EXHIBIT 10.2
DISTRIBUTION AND MANUFACTURING AGREEMENT
----------------------------------------
THIS DISTRIBUTION AND MANUFACTURING AGREEMENT (this "Agreement") is
made this 12 day of November 2002 between FALCON PICTURE GROUP, LLC (hereinafter
referred to as "Falcon") and GENIUS PRODUCTS, INC. (hereinafter referred to as
"Distributor").
RECITALS:
---------
A. Falcon and Larry Harmon Pictures Corporation (hereinafter referred
to as "Licensor") are parties to that certain License Agreement dated May 15,
2002, a copy of which is attached hereto as EXHIBIT A (the "License Agreement").
All capitalized words and phrases that are used, but not otherwise defined, in
this Agreement shall have the meanings ascribed to such terms in this License
Agreement.
B. Falcon now desires to appoint Distributor as its exclusive
distributor for the Licensed Article(s) for the Territory and Distributor
desires to accept such appointment, all upon the terms and conditions set forth
herein.
C. Licensor consents to the appointment of Distributor as Falcon's
exclusive distributor for the Licensed Article(s) in accordance with the terms
and conditions set forth herein.
IN CONSIDERATION of the above recitals, which are hereby incorporated
in their entirety and made a part of this Agreement, and the representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. LICENSE AGREEMENT: This Agreement shall, at all times, be subject to
the terms, conditions, covenants and restrictions contained in the License
Agreement, which is hereby incorporated in its entirety and made a part of this
Agreement. Distributor shall (a) not take any action which would violate or
cause Falcon to violate any of the terms of the License Agreement, and (b) take
any and all action which is reasonably calculated to comply or cause Falcon to
comply with Falcon's covenants under the License Agreement, including but not
limited to seeking the necessary approvals of Licensor. All capitalized terms
used in this Agreement that are not otherwise defined herein shall have the
meanings ascribed to them in the License Agreement.
2. EXCLUSIVE DISTRIBUTOR: Except as otherwise provided herein, Falcon
hereby appoints Distributor as Falcon's exclusive distributor for the Licensed
Article(s) in VHS videocassette ("Video Tape") and Digital Video Discs ("DVD")
in the Territory for sales made through wholesale, retail, direct-to-consumer
and e-commerce channels of trade. Provided that Distributor (a) is not in
material default of the terms of this Agreement and (b) has not taken or omitted
to take any action, or caused or permitted any occurrence, event, or
circumstance, that constitutes, creates, results in or contributes to any breach
or default of the License Agreement (which breach or default has not been fully
and completely remedied within ten (10) days after receiving notice of the
same), Falcon agrees that it shall not, at any time during the Term, directly or
indirectly manufacture or produce any of the Licensed Article(s) or sell or
offer to sell any of the Licensed Articles to any person or entity (other than
Distributor) located within the Territory, except as otherwise permitted herein.
Distributor acknowledges that it may only sell, distribute, market and promote
the Licensed Article(s) in Collections and may not sell, distribute, market and
promote the Licensed Article(s) as single DVDs or Video Tapes or in any other
format or packaging without the prior written consent of both Falcon and
Licensor.
3. REPRESENTATIONS BY LICENSEE: Falcon is entering into this Agreement
in reliance upon Distributor's representations (a) that Distributor (including,
but not limited to, its vendors, service providers, suppliers, outside sales
representatives and independent contractors) has ample manufacturing, sales and
distribution facilities to enable Distributor to exploit fully the rights
granted to Distributor throughout the Territory, and (b) that Distributor does
not have and shall not undertake or have any commitments, obligations or
agreements inconsistent with the obligations undertaken by Distributor pursuant
to this Agreement.
4. TERM: The term ("Term") of the rights granted to Distributor under
this Agreement shall commence on November 12, 2002 and shall continue and
include any Option Terms under the License Agreement and shall terminate
immediately upon the earlier of (a) the termination or expiration of the rights
granted to Falcon under the License Agreement for any reason whatsoever, with
(i) Distributor to receive notice of any such termination or expiration of
rights from Falcon promptly upon Falcon's knowledge of same, and (ii)
Distributor being granted the opportunity to cure any default giving rise to a
potential termination of the License Agreement and recoup from Falcon any
payments made to cure any such default, or (b) the termination of this Agreement
pursuant to Article 27. Distributor acknowledges and understands that (i) under
no circumstances will any of the rights granted to Distributor hereunder outlive
or outlast the underlying grant of rights to Falcon, and (ii) in the event that
the rights granted to Distributor hereunder are terminated or otherwise expire,
the parties shall continue thereafter to perform their respective obligations
hereunder to the extent those obligations survive such termination or
expiration, as provided in Article 29 below.
5. TERRITORY: The rights granted to Distributor hereunder shall be
exercised solely in the following Territory(s): the World.
6. APPROVALS: Within thirty (30) business days after the execution of
this Agreement, Distributor shall submit to Falcon (and Falcon shall in turn
submit to Licensor) designs, drawings, layouts and art-related artwork and
materials (hereinafter collectively referred to as "Artwork") showing in detail
the method or manner of the proposed use of the Characters (as defined in the in
License Agreement) in connection with the initial Collection of Licensed
Article(s), their packaging (I.E., including, but not limited to labels, video
jackets and DVD covers), proposed advertising and promotional materials, or any
other materials of any kind or nature. Falcon and Licensor shall have the right
to approve or disapprove each such method or manner of use. Falcon's and
Licensor's approval or disapproval of each such item so submitted shall be given
in writing within twenty-five (25) business days following their actual receipt
of the respective submitted item. Failure of either Falcon or Licensor to give
written disapproval of each such submitted item within said twenty-five (25)
business days shall constitute approval. Written disapproval shall be deemed
timely given within said twenty-five (25) business days, when the same is
deposited in the mail as certified mail, return receipt requested, or sent by
overnight courier, return receipt, or personally delivered to Distributor at its
2
address as set forth in Article 33 or by telefax or express carrier. Distributor
shall have the right to use for all purposes hereunder only the specific Artwork
which has been approved by Falcon and Licensor as herein set forth. All Artwork
(including all elements created by Distributor for and in connection with the
Licensed Article(s)) and the copyright in such Artwork used by Distributor in
connection with the exploitation of Distributor's rights hereunder shall be the
sole and exclusive property of Licensor. Any and all original Artwork shall be
sent to Licensor at no cost and prepaid at Falcon's or Licensor's request (as
may be applicable), but in no event later than twenty-five (25 days) following
the termination or expiration of this Agreement.
