EXHIBIT 10.5
RESTATED TERMINATION, RELEASE AND ROYALTY AGREEMENT
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THIS RESTATED TERMINATION, RELEASE AND ROYALTY AGREEMENT (the
"Agreement") is made as of March 5, 2004, between Warner Home Video Inc.,
successor in interest to Warner Home Video, a division of Time Warner
Entertainment Company, L. P. ("WHVI"), on the one hand, and Genius Products,
Inc., ("Genius") on the other hand and shall supersede the Termination, Release
and Royalty Agreement between the Parties dated February 23, 2004.
WHEREAS
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A. WHVI and Genius entered into a Homevideo Distribution Agreement made
as of February 6, 2002 (the "Distribution Agreement") which granted WHVI home
video distribution rights to Baby Genius Catalog Titles ("Mozart and Friends",
"Mozart and Friends: Sleepytime" and "Four Seasons") and Baby Genius and Kid
Genius New Releases (the Catalog Titles and Baby Genius and Kids Genius New
Releases shall collectively be referred to as the "Pictures");
B. Certain disputes have arisen between the Parties and the Parties
have agreed that it is in their respective best interests to (i) terminate the
Distribution Agreement (ii) provide for a buyback of existing Devices, as
defined below (the "Buy Back"); (iii) enter into an agreement whereby Genius
will pay WHVI a royalty based upon Genius's self-distribution of the Pictures
and any additional New Releases to an agreed-upon cap (the "Royalty Agreement")
and (iv) mutually release each other from all claims or potential claims;
C. The Parties have chosen to provide herein, by reference to the
Distribution Agreement, for certain rights and obligation of the Parties
required in connection with the Royalty Agreement, but agree that this shall in
no way affect or qualify the termination of the Distribution Agreement, which is
full and complete as provided for herein.
D. The Parties hereto have executed that certain Termination, Release
and Royalty Agreement, dated February 23, 2004 (the "First Agreement") and now
desire to rescind the First Agreement in its entirety and declare it null and
void and to enter into this restated Termination, Release and Royalty Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements contained herein, the adequacy and sufficiency of which as
consideration are hereby acknowledged, the Parties hereby agree as follows:
1. DEFINED TERMS
Capitalized terms used herein but not otherwise defined herein shall
have the respective meanings set forth below:
A. "Devices" shall mean any and all forms and types of
electronic, mechanical, magnetic, optical and/or digital devices now known or
hereafter devised (in all formats and sizes) including, but not limited to,
videocassettes, digital video discs, DVDs, optical discs, semiconductor chips,
computer hard drives and/or personal digital video recorders ("PVRs") (e.g.,
TiVo) upon which are encoded or stored an audiovisual duplication of the
Pictures for future retrieval by Video Playback Systems.
B. "Home Video Rights" shall mean the right to exploit and
distribute Devices for the intended purpose of noncommercial viewing by
consumers on Video Playback Systems in such manner that viewing schedules,
viewing frequency and interactive multimedia functions may be freely controlled
by the consumers.
C. "Incidental Rights" shall mean the usual and customary
incidental rights in connection with the Pictures including, but not limited to,
the following:
(i) SUBLICENSING: The right to sublicense or subdistribute any
of the Homevideo Rights and Incidental Rights on Genius's behalf;
provided that, as further described in Paragraph 7.I below, Genius
shall not sublicense or subdistribute the Pictures through a "Major
Studio" (as defined in Paragraph 7.I below) during the Royalty
Agreement Term;
(ii) PROMOTION: The right to advertise, promote and publicize
the Pictures and Devices in any media, or authorize others to do so,
and such advertising, promotion and publicity may include synopses of
or excerpts from the Pictures or pre-existing advertisements, publicity
pieces and promotional materials, in whole or in part, for the
Pictures.
D. "NEW RELEASES" shall include all children's videos
developed and/or produced by Genius other than "Mozart and Friends", Mozart and
Friends: Sleepytime" and "Four Seasons". Such Pictures are intended for family,
children and/or adult viewing, are intended to be released on standard or
non-standard television or directly to homevideo and include (i) new Baby Genius
or Kid Genius Pictures produced by Genius and (ii) existing Pictures that had
not been released in retail distribution channels prior to February 6, 2002.
