GENIUS PRODUCTS, INC.
PRODUCTION AGREEMENT
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production agreement between Genius Products, Inc., a Nevada corporation
("Company") and Xxxxx Xxxxxxx, ("Producer") dated as of December 1, 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 as of December 1,
2000 (the "Effective Date") as an executive producer to provide music recording
and production services Executive Vice President, Interim Chief Financial
Officer ______________ of the Company in connection with the development of
sound tracks for 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 six (6) master sound recordings ("Masters") during the Term of not less
than 40 minutes and not more than 60 minutes each. Six (6) Masters shall be
Original Productions except to the extent the parties agree to a number of
Masters that may be Licensed Productions.
i) "ORIGINAL 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.
ii) "LICENSED 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) "PRODUCTS" means CDs, cassettes and video music tapes duplicated
and manufactured by Company from Original and Licensed 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 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 sessions for the Masters 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 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 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.
(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 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:
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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
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 Productions, Company (or
its designee) is and, in so far as Producer is concerned, shall be the owner of
all rights of copyright in and to the Masters relating 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:
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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:
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a) Subject to Producer's performance of all of his obligations hereunder,
Company agrees to pay to Producer advance royalties at a rate of $7,000 per
month over each of the two the years of the Term, of which $3,000 shall be
payable in cash, and $4,000 of which shall be payable in restricted shares of
the Company's common stock determined by the weighted average closing price of
the stock in the 20 consecutive trading days immediately preceding the date of
issue. All cash payments shall be payable on the fifth (5th) and twentieth
(20th) day of each calendar month, in arrears, with the first payment hereunder
being made on January 5, 2001. If Company elects to renew this Agreement for two
(2) additional years under Section 1 a), Company will advance Producer royalties
of $7,700 per month (of which $3,300 shall be payable in cash and $4,400 shall
be payable in restricted shares of the Company's common stock) for the third
year and $8,470 per month (of which $3,630 shall be payable in cash and $4,840
shall be payable in restricted shares of the Company's common stock) for the
fourth year, on the same terms and conditions set forth herein.
Notwithstanding anything to the contrary herein, upon the company receiving not
less than $1 million in capital in a single or related series of financings, the
portion of advance royalties payable in shares shall thereafter be payable in
cash.
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 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 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
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).
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
xxx.xxxxxxxxxx.xxx, 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.
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:
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a) On the Effective Date, Company will grant Producer options to acquire 50,000
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. Company will make a reasonable estimation in its sole discretion
as to when Net Sales of 100,000 units are made, based on historic rates of
return experienced by Company and by the industry, and will make such
adjustments as it deems necessary in its estimations based on actual Net Sales
as and when such sales data becomes known.
c) If prior to December 31, 2001, Company sells 500,000 Net Sales of units of
Products based on Original Productions, Company shall grant Producer options for
an additional 50,000 shares.
d) The maximum number of shares for which Producer shall be granted options
during the Term shall be 400,000, including the options for 50,000 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.
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, at the
Company's sole discretion, either (1) be registered pursuant to the Form S-8
filed with the Securities Exchange Commission on May 25, 2000, or (2) be
issuable pursuant to the options being exercised on a "cashless" basis.
7) TERMINATION.
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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.
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.
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, 00000 Xx Xxxxxx Xxxx, Xxxxx 000, Xxx Xxxxx,
XX 00000, 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.
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/ Xxxxxx Xxxxxx
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Name: Xxxxxx Xxxxxx
President
Producer
By: /s/ Xxxxx Xxxxxxx
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Name: Xxxxx Xxxxxxx
Exhibit A
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Estimated Budget
To be delivered by Producer within a reasonable period of time after the date
hereof.
Original Masters:
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1.
2.
3.
4.
5.
6.