7. QUALITY AND INSPECTION. The Licensed Article(s) shall be of good
quality. Prior to beginning full-scale production of any Licensed Article(s),
Distributor shall submit samples of each such Licensed Article(s) to Falcon and
Licensor for approval. Either Falcon or Licensor may withhold its approval in
its absolute discretion. Distributor shall not sell any Licensed Article(s)
unless and until Falcon notifies Distributor in writing that the sample of that
Licensed Article has been approved by both Falcon and Licensor; PROVIDED,
HOWEVER, if written notice of disapproval is not given to Distributor within
fifteen (15) business days after Falcon's and Licensor's actual receipt of same
by Distributor of any Licensed Article(s) for approval, then Falcon and Licensor
will be deemed to have approved of same. Distributor shall, at its own expense,
submit to Falcon and Licensor, on June 15 of each year, or more frequently at
Falcon's or Licensor's reasonable request, representative production samples of
the Licensed Article(s) manufactured by or for Distributor to which any
Character or related mark (hereinafter referred to as a "Mark") is applied, in
their usual packaging, for inspection by Falcon and Licensor. The Licensed
Article(s) shall conform in all respects to the samples approved by Falcon and
Licensor. Distributor shall also periodically send to Falcon upon Falcon's
request (but not more than two times during each calendar year of this
Agreement), an inventory list outlining and identifying all inventory of the
Licensed Article(s) currently in Distributor's possession and in the process of
manufacture. Upon Falcon's or Licensor's request, Distributor shall remove from
sale under the Marks any product which does not meet the quality standards
required under this Article 7. Distributor shall also permit representatives of
Falcon and Licensor to inspect the place of manufacture of the Licensed
Article(s) a minimum of one time per year during the Term of this Agreement,
including but not limited to the laboratory(ies) in which the Licensed
Article(s) are copied and/or produced, during ordinary business hours. In
addition, each of Falcon and Licensor shall have the continuous right, at their
reasonable discretion, to approve of the manufacturer(s) of the Licensed
Article(s) for quality control purposes.
8. DELIVERY OF MASTERS: Within forty-five (45) days after the execution
of this Agreement, Falcon shall deliver to Distributor, at Falcon's sole cost,
digitized pre-restored cleaned and remastered masters (the "Masters") of twelve
(12) half-hour episodes of the Bozo's Big Top television show (as described in
Article 2 of the License Agreement) in the following format: DVD-R. Distributor
shall use the Masters solely for the production/manufacture of the Licensed
Article(s). Within one hundred twenty (120) days after the execution of this
Agreement, Falcon shall deliver to Distributor, at Falcon's sole cost, Masters
of an additional twelve (12) half-hour episodes of the Bozo's Big Top television
show. Notwithstanding anything to the contrary stated herein, the Masters shall
remain the sole property of Falcon and shall be returned immediately by
Distributor to Falcon upon the termination of this Agreement for any reason.
3
9. EDITING: Distributor shall not edit or cut any of the half-hour
episodes of "Bozo's Big Top" television show (as described in Article 2 of the
License Agreement) in any manner whatsoever, unless it receives Falcon's and
Licensor's prior specific written approval to do so. Each DVD, Video Tape and/or
Collection shall contain Licensor's and Falcon's written trademarks and
copyright notices (which shall be pre-approved by Falcon and Licensor). Falcon
shall select the opening and closing to be used on each DVD, Video Tape and/or
Collection. Distributor shall not change or cut the titles of the episodes or
add new titles to the episodes. Distributor warrants and guarantees that each
DVD, Video Tape and/or Collection shall contain Licensor's and Falcon's written
pre-approved trademark and copyright notices in the opening and closing credits
and in such language and sized lettering as is pre-approved by Licensor in
writing, Distributor shall not remove, edit, cut and/or reproduce any Bozo
cartoons that appear on any and all of the half-hour episodes of "Bozo's Big
Top" television show (as described in Article 2 of the License Agreement), nor
shall any such Bozo cartoons be shown and/or utilized in any manner whatsoever
by themselves (I.E., Bozo cartoons must be shown and/or utilized in the Licensed
Article(s) in their original form as part of the half-hour episodes of "Bozo's
Big Top" television show exactly as they were originally televised and as
delivered to Distributor by Falcon).
10. COPY PROTECTION: Distributor shall produce the DVDs and Video Tapes
with all regional codes incorporated into them so that all DVDs and Video Tapes
may be played anywhere in the world. Distributor shall also incorporate a bug
into the Licensed Article(s) (I.E., a logo of some type, the content of which
shall be provided by Falcon and/or Licensor to Distributor prior to the
manufacturing of the Licensed Article(s)) which is permanently displayed in a
corner on the actual DVDs and Video Tapes so as to evidence bootlegging of the
Licensed Article(s) and in an effort to prevent the unauthorized
duplication/copying of the Licensed Article(s). Distributor shall also utilize a
Content Scrambling System (CSS) (a data encryption and authentication scheme
which is intended to prevent the unauthorized copying of video files directly
from DVD-Video discs) and/or an analog protection system such as Macrovision
which is utilized to prevent the unauthorized copying of Video Tapes at such
time as such copy protection efforts become financially feasible for Distributor
to implement.
