UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ _ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ _ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
[ _ ] Definitive Proxy Statement
[ _ ] Definitive Additional Materials
[ _ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
GENIUS PRODUCTS, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
----------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (check the appropriate box):
[ X ] No fee required.
[ _ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) or 0-11.
(1) Title of each class of securities to which transaction applies:
______________________________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________________________
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computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(5) Total fee paid:
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[ _ ] Fee paid previously with preliminary materials.
[ _ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
number, or the Form or Schedule and date of filing.
(1) Amount previously paid: __________________________________________
(2) Form, schedule or Registration Statement No.: ____________________
(3) Filing party: ____________________________________________________
(4) Date filed: ______________________________________________________
GENIUS PRODUCTS, INC.
740 Lomas Santa Fe, Suite 210
Solana Beach, California 92075
(858) 793-8840
________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of the Stockholders of Genius Products, Inc. (the
"Company") will be held at the Del Mar Hilton Hotel, 15575 Jimmy Durante
Boulevard, Del Mar, California at 8:00 a.m. local time on Monday, October 25,
2004, for the following purposes:
1. To elect five (5) directors to hold office for a term of one
year and until their successors are elected or appointed.
2. To approve the adoption of our 2004 Stock Incentive Plan.
3. To approve the reincorporation of the Company from the State
of Nevada to the State of Delaware.
4. To approve an amendment to our Articles of Incorporation to
increase the number of authorized shares of common stock from
50,000,000 to 100,000,000 shares.
5. To transact such other business as may properly be brought
before the meeting or any adjournments thereof.
Only stockholders of record at the close of business on September 23,
2004 are entitled to notice of, and to vote at, the meeting and any adjournments
thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
PLEASE COMPLETE AND RETURN THE ENCLOSED RSVP CARD IF YOU WILL BE
ATTENDING THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE URGED TO FILL IN
THE ENCLOSED PROXY AND TO SIGN AND FORWARD IT IN THE ENCLOSED BUSINESS REPLY
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN ORDER THAT THE
PRESENCE OF A QUORUM MAY BE ASSURED. ANY STOCKHOLDER WHO SIGNS AND SENDS IN A
PROXY MAY REVOKE IT BY EXECUTING A NEW PROXY WITH A LATER DATE, BY WRITTEN
NOTICE OF REVOCATION TO THE SECRETARY OF THE COMPANY AT ANY TIME BEFORE IT IS
VOTED, OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF STOCK THAT
YOU HOLD. YOUR COOPERATION IN PROMPTLY RETURNING YOUR PROXY WILL HELP LIMIT
EXPENSES INCIDENT TO PROXY SOLICITATION.
By Order of the Board of Directors
/S/ KLAUS MOELLER
---------------------------------------
Solana Beach, California Klaus Moeller
October __, 2004 Chairman of the Board and Chief
Executive Officer
GENIUS PRODUCTS, INC.
740 Lomas Santa Fe, Suite 210
Solana Beach, California 92075
(858) 793-8840
______________________
PROXY STATEMENT
______________________
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the board of directors of Genius Products, Inc., a Nevada
corporation (the "Company"), for use at the Annual Meeting of Stockholders to be
held at the Del Mar Hilton Hotel, 15575 Jimmy Durante Blvd., Del Mar, California
on Monday, October 25, 2004, at 8:00 a.m. local time and at any and all
adjournments thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. Accompanying this Proxy
Statement is the board of directors' Proxy for the Annual Meeting, which you may
use to indicate your vote as to the proposals described in this Proxy Statement.
In addition to solicitation by use of the mail, certain of our officers and
employees may, without receiving additional compensation therefore, solicit the
return of proxies by telephone, telegram or personal interview. We have
requested that brokerage houses and custodians, nominees and fiduciaries forward
soliciting materials to their principals, the beneficial owners of common stock,
and have agreed to reimburse them for reasonable out-of-pocket expenses in
connection therewith.
REVOCATION OF PROXIES
All proxies which are properly completed, signed and returned to us
prior to the Annual Meeting, and which have not been revoked, will be voted in
favor of the proposals described in this Proxy Statement unless otherwise
directed. A stockholder may revoke his or her proxy at any time before it is
voted either by filing with the Secretary of the Company, at its principal
executive offices, a written notice of revocation or a duly executed proxy
bearing a later date or by attending the Annual Meeting and expressing a desire
to vote his or her shares in person.
RECORD DATE AND VOTING
The close of business on September 23, 2004 has been fixed as the
record date for the determination of stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment of the Annual Meeting. As of the
record date, we had outstanding ______________ shares of common stock, par value
$.001 per share.
Each stockholder of record is entitled to one vote for each share held
on all matters to come before the meeting, except that stockholders may have
cumulative voting rights with respect to the election of directors. All proxies
which are returned will be counted by the Inspector of Elections in determining
the presence of a quorum and on each issue to be voted on for which a vote was
cast. An abstention from voting or a broker non-vote will not be counted in the
voting process.
The proxy process does not permit stockholders to cumulate votes. No
stockholder may cumulate votes unless the candidate or candidates' names for
which such votes are to be cast have been placed in nomination prior to voting
and a stockholder has given notice of the stockholder's intention to cumulate
the stockholder's votes at the meeting and prior to the voting. If any
stockholder has given such notice, all stockholders may cumulate their votes for
candidates in nomination. Stockholders who have completed the enclosed proxy,
and who do not revoke such proxy before voting occurs, grant the proxy holders
discretionary authority to cumulate the stockholder's votes for directors if
cumulative voting occurs. Management does not, at this time, intend to give
notice of cumulative voting or to cumulate the votes it may hold pursuant to the
proxies solicited herein unless the required notice by a stockholder is given in
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proper format at the meeting, in which instance management intends to
cumulatively vote all of the proxies held by it in favor of the nominees for
office as set forth herein. In the event cumulative voting shall be utilized,
each stockholder may cast a number of votes equal to the number of directors to
be elected multiplied by the number of shares held in such stockholder's name as
of the record date. All of these votes may be cast for one nominee, or they may
be distributed among as many nominees as the stockholder sees fit. The
candidates receiving the highest number of votes of the shares entitled to be
voted for them, up to the number of directors to be elected by such shares, are
elected.
Stockholders may revoke any proxy before it is voted by attendance at
the meeting and voting in person, by executing a new proxy with a later date, or
by giving written notice of revocation to the Secretary of the Company.
The shares represented by proxies that are returned properly signed
will be voted in accordance with each stockholder's directions. If the proxy
card is signed and returned without direction as to how the shares are to be
voted, the shares will be voted as recommended by the board of directors.
MAILING OF PROXY STATEMENT AND PROXY CARD
Our Annual Report for 2003 on Form 10-KSB and our Quarterly Report for
the quarter ended June 30, 2004 on Form 10-QSB are enclosed for your convenience
but are not to be considered part of the solicitation material. We will pay the
cost for preparing, printing, assembling and mailing this Proxy Statement and
the Proxy Card and all of the costs of the solicitation of the proxies.
Our principal executive offices are located at 740 Lomas Santa Fe,
Suite 210, Solana Beach, California 92075. This Proxy Statement and the
accompanying Proxy Card is first being mailed to stockholders on or about
October 4, 2004.
PROPOSAL 1
ELECTION OF DIRECTORS
In accordance with our Articles of Incorporation and Bylaws, the board
of directors consists of not less than one nor more than seven members, with the
exact number to be determined by the board of directors. At each annual meeting
of stockholders of the Company, directors are elected for a term of one year and
until their successors are elected or appointed. Our Bylaws provide for the
election of directors at the annual meeting of the stockholders of the Company.
The board of directors proposes the election of the nominees named below.
Unless marked otherwise, proxies received will be voted FOR the
election of each of the nominees named below, unless authority is withheld. If
any such person is unable or unwilling to serve as a nominee for the office of
director at the date of the Annual Meeting or any postponement or adjournment
thereof, the proxies may be voted for a substitute nominee, designated by the
proxy holders or by the present board of directors to fill such vacancy. The
board of directors has no reason to believe that any such nominee will be
unwilling or unable to serve if elected a director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE ELECTION OF ALL OF THE DIRECTORS NOMINATED HEREIN.
The board of directors proposes the election of the following nominees
as members of the board of directors:
Alexander L. Cappello Klaus Moeller Michael J. Koss
Charles H. Rivkin Peter H. Schlessel
If elected, the nominees are expected to serve for a term of one year
and until their successors are elected or appointed.
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INFORMATION WITH RESPECT TO EACH NOMINEE AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
nominee and executive officer of the Company as of September 23, 2004.
NAME AGE POSITION
- ---- --- --------
Klaus Moeller 43 Chief Executive Officer, Chairman of the
Board, Director and Director Nominee
Michael Meader 38 President
Mark J. Miller 52 Chief Operating Officer
Andrew C. Schmidt 43 Chief Financial Officer
Howard Balaban 43 Executive Vice President of New Business
Development
Larry Balaban 40 Executive Vice President of Production
and Creative Services
Trevor J. Drinkwater 37 Executive Vice President of DVD Sales
Julie Ekelund 42 Executive Vice President of Marketing and
Brand Management
Alexander L. Cappello 48 Director and Director Nominee*
Michael J. Koss 50 Director and Director Nominee*
Charles H. Rivkin 42 Director and Director Nominee**
Peter H. Schlessel 42 Director and Director Nominee*
* Member of Audit and Compensation Committees.
** Member of Compensation Committee.
KLAUS MOELLER has served as our Chief Executive Officer, Chairman of
the Board and as a director since October 1997. Mr. Moeller served as our
Interim Chief Financial Officer from May 2001 until August 2004. Mr. Moeller was
the Chairman of the Board and Chief Executive Officer of ITM, which we acquired
in October 1997. Mr. Moeller has a background in marketing, advertising, real
estate and auditing.
MICHAEL MEADER has served as our President since May 2002. He
previously served as an Executive Vice President beginning in April of 1998, and
then as Executive Vice President -- Distribution beginning in January 2002. Mr.
Meader worked as an outside consultant with us for a number of years prior to
joining the Company. His expertise encompasses distribution, category management
and service for programs designed for mass-market retailers. From 1994 to 1998,
Mr. Meader served as Vice President of Specialty Products at ARAMARK
Corporation. While at ARAMARK, he controlled all corporate operations related to
ARAMARK's Music Division.
MARK J. MILLER has served as our Chief Operating Officer since February
2004. Previously, Mr. Miller served as President of Esports Arena from
2002-2003. From 2000-2002, he was President of Boom Buy, an Internet retailer.
At Consolidated Stores, he acted as President from 1998-1999, overseeing buying,
marketing and distributing. Mr. Miller previously spent six years at PicNSave as
an Executive Vice President for buying. He also was Vice President of
Merchandising for the Disney Stores.
ANDREW C. SCHMIDT was appointed as our Chief Financial Officer in
August 2004. Mr. Schmidt was the Vice President of Finance at Peregrine Systems,
Inc. from 2003-2004. He was Chief Financial Officer of Mad Catz Interactive,
Inc. from 2000-2003 and a business manager at Cox Communications from 1997-2000.
HOWARD BALABAN has served as our Executive Vice President of New
Business Development since January 2002. He was previously appointed Senior Vice
President of Sales in January 1999 after having rendered consulting services to
us for just over six months. Prior to his appointment, Howard Balaban was a
sales and marketing consultant to various companies. From 1994-1997, Howard
Balaban was Senior Vice President of Business Development for Future Call, Inc.,
a prepaid telephone card company that he co-founded with William Shatner, and
which held the rights to all Star Trek(TM) properties associated with prepaid
phone cards. From 1991-1995, he was the Chief Executive Officer of 3B
Telecommunications, a company he founded and which acted as a master agent for
telecom networks reselling phone time and telecom services. Howard and Larry
Balaban are brothers.
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LARRY BALABAN has served as one of our Executive Vice Presidents since
January 1999, after having rendered consulting services to us for approximately
six months. His current title is Executive Vice President of Production and
Creative Services. He was elected to our board of directors in July 2001 and
resigned effective April 30, 2004, as he is not an independent director. Before
joining Genius, Larry Balaban was President of Mr. B Productions, a
non-traditional marketing firm based in New York City, specializing in TV
production, target marketing and membership programs. From 1994-1997, Larry
Balaban was President of Virtual Reality Productions, where he specialized in
marketing, and coordinated specialized audio productions for licensed products
including Star Trek(TM), The Simpsons and the X-Files. Larry and Howard Balaban
are brothers.
JULIE EKELUND was appointed as one of our Executive Vice Presidents in
April 2002 after having rendered consulting services to us for one year. Her
current title is Executive Vice President of Marketing and Brand Management. She
has also worked in sales with Ekelund & Associates since 1994.
TREVOR J. DRINKWATER was appointed as our Executive Vice President of
DVD Sales in July 2004. Mr. Drinkwater was Chief Operating Officer of Take-Two
Interactive Software, Inc. from 2003-2004 and Senior Vice President of Sales at
Warner Home Video from 1999-2003. He is also on the board of directors of
Brandissimo! Inc.
ALEXANDER L. CAPPELLO was appointed to fill a vacancy on our board of
directors in September 2004. Mr. Cappello is Chairman and Chief Executive
Officer of Cappello Group, Inc., a merchant banking firm specializing in
principal transactions, corporate finance, institutional equity placements for
public companies, project finance and merger and acquisitions services. Mr.
Cappello has managed Cappello Group, Inc. and its predecessor firms since 1975.
He is a Managing Director of Cappello Capital Corp., our investment bankers. He
also serves as Chairman of the International Board of the Young Presidents'
Organization for 2003-2004. Currently, he is a member of the board of directors
of the following entities: Cappello Group, Inc., RAND Corporation (Center for
Middle East Public Policy), Advanced Biotherapy Inc. (OTCBB), CytRx Corporation
(NASDAQ), Independent Colleges of Southern California (ICSC), USC Marshall
School of Business, Greif Center for Entrepreneurial Studies, USC Advancement
Council, Trustee Friends of Florence (Florence, Italy), and Chairman Emeritus of
Catholic Big Brothers of Los Angeles.
MICHAEL J. KOSS was appointed to fill a vacancy on our board of
directors in September 2004 and is the chair of the Audit Committee. He has held
various positions at Koss Corporation since 1976, and has been a director of
Koss since 1985. He was elected President, Chief Operating Officer and Chief
Financial Officer of Koss in 1987, Chief Executive Officer in 1991 and
Vice-Chairman in 1998. Mr. Koss is also director of Strattec Security
Corporation (NASDAQ).
CHARLES H. RIVKIN was appointed to fill a vacancy on our board of
directors in September 2004 and is the chair of the Compensation Committee. Mr.
Rivkin has been associated with the Jim Henson Company since 1988. He served as
the Chief Executive Officer of the Jim Henson Company from 2000-2003 and is
currently on the board of directors. He previously served as the President and
Chief Operating Officer of the Jim Henson Company from 1995-2000. Mr. Rivkin is
also on the board of directors of three other private companies.
PETER H. SCHLESSEL was appointed to fill a vacancy on our board of
directors in September 2004. Mr. Schlessel has been working as a consultant with
Senator International Participant Productions since January of 2004. Previously,
he spent fifteen years with Sony Pictures Entertainment, serving as President of
Columbia Pictures from 2003-2004. Mr. Schlessel is also on the board of
directors of three private companies.
DIRECTORS' MEETINGS AND COMMITTEES
The board of directors has an Audit Committee and a Compensation
Committee. During fiscal year 2003, the board held five meetings. All directors
attended at least 75% of the meetings held by the board of directors and the
committees on which he or she served during 2003, except for Deborah Law Cross
and Margaret Loesch, prior board members, who each attended two of the three
Audit Committee meetings, and Nancy Evensen, a prior board member, who attended
one of the three meetings held by the Audit Committee.
Directors and executive officers are elected annually.
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The board's Audit Committee, whose current members were appointed in
September 2004, is comprised of Michael J. Koss (chairperson and financial
expert), Alexander L. Cappello and Peter H. Schlessel. The Audit Committee is
responsible for assisting the board of directors with oversight of (1) the
integrity of the Company's financial statements, (2) the Company's compliance
with legal and regulatory requirements, (3) the independent auditor's
qualifications and independence and (4) the performance of the Company's
internal accounting function and independent registered auditors. The Audit
Committee has the direct authority and responsibility to select, evaluate and,
where appropriate, replace the independent registered auditors, and is an "audit
committee" for purposes of Section 3(a)(58)(A) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Audit Committee held three meetings
in fiscal 2003 but has been unable to hold any meetings since August 2003
pending the appointment of a chairperson, a financial expert and additional
independent directors, all of which occurred in September 2004.
The board's Compensation Committee, whose current members were
appointed in September 2004, is comprised of Charles H. Rivkin (chairperson),
Alexander L. Cappello, Michael J. Koss and Peter H. Schlessel. The Compensation
Committee, in addition to such other duties as may be specified by the board of
directors, reviews the compensation and benefits of senior managers and makes
appropriate recommendations to the board of directors, administers the Company's
1997, 2000 and 2003 stock option plans and the 2004 Stock Incentive Plan and
prepares on an annual basis a report on executive compensation. The Compensation
Committee held five meetings in fiscal 2003.
A Nominating Committee has not been established due to the small size
of the Company and our board. Until a Nominating Committee is established the
nominating decisions are made by the board.
DIRECTOR INDEPENDENCE
Although the Company is not listed on Nasdaq, the Company's board of
directors reviewed the independence of its directors as of September ___, 2004
under the standards of The Nasdaq Stock Market applicable to directors of listed
companies. Based on this review, the board of directors determined that each of
Michael J. Koss, Charles H. Rivkin and Peter H. Schlessel is an independent
director under those standards. These three directors constitute a majority of
the board of directors of the Company.
CODE OF ETHICS
We adopted a Code of Ethics on February 27, 2004 that applies to our
principal executive officer, principal financial officer and controller or
principal accounting officer, or persons performing similar functions. The Code
of Ethics was filed as an exhibit to our Annual Report for fiscal year 2003 and
has been placed on the Company's website at www.geniusproducts.com.
COMMUNICATIONS BETWEEN STOCKHOLDERS AND THE BOARD OF DIRECTORS
We have placed on our web site located at www.geniusproducts.com a
description of the procedures for stockholders to communicate with the board of
directors.
POLICY WITH REGARD TO BOARD MEMBERS' ATTENDANCE AT ANNUAL MEETINGS
We believe that the annual meeting of stockholders is a good
opportunity for the stockholders to meet and, if appropriate, ask questions of
the board of directors. It is also a good opportunity for the members of the
board of directors to hear any feedback the stockholders may share with the
Company at the meeting. It is our policy that our directors are invited and
strongly encouraged to attend the Company's annual meeting of stockholders. We
will reimburse all reasonable out of pocket traveling expenses incurred by the
directors in attending the annual meeting. At the time of our 2003 Annual
Meeting of Stockholders, we had six directors, two of whom were in attendance at
our 2003 Annual Meeting of Stockholders.
REPORT OF THE AUDIT COMMITTEE
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED TO BE
SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR
INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
The Audit Committee is comprised of three members of our board of
directors. The board of directors has reviewed the independence of the Audit
Committee members under the standards of The Nasdaq Stock Market and the
Securities and Exchange Commission (the "Commission") applicable to Audit
Committee members of listed issuers. All of the Audit Committee members are
considered to be independent under these standards except for Alexander
Cappello, who may not be an independent member of the Audit Committee due to
compensation that we paid to Cappello Capital Corp. (see discussion below under
"Certain Relationships and Related Transactions"). However, the board of
directors has determined that Mr. Cappello has the skills and experience to
provide substantial contributions to, and become a valuable member of, the Audit
Committee. Given the absence of another independent board member, the board
believes that it is in the best interests of the Company and its shareholders
for Mr. Cappello to serve on the Audit Committee.
The duties and responsibilities of the Audit Committee are set forth in
our Audit Committee Charter, which was amended and restated by the board of
directors in September 2004. The full text of the Amended and Restated Audit
Committee Charter is attached as Appendix A of this Proxy Statement and has been
placed on our website at www.geniusproducts.com.
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As discussed above, the Audit Committee has not met since August 2003
pending the appointment of a chairperson, a financial expert and additional
independent directors, all of which occurred in September 2004. Due to the
inability to function prior to September 2004, the Audit Committee has not yet:
o reviewed and discussed our audited financial statements for the
fiscal year ended December 31, 2003, with the Company's management and with the
Company's independent registered auditors;
o discussed with our independent registered auditors the matters
required to be discussed by SAS 61 (Codification for Statements on Auditing
Standards); and
o received and discussed the written disclosures and the letter from
the Company's independent registered auditors required by Independence Standards
Board Statement No. 1 (Independence Discussions with Audit Committees) nor has
it discussed with its independent registered auditors its independence.
At the time of filing of the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2003, the Audit Committee made no
recommendation to the board of directors regarding the inclusion of the
Company's audited financial statements in the Annual Report.
AUDIT COMMITTEE:
Michael J. Koss, Chairperson
Alexander L. Cappello
Peter H. Schlessel
FEES OF INDEPENDENT PUBLIC ACCOUNTANTS
AUDIT FEES. The aggregate fees billed for our fiscal years ended
December 31, 2003 and 2002 by Cacciamatta Accountancy Corporation for the audit
of our financial statements for each of those years and the review of our
financial statements included in our Quarterly Reports on Form 10-QSB during
those financial years were $51,260 and $48,798, respectively.
AUDIT-RELATED FEES. Fees billed by Cacciamatta Accountancy Corporation
for assurance and related services during our fiscal years ended December 31,
2003 and 2002 were $6,335 and $2,126, respectively.
TAX FEES. Cacciamatta Accountancy Corporation did not bill us any fees
for tax compliance, tax advice and tax planning for our fiscal years ended
December 31, 2003 and 2002.
ALL OTHER FEES. Cacciamatta Accountancy Corporation did not bill us for
any services or products other than as reported above during our fiscal years
ended December 31, 2003 and 2002, respectively.
AUDIT COMMITTEE APPROVALS
The Audit Committee is responsible for reviewing and pre-approving any
non-audit services to be performed by the Company's independent registered
auditors. The Audit Committee has delegated certain of its pre-approval
authority to the Chairperson of the Audit Committee to act between meetings of
the Audit Committee. Any pre-approval given by the Chairperson of the Audit
Committee pursuant to this delegation is presented to the full Audit Committee
at its next regularly scheduled meeting. The Audit Committee or Chairperson of
the Audit Committee reviews and, if appropriate, approves non-audit service
engagements, taking into account the proposed scope of the non-audit services,
the proposed fees for the non-audit services, whether the non-audit services are
permissible under applicable law or regulation and the likely impact of the
non-audit services on the independence of the independent auditors.
Since the effective date of the Commission rules requiring pre-approval
of non-audit services on May 6, 2003, each new engagement of the Company's
independent registered auditors to perform non-audit services has been approved
in advance by the Audit Committee or the Chairperson of the Audit Committee
pursuant to the foregoing procedures.
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The prior members of the Audit Committee of the board of directors of
the Company considered that the provision of the services and the payment of the
fees described above are compatible with maintaining the independence of
Cacciamatta Accountancy Corporation.
