<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY __, 2000
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-QSB
--------------------------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ________________
Commission file number 000-27915
GENIUS PRODUCTS, INC.
A NEVADA CORPORATION
(Name of small business issuer as specified in its charter)
NEVADA 33-085292
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11250 EL CAMINO REAL #100
SAN DIEGO, CA 92127
(Address of principal executive officers)
(858) 793-8840
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check where the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
There were 12,746,749 shares outstanding of the registrant's Common
Stock as of May 16,2000.
Transitional small business disclosure format (check one):
Yes |_| No |X|
================================================================================
1
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GENIUS PRODUCTS, INC.
INDEX
PAGE
----
Part I Financial Information 3
Item 1 Financial Statements 3
Condensed Balance Sheet at
March 31, 2000 (unaudited) 4
Condensed Statements of Operations
For the Quarter Ended March 31, 2000
and March 31, 1999 (unaudited) 5
Condensed Statements of Cash Flow
For the Quarter Ended March 31, 2000
and March 31, 1999 (unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II Other Information 9
Item 1 Legal Proceedeings 9
Item 2 Changes in Securities and Use of Proceeds 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 13
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The following financial statements are furnished:
o Consolidated Balance Sheet as of March 31, 2000
o Consolidated Statements of Operations for the three
months and six months ended March 31, 2000
o Consolidated Statement of Cash Flows for the three
months and six months ended March 31, 2000
o Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, 2000
--------------
ASSETS
Current assets:
Cash and equivalents $ 40,043
Accounts receivable, net of allowance for
doubtful accounts and sales returns of $168,879 262,009
Inventories 216,217
--------------
Total current assets 518,269
Property and equipment, net of accumulated depreciation
of $37,080 105,878
Production masters, net of accumulated amortization
of $94,028 240,408
Patents and trademarks, net of accumulated
amortization of $3,133 24,212
Deposits and other 86,996
--------------
$ 975,763
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans from shareholders $ 47,667
Accounts payable 356,897
Accrued payroll and related expenses 136,727
Accrued other expenses 26,682
--------------
Total current liabilities 567,973
Redeemable common stock 459,110
Commitments and contingencies -
Stockholders' equity:
Common stock, $.001 par value; 25,000 shares
authorized: 12,134,137 shares outstanding 12,134
Additional paid-in capital 5,613,597
Stock subscription receivable (30,000)
Accumulated deficit (5,647,051)
--------------
Total stockholders' equity (51,320)
--------------
$ 975,763
==============
4
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<TABLE>
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Revenues:
Music $ 246,331 $ 150,823
Jewelry 117,350 212,751
--------------- --------------
Total revenues 363,680 363,574
--------------- --------------
Costs and expenses:
Cost of sales:
Music 80,660 35,910
Jewelry 97,843 205,517
Sales and marketing 219,459 123,436
Infomercial - 53,750
Product and Web development 160,621 37,670
General and administrative 507,246 281,854
--------------- --------------
Total costs and expenses 1,065,829 738,137
--------------- --------------
Loss from operations (702,149) (374,563)
Interest expense (3,991) (7,938)
--------------- --------------
Loss before provision for income taxes (706,140) (382,501)
Provision for income taxes (800) (800)
--------------- --------------
Net loss $ (706,940) $ (383,301)
=============== ==============
Basic and diluted loss per common share:
Net loss per share $ (0.06) $ (0.05)
=============== ==============
Basic and diluted weighted average shares 11,409,464 8,426,069
=============== ==============
</TABLE>
5
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<TABLE>
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (706,940) $ (383,301)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 34,567 8,660
Common stock issued for services 43,673 20,080
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 310,384 6,487
Inventories (41,069) (15,295)
Deposits and other 4,957 18,791
Increase (decrease) in:
Accounts payable (197,605) (81,826)
Accrued expenses 35,606 15,725
--------------- ------------
Net cash used by operating activities (516,427) (410,679)
--------------- ------------
Cash flows from investing activities:
Patents and trademarks (5,010) -
Development of production masters (7,401) (41,774)
Purchase of property and equipment (6,852) (25,116)
--------------- ------------
Net cash used in investing activities (19,263) (66,890)
--------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 530,100 411,555
--------------- ------------
Net cash provided by financing activities 530,100 411,555
--------------- ------------
Net (decrease) in cash and equivalents (5,590) (66,014)
Cash at beginning of period 45,633 131,157
--------------- ------------
Cash at end of period $ 40,043 $ 65,143
=============== ============
Non-cash investing and financing activities:
Repayment of loan by issuance of common stock $ 52,400 $ -
=============== ============
</TABLE>
6
<PAGE>
GENIUS PRODUCTS, INC.
Notes to Condensed Financial Statements
(Unaudited)
NOTE A : BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Genius Products, Inc. have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission.
The information furnished herein reflects all adjustments, consisting
of only normal recurring accruals and adjustments which are, in the opinion of
management, necessary to fairly state the operating results for the respective
periods. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The notes to the condensed financial statements should be read in conjunction
with the notes to the consolidated financial statements contained in the
Company's Form 10-KSB for the year ended December 31, 1999. Company management
believes that the disclosures are sufficient for the interim financial reporting
purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE HEREIN. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR
THE COMPANY'S FUTURE FINANCIAL PERFORMANCE AND INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE COMPANY'S OR THE INDUSTRY'S
ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
Revenues consist primarily of music (Baby Genius) product sales to
wholesale customers and via the internet to retail customers, and charges to
customers for shipping and handling net of product returns and discounts. In
addition revenues include sales of jewelry products net of returns.
Total revenues remained level at $363,680 for the three months ended
March 31, 2000 compared to $363,574 for the three months ended March 31, 1999.
Music sales increased by $95,508 (63%) to $246,331 for the three months ended
March 31, 2000 from $150,823 for the same period in 1999. Of this increase
$61,507 was due to sales from our web site and $34,001 from sales to wholesale
customers. There were no music sales from our web site for the three months
ended March 31, 1999. Jewelry sales decreased by $95,401 (45%) to $117,350 from
$212,751 as a result of increased competition and reduced marketing efforts.
Cost of sales consist primarily of the cost of products sold to
customers and packaging and shipping costs. Cost of sales for music products was
$80,660 (33% of music sales) for the three months ended March 31, 2000 compared
to $35,910 (24% of music sales) for the three months ended March 31, 1999. The
decrease in gross profit margin in music sales to 67% from 86% was due to
special promotional offers to customers purchasing from our web site. Cost of
sales for jewelry products was $97,843 (83% of jewelry sales) for the three
months ended March 31, 2000 compared to $205,517 (96% of jewelry sales) for the
three months ended March 31, 1999.
7
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Sales and marketing expenses consist of costs for consultants,
marketing personnel, promotional activities and the engagement of a national
spokesperson related to the promotion of the Baby Genius product line. Sales and
marketing costs increased by 78% ($96,023) to $219,459 for the three months
ended March 31, 2000 from $123,436 for the three months ended March 31, 1999.
The increase was due to expenses for trade shows of $56,308, and services paid
in stock valued at $36,671.
Infomercial expenses of $53,750 incurred in the three months ended
March 31, 1999 related to costs for the Astrology Network product line, which
was discontinued in March 1999.
Product and web development expenses consist of personnel, consultants
and services in the development of the Baby Genius web site and product line.
Product and web development costs increased by 326% ($122,951), to $160,621 for
the three months ended March 31, 2000 from $37,670 for the three months ended
March 31, 1999. The increase was due to general development expenses and
included $76,224 for the development of the Baby Genius web site.
General and administrative expenses consist of payroll and related
costs for executive and administrative personnel, professional services and
other general corporate expenses. General and administrative expenses increased
by 80% ($225,392) to $507,246 for the three months ended March 31, 2000 from
$281,854 for the three months ended March 31, 1999. Audit, accounting, legal and
professional fees of $152,129 for the three months ended March 31, 2000,
compared with $42,891 for the same period in 1999, represent $109,238 of this
increase and were as a result of fees related to the audited financial
statements for 1999, preparation and filing of our Form 10-KSB and other filings
with the Securities and Exchange Commission, and services related to fund
raising activities. In addition the appointment of a new president in August
1999 and additional administrative staff in the first quarter of 2000 gave rise
to an increase in administrative salaries and related expenses.
Interest expense consists of costs related to short term loans. There
were no significant charges for the periods in question, interest expense was
$3,991 for the three months ended March 31, 2000 compared to $7,938 for the
three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000 we obtained financing
through a private placement offering. The company issued 1,330,000 shares at a
price of $0.50 per share, and raised cash proceeds of $530,100 net of finders
fees, subscriptions receivable and shares issued in payment of a company loan of
$52,400 owed to an investor in the private placement. For the period April 1,
2000 through the date of filing, we placed a further 546,667 shares at $0.50 per
share in the same offering, and raised cash proceeds of $244,000 net of legal
costs associated with the placement.
Net cash used in operating activities was $516,427 and $410,679 for the
three months ended March 31, 2000 and March 31, 1999 respectively. Net operating
cash flows for the three months ended March 31, 2000 were primarily attributable
to operating losses of $706,940 and a decrease in accounts payable of $197,605
offset by a decrease in accounts receivable of $310,384 and non-cash charges for
depreciation and amortization, and stock issued for services. Net operating cash
flows for the three months ended March 31, 1999 were primarily attributable to
operating losses of $383,301 and a decrease in accounts payable of $81,826.
Net cash used in investing activities was $19,263 and $66,890 for the
three months ended March 31, 2000 and March 31, 1999 respectively. Cash used in
investing activities for the three months ended March 31, 2000 was attributable
to the purchase of property and equipment ($6,852), the development of
productions masters ($7,401), and filing trademarks ($5,010) in respect of the
Baby Genius product line. Cash used in investing activities for the three months
ended March 31, 1999 was attributable to the purchase of property and equipment
($25,116) due to the relocation of office premises and the development of Baby
Genius production masters ($41,774).
Net cash provided by investment activities was $530,100 and $411,555
for the three months ended March 31, 2000 and March 31, 1999 respectively. For
both periods cash provided by financing activities was attributable to proceeds
from the issuance of common stock through private placement offerings.