11. COPYRIGHT/TRADEMARK NOTICE: The parties hereto acknowledge that the
Characters are protected under the copyright, trademark and unfair competition
laws of the United States and of other countries. Distributor warrants and
covenants to do nothing, by way of omission or commission, which might in any
way impair, dilute or destroy Licensor's rights in and to the Characters.
Accordingly, Distributor shall imprint on each of the Licensed Article(s) in
such a manner that it may easily be read by the naked eye for no less than five
(5) seconds (I.E., on the film or negative of the actual footage which is
incorporated into each of the Licensed Article(s)) and shall reproduce on all
packaging, labeling, advertising and promotional materials used in connection
therewith, the "BOZO" TM seal set forth in EXHIBIT 1, attached to the License
Agreement, plus the phrases:
a) (C) (insert year of first distribution of item(s) concerned) Larry
Harmon Pictures Corporation.
b) "BOZO" is a trademark of Larry Harmon Pictures Corporation,
Hollywood, California, 90028, U.S.A. and is used under license.
4
[Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as **. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.]
Whenever the phrase "BOZO" is used on any packaging, advertising, and
promotional materials as the name or title of any of the Licensed Article(s),
then Distributor shall insert the phrase: "Larry Harmon's" before the phrase:
"BOZO TM THE WORLD'S MOST FAMOUS CLOWN," to wit:
"LARRY HARMON'S"
"BOZO" TM
"THE WORLD'S MOST FAMOUS CLOWN"
In addition, Distributor shall also immediately incorporate and use any
different or any additional legal notices as Falcon or Licensor may direct in
the future on any and all Licensed Article(s), packaging, advertising and
promotional materials that have not been manufactured as of the date of such
direction/notification by Falcon or Licensor. Distributor shall also include
Licensor's "Bozo.com" and Falcon's "falconpicturegroup.com" logos on all of the
Licensed Article(s) and on all packaging, advertising and promotional materials
manufactured for and in connection with the Licensed Article(s) and shall
guarantee that the "Bozo.com" and "falconpicturegroup.com" logos shall always be
easily legible to the naked eye.
12. COPYRIGHT OWNERSHIP: The parties acknowledge that the copyright in
the Licensed Article(s) (including, without limitation, each Collection, each
episode within a Collection, all other content, all related labeling and
packaging, in all forms, including without limitation, audio, visual or
audio/visual content in analog form and digital form, source code, object code
and binary ones and zeros) shall be the sole and exclusive property of Licensor
(subject to the rights granted to Falcon in the License Agreement). Distributor
agrees to sign any assignments or other documents upon request of Falcon and/or
Licensor to establish or confirm Licensor's rights in the aforesaid copyrights
and trademarks. Should Distributor fail to execute any such documents for any
reason Distributor hereby appoints each of Falcon and Licensor as Distributor's
attorney-in-fact for the purpose of executing such documents. These appointments
are irrevocable and coupled with an interest.
13. DISTRIBUTION FEES AND ROYALTIES:
(a) INITIAL ADVANCE: Concurrently with the execution of this
Agreement, Distributor shall deliver and pay to Falcon a
non-refundable, recoupable advance against the Distribution Fees
(defined below) in the amount of **. The payment of such advance shall
entitle Distributor to produce, manufacture, market and sell, on the
terms set forth herein (and subject to the terms of the License
Agreement) initially two (2) Collections (or a maximum of twenty-four
one-half hour episodes) during the Term of this Agreement.
(b) ADDITIONAL ADVANCES: Distributor shall pay to Falcon
additional non-refundable, recoupable advances against the Distribution
Fees (each an "Additional Advance") in the following amounts and within
the following deadlines:
5
[Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as **. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.]
- ------------------------------- ------------------------------------------------
AMOUNT OF ADVANCE PAYMENT DEADLINE
- ------------------------------- ------------------------------------------------
** On or before November 1, 2003
- ------------------------------- ------------------------------------------------
** On or before November 1, 2004
- ------------------------------- ------------------------------------------------
** On or before November 1, 2005
- ------------------------------- ------------------------------------------------
** On or before November 1, 2006
- ------------------------------- ------------------------------------------------
For each Additional Advance paid by Distributor to Falcon, Distributor
shall have the right to make an additional Collection of twelve (12)
half-hour episodes of "Bozo's Big Top" television show (as described in
Article 2 of the License Agreement), to be produced, manufactured,
sold, marketed and promoted in accordance with this Agreement.
(c) DISTRIBUTION FEES: During the period commencing on the
date hereof and continuing until the earlier of (i) the date that is
eighteen (18) months after the date hereof, or (ii) the date that
Distributor reaches ** in sales (I.E., gross billings) of Licensed
Article(s) (the "Initial Period"), Distributor shall pay to Falcon a
fee ("Distribution Fee") in a sum equal to ** of the net wholesale
price of the Licensed Article(s) (I.E., in the case of Collections sold
hereunder, ** of the net wholesale price of each Collection), as such
net wholesale price is defined below. Following the expiration of the
Initial Period, and continuing throughout the remainder of the Term,
the Distribution Fee shall increase to ** of the net wholesale price of
the Licensed Article(s) for all Licensed Article(s) sold by Distributor
after the Initial Period. The Distribution Fees shall be payable along
with each Sales Report required to be delivered under Article 16 below
and shall be based upon all sales shown in such Sales Report.
