EXHIBIT 10.12
MANAGEMENT AGREEMENT
THIS AGREEMENT made the 1st day of October, 1996,
B E T W E E N:
MAGIC LANTERN COMMUNICATIONS
LTD., a corporation amalgamated pursuant to
the laws of Canada,
(hereinafter referred to as the "Corporation"),
OF THE FIRST PART;
- and -
CONNOLLY-DAW HOLDINGS INC., a
corporation incorporated under the laws of the
Province of Ontario,
(hereinafter referred to as "Connolly-Daw"),
OF THE SECOND PART.
WHEREAS the Corporation carries on businesses consisting of the
marketing and distribution of video programming and other media resource
material, the operation of a fulfillment service bureau, the operation of a
video dubbing and production facility, and the operation of a digital conversion
service bureau (collectively the "Business");
AND WHEREAS pursuant to a share purchase agreement between Connolly-
Daw, 1199846 Ontario Ltd. ("1199846"), Douglas Connolly, Wendy Connolly and NTN
Interactive Network Inc. ("NTN") dated October 1, 1996 (the "Share Purchase
Agreement"), Connolly-Daw and 1199846 sold all of the issued and outstanding
common shares in the capital of the Corporation to NTN and 1199846 sold 20.1% of
the issued and outstanding shares in the capital of 745695 Ontario Ltd. to NTN;
AND WHEREAS pursuant to the provisions of the Share Purchase Agreement,
Douglas Connolly and Wendy Connolly entered into a non-competition agreement
with the Corporation and NTN dated October 1, 1996 (the "Non-Competition
Agreement");
AND WHEREAS pursuant to the provisions of the Share Purchase Agreement,
the Corporation and Connolly-Daw are required to enter into this Agreement,
wherein the Corporation agrees to retain Connolly-Daw to provide management
services to the Corporation in connection with the Business and wherein
Connolly-Daw agrees to provide such services to the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
completion of the transactions contemplated by the Share Purchase Agreement, the
respective covenants and agreements of the parties contained herein, the sum of
one dollar paid by each party hereto to the other party hereto and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by each of the parties hereto, it is agreed as follows:
ARTICLE ONE - MANAGEMENT SERVICES
1.1 Retainer - The Corporation hereby agrees to retain Connolly-Daw to provide
the Corporation with such services as may be required from time to time for the
effective operation of the Business, consisting of advising on distribution,
sales and promotion, labour negotiations, contract negotiations, financial
services, and such other management services as the Corporation may from time to
time request (hereinafter collectively referred to as the "Services") and
Connolly-Daw hereby agrees to provide the Services to the Corporation.
1.2 Term of Agreement - This Agreement shall remain in full force and effect
from October 1, 1996 to August 31, 1997 (hereinafter referred to as the "Term"),
subject to earlier termination as hereinafter provided.
1.3 Provision of Services - The Services to be provided hereunder to the
Corporation by Connolly-Daw shall be provided by Douglas Connolly and Wendy
Connolly (hereinafter collectively referred to as the "Managers"). The Managers
shall devote their full time and efforts to managing the affairs of the
Corporation. The foregoing shall not prevent the Managers from being officers or
directors of any other companies or firms, provided such offices or
directorships do not interfere with the Managers' duties to the Corporation
under this Agreement. Notwithstanding the foregoing, the Managers shall be
entitled to four weeks' vacation during the Term, such vacation to be taken at
such time or times as shall be mutually acceptable to the Corporation and
Connolly-Daw.
1.4 Board Policy and Instructions - Connolly-Daw covenants with the Corporation
that it will act in accordance with any policy of and carry out all reasonable
instructions of the board of directors of the Corporation. Connolly-Daw
acknowledges that such
policies and instructions may limit, restrict or remove any power or discretion
which might otherwise have been exercised by Connolly-Daw.
1.5 Management Fees - In consideration for the services rendered by Connolly-Daw
hereunder, the Corporation shall pay to Connolly-Daw management fees in the sum
of Sixteen Thousand Two Hundred and Fifty Dollars ($16,250.00) per month (plus
GST) during the Term (hereinafter referred to as the "Fixed Management Fees").
The Fixed Management Fees shall be paid in equal semi-monthly instalments,
payable on the first and fifteenth days of each month.
1.6 Expenses - The Corporation shall pay to Connolly-Daw on the first day of
each month during the Term the sum of Seventeen Hundred Dollars ($1,700.00) as
full compensation for any and all automobile expenses (including but not limited
to gas, insurance, maintenance and repairs) incurred by Connolly-Daw in
providing the Services hereunder. Connolly-Daw shall be reimbursed on a monthly
basis for all out-of-pocket expenses, including travel costs, actually and
properly incurred by Connolly-Daw in connection with providing the Services
hereunder provided that Connolly-Daw provides to the Corporation an itemized
written account and receipts acceptable to the Corporation within 30 days after
they have been incurred.
