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.
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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.
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(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.
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