(d) ROYALTIES:
(i) ADVANCES. Falcon has paid to Licensor the initial
guaranteed advance against royalties required under the
License Agreement. Falcon shall be permitted to recoup from
those royalty payments the full amount of such advance. All
future royalty advances called for under the License Agreement
shall be paid, when due, by Distributor to Falcon (and then
remitted by Falcon to Licensor). Distributor shall be
permitted to recoup from future royalty payments otherwise
becoming due hereunder any recoupable advances hereafter paid
by Distributor pursuant to this Agreement.
(ii) ROYALTY FEES. In addition to the Distribution
Fees throughout the Term, Distributor shall pay to Falcon a
royalty fee ("Royalty Fee") in a sum equal to ** of the net
wholesale price of the Licensed Article(s), but in no event
less than (i) ** per Collection sold under normal/customary
circumstances, (ii) ** per Collection sold during a special
promotion and/or under any other circumstances (I.E., under
all circumstances other than normal/customary circumstances),
6
[Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as **. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.]
and (iii) ** per each single DVD or Video Tape containing the
Licensed Article(s) sold by Distributor subject to
Distributor's obtaining the necessary permission to sell
single DVDs and Video Tapes pursuant to Article 2 above. The
Royalty Fees shall be payable along with each Sales Report
required to be delivered under Article 16 below and shall be
based upon all sales shown in such Sales Report.
(e) NET WHOLESALE PRICE: As used in this Article 13, the term
"net wholesale price" shall mean the Distributor's total gross billings
(not including taxes or shipping charges) for the Licensed Article(s)
(I.E., for each of the Collections), reduced only by normal trade
discounts actually taken and credits or refunds actually issued for
returned or damaged merchandise, reserves for returns by customers,
chargebacks, and/or bad debt. Any reductions for reserves shall be
offset by the actual credits or refunds made and paid through to Falcon
by Distributor within 30 days upon receipt of reserves payment to
Distributor.
14. COSTS OF DISTRIBUTOR: Notwithstanding anything to the contrary
stated herein, Distributor shall bear all costs and expenses of reproducing,
packaging, selling, advertising and promoting the Collections and Licensed
Article(s) and all costs and expenses of accepting, filling and shipping orders
for Collections and Licensed Article(s).
15. SALES BY LICENSOR AND/OR FALCON: Distributor acknowledges that
Licensor and/or Falcon may assist Distributor in the exploitation of the
Licensed Article(s) (which may include, but which shall not be limited to, the
talent and time contributed by Licensor and/or Larry Harmon in granting
interviews to various media to enhance the awareness and sales of the Licensed
Article(s) as well as Licensor's assistance and and/or Larry Harmon's assistance
in helping to market and promote the Licensed Article(s) through such efforts as
co-marketing opportunities between Falcon and Licensor's other licensees and
tie-ins for cross promotions).
16. ACCOUNTING: Distributor shall submit to Falcon a separate
accounting for each separate country and/or foreign Territory quarterly, as soon
as possible and in any event not later than the tenth (10th) day of the month
following the end of the preceding calendar quarter and each statement of
account so rendered ("Sales Report") shall be accompanied by payment of the
amount then shown due to Falcon thereon. Such Sales Reports shall be complete in
all respects and shall reflect all sales and shipments as to each of the
Licensed Article(s) (including but not limited to the names/locations of any and
all purchasers (I.E., all retailers) and the dates of their respective purchases
of the Licensed Article(s)) and all returns and all discounts. Distributor shall
keep and maintain full and accurate books and records at its office located at
11250 El Camino Real, Suite 100, San Diego, CA, which books and records shall be
available at all times during business hours for inspection and audit by Falcon
and Licensor or its/their authorized representatives with reasonable notice of
any contemplated inspection or audit being provided to Distributor. All
information reflected in said statements or obtained by Falcon and Licensor from
any such inspection or audit shall be treated as confidential, except to the
extent that the same is necessarily disclosed in the enforcement or defense of
any claim hereunder. If there is any discrepancy between the amount due to
Falcon and the amount reported by Distributor which exceeds five percent (5%),
then Distributor shall bear the full and complete cost of the audit and shall
remit forthwith the difference due Falcon.
7
[Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as **. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.]
17. UNION FEES: Distributor shall be responsible for the payment of
half of any and all fees (up to a maximum fee of ** per Collection or ** per
single DVD or Video Tape) that are due and payable to any and all applicable
Union(s) (I.E., including, but not limited to, SAG and/or AFTRA) which are
related to the release of the half-hour episodes of the "Bozo's Big Top"
television show (as outlined in Article 2 of the License Agreement). Such fees
shall include, but may not be limited to, any and all residual fees and fees for
health and retirement/pension and welfare funds. Falcon and/or Licensor shall
pay directly to said respective Union(s) all such fees as per said respective
Union's requirements and shall notify Distributor in writing of the amount of
such fees paid to said respective Union(s) and shall invoice Distributor in the
amount of half of such fees. Distributor shall remit payment to Falcon and/or
Licensor for said half of such fees no later than ten (10) calendar days from
the date on the invoice from Falcon and/or Licensor.
18. SAMPLES: Distributor shall furnish to Falcon prior to the
marketing, sales and distribution of the Licensed Article(s), at no cost to
Falcon and freight prepaid, ** of the DVDs and ** samples of the Video Tapes
included in each Collection of the Licensed Article(s) and shall furnish **
samples of the DVDs and ** samples of the Video Tapes included in each
Collection to Falcon thereafter during each year of the Term of this Agreement.