The board of directors, upon the recommendation of the Audit Committee,
will select the independent accountant for the current fiscal year ending
December 31, 2004, which selection has not yet been made pending the first
meeting of the newly constituted Audit Committee. It is expected that a
representative of the independent registered auditors will be present at the
Annual Meeting and will have the opportunity to make a statement if the
representative desires to do so and will be available to respond to appropriate
questions.
AUDIT COMMITTEE FINANCIAL EXPERT
The board of directors has determined that at least one of the members
of the Audit Committee, Michael J. Koss, qualifies as an "audit committee
financial expert" as defined by the rules of the Commission based on his work
experience and duties as the Chief Financial Officer and Chief Executive Officer
of Koss Corporation.
DIRECTOR COMPENSATION
Before September 2004, directors did not receive cash compensation for
their services as directors but were reimbursed for expenses actually incurred
in connection with attending meetings of the board of directors. As of the
September 2004 director appointments, each non-employee director will receive a
fee of $200 for each committee meeting attended. The chair of the committee will
receive a fee of $300 for each committee meeting attended. Directors will be
reimbursed for expenses actually incurred in connection with attending meetings
of the board of directors and/or committee meetings.
For the last two quarters of fiscal year 2001 and the first two
quarters of fiscal year 2002, each director received 2,000 fully vested
restricted shares of our common stock for each quarter of service on the board.
A total of 24,000 shares was awarded at a value of $1.30 per share, 8,000 shares
each to Klaus Moeller and Larry Balaban, who were members of the board at that
time.
Each director appointed from April 2002 through October 2003 who was
not also an officer received a fully vested option to purchase 10,000 shares of
our common stock for joining the board. David Anderson, Richard Bermingham and
Nancy Evensen, each appointed to the board on May 13, 2002, received options
with an exercise price of $2.59 per share which was the closing price of our
common stock on May 13, 2002, the date of the grant.
At our 2002 Annual Meeting, each director who was not also an officer
received an option to purchase 25,000 shares of our common stock for a year of
service on the board. These options vested following the year of service. The
exercise price for options granted to David Anderson, Richard Bermingham,
Deborah Law Cross, Nancy Evensen and Margaret Loesch was $1.53 per share, which
was the closing price of our common stock on July 8, 2002, the date of the
grant.
At our 2003 Annual Meeting, each director who was not also an officer
received an option to purchase 25,000 shares of our common stock for a year of
service on the board. These options vested following the year of service. The
exercise price for options granted to David Anderson, Richard Bermingham, Nancy
Evensen and Margaret Loesch was $1.13 per share, which was the closing price of
our common stock on July 7, 2003, the date of the grant. David Anderson, Richard
Bermingham and Margaret Loesch resigned from the board in the last quarter of
2003 for personal reasons, and their options were cancelled as they had not yet
vested.
On October 20, 2003, Carl Amari was granted a fully vested option to
purchase 10,000 shares of our common stock upon his appointment to the board and
an option to purchase 17,877 shares of our common stock for service on the board
until the next annual meeting (the option to purchase 25,000 shares of common
stock for a full year's service on the board granted to each of the other
directors was prorated for the term of service remaining until the anniversary
date of the prior year's annual meeting). The option for 17,877 shares vested on
July 7, 2004, the anniversary date of the prior year's annual meeting. The
exercise price for these options was $1.40 per share, which was the closing
price of our common stock on October 20, 2003, the date of the grant.
9
On October 31, 2003, the Compensation Committee authorized the grant of
options for board service to directors who were also officers (Klaus Moeller and
Larry Balaban). The Compensation Committee also authorized an increase in the
annual option grant to directors, including directors who were also officers.
This increase from an annual option grant to purchase 25,000 shares of our
common stock to an option to purchase 37,500 shares of our common stock was
prorated for the term of service remaining until the anniversary date of the
prior year's annual meeting and vested on July 7, 2004, the anniversary date of
the prior year's annual meeting. Carl Amari and Nancy Evensen each received an
option to purchase 8,562 shares of common stock. Larry Balaban and Klaus Moeller
each received an option to purchase 25,685 shares of common stock. The exercise
price for each option was $1.50 per share. The closing price of our common stock
on October 31, 2003, the date of the grant, was $1.36. Larry Balaban's option
has been cancelled as he resigned from board service prior to the vesting date
of his option.
On September __, 2004, newly appointed directors Alexander L. Cappello,
Michael J. Koss, Charles H. Rivin and Peter H. Schlessel were each granted an
option to purchase 429,520 shares of our common stock for their board service.
The option grant vests ratably over a period of three years. If a director
resigns during the term, is removed from office or is not reelected, the
director will keep the vested options and the unvested options will be
cancelled. The exercise price for these options was $1.__ per share.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with
respect to the beneficial ownership of common stock as of September __, 2004, by
(i) each person who is known by us to own beneficially more than 5.0% of common
stock, (ii) each of our directors and executive officers, and (iii) all of our
officers and directors as a group. Except as otherwise listed below, the address
of each person is c/o Genius Products, Inc., 740 Lomas Santa Fe, Suite 210,
Solana Beach, California 92075.
Shares Beneficially Owned (1)
-----------------------------
Name and Address of Owner Number Percent (2)
- -------------------------------------------------------- ------------- -------------
Klaus Moeller, Chairman of the Board,
Chief Executive Officer, Director
and Director Nominee 1,725,918 (3) 6.58
Alexander L. Cappello, Director and Director
Nominee 23,864 (4) *
Michael J. Koss, Director and Director Nominee 23,864 (4) *
Michael Meader, President 1,411,233 (5) 5.42
Mark J. Miller, Chief Operating Officer 225,000 (6) *
Charles H. Rivkin, Director and Director Nominee 23,864 (4) *
Peter H. Schlessel, Director and Director Nominee 35,864 (4) *
Andrew C. Schmidt, Chief Financial Officer 125,000 (7) *
Howard Balaban, Executive Vice President 1,146,190 (8) 4.43
Larry Balaban, Executive Vice President 1,158,731 (9) 4.48
Julie Ekelund, Executive Vice President 987,875 (10) 3.80
Trevor Drinkwater, Executive Vice President 250,000 (11) *
Carl Amari (12) 1,457,361 (12) 5.78
David and Pamela Anderson (13) 1,722,081 (13) 6.60
Jon D. and Linda W. Gruber (14) 1,457,842 (14) 5.78
Robert Kantor (15) 1,363,030 (15) 5.28
J. Patterson McBaine (14) 1,299,100 (14) 5.16
All officers and directors as a group (12 persons) 7,137,403 23.86
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options and warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of September __, 2004, are deemed
outstanding for computing the percentage of the person holding such option
or warrant but are not deemed outstanding for computing the percentage of
any other person. Except as pursuant to applicable community property laws
or as noted in the footnotes below, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
beneficially owned.
10
(2) Percentages are based on 25,193,312 shares of common stock outstanding
which does not include 12,167,943 shares of common stock issuable upon the
exercise of outstanding employee and consultant options (other than when
included for the calculation of ownership percentage as described in
footnote 1 above) and 11,075,255 shares of common stock issuable upon the
exercise of outstanding warrants.
(3) Includes 90,000 shares held by Shelly Moeller (as her sole property), who
is the wife of Klaus Moeller and 75,000 shares held by Dorian Lowell as
custodian for 37,500 shares each for Tia and Hayden Moeller. Tia Moeller is
the daughter of Klaus Moeller. Hayden Moeller is the son of Klaus Moeller.
Also includes a warrant to purchase 28,572 shares expiring on June 2, 2008,
with an exercise price of $1.40 per share; an option to purchase 300,000
shares expiring on January 3, 2012, with an exercise price of $0.63 per
share; an option to purchase 322,000 shares expiring on October 31, 2013,
with an exercise price of $1.50 per share; an option to purchase 25,685
shares expiring on October 31, 2013, with an exercise price of $1.50 per
share and an option to purchase 375,000 shares expiring September __, 2014,
with an exercise price of $2.00 per share. Excludes 543,787 shares held by
Algarvida LDA, an entity controlled by Isable Moeller, who is the sister of
Klaus Moeller. Mr. Moeller disclaims all beneficial ownership of such
shares.
(4) Includes an option to purchase 23,864 shares expiring September __, 2014,
with an exercise price of $1.__ per share.
(5) Includes 25,000 shares held by Suzanne Meader, who is the wife of Michael
Meader. Also includes a warrant to purchase 28,572 shares expiring on June
2, 2008, with an exercise price of $1.40 per share; an option to purchase
300,000 shares expiring on January 3, 2012, with an exercise price of $0.63
per share; an option to purchase 218,000 shares expiring on October 31,
2013, with an exercise price of $1.50 per share and an option to purchase
287,500 shares expiring September __, 2014, with an exercise price of $2.00
per share.
(6) Includes an option to purchase 225,000 shares expiring September __, 2014,
with an exercise price of $2.00 per share.
(7) Includes an option to purchase 125,000 shares expiring September __, 2014,
with an exercise price of $2.00 per share.
(8) Includes a warrant to purchase 28,572 shares expiring on June 2, 2008, with
an exercise price of $1.40 per share; an option to purchase 300,000 shares
expiring on January 3, 2012, with an exercise price of $0.63 per share; an
option to purchase 177,500 shares expiring on October 31, 2013, with an
exercise price of $1.50 per share and an option to purchase 175,000 shares
expiring September __, 2014, with an exercise price of $2.00 per share.
(9) Includes a warrant to purchase 28,572 shares expiring on June 2, 2008, with
an exercise price of $1.40 per share; an option to purchase 300,000 shares
expiring on January 3, 2012, with an exercise price of $0.63 per share; an
option to purchase 177,500 shares expiring on October 31, 2013, with an
exercise price of $1.50 per share and an option to purchase 175,000 shares
expiring September __, 2014, with an exercise price of $2.00 per share.
(10) Includes an option to purchase 10,000 shares expiring on July 1, 2006, with
an exercise price of $0.80 per share; a warrant to purchase 162,000 shares
expiring on April 1, 2007, with an exercise price of $0.63 per share; a
warrant to purchase 28,572 shares expiring on June 2, 2008, with an
exercise price of $1.40 per share; an option to purchase 300,000 shares
expiring on January 3, 2012, with an exercise price of $0.63 per share and
an option to purchase 175,000 shares expiring September __, 2014, with an
exercise price of $2.00 per share.
(11) Includes an option to purchase 75,000 shares expiring July 16, 2014, with
an exercise price of $2.00 per share and an option to purchase 175,000
shares expiring September __, 2014, with an exercise price of $2.00 per
share.
11
(12) Includes 70,922 shares held by Falcon Picture Group, LLC. Mr. Amari is the
CEO and President of Falcon. Also includes an option to purchase 10,000
shares expiring on October 20, 2013, with an exercise price of $1.40 per
share; an option to purchase 17,877 shares expiring on October 20, 2013,
with an exercise price of $1.40 per share; and an option to purchase 8,562
shares expiring on October 31, 2013, with an exercise price of $1.50 per
share. The mailing address for Mr. Amari is c/o Falcon Picture Group, LLC,
974 Estes Court, Schaumburg, IL 60193.
(13) Includes a warrant to purchase 35,715 shares expiring on May 22, 2008, with
an exercise price of $1.40 per share; a warrant to purchase 820,000 shares
expiring on January 3, 2007, with an exercise price of $0.63 per share; an
option to purchase 10,000 shares expiring on May 13, 2012, with an exercise
price of $2.59 per share and an option to purchase 25,000 shares expiring
on July 7, 2012, with an exercise price of $1.53 per share. Mr. Anderson's
address is 3231 Winderly Pine Cove, Memphis, TN 38125.
(14) Gruber & McBaine Capital Management, LLC ("GMCM"), is the investment
advisor for Firefly Partners, LP, Gruber & McBaine International and
Lagunitas Partners LP. Each of GMCM, Jon D. Gruber and J. Patterson McBaine
filed a Schedule 13G dated August 27, 2004, reporting that as of August 25,
2004 each was the beneficial owner of 1,244,742 shares of common stock as
to which each has shared voting power. GMCM is controlled by Jon D. Gruber
and J. Patterson McBaine. Shares beneficially owned include in Firefly
Partner's name a warrant to purchase 20,000 shares of common stock at an
exercise price of $3.00 per share; in the name of Jon D. and Linda W.
Gruber a warrant to purchase 25,000 shares of common stock at an exercise
price of $3.00 per share; in the name of Gruber & McBaine International a
warrant to purchase 30,714 shares of common stock at an exercise price of
$3.00 per share; in the name of Lagunitas Partners LP a warrant to purchase
131,443 shares of common stock at an exercise price of $3.00 per share and
in the name of J. Patterson McBaine a warrant to purchase 7,143 shares of
common stock at an exercise price of $3.00 per share. The mailing address
for GMCM is 50 Osgood Place, San Francisco, CA 94133.
(15) Includes in Robert Kantor's name two warrants to purchase 25,000 shares and
22,000 shares, respectively, each at an exercise price of $3.00 per share;
two warrants to purchase 145,000 shares and 71,500 shares, respectively,
each at an exercise price of $1.40 per share and a warrant to purchase
25,000 shares at an exercise price of $1.00 per share. Mr. Kantor also has
beneficial ownership for the equity of David Becker, the Trust of William
Becker, Becker Kantor Partners of whom Mr. Kantor is a partner and Francis
Greenburger. This beneficial ownership includes in David Becker's name two
warrants to purchase 25,000 shares each, one at an exercise price of $3.00
per share and one at an exercise price of $1.00 per share; in the name of
the Trust of William Becker two warrants to purchase 25,000 shares each,
one at an exercise price of $3.00 per share and one at an exercise price of
$1.00 per share; in the name of Becker Kantor Partners a warrant to
purchase 35,715 shares at an exercise price of $1.40 per share and in the
name of Francis Greenburger two warrants to purchase 100,000 shares each,
one at an exercise price of $3.00 per share and one at an exercise price of
$1.00 per share. Mr. Kantor's address is c/o Time Equities, 55 Fifth
Avenue, New York, NY 10003.
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of a registered class of our equity
securities, to file with the Commission initial reports of beneficial ownership
on Form 3 and reports of changes in beneficial ownership of our equity
securities on Form 4 or 5. The rules promulgated by the Commission under Section
16(a) of the Exchange Act require those persons to furnish the Company with
copies of all reports filed with the Commission pursuant to Section 16(a). Based
solely upon a review of such forms actually furnished to the Company, and
written representations of certain of our directors and executive officers that
no forms were required to be filed, all directors, executive officers and 10%
stockholders have filed with the Commission on a timely basis all reports
required to be filed under Section 16(a) of the Exchange Act, except that late
filings of Forms 3 and 4 were made as follows: (i) a Form 3 filing for Carl
Amari (a former director) due on October 22, 2003; (ii) Form 4s for Carl Amari
due on November 4, 2003, and December 24, 2003; (iii) Form 4s for Klaus Moeller,
Michael Meader, Larry Balaban, Howard Balaban and Julie Ekelund due on June 4,
2003 and November 4, 2003; (iv) Form 4s for Nancy Evensen (a former director)
due on July 9, 2003, and November 4, 2003; (v) Form 4s for David Anderson (a
former director) due on May 29, 2003, and July 9, 2003; (vi) a Form 4 for
Richard Bermingham (a former director) due on July 9, 2003; and (vii) a Form 4
for Margaret Loesch (a former director) due on July 9, 2003.
12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Our Compensation Committee (the "Committee"), which is comprised of
four outside directors, is responsible for considering and approving
compensation arrangements for our senior management, including our executive
officers and the chief executive officer. Based on the review described under
"Director Independence", the board has determined that three of the members of
the Compensation Committee are independent under the applicable standards of the
Nasdaq Stock Market. Mr. Cappello is not deemed to be an independent member of
this Committee. The objectives of the Committee in establishing compensation
arrangements for senior management are to: (i) attract and retain key executives
who are important to our continued success, and (ii) provide strong financial
incentives, at reasonable cost to the stockholders, for senior management to
enhance the value of the stockholders' investment.
The primary components of our executive compensation program are (i)
base salary, (ii) incentive compensation bonuses, and (iii) stock options.
The Committee believes that:
o our incentive plans provide strong incentives for management
to increase stockholder value;
o our pay levels are appropriately targeted to attract and
retain key executives; and
o our total compensation program is a cost-effective strategy to
increase stockholder value.
BASE SALARIES
Executive officers' base salaries are reviewed periodically by the
Committee, based on level of responsibility and individual performance. It is
our objective that base salary levels, in the aggregate, be at competitive
salary levels. In fixing competitive base salary levels, the prior members of
the Committee relied upon the recommendations of our financial advisors.
INCENTIVE BONUSES
We provide incentive compensation to certain key employees, including
all executive officers, in a form which relates the financial reward to the
employee's contribution to the Company and the Company's performance.
Bonuses awarded in fiscal 2003 were based upon the recommendations of
our financial advisors.
STOCK INCENTIVE PLANS
We have previously established the Genius Products, Inc., 2000
Non-Qualified Stock Option Plan, most recently amended and restated as of
November 20, 2001, and the Genius Products, Inc., 2003 Stock Option Plan. These
plans are collectively referred to as the "Option Plans". The Option Plans
authorize the Committee to grant to officers and other key employees stock
incentive awards in the form of stock options. During fiscal 2003, the Committee
granted options to purchase common stock to the executives as shown in the
Summary Compensation Table.
On September __, 2004, the board of directors authorized the adoption
of Genius Products, Inc., 2004 Stock Incentive Plan (the "2004 Plan"). The
2004 Plan and the grants made to date under the terms of the 2004 Plan
are described in this Proxy Statement under Proposal 2.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation awarded to Mr. Moeller reflects the basic philosophy
generally discussed above that compensation be based on Company and individual
performance.
13
The previous members of the Committee determined Mr. Moeller's base
salary for fiscal 2003 based on the review described above. With respect to
Incentive Bonuses and the Option Plans, Mr. Moeller's awards for fiscal 2003
were determined in the same manner as for all other participants in these plans.
COMPENSATION COMMITTEE:
Charles H. Rivkin, Chairperson
Alexander L. Cappello
Michael J. Koss
Peter H. Schlessel
EXECUTIVE COMPENSATION
The following table sets forth compensation information for services
rendered to us by our chief executive officers and the four most highly
compensated executive officers, other than the chief executive officer, whose
salary and bonus in the most recent fiscal year exceeded $100,000 (referred to
as the "named executive officers"). The information reflects compensation
received in all capacities (other than in the case of Klaus Moeller's and Larry
Balaban's capacity as directors) during each of the prior three fiscal years.
Director compensation for Klaus Moeller and Larry Balaban is described in the
footnotes to the following table, and under the caption "Director Compensation".
The following information includes the dollar value of base salaries, bonus
awards, the number of stock options granted and certain other compensation, if
any, whether paid or deferred. Shares issued in lieu of compensation are listed
in the year the salary was due.
Long-Term Compensation
--------------------------
Awards Payouts
-------------------------- -----------
Securities All Other
Restricted Underlying Compensation
Stock Option/SARs LTIP $
Salary Bonus Awards and Payouts (Car
Name and Position Year $ $ $ Warrants $ Allowance)
- ------------------------ ----- ----------- ----- ---------- ---------- ---------- ------------
Klaus Moeller 2003 150,000 (1) 45,000 28,572 (1) 572,000(1) 0 9,000
CEO 2002 150,000 (1) 0 47,619 (1) 450,000 0 9,000
2001 150,000 (1) 0 117,560 (1) 200,000 0 5,000
Michael Meader
President 2003 150,000 (2) 15,000 28,572 (2) 468,000(2) 0 9000
2002 150,000 (2) 0 47,619 (2) 450,000 0 9,000
2001 150,000 (2) 0 42,560 (2) 200,000 0 5,000
Howard Balaban
Executive VP 2003 150,000 (3) 15,000 28,572 (3) 427,500(3) 0 9,000
2002 150,000 (3) 0 47,619 (3) 450,000 0 9,000
2001 150,000 (3) 0 42,560 (3) 200,000 0 5,000
Larry Balaban
Executive VP 2003 150,000 (3) 15,000 28,572 (3) 427,500(3)(4) 0 9,000
2002 150,000 (3) 0 47,619(3)(4) 450,000 0 9,000
2001 150,000 (3) 0 42,560 (3) 200,000 0 5,000
Julie Ekelund
Executive VP 2003 150,000 (5) 15,000 28,572 (5) 427,500(5) 0 9,000
2002 150,000 (5) 0 20,000 (5) 450,000 0 9,000
* The number of shares and share prices disclosed reflect the one-for-four
reverse stock split which occurred on April 10, 2001.
(1) During 2001, in response to our limited cash flow, Mr. Moeller accepted
$75,000 of unpaid 2001 salary in the form of shares of common stock based
upon the closing price of the common stock on January 2, 2001, which was
$0.80 (as adjusted for the April 10, 2001 reverse stock split). Pursuant to
this agreement, Mr. Moeller was issued 93,750 shares of stock on June 10,
2001. Mr. Moeller received 23,810 shares for an additional $15,000 of
unpaid 2001 salary and agreed to accept 47,619 shares as a signing bonus
for entering into a three-year employment agreement as of January 3, 2002,
with a $30,000 reduction of 2002 salary. These issuances were made as of
January 3, 2002, at $0.63 per share. During 2003, in response to our
limited cash flow, Mr. Moeller accepted $20,000 of his 2003 salary in
exchange for 28,572 shares of common stock valued at $0.70 per share and a
five-year warrant to purchase 28,572 shares of common stock at an exercise
price of $1.40. These issuances were made as of June 2, 2003, at the same
14
price of a private placement that was ongoing at that time. For his service
as a director, Mr. Moeller received (i) 12,000 shares of common stock on
July 31, 2001 for service for the six quarters prior to the date of grant
(2,000 shares per quarter); (ii) 8,000 shares of common stock on August 23,
2002 for service for the four quarters prior to the date of grant (2,000
shares per quarter); and (iii) on October 31, 2003, an option to purchase
25,685 shares of common stock at an exercise price of $1.50 per share.
(2) Mr. Meader was appointed our President in May of 2002. He previously served
as an Executive Vice President beginning in April of 1998, and as Executive
Vice President -- Distribution beginning in January 2002. In 2001, in
response to our limited cash flow, Mr. Meader accepted $15,000 of unpaid
2001 salary in the form of shares of common stock based upon the closing
price of the common stock as of January 2, 2001, which was $0.80 (as
adjusted for the April 10, 2001 reverse stock split). Pursuant to this
agreement, Mr. Meader was issued 18,750 shares of common stock on June 10,
2001. Mr. Meader received 23,810 shares for an additional $15,000 of unpaid
2001 salary and agreed to accept 47,619 shares as a signing bonus for
entering into a three-year employment agreement as of January 3, 2002, with
a $30,000 reduction of 2002 salary. These issuances were made as of January
3, 2002, at $0.63 per share. During 2003, in response to our limited cash
flow, Mr. Meader accepted $20,000 of his 2003 salary in exchange for 28,572
shares of common stock valued at $0.70 per share and a five-year warrant to
purchase 28,572 shares of common stock at an exercise price of $1.40. These
issuances were made as of June 2, 2003, at the same price of a private
placement that was ongoing at that time.