8
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period from January 1, 2000 through the date of this filing,
we issued a total of 1,996,626 shares for net cash proceeds of $774,100, of
which 1,730,000 shares were sold in a private placement at a price of $0.50
share, and 266,626 shares were issued to third party service providers in lieu
of cash.
As part of the Company's policy of saving cash by paying partners,
outside service providers and consultants in options or other convertible
securities, during the period from January 1, 2000 through the date of this
filing, we granted a options to purchase a total of 202,540 shares of the
Company's common stock at exercise prices ranging from $0.98 to $1.28. Grantees
of these options include our independent director, members of the Company's
advisory board, and GuidanceResources.com, LLC. The rights to buy shares under
certain of these options vest over a period of time and generally expire three
years after the date of grant.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
<PAGE>
ITEM 5. OTHER INFORMATION
On May 12, by a unanimous consent of the board of directors, the board
resolved to reprice the following options to acquire shares of the Company's
common stock previously granted to the following employees on April 26, 2000:
<TABLE>
<CAPTION>
Old
Price/Share New Price/Share
Employee # Shares $ $ # Shares
--------------------- ---------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
Klaus Moeller 550,000 0.75 0.54 220,000
0.75 165,000
1.00 165,000
Dorian Lowell 550,000 0.75 0.54 220,000
0.75 165,000
1.00 165,000
Mike Meader 550,000 0.75 0.54 220,000
0.75 165,000
1.00 165,000
Larry Balaban 400,000 0.75 0.54 160,000
0.75 120,000
1.00 120,000
Howard Balaban 400,000 0.75 0.54 160,000
0.75 120,000
1.00 120,000
</TABLE>
The closing price of the shares of the Company's common stock on April
26, 2000 was $0.5312; the original exercise price of $0.75 for all shares
represented a premium of 41% over such market price. After further review, and
in light of the failure of the share price to increase in value following
disclosure in both our Form 10-KSB and subsequent press releases of developments
in the Company's business, which we believe, should have caused an increase in
the shares price to reflect a fair value of the Company, we took the position
that the premium of the exercise price for certain shares had been set too high,
and therefore we resolved to reprice the exercise prices over a range of prices
ranging from the market price at the time of grant to certain premiums above the
market price. We believe that the Company will only retain executives of caliber
and experience if they are offered competitive compensation packages. Because
the Company cannot afford to pay high cash salaries, the granting of options is
a critical component of the overall compensation paid to our officers. We
believe it is uncompetitive and a disincentive to set the exercise price of
options at unreasonable premiums over the market price of the shares on the date
of grant. Similarly, a decline in the price of the shares over a period when
both the Company's business operations and prospects are improving, and our
executives have made significant contributions, but which is not offset by a
reduction in the exercise price, is, we believe, unfair to those executives. A
decline in our share price results in an effective increase in the premium of
the exercise price over the market price which penalizes the executives, and is
potentially harmful to the Company if the executive then takes the view that his
or her overall compensation package is becoming uncompetitive. We will continue
to review the exercise prices and vesting dates of options granted to our
employees and may reprice and/or change vesting dates as we deem appropriate
based on the prevailing price of our shares and the Company's business
operations and prospects.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Reorganization with Salutations, Inc.,
and related exhibits and consents*
3.1 Articles of Incorporation, as amended*
3.2.1 Bylaws, as amended*
3.2.2 Bylaws, as amended on April 20, 2000****
4.2 Shareholders Agreement with Minnesota Communications Group,
and related exhibits and schedules*
4.3 Convertible Debenture with Russ Karlen*
4.4 Convertible Debenture with Steve Livingston*
4.5 Option Agreement to Purchase Common Stock with Kevin
Harrington Enterprises, Inc.*
4.6 Option agreement to Purchase Common Stock with Tim
Harrington*
4.7 Form of Stock Option Agreement with Employees*
4.8 Specimen Certificate for Common Stock***
10.1 License Agreement with Minnesota Communications Group*
10.2 License Agreement with Minnesota Public Radio*
10.3 Spokesperson Agreement for Diedre Hall with Panache, Inc.,
and related exhibits and addendum thereto*
10.4 Sublease with Torrey Hills Corporate Center, and related
exhibits*
10.5 Fulfillment Services Agreement with Professional Marketing
Associates, Inc.*
10.6 Letter Agreement with Lido Group*
10.7 International Marketing and Distribution Agreement with HSND,
and amendment and addendum thereto*
10.8 Non-Qualified Stock Option Plan*
10.9 Senior Executive Employment Agreement with Klaus Moller*
10.10 Change of Control Executive Employment Agreement with Klaus
Moller*
10.11 Senior Executive Employment Agreement with Dorian Lowell*
10.12 Change of Control of Executive Employment Agreement with
Dorian Lowell*
10.13 Senior Executive Employment Agreement with Michael Meader*
10.14 Change of Control of Executive Employment Agreement with
Michael Meader*
10.15 Executive Employment Agreement with Larry Balaban*
10.16 Change of Control of Executive Employment Agreement with
Larry Balaban*
10.17 Executive Employment Agreement with Howard Balaban*
10.18 Change of Control of Executive Employment Agreement with
Howard Balaban*
10.19 Executive Employment Agreement with Vinko Kovac*
10.20 Change of Control of Executive Employment Agreement with
Vinko Kovac*
10.21 License Agreement with Sasha St. Clair*
10.22 Letter Agreement with Gerald Edick*
10.23 Form of License Agreement with Naxos of America, Inc.*
10.24 Financial Public Relations Letter of Agreement with Porter,
LeVay & Rose, Inc.**
10.25 License Agreement with Boomerange Manrketing, Inc/*
10.26 Service(s) Agreement with Cost Care, Inc.
(dba Unicare Managed Care Services)**
10.27 Executive Employment Agreement with Alison Elliott***
10.28 Change of Control Agreement with Alison Elliott***
10.29 Consulting Agreement with Gerald Edick***
10.30 Production Agreement with Richard Perry
10.31 Representation Agreement with Global Icons
15 Letter of Cacciamatta Accountancy Corporation regarding
unaudited interim financial information
27 Financial Data Schedule
- -------------
* Incorporated by reference from the exhibits included with the Company's
Registration Statement (No. 000-27915) on Form 10-SB filed with the SEC
on November 2, 1999.
** Incorporated by reference from the exhibits included with the Company's
Registration Statement (No. 000-27915), Amendment No. 1, on Form 10-SB
filed with the SEC on December 17, 1999.
*** Incorporated by reference from the exhibits included with the Company's
Form 10-KSB (No. 000-27915) filed with the SEC on April 14, 2000.
11
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**** Incorporated by reference from the exhibits included with the Company's
Form 10-KSB (No. 000-27915), Amendment No. 1, filed with the SEC on May
1, 2000.
(b) REPORTS ON FORM 8-K
The following is a list of Current Reports on Form 8-K filed
by the Company during the first quarter of the fiscal year ending on December
31, 2000.
1. Form 8-K dated March 16, 2000, reporting under Item 4 a change
in the Company's certifying accountant.
2. Amendment No. 1 to Form 8-K dated March 28, 2000, reporting
additional information required under Item 4 regarding the
change in the Company's certifying accountant previously
reported in Form 8-K dated March 16, 2000.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENIUS PRODUCTS, INC., a Nevada Corporation
By: /S/ Klaus Moeller
---------------------------------------
Klaus Moeller, CEO and Interim CFO
13
GENIUS PRODUCTS, INC.
PRODUCTION AGREEMENT
PRODUCTION AGREEMENT between Genius Products, Inc., a Nevada corporation
("COMPANY") and Richard Perry, ("Producer") dated as of May 3, 2000.
WHEREAS, Company wishes to engage Producer and Producer wishes to be engaged as
an executive producer by Company, all on the terms and conditions set forth
herein;
NOW THEREFORE, in consideration of the mutual covenants set forth below and for
other good and valuable consideration, the adequacy and sufficiency is hereby
acknowledged, the parties agree as follows:
1) POSITION AND TERM:
a) Company hereby engages Producer for a period of two (2) years
(the "TERM") unless otherwise terminated pursuant to Section
4, commencing on May 15, 2000 (the "EFFECTIVE DATE") as an
executive producer to provide music recording and production
services in connection with the development of CDs, cassettes
and videos under the Baby Genius(TM) and other brand names.
This Agreement may be automatically renewed on not less than
sixty (60) days prior written notice to Producer on the same
terms and conditions (except as provided in Section 5 a)) at
the option of Company for two (2) additional years.
b) Producer may not contractually bind Company without the prior
consent of either the Chief Executive Officer or the President
of Company.
c) Producer shall render substantially all of his services in Los
Angeles.
2) SERVICES:
(a) In consideration of the compensation payable hereunder,
Producer shall produce eight (8) master compact discs
(CDs)/cassettes and five (5) master music video tape
recordings (collectively, "MASTERS") during the Term. Two (2)
Master CDs and cassettes shall be Original CD Productions, and
all five (5) Master music video tapes shall be Original Video
Productions, and six (6) Master CD/cassettes recordings may be
Licensed CD Productions.
i) "ORIGINAL CD PRODUCTION" means a Master disc or tape
of all the material of which comprises new
compositions composed by one or more artists approved
by Producer and Company and produced and recorded by
Producer, or an existing composition produced and
re-recorded by Producer with one or more artists
approved by Producer and Company. Producer shall use
his best efforts to produce all such recordings in
digital format.
1
<PAGE>
ii) "LICENSED CD PRODUCTION" means a Master disc or tape
of all the material of which comprises existing
compositions composed by one or more artists approved
by Producer and Company, produced and recorded by any
person other than Producer, and compiled by Producer.
iii) "ORIGINAL VIDEO PRODUCTION" means a Master video
tape, DVD or CD-ROM, the music material of which
comprises material that would qualify either for an
Original CD Production or a Licensed CD Production,
and the filmed material of which comprises new film
footage filmed and produced by Producer with a
director and one or more artists approved by Producer
and Company. Producer shall use his best efforts to
produce all such films in digital format.
iv) "PRODUCTS" means CDs, cassettes and video music tapes
duplicated and manufactured by Company from Original
CD Productions and Licensed CD Productions and
Original Video Productions and Licensed Video
Productions, for retail sales.
(b) Producer's services shall include those customarily performed
by CD and music video producers, including without limitation:
suggesting material to record, suggesting actors and
musicians, supervising rehearsals, performing both control
room and studio work at recording sessions (for Original
CD/Video Productions), editing, mixing and supervision of
mastering. It is intended that the Masters shall be completed
and delivered as soon as reasonably possible.
