Exhibit 10.1

 

GENIUS BRANDS INTERNATIONAL, INC.
190 N. Canon Drive, 4th Floor
Beverly Hills, CA 90210

 

November 15, 2020

 

PRIVATE AND CONFIDENTIAL

 

Via Email

 

ChizComm Ltd.
ChizComm USA Corp.
245 Fairview Mall Drive, Suite 301
North York, ON M2J 4TI
CANADA

 

Attn:       Mr. Harold Chizick, CEO

 

Dear Harold:

 

We are pleased to submit this offer by Genius Brands International, Inc., a
Nevada corporation (“GBI”), regarding its proposed acquisition of all of the
equity interests of (i) ChizComm Ltd., a corporation organized in Canada
(“ChizComm Canada”), and (ii) ChizComm USA Corp., a New Jersey corporation
(“ChizComm USA” and, together with ChizComm Canada, “ChizComm” or the
“Company”).

 

The terms of our offer are set forth in this letter (this “Letter”). GBI is
prepared to move expeditiously to execute Definitive Agreements (as defined
below).

 

1.               Transaction Value. At the closing of the Transaction (as
defined herein), GBI would acquire from the equity holders of the Company (the
“Sellers”) for USD $12,000,000 (the “Transaction Value”) all of the equity
interests of the Company (the “Interests”), free and clear of all encumbrances
other than disclosed encumbrances like the office furniture lease, based upon a
cash-free, debt-free (i.e., with no bank, institutional or other loans)
enterprise with, on closing, current net assets being no greater than current
net liabilities (the “Transaction”). We will structure the Transaction in a tax
efficient manner, taking into account the interests of GBI, the Company and the
Sellers, which could include having GBI establish a Canadian or other business
entity to be the purchaser of the Company’s Interests (“Buyer”).

 

(A)           At the closing of the Transaction, GBI will arrange for the
payment to the Sellers of (i) USD $8.5 million dollars in cash and (ii) USD $3.5
million dollars of unregistered common shares of GBI (the “Share
Consideration”).

 

(B)           The per share price used to determine the number of GBI shares to
be issued to the Sellers for the Share Consideration would be the closing price
of the GBI shares on the day prior to the Closing. The shares issued by GBI
hereunder will be unregistered but saleable in trades beginning six (6) months
after the closing per Rule 144 under the Securities Act of 1933, subject to the
restrictions below.

 

(C)           For the avoidance of doubt, $2,000,000 of the Transaction Value is
allocated to the customer acquisition of 2,000,000 new subscribers for GBI’s
Kartoon Channel.

 

 

 

   

 

 

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2.               Additional Consideration. If during the four (4) year period
commencing on the date of closing (the “earn out period”):

 

(A)           New Subscribers. If Sellers can demonstrate to GBI’s reasonable
satisfaction that GBI acquired new users (downloads) for GBI’s Kartoon Channel
(“KC Users”), the Sellers or their designees shall receive up to USD $4,000,000
payable in GBI common shares priced at the time of grant.

 

i.                 On the first annual anniversary of the closing and each year
thereafter during the earn out period, the number of new KC Users, added over
and above the number set forth in paragraph 1(C) above, shall be determined and
USD $1.50 per KC User added during that year shall be paid by GBI in additional
GBI common shares to the Sellers or their designees. For example, if on the
first anniversary of the closing, KC Users are 500,000 greater than 2,000,000 as
set forth above, the Additional Consideration due Sellers would be USD $750,000
of GBI commons shares.

 

(B)           EBITDA Based. Sellers or their designees shall receive up to
USD $4,000,000 payable in GBI common shares priced at the time of grant if the
Company’s earnings before income tax, depreciation or amortization (“EBITDA”)
exceeds USD $1,000,000. As such, at the end of each calendar year commencing in
2021, if the Company’s EBITDA, as calculated in accordance with generally
accepted accounting principles, applied on a consistent basis for the Company
exceed a base of USD $1,000,000 plus the EBITDA from each successive year, on a
cumulative basis, then the Sellers or their designees shall be paid by GBI the
sum of USD $1.50 for each dollar of increased EBITDA payable in GBI common
shares. For example, if for the year 2021 the Company’s EBITDA is
USD $1,500,000, then the Sellers shall be paid USD $750,000 payable in GBI
common shares; and if for 2022 the Company’s EBITDA is USD $2,000,000, the
Additional Consideration shall be USD $750,000 payable in GBI common shares.