(3) During 2001, in response to our limited cash flow, Larry Balaban and Howard
Balaban each accepted $15,000 of unpaid 2001 salary in the form of shares
of common stock based upon the closing price of the common stock as of
January 2, 2001, which was $0.80 (as adjusted for the April 10, 2001
reverse stock split). Pursuant to this agreement, each was issued 18,750
shares of common stock on June 10, 2001. Larry Balaban and Howard Balaban
each received 23,810 shares for an additional $15,000 of unpaid 2001 salary
and agreed to accept 47,619 shares as a signing bonus for entering into a
three-year employment agreement as of January 3, 2002, with a $30,000
reduction of 2002 salary. These issuances were made as of January 3, 2002,
at $0.63 per share. During 2003, in response to the Company's limited cash
flow, Larry Balaban and Howard Balaban each accepted $20,000 of his 2003
salary in exchange for 28,572 shares of common stock valued at $0.70 per
share and a five-year warrant to purchase 28,572 shares of common stock at
an exercise price of $1.40. These issuances were made as of June 2, 2003,
at the same price of a private placement that was ongoing at that time.
(4) For his service as a director, Larry Balaban received (i) 8,000 shares of
common stock on August 23, 2002, for service for the four quarters prior to
the date of grant (2,000 shares per quarter); and (ii) on October 31, 2003,
an option to purchase 25,685 shares of common stock at an exercise price of
$1.50 per share, as further described under "Director Compensation". The
option to purchase 25,685 shares of common stock has been cancelled as
Larry Balaban resigned before completing his year of board service.
(5) Ms. Ekelund agreed to accept 20,000 shares of common stock as a signing
bonus for entering into a three-year employment agreement as of April 1,
2002, with a $30,000 reduction of 2002 salary. This issuance was made as of
April 1, 2002, at $1.50 per share. The table reflects Ms. Ekelund's annual
salary of $150,000. She received compensation for nine months in 2002.
During 2003, in response to the Company's limited cash flow, Ms. Ekelund
accepted $20,000 of her 2003 salary in exchange for 28,572 shares of common
stock valued at $0.70 per share and a five-year warrant to purchase 28,572
shares of common stock at an exercise price of $1.40. These issuances were
made as of June 2, 2003, at the same price of a private placement that was
ongoing at that time.
The following table sets forth the options granted, if any, to the
named executive officers during the Company's fiscal year ended December 31,
2003. This table does not include the warrant to purchase 28,572 shares of
common stock granted to each executive in lieu of $20,000 of 2003 salary or
options granted to certain executives also serving as directors as described
above.
15
OPTION/SAR GRANTS IN LAST FISCAL YEAR*
INDIVIDUAL GRANTS
Number of Percent of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Fiscal Exercise or Base
Name Granted (#) Year (%) Price ($/SH) Expiration Date
- ------------------------ ------------ ------------------- ----------------- ----------------
Klaus Moeller 572,000 23 $1.50 October 31, 2013
Michael Meader 468,000 19 1.50 October 31, 2013
Howard Balaban 427,500 17 1.50 October 31, 2013
Larry Balaban 427,500 17 1.50 October 31, 2013
Julie Ekelund 355,500 14 1.50 October 31, 2013
* The number of shares and share prices disclosed reflect the one-for-four
reverse stock split which occurred on April 10, 2001.
The following table sets forth information concerning the value of
exercisable and unexercisable options at December 31, 2003 held by our named
executive officers. No options were exercised by any of the named executive
officers during 2003. This table does not include warrants.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES*
Number of Securities Underlying Value of Unexercised In-The-Money Options
Unexercised Options at FY-End (#) at FY-End ($) (1)
--------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- ------------- ----------- -------------
Klaus Moeller 622,000 425,685 $883,000 $556,185
Michael Meader 518,000 400,000 $779,000 $530,500
Howard Balaban 477,500 400,000 $738,500 $530,500
Larry Balaban 477,500 425,685 $738,500 $556,185
Julie Ekelund 415,000 400,000 $666,000 $530,500
* The number of shares and share prices disclosed reflect the one-for-four
reverse stock split which occurred on April 10, 2001.
(1) Based on the closing price for our common stock at the close of market on
December 31, 2003. On December 31, 2003, the price of our common stock was
$2.50. The lowest exercise price of any outstanding option at December 31,
2003, was $0.63.
EMPLOYMENT AGREEMENTS
All of the above executives signed three-year employment agreements
which commenced as of January 3, 2002, except for Julie Ekelund, whose agreement
commenced as of April 1, 2002. These employment agreements were extended until
January 2, 2006, pursuant to an amendment to each agreement as of October 31,
2003. See "Certain Relationships and Related Transactions" below for a
discussion of all of our executive employment agreements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Alexander L. Cappello is a Managing Director of Cappello Capital Corp.,
investment bankers. We retained Cappello Capital Corp. to perform corporate
finance advisory services for us for a two-year period commencing in March 2004.
As of September 23, 2004, we have paid $60,000 in compensation and $688 in
reimbursement for expenses under the terms of our retainer agreement with
Cappello Capital Corp.
Andrew C. Schmidt entered into a one-year employment agreement with us
to act as our Chief Financial Officer effective August 23, 2004. Under the
employment agreement, Mr. Schmidt is entitled to an annual salary of $160,000
and a grant of an option to purchase 75,000 shares of common stock which vest on
August 23, 2005. The option is exercisable for a period of 10 years from the
date of grant at an exercise price of $1.44 per share, the market price on the
16
date of grant. Under the terms of this employment agreement, after the first
three months of the agreement, if Mr. Schmidt dies or is terminated without
cause (as defined in the employment agreement), he will receive three months of
salary as severance pay. Severance pay under this employment agreement is due
and payable in full immediately upon Mr. Schmidt's termination or death.
Trevor J. Drinkwater entered into a one-year employment agreement with
us to act as our Executive Vice President of DVD Sales effective July 16, 2004.
Under the employment agreement, Mr. Drinkwater is entitled to an annual salary
of $175,000, a bonus of 2% of the net sales in excess of a total of $15 million
achieved by the Company in the third and fourth quarters of 2004, if any,
reimbursement of up to $5,000 for his moving expenses and a grant of an option
to purchase 150,000 shares of common stock which vest as follows: 50% on the
July 16, 2004, and 10% on January 16, 2005, February 16, 2005, March 16, 2005,
April 16, 2005, and May 16, 2005. The option is exercisable for a period of 10
years from the date of grant at an exercise price of $2.00 per share, an amount
exceeding the market price on the date of grant that was set by our negotiations
with Mr. Drinkwater. Under the terms of this employment agreement, after the
first three months of the agreement, if Mr. Drinkwater dies or is terminated
without cause (as defined in the employment agreement), he will receive three
months of salary as severance pay. Severance pay under this employment agreement
is due and payable in full immediately upon Mr. Drinkwater's termination or
death.
Mark J. Miller entered into a one-year employment agreement with us to
act as our Chief Operating Officer effective February 2, 2004. Under the
employment agreement, Mr. Miller was awarded a signing bonus of $20,000 and is
entitled to an annual salary of $173,000 and a grant of an option to purchase
150,000 shares of common stock which vest on February 1, 2005. The option is
exercisable for a period of 10 years from the date of grant at an exercise price
of $2.55 per share, the market price on the date of grant. Under the terms of
this employment agreement, after the first three months of the agreement, if Mr.
Miller dies or is terminated without cause (as defined in the employment
agreement), he will receive six months of salary as severance pay. Severance pay
under this employment agreement is due and payable in full immediately upon Mr.
Miller's termination or death.
On January 22, 2004, the officers' notes receivable held by Genius
Products as subscriptions receivable were paid off by tendering shares of Genius
Products common stock pursuant to the terms of the notes. The balance of each
note at the time of the payoff was approximately $471,219. Klaus Moeller and
Michael Meader each tendered 168,052 shares to retire their loans. Larry Balaban
and Howard Balaban tendered 170,405 shares and 174,883 shares, respectively,
tendering additional shares to retire advances in the amount of approximately
$6,600 and $19,153, respectively, previously made to them.
On January 22, 2004, certain notes receivable held by Genius Products
as subscriptions receivable were paid off by tendering shares of Genius Products
common stock pursuant to the terms of the notes. 1,285,200 restricted shares
were previously issued upon the conversion of certain warrants. The warrant
exercise price was paid by secured promissory notes totaling $728,400 with two
related parties. Of the total, 660,000 shares with an exercise price of $0.63
each ($415,800 total) were issued to S G Consulting Inc., an entity controlled
by Sean Goodchild, who was the owner of more than 5% of our common stock when
these shares were included in his ownership. The balance of 625,200 shares with
an exercise price of $0.50 each ($312,600 total) was issued to Algarvida LDA,
an entity that is controlled by Isabel Moeller, who is the sister of our Chief
Executive Officer, Klaus Moeller. Mr. Goodchild and Ms. Moeller tendered 164,346
and 123,556 shares, respectively, in repayment of the balance of the loans in
the amount of approximately $460,826 and $346,451, respectively.
On December 31, 2003, we entered into a sublease arrangement with the
Meader Family Limited Trust, a related party, under which we rent a portion of a
warehouse facility (approximately 8,000 square feet) in Atlantic, Iowa, for a
monthly rent of $2,900. This centrally located facility is used to distribute
our products to certain customers. The lease expires in December 2007.
Also on December 31, 2003, we entered into a sublease arrangement with
Ekelund Properties, LLC, a related party, under which we rent sales offices
(approximately 1,300 square feet) in Excelsior, Minnesota, for a monthly rent of
$1,200. This is a one-year lease with the option to renew for additional
one-year periods.
17
Carl Amari is the President and CEO of Falcon Picture Group, LLC, and
was formerly a member of our board of directors. Falcon has received payments of
approximately $663,650 in 2003 under two licensing agreements, the first for the
distribution of BOZO videos and DVDs dated November 12, 2002, and the second for
the licensing and distribution of various Falcon properties on video and DVD
dated September 8, 2003. We also issued 70,922 restricted shares of our common
stock to Falcon under the September 2003 license agreement for the option to
purchase Falcon's assets before September 8, 2006. On December 22, 2003, we
completed a transaction amending our September 8, 2003 licensing agreement with
Falcon to address Falcon's acquisition of a license to use the TV GUIDE name and
logo in connection with the development, marketing and sale, throughout the
United States, of a full line of DVD products featuring classic television
content from 1946 through 1989. The terms for this amendment were reached on
October 2, 2003. For his part in the negotiations for this acquisition and the
completion of the transaction, Carl Amari purchased 1,350,000 restricted shares
of Genius common stock on December 22, 2003 at the price of $0.72 per share.
Effective January 3, 2002, we entered into new three-year employment
agreements with Klaus Moeller, our Chief Executive Officer; Michael Meader, our
President and former Executive Vice President -- Distribution; Larry Balaban,
our Executive Vice President of Production and Creative Services; and Howard
Balaban, our Executive Vice President of New Business Development. Effective
April 1, 2002, we entered into a three-year employment agreement with Julie
Ekelund, our Executive Vice President of Marketing and Brand Management. Under
each employment agreement, the senior executive is entitled to an annual salary
of $150,000 and was granted an option to purchase 450,000 shares of common stock
which vest one-third each year beginning on December 31, 2002. The options
granted are exercisable for a period of 10 years from the date of grant at an
exercise price of $0.63 per share, the market price on the date of grant. Under
these employment agreements, if the senior executive died or was terminated
without cause (as defined in the employment agreement) during the first year of
the employment agreement, the senior executive would have received twenty-four
months of salary as severance pay. If the senior executive died or was
terminated without cause during the second year of the employment agreement, the
senior executive would have received eighteen months of salary as severance pay.
If the senior executive dies or is terminated without cause during the third
year of the employment agreement, the senior executive will receive twelve
months of salary as severance pay. Severance pay under these employment
agreements is due and payable in full immediately upon death or termination of
the senior executive. If we were required to make payments under the severance
pay provisions contained in one or more of these employment agreements, this
could have a material adverse effect upon our liquidity and results of
operations.
Effective October 31, 2003, the above employment agreements were
amended to (i) extend the expiration date until January 2, 2006, (ii) to
increase annual salaries according to the table below, and (iii) to grant to
each senior executive a ten-year stock option to purchase 250,000 shares of our
common stock at an exercise price of $1.50 per share, of which 50,000 shares
will vest on December 31, 2004, and 200,000 shares will vest on December 31,
2005.
2004 SALARY 2005 SALARY
Klaus Moeller $222,500 $244,750
Mike Meader $197,500 $217,250
Howard Balaban $172,500 $189,750
Larry Balaban $172,500 $189,750
Julie Ekelund $172,500 $189,750
Effective October 1, 2003, we entered into a sales representative
agreement with Greg Meader, the brother of Michael Meader. The agreement is for
an automatically renewable one-year term. Greg Meader will receive a 5%
commission for sales of Genius' products to certain accounts in North America.
On March 1, 2000, we entered into a Consulting Agreement with Gerald
Edick which included a rescission of a severance letter of October 26, 1999.
Pursuant to the Consulting Agreement, Mr. Edick has irrevocably revoked his
rights to the cash bonus and other benefits under the severance letter. Under
the Consulting Agreement, Mr. Edick received an option to purchase 187,500
shares of our common stock. Mr. Edick also was to be paid $14,500 per month from
March 1 through September 30, 2000, in consideration for investor relations and
fundraising services to be performed by him. All payments due to Mr. Edick have
been settled for $67,000 and our agreement for his option to purchase 187,500
shares of our common stock to remain fully vested and exercisable until January
7, 2007, at an exercise price of $5.00 per share.
18
PROPOSAL 2
APPROVAL OF ADOPTION OF 2004 STOCK INCENTIVE PLAN
On September __, 2004, our board of directors authorized the adoption
of our 2004 Stock Incentive Plan (the "2004 Plan"). The 2004 Plan was effective
upon adoption by the board, although stockholder approval is required within
twelve months of adoption. Our 2004 Plan provides for the grant
of:
o incentive stock options to our employees (currently
approximately 30 employees), including officers and employee
directors;
o non-qualified stock options to our employees, directors
(approximately 4 to 7 directors) and consultants (currently
approximately 30 consultants); and
o restricted stock awards.
A general description of the principal terms of the 2004 Plan as
proposed is set forth below. This description is qualified in its entirety by
the terms of the 2004 Plan, a copy of which is attached to this Proxy Statement
as Appendix B and is incorporated herein by reference.
GENERAL DESCRIPTION
PURPOSE. The purpose of the 2004 Plan is to provide our employees,
directors and consultants, whose present and potential contributions are
important to our success, an incentive, through ownership of our common stock,
to continue in service to us, and to help us compete effectively with other
enterprises for the services of qualified individuals.
SHARES RESERVED FOR ISSUANCE UNDER THE 2004 PLAN. A total of 7,500,000
shares of common stock will be reserved for issuance under the 2004 Plan. The
maximum number of shares with respect to which options may be granted to a
participant during a calendar year is 1,000,000 shares. In addition, in
connection with a participant's commencement of continuous service, a
participant may be granted options for up to an additional 1,000,000 shares
which shall not count against the limit set forth in the previous sentence. For
awards of restricted stock that are intended to be performance-based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the maximum number of shares subject to such awards that
may be granted to a participant during a calendar year is 1,000,000 shares. All
share numbers described in this paragraph are subject to adjustment in the event
of a stock split, stock dividend, or other similar change in our common stock or
capital structure.
ADMINISTRATION. The 2004 Plan is administered, with respect to grants
to employees, directors, officers and consultants, by the plan administrator,
defined as the board or one or more committees designated by the board.
Generally, the 2004 Plan will be administered by the Compensation Committee.
With respect to grants to officers and directors, the committee shall be
constituted in such a manner as to satisfy applicable laws, including Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, and Section
162(m) of the Code.
TERMS AND CONDITIONS OF AWARDS. Stock options granted under the 2004
Plan may be either incentive stock options under the provisions of Section 422
of the Code, or nonqualified stock options. Incentive stock options may be
granted only to employees. Awards other than incentive stock options may be
granted to employees, directors and consultants. Subject to applicable laws, the
plan administrator has the authority, in its discretion, to select employees,
directors and consultants to whom awards may be granted from time to time, to
determine whether and to what extent awards are granted, to determine the number
of shares of our common stock or the amount of other consideration to be covered
by each award, to approve award agreements for use under the 2004 Plan, to
determine the terms and conditions of any award, to construe and interpret the
terms of the 2004 Plan and awards granted, to establish additional terms,
conditions, rules or procedures to accommodate the rules or laws of applicable
non-U.S. jurisdictions and to take such other action not inconsistent with the
terms of the 2004 Plan as the plan administrator deems appropriate.
19
The term of awards granted under the 2004 Plan may not be for more than
ten years (or five years in the case of incentive stock options granted to any
participant who owns stock representing more than 10% of the combined voting
power of us or any parent or subsidiary of ours), excluding any period for which
the participant has elected to defer the receipt of the shares or cash issuable
pursuant to the award.
TERMINATION OF SERVICE. An award may not be exercised after the
termination date of such award as set forth in the award agreement. In the event
a participant in the 2004 Plan terminates continuous service with us for any
reason other than death or disability, the vested portion of an award may be
exercised within a period of no less than three months following the termination
(or such longer period as determined by the plan administrator). In the event a
participant in the 2004 Plan terminates continuous service with us as a result
of death or disability, the vested portion of an award may be exercised within a
period of no less than twelve months following the termination (or such longer
period as determined by the plan administrator). The award shall terminate to
the extent not exercised on the last day of the specified period or the last day
of the original term of the award, whichever comes first. Any award designated
as an incentive stock option, to the extent not exercised within the time
permitted by law for the exercise of incentive stock options following the
termination of employment, shall convert automatically to a nonqualified stock
option and thereafter shall be exercisable as such to the extent exercisable by
its terms for the period specified in the award agreement.
CHANGE IN CAPITALIZATION. Subject to any required action by our
stockholders, the number of shares of common stock covered by outstanding
awards, the number of shares of common stock that have been authorized for
issuance under the 2004 Plan, the exercise or purchase price of each outstanding
award, the maximum number of shares of common stock that may be granted subject
to awards to any participant in a calendar year, and the like, shall be
proportionally adjusted by the plan administrator in the event of (i) any
increase or decrease in the number of issued shares of common stock resulting
from a stock split, stock dividend, combination or reclassification or similar
event affecting our common stock, (ii) any other increase or decrease in the
number of issued shares of common stock effected without receipt of
consideration by us, or (iii) as the plan administrator may determine in its
discretion, any other transaction with respect to common stock including a
corporate merger, consolidation, acquisition of property or stock, separation
(including a spin-off or other distribution of stock or property),
reorganization, liquidation (whether partial or complete) or any similar
transaction; provided, however, that conversion of any of our convertible
securities shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the plan administrator and its
determination shall be final, binding and conclusive.
CORPORATE TRANSACTION AND CHANGE IN CONTROL. Effective upon the
consummation of a corporate transaction (as defined in the 2004 Plan), all
outstanding awards shall terminate. However, all such awards shall not terminate
to the extent the contractual obligations represented by the award are assumed
by the successor entity. Further, each award will automatically become fully
vested and exercisable for all of the shares at the time represented by the
award, immediately prior to the specified effective date of such corporate
transaction. In the event of a change in control (as defined in the 2004 Plan),
each award will automatically become fully vested and exercisable for all of the
shares represented by the award at the time of such change in control.
AMENDMENT, SUSPENSION OR TERMINATION OF THE 2004 PLAN. The board may at
any time amend, suspend or terminate the 2004 Plan. The 2004 Plan will terminate
ten years from the date of its approval by our stockholders, unless terminated
earlier by the board. To the extent necessary to comply with applicable
provisions of federal securities laws, state corporate and securities laws, the
Code, the rules of any applicable stock exchange or national market system, and
the rules of any non-U.S. jurisdiction applicable to awards granted to residents
therein, we shall obtain stockholder approval of any such amendment to the 2004
Plan in such a manner and to such a degree as required.
CERTAIN FEDERAL TAX CONSEQUENCES RELATING TO 2004 STOCK INCENTIVE PLAN
The following summary of the federal income tax consequences of 2004
Plan transactions is based upon federal income tax laws in effect on the date of
this proxy statement. This summary does not purport to be complete, and does not
discuss, state, local or non-U.S. tax consequences.
NONQUALIFIED STOCK OPTIONS. The grant of a nonqualified stock option
under the 2004 Plan will not result in any federal income tax consequences to
the participant or to us. Upon exercise of a nonqualified stock option, the
participant is subject to income taxes at the rate applicable to ordinary
compensation income on the difference between the option exercise price and the
fair market value of the shares on the date of exercise. This income is subject
to withholding for federal income and employment tax purposes. We are entitled
to an income tax deduction in the amount of the income recognized by the
participant, subject to possible limitations imposed by Section 162(m) of
the Code, and so long as we withhold the appropriate taxes
with respect to such income (if required) and the participant's total
compensation is deemed reasonable in amount. Any gain or loss on the
participant's subsequent disposition of the shares of common stock will receive
long or short-term capital gain or loss treatment, depending on whether the
shares are held for more than one year following exercise. We do not receive a
tax deduction for any such gain.
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option under
the 2004 Plan will not result in any federal income tax consequences to the
participant or to us. A participant recognizes no federal taxable income upon
exercising an incentive stock option (subject to the alternative minimum tax
rules discussed below), and we receive no deduction at the time of exercise. The
Internal Revenue Service has issued proposed regulations that would subject
participants to withholding at the time participants exercise an incentive stock
option for Social Security and Medicare taxes. In the event of a disposition of
stock acquired upon exercise of an incentive stock option, the tax consequences
depend upon how long the participant has held the shares of common stock. If the
participant does not dispose of the shares within two years after the incentive
stock option was granted, nor within one year after the incentive stock option
was exercised, the participant will recognize a long-term capital gain (or loss)
equal to the difference between the sale price of the shares and the exercise
price. We are not entitled to any deduction under these circumstances.
20
If the participant fails to satisfy either of the foregoing holding
periods, he or she must recognize ordinary income in the year of the disposition
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is the lesser of (i) the difference between the amount realized
on the disposition and the exercise price or (ii) the difference between the
fair market value of the stock on the exercise date and the exercise price. Any
gain in excess of the amount taxed as ordinary income will be treated as a long
or short-term capital gain, depending on whether the stock was held for more
than one year. In the year of the disqualifying disposition, we are entitled to
a deduction equal to the amount of ordinary income recognized by the
participant, subject to possible limitations imposed by Section 162(m) of the
Code and so long as we withhold the appropriate taxes with respect to such
income (if required) and the participant's total compensation is deemed
reasonable in amount.
