HomeMy WebLinkAboutAgenda Report 2011-11-02CATHEDRAL CITY DOWNTOWN FOUNDATION
AGENDA REPORT
SUBJECT: RATIFY A MANAGEMENT AGREEMENT WITH SELECT CINEMA
SERVICES, INC TO MANAGE THE MARY PICKFORD AND
DESERT IMAX THEATERS
DEPARTMENT: Finance
FROM: Tami S
APPROVED:
tt, Chief F
MEETING DATE: November 2, 2011
ial Officer
Executive Director
RECOMMENDATION: Ratify a Management Agreement with Select Cinema Services,
Inc. dba UltraStar Cinemas to manage the Mary Pickford and Desert IMAX theaters for a
combined management fee of $18,750 per month through June 24, 2016.
Earlier this year, staff was directed to complete a request for proposal for theater operations at
the Mary Pickford and Desert IMAX. There were several responders to which all were screened
for experience, references, staffing capacity etc. This led to interviews conducted by staff, a
theater consultant, Foundation board members and property owner of the Mary Pickford leading
to the final selection of Select Cinema Services, Inc. dba UltraStar Cinemas.
UltraStar Cinemas is one of California's largest privately owned theater groups and ranked by
National Association of Theater Owners (NATO) as the 36`h largest exhibitor in North America.
UltraStar Cinemas currently operates 14 sites with 141 screens through Southern California and
Arizona. UltraStar was founded in 1999 by John Ellison Jr. and Alan Grossberg with the
philosophy of providing a compelling alternative to the big, impersonal multiplexes that are
operated by the large National chains. The core management team has worked together for over
15 years and has over 200 combined years of experience. UltraStar has a good relationship with
studios and vendors that provide a competitive edge when negotiating for chain and bulk pricing
and rebates. UltraStar has high retention rates for its manager enabling them to provide
consistency and quality from operation to operation. The company's success is largely due to its
trademark competitive differentiators, including cutting -edge technological innovation, premium
amenities, unique programs that capture different market segments, outstanding guest service
and corporate citizenship in the communities it serves.
The management agreement provides for a monthly management fee of $18,750 and a 10% share
of annual theater level cash flow or Net Profit, as defined in the contract, as this would provide
the appropriate incentive to Ultra Star to share in the success of the theater operations. It is also a
norm in the industry to provide an incentive to theater operators in this manner This would be
done for the remaining term of the Agency's guarantee, which currently ceases June 24, 2016,
approximately 4 'h years.
MANAGEMENT AGREEMENT
This Management Agreement (hereinafter the "Agreement ") is made this day of October
2011, by and between Cathedral City Downtown Foundation, a California Non Profit Corporation, with
offices at 68 -700 Avenida Lalo Guerrero, Cathedral City California 92234 (hereinafter the "Owner ") and Select
Cinema Services, Inc., with offices at 1060 Joshua Way, Vista, California, 92081, (hereinafter
"Manager "). Each of the parties hereto may be referred to herein as a "Party," or jointly as the
"Parties."
AGREEMENT
1. Intentionally Omitted.
2. Exclusive Agreement. In consideration of the management services to be rendered by Manager
pursuant to this Agreement, Owner hereby designates Manager as the exclusive manager and operator for the
operation of two theaters: (i) the Mary Pickford Cinemas; and (ii) the Desert Imax Theater (jointly, the
"Theaters ") located in the City of Cathedral City, California.
3. Term. This Agreement shall become effective on the date that Manager takes possession of the
Theaters and shall not be subject to cancellation from the date above, except for cause, through and including
June 24, 2016. Thereafter, this Agreement will continue on a month -to -month basis until terminated by
Owner or Manager upon thirty (30) days written notice to the other.