E. "Territory" shall mean the entire universe, including,
without limitation, all countries therein and all ships, spacecraft and aircraft
(to the extent same may serve as places of dwelling for any persons), wherever
situated, which fly the flag of, are registered in, or book films in any
country, and all camps, bases, sites, settlements, colonies, installations, and
embassies (to the extent same may serve as places of dwelling for any persons)
wherever situated, which are owned, leased, controlled, supervised, used or
occupied by the armed forces, governmental agencies, or public or private
industrial or commercial concerns of any country.
F. "Video Playback Systems" shall mean any electronic,
mechanical, magnetic or optical apparatus now known or hereafter devised which
is capable of being operated by consumers (i) directly in their places of
dwelling, including, but not limited to, videocassette players and optical disc
players (including, but not limited to, all forms and types of DVD players),
(ii) indirectly from their places of dwelling through instant access direct
delivery transmission
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systems (including, without limitation, through any and all "downloading" or
"streaming" technologies whereby the Pictures are digitally transmitted online,
or via cable, satellite, or otherwise, and stored on a Device for future
retrieval and viewing by an end consumer, which distribution of the Pictures
shall be included in the Homevideo Rights, or (iii) elsewhere on any such
apparatus that is designed to be portable and intended for personal use, such as
laptop computers and portable DVD players, and which can cause the Pictures to
be displayed on associated reproduction equipment including, but not limited to,
television receivers, television monitors and computer-type displays in such
manner as to be perceivable by, and visible and/or audible to, the consumers.
2. TERMINATION OF THE DISTRIBUTION AGREEMENT
WHVI and the Genius agree that the Distribution Agreement is
terminated, effective as of March 5, 2004 (the "Effective Date").
Notwithstanding the foregoing, the parties agree to work together in good faith
to ensure a smooth transition from WHVI to Genius. Towards that end, the Parties
agree that WHVI shall continue to accept orders from its customers for the
Pictures through March 26, 2004. The Parties agree that there are no amounts
payable by WHVI to Genius pursuant to the terminated Distribution Agreement
and/or this Agreement. The payment of any amounts payable by Genius to WHVI
pursuant to the terminated Distribution Agreement and this Agreement is provided
for in this Agreement. The parties acknowledge and agree that this Agreement
incorporates and/or references certain provisions of the Distribution Agreement,
and that notwithstanding the termination of the Distribution Agreement, these
provisions shall be deemed incorporated in this Agreement as and to the extent
referenced as though originally agreed herein. WHVI specifically confirms that
the exclusivity provisions applicable to Larry Balaban under Paragraph 20 of the
Distribution Agreement will terminate as of the Effective Date.
3. MUTUAL RELEASE
A. WHVI RELEASE. For adequate and valuable consideration, including but
not limited to the termination of the Distribution Agreement and the entering
into of the Royalty Agreement provided for herein, upon receipt of a fully
executed copy of this Agreement, WHVI on behalf of itself, its predecessors,
(including but not limited to Time Warner Entertainment Company, L.P. and its
former division Warner Home Video) and each of their respective officers,
employees, directors, shareholders, parents, divisions, affiliates (including
but not limited to Time Warner Inc. and AOL Time Warner Inc.), partners, agents,
producers, attorneys, accountants, administrators, conservators, trustees,
licensees, successors and assigns (collectively the "Warner Releasors") hereby
fully and forever release and discharge Genius, and each of its officers,
employees, directors, shareholders, parents, divisions, affiliates, partners,
agents, attorneys, accountants, administrators, conservators, trustees,
licensees, successors, and assigns (the "Genius Releasors") from any and all
claims, demands, liens, actions, suits, causes of action, controversies, debts,
costs, attorneys' fees, expert witness fees, expenses, damages, judgments,
orders and liabilities of whatever kind or nature in law, equity or otherwise
("Claims"), whether now known or unknown, suspected or unsuspected, and whether
or not concealed or hidden, which have existed or may have existed, or which do
exist or which hereafter can, shall or may exist, based on any facts,
circumstances, events, actions, or omissions occurring from the beginning of
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time to the Effective Date which concern or pertain in any way, or arise in
connection with, or pursuant to, or in the negotiation, formation or performance
of or under the Distribution Agreement (collectively the "WHVI Released
Claims.") Notwithstanding the foregoing WHVI, on behalf of itself and the Warner
Releasors, does not release and discharge those Claims, if any, it may have with
respect to the Royalty Agreement provided for herein.