(c) Recording and filming sessions for the Master shall be
conducted by Producer at such times as Producer and Company
shall designate. Each Master shall constitute compilations and
recordings approved by Company. Producer shall render his
services diligently and conscientiously and to the best of
their ability until production of the Masters is completed.
Producer shall deliver to Company the Masters in final form
for the manufacturing and duplication of Products. Each
original session CD/cassette and music video recording, and
any part thereof, and each mother, master, or other derivative
shall be delivered to Company to be kept available for Company
and subject to Company's control at such place as Company
shall designate.
(d) The Company shall engage artist, musicians recording studios
and other personnel or facilities required in order to produce
the Masters hereunder. Producer shall deliver to Company
within a reasonable period after execution of this Agreement a
non-binding estimated budget for the costs of recording the
Masters for the entire project (including all recording fees,
royalties for any Licensed CD Production, and arranging fees
which will exceed union scale and the recipients of such
proceeds). No production of a Master may be commenced unless
the Board of Directors, the Chief Executive Officer or the
President has approved in writing the proposal and budget for
such Master. The proposal and budget for a Master may only be
amended in writing and approved by the Board of Directors, the
Chief Executive Officer or the President. The total costs for
recording each Master shall not exceed the amount approved by
Company in the final budget furnished by Producer. If the
total cost for any Master recording exceeds the final budget,
the excess costs shall be recouped by Company from royalties
otherwise payable hereunder.
2
<PAGE>
(e) Producer's services hereunder shall be non-exclusive. Producer
shall have the right during their term hereof to produce
recordings for any other person, firm or corporation,
PROVIDED, HOWEVER, that any such activity does not delay,
hinder or interfere with the timely completion and delivery of
the Masters hereunder. Producer agrees that, during the three
(3) year period following delivery of all Masters to Company
in accordance herewith, Producer will not produce any CDs,
cassettes, videos, CD-ROMS or other music, film or video
recordings by any performer embodying an arrangement of any
selection embodied in the Masters of any original CD/Video
Production.
(f) Producer further covenants that at the time of delivery of
each Master, there will be no claims, demands or actions
pending or threatened with respect thereto of which Producer
is, or reasonably should be aware.
(g) Producer acknowledges that Company's business is to develop
and publish music, video and other products of the highest
quality, including recordings which stimulate the intellectual
development, education and well-being of children from birth
through the age of 12 and beyond, and which assist parents and
families in their roles as parents and care-givers. Producer
agrees that all Masters shall be consistent with the nature of
Company's business and products.
(h) Producer shall not work on any projects outside the course of
his engagement hereunder that compete with music and video
products for the intellectual development, education and
well-being of children.
(i) Producer shall report to either the Chief Executive Officer or
the President of Company in connection with all matters
regarding his services being rendered hereunder.
(j) Producer shall permit Company to use his name, approved
photograph, likeness and approved biographical information in
connection with sales, marketing and advertising of
Productions, subject to Producer's prior approval which shall
not be unreasonably withheld. Company agrees to accord
Producer credit on the back cover of all Productions on which
Producer rendered services.
(k) Producer represents and warrants that he is under no
disability or prohibition, whether contractual or otherwise
with respect to his right to execute this Agreement, to fully
perform its terms and conditions, to furnish to Company his
services hereunder and to grant to Company all rights herein
granted.
3) INTELLECTUAL PROPERTY:
a) All Masters made hereunder, all reproductions made therefor,
the performances of Producer embodied herein, and the
copyrights therein and thereto, shall (as between Company and
Producer) be entirely Company's property at all stages during
and from creation (other than existing copyrights relating to
Licensed CD Productions and licensed music on Original Video
Productions) free of any claims whatsoever by Producer or
anyone claiming through or on behalf of Producer. Further,
Producer hereby grants to Company all rights of every kind and
character, whether now known or hereafter created, in and to
the results and proceeds of Producer's services hereunder.
Producer acknowledges and agrees that with respect to Original
CD/Video Productions, Company (or its designee) is and, in so
far as Producer is concerned, shall be the owner of all rights
of copyright (excluding only copyright in licensed music on
any Original Video Production) in and to the Masters relating
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thereto, and that Company shall be entitled to the exclusive
right to the copyright of each Master, it being agreed that
for this purpose Producer is deemed Company's employee-for
hire such that Company may exercise all rights in the Masters
as the author and copyright proprietor thereof. Without
limiting the generality of the foregoing, Company may grant to
its distributors the right to manufacture, advertise, sell,
lease, license or otherwise exploit the Masters, or refrain
therefrom, within their respective territories upon such terms
as Company may decide. Producer acknowledges that Products
manufactured pursuant to this Agreement may be released under
any trademark, trade name or label designated by Company.
b) Company's distributors shall each within their respective
territory have the perpetual, non-exclusive, worldwide right
to use and to permit others to use Producer's name and
likeness and biographical material concerning him in
connection with the sales and distribution of Masters produced
hereunder and record made therefrom.
4) INDEMNITY:
a) Each party agrees to indemnify and hold the other party and
other party's successors, assigns, agents, distributors,
licenses, officers, directors and employees harmless from and
against any liability, damage, cost and expense (including
reasonable attorney's fees) occasioned by or arising out of
any third party claim, demand or action (collectively, a
"CLAIM") arising out of or in connection with any breach of
any covenant, representation, grant or warranty made or
assumed by the indemnifying party hereunder which Claim
results in a final adjudication or settlement. Upon being
notified of any Claim, the indemnified party shall promptly
notify the indemnifying party of such Claim. The indemnifying
party may participate in the defense of the Claim, at its own
expense, with counsel of its own choice, subject to the other
party's approval which shall not be unreasonably withheld.
b) Upon the making or filing of a Claim against Company, Company
shall be entitled to withhold amounts payable to Producer
under this Agreement PROVIDED that the total amount withheld
is in an amount reasonably related to the amount of the Claim,
unless Producer furnishes Company with a bond or similar
instrument which is acceptable to Company. All amounts
withheld by Company shall be deposited in an interest-bearing
bank account. All amounts withheld by Company relating to a
Claim shall be released to Producer if an action based on such
Claim is not filed within one (1) year after Company has
received written notice of such Claim.
5) ADVANCE ROYALTIES AND ROYALTIES:
a) Subject to Producer's performance of all of his obligations
hereunder, Company agrees to pay to Producer advance royalties
of $85,000 over the Term, payable in twenty four (24) monthly
installments of $3,541.67, with each installment payable on
the first (1st) and fifteenth (15th) day of each calendar
month, in arrears, except for the first payment hereunder
being made on June 1, 2000 and the second payment being made
on June 30, 2000. If Company elects to renew this Agreement
for two (2) additional years under Section 1 a), Company will
advance Producer royalties of $93,500 for the third year and
$102,850 for the fourth year, on the same terms and conditions
set forth herein.
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b) Company shall pay Producer net royalties based on 100% of the
net sales of all Products, computed on the suggested retail
list price of such Products (except as otherwise provided), as
follows:
i) With respect to net sales of Products based on
Original CD Productions and Original Video
Productions manufactured, distributed and sold by
Company and its distributors in the United States of
America through normal retail channels, a net royalty
of five (5%) percent on such net sales.
ii) With respect to net sales of Products based on
Licensed CD Productions manufactured, distributed and
sold by Company and its distributors in the United
States of America through normal retail channels, a
net royalty of four (4%) percent on such net sales.
iii) With respect to net sales of Products based on
Original CD Productions and Original Video
Productions manufactured, distributed and sold by
Company or its distributors outside of the United
States of America through normal retail channels, a
royalty of four (4%) percent on such net sales.
iv) For purposes of sales outside of the United States,
the suggested list price shall be the suggested
retail list price of the Products fixed in such
country, or in the absences of such price, that price
which is customarily utilized in the respective
industries for Products for such purposes in the
country involved.
v) Net royalties on foreign net sales will be deemed
earned only when amounts from net sales on which such
net royalties are based are received by Company in
the United States or credited to Company against an
advance at the dollar equivalent of the rate of
exchange at which Company is paid or credited against
an advance, net of all applicable foreign taxes. The
applicable rate of exchange shall be the rate of
exchange at which Company is paid by its
distributors. If Company does not receive payments in
United States dollars in the United States as a
result of the action of any governmental or other
authority and Company accepts payment in a foreign
currency, Company may deposit Producer's net
royalties in such foreign currency to Producer's
account (and at Producer's expense) in a depository
selected by Producer. Such deposits of payments
representing net royalties applicable hereto shall
satisfy Company's obligations hereunder for the sales
to which such net royalty payments are applicable.
vi) Net royalties applicable to net sales of Products
sold direct at retail by Company via any internet
site it publishes or direct mail or through a mail
order operation shall be computed at one-half (1/2)
of the royalty percentage rate set forth in (i),
(ii), or (iii), as the case may be, based upon the
price to the consumer.
vii) Net royalties applicable to net sales of Products
being sold at retail at 50% off Company's suggested
retail price shall be computed at one-half (1/2) of
the royalty percentage rate set forth in (i), (ii) or
(iii).