 

3.               Conditions; Representation and Documentation.

 

(A)           The parties expect to negotiate and execute mutually satisfactory
definitive agreements (the “Definitive Agreements”). We have attached all key
purchase agreement terms as Exhibit A hereto.

 

(B)           The Company represents and warrants that it (i) has disclosed to
GBI all of its material liabilities and has no bank or other loan or credit
facilities; (ii) has no agreement which gives rise to any material payments or
financial obligation to a third party outside of the ordinary course of its
business; (iii) has no agreement to lease equipment or real property except for
its office leases and furniture; (iv) has no outstanding tax obligations outside
of those incurred in the ordinary course of its business for this fiscal year;
and (v) has no labor agreements or pension plans except as heretofore provided
to GBI. From and after the date of this Letter, GBI and its advisors shall have
access to the Company’s records on tax filings and litigation.

 

(C)           GBI intends to keep the Company’s employees in place at closing at
compensation levels comparable to current levels (salary and benefits) and
expects the Company’s management to use its reasonable best efforts to assist
GBI to keep those individuals in place.

 

4.               Exclusivity. In consideration for the time and resources that
GBI will devote to the Transaction, the Company agrees that, for the period from
the date of its acceptance of this Letter until the earlier of January 30, 2021
or closing of the Transaction (the “Exclusivity Period”), it will not, and it
will cause its affiliates and their respective officers, directors, employees,
representatives, agents, and equity holders (with the Company, each a “Company
Party”) not to pursue or enter into any agreements or arrangements with respect
to a possible: (i) reorganization, dissolution, liquidation, or recapitalization
involving the Company; (ii) merger, consolidation, share exchange, or
acquisition involving the Company; (iii) sale of any material amount of assets
of the Company (other than in the ordinary course of business and consistent
with past practice); (iv) direct or indirect acquisition or purchase of the
Interests, including any capital stock or other equity interests, or debt
securities of the Company; (v) material dividend or stock repurchase;
(vi) similar transaction or business combination involving the Company or its
business or its capital stock, securities or assets (however structured), or
(vii) other transaction the consummation of which would prevent, impede, or
delay the consummation of the Transaction (each of the above, an “Alternative
Transaction”), or provide any information to any other party in connection
therewith; provided, that if a Definitive Agreement has not been executed prior
to January 30, 2021, the Company may terminate the Exclusivity Period at any
time.

 

5.               Conduct of Business; Access to Information. During the
Exclusivity Period, the Company will conduct its business and operations in the
ordinary course of business and consistent with its prior business practices.
The Company will provide GBI and its representatives, agents, consultants and
advisors with reasonable access during normal business hours to the properties,
personnel (including appropriate management and outside advisors), and
financial, legal, accounting, tax, and other data and information relating to
the business, operations, and properties of Company.

 

 

 

   

 

 

Page Three

 

 

6.               Fees and Expenses. The Company and GBI will pay their
respective costs, fees and expenses incurred in connection with the Transaction
contemplated hereby.

 

7.               Confidentiality. During the Exclusivity Period and prior to
closing, the parties hereto will not, except as otherwise required by law,
without the consent of the other party, make any announcement about any
Transaction to the public, or otherwise disclose the existence of this Letter,
the fact of the discussions among the parties concerning the Transaction, or the
specific terms of this Letter; provided, that nothing herein will prohibit
sharing this Letter or the terms of the Transaction with a party’s affiliates,
equity holders, attorneys, accountants, employees or other representatives or
advisors without the written consent of the other party and provided that they
are advised that such information is confidential and are directed to abide by
the provisions of this Paragraph 7.