The "spread" under an incentive stock option -- i.e., the difference
between the fair market value of the shares at exercise and the exercise price
- -- is classified as an item of adjustment in the year of exercise for purposes
of the alternative minimum tax. If a participant's alternative minimum tax
liability exceeds such participant's regular income tax liability, the
participant will owe the larger amount of taxes. In order to avoid the
application of alternative minimum tax with respect to incentive stock options,
the participant must sell the shares within the same calendar year in which the
incentive stock options are exercised. However, such a sale of shares within the
same year of exercise will constitute a disqualifying disposition, as described
above.
RESTRICTED STOCK. The grant of restricted stock will subject the
recipient to ordinary compensation income on the difference between the amount
paid for such stock and the fair market value of the shares on the date that the
restrictions lapse. This income is subject to withholding for federal income and
employment tax purposes. We are entitled to an income tax deduction in the
amount of the ordinary income recognized by the recipient, subject to possible
limitations imposed by Section 162(m) of the Code and so long as we withhold the
appropriate taxes with respect to such income (if required) and the
participant's total compensation is deemed reasonable in amount. Any gain or
loss on the recipient's subsequent disposition of the shares will receive long
or short-term capital gain or loss treatment depending on how long the stock has
been held since the restrictions lapsed. We do not receive a tax deduction for
any such gain.
Recipients of restricted stock may make an election under Section 83(b)
of the Code ("Section 83(b) Election") to recognize as ordinary compensation
income in the year that such restricted stock is granted, the amount equal to
the spread between the amount paid for such stock and the fair market value on
the date of the issuance of the stock. If such an election is made, the
recipient recognizes no further amounts of compensation income upon the lapse of
any restrictions and any gain or loss on subsequent disposition will be long or
short-term capital gain to the recipient. The Section 83(b) Election must be
made within thirty days from the time the restricted stock is issued.
21
DIVIDENDS. Recipients of stock-based awards that earn dividends or
dividend equivalents will recognize taxable ordinary income on any dividend
payments received with respect to unvested and/or unexercised shares subject to
such awards, which income is subject to withholding for federal income and
employment tax purposes. We are entitled to an income tax deduction in the
amount of the income recognized by a participant, subject to possible
limitations imposed by Section 162(m) of the Code and so long as we withhold the
appropriate taxes with respect to such income (if required) and the individual's
total compensation is deemed reasonable in amount.
NEW PLAN BENEFITS
The following table shows the estimated awards to be issued under the
2004 Stock Incentive Plan during 2004 to the individuals named below. In the
event the 2004 Plan is not approved by our stockholders, the awards set forth
below will not be issued under the 2004 Stock Incentive Plan.
2004 Stock Incentive Plan
Name and Position Dollar Value ($) Number of Shares
- ------------------------------------------------------- ---------------- ----------------
Klaus Moeller, Director, Chairman of the Board and
Chief Executive Officer N/A 750,000
Michael Meader, President N/A 575,000
Howard Balaban, Executive Vice President N/A 350,000
Larry Balaban, Executive Vice President N/A 350,000
Julie Ekelund, Executive Vice President N/A 350,000
Executive Group N/A 3,425,000
Non-Executive Director Group N/A 1,718,080
Non-Executive Officer Employee Group N/A 310,000
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the common stock that
may be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2003.
Number of Securities Remaining
Number of Securities To Weighted-Average Available for Future Issuance
Be Issued upon Exercise Exercise Price of under Equity Compensation
of Outstanding Options, Outstanding Options, Plans (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in the Second Column)
- -------------------------- ------------------------- ----------------------- --------------------------------
Equity Compensation
Plans Approved by
Stockholders 6,714,863 (1) $1.37 (2) 34,982 (3)
Equity Compensation
Plans Not Approved by
Stockholders (4) 5,453,080 (4) $_____(5) 2,046,920
- -------------------------- ------------------------- ----------------------- -------------------------------
22
(1) 452,750 shares issuable upon exercise of outstanding options granted
under the 1997 Stock Option Plan, 5,262,113 shares issuable upon
exercise of outstanding options granted under the 2000 Stock Option
Plan and 1,000,000 shares issuable upon exercise of outstanding options
granted under the 2003 Stock Option Plan.
(2) Option exercise prices range from $0.63 to $13.60.
(3) Reflects shares issuable upon exercise of options issued and issuable
under the Second 2000 Amended and Restated 2000 Non-Qualified Stock
Option Plan.
(4) The 2004 Stock Incentive Plan is currently pending approval by the
stockholders. Upon stockholder approval, up to 7,500,000 shares will be
issuable until September __, 2014. The plan vests broad discretionary
power in the board or a committee of the board, including the power to
(i) select eligible optionees to be granted stock options, (ii) set the
option exercise price (subject to certain restrictions), (iii)
establish the duration of each option (not to exceed ten years), (iv)
specify the method of exercise, and (v) designate the medium and time
of payment.
(5) Option exercise prices range from $1.__ to $4.00.
The board of directors has unanimously approved and recommends that the
stockholders approve the 2004 Stock Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 2.
PROPOSAL 3
APPROVAL OF THE REINCORPORATION OF GENIUS PRODUCTS, INC.
FROM THE STATE OF NEVADA TO THE STATE OF DELAWARE
The board of directors has unanimously approved the reincorporation of
Genius Products, Inc., from the State of Nevada to the State of Delaware (the
"Reincorporation"). The board of directors believes that the Reincorporation
will benefit the Company and our stockholders. To maintain clarity in discussing
the Reincorporation, the Company before the merger is sometimes referred to as
"Genius-Nevada" and the Company after the merger is sometimes referred to as
"Genius-Delaware".
Our corporate affairs are presently governed by the corporate law of
Nevada, Genius-Nevada's State of incorporation, the Genius-Nevada Articles of
Incorporation and the Genius-Nevada Bylaws. These documents are included as
exhibits to our filings with the Securities and Exchange Commission and are
available for inspection during regular business hours at the principal
executive offices of the Company. Copies will be sent to stockholders upon
request. If the Reincorporation is approved by the stockholders and the merger
effected, we will be governed by Delaware law and the Certificate of
Incorporation and Bylaws of Genius-Delaware. A discussion of the material
similarities and differences in the rights of our stockholders before and after
the merger appears below.
We believe that the reincorporation will give us a greater measure of
flexibility and simplicity in corporate governance than is available under
Nevada law and will increase the marketability of our securities. The State of
Delaware is recognized for adopting comprehensive modern and flexible corporate
laws which are periodically revised to respond to the changing legal and
business needs of corporations. For this reason, many major corporations have
initially incorporated in Delaware or have changed their corporate domiciles to
Delaware in a manner similar to that proposed by Genius-Nevada. Consequently,
the Delaware judiciary has become particularly familiar with corporate law
matters and a substantial body of court decisions has developed construing
Delaware law. Delaware law, accordingly, has been, and is likely to continue to
be, interpreted in many significant judicial decisions, a fact which may provide
greater clarity and predictability with respect to Genius-Nevada's corporate
legal affairs. For these reasons, the board of directors believes that
Genius-Nevada's business and affairs can be conducted to better advantage if
Genius-Nevada is able to operate under Delaware law. See "Certain Significant
Differences between the Corporation Laws of Nevada and Delaware".
23
We will pay all of the costs of the Reincorporation, including printing
and distributing this Proxy Statement and legal and accounting services.
PRINCIPAL FEATURES OF THE REINCORPORATION
The Reincorporation will be effected by the merger of Genius-Nevada
with and into Genius-Delaware, currently a wholly-owned subsidiary of
Genius-Nevada. Genius-Delaware is incorporated under the Delaware General
Corporation Law for the sole purpose of effecting the Reincorporation. The
Reincorporation will become effective upon the filing of the requisite merger
documents in Delaware and Nevada, which filings will occur after stockholder
approval is obtained. If, as described in the Plan and Agreement of Merger (the
"Merger Agreement"), the board of directors determines that circumstances have
arisen that make it inadvisable to proceed with the Reincorporation under the
original terms of the Merger Agreement, the merger (and thus the proposed
Reincorporation) may be abandoned or the Merger Agreement may be amended by the
board of directors either before or after stockholder approval has been obtained
(except that the principal terms may not be amended without obtaining further
stockholder approval). The discussion below is qualified in its entirety by
reference to the Plan and Agreement of Merger, the Delaware Certificate of
Incorporation and the Delaware Bylaws, copies of which are attached to this
Proxy Statement as Appendices C, D and E, respectively, and by the applicable
provisions of Nevada law and Delaware law.
We are currently authorized to issue two classes of stock that consist
of 10,000,000 shares of preferred stock with a par value of $.001 per share and
50,000,000 shares of common stock with a par value of $.001 per share. We will
be changing the par value of the stock to $.00001 at the time of the
Reincorporation. We note that a proposal to increase the authorized number of
shares of common stock from 50,000,000 to 100,000,000 is contained in Proposal 4
of this Proxy Statement. If both the Reincorporation and Proposal 4 are approved
at the Annual Meeting of Stockholders, the increase in the authorized number of
shares of common stock will be reflected solely in the Certificate of
Incorporation of Genius-Delaware, so that following the Reincorporation the
Certificate of Incorporation of Genius-Delaware will have authorized
100,000,000 shares of common stock, which will become available for issuance
following the Reincorporation.
Our preferred stock may be divided into such number of series as the
board of directors may determine. The board of directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to and imposed upon any wholly unissued series of preferred stock, and to fix
the number of shares of any series of preferred stock and the designation of any
such series of preferred stock. As long as they stay within the limits and
restrictions of any prior resolution or resolutions originally fixing the number
of shares constituting any series of preferred stock, the board of directors may
increase or decrease (but not below the number of shares of such series
outstanding at that time) the number of shares of any series subsequent to the
issue of shares of that series. The board has not made any designations
regarding the preferred stock and no preferred stock has been issued to date.
The terms of the preferred stock will not be affected by the Reincorporation.
On the effective date, (i) each outstanding share of Genius-Nevada
common stock will be converted into one share of Genius-Delaware common stock,
and (ii) each outstanding share of Genius-Nevada common stock held by
Genius-Nevada will be retired and canceled and will resume the status of
authorized and unissued the Genius-Delaware stock. Following the
Reincorporation, previously outstanding Genius-Nevada stock certificates may be
delivered in effecting sales through a broker, or otherwise, of shares of
Genius-Delaware stock. It will not be necessary for you to exchange your
existing stock certificates for stock certificates of Genius-Delaware, and if
you do so, it will be at your own cost.
The proposed Reincorporation will not effect any change in our business
or management and will not change the name or the location of our principal
executive offices. At the effective time of the Reincorporation, the same
individuals who serve as the directors and officers of Genius-Nevada will become
the officers and directors of Genius-Delaware. All employee benefit and stock
option plans of Genius-Nevada will become Genius-Delaware plans, and each option
or right issued by such plans will automatically be converted into an option or
right to purchase the same number of shares of Genius-Delaware common stock, at
the same price per share, upon the same terms and subject to the same
conditions. Stockholders should note that approval of the Reincorporation will
also constitute approval of these plans continuing as plans of Genius-Delaware.
Other employee benefit arrangements of Genius-Nevada will also be continued by
Genius-Delaware upon the terms and subject to the conditions currently in
effect. We believe that the Reincorporation will not affect any of our material
contracts with any third parties and that Genius-Nevada's rights and obligations
under such material contractual arrangements will continue as rights and
obligations of Genius-Delaware.
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The Reincorporation will not cause a change in Genius-Nevada's name.
Our name will remain "Genius Products, Inc."
Other than receipt of stockholder approval, no federal or state
regulatory requirements must be complied with and no approvals must be obtained
in order to consummate the Reincorporation.
SECURITIES ACT CONSEQUENCES
The shares of Genius-Delaware common stock to be issued in exchange for
shares of Genius-Nevada common stock are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"). In that regard,
Genius-Delaware is relying on Rule 145(a)(2) under the 1933 Act (the "Rule"),
which provides that a merger which has "as its sole purpose" a change in the
domicile of a corporation and does not involve the sale of securities for
purposes of the 1933 Act, and on interpretations of the Rule by the Securities
and Exchange Commission (the "Commission"), which indicate that the making of
certain changes in the surviving corporation's charter documents that could
otherwise be made only with the approval of the stockholders of either
corporation does not render Rule 145(a)(2) inapplicable.
After the Reincorporation, Genius-Delaware will be a publicly held
company, Genius-Delaware common stock will continue to be listed for trading on
the Over the Counter Bulletin Board, and Genius-Delaware will file periodic
reports and other documents with the Commission and provide to its stockholders
the same types of information that the Company has previously filed and
provided.
Stockholders whose common stock is freely tradable before the
Reincorporation will have freely tradable shares of Genius-Delaware common
stock. Stockholders holding restricted common stock will have shares of
Genius-Delaware common stock that are subject to the same restrictions on
transfer as those to which there present shares of common stock are subject, and
their stock certificates, if surrendered for replacement certificates
representing shares of Genius-Delaware common stock, will bear the same
restrictive legend as appears on their present stock certificates. For purposes
of computing compliance with the holding period requirement of Rule 144 under
the Securities Act of 1933, stockholders will be deemed to have acquired their
shares of Genius-Delaware common stock on the date they acquired their shares of
Genius-Nevada common stock. In summary, Genius-Delaware and its stockholders
will be in the same respective positions under the federal securities laws after
the Reincorporation as they were before the Reincorporation.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income
tax consequences of the Reincorporation that are applicable to you as a Company
stockholder. It is based on the Code, applicable Treasury regulations, judicial
authority, and administrative rulings and practice, all as of the date of this
Proxy Statement and all of which are subject to change, including changes with
retroactive effect. The discussion below does not address any state, local or
foreign tax consequences of the Reincorporation. Your tax treatment may vary
depending upon your particular situation. You also may be subject to special
rules not discussed below if you are a certain kind of Company stockholder,
including, but not limited to: an insurance company; a tax-exempt organization;
a financial institution or broker-dealer; a person who is neither a citizen nor
resident of the United States or entity that is not organized under the laws of
the United States or political subdivision thereof; a holder of Company shares
as part of a hedge, straddle or conversion transaction; a person that does not
hold Company shares as a capital asset at the time of the Reincorporation; or an
entity taxable as a partnership for U.S. federal income tax purposes.
The Company will not request an advance ruling from the Internal
Revenue Service as to the U.S. federal income tax consequences of the
Reincorporation or any related transaction. The Internal Revenue Service could
adopt positions contrary to those discussed below and such positions could be
sustained. You are urged to consult with your own tax advisors and financial
planners as to the particular tax consequences of the Reincorporation to you,
including the applicability and effect of any state, local or foreign laws, and
the effect of possible changes in applicable tax laws.
It is intended that the Reincorporation qualify as a "reorganization"
under Section 368(a) of the Code. As a "reorganization," it is expected that the
Reincorporation will have the following U.S. federal income tax consequences:
o Neither Genius-Nevada nor Genius-Delaware will recognize any gain
or loss;
o A Genius-Nevada stockholder will not recognize any gain or loss as
a result of the receipt of Genius-Delaware shares in exchange for
such stockholder's Genius-Nevada shares in the Reincorporation;
o A Genius-Nevada stockholder's aggregate tax basis in the
Genius-Delaware shares received in the Reincorporation will equal
such stockholder's aggregate tax basis in the Genius-Nevada
shares held immediately before the Reincorporation; and
o A Genius-Nevada stockholder's holding period for Genius-Delaware
shares received in the Reincorporation will include the period
during which such stockholder held Genius-Nevada shares.
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CERTAIN SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF NEVADA AND
DELAWARE
Genius-Nevada is incorporated under the laws of the State of Nevada and
Genius-Delaware is incorporated under the laws of the State of Delaware. On
consummation of the merger, the stockholders of Genius-Nevada, whose rights
currently are governed by Nevada law and the Genius-Nevada Articles and
Genius-Nevada Bylaws, which were created pursuant to Nevada law, will become
stockholders of a Delaware company, Genius-Delaware, and their rights as
stockholders will then be governed by Delaware law and a Delaware Certificate
and Delaware Bylaws which will be created under Delaware law.
Although the corporate statutes of Nevada and Delaware are similar,
certain differences exist. The most significant differences, in the judgment of
the management of Genius-Nevada, are summarized below. This summary is not
intended to be complete, and stockholders should refer to the General
Corporation Law of the State of Delaware ("Delaware Law") and the Nevada
Business Corporation Act ("Nevada Law") to understand how these laws apply to
Genius-Nevada and Genius-Delaware.
ANNUAL MEETINGS. Under Delaware Law, if the annual meeting for the
election of directors is not held on the designated date, or action by written
consent to elect directors in lieu of an annual meeting has not been taken, the
directors are required to cause that meeting to be held as soon as is
convenient. If there is a failure to hold the annual meeting or to take action
by written consent to elect directors in lieu of an annual meeting for a period
of 30 days after the designated date for the annual meeting, or if no date has
been designated for a period of 13 months after the latest to occur of the
organization of the corporation, its last annual meeting or the last action by
written consent to elect directors in lieu of an annual meeting, the Court of
Chancery may summarily order a meeting to be held upon the application of any
stockholder or director. Under Nevada Law, if the annual meeting is not held
within 18 months after the last election of directors, the district court has
jurisdiction to order the election of directors, upon application of any one or
more stockholders holding at least 15% of the voting power.
SPECIAL MEETINGS OF STOCKHOLDERS. Delaware Law permits special meetings
of stockholders to be called by the board of directors or by any other person
authorized in the certificate of incorporation or bylaws to call a special
stockholder meeting. Nevada Law does not address the manner in which special
meetings of stockholders may be called.
ADJOURNMENT OF STOCKHOLDER MEETINGS. Under Delaware Law, if a meeting
of stockholders is adjourned due to lack of a quorum and the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting must be given to each
stockholder of record entitled to vote at the meeting. At the adjourned meeting
the corporation may transact any business which might have been transacted at
the original meeting. Under Nevada Law, a corporation is not required to give
any notice of an adjourned meeting or of the business to be transacted at an
adjourned meeting, other than by announcement at the meeting at which the
adjournment is taken, unless the board fixes a new record date for the adjourned
meeting.
DURATION OF PROXIES. Under Delaware Law, a proxy executed by a
stockholder will remain valid for a period of three years, unless the proxy
provides for a longer period. Under Nevada Law, a proxy is effective only for a
period of six months, unless it is coupled with an interest or unless otherwise
provided in the proxy, which duration may not exceed seven years.
STOCKHOLDER VOTE FOR MERGERS AND OTHER CORPORATION REORGANIZATIONS. In
general, both jurisdictions require authorization by an absolute majority of
outstanding shares entitled to vote, as well as approval by the board of
directors, with respect to the terms of a merger or a sale of substantially all
of the assets of the corporation. Delaware Law does not require a stockholder
vote of the surviving corporation in a merger (unless the corporation provides
otherwise in its certificate of incorporation) if: (a) the plan of merger does
not amend the existing certificate of incorporation; (b) each share of stock of
the surviving corporation outstanding immediately before the effective date of
the merger is an identical outstanding share after the merger; and (c) either no
26
shares of common stock of the surviving corporation and no shares, securities or
obligations convertible into such stock are to be issued or delivered under the
plan of merger, or the authorized unissued shares or shares of common stock of
the surviving corporation to be issued or delivered under the plan of merger
plus those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of such constituent corporation outstanding immediately
prior to the effective date of the merger. Nevada Law does not require a
stockholder vote of the surviving corporation in a merger under substantially
similar circumstances.
CUMULATIVE VOTING. Cumulative voting for directors entitles
stockholders to cast a number of votes that is equal to the number of voting
shares held multiplied by the number of directors to be elected. Stockholders
may cast all such votes either for one nominee or distribute such votes among up
to as many candidates as there are positions to be filled. Cumulative voting may
enable a minority stockholder or group of stockholders to elect at least one
representative to the board of directors where such stockholders would not
otherwise be able to elect any directors. Nevada Law permits cumulative voting
in the election of directors as long as the articles of incorporation provide
for cumulative voting and certain procedures for the exercise of cumulative
voting are followed. A Delaware corporation may provide for cumulative voting in
the corporation's certificate of incorporation. Genius-Nevada opted out of
cumulative voting by failing to include a provision granting cumulative voting
rights in the Genius-Nevada Articles of Incorporation. Genius-Delaware will not
adopt cumulative voting in that the Delaware Certificate will not provide for
cumulative voting in the election of directors. Because neither Genius-Nevada
nor Genius-Delaware utilize cumulative voting, there will be no difference in
stockholders' rights with respect to this issue.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS. Nevada Law and Delaware Law
each provide that, unless the articles/certificate of incorporation provides
otherwise, any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting if the holders of outstanding stock
having at least the minimum number of votes that would be necessary to authorize
or take such action at a meeting consents to the action in writing. In addition,
Delaware Law requires the corporation to give prompt notice of the taking of
corporate action without a meeting by less than unanimous written consent to
those stockholders who did not consent in writing.
AMENDMENT TO ARTICLES OF INCORPORATION/CERTIFICATE OF INCORPORATION. In
general, both Delaware Law and Nevada Law require the approval of the holders of
a majority of all outstanding shares entitled to vote to approve proposed
amendments to a corporation's certificate/articles of incorporation. Both
Delaware Law and Nevada Law also provide that in addition to the vote above, the
vote of a majority of the outstanding shares of a class may be required to amend
the certificate of incorporation or articles of incorporation. Neither State
requires stockholder approval for the board of directors of a corporation to fix
the voting powers, designation, preferences, limitations, restrictions and
rights of a class of stock provided that the corporation's organizational
documents grant such power to its board of directors. Both Nevada Law and
Delaware Law permit, in general, the number of authorized shares of any such
class of stock to be increased or decreased (but not below the number of shares
then outstanding) by the board of directors unless otherwise provided in the
articles of incorporation or resolution adopted pursuant to the certificate of
incorporation, respectively.
AMENDMENTS TO BYLAWS. Under Delaware Law, bylaws may be adopted,
amended or repealed by the stockholders entitled to vote thereon. A corporation
may, in its certificate of incorporation, confer this power upon the directors,
although the power vested in the stockholders is not divested or limited where
the board of directors also has such power. The Genius-Delaware Certificate of
Incorporation provides that the directors have the power to adopt, amend or
repeal the Genius-Delaware Bylaws. Nevada Law provides that the board of
directors of a corporation may make the bylaws, but that such bylaws are subject
to those adopted by the stockholders, if any. Further, although not part of
Nevada Law, an opinion of the Nevada Attorney General also provides that
directors may adopt bylaws for a corporation if the stockholders do not.
Stockholders nevertheless retain the right to adopt bylaws superseding those
adopted by the board of directors. The Genius-Nevada Bylaws provide that both
the stockholders and the board of directors may adopt, amend or repeal bylaws,
unless the stockholders in adopting, amending or repealing a particular bylaw
expressly provide that the board of directors may not amend or repeal that
bylaw.
STOCKHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS. Delaware Law
provides that any stockholder of record may, in a written demand made under
oath, demand to examine a corporation's books and records for a proper purpose
reasonably related to such person's interest as a stockholder. If management of
27
the corporation refuses, the stockholder can compel an examination by court
order. Nevada Law permits any person who has been a stockholder of record for at
least six months, or any person holding at least 5% of all outstanding shares,
to inspect and copy the stockholders' list, articles or bylaws, if the
stockholder gives at least five business days' prior written notice. The
corporation may deny inspection if the stockholder refuses to furnish an
affidavit that the inspection is not desired for a purpose or object other than
the business of the corporation and that he or she has not at any time offered
for sale or sold any stockholders' lists of any corporation or aided and abetted
any person in procuring a list for that purpose. In addition, a Nevada
corporation must allow stockholders who own or represent at least 15% of the
corporation's outstanding shares the right, upon at least five days' written
demand, to inspect the books of account and financial records of the
corporation, to make copies from them and to conduct an audit of those records,
except that any corporation listed and traded on any recognized stock exchange
or any corporation that furnishes to its stockholders a detailed, annual
financial statement is exempt from this requirement.
CLASSIFIED BOARD OF DIRECTORS. Both Delaware Law and Nevada Law permit
a corporation to classify its board of directors into as many as three classes
as equally as possible with staggered terms of office. After initial
implementation of a classified board, one class will be elected at each annual
meeting of the stockholders to serve for a term of one, two or three years
(depending upon the number of classes into which directors are classified) or
until their successors are elected and take office. Because neither
Genius-Nevada nor Genius-Delaware utilize a classified board, there will be no
difference with respect to this issue.
REMOVAL OF DIRECTORS. With respect to removal of directors, under the
Nevada Law, any one or all of the directors of a corporation may be removed by
the holders of not less than two-thirds of the voting power of a corporation's
issued and outstanding stock. Nevada does not distinguish between removal of
directors with and without cause. Under the Delaware Law, directors of a
corporation without a classified board may be removed with or without cause, by
the holders of a majority of shares then entitled to vote in an election of
directors.
RESTRICTION OF MAXIMUM NUMBER OF DIRECTORS. Delaware Law requires that
the board of directors of a corporation consist of one or more members and that
the number of directors be set by the corporation's bylaws, unless it is set by
the corporation's certificate of incorporation. The Delaware Bylaws provide that
the number of directors will be determined from time to time by the board of
directors, but the number of directors may not be less than one or more than
seven. The power to determine the number of directors within these numerical
limitations and the power to fill vacancies, whether occurring by reason of an
increase in the number of directors or by resignation or removal, is vested in
the board of directors. The overall effect of such provisions may be to prevent
a person or entity from quickly acquiring control of Genius-Delaware, for
example, through an increase in the number of the directors and election of
nominees to fill the newly created vacancies, and thus makes it more likely that
existing management will continue in office.
VACANCIES. Under Delaware Law, subject to the rights, if any, of any
series of preferred stock to elect directors and to fill vacancies on the board
of directors, vacancies on the board of directors may be filled by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum. Any director so appointed will hold office for the
remainder of the full term of the class of directors in which the vacancy
occurred. Similarly, Nevada Law provides that vacancies may be filled by a
majority of the remaining directors, though less than a quorum, unless the
articles of incorporation provide otherwise. Genius-Nevada Bylaws and the
Genius-Delaware Bylaws will address the issue of director vacancies in the same
manner. Therefore, the change from Nevada Law to Delaware Law will not alter
stockholders' rights with respect to filling vacancies.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES.
Delaware and Nevada have substantially similar provisions regarding
indemnification by a corporation of its officers, directors, employees and
agents. Delaware and Nevada Law do differ in their provisions for advancement of
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding. Delaware Law provides that expenses incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined that he or she is not entitled to be indemnified
by the corporation. A Delaware corporation has the discretion to decide whether
or not to advance expenses, unless its certificate of incorporation or bylaws
provides for mandatory advancement. Under Nevada Law, the articles of
28
incorporation, bylaws or an agreement made by the corporation may provide that
the corporation must pay advancements of expenses in advance of the final
disposition of the action, suit or proceedings upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined that he or she is not entitled to be indemnified by the corporation.
Thus, a Nevada corporation may have no discretion to decide whether or not to
advance expenses to directors or officers.
There will be no difference in stockholders' rights with respect to
this issue because the Genius-Nevada and Genius-Delaware will address the issue
in the same manner by providing for the mandatory advancement of expenses of
directors and officers. In addition, the board of directors of Genius-Delaware
will be required to indemnify directors and officers. The board of directors of
Genius-Delaware will retain the discretionary authority to authorize the
indemnification of employees and agents, subject to certain conditions under the
Delaware Law.
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS. A Delaware corporation
is permitted to adopt provisions in its certificate of incorporation limiting or
eliminating the liability of a director to a company and its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
liability does not arise from certain proscribed conduct, including breach of
the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or liability to the
corporation based on unlawful dividends or distributions or improper personal
benefit. The Delaware Certificate will limit the liability of directors to
Genius-Delaware to the fullest extent permitted by law. While Nevada Law has a
similar provision permitting the adoption of provisions in the articles of
incorporation limiting personal liability, the Nevada provision differs in two
respects.
First, the Nevada provisions apply to both directors and officers.
Second, while the Delaware provision excepts from limitation on liability of
breach of the duty of loyalty, the Nevada counterpart does not contain this
exception. Thus, the Nevada provision expressly permits a corporation to limit
the liability of officers, as well as directors, and permits limitation of
liability arising from a breach of the duty of loyalty. The Genius-Nevada
Articles limits the personal liability to Genius-Nevada of both directors and
officers. The Delaware Certificate will adopt a narrower limitation on
liability, and officers will therefore remain potentially liable to
Genius-Delaware. Genius-Delaware, however, may determine to indemnify such
persons in its discretion subject to the conditions of the Delaware Law and the
Delaware Certificate.
FIDUCIARY DUTIES OF DIRECTORS. Both Delaware and Nevada Law provide
that the board of directors has the ultimate responsibility for managing the
business and affairs of a corporation. In discharging this function, directors
of Nevada and Delaware corporations owe fiduciary duties of care and loyalty to
the corporations they serve and the stockholders of those corporations.
With respect to fiduciary duties, Nevada Law may provide broader
discretion, and increased protection from liability, to directors in exercising
their fiduciary duties, particularly in the context of a change in control.
Delaware courts have held that the directors of a Delaware corporation are
required to exercise an informed business judgment in performing their duties.
An informed business judgment means that the directors have informed themselves
of all material information reasonably available to them. Delaware courts have
also imposed a heightened standard of conduct on directors in matters involving
a contest for control of the corporation. A director of a Nevada business
corporation must perform his or her duties as a director in good faith and with
a view to the interests of the corporation.
A director of a Delaware corporation, in performing his or her duties,
is protected in relying, in good faith, upon the records of the corporation and
upon such information, opinions, reports or statements presented to the
corporation by any of the corporation's officers or employees, by a committee of
the board of directors or by any other person as to matters the director
reasonably believes are within such other person's professional or expert
competence. Such other person must also have been selected with reasonable care
by or on behalf of the corporation. In performing his or her duties, a director
of a Nevada business corporation is entitled to rely, in good faith, on
information, opinions, reports, books of account or statements (including
financial statements and other financial data) prepared or presented by any of
the corporation's directors, officers or employees so long as the director
reasonably believes such persons to be reliable and competent in such matters;
counsel, public accountants, financial advisors, valuation advisors, investment
bankers or other persons as to matters which the director reasonably believes to
be within the professional or expert competence of such persons; and a duly
designated committee of the board which the director reasonably believes merits
confidence and upon which the director does not serve, but only as to matters
within the committee's designated authority. A director of a Nevada corporation
is not considered to be acting in good faith if the director has knowledge
concerning the matter in question which would cause such reliance to be
unwarranted.
29
Delaware Law does not contain any statutory provision permitting the
board of directors, committees of the board and individual directors, when
discharging their duties, to consider the interests of any constituencies other
than the corporation or its stockholders. Nevada Law, on the other hand,
provides that in discharging their duties, the board of directors, committees of
the board and individual directors may, in exercising their respective powers
with a view to the interests of the corporation, choose, to the extent they deem
appropriate, to subordinate the interests of stockholders to the interests of
employees, suppliers, customers or creditors of the corporation or to the
interests of the communities served by the corporation. Furthermore, the
officers and directors may consider the long-term and short-term interests of
the corporation and its stockholders.
Under Delaware Law, directors of a Delaware corporation are presumed to
have acted on an informed basis, in good faith and in the honest belief that
their actions were in the best interest of the corporation. This presumption may
be overcome, if a preponderance of the evidence shows that the directors'
decision involved a breach of fiduciary duty such as fraud, overreaching, lack
of good faith, failure of the board to inform itself properly or actions by the
board to entrench itself in office. Delaware courts have imposed a heightened
standard of conduct upon directors of a Delaware corporation who take any action
designed to defeat a threatened change in control of the corporation. The
heightened standard has two elements: the board must demonstrate some basis for
concluding that a proper corporate purpose is served by implementation of any
defensive measure and that measure must be reasonable in relation to the
perceived threat posed by the change in control. Under Nevada Law, unless there
is a breach of fiduciary duty or a lack of good faith, any act of the board of
directors, any committee of the board or any individual director is presumed to
be in the corporation's best interest. No higher burden of proof or greater
obligation to justify applies to any act relating to or affecting an acquisition
or a potential or proposed acquisition of control of the corporation than to any
other action. Nevada Law imposes a heightened standard of conduct upon directors
who take action to resist a change or potential change in control of a
corporation, if such action impedes the exercise of the stockholders' right to
vote for or remove directors.
ANTI-TAKEOVER LAWS. Section 203 of the Delaware General Corporation Law
contains certain "anti-takeover" provisions that apply to a Delaware
corporation, unless the corporation elects not to be governed by such provisions
in its certificate of incorporation or bylaws. Genius-Delaware has not elected
to opt out of the provisions of Section 203. Section 203 prohibits a corporation
from engaging in any "business combination" with any person that owns 15% or
more of its outstanding voting stock for a period of three years following the
time that such stockholder obtained ownership of more than 15% of the
outstanding voting stock of the corporation. A business combination includes any
merger, consolidation or sale of substantially all of a corporation's assets.
The three-year waiting period does not apply, however, if any of the following
conditions are met:
o the board of directors of the corporation approved either the
business combination or the transaction which resulted in such stockholder
owning more than 15% of such stock before the stockholder obtained such
ownership;
o after the transaction which resulted in the stockholder owning more
than 15% of the outstanding voting stock of the corporation is completed, such
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time that the transaction commenced; or
o at or after the time the stockholder obtains more than 15% of the
outstanding voting stock of the corporation, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders (and not by written consent) by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
acquiring stockholder.
In addition, Section 203 does not apply to any person who became the
owner of more than 15% of a corporation's stock if it was as a result of action
taken solely by the corporation.
Nevada Law contains certain "anti-takeover" provisions that apply to a
Nevada corporation, unless the corporation elects not to be governed by such
provisions in its articles of incorporation or bylaws. Genius-Nevada did not
elect to opt out of any of these provisions. Nevada Law prohibits a corporation
30
from engaging in any "business combination" with any person that owns 10% or
more of its outstanding voting stock for a period of three years following the
time that such stockholder obtained ownership of more than 10% of the
outstanding voting stock of the corporation. A business combination includes any
merger, consolidation, or sale of substantially all of a corporation's assets.
The three-year waiting period does not apply, however, if the board of directors
of the corporation approved either the business combination or the transaction
which resulted in such stockholder owning more than 10% of such stock before the
stockholder obtained such ownership.
Furthermore, a corporation may not engage in any business combination
with an interested stockholder after the expiration of three years from the date
that such stockholder obtained such ownership unless the combination meets all
of the requirements of the corporation's articles of incorporation, and:
o is approved by the affirmative vote of the holders of stock
representing a majority of the outstanding voting power not beneficially owned
by the interested stockholder proposing the combination at a meeting called for
that purpose no earlier than three years after the interested stockholder's date
of acquiring shares; or
o the form and amount of consideration to be received by stockholders
(excluding the interested stockholder) of the corporation satisfy certain tests
and, with limited exceptions, the interested stockholder has not become the
beneficial owner of additional voting shares of the corporation after becoming
an interested stockholder and before the business combination is consummated.
In addition, the Nevada Law suspends the voting rights of the "control
shares" of a stockholder that acquires 20% or more of a corporation's shares
entitled to be voted in an election of directors. The voting rights of the
control shares generally remain suspended until such time as the "disinterested"
stockholders of the company vote to restore the voting power of the acquiring
stockholder.
If full voting rights are accorded to the shares held by the acquiring
person and the acquiring person has acquired shares amounting to or greater than
a majority of all voting power, any stockholder of record, other than the
acquiring person, who did not vote in favor of granting voting power to the
shares held by the acquiring person may demand payment for the fair value of
such stockholder's shares. Within 20 days of the vote according the shares of
the acquiring person voting rights, the corporation is required to send notice
to any stockholders who did not vote in favor of such action notifying them of
their right to demand payment for their shares. Within 20 days of receipt of
such notice, a stockholder seeking payment must demand payment for such
stockholder's shares. The corporation must comply within 30 days.
CONSIDERATION FOR STOCK. Under Nevada Law, a corporation may issue its
capital stock only in return for certain tangible or intangible property or
benefit to the corporation, including, but not limited to, cash, promissory
notes, services performed, promises to perform services evidenced by a written
contract, or other securities of the corporation. Shares may be issued for less
than par value under Nevada Law. Under Nevada Law, a corporation may accept as
consideration for its stock any amount of tangible or intangible property
authorized by the board of directors, including but not limited to cash,
promissory notes, services performed, contracts for services to be performed or
other securities of a corporation. Under Delaware Law, a corporation must
receive as consideration for its stock cash, real or personal property, leases
of real property or past services, or a combination of the foregoing, in an
amount not less than the par value of the shares being issued. The balance of
the purchase price, if any, may be paid in such consideration or in the form of
a binding obligation of the subscriber.
DIVIDENDS. Delaware Law is more restrictive than Nevada Law with
respect to when dividends may be paid. Under Delaware Law, unless further
restricted in the certificate of incorporation, a corporation may declare and
pay dividends, out of surplus, or if no surplus exists, out of net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year (provided that the amount of capital of the corporation is not less than
the aggregate amount of the capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets). In
addition, Delaware Law provides that a corporation may redeem or repurchase
its shares only if the capital of the corporation is not impaired and such
redemption or repurchase would not impair the capital of the corporation. Nevada
Law provides that no distribution (including dividends on, or redemption or
repurchases of, shares of capital stock) may be made if, after giving effect to
such distribution, the corporation would not be able to pay its debts as they
become due in the usual course of business, or, except as specifically permitted
by the articles of incorporation, the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed at
the time of a dissolution to satisfy the preferential rights of preferred
stockholders.
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EFFECT OF THE REINCORPORATION
The Reincorporation will not have any effect on the transferability of
outstanding stock certificates. The Reincorporation will be reflected by our
transfer agent in book-entry. For those stockholders that hold physical
certificates, please do not destroy or send us your stock certificates, as those
stock certificates should be carefully preserved by you.
If a quorum is present at the Annual Meeting, approval of the
Reincorporation requires the affirmative vote of a majority of the votes cast at
the Annual Meeting. Abstentions and broker non-votes will each be counted as
present for purposes of determining a quorum, but will not be counted as having
been voted on the proposal.
DIFFERENCES IN FRANCHISE TAXES. Nevada does not have a corporate
franchise tax, and we will not pay annual franchise taxes to Nevada for the
fiscal year ended December 31, 2003. After the merger contemplated by the
Reincorporation is accomplished, we will pay annual franchise taxes to Delaware.
The Delaware franchise tax is based on a formula involving the number of
authorized shares or the asset value of the corporation, whichever would impose
a lesser tax. The Delaware franchise tax imposed on Genius-Delaware will be
calculated under the "assumed par value capital method". Under this method,
generally, the franchise tax is a corporation's assumed par value divided by
1,000,000 and then multiplied by $250. The assumed par value is generally
determined by dividing a corporation's total gross assets by its total issued
shares, and then multiplied by the number of authorized shares. For fiscal 2004,
we will pay a pro rata share of Delaware franchise taxes if the Reincorporation
is approved, based upon the date upon which the merger is completed.
DISSENTERS' RIGHTS OF APPRAISAL
Under Nevada Law, a stockholder is entitled to dissent from, and obtain
cash payment for the fair value of his or her shares (i) in the event of
consummation of a plan of merger or plan of exchange in which the Nevada
corporation is a constituent entity, and (ii) any corporate action taken
pursuant to a vote of the stockholders to the extent that the articles of
incorporation, by-laws or a resolution of the board of directors provides that
voting or non-voting stockholders are entitled to dissent and obtain payment for
their shares.
You do have the right to dissent from the Reincorporation and obtain
cash payment for the "fair value" of your shares, as determined in accordance
with the Nevada Revised Statutes ("NRS"), the current codified laws of the State
of Nevada. Below is a description of the steps you must take if you wish to
exercise dissenters' rights with respect to the Reincorporation under NRS
Sections 92A.300 to 92A.500, the Nevada dissenters' rights statute. The text of
the statute is set forth in Appendix F. This description is not intended to be
complete. If you are considering exercising your dissenters' rights with respect
to the Reincorporation, you should review NRS Sections 92A.300 to 92A.500
carefully, particularly the steps required to perfect dissenters' rights.
Failure to take any one of the required steps may result in termination of your
dissenters' rights under Nevada Law. If you are considering dissenting, you
should consult with your own legal advisor.
To exercise your right to dissent, you must:
o before the effective date of the Reincorporation, deliver written
notice to Genius Products, Inc., 740 Lomas Santa Fe, Suite 210,
Solana Beach, California 92075, Attention: Secretary, stating that
you intend to demand payment for your shares if the Reincorporation
is completed; and
o not vote your shares in favor of the Reincorporation, either by proxy
or in person.
Failure to vote against the Reincorporation will not constitute a
waiver of dissenters' rights. A vote against is not deemed to satisfy the
written notice requirement.
If you satisfy those conditions, we will send you a written dissenter's
notice within 10 days after the Reincorporation is effective. This dissenter's
notice will:
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o specify where you should send your payment demand and where and when
you must deposit your stock certificates, if any;
o inform holders of uncertificated shares to what extent the transfer
of their shares will be restricted after their payment demand is
received;
o supply a form of payment demand that includes the date the
Reincorporation was first publicly announced and the date by which
you must have acquired beneficial ownership of your shares in order
to dissent;
o set a date by when we must receive the payment demand, which may not
be less than 30 or more than 60 days after the date the dissenters'
notice is delivered; and
o provide you a copy of Nevada's dissenters' rights statute.
After you have received a dissenter's notice, if you still wish to
exercise your dissenters' rights, you must:
o demand payment either through the delivery of the payment demand form
to be provided or other comparable means;
o certify whether you have acquired beneficial ownership of the shares
before the date set forth in the dissenter's notice; and
o deposit your certificates, if any, in accordance with the terms of
the dissenter's notice.
FAILURE TO DEMAND PAYMENT IN THE PROPER FORM OR DEPOSIT YOUR
CERTIFICATES AS DESCRIBED IN THE DISSENTER'S NOTICE WILL TERMINATE YOUR RIGHT TO
RECEIVE PAYMENT FOR YOUR SHARES PURSUANT TO NEVADA'S DISSENTERS' RIGHTS STATUTE.
YOUR RIGHTS AS A STOCKHOLDER WILL CONTINUE UNTIL THOSE RIGHTS ARE CANCELED OR
MODIFIED BY THE COMPLETION OF THE REINCORPORATION.
Within 30 days after receiving your properly executed payment demand,
we will pay you what we determine to be the fair value of your shares, plus
accrued interest (computed from the effective date of the Reincorporation until
the date of payment). The payment will be accompanied by:
o our balance sheet as of the end of a fiscal year ended not more than
16 months before the date of payment, an income statement for that
year, a statement of changes in stockholders' equity for that year,
and the latest available interim financial statements, if any;
o an explanation of how we estimated the fair value of the shares and
how the interest was calculated;
o information regarding your right to challenge the estimated fair
value; and
o a copy of Nevada's dissenters' rights statute.
We may elect to withhold payment from you if you became the beneficial
owner of the shares on or after the date set forth in the dissenter's notice.
if we withhold payment, after the consummation of the Reincorporation, we will
estimate the fair value of the shares, plus accrued interest, and offer to
pay this amount to you in full satisfaction of your demand. The offer will
contain a statement of our estimate of the fair value, an explanation of how the
interest was calculated, and a statement of dissenters' rights to demand payment
under NRS Section 92A.480.
If you believe that the amount we pay in exchange for your dissenting
shares is less than the fair value of your shares or that the interest is not
correctly determined, you can demand payment of the difference between your and
our estimate. You must make such demand within 30 days after we have made or
offered payment; otherwise, your right to challenge calculation of fair value
terminates.
If there is still disagreement about the fair market value within 60
days after we receive your demand, we will petition the District Court of Clark
County, Nevada to determine the fair value of the shares and the accrued
interest. If we do not commence such legal action within the 60-day period, we
will have to pay the amount demanded for all unsettled demands. All dissenters
whose demands remain unsettled will be made parties to the proceeding, and are
entitled to a judgment for either:
o the amount of the fair value of the shares, plus interest, in excess
of the amount we paid; or
o the fair value, plus accrued interest, of the after-acquired shares
for which we withheld payment.
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Genius will pay the costs and expenses of the court proceeding, unless
the court finds the dissenters acted arbitrarily, vexatiously or in bad faith,
in which case the costs will be equitably distributed. Attorney fees will be
divided as the court considers equitable.
FAILURE TO FOLLOW THE STEPS REQUIRED BY NRS SECTIONS 92A.400 THROUGH
92A.480 FOR PERFECTING DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
IF DISSENTERS' RIGHTS ARE NOT PERFECTED, YOU WILL BE ENTITLED TO RECEIVE THE
CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH SHARES IN ACCORDANCE WITH THE
PLAN OF MERGER. IN VIEW OF THE COMPLEXITY OF THE PROVISIONS OF NEVADA'S
DISSENTERS' RIGHTS STATUTE, IF YOU ARE CONSIDERING OBJECTING TO THE
REINCORPORATION YOU SHOULD CONSULT YOUR OWN LEGAL ADVISOR.
The board of directors has unanimously approved and recommends that the
stockholders authorize the reincorporation of Genius Products, Inc., from the
State of Nevada to the State of Delaware.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 3.
THE EFFECT OF AN ABSTENTION IS THE SAME AS
THAT OF A VOTE AGAINST THIS PROPOSAL.
PROPOSAL 4
AUTHORIZATION OF ADDITIONAL SHARES OF COMMON STOCK
BACKGROUND
Our board of directors has adopted, subject to stockholder approval, an
amendment to our Articles of Incorporation to increase the authorized number of
shares of common stock from 50,000,000 shares to 100,000,000 and directed that
this amendment be considered by the stockholders at the Annual Meeting of
Stockholders. Our Articles of Incorporation currently authorize us to issue
50,000,000 shares of common stock, $0.001 par value per share. The Articles of
Incorporation also authorize us to issue 10,000,000 shares of preferred stock,
but the proposed amendment would not affect this authorization. If both the
Reincorporation described under Proposal 3 and this Proposal 4 are approved at
the Annual Meeting of Stockholders, the increase in the authorized number of
shares of common stock will be reflected solely in the Certificate of
Incorporation of Genius-Delaware, so that following the Reincorporation the
Certificate of Incorporation of Genius-Delaware will have authorized 100,000,000
shares of common stock, which will become available for issuance following the
Reincorporation. If the Reincorporation is not effected, the increase in
authorized shares of common stock will be reflected in the Genius-Nevada
Articles of Incorporation.