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viii) No royalties shall be payable in respect of (1)
Products distributed by Company or its distributors
as "samplers" at trade shows or for trade and
marketing purposes; (2) Products distributed free
(whether or not shipping and handling charges are
payable), as special promotions either posted on
Company's web sites, including www.babygenius.com, or
advertised on television or radio; (3) Products
distributed free in connection with membership drives
for member programs operated by Company; (4) Products
distributed for free or sold for less than seventy
percent (70%) Company's or its distributors, listed
wholesale list price to publishers, employees, video,
CD and motion picture companies, radio and television
stations and other customary recipients of free,
discounted or promotional records which are not
intended for resale; (5) Products sold by Company or
its distributors at cost; directly; (6) distribution
of Products directly or by third parties as premiums
and (7) Products given away or shipped under sales
programs on a "no-charge" or "freebie" basis, or sold
for thirty percent (30%) or less of the wholesale
list price to distributors, subdistributors, dealers
and others as an inducement to purchase Products,
whether or not such Products are intended for sale to
third parties.
ix) Notwithstanding anything to the contrary contained
herein, the following shall be excluded from the base
against which the applicable royalty percentage rate
is to be applied: (1) all sales, use, excise,
transaction, value added taxes and other applicable
domestic and international taxes included in the
price, and (2) in the case of Products sold with
special inserts or attachments, a packaging charge of
ten percent (10%) of the suggested retail list price
for such Products.
x) Company may at any time elect to utilize a different
method of computing royalties from that specified
above, in the event that the method by which Company
is accounted to by its distributors is changed,
PROVIDED that such method does not materially alter
the net amounts due Producer.
xi) As used herein, "NET ROYALTIES" means Company's
royalties earned by actual net sales of Products for
which Company has been paid or received credit
against an advance, less taxes withheld or charged
and payments to any unions or guilds (or their trust
funds). Sales by Company shall be deemed to have
occurred during the accounting periods in which
Company receives payments or credits therefor. "NET
SALES" means the cumulative number of Products sold
by Company or its distributors to independent third
parties for which Company has been paid or received
credit against an advance, less Products returned at
any time for any reason, including at Company's
request, and less all rebates, advertising
allowances, free goods, credits, bad debts, credit
card charge-backs, cancellations and exchanges. Prior
to final determination thereof, Company may withhold
a reasonable reserve against returns, such reserve to
be established by Company in its reasonable
discretion. Reserves shall not exceed forty percent
(40%) of Products shipped in the first year of the
Term and shall thereafter be based on the average
percentage of returns received by Company in the
previous 12 months, and each such reserve shall be
liquidated not later than the delivery of the second
accounting statement following the statement on which
such reserve was established. Company agrees that in
the United States Products which are returned shall
be charged to Producer's account in the same
royalty-bearing ratio such Products were originally
credited to Producer's account.
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xii) Notwithstanding anything to the contrary contained
herein, Producer shall not be entitled to receive any
net royalties whatsoever with respect to net sales of
Products prior to the recoupment by Company of any
advance royalties paid to Producer under Section 5
a).
xiii) Within sixty (60) days after June 30 and December 31
of the first eighteen months during which Products
are sold, Company will render a statement of accrued
royalties earned under the Agreement during the
preceding calendar half year, less all amounts
chargeable against such royalties pursuant to the
Agreement, including without limitation, all advance
royalties paid under Section 5 a) through the date of
such statement. Simultaneously with the rendering of
its statement, Company will pay Producer the net
amount, if any, shown to be due thereon, less any
deductions or withholding required by law or any
union guild rules or regulations. Notwithstanding the
foregoing, only expenses, advances or other charges
incurred during any particular semi-annual period may
be charged during that or a subsequent period (e.g.,
a charge incurred on January 5 of a particular
calendar year shall be reflected in the June 30
statement for that period and not for the December 31
statement for the preceding period). After the first
eighteen months, statements will be rendered within
sixty (60) days of each calendar quarter.
6) GRANT OF OPTIONS:
a) On the Effective Date, Company will grant Producer options to
acquire 25,000 shares of Company's common stock.
b) In addition, for each 100,000 net sales of units of Products,
Company will grant Producer on the last day of the calendar
quarter in which such 100,000 net sales target has been
reached, options to acquire 25,000 shares of Company's common
stock.
c) If prior to March 31, 2001, Company sells 500,000 net sales of
units of Products based on Original CD Productions or Original
Video Productions, Company shall grant Producer options for an
additional 25,000 shares.
d) The maximum number of shares for which Producer shall be
granted options during their Term shall be 125,000, including
the options for 25,000 shares to be granted on the Effective
Date and all options that may be granted pursuant to
subsections b) and c) above.
e) The exercise price of all options granted to Producer
hereunder shall be 1.20 times the average closing price of
Company's shares in the twenty (20) consecutive trading days
immediately preceding the date of grant.
f) Producer shall not be entitled to exercise any options until
after ninety (90) days following the date of grant of such
options.
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g) Company shall give notice to Producer of its intent to
consummate a private placement of its shares and Producer
shall be entitled to purchase shares in such placement subject
to applicable federal and state securities laws.
h) All shares underlying the options granted hereunder shall be
restricted securities within the meaning of Rule 144 of the
Securities Act of 1933, as amended.
i) All shares issuable under any options granted hereunder shall
either (1) be registered pursuant to a Form S-8 which shall be
filed with the Securities Exchange Commission within ninety
(90) days from the date hereof or (2) shall be issuable
pursuant to the options being exercised on a "cashless" basis.
7) TERMINATION.
a) Company may terminate Producer's engagement upon not less than
thirty (30) days prior written notice as a result of a
material breach by Producer of his obligations hereunder, if
such breach has not been cured within thirty (30) days of
receipt of written notice from Company.
b) Upon the termination of this Agreement for any reason,
Producer shall deliver to Company all documents used by
Producer in the course of Company's business and in Producer's
possession or control, including but without limiting the
foregoing, all price lists, mailing lists, customer, client or
supplier lists, sales information, catalogues, diaries, log
books, computer software and computer data.
8) PROPRIETARY AND CONFIDENTIAL INFORMATION:
a) Producer acknowledges that he may receive information
concerning Company's business, financial and technical plans
and strategies, inventions, new products, services, customers
and members, and technology (collectively "CONFIDENTIAL
INFORMATION"). The terms and conditions set forth in this
Agreement shall be Confidential Information. Producer
acknowledges and agrees that all Confidential Information is
of substantial value to Company, which value would be harmed
if such information were disclosed to third parties. Producer
agrees that he shall not use (except in the performance of his
obligations under this Agreement) Confidential Information in
any way for his own account or any account of any third party,
nor disclose to any third party such Confidential Information.
Producer may disclose Confidential Information to his agents
and representatives who need to know such information,
PROVIDED that such persons are bound by confidentiality
obligations no less restrictive than the terms in this
section. The obligations in this section shall survive the
termination of this Agreement for a period of two (2) years.
Confidential Information does not include any information that
Producer can demonstrate by written records (a) was known to
him prior to its disclosure hereunder by Company, (b) was
independently developed by Producer, (c) is or becomes
publicly known through no wrongful act of Producer, (d) has
been rightfully received from a third party whom Producer has
reasonable grounds to believe is authorized to make such
disclosure without restriction, or (e) has been approved for
public release by Company's prior written authorization.
Confidential Information may be disclosed pursuant to
applicable law, regulations or court order, PROVIDED that
Producer provides prompt advance notice thereof to enable
Company to seek a protective order or otherwise prevent such
disclosure.
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b) Should Producer reveal or threaten to reveal any Confidential
Information, Company shall be entitled to an injunction
restraining the Producer from disclosing same, or from
rendering any services to any entity to whom such information
has been or is threatened to be disclosed. The right to secure
an injunction is not exclusive, and Company may pursue any
other remedies it has against the Producer for a breach or
threatened breach of this provision, including the recovery of
damages from the Producer.
9) RESTRICTIVE COVENANT: Producer further agrees during and for one (1) year
after the termination of this Agreement for any reason, whether for
Producer's own account or for any other person or for any firm or company
not to solicit, interfere with or endeavor to entice away from Company any
employee of Company or any person, firm or company who at any time during
the continuance of the employment shall have been a customer or client of
Company.
10) GOVERNING LAW; JURISDICTION; VENUE. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of the
State of California, without regard to its conflicts of laws principles.
Each party hereby irrevocably consents to the exclusive jurisdiction of the
state and federal courts of Orange County of the State of California in
connection with any action arising under this Agreement and waives all
defenses regarding the inconvenience of such forum.
11) MISCELLANEOUS:
a) INTEGRATION. This Agreement is the sole contract governing the
relationship between Company or any predecessor of Company and
Producer, and supersedes any and all prior agreements, letters
of intent, correspondence, negotiations, discussions or
understandings between Company or any predecessor of Company
and the Producer.
b) SEVERABILITY. If any provision of the Agreement is held
invalid by a court with jurisdiction over the parties to the
Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the
parties in accordance with applicable law and (ii) the
remaining terms, provisions, covenants and restrictions of
this Agreement will remain in full force and effect. If this
Agreement is held invalid or cannot be enforced, then to the
full extent permitted by law any prior agreement between
Company (or any predecessor thereof) and the Producer shall be
deemed reinstated as if this Agreement had not been executed.
c) SUCCESSORS. Company's rights and obligations under this
Agreement will inure to the benefit and be binding upon
Company's successors and assignees.
d) AMENDMENTS. This Agreement may be altered only by a written
agreement signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is
sought.
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e) NOTICES. Any notice, approval, request, authorization,
direction or other communication under this Agreement will be
given in writing and will be deemed to have been delivered and
given for all purposes (i) on the delivery date if delivered
personally to the party to whom the same is directed; (iii)
one business day after deposit with a commercial overnight
carrier, with written verification of receipt; or (iii) five
business days after the mailing date, whether or not actually
received, if sent by U.S. mail, return receipt requested,
postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. All notices to
Company will be effective if delivered to Company, 11250 El
Camino Real, Suite 100, San Diego, CA 92130, attention:
President, or such other address specified by Company in
writing. All notices to Producer will be effective if
delivered to Producer's last residential address provided to
Company by Producer with a copy to J. Eugene Salomon, Jr.,
Mitchell Silberberg & Knupp LLJ, Trident Center, 11377 West
Olympic Boulevard, Los Angeles, CA 90054-1683.
f) ASSIGNMENTS. Company will not assign this Agreement or any
right, interest or benefit under this Agreement without the
prior written consent of Producer. Producer may not assign
this Agreement or any part thereof with Company's prior
written consent except, however, that, after the completion of
Producer's services hereunder, Producer may assign Producer's
right to receive royalties hereunder.
g) REMEDIES. Except where otherwise specified herein, the rights
and remedies granted to a party under the Agreement are
cumulative and in addition to, and not in lieu of, any other
rights or remedies which the Party may possess at law or in
equity.
h) LIMITED EFFECT OF WAIVER BY COMPANY. Should Company waive
breach of any provision of this Agreement by the Producer,
such waiver will not operate or be construed as a waiver of
further breach by the Producer.
i) COUNTERPARTS. The Agreement may be executed in counterparts,
each of which will be deemed an original and all of which
together will constitute one and the same document.
IN WITNESS WHEREOF, both parties have signed this Production Agreement as of the
date first above written.