 

8.               Binding Effect; Governing Law; Counterparts; Authority. This
Letter, including Exhibit A attached hereto, is a statement of the parties’
agreement with respect to a Transaction. The parties shall use their good faith
to reach Definitive Agreements, but if they are unable to agree, they shall be
bound to the terms of this Letter, which will constitute a binding and
enforceable purchase agreement among the parties hereto and their successors.

 

This Letter will be governed by and construed in accordance with the internal
laws (and not the laws of conflicts) of the State of New York. This Letter may
be executed in one or more counterparts (including by facsimile or .pdf), none
of which need contain the signature of more than one party, and all of which
taken together will constitute one and the same agreement. This Letter
constitutes the entire agreement between us and supersedes all prior
communications, agreements and understandings, written or oral, with respect to
the subject matter hereof. No party may assign this Letter without the other
party’s consent, and any assignment without consent will be void. The Company
represents that it will not, by executing and complying with this Letter or
pursuing the Transaction described herein, violate the terms of any other
agreement or obligation to which the Company is subject, and further represents
and warrants that the Company has taken all actions that may be necessary in
order to make the binding provisions of this Letter legal, valid and binding
obligations of the Company.

 

Formalities aside, we look forward to our continued participation in this
process and are excited about the opportunity to work with you to achieve
profitable growth and sustained equity value creation.

 

If you are in agreement with the terms set forth above and desire to proceed
with the Transaction on that basis, please sign in the space provided below and
return an executed copy.

 

(Signature Pages Follow)

 

 

 

   

 

Page Four

 

 

  Sincerely,       GENIUS BRANDS INTERNATIONAL, INC.               By:  /s/
Andrew Heyward                                                    Andrew Heyward

 

 

Accepted, Acknowledged and Agreed
on this  15th  day of November, 2020

 

CHIZCOMM LTD.
CHIZCOMM USA CORP.

By:  /s/ Harold Chizick                         
Harold Chizick, CEO

 

 

 

   

 

 

Exhibit A: Key Terms and Conditions

 

Additional Consideration/   Earn Out: See paragraph 2 of the Letter.  Further,
if the Company is sold by GBI during the four (4) year earn out period, GBI will
ensure that the purchaser of the business assumes all obligations relating to
the Additional Consideration to preserve for the Equity Holders the opportunity
and right to receive the additional consideration.     Closing: The Transaction
will close on or after January 15, 2021 and before February 28, 2021 (the
“Closing” or “Closing Date”).     Confidentiality: The Equity Holders will be
subject to a confidentiality provision that will survive indefinitely.    
Employment Agreements: At the Closing, senior executive employment agreements
with a three (3) year term, with GBI having a two (2) year renewal option, shall
be offered to:

 

 

(i)Harold Chizick at an annual base salary of USD $308,0000;

 

(ii)Jennifer Chizick at an annual base salary of USD $279,000;

 

(iii)Donna McNeil at an annual base sale of CDN $230,000 (ESOP Eligible); and

 

(iv)Kathleen Campisano at an annual base salary of USD $350,000 plus
USD $100,000 of GBI common shares.

 

  Each of these agreements shall contain (i) such other benefits and terms as
are found in the employment agreements which GBI has with its other senior
executive employees; and (ii) change of control protection if the Company is
sold by GBI to a third party during the term of the Agreement. The agreements
will contain customary restrictive covenants and equity grant, forfeiture and
clawback provisions.     Equity Holders’ Covenant: The Equity Holders agree to
not sell more than one-third (1/3) of the GBI shares they receive under this
Agreement in any four (4) month period. In addition, the Equity Holders will
agree to customary noncompetition and nonsolicitation covenants (in addition to
the covenants contained in their employment agreements) for three (3) years. The
agreements will also contain customary voting and standstill provisions, or
reference to the execution of voting and standstill agreements, for any Equity
Holders receiving GBI shares.     GBI Covenant: During the four (4) year period
following the Closing Date, GBI shall operate the Company as wholly-owned
subsidiaries and its senior executives will be afforded operational
independence, subject to GBI’s control and direction by its CEO and Board of
Directors with regard to key performance indicators and budget maintenance.    
Governing Law and   Jurisdiction: New York, with litigation in the state or
federal courts located in New York State.     Indemnity: All representations and
warranties will survive for twelve (12) months following the Closing, other than
certain agreed upon fundamental representations (the “Fundamental Reps”), which
will survive indefinitely, and certain statute of limitations representations
(the “SOL Reps”), which will survive until 30 days after the expiration of the
applicable statute of limitations.  Post-closing covenants will survive in
accordance with their terms.