PURPOSE AND EFFECT OF THE PROPOSED AMENDMENT
As of the record date, we had ______________ shares of common stock
issued and outstanding, 5,099 shares reserved for issuance to consultants under
a Form S-8 Registration Statement, 12,167,943 shares of common stock reserved
for issuance upon the exercise of outstanding stock options (including options
issued under the 2004 Stock Incentive Plan) and 11,075,255 shares of common
stock reserved for issuance upon the exercise of outstanding warrants. An
additional 2,046,920 shares of common stock will be reserved as stock underlying
options issuable under the 2004 Stock Incentive Plan. Common stock may be issued
if we decide to acquire Falcon Picture Group, LLC ("Falcon"), under the terms of
the License Agreement we entered into with Falcon on September 8, 2003. If we
are in default on the payoff of the secured promissory notes that are due on
December 31, 2004, the lenders have the option to convert the principal loan
balance plus any accrued interest to our common stock at the lower of $1.00 per
share or 60% of the bid price on December 31, 2004. The principal balance of
these secured notes due on December 31, 2004, is approximately $855,000.
Our board of directors believes that it is desirable to increase the
number of authorized shares of common stock in order to ensure that there is a
sufficient number available to provide our company with adequate flexibility to
issue common stock for proper corporate purposes that may be identified in the
future. The additional shares could be used, among other things, for the
34
declaration of stock splits or stock dividends, for acquisitions of other
companies, for public or private financings to raise additional capital, for the
expansion of business operations, the issuance of stock under options granted or
to be granted under various stock incentive plans or other benefit plans for our
employees and non-employee directors, and the issuance of stock under warrants
granted or to be granted in the future. There are currently no commitments or
agreements for the issuance of additional shares of common stock, except as
described above.
If the proposed amendment is adopted, the newly authorized shares would
be unreserved and available for issuance without further stockholder action,
except as required by applicable laws and regulations. All of the additional
shares resulting from the proposed increase in our authorized common stock would
be of the same class if and when they are issued, and holders would have the
same rights and privileges as holders of shares of common stock presently issued
and outstanding, including the same dividend, voting and liquidation rights.
The holders of our common stock do not have preemptive rights to
subscribe to additional securities that may be issued by our company, which
means that current stockholders do not have a prior right to purchase any
additional shares in connection with a new issuance of capital stock of our
company in order to maintain their proportionate ownership of our common stock.
Accordingly, if our board of directors elects to issue additional shares of
common stock, such issuance could have a dilutive effect on the earnings per
share, voting power and equity ownership of current stockholders.
The proposed increase in the authorized number of shares of common
stock could have an anti-takeover effect. The availability for issuance of
additional shares of common stock could discourage, or make more difficult,
efforts to obtain control of our company because such shares could be issued to
dilute the voting power of a person seeking control. For example, it may be
possible for our board of directors to delay or impede a merger, tender offer,
or proxy contest that it determines is not in the best interests of our company
and stockholders by causing such additional authorized shares to be issued to
holders who might side with the board in opposing such a takeover or change in
control. By potentially discouraging unsolicited takeover attempts, the proposed
amendment may limit the opportunity for our stockholders to dispose of their
shares at the higher price generally available in takeover attempts or under a
merger proposal and may also have the effect of permitting our current
management, including the current board of directors, to retain its position and
resist changes that stockholders may wish to make if they are dissatisfied with
the conduct of our business.
It should be noted that the issuance of additional shares of common
stock could have a detrimental effect upon existing holders of our common stock
since such issuance may, among other things, have a dilutive effect on the
earnings per share of common stock and the voting rights of holders of the
common stock. Although authorization of additional shares of common stock is
recommended by the board of directors for the reasons stated herein, and not
because of any possible anti-takeover effect, such additional authorization of
shares of common stock could be used by incumbent management to make more
difficult, and thereby discourage, an attempt to acquire control of the Company,
even though our stockholders may deem such an acquisition desirable. For
example, the shares could be privately placed with purchasers who might support
the board of directors in opposing a hostile takeover bid. The issuance of new
shares could also be used to dilute the stock ownership and voting power of a
third party seeking to remove the directors, replace incumbent directors,
accomplish certain business combinations or alter, amend or repeal portions of
our Articles of Incorporation.
REQUIRED VOTE
Under Nevada Law and Delaware Law, an amendment of the charter document
to effectuate a change in the number of shares of the authorized capital stock
of a corporation requires the approval of a majority of all shares of common
stock outstanding on the record date.
The board of directors has unanimously approved and recommends that the
stockholders approve the increase to 100,000,000 authorized shares of common
stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL 4.
35
STOCKHOLDER PROPOSALS
Proposals that are intended to be presented by a stockholder at our
2005 Annual Meeting of Stockholders and included in our proxy materials must be
received at our principal offices in Solana Beach, California no later than June
__, 2005 for inclusion in the proxy materials for that meeting (unless the date
of our 2005 Annual Meeting has been changed by more than 30 days from the date
of this year's meeting, in which case the deadline is a reasonable time before
we mail our proxy materials), and must meet all of the other requirements of
Rule 14a-8 of the Commission. If a stockholder intends to present a proposal at
our 2005 Annual Meeting of Stockholders but will not seek the inclusion of such
proposal in our proxy materials, then the proposal must be received by us
(assuming our reincorporation in Delaware) between July __, 2005 and August __,
2005, unless the date of our 2005 Annual Meeting has been changed by more than
30 days from the date of this year's meeting, in which case the deadline is the
date we mail our proxy materials for the 2005 Annual Meeting. If the board of
directors decides to present a proposal despite its untimeliness, the people
named in the proxies solicited by the board of directors for the 2005 Annual
Meeting of Stockholders will have the right to exercise discretionary voting
power with respect to such proposal.
We plan to notify stockholders of the proposed meeting date so as to
permit them to timely submit their proposals if the 2005 Annual Meeting of
Stockholders is scheduled to occur earlier than October of 2005.
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-KSB AND QUARTERLY REPORT ON FROM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2004
We are required to file an annual report on Form 10-KSB and quarterly
reports on Form 10-QSB with the Commission. A copy of Form 10-KSB for the fiscal
year ended December 31, 2003 and the Form 10-QSB for the quarter ended June 30,
2004 is being mailed to stockholders along with this Proxy Statement. These
documents shall be deemed to be incorporated by reference herein and a part
hereof but should not be considered part of the soliciting material.
OTHER MATTERS
The directors of the Company know of no other matters to be brought
before the meeting. If any other matters properly come before the meeting,
including any adjournment or adjournments thereof, it is intended that proxies
received in response to this solicitation will be voted on such matters in the
discretion of the person or persons named in the accompanying proxy form.
By Order of the Board of Directors
/S/ KLAUS MOELLER
--------------------------------------
Solana Beach, California Klaus Moeller
October __, 2004 Chairman of the Board and Chief
Executive Officer
PROXY - GENIUS PRODUCTS, INC.
ANNUAL MEETING OF STOCKHOLDERS - OCTOBER 25, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Klaus Moeller and Michael Meader, or
either one of them, with full power of substitution and resubstitution, as proxy
or proxies of the undersigned to attend the Annual Meeting of Stockholders of
Genius Products, Inc. (the "Company") to be held on October 25, 2004 at 8:00
a.m. local time, at the Del Mar Hilton Hotel, 15575 Jimmy Durante Boulevard, Del
Mar, California, and at any adjournment thereof, there to vote all shares of
common stock which the undersigned would be entitled to vote if personally
present as specified upon the following matters and in their discretion upon
such other matters as may properly come before the meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and accompanying Proxy Statement, ratifies all that said
proxies or their substitutes may lawfully do by virtue hereof, and revokes all
former proxies.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. Stockholders who are present at the
meeting may withdraw their proxy and vote in person if they so desire.
Please sign exactly as your name appears hereon, date and return this
Proxy. When shares are held by joint tenants, both should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: ______________________________, 2004
___________________________________________
Signature
___________________________________________
Signature, if held jointly
___________________________________________
Printed Name(s)
I (We) [ ] will [ ] will not attend the
Annual Meeting in person.
If your address has changed, please provide your correct address in the space
above.
NO POSTAGE IS REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND
MAILED IN THE UNITED STATES.
SEE REVERSE FOR VOTING INSTRUCTIONS.
GENIUS PRODUCTS, INC.
2004 ANNUAL MEETING
1. ELECTION OF DIRECTORS. To elect the following five (5) persons to our
Board of Directors to serve until the 2005 Annual Meeting of
Stockholders and until their successors are elected and have qualified:
ALEXANDER L. CAPPELLO KLAUS MOELLER MICHAEL J. KOSS
CHARLES H. RIVKIN PETER H. SCHLESSEL
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] WITHHOLD AUTHORITY TO VOTE
(EXCEPT AS MARKED TO THE FOR ALL NOMINEES LISTED
CONTRARY) ABOVE
A STOCKHOLDER MAY WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEES BY
DRAWING A LINE THROUGH OR OTHERWISE STRIKING OUT THE NAME OF SUCH
NOMINEE.
IF NO SPECIFICATION IS MADE, THE VOTES REPRESENTED BY THIS PROXY WILL
BE CAST FOR THE ELECTION OF THE NOMINEES LISTED ABOVE. THIS PROXY VESTS
DISCRETIONARY AUTHORITY TO CUMULATE VOTES FOR DIRECTORS.
2. APPROVAL OF THE ADOPTION OF OUR 2004 STOCK INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
UNLESS OTHERWISE SPECIFIED, THE VOTES REPRESENTED BY THIS PROXY WILL BE
CAST FOR APPROVAL OF THE ABOVE PROPOSAL.
3. APPROVAL OF THE REINCORPORATION OF GENIUS PRODUCTS, INC., FROM THE
STATE OF NEVADA TO THE STATE OF DELAWARE.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
UNLESS OTHERWISE SPECIFIED, THE VOTES REPRESENTED BY THIS PROXY WILL BE
CAST FOR APPROVAL OF THE ABOVE PROPOSAL.
4. APPROVAL OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 50,000,000 TO
100,000,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
UNLESS OTHERWISE SPECIFIED, THE VOTES REPRESENTED BY THIS PROXY WILL BE
CAST FOR APPROVAL OF THE ABOVE PROPOSAL.
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT(S)
THEREOF.
APPENDIX A
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
OF
GENIUS PRODUCTS, INC.
PURPOSES, AUTHORITY & FUNDING
The audit committee (the "COMMITTEE") of the Board of Directors (the
"BOARD") of Genius Products, Inc., a Delaware corporation (the "COMPANY"), is
appointed by the Board for the purpose of overseeing the Company's accounting
and financial reporting processes and the audits of the Company's financial
statements. In so doing, the Committee shall endeavor to maintain free and open
communication between the Company's directors, independent auditor and financial
management.
The Committee shall have the authority to retain independent legal,
accounting or other advisors as it determines necessary to carry out its duties
and, if necessary, to institute special investigations. The Committee may
request any officer or employee of the Company, or the Company's outside counsel
or independent auditor, to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee. Further, the Committee may request
any such officer, employee, outside counsel or independent auditor to provide
any pertinent information to the Committee or to any other person or entity
designated by the Committee.
The Company shall provide the Committee with appropriate funding, as
determined by the Committee in its capacity as a committee of the Board, for the
payments of: (1) compensation to any registered public accounting firm engaged
for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company; (2) compensation to any
independent advisors retained by the Committee in carrying out its duties; and
(3) ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
COMMITTEE MEMBERSHIP
The members of the Committee (the "MEMBERS") shall be appointed by the
Board and shall serve at the discretion of the Board. The Committee shall
consist of at least three (3) Members, each of which shall be a member of the
Board. The following membership requirements shall also apply:
(i) during such time that the Company is subject to the NASD
Marketplace Rules, each Member must be "independent" as defined in NASD
Marketplace Rule 4200(a)(15);
(ii) each Member must meet the criteria for independence set
forth in Rule 10A-3(b)(1) promulgated under the Securities and Exchange
Act of 1934, as amended (the "ACT"), subject to the exemptions provided
in Rule 10A-3(c) under the Act;
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(iii) each Member must not have participated in the
preparation of the financial statements of the Company or any current
subsidiary of the Company at any time during the past three (3) years;
(iv) each Member must be able to read and understand
fundamental financial statements, including the Company's balance
sheet, income statement, and cash flow statement; and
(v) at least one (1) Member must, through appropriate
education and/or experience, satisfy the definition of "audit committee
financial expert" as defined by SEC rules and regulations.
Notwithstanding subparagraph (i) above (to the extent applicable to the
Company), one (1) director who: (a) is not independent as defined in NASD
Marketplace Rule 4200; (b) meets the criteria set forth in Section 10A(m)(3)
under the Act and the rules promulgated thereunder; and (c) is not a current
officer or employee of the Company or Family Member (as defined in NASD
Marketplace Rule 4200(a)(14)) of such an officer or employee, may be appointed
to the Committee if the Board, under exceptional and limited circumstances,
determines that membership on the Committee by the individual is required by the
best interests of the Company and its stockholders, and the Board discloses, in
the Company's next annual proxy statement subsequent to such determination, the
nature of the relationship and the reasons for that determination. During such
time that the Company is subject to the NASD Marketplace Rules, a Member
appointed under the exception set forth in the preceding sentence must not serve
longer than two (2) years and must not serve as chairperson of the Committee.
During such time that the Company is subject to the NASD Marketplace
Rules, if a Member of the Committee ceases to be independent under the
requirements of subparagraphs (i) and (ii) above for reasons outside the
Member's reasonable control, the affected Member may remain on the Committee
until the earlier of the Company's next annual stockholders meeting or one year
from the occurrence of the event that caused the failure to comply with those
requirements; provided, however, that when relying on the exception set forth in
this sentence the Committee shall cause the Company to provide notice to Nasdaq
if required to do so by the NASD Marketplace Rules.
DUTIES & RESPONSIBILITIES
In fulfilling its purposes as stated in this Charter, the Committee
shall undertake the specific duties and responsibilities listed below and such
other duties and responsibilities as the Board shall from time to time
prescribe, and shall have all powers necessary and proper to fulfill all such
duties and responsibilities. Subject to applicable Board and stockholder
approvals, the Committee shall:
FINANCIAL STATEMENT & DISCLOSURE MATTERS
1. Review the policies and procedures adopted by the Company to fulfill
its responsibilities regarding the fair and accurate presentation of
financial statements in accordance with generally accepted accounting
principles and applicable rules and regulations of the SEC and, if
applicable to the Company, the National Association of Securities
Dealers applicable to Nasdaq-listed issuers;
A-2
2. Oversee the Company's accounting and financial reporting processes;
3. Oversee audits of the Company's financial statements;
4. Review major issues regarding accounting principles and financial
statement presentations, including any significant changes in the
Company's selection or application of accounting principles, and major
issues as to the adequacy of the Company's internal controls and any
special audit steps adopted in light of material control deficiencies;
5. Review with the Company's independent auditor, management and internal
auditors any information regarding "second" opinions sought by
management from an independent auditor with respect to the accounting
treatment of a particular event or transaction;
6. Review and discuss reports from the Company's independent auditor
regarding: (a) all critical accounting policies and practices to be
used by the Company; (b) all alternative treatments of financial
information within GAAP that have been discussed with management,
including ramifications of the use of such alternative disclosures and
treatments and the treatment preferred by the independent auditor; and
(c) other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences;
7. Review all certifications provided by the Company's principal executive
officer and principal financial officer pursuant to Sections 302 and
906 of the Sarbanes-Oxley Act;
8. Review with management and the Company's independent auditor the
Company's financial statements (including disclosures made under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations") prior to the filing with the SEC of any report
containing such financial statements;
9. If deemed appropriate, recommend to the Board that the Company's
audited financial statements be included in its annual report on Form
10-K for the last fiscal year;
10. Review and approve the report required by the rules of the SEC to be
included in the Company's annual proxy statement in accordance with the
requirements of Item 7(d)(3)(i) of Schedule 14A and Item 306 of
Regulation S-K;
MATTERS REGARDING OVERSIGHT OF THE COMPANY'S INDEPENDENT AUDITOR
11. Be directly responsible, in its capacity as a committee of the Board,
for the appointment, compensation, retention and oversight of the work
of any registered public accounting firm engaged (including resolution
of disagreements between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Company;
provided also that each such registered public accounting firm shall
report directly to the Committee;
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12. Receive and review a formal written statement and letter from the
Company's independent auditor delineating all relationships between the
independent auditor and the Company, consistent with Independence
Standards Board Standard 1, as may be modified or supplemented;
13. Actively engage in a dialogue with the Company's independent auditor
with respect to any disclosed relationship or services that may impact
the objectivity and independence of the independent auditor;
14. Take, or recommend that the Board take, appropriate action to oversee
and ensure the independence of the Company's independent auditor;
15. Establish clear policies regarding the hiring of employees and former
employees of the Company's independent auditor;
16. Establish policies and procedures for review and pre-approval by the
Committee of all audit services and permissible non-audit services
(including the fees and terms thereof) to be performed by the Company's
independent auditor, with exceptions provided for DE MINIMIS amounts
under certain circumstances as permitted by law; provided, however,
that: (a) the Committee may delegate to one (1) or more Members the
authority to grant such pre-approvals if the pre-approval decisions of
any such delegate Member(s) are presented to the Committee at its
next-scheduled meeting; and (b) all approvals of non-audit services to
be performed by the independent auditor must be disclosed in the
Company's applicable periodic reports;
17. During such time that the Company is subject to the NASD Marketplace
Rules, ensure that the Company's independent auditor: (a) has received
an external quality control review by an independent public accountant
("peer review") that determines whether the independent auditor's
system of quality control is in place and operating effectively and
whether established policies and procedures and applicable auditing
standards are being followed; or (b) is enrolled in a peer review
program and within 18 months receives a peer review that meets
acceptable guidelines in accordance with Nasdaq requirements;
18. Meet with the Company's independent auditor prior to its audit to
review the planning and staffing of the audit;
19. Discuss with the Company's independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61, as may be
modified or supplemented, relating to the conduct of the audit;
20. Oversee the rotation of the lead (or coordinating) audit partner of the
Company's independent auditor having primary responsibility for the
audit and the audit partner responsible for reviewing the audit at
least every five (5) years;
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MATTERS REGARDING OVERSIGHT OF THE COMPANY'S INTERNAL AUDIT FUNCTION
21. Review the Company's annual audited financial statements with
management, including a review of major issues regarding accounting and
auditing principles and practices, and evaluate the adequacy and
effectiveness of internal controls that could significantly affect the
Company's financial statements, as well as the adequacy and
effectiveness of the Company's disclosure controls and procedures and
management's reports thereon;
22. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the Company's independent
auditor, internal auditors or management;
23. Review the appointment of, and any replacement of, the Company's senior
internal auditing executive;
24. Review the significant reports to management prepared by the Company's
internal auditing department and management's responses;
MATTERS REGARDING OVERSIGHT OF COMPLIANCE RESPONSIBILITIES
25. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations;
26. Obtain reports from the Company's management, senior internal auditing
executive and independent auditor that the Company's subsidiaries and
foreign affiliated entities are in compliance with applicable legal
requirements, including the Foreign Corrupt Practices Act;
27. Establish procedures for: (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters; and (b) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters;
28. Review all related-party transactions for potential conflict of
interest situations and approve all such transactions (if such
transactions are not approved by the disinterested members of the full
Board, or another independent body of the Board);
29. Review and address any concerns regarding potentially illegal actions
raised by the Company's independent auditor pursuant to Section 10A(b)
of the Act;
30. Obtain from the Company's independent auditor assurance that it has
complied with Section 10A of the Act;
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ADDITIONAL DUTIES & RESPONSIBILITIES
31. Review and reassess the adequacy of this Charter periodically;
32. Review and assess the performance and effectiveness of the Committee at
least annually;
33. Report regularly to the Board with respect to the Committee's
activities and make recommendations as appropriate;
34. Review with the Company's outside counsel and internal legal counsel
any legal matters that may have a material impact on the financial
statements, the Company's compliance policies and any material reports
or inquiries received from regulators or governmental agencies;
35. Provide oversight and review of the Company's asset management
policies, including an annual review of the Company's investment
policies and performance for cash and short-term investments; and
36. Take any other actions that the Committee deems necessary or proper to
fulfill the purposes and intent of this Charter.
While the Committee has the responsibilities, duties and powers set
forth in this Charter, it is not the duty of the Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Rather, those duties are the responsibility of management and the independent
auditor.
Nothing contained in this Charter is intended to alter or impair the
operation of the "business judgment rule" as interpreted by the courts under the
Delaware. Further, nothing contained in this Charter is intended to alter or
impair the right of the Members to rely, in discharging their duties and
responsibilities, on the records of the Company and on other information
presented to the Committee, Board or Company by its officers or employees or by
outside experts and advisors such as the Company's independent auditor.
STRUCTURE & MEETINGS
The Committee shall conduct its business and meetings in accordance
with this Charter, the Company's bylaws and any direction set forth by the
Board. The chairperson of the Committee shall be designated by the Board or, in
the absence of such a designation, by a majority of the Members. The designated
chairperson shall preside at each meeting of the Committee and, in consultation
with the other Members, shall set the frequency and length of each meeting and
the agenda of items to be addressed at each meeting. In the absence of the
designated chairperson at any meeting of the Committee, the Members present at
such meeting shall designate a chairperson PRO TEM to serve in that capacity for
the purposes of such meeting (not to include any adjournment thereof) by
majority vote. The chairperson (other than a chairperson PRO TEM) shall ensure
that the agenda for each meeting is distributed to each Member in advance of the
applicable meeting.
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The Committee shall meet as often as it determines to be necessary and
appropriate, but not less than quarterly each year. The Committee may establish
its own schedule, provided that it shall provide such schedule to the Board in
advance. The chairperson of the Committee or a majority of the Members may call
special meetings of the Committee upon notice as is required for special
meetings of the Board in accordance with the Company's bylaws. A majority of the
appointed Members, but not less than two (2) Members, shall constitute a quorum
for the transaction of business. Members may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
Members participating in such meeting can hear one another, and such
participation shall constitute presence in person at such meeting.
The Committee may meet with any person or entity in executive session
as desired by the Committee. The Committee shall meet with the Company's
independent auditors, at such times as the Committee deems appropriate, to
review the independent auditor's examination and management report.
Unless the Committee by resolution determines otherwise, any action
required or permitted to be taken by the Committee may be taken without a
meeting if all Members consent thereto in writing and the writing or writings
are filed with the minutes of the proceedings of the Committee. The Committee
may form and delegate authority to subcommittees when appropriate.