B. GENIUS RELEASE. For valuable and adequate consideration, including
but not limited to the termination of the Distribution Agreement, Genius on
behalf of itself and the Genius Releasors hereby fully and forever release and
discharge WHVI and the Warner Releasors from any and all Claims, whether now
known or unknown, suspected or unsuspected, and whether or not concealed or
hidden, which have existed or may have existed, or which do exist or which
hereafter can, shall or may exist, based on any facts, circumstances, events,
actions, or omissions occurring from the beginning of time to the Effective Date
which concern or pertain in any way, or arise in connection with, or pursuant
to, or in the negotiation, formation or performance of or under the Distribution
Agreement (collectively the "Genius Released Claims.")
C. UNKNOWN CLAIMS. Genius on behalf of itself and the Genius Releasors,
and WHVI, on behalf of itself and the Warner Releasors, each acknowledge that
there is a possibility that subsequent to the execution of this Agreement, they
will discover facts or incur or suffer claims that were unknown or unsuspected
at the time this Agreement was executed, and which if known by them at that time
may have materially affected their decisions to provide the release of claims in
the preceding paragraphs. Genius, on behalf of itself and the Genius Releasors
and WHVI, on behalf of itself and the Warner Releasors acknowledge and agree
that by reason of this Agreement, and the mutual releases contained in the
preceding paragraphs, they are assuming any risk of such unknown facts and such
unknown or unsuspected claims. The Parties each have been advised of the
existence of Section 1542 of the California Civil Code, which provides
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLMENT WITH THE DEBTOR.
Notwithstanding this provision, this release shall constitute a full
release in accordance with its terms. The Parties each knowingly and voluntarily
waive the provisions of Section 1542, as well as any other statute, law or rule
of similar effect, and acknowledge and agree that this waiver is an essential
and material term of this release and that the Settlement would not have been
entered without such waiver. The Parties each hereby represent that they have
been advised by their legal counsel, understand and acknowledge the significance
and consequence of this release and of this specific waiver of Section 1542 and
other such laws.
D. MUTUAL FORBEARANCE FROM FUTURE LITIGATION. Genius on behalf of
itself and the Genius Releasors, agree to refrain and forbear forever from
commencing, instituting, or prosecuting any lawsuit, arbitration, action or
proceeding against WHVI or any of the WHVI Releasors based upon any of the
Genius Released Claims. WHVI, on behalf of itself and the Warner Releasors,
agrees to refrain and forebear forever from commencing, instituting, or
prosecuting any lawsuit, arbitration, action or proceeding against Baby Genius
or any of the Genius Releasors based upon any of the WHVI Released Claims.
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[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.]
4. ROYALTY AGREEMENT
A. PAYMENT TO WHVI: In full consideration of all rights granted herein
and all services to be performed hereunder, Genius will pay to WHVI
the following royalties for all sales of the Pictures during the
Royalty Agreement Term.
i. WHVI'S ROYALTY: A royalty ("WHVI's Royalty") equal to ** of
"Accountable Receipts" (as defined in Exhibit "A") derived from sales of Devices
of the Pictures. WHVI's Royalty and Accountable Receipts shall be computed,
determined and payable in accordance with and subject to the provisions of
Exhibit "A" attached hereto and by this reference made a part hereof.
ii. CAP ON AMOUNT: WHVI has previously advanced to Genius an
amount nearing ** under the Distribution Agreement ("Recoupable Advance"). In
the interest of resolving this matter WHVI has agreed to accept the sum of Three
Hundred Thousand Dollars ($300,000), to be paid as set forth above within ** of
the date of this Agreement as full recoupment of the Recoupable Advance.
iii. PAYMENT FOR PURCHASE OF INVENTORY: Immediately upon
execution of this Agreement, Genius shall pay WHVI the sum of One Hundred Ninety
Two Thousand Two Hundred Nineteen Dollars ($192,219.00) to purchase all Devices
remaining in WHVI's inventory. Such payment shall not count towards the Three
Hundred Thousand Dollars ($300,000) that Genius will pay to WHVI.
