed of the pay programs into the existing antenna system is carried out by
Prodac. A prerequisite for the operation of the Prodac system is a properly
functioning master antenna television system according to the current postal
stipulations and in particular a problem-free HF network.
Any necessary repairs or modifications to the antenna system shall be indicated
to the Hotel by Prodac and performed according to agreement or upon request of
the Hotel at the expense of the Hotel.
The Hotel guarantees problem-free reception of all television channels in all
guest rooms. It is agreed that employees of Prodac shall be provided, for the
duration of the installation and any repairs under contract with the Hotel, with
free lodging, parking, service telephone calls, and meals.
For the financing and maintenance of the video communications system, a
permanent pay-TV operation is essential. The pay-TV operation is taken over when
the full delivery by Prodac is complete.
Measures which completely or partially disrupt the operation of the system must
be reported in a timely manner to Prodac (e.g., renovation measures in the
Hotel). The Hotel is obligated to check the daily billing and to inform Prodac
immediately in writing by fax in the event of malfunctions of a technical
nature.
The Hotel pledges to offer the program delivered by Prodac according to the
Prodac program schedule and according to (S) 2, and to change the film cassettes
according to the program schedule. Any defects in the quality of the feature
film programs must be reported immediately to Prodac so that a replacement can
be delivered immediately. Moreover, the Hotel shall display the information
material provided by Prodac in reference to the Hotel video program in each
room, and shall change it on a monthly basis. If, after installation of the
system, the Hotel acquires new additional channels, pay-TV operation undisrupted
by this is the responsibility of the Hotel.
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 5
(S) 8 MAINTENANCE
Prodac is responsible for the maintenance and repair of the Prodac system. The
systems shall be maintained or cleaned and overhauled at periodic intervals.
Various activities for this may even take place in the Hotel.
The Hotel shall enable the service technicians to carry out the replacement and
cleaning of the systems and provide Prodac employees lodging, parking, service
telephone calls, and meals free of charge for the duration of the work, per
agreement with the Hotel.
At the time of commissioning of the system, the Hotel shall receive instructions
from Prodac. They must be followed in the event of malfunctions. If it is
impossible to remedy the malfunction, the Hotel must contact Prodac without
delay for elimination of the malfunction. Prodac shall then take care of repairs
or replacement.
Maintenance and repair work on the system are free of charge to the Hotel.
Service and maintenance costs for the TV sets as well as the remote controls are
the responsibility of the Hotel.
Prodac shall also equip all replacement TV sets located within the Hotel with a
fee recording unit at no charge.
If, during the period of the agreement, TV sets are replaced by the Hotel or new
sets purchased, compatibility of the boards must be taken into account.
Deviations from the existing TV sets must be agreed to with Prodac.
The Prodac system shall be monitored for optimization of trouble-free operation
by Prodac by means of remote data transmission. For this, the Hotel shall
provide at no charge a separate telephone connection or a direct-access exchange
for free access, either of which must be located in the same room as the video
rack.
(S) 9 INSURANCE
The equipment provided by Prodac as well as the films to be provided are insured
by Prodac.
However, this insurance does not cover the following occurrences of damage:
- - Damage caused intentionally or by gross negligence
- - Damage for which compensation may be claimed from liability insurance
- - Water vapor or acid vapor which result from the nature of the operation
- - Earthquakes
- - Nuclear energy
- - Incidents of war of any nature, civil war or internal unrest.
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 6
(S) 10 SETTLEMENT OF ACCOUNTS WITH PRODAC
Settlement of accounts with Prodac begins upon commissioning of the system. As
noted on the printed pay-TV documents, billing is handled in the name of and to
the account of Prodac.
The Hotel shall receive expense reimbursement (including the legal value-added
tax) based on the following scale:
- - up to 2.5 connections per room per month - [***]% of the actual net
proceeds per the computer printout, and
- - more than 2.5 connections per room per month - [***]% of the actual net
proceeds per the computer printout, minus cancellations.
This expense reimbursement is paid to the Hotel for the following activities:
- - Handling of collections for Prodac
- - Handling of the daily and monthly accounting
- - Checking the error listing and archiving the service reports
- - Handling of minor service tasks such as replacement of the video player,
replacement of the modulator, and changing the color tape with telephone
instruction from Prodac.
If the settlement procedure is handled by direct bank debit authorization, the
commission rate is increased by 2%.
Only those cancellations for which Prodac is clearly responsible may be
deducted. These cancellations must be documented to Prodac, i.e., justified in
detail. Any cancellations must be reported to Prodac for verification by the
10th of the month for the preceding month. For this, the printed pay-TV receipt
as well as cancellation report completely filled in by the guest are essential.