4. Manager's Duties. Manager hereby agrees to manage, operate, and maintain the Theaters so as to
use its best efforts to provide Owner with an economic return consistent with proper and professional
operation and management and compliance with all laws and governmental regulations. Owner and
Manager further agree that Manager's authorities, duties, and responsibilities with respect to the Theaters
shall be as follows:
a. Bank Account. The Parties shall establish and maintain during the term of this Agreement a
joint checking account (the "Account ") with an institution of Owner's choice. The Account will
be used for the deposit of all monies collected from the Theaters or the operation thereof.
Owner and Manager shall each have two (2) signatories to the Account. Manager shall have the
right and authority to draw on the Account for any and all payments which Manager is
authorized to make from Gross Revenues, as defined hereinafter, pursuant to the terms of this
Agreement, including the payment of Manager's fee as provided herein. When established,
the Account will have a balance of seventy five thousand dollars ($75,000.00) to be
deposited by Owner. If the Account balance should fall below fifty thousand dollars
($50,000.00), the Owner will replenish it to the seventy five thousand dollar ($75,000.00)
level. In each month of the term of the Agreement, any amount in excess of one hundred and
fifty thousand dollars ($150,000.00) less accounts payable after month end and payment of
Manager's fee may be withdrawn by owner.
b. Operations and Management. Manager shall manage, operate and maintain the Theaters,
including, but not by way of limitation, (i) the hiring, supervision and discharge, as employees
or independent contractors of Manager, of all personnel necessary to properly manage and
operate the Theaters, (ii) the procurement of films, products and other supplies for the proper
operation of the Theaters, (iii) the customary and ordinary maintenance and repair of the
Theaters and its improvements, facilities, fixtures, appurtenances and grounds, (iv) the
procurement of any and all necessary services and utilities; and (v) compliance with all
applicable laws and governmental regulations including health and safety. Manager shall
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conform to the requirements set forth in Exhibit "A," attached hereto and incorporated herein
by reference, operating budgets and marketing plans and such other items as are discussed
therein. It is agreed that Manager may book theaters for appropriate non - cinema events so as
to generate additional revenue; however, events related to political causes or campaigns, to
include signage related to political activities, are not permitted. Manager acknowledges all
expenses incurred relative to branding activities including but not limited to promotional
materials and employee uniforms must reflect the "Mary Pickford" name.
c. Gross Revenue. The term "Gross Revenue" shall mean all revenues, funds and /or income
derived in any way from the operation of the Theaters, including, without limitation, box office
receipts, credit card sales, alternative content revenue, event sales, web ticket sales, Concession
sales and rebates, theater space rental, video game or other lobby entertainment revenue, ATM
machine commission, Web On Screen Advertising and On Screen Advertising. Certain
revenues will be derived from a prorata share based on volume, attendance and /or number of
screens to which Manager must provide supporting documentation for the calculations. It is the
express intent of the Parties that this term be interpreted to be inclusive of any and all revenues
or income associated with the Theaters. However, Gross Revenues shall exclude capital
contributions by Owner, interest income and tax refunds.
d. Operating Expense% From the Gross Revenues, Manager shall pay the following (the
"Operating Expenses "):
All operating expenses incurred through operating, servicing, maintaining, or
repairing the Theaters including but not limited to payroll and related payroll
expenses and such additional expenses in connection with the Theaters as is
customary in a similar theater operation to include a prorata share of expenditures
based on volume, attendance and /or number of screens to which Manager must
provide supporting documentation for the calculations. In addition, Manager shall
pay any other expenses, outside normal operating expenses as may be authorized
from time -to -time in writing by Owner. Operating expenses may include, without
limitation, rents, taxes, insurance payments, tenant reimbursements, forfeited
security deposits, damages, or other amounts owed.
ii Manager's fee described under "Manager's Fee" below, and any other amounts due
to Manager under the terms of this Agreement.