B. ROYALTY AGREEMENT TERM: The term of the Royalty Agreement shall
commence on March 5, 2004 and shall continue for as long as necessary in order
for WHVI to have received and retained Three Hundred Thousand Dollars ($300,000)
from Genius.
5. RETURN OF GENIUS MATERIALS; CANCELLATION OF SECURITY INTEREST:
A. No later than thirty (30) business days after the execution of this
Agreement, WHVI shall return to Genius the physical elements of each of the
Pictures delivered by Genius to WHVI under the Distribution Agreement.
B. CANCELLATION OF SECURITY INTEREST: No later than ten (10) business
days after WHVI has received payment in full of all sums due to WHVI under this
Agreement, WHVI shall file with the applicable government agency (ies) a UCC
Termination respecting the WHVI security interest in the Collateral, as defined
in the Distribution Agreement, obtained pursuant to the Distribution Agreement.
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6. THIRD PARTY CLAIMS
A. INDEMNIFICATION BY GENIUS. Genius shall at all times indemnify and
hold harmless WHVI, its distributors, licensees, assignees and Affiliates (as
defined in Exhibit "A" hereto), and the officers, directors, employees and
agents of all of the foregoing (the "WHVI Indemnitees") against and from any and
all losses, liabilities, damages, deficiencies, demands, claims, actions,
judgments or causes of action, assessments, costs or expenses (including,
without limitation, interest, penalties and reasonable attorneys' fees and
disbursements) ("Losses") based upon or arising out of, in connection with, or
otherwise in respect of any claim made by third parties, against any WHVI
Indemnitee(s) arising out of the exercise pursuant or relating hereto or
pursuant or relating to the Distribution Agreement of Homevideo Rights,
Incidental Rights or any other rights granted to WHVI hereunder or pursuant to
the Distribution Agreement, the contents of the Pictures, any illegal act
committed by Genius in connection with the Pictures, or arising out of any
breach by Genius of any representation, warranty or other provision hereof or of
the Distribution Agreement. Upon notice from WHVI of any such claim, or related
demand or action being advanced or commenced, Genius agrees to adjust, settle,
or defend same at the sole cost of Genius, and WHVI shall have the right to
approve (such approval not to be unreasonably withheld) any settlement or
disposition thereof to the extent that any rights or obligations of WHVI may be
concerned. If Genius shall fail promptly so to do, WHVI shall have the right and
is hereby authorized and empowered by Genius to appear by WHVI's attorneys in
any such action, to adjust, settle, compromise, litigate, contest, satisfy
judgments and take any other action necessary or desirable for the disposition
of such claim, demand or action, without affecting Genius's indemnity; provided,
that if Genius makes bonding arrangements reasonably satisfactory to WHVI
assuring WHVI of reimbursement for all payments and expenses in connection with
such claims, demands and causes of action (including, without limitation,
reasonable outside attorneys' fees) covered by this Paragraph, WHVI shall not
settle such claim, demand or cause of action without Genius's consent, which
shall not be unreasonably withheld. The foregoing sentence shall not apply and
WHVI's right to settle any claim, demand or cause of action and Genius's
indemnity obligation shall remain unlimited where WHVI deems advisable a
settlement of a lawsuit in which a claim, demand or cause of action for an
injunction is made against the exploitation of the Pictures; provide that Genius
shall approve (such approval not to be unreasonably withheld) such settlement in
the event and to the extent it concerns Genius's intellectual property rights to
the Pictures. Genius shall fully reimburse WHVI for all payments and expenses
incurred or made thereby by WHVI, including outside attorneys' fees, within
fifteen (15) days after demand by WHVI. If Genius shall fail so to reimburse
WHVI then, without waiving any of its rights or remedies otherwise to enforce
such reimbursement, WHVI shall have the right to deduct the amount of such
payments and expenses from any sums accruing to or for the account of Genius
under this Agreement.
