EXHIBIT 2.5
ASSUMPTION OF OBLIGATIONS AND PLEDGE AGREEMENT
(VIDEO CATALOG)
This Assumption of Obligations and Pledge Agreement (this "AGREEMENT")
is made and entered into as of March 21, 2005, by and between Genius Products,
Inc., a Delaware corporation ("PLEDGEE"), and American Vantage Companies, a
Nevada corporation ("PLEDGOR").
WHEREAS, Pledgee and Pledgor are parties to that certain Agreement and
Plan of Merger dated as of March 21, 2005 (the "MERGER AGREEMENT"), pursuant to
which Pledgee will acquire the Company (as defined in the Merger Agreement);
WHEREAS, as a further inducement to Pledgee to enter into and
consummate the transactions contemplated by the Merger Agreement, Pledgee
desires to assign, and Pledgor desires to assume, certain obligations of the
Company, on a going-forward basis, following the consummation of the
transactions contemplated by the Merger Agreement; and
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the closing of the transactions contemplated by the
Merger Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt, adequacy and legal sufficiency of which are hereby acknowledged, the
parties do hereby agree as follows:
1. CAPITALIZED TERMS. Capitalized terms used but not defined herein
shall have the meanings for such terms that are set forth in the Merger
Agreement.
2. CERTAIN DEFINITIONS.
(a) "ASSIGNMENT" has the meaning set forth in SECTION 3
hereof.
(b) "CERTIFICATES" means the certificate or certificates
evidencing ownership of the Collateral, in such denominations as Pledgor shall
reasonably request.
(c) "COLLATERAL" means seven hundred thousand (700,000) shares
of Purchaser Common Stock registered in the name of Pledgor and/or its
Affiliates, which comprises a portion of the Merger Consideration, to the extent
not released and distributed by Pledgee to Pledgor in accordance with SECTION
10(b) hereof.
(d) "DEFAULT" has the meaning set forth in SECTION 8 hereof.
(e) "OBLIGATIONS" has the meaning set forth in SECTION 3(A)
hereof.
3. ASSIGNMENT, ASSUMPTION AND OTHER AGREEMENTS.
(a) Effective as of immediately following the Effective Time,
Pledgee hereby assigns, sells, transfers and sets over (collectively, the
"ASSIGNMENT") to Pledgor the Pledgee's obligations and liabilities related to or
associated with (i) accounts payable that are attributable to the Direct
Response Video Catalog of Wellspring Media that are set forth on SCHEDULE 1
attached hereto, and (ii) amounts owing under the lease for the property in the
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name of Wellspring Media at 0000 Xxxxxxxx Xxxx., Xxx Xxxxxxx, XX (the "WILSHIRE
BLVD. PREMISES"), in all cases without set-off or counterclaims against Pledgee
(collectively, the "OBLIGATIONS"). Pledgor hereby accepts the Assignment and
assumes and agrees to pay and discharge all of the Obligations when due from and
after the Closing. In addition to any remedies available to Pledgee under
SECTION 9 hereof, in the event that Pledgor fails to pay any Obligation when it
becomes due, and Pledgee shall pay such amount on behalf of Pledgor, then
Pledgor shall pay the amount of such Obligation to Pledgee with such amount
carrying interest at a rate of 10.0% per annum from the due date for such
Obligation until such amount plus accrued interest is paid in full to Pledgee
(with any such accrued interest also constituting an Obligation hereunder).
(b) Pledgee agrees to vacate the Wilshire Blvd. Premises
within 15 days following the sale or shutdown of the Video Catalog business
conducted at that location, and will reasonably cooperate with Pledgor in
subletting or assigning the Wilshire Blvd. Premises thereafter.
(c) Pledgor agrees, following the Effective Time, to segregate
and deposit 50% of the net proceeds actually received by Pledgor or its
Affiliates from the sale of Merger Consideration, until such time as $1,100,000
of proceeds is actually deposited by Pledgor (which shall be no later than 60
days following the Effective Time), into a joint bank account with Pledgee,
which account will require the signatures of both Pledgee and Pledgor to make
withdrawals or transfers. The parties agree to promptly use such funds for the
payment of Obligations and Pledgor's other obligations hereunder until they are
fully satisfied, after which time the remaining funds, if any, will promptly be
released back to Pledgor.