MINUTES
The Committee shall maintain written minutes of its meetings, which
minutes shall be filed with the minutes of the meetings of the Board.
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APPENDIX B
GENIUS PRODUCTS, INC.
2004 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Plan are to attract and
retain the best available personnel, to provide additional incentives to
Employees, Directors and Consultants and to promote the success of the Company's
business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of the Committees
appointed to administer the Plan.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
Plan and the Awards under applicable provisions of federal securities laws,
state corporate and securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S. jurisdiction
applicable to Awards granted to residents therein.
(d) "ASSUMED" means that pursuant to a Corporate Transaction either
(i) the Award is expressly affirmed by the Company or (ii) the contractual
obligations represented by the Award are expressly assumed (and not simply by
operation of law) by the successor entity or its Parent in connection with the
Corporate Transaction with appropriate adjustments to the number and type of
securities of the successor entity or its Parent subject to the Award and the
exercise or purchase price thereof which at least preserves the compensation
element of the Award existing at the time of the Corporate Transaction as
determined in accordance with the instruments evidencing the agreement to assume
the Award.
(e) "AWARD" means the grant of an Option, Restricted Stock, or
other right or benefit under the Plan.
(f) "AWARD AGREEMENT" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(g) "BOARD" means the Board of Directors of the Company.
(h) "CAUSE" means, with respect to the termination by the Company
or a Related Entity of the Grantee's Continuous Service, that such termination
is for "Cause" as such term is expressly defined in a then-effective written
agreement between the Grantee and the Company or such Related Entity, or in the
absence of such then-effective written agreement and definition, is based on, in
the determination of the Administrator, the Grantee's: (i) performance of any
act or failure to perform any act in bad faith and to the detriment of the
Company or a Related Entity; (ii) dishonesty, intentional misconduct or material
breach of any agreement with the Company or a Related Entity; or (iii)
commission of a crime involving dishonesty, breach of trust, or physical or
emotional harm to any person.
B-1
(i) "CHANGE IN CONTROL" means a change in ownership or control of
the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who are
Continuing Directors.
(j) "CODE" means the Internal Revenue Code of 1986, as amended.
(k) "COMMITTEE" means any committee composed of members of the
Board appointed by the Board to administer the Plan.
(l) "COMMON STOCK" means the common stock of the Company.
(m) "COMPANY" means Genius Products, Inc., a Nevada corporation.
(n) "CONSULTANT" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(o) "CONTINUING DIRECTORS" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
(p) "CONTINUOUS SERVICE" means that the provision of services to
the Company or a Related Entity in any capacity of Employee, Director or
Consultant is not interrupted or terminated. In jurisdictions requiring notice
in advance of an effective termination as an Employee, Director or Consultant,
Continuous Service shall be deemed terminated upon the actual cessation of
providing services to the Company or a Related Entity notwithstanding any
required notice period that must be fulfilled before a termination as an
Employee, Director or Consultant can be effective under Applicable Laws.
Continuous Service shall not be considered interrupted in the case of (i) any
approved leave of absence, (ii) transfers among the Company, any Related Entity,
or any successor, in any capacity of Employee, Director or Consultant, or (iii)
any change in status as long as the individual remains in the service of the
Company or a Related Entity in any capacity of Employee, Director or Consultant
(except as otherwise provided in the Award Agreement). An approved leave of
absence shall include sick leave, military leave, or any other authorized
personal leave. For purposes of each Incentive Stock Option granted under the
Plan, if such leave exceeds ninety (90) days, and reemployment upon expiration
of such leave is not guaranteed by statute or contract, then the Incentive Stock
Option shall be treated as a Non-Qualified Stock Option on the day three (3)
months and one (1) day following the expiration of such ninety (90) day period.
B-2
(q) "CORPORATE TRANSACTION" means any of the following
transactions:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company;
(iii) the complete liquidation or dissolution of the Company;
(iv) any reverse merger or series of related transactions
culminating in a reverse merger (including, but not limited to, a tender offer
followed by a reverse merger) in which the Company is the surviving entity but
in which securities possessing more than forty percent (40%) of the total
combined voting power of the Company's outstanding securities are transferred to
a person or persons different from those who held such securities immediately
prior to such merger or the initial transaction culminating in such merger; or
(v) acquisition in a single or series of related transactions
by any person or related group of persons (other than the Company or by a
Company-sponsored employee benefit plan) of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding securities but excluding any such transaction or series of related
transactions that the Administrator determines shall not be a Corporate
Transaction.
(r) "COVERED EMPLOYEE" means an Employee who is a "covered
employee" under Section 162(m)(3) of the Code.
(s) "DIRECTOR" means a member of the Board or the board of
directors of any Related Entity.
(t) "DISABILITY" means as defined under the long-term disability
policy of the Company or the Related Entity to which the Grantee provides
services regardless of whether the Grantee is covered by such policy. If the
Company or the Related Entity to which the Grantee provides service does not
have a long-term disability plan in place, "Disability" means that a Grantee is
unable to carry out the responsibilities and functions of the position held by
the Grantee by reason of any medically determinable physical or mental
impairment for a period of not less than ninety (90) consecutive days. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.
B-3
(u) "EMPLOYEE" means any person, including an Officer or Director,
who is in the employ of the Company or any Related Entity, subject to the
control and direction of the Company or any Related Entity as to both the work
to be performed and the manner and method of performance. The payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.
(v) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(w) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation The Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination (or, if no closing sales price or closing bid was
reported on that date, as applicable, on the last trading date such closing
sales price or closing bid was reported), as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted on an automated
quotation system (including the OTC Bulletin Board) or by a recognized
securities dealer, its Fair Market Value shall be the closing sales price for
such stock as quoted on such system on the date of determination, but if selling
prices are not reported, the Fair Market Value of a share of Common Stock shall
be the mean between the high bid and low asked prices for the Common Stock on
the date of determination (or, if no such prices were reported on that date, on
the last date such prices were reported), as reported in The Wall Street Journal
or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock of the type described in (i) and (ii), above, the Fair Market Value
thereof shall be determined by the Administrator in good faith.
(x) "GRANTEE" means an Employee, Director or Consultant who
receives an Award under the Plan.
(y) "IMMEDIATE FAMILY" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which these
persons (or the Grantee) have more than fifty percent (50%) of the beneficial
interest, a foundation in which these persons (or the Grantee) control the
management of assets, and any other entity in which these persons (or the
Grantee) own more than fifty percent (50%) of the voting interests.
B-4
(z) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
(aa) "NON-QUALIFIED STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(bb) "OFFICER" means a person who is an officer of the Company or a
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(cc) "OPTION" means an option to purchase Shares pursuant to an
Award Agreement granted under the Plan.
(dd) "PARENT" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(ee) "PERFORMANCE-BASED COMPENSATION" means compensation qualifying
as "performance-based compensation" under Section 162(m) of the Code.
(ff) "PLAN" means this 2004 Stock Incentive Plan.
(gg) "RELATED ENTITY" means any Parent or Subsidiary of the Company
and any business, corporation, partnership, limited liability company or other
entity in which the Company or a Parent or a Subsidiary of the Company holds a
substantial ownership interest, directly or indirectly.
(hh) "REPLACED" means that pursuant to a Corporate Transaction the
Award is replaced with a comparable stock award or a cash incentive program of
the Company, the successor entity (if applicable) or Parent of either of them
which preserves the compensation element of such Award existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same (or a more favorable) vesting schedule applicable to such Award. The
determination of Award comparability shall be made by the Administrator and its
determination shall be final, binding and conclusive.
(ii) "RESTRICTED STOCK" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(jj) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
(kk) "SHARE" means a share of the Common Stock.
(ll) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
B-5
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is 7,500,000 Shares. The Shares to be issued pursuant
to Awards may be authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which
is forfeited, canceled or expires (whether voluntarily or involuntarily) shall
be deemed not to have been issued for purposes of determining the maximum
aggregate number of Shares which may be issued under the Plan. Shares that
actually have been issued under the Plan pursuant to an Award shall not be
returned to the Plan and shall not become available for future issuance under
the Plan, except that if unvested Shares are forfeited, or repurchased by the
Company at the lower of their original purchase price or their Fair Market Value
at the time of repurchase, such Shares shall become available for future grant
under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATOR.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Awards to Directors or Employees who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.
(ii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Awards to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
(iii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES.
Notwithstanding the foregoing, grants of Awards to any Covered Employee intended
to qualify as Performance-Based Compensation shall be made only by a Committee
(or subcommittee of a Committee) which is comprised solely of two or more
Directors eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards granted to Covered
Employees, references to the "Administrator" or to a "Committee" shall be deemed
to be references to such Committee or subcommittee.
(iv) ADMINISTRATION ERRORS. In the event an Award is granted
in a manner inconsistent with the provisions of this subsection (a), such Award
shall be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
B-6
(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the
Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under
the Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without the Grantee's
written consent;
(vii) to construe and interpret the terms of the Plan and
Awards, including without limitation, any notice of award or Award Agreement,
granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable non-U.S. jurisdictions
and to afford Grantees favorable treatment under such rules or laws; provided,
however, that no Award shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions which are inconsistent
with the provisions of the Plan; and
(ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
(c) INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or as Officers or
Employees of the Company or a Related Entity, members of the Board and any
Officers or Employees of the Company or a Related Entity to whom authority to
act for the Board, the Administrator or the Company is delegated shall be
defended and indemnified by the Company to the extent permitted by law on an
after-tax basis against all reasonable expenses, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any claim,
investigation, action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any Award
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by the Company) or paid by them in
satisfaction of a judgment in any such claim, investigation, action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such claim, investigation, action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct; provided, however,
that within thirty (30) days after the institution of such claim, investigation,
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at the Company's expense to defend the same.
B-7
5. ELIGIBILITY. Awards other than Incentive Stock Options may be
granted to Employees, Directors and Consultants. Incentive Stock Options may be
granted only to Employees of the Company or a Parent or a Subsidiary of the
Company. An Employee, Director or Consultant who has been granted an Award may,
if otherwise eligible, be granted additional Awards. Awards may be granted to
such Employees, Directors or Consultants who are residing in non-U.S.
jurisdictions as the Administrator may determine from time to time.
6. TERMS AND CONDITIONS OF AWARDS.
(a) DESIGNATION OF AWARD. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary of the Company)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the grant date of the relevant Option.
(b) CONDITIONS OF AWARD. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(c) ACQUISITIONS AND OTHER TRANSACTIONS. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
B-8
(d) DEFERRAL OF AWARD PAYMENT. The Administrator may establish one
or more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of consideration upon exercise of an Award, satisfaction
of performance criteria, or other event that absent the election would entitle
the Grantee to payment or receipt of Shares or other consideration under an
Award. The Administrator may establish the election procedures, the timing of
such elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(e) SEPARATE PROGRAMS. The Administrator may establish one or more
separate programs under the Plan for the purpose of issuing particular forms of
Awards to one or more classes of Grantees on such terms and conditions as
determined by the Administrator from time to time.
(f) EARLY EXERCISE. The Award Agreement may, but need not, include
a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise may
be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Administrator determines to be appropriate.
(g) TERM OF AWARD. The term of each Award shall be the term stated
in the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary of the Company, the term of the Incentive Stock Option shall be
five (5) years from the date of grant thereof or such shorter term as may be
provided in the Award Agreement.
(h) TRANSFERABILITY OF AWARDS. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee. Other Awards
shall be transferable by will and by the laws of descent and distribution, and
during the lifetime of the Grantee, by gift or pursuant to a domestic relations
order to members of the Grantee's Immediate Family to the extent and in the
manner determined by the Administrator. Notwithstanding the foregoing, the
Grantee may designate a beneficiary of the Grantee's Incentive Stock Option or
Non-Qualified Stock Option in the event of the Grantee's death on a beneficiary
designation form provided by the Administrator.
(i) TIME OF GRANTING AWARDS. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
(j) INDIVIDUAL OPTION LIMIT. The maximum number of Shares with respect
to which Options may be granted to any Grantee in any fiscal year of the Company
shall be one million (1,000,000) Shares. In connection with a Grantee's
commencement of Continuous Service, a Grantee may be granted Options for up to
an additional one million (1,000,000) Shares which shall not count against the
limit set forth in the previous sentence. The foregoing limitations shall be
adjusted proportionately in connection with any change in the Company's
capitalization pursuant to Section 10, below. To the extent required by Section
162(m) of the Code or the regulations thereunder, in applying the foregoing
limitations with respect to a Grantee, if any Option is canceled, the canceled
Option shall continue to count against the maximum number of Shares with respect
to which Options may be granted to the Grantee. For this purpose, the repricing
of an Option shall be treated as the cancellation of the existing Option and the
grant of a new Option.
(k) INDIVIDUAL LIMIT FOR RESTRICTED STOCK. For awards of Restricted
Stock that are intended to be Performance-Based Compensation, the maximum number
of Shares with respect to which such Awards may be granted to any Grantee in any
fiscal year of the Company shall be 1,000,000 Shares. The foregoing limitation
shall be adjusted proportionately in connection with any change in the Company's
capitalization pursuant to Section 10, below. In connection with a Grantee's
commencement of Continuous Service, a Grantee may be granted Restricted Stock
for up to an additional 1,000,000 Shares which shall not count against the limit
set forth in the previous sentence.
7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION AND TAXES.
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if
any, for an Award shall be as follows:
B-9
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary of the Company, the per Share exercise price shall be not less
than one hundred ten percent (110%) of the Fair Market Value per Share on the
date of grant; or
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per
Share exercise price shall be not less than one hundred percent (100%) the Fair
Market Value per Share on the date of grant.
(iii) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase price, if any, shall be
not less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.
(iv) In the case of other Awards, such price as is determined
by the Administrator.
(v) Notwithstanding the foregoing provisions of this Section
7(a), in the case of an Award issued pursuant to Section 6(c), above, the
exercise or purchase price for the Award shall be determined in accordance with
the provisions of the relevant instrument evidencing the agreement to issue such
Award.
(b) CONSIDERATION. Subject to Applicable Laws, the consideration to
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following, provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate (but only to the extent that the acceptance or terms
of the promissory note would not violate an Applicable Law);
B-10
(iv) surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may require
which have a Fair Market Value on the date of surrender or attestation equal to
the aggregate exercise price of the Shares as to which said Award shall be
exercised, provided, however, that Shares acquired under the Plan or any other
equity compensation plan or agreement of the Company must have been held by the
Grantee for a period of more than six (6) months;
(v) with respect to Options, payment through a broker-dealer
sale and remittance procedure pursuant to which the Grantee (A) shall provide
written instructions to a Company designated brokerage firm to effect the
immediate sale of some or all of the purchased Shares and remit to the Company
sufficient funds to cover the aggregate exercise price payable for the purchased
Shares and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) TAXES. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any non-U.S., federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
8. EXERCISE OF AWARD.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
for the Shares with respect to which the Award is exercised, including, to the
extent selected, use of the broker-dealer sale and remittance procedure to pay
the purchase price as provided in Section 7(b)(v).
(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF CONTINUOUS SERVICE.
(i) An Award may not be exercised after the termination date
of such Award set forth in the Award Agreement and may be exercised following
the termination of a Grantee's Continuous Service only to the extent provided in
the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise
an Award following the termination of the Grantee's Continuous Service for a
specified period, the Award shall terminate to the extent not exercised on the
last day of the specified period or the last day of the original term of the
Award, whichever occurs first.
B-11
(iii) Any Award designated as an Incentive Stock Option to the
extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.
9. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, as well as any other terms that the Administrator determines
require adjustment shall be proportionately adjusted for (i) any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Shares, or
similar transaction affecting the Shares, (ii) any other increase or decrease in
the number of issued Shares effected without receipt of consideration by the
Company, or (iii) as the Administrator may determine in its discretion, any
other transaction with respect to Common Stock including a corporate merger,
consolidation, acquisition of property or stock, separation (including a
spin-off or other distribution of stock or property), reorganization,
liquidation (whether partial or complete) or any similar transaction; provided,
however that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator and its determination shall be
final, binding and conclusive. Except as the Administrator determines, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason hereof shall be made with respect to, the number or price of Shares
subject to an Award.
11. CORPORATE TRANSACTIONS AND CHANGES IN CONTROL.
(a) TERMINATION OF AWARD TO EXTENT NOT ASSUMED IN CORPORATE
TRANSACTION. Effective upon the consummation of a Corporate Transaction, all
outstanding Awards under the Plan shall terminate. However, all such Awards
shall not terminate to the extent they are Assumed in connection with the
Corporate Transaction.
B-12
(b) ACCELERATION OF AWARD UPON CORPORATE TRANSACTION OR CHANGE IN
CONTROL.
(i) CORPORATE TRANSACTION. Except as provided otherwise in an
individual Award Agreement, in the event of a Corporate Transaction, each Award
which is at the time outstanding under the Plan automatically shall become fully
vested and exercisable and be released from any repurchase or forfeiture rights
(other than repurchase rights exercisable at fair market value), immediately
prior to the specified effective date of such Corporate Transaction, for all of
the Shares at the time represented by such Award, irrespective of whether the
Award is Assumed or Replaced.
(ii) CHANGE IN CONTROL. In the event of a Change in Control
(other than a Change in Control which also is a Corporate Transaction), each
Award which is at the time outstanding under the Plan automatically shall become
fully vested and exercisable and be released from any repurchase or forfeiture
rights (other than repurchase rights exercisable at fair market value),
immediately prior to the specified effective date of such Change in Control, for
all of the Shares at the time represented by such Award.
(c) EFFECT OF ACCELERATION ON INCENTIVE STOCK OPTIONS. Any
Incentive Stock Option accelerated under this Section 11 in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Stock Option under the Code only to the extent the $100,000 dollar
limitation of Section 422(d) of the Code is not exceeded. To the extent such
dollar limitation is exceeded, the excess Options shall be treated as
Non-Qualified Stock Options.
12. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 17, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan.
To the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) No suspension or termination of the Plan (including termination
of the Plan under Section 12, above) shall adversely affect any rights under
Awards already granted to a Grantee.
14. RESERVATION OF SHARES.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
B-13
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT/CONSULTING RELATIONSHIP. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the right of the Company or any Related Entity to terminate the Grantee's
Continuous Service at any time, with or without Cause, and with or without
notice. The ability of the Company or any Related Entity to terminate the
employment of a Grantee who is employed at will is in no way affected by its
determination that the Grantee's Continuous Service has been terminated for
Cause for the purposes of this Plan.
16. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
17. STOCKHOLDER APPROVAL. The grant of Incentive Stock Options under
the Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
18. UNFUNDED OBLIGATION. Grantees shall have the status of general
unsecured creditors of the Company. Any amounts payable to Grantees pursuant to
the Plan shall be unfunded and unsecured obligations for all purposes,
including, without limitation, Title I of the Employee Retirement Income
Security Act of 1974, as amended. Neither the Company nor any Related Entity
shall be required to segregate any monies from its general funds, or to create
any trusts, or establish any special accounts with respect to such obligations.
The Company shall retain at all times beneficial ownership of any investments,
including trust investments, which the Company may make to fulfill its payment
obligations hereunder. Any investments or the creation or maintenance of any
trust or any Grantee account shall not create or constitute a trust or fiduciary
relationship between the Administrator, the Company or any Related Entity and a
Grantee, or otherwise create any vested or beneficial interest in any Grantee or
the Grantee's creditors in any assets of the Company or a Related Entity. The
Grantees shall have no claim against the Company or any Related Entity for any
changes in the value of any assets that may be invested or reinvested by the
Company with respect to the Plan.
B-14
APPENDIX C
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement"), dated as of
____________, 2004, is made and entered into by and between GENIUS PRODUCTS,
INC., a Nevada corporation ("Genius-Nevada"); and GENIUS PRODUCTS, INC., a
Delaware corporation ("Genius-Delaware").
W I T N E S S E T H:
WHEREAS, Genius-Delaware is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
_____________, 2004;
WHEREAS, Genius-Nevada is a corporation duly organized and existing
under the laws of the State of Nevada, having been incorporated on January 8,
1996; and
WHEREAS, the Board of Directors and stockholders of Genius-Delaware and
Genius-Nevada have approved this Agreement under which Genius-Nevada shall be
merged with and into Genius-Delaware with Genius-Delaware being the surviving
corporation (the "Merger").
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that
Genius-Nevada shall be merged with and into Genius-Delaware on the terms and
conditions hereinafter set forth.
ARTICLE I
MERGER
------
Effective the time the Articles of Merger are accepted for filing in
Nevada and the Certificate of Merger is accepted for filing in Delaware (the
"Effective Time"), Genius-Nevada shall be merged with and into Genius-Delaware
in accordance with the Delaware General Corporation Law ("DGCL") and the Nevada
Revised Statutes ("NRS"), and the separate existence of Genius-Nevada shall
cease and Genius-Delaware (hereinafter sometimes referred to as the "Surviving
Corporation") shall continue to exist under the name of Genius Products, Inc. by
virtue of, and shall be governed by, the laws of the State of Delaware. The
address of the registered office of the Surviving Corporation in the State of
Delaware will be National Corporate Research, Ltd., 615 South DuPont Highway, in
the City of Dover, County of Kent, Delaware 19901. The name of the Corporation's
registered agent at such address is National Corporate Research, Ltd.
ARTICLE II
CERTIFICATE OF INCORPORATION
OF THE SURVIVING CORPORATION
----------------------------
The Certificate of Incorporation of the Surviving Corporation shall be
the Certificate of Incorporation of Genius-Delaware without change, as in effect
immediately prior to the Effective Time, unless and until thereafter amended as
provided by applicable law. A copy of the Certificate of Incorporation of
Genius-Delaware is attached hereto as Exhibit A.
C-1
ARTICLE III
BYLAWS OF THE SURVIVING CORPORATION
-----------------------------------
The Bylaws of Genius-Delaware shall be the Bylaws of the Surviving
Corporation as in effect immediately prior to the Effective Time without change,
unless and until amended or repealed in accordance with applicable law.
ARTICLE IV
EFFECT OF MERGER ON STOCK
OF CONSTITUENT CORPORATIONS
---------------------------
4.01 At the Effective Time, each outstanding share of Common Stock of
Genius-Nevada, par value 1/10 cent ($0.001) per share (the "Nevada Common
Stock"), shall be converted into one share of Common Stock, par value 1/100 cent
($0.0001) per share, of the Surviving Corporation (the "Delaware Common Stock").
4.02 At and after the Effective Time, (1) each share of Nevada Common
Stock shall be cancelled and retired and, by virtue of the Merger and without
further action, shall cease to exist; and (2) each share of Delaware Common
Stock issued and outstanding immediately prior to the Effective Time shall be
cancelled and, by virtue of the Merger and without further action, shall cease
to exist and returned to the status of authorized but unissued shares.