B. INDEMNIFICATION BY WHVI: WHVI shall at all times indemnify and hold
harmless Genius, its distributors, licensees, assignees and affiliates, and the
officers, directors, employees and agents of all of the foregoing (the "Genius
Indemnitees"), against and from any and all Losses based upon or arising out of,
in connection with, or otherwise in respect of any claim made by third parties
against any Genius Indemnitees arising out of WHVI's distribution of the
Pictures as provided for hereunder or under the Distribution Agreement, any
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illegal act committed by WHVI in connection with its distribution of the
Pictures, or arising out of any breach by WHVI of any representation, warranty
or other provision hereof or of the Distribution Agreement. Upon notice from
Genius of any such claim, or related demand or action being advanced or
commenced, WHVI agrees to adjust, settle, or defend same at the sole cost of
WHVI, and Genius shall have the right to approve (such approval not to be
unreasonably withheld) any settlement or disposition thereof in the event and to
the extent such settlement or disposition concerns Genius's intellectual
property rights to the Pictures. WHVI shall fully reimburse Genius for all
payments and expenses incurred or made thereby by Genius, including outside
attorneys' fees, within fifteen (15) days after demand by Genius. If WHVI shall
fail so to reimburse Genius then, without waiving any of its rights or remedies
otherwise to enforce such reimbursement, Genius shall have the right to add the
amount of such payments and expenses to any sums accruing to or for the account
of Genius under this Agreement.
7. REPRESENTATIONS AND WARRANTIES: Genius hereby agrees, warrants and represents
as follows:
A. Genius is free to enter into and fully perform this
Agreement;
B. Genius has paid or will pay all charges, taxes, fees and
other amounts which have been or may become owed in connection with the
Pictures or the exploitation of Homevideo Rights or Incidental Rights,
and there are no pending claims, liens, charges, restrictions or
encumbrances on the Pictures or on the Homevideo Rights or Incidental
Rights;
C. Genius has paid or will pay all wages, gross or profit
participations, residuals, equitable or other remuneration for rental
and/or lending rights, reuse fees, synchronization/mechanical
royalties, and any and all other payments which must be made in
connection with the Pictures or the Devices and in connection with
exploitation of Homevideo Rights and Incidental Rights, to any third
parties including, but not limited to, musicians, directors, writers,
producers, announcers, publishers, composers, on-camera and off-camera
performers and other persons who participated in production of the
Pictures, and to any performing rights societies, collection societies,
unions, guilds or other labor organizations;
D. Exercise of the Homevideo Rights and Incidental Rights
hereunder will not infringe on any rights of any third party,
including, but not limited to, rights affecting copyright, rental and
lending rights, rights related to copyright and/or neighboring rights
recognized under the law of any foreign jurisdiction, patent,
trademark, unfair competition, contract, property, defamation, privacy,
publicity or "moral rights";
E. The Pictures are currently protected by copyright in the
Territory, and Grantor shall maintain such protection in full force and
effect during the Term;
F. Genius has secured or will secure all necessary written
consents, permissions and approvals for incorporation into the Pictures
of the names, trademarks, likenesses and/or biographies of all persons,
firms, products, companies and organizations depicted or displayed in
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the Pictures, and Genius has secured or will secure all necessary
written consents, permissions and approvals for incorporation into the
Pictures of any pre-existing film or video footage produced by third
parties;
G. Genius agrees to maintain a policy of Errors and Omissions
insurance in connection with the Pictures, with limits of no less than
One Million Dollars ($1,000,000) per Picture, and to name WHVI as an
additional insured thereon;
H. Each and every one of the representations and warranties
made by Genius herein shall survive the Royalty Agreement Term and
shall continue in full force and effect after expiration or termination
of this Agreement whether by operation of law or otherwise.
I. During the Royalty Agreement Term, Genius agrees to either
self-distribute the Pictures or to allow a third party to distribute
the Pictures, provided that the third party distributor is not a Major
Studio nor related to or affiliated with a Major Studio. For purposes
of this Agreement, "Major Studio" shall be defined as Universal,
Paramount, Disney, Columbia/Sony, Artisan/Lion's Gate, MGM, Dreamworks,
Hit, Lyric or Fox and their respective affiliate corporations that
control, are controlled by, or are under common control with the
foregoing.