 

 

 

   

 

 

      After the Closing, the Equity Holders, severally and not jointly, will
indemnify the Buyer for: (i) the Company’s or the Equity Holders’ breaches of
representations and warranties; (ii) the Company’s or the Equity Holders’
breaches of covenants; (iii) pre-closing taxes (“Taxes”); (iv) any unpaid
Company or Seller transaction expenses (“Unpaid Seller Expenses”); (v) any
unpaid indebtedness (“Unpaid Indebtedness”); and (vi) fraud or intentional
misrepresentation.       Buyer will not be entitled to indemnity for any breach
of representation or warranty, other than the Fundamental Reps and the SOL Reps:
(i) until the aggregate amount of all eligible claims exceeds 1.0% of the
Transaction Value (the “Deductible”), after which the Equity Holders will be
responsible for all eligible claims in excess of the Deductible; or (ii) in
excess of 10.0% of the Transaction Value (the “General Cap”). For the avoidance
of doubt, the Deductible and General Cap will not apply to indemnity claims
arising out of breaches of Fundamental or SOL Reps (to which a cap equal to the
Transaction Value will apply) or Taxes, Unpaid Seller Expenses, Unpaid
Indebtedness, or fraud or intentional misrepresentation (to which no cap will
apply).       Indemnified losses will be calculated after application of any
received insurance proceeds actually received punitive damages may only be
recovered by an indemnified party if owed to a third party.       Buyer will
include a holdback of USD $1,200,000 of the share consideration for twelve (12)
months (the “Holdback”) pending determination of the indemnity claims, if any.  
  Liabilities in   Net Asset Calculation: The Company has, in addition to all
ordinary course operating expenses:

 

  (1) furniture lease of approximately CDN $173,000, payable at the rate of
CDN $3,500 per month for four (4) additional years, secured by the fixed asset
of the Company; and         (2) office lease obligations in Canada and New
Jersey.

 

 

Marketing: The parties agree that the Company will, following the closing,
assume all marketing activities and functions for GBI.     Purchase Price: At
closing, the Buyer will pay the Company a net purchase price (“Purchase Price”)
of USD $12,000,000 (the “Transaction Value”) as set out in paragraph 1 of the
Letter.     Representations   and Warranties: The Company and the Equity Holders
will make mutually agreeable customary representations and warranties.  These
representations and warranties will contain ordinary course of business
qualifications and/or knowledge qualifiers.       Buyer will make mutually
agreeable customary representations and warranties relating to Organization and
Qualification; Authority, Power and Enforceability; Required Filings and
Consents; Investment Intent; and No Brokers.     Structure and Parties: The
Transaction will be structured as a share purchase of all of the equity
interests of ChizComm Ltd. and ChizComm USA Corp. (collectively, the
“Company”).  GBI, Buyer, the Company and the Company’s equity holders (the
“Equity Holders”) will be parties to the Definitive Agreements.     Transaction
Expenses: The Equity Holders will pay their respective costs, fees and expenses
incurred in connection with the closing of the Transaction (e.g., legal fees,
etc.).  Any regulatory filing fees will be borne by Buyer.  Inasmuch as the
Equity Holders opt for a transaction that is structured as a stock purchase,
there should be no sales tax due resulting from the transaction.