(d) Pledgor agrees to pay to Pledgee one-half of any reduction
in amounts legally owing under any individual Obligation resulting primarily
from the negotiation or efforts of Pledgee with the creditor, within five days
of receipt of written notice by Pledgor accompanied by reasonable proof or other
documentation evidencing the subject creditor's unconditional agreement to such
reduction. For example, if Pledgee obtains a settlement with a creditor of an
Obligation legally reducing the amount owed to such creditor from $20,000 to
$10,000, Pledgor will pay to Pledgee $5,000 within five days of receipt of such
notice and proof or documentation of such reduction.
4. PLEDGE AND SECURITY INTEREST. To secure Pledgor's obligations to
Pledgee to assume and fully discharge when due all of the Obligations and
Pledgor's other obligations hereunder, Pledgor hereby pledges the Collateral to
Pledgee and grants to Pledgee a continuing security interest in the Collateral.
5. DEPOSIT OF COLLATERAL. Pledgor shall (i) deliver to Pledgee the
Certificates; and (ii) deliver to Pledgee one original stock power for each
Certificate in the form of EXHIBIT A attached hereto, duly executed in blank.
6. WARRANTIES AND COVENANTS OF PLEDGOR.
Pledgor represents, warrants, covenants and agrees as follows:
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(a) OBLIGATIONS. SCHEDULE 1 attached hereto sets forth a true,
correct and accurate listing of all obligations and liabilities related to or
associated with accounts payable that are attributable to the Direct Response
Video Catalog of Wellspring Media.
(b) NOVATIONS. Pledgor shall use its best efforts to seek
novations of all of the Obligations such that Pledgor is the obligor of record
with respect to all of the Obligations. Notwithstanding anything herein or in
the Merger Agreement to the contrary and for the avoidance of doubt, upon and
following the Assignment, Pledgor shall be the primary obligor with respect to
all of the Obligations.
(c) OWNERSHIP OF COLLATERAL. Pledgor has good, valid
marketable title to the Collateral, free from any liens, charges, pledges,
security interests, encumbrances, rights to purchase or other claim or interest
of any kind, other than those granted herein.
(d) LIENS. Pledgor will neither create nor permit the creation
of any lien charge, pledge, security interest, encumbrance or other claim or
interest in the Collateral without the prior written consent of Pledgee.
(e) FIRST-PRIORITY SECURITY INTEREST. Pledgee will at all
times have a valid, perfected first-priority security interest in the
Collateral.
(f) TRANSFERS. Pledgor will neither make nor permit any
transfer of the Collateral without the prior written consent of Pledgee.
(g) REIMBURSEMENT OF EXPENSES. Pledgor will reimburse Pledgee
for any expenses reasonably incurred by Pledgee in protecting or realizing on
the Collateral.
(h) PAYMENT OF TAXES AND INDEBTEDNESS. Pledgor shall promptly
pay all liens, taxes, assessments, or contributions required by law which may
come due and which are lawfully levied or assessed with respect to the
Obligations or any of the Collateral.
7. EXERCISE OF SHAREHOLDER RIGHTS.
(a) RECEIPT OF DIVIDENDS AND DISTRIBUTIONS. Prior to the
occurrence of a Default, Pledgor shall have the right to receive and retain any
ordinary dividends or other distributions paid on the Collateral.
(b) RIGHT TO VOTE. Prior to the occurrence of a Default,
Pledgor may vote the Collateral for all purposes allowed within the restrictions
set by this Agreement and otherwise imposed by the Merger Agreement and the
agreements related thereto, including, without limitation, the Resale and Voting
Agreement.
8. DEFAULT.
Pledgor shall be in default hereunder (each such occurrence, a
"DEFAULT"), and Pledgee shall have the rights and remedies of a secured party
under Article 9 of the Uniform Commercial Code of Nevada, in addition to any
other remedies available to it hereunder or under any other agreement, if
Pledgor fails to pay or perform any of the Obligations when the same become due
and payable or performable.
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9. REMEDIES UPON DEFAULT.
(a) PLEDGEE MAY REGISTER SHARES. Upon the occurrence of a
Default, Pledgee may cause the Collateral to be transferred to Pledgee's name
and may exercise any right normally incident to the ownership of the Collateral,
including the right to vote and to receive all dividends or other payments.