8. RELATIONSHIP OF PARTIES
A. NO PARTNERSHIP OR JOINT VENTURE: WHVI shall not be deemed a
fiduciary, partner, or joint venturer of Genius.
B. ASSIGNMENT: Genius shall not assign, sell or transfer this Agreement
or any rights or obligations hereunder without WHVI's prior written consent.
C. REMEDIES: Genius waives any right to purport to terminate the
Homevideo Rights or Incidental Rights granted hereunder or to pursue any
remedies in connection with this Agreement other than an action for money
damages in accordance with the alternative dispute resolution process set forth
in Paragraph 10.E below. Genius further agrees that in the event of a breach by
Genius of this Agreement or any of its representations and warranties made
herein, the Homevideo Rights and Incidental Rights in the Pictures shall revert
back to WHVI, in WHVI's sole discretion.
D. USE OF WHVI MATERIALS: During the Royalty Agreement Term and
thereafter, Genius shall have the right to use the packaging and advertising
materials created by WHVI at no cost; provided that in no event shall such
materials refer to WHVI or any affiliated company, or WHVI's logo or the logo of
any affiliated company.
9. CONFIDENTIALITY
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The terms of this Agreement shall remain confidential and shall not be
revealed to anyone by any party hereto or by the attorney of any party. Each
party expressly represents and warrants that it has not publicized and will not
publicize in any manner, either personally or through an agent or
representative, or undertake to or aid or assist any third party in publicizing
or exploiting in any form whatsoever, by any means whatsoever, in any medium
whatsoever, the terms of this Agreement.
Notwithstanding the foregoing, disclosure to a third party may occur,
to the minimum extent necessary, in the following situations: (a) insofar as
disclosure is required pursuant to a subpoena issued by a court of competent
jurisdiction or legislative body; (b) insofar as disclosure is reasonably
necessary to carry out and effectuate the terms of this Agreement; and (c) as
reasonably required for purposes of complying with state and federal tax laws;
and (d) as reasonably required for purposes of complying with the rules and
regulations of any relevant regulatory authority.
In the event disclosure is necessary pursuant to the provisions of
subparagraph (a) or (c) --(d) of this paragraph, the party making the disclosure
shall apprise the third party to whom such disclosure is made of the
confidential nature of the information and shall use its good faith efforts to
secure and assure the confidentiality and non-disclosure of the information by
the third party.
10. MISCELLANEOUS
A. NOTICES: All notices to be given to WHVI hereunder shall be
addressed to Warner Home Video Inc., 4000 Warner Boulevard, Burbank, California
91522, attention: General Counsel. All notices to be
given to Genius hereunder shall be addressed to Klaus Moeller, 740
Lomas Santa Fe, Suite 210, Solana Beach, CA 92075, or such other address as
Genius may indicate.
B. UNENFORCEABILITY: If there is any conflict between any provision of
this Agreement and any present or future statute, law, ordinance, regulation or
collective bargaining agreement, the latter shall prevail; provided, that the
provision hereof so affected shall be limited only to the extent necessary and
no other provision shall be affected.
C. AMENDMENTS: This Agreement cannot be amended, modified or changed in
any way except by a written instrument executed by both parties.
D. NO WAIVER: No delay in enforcing any right under this Agreement
shall constitute a waiver of such right. No waiver of any default hereunder
shall be effective unless executed in writing by the party charged therewith,
nor shall any waiver operate as a waiver of any other default or of the same
default on a future occasion.
E. ALTERNATIVE DISPUTE RESOLUTION: Any and all controversies, claims or
disputes arising out of, in connection with or in any way related to this
Agreement, its interpretation, formation, negotiation, or performance, the
Royalty Agreement Term, or alleged violations of state or federal statutory or
common law rights or duties ("Dispute") shall be resolved according to the
procedures set forth the following paragraph, which shall constitute the sole
dispute resolution mechanism hereunder.