GENIUS PRODUCTS, INC.
By: /S/ Dorian Lowell
------------------------
Name: Dorian Lowell
President
PRODUCER
By: /S/ Richard Perry
------------------------
Name: Richard Perry
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EXHIBIT A
---------
Estimated Budget
To be delivered by Producer within a reasonable period of time after the date
hereof.
ORIGINAL CD PRODUCTIONS:
- -----------------------
1.
2.
LICENSED CD PRODUCTIONS:
- -----------------------
1.
2.
3.
4.
5.
6.
ORIGINAL VIDEO PRODUCTIONS:
- --------------------------
1.
2.
3.
4.
5.
11
REPRESENTATION AGREEMENT
This Agreement is entered into as of May 3, 2000, by and between GENIUS
PRODUCTS, INC. ("LICENSOR") located at 11250 El Camino Real, Suite 100, San
Diego, California 92130; telephone # (858) 793-8840, fax #(858) 793-8842 and
GLOBAL ICONS, LLC, ( "GLOBAL") located at 3679 Motor Avenue, Suite 200, Los
Angeles, California 90034; telephone # (310) 253-5100, fax # (310) 253-5110.
RECITALS
A. Whereas Licensor (1) has certain trademarks registered or pending in its
name (as set forth in Exhibit A hereto, which may be amended and restated from
time to time), (2) is the exclusive owner of certain rights in and to the names,
characterizations, designs, artwork, symbols, concepts, ideas, themes, plots,
stories and spin-offs relating to and associated with the characters and
elements contained in the Genius Products, Inc. works (the "PROPERTIES") and (3)
is the developer, publisher and producer of music compact discs, cassettes and
video titles.
B. Whereas Global has established contacts and relationships with numerous
companies which design, manufacture and wholesale various products and services
throughout the world including the United States and its territories and
possessions.
C. Whereas Licensor desires to retain Global, and Global desires to be
retained, as Licensor's exclusive, worldwide representative in connection with
obtaining, servicing and negotiating agreements for the exploitation of the
Property.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, and intending to be legally bound, Licensor and
Global (the "PARTIES") hereby agree as follows:
1. DEFINITIONS, RETENTION AS LICENSING REPRESENTATIVE; SERVICES TO BE
PROVIDED.
1.1 For the purposes hereof:
"LICENSEES" shall mean the persons or entities who are granted Licenses by
Licensor as a result of solicitation by and negotiations with Global.
"LICENSES" shall mean the licenses granted under standard licensee
agreements by and between Licensor and Licensees, which Licenses, unless
otherwise agreed by Licensor based upon recommendations and supporting data
provided by Global, shall (i) grant rights to Licensees to market only in
countries in which such Licensees have an existing sales and marketing force and
name recognition and are proven industry leaders, and (ii) provide for a minimum
royalty rate of ten percent (10%) as a percentage of Licensees' gross sales
exclusive of discounts, returns or pre-approved adjustments. "LICENSES" shall
not include any Existing Agreements.
"PRODUCTS" shall mean all products, based on the Properties, in the product
categories and sub-categories listed on EXHIBIT B hereto, PROVIDED HOWEVER, that
if within twenty four (24) months from the date hereof, Global has failed to
procure a Licensee in any of the Product sub-categories specified in Exhibit B,
and no negotiations between Global and any potential licensee for any such
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Product sub-category are taking place, then Global shall present a meaningful
plan of action to procure a licensee and execute a License within six (6) months
from the end of such 24-month period, the Products in such sub-category shall be
excluded from this Agreement.
"TERRITORY" shall initially mean the continents of North America, South
America, Europe, Australia and Asia; PROVIDED, HOWEVER, that any country which
Global fails to service, as evidenced by its failure within thirty six (36)
months from the date hereof to solicit and obtain Licensee(s) for sale and
marketing therein of least one (1) Product category, may thereafter at the
election of Licensor by written notice to Global be excluded from the Territory.
1.1 (a) Except as otherwise expressly provided herein, Licensor hereby
engages Global as its sole and exclusive non-employee, worldwide licensing
consultant and representative throughout the Territory during the term hereof,
with rights and responsibilities provided for herein, (i) for purposes of
conceiving and establishing licensing programs in the Properties, (ii) to
solicit third parties as Licensees, pursuant to Licensor's authority and
responsibility under this Agreement, for the manufacture and sale of Products
based upon the Properties, (iii) to solicit and negotiate Licensees and related
agreements on behalf of Licensor, subject to final approval and execution by
Global, (iv) to solicit and negotiate the association, and/or promotion or
advertising of companies, services and products and (v) render the services set
forth in Section 1.3 (collectively, the "SERVICES"). Licensor may from time to
time in accordance with legitimate business needs of Licensor add to or delete
Products or Product categories upon written notice to Global.
(b) Global hereby accepts appointment as sole and exclusive
representative of Licensor and agrees to perform the Services required
hereunder, subject to the provisions herein requiring approval of all Licensees,
Licenses and related agreements by Licensor. Global shall solicit prospective
exclusive or nonexclusive Licensees only with respect to the Territory, as
constituted from time to time.
(c) The Parties agree that Global shall not represent any other
pre-school brands, including without limitation Playschool, Gerber, Fisher
Price, and Baby Einstein.
(d) The Parties agree that Global's rights as provided herein shall
exclude the license, affiliation, service, permission or other agreements
involving the use by third parties of Licensor's Properties , if any, entered
into prior to the execution of this Agreement and set forth in EXHIBIT C
attached hereto, including any renewal or extension thereof ( the "EXISTING
AGREEMENTS").
(e) Global may not appoint subagents or subrepresentatives without the
prior written consent of Licensor.
1.3. Global shall devote all reasonable efforts and such time as is
reasonably required to perform and render the Services Provided hereunder, which
include the following:
(a) MARKETING (MERCHANDISING/ADVERTISING). SUBJECT TO LICENSOR' S FINAL
APPROVAL, GLOBAL SHALL:
i. Review potential license areas, set acceptable territorial and product
line priorities, and establish licensing controls;
ii. Develop a strategic plan for the licensing of the Properties, taking
into account any special dates, anniversaries and events that can be promoted;
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<PAGE>
iii. Locate, identify, solicit and screen qualified potential licensees and
keep Licensor informed as to acceptance of the Properties by prospective
Licensees.; and
iv. Coordinate advertising and promotional campaigns on behalf of Licensor.
v. Maximize the commercial benefits from the licensing and exploitation of
the rights covered by this Agreement as shall be reasonably possible and as
shall be consistent with the quality and standing of the Properties.
(b) LEGAL. SUBJECT TO LICENSOR'S FINAL APPROVAL, GLOBAL SHALL:
i. Review Licensor's trademark registration portfolio, including
registrations, pending applications, and any disputes concerning the Properties,
and establish registration and enforcement strategies;
ii. When directed by Licensor, draft and file trademark applications and
registrations for the Properties in various classes of goods;
iii. Aggressively police and protect the Properties against unauthorized
commercial uses;
iv. When directed by Licensor, prosecute claims arising from unauthorized
uses of the Properties; and
v. Develop standardized license agreements with Licensor and Licensor's
attorney.
(c) PUBLIC RELATIONS Subject to requisite overall prior approval of
campaigns as well as case by case approval of individual media or other
promotional releases or communications by Licensor, Global shall:
i. Attend on behalf of Licensor and the Properties all industry trade and
licensing shows in the United States as well as any other domestic and overseas
trade shows at which a master licensing agent would, as a matter of custom and
practice, reasonably be expected to attend, and exhibit the Properties at the
Licensing 2000 International to be held in June 2000, in New York City, New York
and such licensing show each year thereafter during the term. At Licensing 2000
International Show, Global shall display Licensor's Products in a booth as
depicted in the diagram attached hereto as EXHIBIT D. Any changes to the
position or the size of the booth shall be mutually agreed upon by the Parties,
PROVIDED that in the event that the Parties cannot agree, Global's decision
shall be final;
ii. Coordinate public relations and brand communication to the trade and
consumer markets;
iv. Coordinate licensees' participation in industry trade shows;
v. Maintain effective communication and good business relationships with
the licensees.
(d) LICENSEE SUPPORT. SUBJECT TO LICENSOR'S FINAL APPROVAL, GLOBAL SHALL:
i. Coordinate the design and merchandising of the Products with the
licensees; and
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ii. Coordinate the development of a style guide with respect to the design
of the Products (including a new "Baby Genius" logo) (the "STYLE GUIDE"). With
respect to the Style Guide, Global shall advance the budget for the development
and creation of such Style Guide not to exceed Seventy Thousand Dollars
($70,000.00) (the "STYLE GUIDE BUDGET"), which shall be recoupable against
revenue received from the Licensees. Licensor shall have the right to consult
with Global with respect to Style Guide Budget. If Licensor when so consulted
does not approve of the elements of the Style Guide Budget, Licensor must
indicate to Global within forty-eight (48) hours of receipt thereof the precise
nature of Licensor's disapproval, if any. Any disapprovals must be given in a
clear and unambiguous manner. Global shall resubmit a revised Style Guide Budget
for Licensor's approval. In the event of disagreement, Global's decision with
respect to the Style Guide Budget shall be final, PROVIDED HOWEVER, that any
costs in excess of the Style Guide Budget may be advanced directly by the
Licensor. The elements contained in such Style Guide shall be the sole property
of Licensor. Licensor shall, in its sole discretion, have the right of approval
with respect to all aspects of the development, creation and content of such
Style Guide.
iii.Coordinate the development of the Licensor's logo (the "LOGO") and the
brand positioning concepts to be used in connection with Baby Genius CDs,
cassette tapes and videos, advertising and Licensing 2000 International show.
Licensor shall bear any costs associated with the creation of the Logo and the
brand positioning concepts.
iv. Review licensee sample lines to ensure that the Products support the
image, quality and value associated with the Property and establish and monitor
procedures for the approval by Licensor of the Products at each stage of
development;
v. Coordinate the design of all labels, tags, graphics, and packaging to
provide a unified look for all licensed categories; and
When appropriate, direct Licensees in corporate presentations to target
retailers.
vii. Assist Licensor in fulfilling responsibilities for coordinating and
acting as liaison to all Licensees, including without limitation, developing and
implementing brand identification programs and hang tag, logo and color scheme
usages for all Licensees, and conducting meetings with Licensees at such times
and locations as Global and Licensor shall consider appropriate.