1.7 Performance Bonus - In addition to the Fixed Management Fees, the
Corporation shall pay to Connolly-Daw a bonus (hereinafter referred to as the
"Bonus") at the end of the Term in the event that during the Term the actual net
income before taxes of the Corporation together with all of its subsidiaries
(hereinafter collectively referred to as the "Magic Lantern Group of Companies")
as determined by the auditors of the Corporation using generally accepted
accounting principles applied on a basis consistent with those of previous years
(hereinafter referred to as the "Actual Net Income Before Taxes"), exceeds the
projected net income before taxes of the Magic Lantern Group of Companies as
determined by the board of directors of the Corporation at the commencement of
the Term (hereinafter referred to as the "Projected Net Income Before Taxes").
The percentage amount of the excess of Actual Net Income Before Taxes over
Projected Net Income Before Taxes shall hereinafter be referred to as the
"Excess". The amount of the Bonus for the Term shall be calculated in accordance
with the following formula:
(a) In the event the Excess is greater than zero but less than
10%, the amount of the Bonus shall be equal to 5% of the Fixed
Management Fees;
(b) In the event the Excess is equal to or greater than 10% but
less than 20%, the amount of the Bonus shall be equal to 8% of
the Fixed Management Fees;
(c) In the event the Excess is equal to or greater than 20% but
less than 30%, the amount of the Bonus shall be equal to 11%
of the Fixed Management Fees;
(d) In the event the Excess is equal to or greater than 30% but
less than 40%, the amount of the Bonus shall be equal to 13%
of the Fixed Management Fees; and
(e) In the event the Excess is equal to or greater than 40%, the
amount of the Bonus shall be equal to 15% of the Fixed
Management Fees.
1.8 Stock Options - In further addition to the Fixed Management Fees, the
Corporation shall give to Connolly-Daw, at no cost to Connolly-Daw, such stock
options at the end of the Term, if any, as determined by the board of directors
of the Corporation. In the event the board of directors of the Corporation
determines to provide Connolly-Daw with such stock options, the said stock
options shall be in the form of options to purchase common shares in the capital
stock of NTN Canada, Inc., the parent company of NTN.
1.9 The Corporation will recommend to the board of directors of NTN Canada, Inc.
that Douglas Connolly be added as a director to the said board of directors.
ARTICLE TWO - COVENANTS
2.1 No Delegation of Services - Connolly-Daw covenants and agrees with the
Corporation that it shall not delegate performance of the Services to any
persons other than the Managers.
2.2 Provision of Amenities - The Corporation covenants and agrees with Connolly-
Daw to provide, for the use of the Managers, reasonably furnished offices, and
administrative and reception services at the offices of the Corporation.
ARTICLE THREE - CONFIDENTIALITY AND NON-COMPETITION
3.1 Confidential Information - Connolly-Daw acknowledges that in providing its
management services hereunder to the Corporation, Connolly-Daw will acquire
information about certain matters and things which are confidential to the
Corporation and the other Magic Lantern Group of Companies, and which
information is the exclusive property of the Corporation and/or one or more of
the other Magic Lantern Group of Companies including, without limitation:
(a) list of present and prospective customers, and related information;
(b) pricing and sales policies, techniques and concepts;
(c) list of suppliers; and
(d) trade secrets;
(hereinafter collectively referred to as the "Confidential Information"). The
term Confidential Information shall not include any information which becomes
generally available to the public other than as a result of a disclosure by
Connolly-Daw. Connolly-Daw acknowledges that the Confidential Information could
be used to the detriment of the Corporation. Accordingly, Connolly-Daw covenants
and agrees that it will not disclose to anyone any Confidential Information
either prior to termination of this Agreement, except as may be necessary in
properly providing its management services hereunder, or after the termination
of this Agreement, however caused, except with the prior written consent of the
board of directors of the Corporation. This obligation shall survive the expiry
or termination of this Agreement. Connolly-Daw also agrees that the unauthorized
disclosure of any Confidential Information during the Term will constitute a
material breach of this Agreement, which breach will not be susceptible to
adequate relief by way of monetary damages only, and the Corporation, in
addition to any other remedies enjoyed by it under the terms hereof or at law,
shall be entitled to obtain injunctive relief against Connolly-Daw in any court
of competent jurisdiction. The aforesaid confidentiality obligation shall not be
applicable in respect of Confidential Information disclosed by Connolly-Daw
under compulsion of law.
3.2 Return of Property - Upon the expiry or termination of this Agreement,
Connolly-Daw will return to the Corporation any property or documentation which
is the property of the Corporation, including but not limited to the
Confidential Information.
3.3 Promotion of the Corporation's Interests - Connolly-Daw shall well and
faithfully serve the Corporation and the other Magic Lantern Group of Companies,
shall use its best efforts to promote the interests thereof and shall not use
any information it may acquire with respect to the business and affairs of the
Corporation or any of the other Magic Lantern Group of Companies for its own
purposes or for any purposes other than those of the Corporation or any of the
other Magic Lantern Group of Companies.
ARTICLE FOUR - CAPACITY
4.1 Capacity of Consultant - The Corporation and Connolly-Daw acknowledge that
Connolly-Daw shall undertake its duties under this Agreement as an independent
contractor and not as an agent of the Corporation except as otherwise expressly
provided for herein.