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In the event that the Parties are unable to resolve any Dispute after
meeting and attempting in good faith to reach a negotiated resolution, then such
Dispute shall be submitted to final and binding arbitration. The arbitration
shall be initiated and conducted according to either the Streamlined (for claims
under $250,000) or the Comprehensive (for claims over $250,000) Arbitration
Rules and Procedures, except as modified herein, including the Optional Appeal
Procedure, of the Los Angeles office of JAMS, or its successor ("JAMS") in
effect at the time the request for arbitration is made (the "Arbitration
Rules"). The arbitration shall be conducted in Los Angeles County before a
single neutral arbitrator appointed in accordance with the Arbitration Rules.
The arbitrator shall follow California law and the Federal Rules of Evidence in
adjudicating the Dispute. There shall be no award of punitive damages. The
arbitrator will provide a detailed written statement of decision, which will be
part of the arbitration award and admissible in any judicial proceeding to
enforce or vacate the award. Unless the Parties agree otherwise, the neutral
arbitrator and the members of any appeal panel shall be retired judges or
justices of any California state or federal court with substantial experience in
matters involving the entertainment industry. If either party refuses to perform
any or all of its obligations under the final arbitration award (following
appeal, if applicable) within thirty (30) days of such award being rendered,
then the other party may enforce the final award in any court of competent
jurisdiction in Los Angeles County. The party seeking enforcement shall be
entitled to an award of all costs, fees and expenses, including attorneys' fees,
to be paid by the party against whom enforcement is ordered.
F. SIGNATURE IN COUNTERPART: This Agreement may be signed in
counterpart, each of which shall be deemed an original, but all of which
together shall constitute the Agreement.
G. CAPTIONS: The captions herein are inserted for reference and
convenience only and in no way define, limit or describe the scope of this
Agreement or intent of the provisions.
H. ENTIRE AGREEMENT: This Agreement including all Exhibits, Attachments
and/or Schedules, contains the entire understanding and supersedes all prior
oral and written understandings of the parties hereto relating to the subject
matter herein.
11. SURVIVAL
All provisions of this Agreement that, by their terms or intent, are
designed to survive the expiration or termination of this Agreement, shall so
survive the expiration and/or termination of this Agreement.
12. ACKNOWLEDGEMENTS
A. The Parties each warrant and represent that, except as herein
expressly set forth, no representations or promises have been made to them by or
on behalf of them, to induce the execution of this Agreement.
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B. The Parties each acknowledge that they have been fully involved in
the negotiation and drafting of this Agreement. Accordingly, the Parties
acknowledge that any rule of construction of contracts resolving any ambiguities
against the drafting party shall be inapplicable to this Agreement. Further, the
Parties acknowledge that they have read this Agreement and acknowledge that in
executing this Agreement, they are relying on the advice and recommendations of
their own independently selected counsel and that they executed this Agreement
freely and voluntarily.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Dated: As of March __, 2004
Genius Products Inc.
By: /s/ Klaus Moeller
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Its: CEO
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Dated: As of March __, 2004
Warner Home Video Inc., successor-in-
interest to Warner Home Video, a division
of Time Warner Entertainment Company,
L.P.
By: /s/ illegible
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Its: EVP/illegible
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EXHIBIT "A"
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COMPUTATION OF ACCOUNTABLE RECEIPTS
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AND AMOUNT OF WARNER HOME VIDEO INC.'S ROYALTY
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1. GENERAL DEFINITIONS: As used in this Exhibit and in the Agreement,
the following terms shall have the following meanings:
"AGREEMENT" shall mean the Termination, Release and Royalty Agreement
to which this Exhibit is attached and made apart, inclusive also of
this Exhibit and all other Exhibits thereto.
"AFFILIATE" shall mean shall mean any entity which owns or controls, is
owned or controlled by, is under common ownership or control with, or
is otherwise related in whole or in part by way of ownership or control
with, Genius, including but not limited to parent companies, subsidiary
companies and sister companies of Genius. The word "control" (including
"controlled by" and "controls") as used in the preceding sentence shall
be deemed to mean possession, directly or indirectly, of the power to
command the course of management, policy making and business activity
of the entity or of Genius, as the case may be, through ownership of
50% or more of voting securities.