The ** samples of the DVDs and ** samples of the Video Tapes shall be
accompanied by a statement from Distributor as to when and where the subject
Licensed Article(s) was first marketed (I.E., placed on sale). This information
may be used by Licensor in filing copyright claims and trademark applications,
in its name, for each Licensed Article(s), and for enforcement and trademark
maintenance. At Falcon's specific request, Distributor agrees to furnish to
Falcon, at the **, a reasonable number of additional samples of the DVDs and
Video Tapes in excess of those referred to hereinabove in this Article for
promotional, marketing and/or sales purposes. Distributor shall further reduce
the price at which it sells the Licensed Article(s) to Licensor and/or Falcon by
an additional **, in which case Distributor shall not pay to Falcon a ** royalty
as is required in Article 13 hereinabove.
19. INDEMNIFICATION: Distributor hereby indemnifies each of Falcon and
Licensor from and against any and all claims, demands and causes of action
arising out of (i) the unauthorized use of any patent, process, method, device
or other intellectual property by Distributor in connection with the
manufacture, distribution, promotion or sale of the Licensed Article(s), (ii)
actual and alleged defects in the Licensed Article(s), and (iii) any accident,
injury, damage or product liability claim of any kind involving the Licensed
Article(s), and Distributor agrees to defend Falcon and Licensor and hold each
of Falcon and Licensor harmless at no cost or expense to Falcon or Licensor
whatsoever, including, without limitation, damages, attorneys fees, court costs
and expenses of investigation and defense. As used in the preceding sentence,
the terms "Falcon" and "Licensor" shall include each of their respective
subsidiaries, affiliated companies, successors or assigns and all officers,
authorized agents, directors, and employees thereof.
8
Falcon warrants and represents that it has entered into the License
Agreement and has the exclusive right and authority to enter into this Agreement
and to grant the rights granted herein. Falcon hereby indemnifies and holds
Distributor, which shall include Genius Products, Inc., its subsidiaries,
affiliated companies, successors or assigns and all officers, authorized agents,
directors and employees, from and against any and all claims, demands and causes
of action arising out of any claims in connection with Distributor's use of the
Licensed Article(s) to the extent (and only to the extent) such use is pursuant
to and in accordance with all of the terms and conditions of this Agreement.
20. INSURANCE: Distributor shall obtain and maintain, throughout the
term of this Agreement, and for the longer of ten (10) years following the
expiration or termination of this Agreement or the expected useful life of the
Licensed Article(s), Product Liability Insurance and General Liability Insurance
providing protection for Falcon and Licensor, as those terms are defined in
Article 19, against any and all claims, demands, suits, and causes of action
named in Article 19. Such insurance shall be underwritten by insurers
satisfactory to Falcon and shall be written within the limit of not less than
One Million U.S. Dollars ($1,000,000.00) in the aggregate. Distributor shall
furnish Falcon and Licensor within fifty (50) days after the execution of this
Agreement with a certificate of the insurer(s) with respect to such insurance,
stating thereon the limits of liability, the period of coverage, the parties
insured, including an endorsement naming each of Licensor and Falcon as
additional insureds and containing an agreement by the insurer(s) not to
terminate or materially modify such insurance without first notifying Falcon and
Licensor in writing at least thirty (30) business days in advance of such
termination or modification. The existence of the aforesaid insurance shall not
mitigate, alter or waive the indemnity provisions hereof, nor shall either
Falcon or Licensor be responsible for the payment of premiums, or for the
payment of any charges, taxes, assessments or other costs for such insurance.
21. GOODWILL: Distributor acknowledges that the Characters enjoy a
world-wide reputation, that there is great value in the publicity and goodwill
associated with the names and likenesses of the Characters, and in such
connection, Distributor acknowledges that such goodwill exclusively belongs to
Licensor and that the Characters have acquired secondary meaning in the eyes of
the public. All use of the Characters in any format, as approved by Licensor,
shall inure to the benefit of Licensor. Distributor agrees that it will not,
directly or indirectly, during the term of this Agreement or at any time
thereafter, contest, attack or challenge any right, title or interest of
Licensor or Falcon in and to their respective trademarks, service marks or
copyrights, or harm, misuse or bring into disrepute the Characters and shall
protect and defend the Characters, and will not attack the validity of this
Agreement in respect to all of the foregoing. Distributor agrees that it will
not now or at anytime thereafter make any claim or assert any rights, title or
interest in and to Licensor's or Falcon's trademarks, service marks or
copyrights. Distributor agrees that it will not use or authorize the use of a
trademark, service mark, trade name or other designation identical with or
confusingly similar to any of the Characters' trademarks, and shall not use,
create or authorize others to use or create characters or character
representation similar to the Characters except as permitted in this Agreement.
Distributor further agrees that its use of the Characters is limited to that
which is specifically provided in this Agreement and the License Agreement.
Distributor agrees that it will not use any representation of the Characters
whatsoever, under any conditions or circumstances, without written approval from
Falcon and Licensor.
9
22. RIGHTS AND OBLIGATIONS TO REPRODUCE, MARKET AND SELL: Distributor
agrees that it will do all commercially reasonable things necessary to carry on
a successful commercial operation with respect to the exploitation of the
Licensed Article(s) throughout the Territory, to the end that the maximum
receipts may be obtained therefrom. Distributor shall use commercially
reasonable efforts to sell and distribute the Licensed Article(s) to retail
outlets for sale and distribution direct to the public only, and to jobbers,
wholesalers and distributors for sale and distribution to retail outlets only.