(e) COMPLIANCE/ROYALTIES. SUBJECT TO LICENSOR'S FINAL APPROVAL, GLOBAL
SHALL:
i. Assist Licensor in collecting all royalties and other monies due from
licensees on a timely basis; and, subject to Section 4.1(c), while Global may
pursue at its expense through efforts of its own personnel all commercially
reasonable efforts to enforce collection of amounts payable to Global by
Licensees, Global shall not be responsible for the costs of utilizing outside
counsel or collection agencies;
ii. Monitor royalty reports, order back-log summaries, actual merchandise
shipped, and distribution channels;
iii. Assist Licensor in the management of Existing Agreements, if any, and
any restructuring thereof;
iv. Oversee Licensees' compliance with obtaining and maintaining adequate
product liability insurance in accordance with the terms and conditions of
license agreements between Licensees and Licensor; and
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Conduct personal visits to Licensees' facilities, when appropriate and in
accordance with Global's travel schedule, to ensure compliance with the quality
control provisions of the license agreements with the licensees.
vi. Use all commercially reasonable efforts to ensure compliance by
Licensees with the terms of their Licenses including without limitation, the
quality control and Product approval provisions contained therein, as well as
timely sales reporting and royalty payments, and perform field audits and
establish and monitor standard reporting and remittance procedures for royalties
as deemed necessary by Global in order to discharge its obligations hereunder.
vii. Monitor Products in the marketplace and at Licensees' facilities as
deemed necessary by Global in order to discharge its obligations hereunder to
determine if standards for quality of the Products and use of the Properties are
being maintained, and (i) immediately notify Licensor of any nonconforming or
infringing Products, and (ii) if requested by Licensor, obtain samples of
Products and forward them to Licensor.
viii. Monitor the marketplace for infringement upon Licensees' rights,
whether by other Licensees or unrelated parties, and notify Licensor immediately
in writing (facsimile or otherwise) of any infringements or imitations by other
of the Properties; take all commercially reasonable steps (i) to insure that the
scope of new Licenses does not conflict with or create potential for "crossover
infringement" of any existing Licenses, and (ii) to halt or otherwise remedy
such infringements and/or disputed interpretation among Licensees regarding
contractual obligations related to product, category and other "crossover
infringements", including without limitation the issuance of "cease and desist"
letters; and, following notification and prior approval by Licensor, the taking
of all commercially reasonable steps to protect Licensor's authorized
logos/trademarks against improper use or infringement.
(f) OTHER OBLIGATIONS. In addition, Global shall:
(i) Not solicit any Licensees for Product categories which Licensor deems
offensive to good taste or which present a risk of damage to the reputation or
public image of Licensor, the Properties or the Products.
(ii) Comply with all laws, including U.S. laws, relating to Global's
business, its solicitation of Licensees and all other actions undertaken in
connection with performance of this Agreement.
(i) Pay all costs and expenses incurred in performing the obligations set
forth in this Agreement provided that the applicable licensee, not Global, shall
be responsible for all costs and materials of such activities coordinated or
overseen by Global under this Section 1.3.
2. LIMITATIONS ON AND OTHER OBLIGATIONS OF GLOBAL.
2.1 Global shall endeavor to maintain and enhance the goodwill and
long-term best interests of Licensor and shall operate within the objectives,
strategic plans and policies reasonably established by Licensor and communicated
to Global from time to time.
2.2. The relationship between the Parties shall be solely that of an
independent contractor and client. No employment, agency or partnership
relationship is intended or shall be created hereby. Global shall not hold
itself out as being entitled to bind Licensor in any way.
2.3. In performing its services hereunder, Global shall use a form of
license agreement approved by Licensor use. All Licenses and all Licensees shall
be subject to approval by Licensor in its sole discretion and shall be executed
only by Licensor. Any approvals required under each Licensee shall be made
solely by Licensor. The Parties hereby acknowledge and agree that the decision
of whether or not to enter into any license agreement hereunder shall be
determined in the sole discretion of Licensor.
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2.4 Licensor may, in his sole discretion, accept or reject any proposed
licensee solicited or otherwise suggested by Global, or the renewal of any
License solicited or negotiated by Global and Global acknowledges that certain
licensing proposals will not be approved, including without limitation, the
following: (i) if Licensor considers the proposal inappropriate for the image of
Licensor, the Properties or Products, or (ii) if such proposal would potentially
infringe upon the proprietary rights of third parties, including existing
Licensees.
2.5 No proposed license shall be considered binding on Licensor, nor shall
Global be eligible for compensation hereunder, unless and until the licensing
agreement has been fully executed by Licensee and Licensor, and, if a signatory
thereto, by Global. Global shall have no right, power or authority, express or
implied, to make or accept any agreement, which would be binding upon Licensor.
3. TERM.
3.1.INITIAL TERM. Unless sooner terminated or extended as provided herein,
the Term of this Agreement shall commence upon the execution hereof and shall
continue for twenty-four (24) months from the date of the execution hereof (the
"INITIAL TERM").
3.2 RENEWAL TERMS.
i. After the expiration of the Initial Period, the Term of this Agreement
shall be automatically extended for a period of twelve (12) months ("FIRST
EXTENSION PERIOD") if the Gross Receipts reaches or exceeds the amount of Four
Million Dollars ($4,000,000) at any time prior to the expiration of the Initial
Period.
ii. After the expiration of the First Extension Period, the Term of this
Agreement shall be automatically extended for additional twelve (12) months
("SECOND EXTENSION PERIOD"), if the Gross Receipts reaches or exceeds the amount
of Six Million Dollars ($6,000,000) at any time prior to the expiration of the
First Extension Period.
iii. After the expiration of the Second Extension Period, the Term of this
Agreement shall be automatically extended for additional twelve (12) months
("THIRD EXTENSION PERIOD"), if the Gross Receipts reaches or exceeds the amount
of Ten Million Dollars ($10,000,000) at any time prior to the expiration of the
Second Extension Period.
iv. After the expiration of the Third Extension Period, the Term of this
Agreement shall be automatically extended for additional twelve (12) months
("FOURTH EXTENSION PERIOD"), if the Gross Receipts reaches or exceeds the amount
equal to Eleven Million Five Hundred Thousand Dollars ($11,500,000) at any time
prior to the expiration of the Third Extension Period.
v. After the expiration of the Fourth Extension Period, the term of this
Agreement shall be automatically extended for additional twelve (12) months
("FIFTH EXTENSION PERIOD"), if the Gross Receipts reaches or exceeds the amount
equal to Thirteen Million Two Hundred Twenty Five Thousand Dollars ($13,225,000)
at any time prior to the expiration of the Fourth Extension Period.
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vi. After the expiration of the Fifth Extension Period, the Term of this
Agreement shall be automatically extended for additional twelve (12) months
("SIXTH EXTENSION PERIOD"), if the Gross Receipts reaches or exceeds the amount
equal to Fifteen Million Two Hundred Eight Thousand Seven Hundred Fifty Dollars
($15,208,750) at any time prior to the expiration of the Fifth Extension Period.
vi. Prior to the expiration of the Sixth Extension Period, Global and
Licensor shall negotiate in good faith for an additional extension of the Term
of this Agreement ("EXTENDED TERM"), If any such negotiations do not result in
any agreement within fifteen (15) business days after commencement thereof,
Licensor may proceed with engaging a third party to replace Global as Licensor's
representative and the parties shall have no further obligation to each other
under this Section.
Notwithstanding the foregoing, in the event that Licensor does not receive
the minimum gross revenue amounts during any of the periods defined above, the
Term of this Agreement may be extended at Licensor's option.
4. FEE / PAYMENT.
4.1 Throughout the Initial Term, and if applicable, First Extension Period,
Second Extension Period, Third Extension Period, Fourth Extension Period, Fifth
Extension Period, Sixth Extension and Extended Term, and in consideration of the
Services Provided, Global shall receive the following sums:
(a) With respect to Gross Receipts from Licensee sales in the United States
and Canada, thirty percent (30%) of such Gross Receiptsplus five percent (5%) of
the amount by which such Gross Receipts exceed Five Million Dollars
($5,000,000);
(b) With respect to Gross Receipts from Territories outside of the United
States and Canada, such amount as Global shall be obligated to pay its
sub-agents in such Territories for procuring such Gross Receipts and rendering
services to Licensees in connection therewith, but in no event shall Global be
entitled to receive more that than twenty five percent (25%) of such Gross
Receipts for payment to such sub-agents. Any amount payable by Global to any
such sub-agent exceeding 25% of such Gross Receipts shall be for Global's
account and the difference between 25% of such Gross Receipts and any lesser
amount actually paid by Global to any such sub-agent shall be shared equally
between Global and Licensor. In addition, Licensor shall pay Global fifteen
percent (15%) of such Gross Receipts from such territories.
All of the above-defined compensation derived from any of the Services
Provided by Global shall hereinafter be collectively referred to as the "FEE."
(c) Licensor and Global shall be under no obligation to threaten or bring
suit against any Licensee to collect any unpaid fees and, to the extent Global
makes claims or brings suit collect such fees, Global compensation under such
Licensee shall be limited to its percentage of the Gross Receipts, after Global
has deducted all expenses, including without limitation, all court costs,
attorneys' fees and any other expenses incurred to collect such Gross Receipts.
4.2 For purposes of this Agreement, "GROSS RECEIPTS" shall mean all monies,
property and other consideration (including without limitation, advances,
royalties, minimum guarantees, bonuses, earnings, fees and/or profit
participations) that are actually received in respect of any License paid to
Global or Licensor for licensing rights pursuant to any License procured by
Global hereunder from any Licensee and in respect of which Global discharges in
a complete and professional manner all of the Services. All Gross Receipts shall
be computed net of all withholding, sales, value added and other foreign or
domestic taxes and shall exclude all receipts due but not yet received by
Licensor or Global.