"DIRECT MARKETING AFFILIATE" shall mean an Affiliate engaged in the
exploitation of Homevideo Rights through distribution of Devices
directly to consumers for homevideo exhibition (other than through
retail or wholesale outlets) through any direct marketing distribution
method, including direct mail, mail order, telephone order, club
membership, television and/or radio solicitations, continuity series
offerings or single title offerings ("Direct Marketing Distribution").
"UNRELATED THIRD PARTIES" shall mean any and all entities other than
Genius, Affiliates and Direct Marketing Affiliates.
2. GROSS RECEIPTS: "Gross Receipts" means the aggregate of the
following:
(a) 100% of all sums received by or credited to Genius and
Affiliates from Unrelated Third Parties in U.S. Dollars in the United
States from the exploitation of Homevideo Rights other than sums
received pursuant to Subparagraph 2.(b) below.
(b) 100% of all royalties received by or credited to Genius
and Affiliates (excluding sums received by Direct Marketing Affiliates)
in U.S. Dollars in the United States from the exploitation of Homevideo
Rights through Direct Marketing Distribution which is conducted by
Unrelated Third Parties or Direct Marketing Affiliates to which Genius
or Affiliates supply ready-manufactured units of the Devices.
Gross Receipts shall be deemed to exclude sums received by
Genius and/or Affiliates which represent sales taxes, value added
taxes, excise taxes, and similar taxes which are collected by Genius
and Affiliates as required by any requisite taxing authorities of any
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[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.]
government, but limited to the extent that such taxes are paid and not
returned or credited to Genius or an Affiliate. Gross Receipts shall
also be deemed to exclude foreign currencies to the extent any foreign
licensing society or organization collects or withholds any portion
thereof on behalf of or for the benefit of Genius.
With respect to foreign currencies received by Genius and Affiliates in
connection herewith, it is agreed and understood that such sums
received shall be included in Gross Receipts hereunder, whether or not
such sums have been received in U.S. Dollars in the United States, and
whether or not such such sums which are capable of being remitted to
the United States have yet been remitted.
Gross Receipts are not subject to retroactive adjustments for returns,
refunds, credits, settlements, rebates and discounts.
3. DEDUCTIBLE AMOUNTS: The only "Deductible Amounts" shall be for all
taxes which are levied upon or payable by Genius and Affiliates with respect to
all or part of the revenues derived from the exploitation of Homevideo Rights,
or upon remittance of all or part of such revenues, but specifically excluding
corporate income taxes levied on net profits of Genius and Affiliates. In no
event shall the deductible amount of any such taxes (however denominated)
imposed upon Genius or Affiliates be decreased (nor the Gross Receipts
increased) because of the manner in which such taxes are elected by Genius to be
treated in filing net income, corporate franchise, excess profits or other tax
returns.
4. ACCOUNTABLE RECEIPTS: "Accountable Receipts" means Gross Receipts
less Deductible Amounts.
5. AMOUNTS PAYABLE: "WHVI's Royalty" is defined in the Agreement. The
amount payable at the end of any Accounting Period is the net amount of WHVI's
Royalty earned from commencement of the Term of the Royalty Agreement through
the end of such Accounting Period.
6. STATEMENTS AND PAYMENTS: "Accounting Period" shall mean each period
of three (3) months duration commencing at any time designated by WHVI, and if
WHVI does not designate a time then on January 1, April 1, July 1, October 1 of
the applicable year, all such periods of time to be consecutive. Within thirty
(30) days after the end of an Accounting Period, WHVI shall be sent a statement
showing the computation of Gross Receipts and WHVI's Royalty for such Accounting
Period on a cumulative basis and WHVI shall be paid any balance due of any
amounts payable based thereon for such Accounting Period.
7. INSPECTION OF BOOKS AND RECORDS: Genius shall keep all of Genius's
books and records directly relating to the Agreement in accordance with accepted
accounting principles. WHVI may, at Genius's offices and for and during
reasonable times within the regular course of business activities, have a
certified public accountant inspect and make copies of any such books and
records, all at WHVI's expense.
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