It is understood and agreed by the parties hereto that all costs related to the maintenance and
operation of the Theaters are to be paid from revenues generated from the operations of the
theaters. Under no circumstances whatsoever shall Manager be required to advance or
otherwise expend Manager's own funds for the benefit of the Theaters, unless otherwise agreed
to between the parties.
e. Manager's Authority. Owner does hereby authorize and direct Manager to do everything
reasonably necessary, at the expense of Owner, for the proper management of the Theaters,
including, without limitation, periodic inspections, supervision of maintenance and repairs as
may be necessary for the Theaters, purchasing all materials and supplies, contracting with
independent contractors to supply services, and expending such sums as Manager
reasonably deems necessary to accomplish the foregoing. Manager is authorized to enter
into and procure the following in the naive of Owner and on Owner's behalf:
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Contracts for the furnishing to the Theater of utilities, telephone, cleaning
services, pest control, HVAC maintenance, and other necessary services and
supplies;
Contracts for the making or installing of alterations, renovations, repairs, and
equipment installation and maintenance. Prior to initiating these contracts, any
capital improvements will be coordinated with the Owner. Capital expenditures
will be amortized, as mutually agreed upon, and appear as an expense in the
Income Statement;
Contracts for the purchasing and inventorying of all consumable items
( "Concessions ") sold by Manager to patrons or others in or in connection with
the Theaters, including, without limitation, food and beverage items. Manager
shall negotiate all Concession costs to maximize the savings along with other
theaters that Manager manages.
iv. Booking and licensing agreements for films to be exhibited, the
determination of the showtimes for each film being exhibited. The negotiation of
all Film settlement costs to maximize the savings along with other theaters that
Manager manages.
v. Advertising and Marketing; including but not limited to the placement of all daily
and weekly newspaper advertisements, radio advertisements and other media
placement. The negotiation of all advertising costs to maximize the savings along
with other theaters that Manager manages.
vi. Obtaining Marketing materials such as movie posters, banners, standees and other
marketing materials available through various film companies.
vii. Licenses, permits and authorization from governmental authorities.
viii. Insurance, as further provided for in this Agreement.
s. Create and contract the installation of a digital on- screen, pre -show advertising
program creating an additional revenue stream.
Manager is aware that certain contracts including but not limited to film contracts,
concession contracts and other services may require either personal guarantees,
corporate guarantees or security deposits and Manager agrees to use any necessary
and commercially reasonable means required to satisfy or guarantee payments to
those vendors or suppliers.
5. Records. Manager shall maintain full and accurate books and records for the account of each
Theater, which shall be open to the inspection of Owner at the office of Manager after reasonable notice to
Manager. Manager shall render a monthly demand /warrant /check register showing all receipts and
disbursements for each Theater. In addition, separate and consolidated quarterly Theater Balance Sheets and
Income (Profit and Loss) Statements will be provided within 45 days after each quarter ends, The Owner
also reserves the right to request any other documentation pertaining to the quarterly operation by Manager.
By August 31' each year, the Manager shall render separate and consolidated annual financial statements for
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each Theater as of June 30th, including Balance Sheets and Income (Profit and Loss) Statements. In
addition, the Owner reserves the right to request any other documentation pertaining to the annual operation
by Manager. Any accounting services provided by independent accountant firms required for Manager to
satisfy requirements of Landlord other than monthly demand/warrant /check registers and accounts payable
services shall be paid out of Owners account as a normal operating expense. These normal operating
expenses shall include but not limited to the preparation of quarterly financial statements and Income
statements, annual financial statements and income statements and tax preparation
Said statement shall be deemed accurate and correct between the parties unless Owner notifies Manager
in writing within thirty (30) days after the date of said statement of any claimed error or inaccuracy. In
the event that Owner gives such notice, the Parties agree to meet and confer in good faith to attempt to
determine the correct amounts in question. If the Parties are unable to do so within 15 days after Owner
gives notice, Owner may cause the records of Manager to be reviewed by an independent accountant. If the
review discloses an error in Owner's favor of five percent (5 %) or more of the amount stated in Manager's
initial statement, then Manager shall bear the cost of the independent accountant. If the review discloses no
error or an error of less than five percent (5 %) of the amount stated in Manager's initial statement, Owner
shall bear the cost of the independent accountant. If Manager's initial statement has understated the amount
due to Owner, Manager shall tender the full amount of said understatement within seven (7) days after
receipt of the report of the independent auditor. In the event there is a deficit in the account of the
Theaters, Manager shall notify Owner of this deficiency, and Owner agrees to forward said amount to
Manager within forty eight (48) hours after notice, or such other shorter period of time as shall be
necessary to enable Manager to deal with any emergency.