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4.3. With respect to Licenses granted to Licensees in the Territories
outside of the United States and Canada, Global may engage the services of
foreign sub-agents, subject to Licensor's prior written approval and Global
agrees that the maximum amount that Licensor will pay Global for such sub-agents
shall be twenty five percent (25%) of the Gross Receipts received from sales in
such Territories, as set forth in Section 4.1 (b).Global shall cause all foreign
sub-agents to provide a true copy of the tax return filed and copy of the
canceled check evidencing payment of any such withholding or other taxes, if
any. With respect to Licenses granted to Licensees in the Territories outside of
the United States and Canada, under no circumstances will Licensor receive less
than Sixty Percent (60%) of all Gross Receipts; accordingly, Global will absorb
foreign sub-agent's charges and any and all expenses on foreign licenses
necessary to produce said result.
Global shall coordinate the activities of any sub-agents in accordance with
the terms of this Agreement. The Parties further agree that foreign arrangements
will be subject to the approval process referred to in Section 7.2 below.
4.4 The parties agree that the expiration or termination of this Agreement
without cause shall not affect Global's continuing right to receive, for a
period of four (4)) years following such expiration or termination, the
compensation due Global under Section 4.1 in respect of Licenses executed during
the term hereof or substantially negotiated as of the date of such expiration or
termination, and any renewals, extensions and/or modifications of such Licenses,
occurring subsequent to such date of expiration or termination; PROVIDED,
HOWEVER, that Global continues to service such Licenses (and any renewals,
extensions and modifications of the same) in the same manner as is required
during the term of this Agreement, including without limitation performance of
all responsibilities hereunder as well as negotiation of all renewals and
extensions (subject to acceptance or rejection thereof in the sole discretion of
Licensor and/or Global).
If this Agreement is terminated by Licensor for cause Global shall forfeit
immediately all rights to any compensation due Global under Section 4.1 in
respect of Licenses executed during the term hereof or substantially negotiated
as of the date of such expiration or termination.
If Global elects not to continue such servicing, or fails to provide such
servicing in the same manner as prior to expiration or termination of this
Agreement, then upon thirty (30) days written notice from Licensor identifying
the failure of servicing, and failure or refusal of Global to cure such failure
within such thirty (30) day period, Global's continuing compensation shall be
eliminated to compensate Licensor for obtaining performance of such servicing by
others.
Notwithstanding the foregoing provisions for continuation of Global's
compensation during any renewals or extensions of Licensees following
termination of this Agreement, neither Licensor nor Global shall have any
obligations to accept or agree to any such renewals or extensions, and the same
may be rejected or declined for any reason or for no reason in the sole
discretion of Licensor and/or Global.
4.4. Each license agreement shall require that all royalties and other
payments due thereunder by the licensee, excluding advances, which shall be due
and paid upon execution, shall be paid quarterly throughout the calendar year(s)
of the term of this Agreement or any extension or renewal thereof. Global shall
be entitled to receive and collect all Gross Receipts and retain its Fee
therefrom prior to distributing Licensor's share hereunder. The Parties agree
that all Licensees shall report royalties and remit payments directly to Global
on behalf of Licensor. If Licensor receives any such royalty or payment directly
from a Licensee, then Licensor shall have the option to either pay Global,
within fifteen (15) days following the close of the month in which the royalty
or other payment was received, its Fee in regard to such payment as set forth in
Section 4.1 above or request that Global deduct its Fee owed from any monies, if
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any, received by and in the current possession of Global before distribution of
Licensor's share. Global shall pay to Licensor, on the fifteenth (15th) and
thirtieth (30th) day of each calendar month, Gross Royalties received by Global
during said calendar month, less the applicable Fees and any other amounts due
Global hereunder. A written report shall accompany each such half-monthly
payment, if any, setting forth the Gross Royalties received by Global and the
calculation of Global's Fees and other amounts due Global hereunder, together
with any pertinent documentation, including, but not limited to, royalty
reports, copies of legal communications from outside counsel received from
licensees or sent out by Global (hereinafter referred to as "REPORT").
4.5. For the twelve (12) month period immediately following the receipt of
a Report, Licensor, or a duly appointed agent or representative of Licensor,
upon at least five (5) business days prior written notice, shall have access,
during Global's normal business hours, but no more than twice during any twelve
(12) month period, to review and copy Global's books and records to such extent
as shall be reasonably necessary to verify the accuracy of the Report. Except as
provided below, such inspection shall be at the sole cost and expense of
Licensor. Within thirty (30) days following an inspection, Licensor shall
provide Global, at no cost to Global, a copy of the results of such inspection.
Should any such inspection reveal a deficiency in the amount due Licensor and
that which was actually paid to Licensor by Global, Global shall immediately
remit any such deficiency to Licensor, along with any interest due thereon at a
rate of 14% per annum. In the event the any such inspection should reveal a
deficiency of Three (3%) percent or greater, Global shall reimburse Licensor for
the reasonable out-of-pocket costs of the inspection and audit. In the event the
any such inspection should reveal a deficiency of Five (5%) percent or greater,
Licensor shall have the right to terminate this Agreement.
5. TERMINATION.
5.1 The occurrence of any one of the following events shall cause this
Agreement to terminate without further action on the part of Licensor:
(a) Global makes any assignment for the benefit of creditors; or
(b) The appointment of a trustee or receiver to administer or conduct
Global's business or affairs, Global voluntarily files any petition under any
bankruptcy act, or an involuntary petition in bankruptcy is filed against Global
and not stayed, withdrawn, or terminated within thirty (30) days, except to the
extent that the Bankruptcy Code makes unenforceable any provision terminating
this Agreement upon the filing of a petition in bankruptcy under federal law
(c) Any misappropriation of Gross Receipts (other than Fees or other
amounts payable to Global hereunder) or other funds held by Global and payable
to Licensor.
5.1. Upon either party's material breach of any provision of this
Agreement, the non-breaching party, in addition to its other rights and
remedies, shall have the right to notify the breaching party of the nature of
the breach and its intention to terminate this Agreement upon failure to cure
same. The breaching party shall have fifteen (15) business days from receiving
such notice to cure said breach; and if same is not cured within the above
period of time, then the non-breaching party may terminate this Agreement upon
written notice to the non-breaching party.
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5.3 Upon termination of this Agreement for any reason, Global shall remove
any signs bearing the Properties, related copyrights, trademarks and/or name or
logos and immediately destroy all stationery, advertising and other printed
material in its possession or under its control bearing the Properties. Global
shall not, at any time after such termination, use or permit any part of the
Properties, or such copyrights, trademarks, names or logos to be used in any
manner in connection with any business conducted by it or in which it may have a
interest. Global shall immediately take all appropriate steps to remove and
cancel its listings in telephone books and other directories and public records,
or elsewhere, which contain the Properties, or such copyrights, trademarks,
names or logos. If Global fails to obtain such removal or cancellation promptly,
Licensor may make application for such removal or cancellation on behalf of
Global.
5.4 The parties' respective obligations pursuant to Sections 5.3, 8, 11,
17, 19, 20, 21 and 22 will survive the termination or expiration of this
Agreement. Global's right to compensation shall continue in accordance with and
subject to the provisions of Section 4.1 hereof.
6. EXPENSES. Except as otherwise provided herein, Licensor shall not be
responsible to reimburse Global for any costs or expenses incurred in performing
Global's duties hereunder including, without limitation, office overhead,
salaries, postage, telephone, any compensation owed to any subagents or
subrepresentatives, advertising and public relations expenditures, and any
in-house legal or accounting costs or travel, hotel, meals, and other
out-of-pocket expenses incurred in connection with performance by Global of its
responsibilities hereunder. In the event Licensor requests that Global travel in
connection with Global's duties hereunder and such travel is not in accordance
with Global's travel schedule, Licensor shall reimburse Global for its
out-of-pocket travel expenses including round trip economy class airfare, hotel,
meals, and other reasonable travel expenses incurred by Global, PROVIDED
HOWEVER, that Global shall make such travel arrangements at its own expense that
the Parties consider appropriate in order for Global to discharge its
obligations hereunder. Such reimbursement shall be paid within fifteen (15) days
following Licensor's receipt of appropriate documentation and receipts for such
expenses. Global shall incur no expenses for the account of or with expectation
of or any right to reimbursement by Licensor or Global, unless otherwise
expressly agreed in advance in writing.
7. SOURCE MATERIALS, SAMPLES AND APPROVALS.
7.1. Throughout the Initial Term, and if applicable, First Extension
Period, Second Extension Period, Third Extension Period, Fourth Extension
Period, Fifth Extension Period, Sixth Extension Period and/or Extended Term,
Licensor shall provide to Global, without charge, a reasonable amount of
promotional and source materials and images, including, but not limited to,
photographs, pertaining to the Property. Licensor shall also use its best
efforts to supply Global with previously licensed Products, which are to be used
by Global solely for the purpose of performing the Services provided hereunder.
Upon termination or expiration of this Agreement, Global shall without undue
delay return all such materials to Licensor.
7.2. All licensing agreements negotiated by Global shall provide that the
Licensee is to furnish Licensor with artwork, prototypes and samples of all
items or goods to be manufactured, distributed or sold pursuant to the exercise
of the rights therein licensed. All artwork, prototypes and samples, as well as
advertising and promotional materials related thereto, shall be subject to
Licensor's approval at the appropriate stages of their development. Whenever
Licensor is required to give or render an approval hereunder, then Global shall
send written notice requesting such approval to Licensor. Licensor shall then
notify Global as to its approval or disapproval within not more than ten (10)
days after receipt of request and materials. Failure on the part of Licensor to
respond within ten (10) business days of receipt of such notice shall be deemed
to be a notice of disapproval.
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8. REPRESENTATIONS, WARRANTIES AND INDEMNITIES OF THE PARTIES.
8.1 Licensor hereby represents and warrants that it has the sole and
exclusive right to enter into this Agreement and to grant all the rights herein
granted with respect to the Properties, free and clear or any liens, claims and
encumbrances whatsoever; that Licensor exclusively owns the Property and that no
third party approval or consent is necessary for the exercise by Global of the
rights as granted herein; that Global's exercise of such rights does not and
will not infringe any copyrights, or trademarks, other rights of any person,
company, or other legal, commercial, or business entity; and, except as set
forth on Exhibit C, that there are no claims, litigation, or other proceedings
pending or threatened which could in any way impair, limit, or diminish the
rights granted to Global herein.