Except as permitted by Licensor and Falcon in writing, Distributor shall not
sell to any jobber, wholesaler, distributor, retail outlet, or any other source
whatsoever if Distributor has reason to believe, or is on notice that such
purchaser intends to use the Licensed Article(s)for publicity purposes,
competition sales, premiums, giveaways or similar methods of merchandising or
marketing, nor shall Distributor have any right whatsoever to use the Licensed
Article(s) for such purposes. In no event shall Distributor sell the Licensed
Article(s) in job lots at reduced prices without the prior written consent of
Falcon and Licensor. Distributor may sell the Licensed Article(s) to mail order
outlets, provided that said mail order outlets are not of a scandalous or
disparaging nature so as to compromise the integrity and goodwill of the
Characters in any way whatsoever. Distributor shall provide Falcon with a
minimum of two (2) copies of each of the mail order catalogs in which the
Licensed Article(s) is marketed and/or sold no later than fifteen (15) business
days following the placement of the Licensed Articles in said catalog. In the
event that Distributor wishes to market and/or distribute the Licensed Articles
in a channel of commerce other than the channels of commerce as specifically
authorized in this Article, then Distributor shall provide Falcon with a written
request to market and/or distribute the Licensed Articles in such other channel
of commerce (said written request shall include all pertinent information
necessary for Falcon to provide Distributor with written approval or
disapproval) and Falcon shall provide Distributor with written approval or
disapproval by Falcon and Licensor of same, such approval not to be unreasonably
withheld or delayed.
Distributor may also sell the Licensed Article(s) on the Internet and
may display and reproduce Bozo as part of the title of a Collection in
connection with such sale of the Licensed Article(s) on the Internet. However,
Distributor may not use, portray, display, or reproduce the names and/or
likenesses of the Characters on the Internet in any other manner, unless Falcon
and Licensor specifically approve such use in writing in accordance with the
procedures set forth elsewhere in this Agreement. Distributor agrees that it
shall not register or seek to register the names BOZO THE CLOWN, BOZO, BOZO'S
BUDDIES, or any of the names of the specific BOZO'S BUDDIES characters, or any
other names in any language that are identified with the names and/or characters
of BOZO THE CLOWN, BOZO, or BOZO'S BUDDIES, as a domain name or as part of a
domain name in any domain name registry in the world. Distributor further agrees
that to the extent it is approved by Falcon and Licensor to use the names and/or
likenesses of the Characters on the Internet, it will cease such uses forthwith
upon expiration or termination of this Agreement and will take whatever steps
are necessary to ensure that such use ceases forthwith at that time.
Distributor agrees that each DVD, Video Tape produced hereunder shall
contain at the beginning an advertisement for "bozostore.com" and/or "bozo.com"
or such other advertisement that Licensor advises Licensee of prior to the
production/manufacturing of any group of Bozo DVDs and/or Video tapes in a form
10
[Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as **. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.]
supplied and approved by Licensor. Without limiting the foregoing, with regard
to any (a) DVD produced hereunder, such advertisement shall be accessible as an
option appearing on the menu screen, and (b) Video Tape produced hereunder, such
advertisement shall be inserted prior to the commencement of the first Bozo
episode contained on such Video Tape but such advertisement will not exceed 30
seconds in length.
23. SUPPORT MATERIALS: Falcon shall deliver to Distributor copies of
all artwork, logos, written information and other materials received from
Licensor for Distributor's use in connection with the packaging, promotion,
marketing and sale of Collections of the Licensed Article(s). All such uses by
Distributor of the above mentioned items supplied by Falcon shall be subject to
Falcon's and Licensor's written approval as outlined in Articles 6 and 7 above.
24. [INTENTIONALLY DETETED]
25. INTERNET SALES BY FALCON AND LICENSOR: Distributor acknowledges
that Falcon and Licensor may, at their sole discretion, include the Licensed
Article(s) on their respective web sites for sale and distribution direct to the
public. In the event that Falcon and/or Licensor wish to purchase the Licensed
Article(s) from Distributor for Falcon's or Licensor's resale on their
respective web sites, then Distributor shall sell the Licensed Article(s) to
Licensor at a price equal to **. Distributor shall further reduce the price at
which it sells the Licensed Article(s) to Licensor by an additional **, in which
case Distributor shall not pay to Falcon a ** royalty as is required in Article
13 hereinabove. Otherwise, however, Licensor may forego said additional **
reduction in price, in which case Distributor shall be required to pay Falcon a
** royalty on the sale of said Licensed Article(s) to Falcon for Falcon's
placement of the Licensed Article(s) on its web site (as is required in Article
13 hereinabove). In the event that Falcon and/or Licensor wishes to sell the
Licensed Article(s) on their respective web sites, Falcon and/or Licensor may
choose to create a special collector's packaging for a respective Collection in
order to differentiate said Collection from the Collections that are being sold
at retail, in which case Distributor shall assist Falcon and/or Licensor in
creating special collector's packaging and Falcon and/or Licensor may charge, in
their sole discretion, whatever price they so wish for this special Collection,
provided that the price of said Collection is not less than **.
26. FREE GOODS: Distributor shall have the right to give-away as free
goods a quantity of the Licensed Article(s) per year equal to a maximum of ** of
the gross Collections sold during the prior year of this Agreement. Said free
goods shall be used by Distributor to market and promote the Licensed Article(s)
to retailers and other potential purchasers of the Licensed Article(s).
27. PUBLICITY: Distributor shall hire a public relations firm, at such
time(s) as Distributor deems most appropriate, to support the sales and
distribution of the Licensed Article(s) at retail utilizing marketing and
promotional tools such as end cap displays, countertop and point-of-purchase
displays and print advertising opportunities, to blanket media nationally for
product review (I.E., for review of the Licensed Article(s)) and to work on
specialized submissions for articles, including, but not limited to, trade
magazines, newspapers, national magazines (I.E., People Magazine, US Magazine,
TV Guide), store appearances, mall appearances, conventions, and radio and
television appearances for Larry Harmon and/or the "Bozo" Character (subject to
11
the availability of Larry Harmon and/or the "Bozo" Character and to the ability
of Licensor to provide Larry Harmon and/or the "Bozo" Character for any such
appearances - all such appearances shall be subject to a separate written
Personal Appearance Agreement between Licensor and Falcon, a copy of which is
attached to the License Agreement as EXHIBIT B) as part of the promotion of the
Licensed Article(s).