6. Limitation on Liability. Manager shall not be liable to Owner for any error in judgment,
mistake of fact or law, or act or omission in the performance of its duties hereunder except in cases of
willful misconduct or gross negligence.
7. Use of Owner's Names and Marks. For the purpose of fulfilling its obligations under this
Agreement, Owner hereby grants a limited license to Manager for the use of trademarks, trade names, and
service marks owned by Owner, specifically as it relates to the name "Mary Pickford Theater ". In addition,
Manager hereby grants a limited license to Owner for use of trademarks, trade names and service marks
owned by Manager, specifically as it relates to the name "UltraStar Cinemas ", "UltraLux Cinemas" and
"Star Class Auditoriums" if Owner elects to incorporate or combine the UltraStar brand into the name of the
theater. (i.e. "UltraStar's Mary Pickford Cinemas ")
8. Information to Manager. Owner agrees to promptly furnish Manager with all documents and
records to properly manage the Theaters, including, but not limited to, complete copies of all contracts,
contract amendments and correspondence pertaining thereto, reports on the status of contract payments,
copies of existing service contracts, copies of all insurance policies and any required endorsements
thereto which are carried by Owner during the tern of this Agreement.
9. Hold Harmless. Except for willful misconduct or gross neglect, Owner and Manager shall
mutually indemnify and save the other, and its officials, officers, directors, shareholders,
employees, representatives, successors and assigns, harmless from any and all claims, costs and expenses,
attorney's fees, litigation, liabilities, and damages arising from or connected with the Theaters or the
performance or exercise of any of the duties, obligations, powers, or authorities herein or hereafter granted
to such Party.
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1 O. Insurance, Manager shall continue to obtain a 11 necessary insurance, including injury,
property damage and personal injury public liability insurance, as may be necessary to fully protect the
Theaters and persons therein and in accordance with generally accepted business practices within the
theater industry. Manager agrees that at all times during the continuance of this Agreement, all bodily
injury, property damage, and personal injury insurance and other coverage carried by Manager on
the Theaters shall, by the appropriate endorsement of all policies evidencing such insurance, be
extended to insure and indemnify= both Owner and Manager. Owner agrees to consider all
reasonable recommendations of Manager with respect to insurance coverage to minimize the
cost thereof and to effectively provide coverage for bodily injury, property damage, and loss of
income. Manager will attempt to obtain insurance at competitive prices as exist in Manager's other
theater operations, and will explore the benefits of a single policy covering the Theater as well as the
Manager's other theater operations. All costs for said Insurance shall be considered a normal
operating expense and shall be authorized by Owner to be paid from the Account. Manager's efforts
with respect to insurance are part of the services to be provided by Manager in exchange for the
Management Fee. In addition to any other insurance discussed in this Agreement, Manager agrees to
obtain and maintain, at Manager's sole cost and not as an Operating Expense, appropriate liability
insurance to cover claims which might arise from Manager's negligence or intentional acts that could
create claims by third parties, and shall name Owner as an additional insured under said policy.
11. Waiver of Subrogation. The indemnities herein contained shall not apply to any claims with
respect to which the indemnified party is covered by insurance, provided that the foregoing exclusion
does not invalidate any party's insurance coverage, Each party shall endeavor to secure from its
insurer waivers of subrogation with respect to claims against the other parties under any policies
under which the other parties are not insured, and shall promptly notify the other parties in the
event that any such waiver is unobtainable or is obtainable only upon payment of an additional
premium. If such waiver is obtainable only upon payment of an additional premium, any party for
whose benefit the waiver may be obtained shall have the right, at its option, to pay the additional
premium in order to secure the waiver.