4.03 At and after the Effective Time, all documentation which prior to
that time evidenced and represented Nevada Common Stock shall be deemed for all
purposes to evidence ownership of and to represent those shares of Delaware
Common Stock into which the Nevada Common Stock represented by such
documentation has been converted as herein provided and shall be so registered
on the books and records of Genius-Delaware. The registered owner of any
outstanding stock certificate evidencing Nevada Common Stock shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to Genius-Delaware or its transfer agent, have and be entitled to
exercise any voting and other rights with respect to and to receive any dividend
and other distributions upon the shares of Delaware Common Stock evidenced by
such outstanding certificate as above provided.
4.04 At and after the Effective Time, all outstanding options and
warrants to purchase Nevada Common Stock and all instruments convertible into
Nevada Common Stock (collectively, "Derivative Securities") shall be assumed by
Genius-Delaware, which shall continue the stock option plans and all other
employee benefit and compensation plans and agreements of Genius- Nevada. Each
outstanding and unexercised Derivative Security of Genius-Nevada shall become a
Derivative Security of Genius-Delaware on the basis of one share of Delaware
Common Stock for each share of Nevada Common Stock issuable pursuant to any such
Derivative Security, on the same terms and conditions applicable to any such
Genius-Nevada Derivative Security at the Effective Time. The exercise price for
each share of Delaware Common Stock issuable pursuant to any such Derivative
Security shall be equal to the exercise price applicable to any such
Genius-Nevada Derivative Security at the Effective Time. No fractional
Derivative Security shall be issued upon the exchange of any Derivative Security
of Genius-Nevada for a Derivative Security of Genius-Delaware. A number of
shares of the Genius-Delaware's Common Stock shall be reserved for issuance upon
the exercise of Derivative Securities equal to the number of shares of Nevada
Common Stock so reserved immediately prior to the Effective Time.
ARTICLE V
CORPORATE EXISTENCE, POWERS AND
LIABILITIES OF SURVIVING CORPORATION
------------------------------------
5.01 On the Effective Time, the separate existence of Genius-Nevada
shall cease and Genius-Nevada shall be merged with and into the Surviving
Corporation in accordance with the provisions of this Agreement. Thereafter, the
Surviving Corporation shall possess all of the rights, privileges, powers and
franchises as well of a public as of a private nature, and shall be subject to
all the restrictions, disabilities and duties of Genius-Nevada; and all rights,
privileges, powers and franchises of Genius-Nevada, and all property, real,
personal and mixed, and all debts due to each of them on whatever account, as
well as stock subscriptions and all other things in action or belonging to
Genius-Nevada, shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter effectually the property of the Surviving Corporation as
they were of Genius-Nevada, and the title to any real estate, whether by deed or
otherwise, vested in Genius-Nevada shall not revert or be in any way impaired by
reason of the Merger; but all rights of creditors and all liens upon any
property of Genius-Nevada shall be preserved unimpaired, and all debts,
liabilities and duties shall thenceforth attach to the Surviving Corporation and
may be enforced against it to the same extent as if said debts, liabilities and
duties had been incurred or contracted by it.
C-2
5.02 Genius-Nevada agrees that it will execute and deliver (or cause to
be executed and delivered) all such deeds, assignments and other instruments,
and will take or cause to be taken such further or other action as the Surviving
Corporation may deem necessary or desirable in order to vest in and confirm to
the Surviving Corporation title to and possession of all the property, rights,
privileges, immunities, powers, purposes and franchises, and all and every other
interest, of Genius-Nevada and otherwise to carry out the intent and purposes of
this Agreement.
ARTICLE VI
OFFICERS AND DIRECTORS
OF SURVIVING CORPORATION
------------------------
At the Effective Time, the officers and directors of Genius-Nevada
shall become the officers and directors of the Surviving Corporation, and such
persons shall hold office in accordance with the Bylaws of the Surviving
Corporation or until their respective successors shall have been appointed or
elected and qualified.
ARTICLE VII
APPROVAL BY STOCKHOLDERS;
AMENDMENT; EFFECTIVE TIME
-------------------------
7.01 This Agreement and the Merger contemplated hereby are subject to
approval by the requisite vote of the stockholders of Genius-Nevada in
accordance with Nevada law. As promptly as practicable after approval of this
Agreement by such stockholders in accordance with applicable law, duly
authorized officers of Genius-Delaware and Genius-Nevada shall make and execute
a Certificate of Merger and Articles of Merger or other applicable certificates
or documentation effecting this Agreement and shall cause such document or
documents to be filed with the Secretaries of State of Delaware and Nevada,
respectively, in accordance with the applicable Delaware and Nevada law.
7.02 The respective Boards of Directors of Genius-Delaware and
Genius-Nevada may amend this Agreement at any time prior to the Effective Time,
provided that an amendment made subsequent to the approval of the Merger by the
stockholders of Genius-Nevada shall not (1) alter or change the amount or kind
of shares, securities, cash, property or rights to be received in exchange for
or on conversion of all or any Nevada Common Stock; (2) alter or change any term
of the Certificate of Incorporation of the Surviving Corporation; or (3) alter
or change any of the terms and conditions of this Agreement if such alteration
or change would adversely affect the holders of any Nevada Common Stock.
ARTICLE VIII
PAYMENT OF FEES AND FRANCHISE TAXES
-----------------------------------
The Surviving Corporation shall be responsible for the payment of all
fees and franchise taxes of Genius-Nevada relating to or required to be paid in
connection with the Merger.
C-3
ARTICLE IX
TERMINATION OF MERGER
---------------------
This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after stockholder approval of
this Agreement, by the consent of the Board of Directors of Genius-Delaware and
the Board of Directors of Genius-Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers as of the date first above written.
GENIUS PRODUCTS, INC.,
A NEVADA CORPORATION
By:
------------------------------------
Name: Klaus Moeller
Title: Chief Executive Officer
GENIUS PRODUCTS, INC.,
A DELAWARE CORPORATION
By:
------------------------------------
Name: Klaus Moeller
Title: Chief Executive Officer
C-4
APPENDIX D
CERTIFICATE OF INCORPORATION
OF
GENIUS PRODUCTS, INC.
A DELAWARE CORPORATION
1. The name of the corporation is Genius Products, Inc. (the
"Corporation").
2. The address of the corporation's registered office in the State of
Delaware is 615 South Dupont Highway, in the City of Dover, County of Kent,
Delaware 19901. The name of its registered agent at such address is National
Corporate Research Ltd.
3. The nature of the business of the Corporation and the objects or
purposes to be transacted, promoted or carried on by it are as follows: To
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
4. The total number of shares of all classes of stock that the
Corporation is authorized to issue is sixty million (60,000,000) shares,
consisting of fifty million (50,000,000) shares of Common Stock with a par value
of $0.0001 per share, and ten million (10,000,000) shares of Preferred Stock
with a par value of $0.0001 per share.
Any of the shares of Preferred Stock may be issued from time to time in
one or more series. Subject to the limitations and restrictions in this
paragraph 4 set forth, the Board of Directors or a Committee of the Board of
Directors, to the extent permitted by law and the Bylaws of the Corporation or a
resolution of the Board of Directors, by resolution or resolutions, is
authorized to create or provide for any such series, and to fix the
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including,
without limitation, the authority to fix or alter the dividend rights, dividend
rates, conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking and purchase fund provisions), the redemption
price or prices, the dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Preferred Stock and the
number of shares constituting any such series, and the designation thereof, or
any of them and to increase or decrease the number of shares of any series so
created, subsequent to the issue of that series but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
There shall be no limitation or restriction on any variation between
any of the different series of Preferred Stock as to the designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof; and the several series
of Preferred Stock may, except as hereinafter in this paragraph 4 otherwise
expressly provided, vary in any and all respects as fixed and determined by the
resolution or resolutions of the Board of Directors or by Committee of the Board
of Directors, providing for the issuance of the various series; PROVIDED,
HOWEVER, that all shares of any one series of Preferred Stock shall have the
same designation, preferences and relative, participating, optional or other
special rights and qualifications, limitations and restrictions.
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Except as otherwise required by law, or as otherwise fixed by
resolution or resolutions of the Board of Directors with respect to one or more
series of Preferred Stock, the entire voting power and all voting rights shall
be vested exclusively in the Common Stock, and each stockholder of the
Corporation who at the time possesses voting power for any purpose shall be
entitled to one vote for each share of such stock standing in his name on the
books of the Corporation.
5. The Board of Directors is expressly authorized to make, alter or
repeal the Bylaws of the Corporation.
6. Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
7. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
8. To the fullest extent permitted by Delaware statutory or decisional
law, as amended or interpreted, no director of this Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. This Article 8 does not affect the
availability of equitable remedies for breach of fiduciary duties. The
Corporation is authorized to provide indemnification of its officers, directors,
employees and agents to the fullest extent now or hereafter permitted by
Delaware statutory or decisional law, as amended or interpreted.
9. The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
Audrey Pei c/o Morrison & Foerster LLP
555 West Fifth Street
Los Angeles, CA 90013
I, the undersigned, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and,
accordingly, have hereunto set my hands this _____ day of __________, 2004.
-----------------------------------
Audrey Pei, Sole Incorporator
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APPENDIX E
BYLAWS
OF
GENIUS PRODUCTS, INC.
ARTICLE I
STOCKHOLDERS
------------
SECTION 1.1 ANNUAL MEETINGS. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
SECTION 1.2 SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time, date or place, either within or
without the State of Delaware, by the Board of Directors, or by a committee of
the Board of Directors which has been duly designated by the Board of Directors
and whose powers and authority, as expressly provided in a resolution of the
Board of Directors, include the power to call such meetings, but such special
meetings may not be called by any other person or persons.
SECTION 1.3 NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation of
these bylaws, the written notice of any meeting shall be given no less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
SECTION 1.4 ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business, which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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SECTION 1.5 QUORUM. Except as otherwise provided by law, the
certificate of incorporation or these bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall be necessary and
sufficient to constitute a quorum. In the absence of a quorum, the stockholders
so present may, by majority vote, adjourn the meeting from time to time in the
manner provided in Section 1.4 of these bylaws until a quorum shall attend.
Shares of its own stock belonging to the corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
SECTION 1.6 ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the Chief Executive Officer,
or in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 1.7 VOTING; PROXIES. Except as otherwise provided by the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the corporation. Voting at
meetings of stockholders need not be by written ballot and need not be conducted
by inspectors of election unless so determined by the holders of shares of stock
having a majority of the votes which could be cast by the holders of all
outstanding shares of stock entitled to vote thereon which are present in person
or by proxy at such meeting. At all meetings of stockholders for the election of
directors a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law, the certificate
of incorporation or these bylaws, be decided by the vote of the holders of
shares of stock having a majority of the votes which could be cast by the
holders of all shares of stock entitled to vote thereon which are present in
person or represented by proxy at the meeting.
SECTION 1.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date:
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(1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty (60) nor less than ten (10) days before
the date of such meeting;
(2) in the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten (10) days from the date upon which the resolution fixing the
record date is adopted by the Board of Directors; and
(3) in the case of any other action, shall not be more than sixty
(60) days prior to such other action. If no record date is fixed: (i) the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; (ii) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting when no prior action of the Board of
Directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action; and (iii) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 1.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 1.10 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. Unless
otherwise restricted by the certificate of incorporation, any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
SECTION 1.11 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements for business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than 45 days nor
more than 75 days prior to the date on which the corporation first mailed its
proxy materials for the previous year's annual meeting of stockholders (or the
date on which the corporation mails its proxy materials for the current year if
during the prior year the corporation did not hold an annual meeting or if the
date of the annual meeting was changed more than 30 days from the prior year). A
stockholder's notice to the Secretary shall set forth, as to each matter the
stockholder proposes to bring before the annual meeting, (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business. Nothing in
this Section 1.11 shall affect the right of a stockholder to request inclusion
of a proposal in the corporation's proxy statement to the extent that such right
is provided by an applicable rule of the Securities and Exchange Commission.
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ARTICLE II
BOARD OF DIRECTORS
------------------
SECTION 2.1 NUMBER; QUALIFICATIONS. The Board of Directors shall
consist of not less than one nor more than seven members, the number thereof to
be determined from time to time by resolution of the Board of Directors.
Directors need not be stockholders.
SECTION 2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES. The Board of
Directors shall initially consist of the persons named as directors in the
Action of Incorporator, and each director so elected shall hold office until the
first annual meeting of stockholders and until his successor is elected and
qualified or until such director's earlier resignation or removal. At the first
annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors, each of whom shall hold office until the
next annual meeting and until his successor is duly elected and qualified or
until his resignation or removal. If, for any cause, the Board of Directors
shall not have been elected at an annual meeting of stockholders, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws. Any
director may resign at any time upon written notice to the corporation. Any
newly created directorship or any vacancy occurring in the Board of Directors
for any cause may be filled by a majority of the remaining members of the Board
of Directors, although such majority is less than a quorum, and each director so
elected shall hold office until the expiration of the term of office of the
director whom he has replaced and until his successor is elected and qualified.
Any one or more of the directors may be removed with or without cause at any
time by the vote or written consent of the stockholders representing not less
than a majority of the issued and outstanding capital stock entitled to voting
power.
SECTION 2.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined, notices thereof need not be given.
SECTION 2.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chief Executive Officer, President, any Vice
President, the Secretary, or by any member of the Board of Directors. Notice of
a special meeting of the Board of Directors shall be given by the person or
persons calling the meeting at least twenty-four (24) hours before the special
meeting.
SECTION 2.5 TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
bylaw shall constitute presence in person at such meeting.
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SECTION 2.6 QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business. Except in cases in which the certificate
of incorporation or these bylaws otherwise provide, the vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 2.7 ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the Chief Executive
Officer, or in his absence by the President, or in his absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
SECTION 2.8 ACTION BY WRITTEN CONSENT OF DIRECTORS. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
SECTION 2.9 FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board of Directors.
ARTICLE III
COMMITTEES
----------
SECTION 3.1 COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, retain independent counsel or other advisors, and may authorize the
seal of the corporation to be affixed to all pages which may require it.
SECTION 3.2 COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these bylaws.
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ARTICLE IV
OFFICERS
--------
SECTION 4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF
OFFICE; RESIGNATION; REMOVAL; VACANCIES. The corporation shall have such
officers with such titles and duties as shall be stated in a resolution of the
Board of Directors. Each such officer shall hold office until the first meeting
of the Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the corporation by death, resignation, and removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
SECTION 4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of
the corporation shall have such powers and duties in the management of the
corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective officers, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
duties.
ARTICLE V
STOCK
-----
SECTION 5.1 CERTIFICATES. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the Chief Executive
Officer, President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the corporation,
certifying the number of shares owned by him in the corporation. Any of or all
the signatures on the certificate may be a facsimile. The Board of Directors may
make such rules and regulations as it may deem expedient not inconsistent with
the bylaws or with the Certificate of Incorporation, concerning the issue,
transfer and registration of the certificates for shares of stock of the
corporation. It may appoint a transfer agent or registrar of transfers, or both,
and it may require all certificates to bear the signature of either or both. In
case any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
SECTION 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
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ARTICLE VI
INDEMNIFICATION
---------------
SECTION 6.1 RIGHT TO INDEMNIFICATION. The corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he or she or a person for whom he or
she is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans (an "indemnitee"), against all liability and
loss suffered and expenses (including attorneys' fees) reasonably incurred by
such indemnitee. The corporation shall be required to indemnify an indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if the initiation of such proceeding (or part thereof) by the indemnitee was
authorized by the Board of Directors of the corporation. The rights provided by
this Article VI shall continue as to a person who has ceased to be an indemnitee
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
SECTION 6.2 PREPAYMENT OF EXPENSES. The corporation shall pay the
expenses (including attorneys' fees) incurred by an indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
SECTION 6.3 CLAIMS. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty (60) days after
a written claim therefor by the indemnitee has been received by the corporation,
the indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expenses of
prosecuting such claim. In any such action the corporation shall have the burden
of proving that the indemnitee was not entitled to the requested indemnification
or payment of expenses under applicable law.
SECTION 6.4 NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article VI shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
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SECTION 6.5 OTHER INDEMNIFICATION. The corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise, or nonprofit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation, partnership,
joint venture, trust, enterprise or nonprofit enterprise.
SECTION 6.6 SETTLEMENT OF CLAIMS. The corporation shall not be liable
to indemnify any person under this Article VI (a) for any amounts paid in
settlement of any action or claim effected without the corporation's written
consent, which consent shall not be unreasonably withheld; or (b) for any
judicial award if the corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
SECTION 6.7 SUBROGATION. In the event of payment under this Article VI,
the corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
SECTION 6.8 NO DUPLICATION OF PAYMENTS. The corporation shall not be
liable under this Article VI to make any payment in connection with any claim
made against an indemnitee to the extent the indemnitee has otherwise actually
received payment (under any insurance policy, agreement, vote, or otherwise) of
the amounts otherwise indemnifiable hereunder.
SECTION 6.9 AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
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ARTICLE VII
MISCELLANEOUS
-------------
SECTION 7.1 FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 7.2 SEAL. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
SECTION 7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 7.4 INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(1) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or
(2) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
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(3) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee, which authorizes the contract or transaction.
SECTION 7.5 FORM OF RECORDS. Any records maintained by the corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
SECTION 7.6 AMENDMENT OF BYLAWS. These bylaws may be altered, amended
or repealed and new bylaws may be adopted at any regular or special meeting of
the stockholders by a vote of the stockholders owning a majority of the shares
and entitled to vote thereat. These bylaws may be altered, amended or repealed
and new bylaws may be adopted at any regular or special meeting of the Board of
Directors (if notice of such alteration or repeal be contained in the notice of
such special meeting) by a majority vote of the directors present at the meeting
at which a quorum is present, but any such amendment shall not be inconsistent
with or contrary to the provision of any amendment adopted by the stockholders.
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CERTIFICATE OF SECRETARY
I certify:
That I am the duly elected and acting Secretary of Genius Products,
Inc., a Delaware corporation; and
That the foregoing bylaws, comprising ten (10) pages, constitute the
Bylaws of such corporation on the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate and affixed the
seal of such corporation on __________________, 2004.
-------------------------------
Michael Meader, Secretary
[SEAL]
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APPENDIX F
NEVADA REVISED STATUTES
DISSENTERS' RIGHTS STATUTES
NRS 92A.300 DEFINITIONS. As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
NRS 92A.310 "CORPORATE ACTION" DEFINED. "Corporate action" means the action of a
domestic corporation.
NRS 92A.315 "DISSENTER" DEFINED. "Dissenter" means a stockholder who is entitled
to dissent from a domestic corporation's action under NRS 92A.380 and who
exercises that right when and in the manner required by NRS 92A.400 to 92A.480,
inclusive.
NRS 92A.320 "FAIR VALUE" DEFINED. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
NRS 92A.325 "STOCKHOLDER" DEFINED. "Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation.
NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
NRS 92A.335 "SUBJECT CORPORATION" DEFINED. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
NRS 92A.340 COMPUTATION OF INTEREST. Interest payable pursuant to NRS 92A.300 to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances.
NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY COMPANY.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
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NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
1. Except as otherwise provided in subsection 2, and unless otherwise provided
in the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby entitled
to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND
TO OBTAIN PAYMENT FOR SHARES.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of any of the following corporate actions:
(a) Consummation of a conversion or plan of merger to which the domestic
corporation is a constituent entity:
(1) If approval by the stockholders is required for the conversion or merger by
NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation, regardless
of whether the stockholder is entitled to vote on the conversion or plan of
merger; or
(2) If the domestic corporation is a subsidiary and is merged with its parent
pursuant to NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation is a
constituent entity as the corporation whose subject owner's interests will be
acquired, if his shares are to be acquired in the plan of exchange.
(c) Any corporate action taken pursuant to a vote of the stockholders to the
extent that the articles of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting stockholders are entitled to
dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment pursuant to NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES OR
SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
1. There is no right of dissent with respect to a plan of merger or exchange in
favor of stockholders of any class or series which, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or exchange is to be acted on, were either
listed on a national securities exchange, included in the national market system
by the National Association of Securities Dealers, Inc., or held by at least
2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares provide
otherwise; or
(b) The holders of the class or series are required under the plan of merger or
exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of fractional
owner's interests of:
(I) The surviving or acquiring entity; or
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(II) Any other entity which, at the effective date of the plan of merger or
exchange, were either listed on a national securities exchange, included in the
national market system by the National Association of Securities Dealers, Inc.,
or held of record by a least 2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO
SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
1. A stockholder of record may assert dissenter's rights as to fewer than all of
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held on
his behalf only if:
(a) He submits to the subject corporation the written consent of the stockholder
of record to the dissent not later than the time the beneficial stockholder
asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, a stockholder who wishes to assert dissenter's
rights:
(a) Must deliver to the subject corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and NRS
92A.400 is not entitled to payment for his shares under this chapter.
NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.
1. If a proposed corporate action creating dissenters' rights is authorized at a
stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
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2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what extent
the transfer of the shares will be restricted after the demand for payment is
received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date the
notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF RIGHTS
OF STOCKHOLDER.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he or the beneficial owner on whose behalf he is dissenting,
as the case may be, acquired beneficial ownership of the shares before the date
required to be set forth in the dissenter's notice for this certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if any,
before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates where
required, each by the date set forth in the dissenter's notice, is not entitled
to payment for his shares under this chapter.
NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND
FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
1. The subject corporation may restrict the transfer of shares not represented
by a certificate from the date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt of
a demand for payment, the subject corporation shall pay each dissenter who
complied with NRS 92A.440 the amount the subject corporation estimates to be the
fair value of his shares, plus accrued interest. The obligation of the subject
corporation under this subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is located; or
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(b) At the election of any dissenter residing or having its registered office in
this state, of the county where the dissenter resides or has its registered
office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of income
for that year, a statement of changes in the stockholders' equity for that year
and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS 92A.480;
and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF DISSENTER'S
NOTICE.
1. A subject corporation may elect to withhold payment from a dissenter unless
he was the beneficial owner of the shares before the date set forth in the
dissenter's notice as the date of the first announcement to the news media or to
the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
1. A dissenter may notify the subject corporation in writing of his own estimate
of the fair value of his shares and the amount of interest due, and demand
payment of his estimate, less any payment pursuant to NRS 92A.460, or reject the
offer pursuant to NRS 92A.470 and demand payment of the fair value of his shares
and interest due, if he believes that the amount paid pursuant to NRS 92A.460 or
offered pursuant to NRS 92A.470 is less than the fair value of his shares or
that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district court of
the county where its registered office is located. If the subject corporation is
a foreign entity without a resident agent in the state, it shall commence the
proceeding in the county where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign entity was located.
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3. The subject corporation shall make all dissenters, whether or not residents
of Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired shares for
which the subject corporation elected to withhold payment pursuant to NRS
92A.470.
NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND
FEES.
1. The court in a proceeding to determine fair value shall determine all of the
costs of the proceeding, including the reasonable compensation and expenses of
any appraisers appointed by the court. The court shall assess the costs against
the subject corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously or not in good faith
in demanding payment.
2. The court may also assess the fees and expenses of the counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the court
finds the subject corporation did not substantially comply with the requirements
of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced pursuant
to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68 or NRS
17.115.
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