ARTICLE FIVE - TERMINATION
5.1 Termination of Agreement (Breach) - Connolly-Daw understands and agrees that
the Corporation may terminate this Agreement without any notice or compensation
in lieu thereof, upon the occurrence of any of the following events:
(a) any material breach of the provisions of either the Share Purchase
Agreement or the Non-Competition Agreement;
(b) any material breach of the provisions of this Agreement.
5.2 Termination of Agreement (Death and Disability) - Connolly-Daw understands
and agrees that if, during the Term, Connolly-Daw is unable to provide the
services of either of the Managers, as a result of death or any mental or
physical disability or illness which results in either of the Managers being
unable to substantially perform their duties hereunder for a period of four
consecutive months or for a total of four months during the Term, then the
parties hereto shall, acting reasonably and in good faith, attempt to negotiate
and agree upon such amendments to this Agreement as the Corporation determines
are necessary as a result thereof, which amendments may include, without
limitation, a replacement for one of the Managers and new Fixed Management Fees.
If the parties are unable to agree upon such amendments, then the Corporation
may terminate this Agreement without any notice or compensation in lieu thereof.
ARTICLE SIX - GENERAL CONTRACT PROVISIONS
6.1 Notices - Any notice, direction or other document required or permitted to
be given hereunder or for the purposes hereof (hereinafter in this Section 6.1
called a "notice") to any party shall be in writing and shall be sufficiently
given if delivered personally or if sent by prepaid registered mail to such
party:
(a) in the case of a notice to Connolly-Daw, at:
49 Ennisclare Drive East
Oakville, Ontario
L6J 4N3
(b) in the case of a notice to the Corporation, at:
Unit 38
775 Pacific Road
Oakville, Ontario
L6L 6M4
or at such other address as may be given by such party to the other party hereto
in writing from time to time.
All such notices shall be deemed to have been received when delivered
or, if mailed, 48 hours after 12:01 a.m. on the day following the day of the
mailing thereof.
6.2 Additional Considerations - The parties shall sign such further and other
documents, cause such meetings to be held, resolutions passed and by-laws
enacted, exercise their vote and influence, do and perform and cause to be done
and performed such further and other acts and things as may be necessary or
desirable in order to give full effect to this Agreement and every part thereof.
6.3 Time of the Essence - Time shall be of the essence of this Agreement and of
every part hereof and no extension or variation of this Agreement shall operate
as a waiver of this provision.
6.4 Entire Agreement - This Agreement constitutes the entire agreement between
the parties with respect to all of the matters herein and its execution has not
been induced by, nor do any of the parties rely upon or regard as material, any
representations or writings whatsoever not incorporated herein and made a part
hereof and may not be amended or modified in any respect except by written
instrument signed by the parties hereto. Any and all previous agreements,
written or oral, express or implied, between the parties or on their behalf,
relating to the matters herein, including but not limited to a management
agreement between Connolly-Daw and the Corporation dated July 1, 1989, are
terminated and cancelled and each of the parties releases and forever discharges
the other of and from all manner of actions, causes of action, claims, and
demands whatsoever, under or in respect of any and all such previous agreements.
6.5 Modification of Agreement - Any modification to this Agreement must be in
writing and signed by the parties hereto or it shall have no effect and shall be
void.
6.6 Assignment and Enurement - Neither this Agreement nor any rights or
obligations of Connolly-Daw under this Agreement shall be assignable by
Connolly- Daw without the prior written consent of the Corporation. Subject to
such consent, this Agreement shall enure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
6.7 Currency - Unless otherwise provided for herein, all monetary amounts
referred to herein shall refer to the lawful money of Canada.
6.8 Headings for Convenience Only - The division of this Agreement into articles
and sections is for convenience of reference only and shall not affect the
interpretation or construction of this Agreement.
6.9 Governing Law - This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein and each of the parties hereto hereby irrevocably
attorns to the jurisdiction of the courts of such Province.
6.10 Waiver - No term or condition of this Agreement shall be deemed waived
unless such waiver is expressed in writing and signed by the parties hereto.
Failure or delay on the part of any party to enforce any right hereunder shall
not operate as a waiver hereof.
6.11 Gender - In this Agreement, words importing the singular number shall
include the plural and vice versa, and words importing the use of any gender
shall include the masculine, feminine and neuter genders and the word "person"
shall include an individual, a trust, a partnership, a body corporate, an
association or other incorporated or unincorporated organization or entity.
6.12 Severability - If any article, section or any portion of any section of
this Agreement is determined to be unenforceable or invalid for any reason
whatsoever, that unenforceability or invalidity shall not affect the
enforceability or validity of the remaining portions of this Agreement and such
unenforceable or invalid article, section or portion thereof shall be severed
from the remainder of this Agreement.
IN WITNESS WHEREOF the parties have duly executed this Management
Agreement.
MAGIC LANTERN COMMUNICATIONS LTD.
Per:_______________________________
Chairman
Peter Rona
CONNOLLY-DAW HOLDINGS INC.
Per:_____________________________
President
Wendy Connolly
Per:_____________________________
Secretary
Douglas Connolly