28. TERMINATION: This Agreement shall be subject to termination as
follows:
(a) FAILURE TO DISTRIBUTE: Falcon shall have the right to
terminate this Agreement forthwith:
(i) Should Distributor not have begun the bona fide
manufacturing, marketing and/or distribution of at least one
(1) of each of the Licensed Article(s) within one hundred
twenty (120) calendar days from the execution of this
Agreement, or
(ii) Falcon may terminate forthwith Distributor's
right to manufacture and distribute the Licensed Article(s) in
the event that Distributor has not manufactured or has
discontinued bona fide manufacturing, marketing, or
distribution for any period of one hundred twenty (120)
consecutive calendar days during the Term thereof.
(b) ACCOUNTING AND PAYMENT DEFAULTS: Should Distributor fail
to make any payment when due or to deliver any of the statements of
account when required, or to give full and complete access to
Distributor's business premises and to its books and records as herein
required, and should Distributor fail to fully and completely remedy
the same within fifteen (15) days after said required due dates, then
Falcon shall have the right to terminate this Agreement forthwith or at
any time. Falcon shall grant Distributor the right to utilize said
fifteen (15) day remedy period a maximum of two (2) times per year
during the Term of this Agreement.
(c) OTHER DEFAULTS: Should Distributor fail to perform any
other of its obligations under this Agreement, and should Distributor
fail to fully and completely remedy the same within thirty (30) days
after receipt of written notice thereof from Falcon, then Falcon shall
have the right to terminate this Agreement forthwith and at any time.
(d) INSOLVENCY, ETC.: Should Distributor be unable to pay its
liabilities when due or should Distributor make any assignment for the
benefit of creditors, or file any petition under the bankruptcy or
insolvency laws of the United States or of any State, or have, or
suffer a receiver or trustee to be appointed for Distributor's business
or property, whether in whole or in part, or be adjudicated a bankrupt
or insolvent, or make a general assignment for the benefit of
Distributor's creditors, or take or suffer any similar action, Falcon
shall have the right to terminate this Agreement forthwith and at any
time.
12
[Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as **. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.]
(e) TERMINATION OF LICENSE AGREEMENT: This Agreement shall
terminate immediately and without any further action by any party
hereto upon the termination of the License Agreement for any reason,
subject to the terms set forth in Article 4 above.
(f) INSUFFICIENT SALES: Falcon may terminate this Agreement
forthwith and at any time in the event that Distributor's sales of
Licensed Article(s) fails to generate sufficient Distribution Fees and
Royalty Fees for Falcon to satisfy all of its payment obligations in
the amounts and at the times the same become due (including any payment
obligations during all Option Terms) under Articles 10(a) and 10(b) of
the License Agreement, with reasonable notice to be provided to
Distributor by Falcon of any such intended termination. Distributor may
terminate this Agreement upon thirty (30) days notice to the other
party if insufficient sales result in the first twelve (12) months of
the Agreement to make the continuation of the Agreement commercially
reasonable; PROVIDED, HOWEVER, if Distributor elects to terminate the
Agreement on such basis, Distributor shall pay to Falcon a termination
fee equal to **.
No expiration or termination of this Agreement shall relieve
Distributor of its obligations to pay to Falcon and Licensor those sums due to
Falcon and Licensor pursuant to the provisions of Article 13; PROVIDED, HOWEVER,
except as provided in Section 28(f) above, Distributor shall not be required to
pay the Additional Advances if the Agreement is terminated prior to the payment
deadline.
29. SELL-OFF PERIOD: Upon the expiration or termination of this
Agreement for any reason whatsoever, other than pursuant to Article 28 hereof
and upon the express condition precedent (a) that Distributor shall promptly
furnish to Falcon a full and complete inventory showing all Licensed Article(s),
cartons, wrappers, labels, and advertising and promotional materials on hand and
in the process of manufacture and (b) that Distributor shall continue in good
faith to dispose of the Licensed Article(s), Distributor shall have and is
hereby granted a period of ** calendar days as measured from the effective date
of such termination or expiration to dispose of such Licensed Article(s).
Distributor will not, in connection with disposing of the Licensed Article(s)
under the provisions of this Article 29 offer or attempt to offer the same at
net sales prices less than those previously established by Distributor for the
Licensed Article(s) without first obtaining the written consent of Falcon and
Licensor. During the period provided for Distributor's disposal of its stock of
Licensed Article(s), Distributor is hereby granted the non-exclusive right in
connection with such disposal only, to use the names and likenesses of the
Characters, subject to all the provisions hereof, including but not limited to
specifically Falcon's and Licensor's approval rights, and shall send to Falcon a
complete and full accounting accompanied by monthly Distribution Fee and Royalty
Fee payment for all transactions occurring during each of the sell-off months as
defined hereinabove which shall be payable and sent to Falcon no later than ten
(10) days following the end of the previous sell-off month. Within ten (10)
business days after the termination of the ** day sell-off period as defined
hereinabove in this Article 29, Distributor will submit forthwith to Falcon a
full and complete inventory of all remaining Licensed Article(s), including but
not limited to any and all packaging, labels, advertising and promotional
materials, in Distributor's possession and control bearing the BOZO name or
13
[Confidential treatment has been requested with respect to the omitted portions
of this exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as **. A complete version of
this exhibit has been filed separately with the Securities and Exchange
Commission.]