12. Manager's Fee. Owner shall pay Manager for its management services a fixed fee of eighteen
thousand seven hundred fifty dollars ($18,750) per month (the "Management Fee "). The parties agree that
no portion of the Management Fee shall be used to pay any expenses of the Theaters. Manager is
hereby authorized to deduct the amount of said fee for its management services fr om the
Account each month, plus any other amounts due Manager hereunder, as the first charge upon all
monthly Gross Revenues. The Manager's Fee is expected to cover all back office services
provided by the Manager's corporate management team to include, but not limited to, human resources,
events coordinator, operations manager, the majority of film buying, accounting, concessions, technical
support, as well as marketing and promotions.
13. Performance Bonus. Manager shall receive ten percent (10 %) of combined Theater Annual
Net Profit on an annual basis (July 1st through June 30t11). "Annual Net Profit" is defined as follows: all
annual Gross Revenue minus all annual Operating Expenses.
14. Duty to Cooperate. Owner agrees to cooperate with Manager to facilitate Manager's performance
of its duties hereunder.
15. Default. The following shall constitute defaults under this Agreement:
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a. Failure to perform the duties of', or to make any payments required of, Owner or Manager as
required herein timely and competently.
b. Resignation or Termination of employment by either of Alan Grossberg or John Ellison as
executive officers of Manager.
c. Either Owner or Manager shall be insolvent, or have made a general assignment for the benefit
of creditors, or shall have a receiver appointed to take possession of some or all of their
assets or operations, or shall be subject to an order for relief under the Bankruptcy Code.
16. Events of Default; Termination for Cause. Should a default exist, the Party affected by the
default may give written notice to the Party in default in accordance with the tens of this Agreement,
specifically identifying the default to the defaulting Party. If such default is not cured within 30 days after
the giving of written notice, an Event of Default exists, and the Party affected by the default may terminate
this Agreement for cause by giving further written notice of termination, with termination effective upon
receipt of such second notice by the defaulting Party. After the second notice tenninating the Agreement, no
further right of cure or reinstatement shall exist. However, if all reasonable efforts are being trade to cure
such default, the cure period shall be extended for a reasonable time to allow the party in default to continue
its efforts in curing the default.
17. Governing Law, This Agreement shall be construed in accordance with and all disputes
hereunder shall be governed by the laws of the State of California.
18. Successor. This Agreement shall be binding upon the parties hereto, their legal representatives,
successors, and permitted assigns, provided, however, that this Agreement may not be assigned by the
Manager or Owner without the prior written consent of the other party.
19. Relationship of Parties. Manager shall be an independent contractor, and shall not be the agent
of Owner. Under no circumstances shall this Agreement be construed as creating a joint venture or an
employer /employee relationship between the parties hereto.
20. No Restriction on Other Businesses. Manager shall not be required to spend its full time and
attention in the management and operation of the theaters identified in this Agreement. Both Manager
and Owner shall be free to develop and acquire other theaters and similar business ventures, including
competitive ventures. However, Manager agrees to devote such time and resources to its duties hereunder
as are reasonably necessary to maximize the profitability of the Theaters.
21. Arbitration. All claims and disputes arising under or related to this Agreement or the subject
[natter of this Agreement, including claims to avoid or rescind this Agreement, shall be submitted to
arbitration by the American Arbitration Association under its Commercial Rules then in effect. The
parties further agree that prior to making any demand for arbitration hereunder; they will request and
participate in mediation by the American Arbitration Association. All mediations and arbitrations will be
conducted in Riverside County, California. No provisional remedies, including attachment, injunction, or
the appointment of a receiver, shall be permitted in connection with any arbitrable dispute until the
arbitration is completed and the arbitrator's award is entered.