Prodac shall pay the valid VAT from the gross proceeds obtained from the guest
to the tax office in Cologne. Prodac must receive 100% of the pay-TV proceeds as
well as the filled-out settlement form no later than the 10th of the month. The
Hotel shall immediately be sent a credit notice in the amount of the expense
reimbursement. The expense reimbursement shall be transferred to the following
bank account:
Owner of the account ...............................
(Name and address) ...............................
...............................
Credit institution: ...............................
(Name and address) ...............................
...............................
Account number: ...............................
Bank wire number ...............................
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[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 7
This payment transaction must be handled in this manner for tax purposes. It is
hereby agreed that the Hotel shall withhold no other sums or make offsets.
(S) 11 COMPUTER LINK
Prodac makes the interface connection to the hotel computer. Any software and/or
hardware changes or expansions of the hotel computer are at the expense of the
Hotel.
The basis for the interface link is the Prodac interface protocol. If a
connection is impossible due to external control (Hotel electronic data
processing), Prodac can provide no warranty for this. In the event of a time
delay due to the interface link, pay-TV operation must not be affected.
(S) 12 FINAL PROVISIONS
Unless otherwise indicated in this agreement, the provisions of the law also
apply (in particular (S) 598 ff of the BGB [German Civil Code]). If a provision
of this agreement is legally inoperable, the entire agreement shall not become
void. The provision in question is replaced by the legally valid arrangement
which most nearly approaches the desired economic effect.
The legal venue for possible disputes arising from this agreement is agreed to
be Cologne, to the extent legally permissible.
Dusseldorf, October 10, 1996 Cologne, October 10, 1
............................ Prodac GmbH
/s/ J. Klein /s/ Heinz Wirt
J. KLEIN HEINZ WIRT
- - Printed Name - - Printed Name -
NOVOTEL Hotel-Betriebs GmbH Prodac
Ungsteinerstrasse 33 Prozessdatentechnik GmbH
81539 Munich - Electronic Systems -
- - Company stamp - Max-Planck-Strasse 38, 50858 Cologne
- Company stamp -
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 8
DIRECT BANK DEBIT AUTHORIZATION FOR THE OPERATOR AGREEMENT
FOR DEBITING OF PAYMENTS BY MEANS OF DEBIT NOTICES
The company Prodac Prozessdatentechnik GmbH of Cologne hereby revocably
authorizes, as of the date the agreement takes effect, the taking of debits when
payable (10th of the month) based on the pay TV operation of the following party
to the agreement from the current account indicated below.
If the account does not have the necessary funds, the institution handling the
account has no obligation for payment. Partial payments are not made in the
direct debit procedure.
Owner of the account ...............................
(Name and address) ...............................
...............................
Credit institution: ...............................
(Name and address) ...............................
...............................
Account number: ...............................
Bank code: ...............................
Place, Date: ...............................
Legally authorized signature ...............................
and company stamp
FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY Page 9
ANNEX TO THE FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY
Location Number of rooms
- -------- ---------------
[***]
This Annex is an integral part of the agreement.
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[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
ANNEX TO THE FRAMEWORK OPERATOR AGREEMENT NOVOTEL GERMANY
between Novotel Hotelbetriebs GmbH
Ungsteinerstrasse 33
81539 Munich
for all Novotels in Germany
pursuant to Annex
hereinafter referred to as "Hotel"
and Prodac GmbH
Max-Planck-Strasse 38
50858 Cologne
Prodac shall initially equip the Cologne-West Novotel with games by mid-1997 as
a test hotel to gather information concerning the mutual advantage. The number
of game devices, the mode of accounting, the handling of the game devices in the
Hotel, and the sharing of the proceeds from this test shall be mutually agreed
to with Novotel by the end of 1996. The test period shall be 4 months.
The information gained from the test shall be the basis of further action which
Prodac shall coordinate with Novotel.
Novotel shall permit Prodac to show Novotel-specific advertising via the TV sets
in all hotels included in this agreement. Novotel shall receive no share of the
advertising proceeds. The two parties shall agree on the concept by the end of
1996.
This Annex to the Agreement does not affect the other contractual agreements.
Dusseldorf, October 10, 1996 Cologne, October 10, 1996
............................ Prodac GmbH
/s/ J. Klein /s/ Heinz Wirt
J. KLEIN HEINZ WIRT
- - Printed Name - - Printed Name -
NOVOTEL Deutschland GmbH Prodac
Ungsteinerstrasse 33 Prozessdatentechnik GmbH
81539 Munich - Electronic Systems -
- - Company stamp - Max-Planck-Strasse 38, 50858 Cologne
- Company stamp -