Character and/or the BOZO'S BUDDIES' names or Characters. Within twenty (20)
business days after the termination of the ** day sell-off period as defined
hereinabove in this Article 29, Distributor further agrees to send to Falcon, at
no cost to Falcon and freight prepaid, the above mentioned full and complete
inventory of the Licensed Article(s), including but not limited to all Master
DVDs and Master Video Tapes, any underlying materials of any kind or nature
related to the Licensed Article(s), and any and all packaging, labels,
advertising and promotional materials, bearing the BOZO name or Character and/or
the BOZO'S BUDDIES' names or Characters.
30. ASSIGNMENT OF RIGHTS: Distributor's rights hereunder are personal
to Distributor. Accordingly, Distributor shall not have the right to assign or
transfer any of its rights hereunder, nor shall any such right be assignable by
operation of law.
31. INDEPENDENT CONTRACTOR: Distributor is an independent contractor
with respect to the rights granted to Distributor hereunder and with respect to
the exercise of said rights. Distributor has no authority to bind or commit
Falcon in any respect whatsoever, and Distributor shall not hold itself out as
Falcon's agent, principal, partner, associate or joint venturer, or as having
any power or authority to bind or commit Falcon.
32. WAIVER. Any waiver express or implied, by any party hereto, of any
breach by any other party hereto, of any provision herein contained shall not
operate as a waiver with respect to any subsequent breach of the same or any
other provision of this Agreement.
33. NOTICES: All notices, statements, payments and communications which
the parties may desire to transmit to each other shall be in writing and shall
be sent by both fax and either by first class mail or by overnight express
courier service, except where this Agreement expressly sets forth the specific
manner of delivery, in which case, such manner of delivery must be followed. The
effectiveness of such service or delivery shall be determined as in this
Agreement specifically set forth. The addresses of the parties are as follows:
DISTRIBUTOR: GENIUS PRODUCTS, INC.
11250 El Camino Real, Suite 100
San Diego, CA 92127
Attention: Klaus Moeller, CEO
Phone No.: (858) 793-8840
Fax No.: (858) 793-8842
FALCON: FALCON PICTURE GROUP, LLC
974 Estes Court
Schaumburg, IL 60193
Attention: Mr. Carl P. Amari
Phone No.: (847) 923-0400
Fax No.: (847) 923-0353
14
With a copy to:
William A. Kummerer
Michael Best & Friedrich LLC
401 North Michigan Avenue, Suite 1900
Chicago, Illinois 60611
All changes of address shall be communicated promptly to the other
party, failing which, the addresses above set forth shall be deemed to be
correct.
34. PERPETUAL OBLIGATIONS: Distributor's obligations under Articles 19
and 21 of this Agreement shall survive the expiration or termination of this
Agreement and shall be perpetual.
35. NON-DISCLOSURE: During the Term of this Agreement or at any time
after the expiration or termination of this Agreement, Distributor shall not
disclose the terms, conditions, restrictions or economic details of this
Agreement to any other party not related to Distributor; the only exceptions
being, authorized agents, attorneys, auditors, accountants and representatives
of Distributor and its employees with a need to know, or under order of a court
of competent jurisdiction, or upon request from a governmental agency with the
authority to make such a request, or as required by the rules of the Securities
Exchange Commission.
36. JURISDICTION. In the event of a dispute between the parties hereto
arising out of or concerning this Agreement, each of the parties accepts and
consents to the jurisdiction of the State or Federal courts of either: (a) the
State of California in Los Angeles County or (b) the State of Illinois in Cook
County. In such litigation, Distributor waives personal service of the summons,
complaint or other process and agrees that the service thereof may be certified,
or registered, or by telefax or express courier directed to Distributor at the
address provided in this Agreement. Within thirty (30) days after such mailing,
Distributor shall appear or answer such summons, complaint or other process.
37. APPLICABLE LAWS: This Agreement constitutes the entire Agreement
between the parties with respect to the subject thereof and all prior oral and
written agreements, negotiations, discussions, understandings and commitments
are superseded hereby. This Agreement may be amended only by an instrument in
writing by all parties hereto. This Agreement shall be construed in accordance
with the internal laws, and not the law of conflicts, of the State of
California, United States of America.
38. WAIVER OF CONFLICT. The parties each hereby acknowledge and agree
as follows: (a) Michael Best & Friedrich LLC ("MBF") has represented and
continues to represent Falcon with respect to this and other matters; (b) MBF
has previously represented Distributor in general business matters but is not
currently performing any legal services for Distributor; (c) MBF has been
requested to represent Falcon (and NOT Distributor) in the negotiation and
preparation of this Agreement; (d) MBF is willing to represent Falcon (and ONLY
Falcon) in such matters PROVIDED that all of the parties acknowledge their
understanding that there are potential conflicts of interest in connection with
this representation due to MBF's prior representation of Genius; (e) MBF does
not believe that its relationship with either Falcon or Distributor negatively
15
affects MBF's ability to effectively represent Falcon in this matter; (f)
Distributor has had the opportunity to (but has elected not to) retain its own
legal counsel to represent Distributor in connection with this Agreement; (g)
Distributor is not relying on MBF to provide legal advice, services or
representation of any kind in these matters (and hereby acknowledges that MBF is
acting adverse to Distributor, as counsel for Falcon); and (h) Distributor
hereby waives any actual or potential conflict of interest that may relate to or
arise from MBF's representation of Falcon.
IN WITNESS WHEREOF, Distributor and Falcon have entered into this
Agreement and Licensor has consented to this Agreement on the date set forth
above.
FALCON PICTURE GROUP, INC.:
By: ___________________________
Its: _________________________
GENIUS PRODUCTS, INC.
By: ___________________________
Its: _________________________
16
EXHIBIT A
---------
LICENSE AGREEMENT
[Not provided]
EXHIBIT B
---------
PERSONAL APPEARANCE AGREEMENT