22. Legal Cost. Where legal assistance is required, such action shall be through counsel designated
by Manager and shall be at Owner's expense. Furthermore, in the event Manager or Owner shall institute
legal proceedings against the other arising out of the terms of this Agreement or the performance
hereunder, the prevailing party shall recover from the other, all reasonable attorney's fees, costs, and
expenses incurred in any such action.
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23. Assignment. This Agreement would not have been entered into but for the unique
qualifications, abilities, contacts and experience of Alan Grossberg and John Ellison, and the relationship of
trust, confidence and respect between Owner and those individuals. This Agreement may not be
assigned by Manager without the written consent of Owner unless it is the first assignment to a single
purpose Limited Liability Corporation that remains in the control and ownership of Alan Grossberg and
John Ellison. Owner may assign its interests in this Agreement to any entity, provided such entity
accepts, in writing, all of Owner's obligations as set forth herein.
24. Notices. Any notice required under the terms herein shall be deemed given upon the placing of it
in the United States Mail, postage prepaid, return receipt requested, and addressed to the address
designated below. Said address may be changed by either party by mailing written notice of such
change to the other party at the last designated address of the other party as provided herein.
25. Waiver. No failure by Owner or Manager to insist upon the strict perfonnance of any covenant,
agreement, term or condition of this Agreement, or to exercise any right or remedy consequent upon the
breach thereof, shall constitute a waiver of any such breach or subsequent 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, teen and condition of this Agreement shall continue in full force and effect with
respect to any other then existing or subsequent breach thereof.
26. Entire Agreement. This Agreement sets forth the entire agreement between the parties hereto,
and fully supersedes any and all prior agreements or understandings between the parties hereto
pertaining to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first
written above.
MANAGER: OWNER:
SELECT CINEMA SERVICES, INC. CATHEDRAL CITY DOWNTOWN FOUNDATION
Alan Grossberg, President
1060 Joshua Way
Vista, CA 92081
CATH \0025- 8 \DOC\ 110 -5. D OC
10 \11 \2011 330 CRG
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Donald E. Bradley, Executive Director
68700 Avenida Lalo Guerrero
Cathedral City, CA 92234
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EXHIBIT
A
To Management Agreement
Operating Budget and Annual Marketing Plan will be submitted to owner for approval, by April 1 of each
year for the upcoming fiscal year of July 1 through June 30.
Operating Budget will consist of any and all anticipated revenue generated from theater operations to
include box office receipts, credit card sales, alternative content revenue, event sales, web ticket sales,
concession sales & rebates, theater space rental, video game revenue, ATM machine Commission, Web On
Screen Advertising, and On Screen Advertising. Expenses will include but not be limited to film rental,
unusual film booking expense, film transportation, ticket stock, concession costs, payroll /wages, payroll
taxes, employee benefits, payroll processing, rent, common area maintenance, permits,/license, property tax,
insurance, depreciation, advertising, marketing, supplies, petty cash, postage, telephone, printing, janitorial
services, janitorial supplies, promotional expense, maintenance and repairs of owner (tenant) required by
lease, theater surveillance, armored transport, secret shopper, electric /gas, water, trash, equipment repair,
concession equipment repairs, digital maintenance fees, digital leasing fees, projector repair, 3D equipment
lease, digital bulbs, software, technical support, travel expense, legal, meals, subscriptions /dues, bank
analysis fees, interest, credit card transaction fees, web sales transaction fees and management fee.
Marketing Plan will be consistent with what was presented and outlined in the Manager's proposal to
operate theater and include but may not be limited to a direct marketing and public relations campaign, a
premier event and press conference, community outreach and community partnerships, corporate campaign,
college and education outreach campaign, Manager will use its best efforts to obtain signature events to
include film festivals, special screenings, student filmmaker showcases, cultural showcases, Web and Social
media campaign, dinner and a movie restaurant partnerships, loyalty rewards program and cross promotions
& marketing partnerships with local businesses, other area /valley wide events, museums, associations, arts
organizations and any other entertainment venue.
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