8.2. Licensor hereby agrees to indemnify, defend and hold harmless Global
and its members, managers, officers, employees and affiliated entities
(collectively "INDEMNIFIED PARTIES") from and against any and all claims, suits,
causes of action, liabilities, judgments, penalties, costs, attorneys' fees and
expenses arising out of or in connection with any breach of any of the
representations and warranties made by Licensor in this Agreement.
8.3 Global hereby represents and warrants that it has the sole and
exclusive right to enter into this Agreement and that no third party approval or
consent is necessary for the exercise by Global of its obligations hereunder.
8.4 Global hereby agrees to indemnify, defend and hold harmless Licensor
and its directors, officers, employees, affiliated entities, agents and
representatives (collectively "INDEMNIFIED PARTIES") from and against any and
all third party claims, suits, causes of action, liabilities, judgments,
penalties, costs, attorneys' fees and expenses arising out of or in connection
with any breach of any of the representations and warranties.
8.5 With respect to any claims subject to the foregoing indemnification
provisions: (a) each Party agrees promptly to notify the other of and to keep
the other fully advised with respect to such claims and the progress of any
suits in which the other party is not participating; (b) each Party shall have
the right to assume, at its sole expense, the defense of a claim made or suit
filed against the other party, (c) each Party shall have the right to
participate, at its sole expense, in any suit instituted against it, and (d) a
Party assuming the defense of a claim or suit against the other party shall not
settle such claim or suit without the prior written approval of the other Party,
which approval shall not be unreasonably withheld or delayed.
8.6 NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL
DAMAGES (INCLUDING LOST PROFITS) FOR ANY CLAIMS ARISING OUT OF THIS AGREEMENT.
9. INFRINGEMENTS AND LEGAL MATTERS.
9.1 Global agrees to notify Licensor of any infringements by others of the
Properties of which Global becomes aware. Global is hereby authorized, but not
required, to take initial legal action limited to issuing cease and desist
letters, against any such infringer. Licensor shall have the right to either
prosecute potential or actual infringers of the Property itself or request that
Global take such action on its behalf. Should Licensor request in writing that
Global take such action, the cost of enforcement efforts by outside counsel,
including attorneys' fees and costs attributable thereto, against infringements
or other unauthorized uses of the Property, may be advanced initially by Global,
however Global shall be permitted to deduct from Gross Receipts the
out-of-pocket costs and expenses, including, but not limited to, outside counsel
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fees, advanced and incurred by Global in prosecuting any such infringer before
determining and distributing any amounts due Licensor under this Agreement.
Should such out-of-pocket costs exceed the amount due Licensor under this
Agreement at any given time, Licensor shall be solely responsible for such
additional costs. No settlement agreement shall be entered into on behalf of
Licensor without Licensor's prior written consent. Any amounts recovered as a
result of such enforcement action taken by Global on Licensor's behalf shall be
allocated between the Parties pursuant to the same Fee percentage as set forth
in Section 4.1 above.
9.2. All enforcement efforts taken by outside counsel shall be subject to
Licensor's prior written approval. Any and all consultations by Licensor with
Licensor's counsel in regard to this Agreement and /or any license agreement
entered into pursuant hereto shall be borne solely by Licensor.
10. TRADEMARKS AND COPYRIGHTS. If in Licensor's sole discretion, additional
trademark, copyright or other applications and/or registrations are
necessitated, Global shall advance the out-of-pocket costs, including, but not
limited to, copyright or trademark application fees and/or filing costs required
by the Patent and Trademark Office or the Copyright Office of the United States
or such other country, as the case may be. Should Global advance any such costs
hereunder, Global shall be allowed to recoup such out-of-pocket costs, including
but not limited to out-of pocket costs associated with monitoring the marks,
from Licensor's share of future Gross Receipts prior to distributing any amounts
due Licensor under this Agreement.
11. CONFIDENTIALITY. Licensor, Global and their respective affiliated
entities (including their respective officers, directors, employees, agents and
assigns) shall keep confidential any and all information obtained from the other
Party concerning assets, properties, business, services, customers, licensees,
trade secrets, organizational structure, philosophy, objectives and financial
information for any purpose other than that purpose contemplated under this
Agreement. However, no Party hereto shall be obligated to keep confidential any
information which (a) was lawfully obtained from a third party; or (b) is
required to be disclosed pursuant to applicable legal and/or regulatory
requirements, or (c) which becomes generally known to the public.
12. ENTIRE AGREEMENT. This document constitutes the entire agreement
between the Parties, concerning the subject matter hereof, all oral
representations being merged herein, and supersedes all prior representations.
13. AMENDMENT. The provisions of this Agreement may be modified at any time
by mutual consent of the Parties. Any such agreement or consent shall be
ineffective to modify this Agreement in any respect unless in writing and signed
by both Parties.
14. WAIVER. Either Party may waive the other Party's failure to perform or
breach of the terms of this Agreement or failure to satisfy any condition to
this Agreement, provided, however, that any waiver shall not be effective unless
in writing and signed by the waiving party. The Parties hereby acknowledge and
agree that neither may rely upon the other's oral waiver. A waiver shall not be
considered to waive any future performance, breach, or condition under this
Agreement including the one being waived. Failure of a party to comply, notify
or declare that the other party is in breach of the terms hereof or failure of a
party to give or withhold its consent or approval as provided herein shall not
constitute a waiver of such breach or of such right to withhold its consent or
approval.
15. ASSIGNMENT. This Agreement shall not be assignable by Global without
the prior written consent of Licensor.
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16. SUCCESSION. Subject to the provisions otherwise contained in this
Agreement, this Agreement shall inure to the benefit of and be binding on the
successors and permitted assigns of the respective Parties hereto.
17. NOTICE.
17.1. Any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing and shall be
validly given or made to another party if either served personally, deposited in
the United States mail (certified or registered), DHL, Purolator, UPS or Federal
Express, postage prepaid, and return receipt requested, or transmitted by
facsimile followed by delivery by mail or courier as provided above. If such
notices, demand or other communication is to be served personally or transmitted
by facsimile as provided above, such shall be conclusively deemed to be made at
the time of such personal service or receipt of the facsimile, as the case may
be. If such notice, demand or other communication is to be given by mail or
courier, such shall be conclusively deemed to be given and received forty-eight
(48) hours after the deposit thereof in the United States mail or couriers
specified above, as the case may be, addressed to the Party, at the address set
forth on the signature page of this Agreement, to whom such notice, demand or
other communication is to be given. Any Party hereto may change its address or
facsimile number for the purpose of receiving notices, demands or other
communications as herein provided by a written notice given in the manner
aforesaid to the other Party hereto.
17.2. Any and all notices, demands, deal memos, artwork approvals, or other
communications required or desired to be given to Licensor hereunder, shall be
sent to:
Genius Products, Inc.
11250 El Camino Real, Suite 100
San Diego, California 92130
Attention: President
18. SEVERABILITY. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, the remainder of the
Agreement shall continue in full force and effect and shall in no way be
impaired or invalidated.
19. INCORPORATION. All exhibits to which reference is made are deemed
incorporated in this Agreement whether or not actually attached hereto.
20. GOVERNING LAW: FORUM SELECTION CLAUSE.
20.1 The rights and obligations of the parties and the interpretation and
performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements among California residents which are entered
into and performed entirely within California.
20.2 If the services of an attorney are required to secure the performance
hereof or otherwise upon the breach or default of either Party or if any
judicial remedy or arbitration is necessary to enforce or interpret the
provisions of this Agreement or the rights or duties of any person in
relationship thereto, the Parties hereby consent, freely and voluntarily, to a
settlement by binding arbitration to be conducted in Los Angeles, California and
in accordance with the commercial rules of the American Arbitration Association
(the "AAA"). Within thirty (30) days of receipt of notice by one Party of a
dispute to be governed by this Section, each Party shall appoint an arbitrator
and each arbitrator shall jointly appoint a third independent arbitrator who
13
<PAGE>
shall be the chairman of the tribunal. Any arbitrator not so appointed within
such period shall be appointed by the AAA upon all application by any Party. The
arbitration shall take place in Los Angeles. The judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. In addition, in the event of any dispute or action or binding
arbitration hereunder, the prevailing party shall be entitled to recover its'
reasonable attorneys' fees and costs and other expenses, in addition to any
other relief to which such party may be entitled.
21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if the parties had all signed the same
document. All counterparts shall be construed together and shall constitute one
agreement.
22. RESERVATION OF RIGHTS. All rights not specifically granted herein to
Global are expressly reserved by Licensor. Global shall not obtain or claim any
ownership in or to the Property in connection with any logos, trademarks or
copyrights originated, developed and/or registered during the term hereof in
connection with the rights represented hereunder.
23. INVESTMENT BY LOTMAN. This Agreement shall automatically terminate
without further action or notice on the part of Licensor if within three
business days from the date hereof, Licensor has not received in immediately
available funds $250,000 from Jeff Lotman in consideration of acquiring from
Licensor 500,000 unregistered shares of its common stock pursuant to one or more
completed and executed subscription agreements on the terms and conditions set
forth therein and the accompanying documents thereto previously provided by
Licensor to Lotman.
24. TIME. Time is of the essence of this Agreement and each and every
provision hereof.
IN WITNESS WHEREOF, the undersigned duly authorized officers have executed
this Agreement as of the date first above written.
GENIUS PRODUCTS, INC. ("LICENSOR")
By: /S/ Dorian Lowell
-----------------------------------
Dorian Lowell
Title: President
GLOBAL ICONS, LLC
By: /S/ Jeff Lotman
-----------------------------------
Jeff Lotman
Title: CEO
14
<PAGE>
Exhibit A
Trademark Applications
See attached copies of status of applications.
15
<PAGE>
Exhibit C
Existing Agreements
1. Affiliation Agreement between Genius Products, Inc. and
GuidanceResources.com, LLC, dated as of December 31, 1999.
2. Service Agreement between Genius Products, Inc. and Blue Cross of
California currently being negotiated.
3. Service Agreement between Genius Products, Inc., and Blue Cross of
California Healthy Extensions currently being negotiated.
4. Service Agreement between Genius Products, Inc., and Panache Inc. currently
being negotiated.
5. Production Agreement between Genius Products, Inc., and Richard Perry
currently being negotiated.
6. Affiliation Agreement between Genius Products, Inc., and MP3 currently
being negotiated.
16
<PAGE>
Exhibit D
Plan of Global Icon Booth
Licensing 2000 International
17
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