(b) COLLATERAL. Upon the occurrence of a Default, Pledgee may
sell all or any part of the Collateral at public or private sale, or retain the
Collateral in full or partial satisfaction of the Obligations. Pledgee may
purchase all or any part of the Collateral at the sale. Proceeds of any sale
shall be applied first to pay all costs and expenses related to the Default and
sale of the Collateral, including all attorneys' fees, and second, to pay all
amounts owed on the Obligations, with any excess to be returned to Pledgor.
(c) REMEDIES CUMULATIVE. Upon the occurrence of a Default,
Pledgee shall have all rights and remedies available at law or in equity,
including all rights available under the Uniform Commercial Code, and all rights
and remedies granted under this Agreement, the Merger Agreement and any other
related documents or agreements. These rights and remedies shall be cumulative,
and may be exercised singly or concurrently with all other rights and remedies
Pledgee may have.
(d) ACKNOWLEDGMENTS AND AGREEMENTS OF PLEDGOR. Pledgor hereby
acknowledges and agrees (i) that Pledgor waives all rights of redemption, stay,
valuation and appraisal under any applicable laws, (ii) that ten (10) days'
prior written notice of Pledgee's intention to make any sale of the Collateral
is commercially reasonable notice, (iii) that the requirements of federal and
state securities laws may limit Pledgee's sale of all or part of the Collateral
as well as the extent or manner in which any subsequent transferee could dispose
of the same, (iv) in light of such restrictions, Pledgee may effect a private
sale to one or more purchasers who will agree, among other things, to acquire
the Collateral for their own account, for investment, and not with a view to the
distribution or resale thereof, (v) that Pledgee may proceed to make such a sale
whether or not a registration statement for the purpose of registering the
Collateral shall have been filed and may approach and negotiate with a single
potential purchaser to effectuate such sale, (vi) any such sale might result in
prices or other terms less favorable than if such sale were a public sale
without such restrictions, and Pledgee shall incur no liability for selling any
Collateral under such circumstances, and (vii) the foregoing shall apply not
withstanding the existence of a public or private market upon which the
quotations or sales prices may exceed substantially the price at which Pledgee
sells.
(e) REGISTRATION. Pledgor hereby assigns to Pledgee, upon the
occurrence of a Default, all registration rights Pledgor now has or may
hereafter acquire with respect to the Collateral.
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10. TERMINATION OF PLEDGE AND SECURITY INTEREST.
(a) SECTIONS 4, 5, 7, 8 and 9 of this Agreement shall remain
in full force and effect until the Obligations have been fully and finally
discharged.
(b) Pledgee agrees that as Pledgor provides satisfactory
evidence (in the reasonable discretion of Pledgee) that Pledgor has fully paid,
discharged and satisfied each $100,000.68 increment of the Obligations (except
with respect to the balance under the final $100,000.68 of Obligations, which
shall be such remaining balance), Pledgee will distribute to Pledgor from the
Collateral, within five (5) business days of Pledgee's receipt of such
satisfactory evidence, a stock certificate evidencing Collateral having an
aggregate Face Value equal to $100,000.68, together with the stock power with
respect to such delivered stock certificate if such stock power relates solely
to the stock certificate being distributed to Pledgor. For purposes of this
Agreement, "FACE Value" means $1.56 per share (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other recapitalizations).
(c) Set forth on SCHEDULE 2 attached hereto is a list of
physical properties associated with the Direct Response Video Catalog of
Wellspring Media (the "INVENTORY"). To the extent that Pledgee sells (i) units
of Inventory during the term of the security interest granted hereunder, or (ii)
the Video Catalog business (consisting of the trademark "Video Catalog" and the
related mailing list(s) used in the business) or any portion thereof, the amount
of the Obligations (or such lesser amount of Obligations to which Pledgor may
then be subject) shall be reduced, on a dollar-for-dollar basis (but not below
zero), by the amounts actually collected and received by Pledgee in respect of
such sales, net of any direct costs incurred by Pledgee related to the sale of
such Inventory or the collection of payment therefor (any such reduced amount of
Obligations, an "INVENTORY SALES AMOUNT"). Notwithstanding anything contained
herein to the contrary, all Inventory Sales Amounts will be applied, on a
dollar-for-dollar basis, as a payment, discharge and satisfaction of Obligations
for purposes of Section 10(b) hereof in accordance with the terms and conditions
thereof. If Pledgee realizes any net Inventory Sales Amounts after Pledgor has
fully satisfied and paid all of its Obligations hereunder (or such lesser amount
which will satisfy all of the Obligations), Pledgee shall promptly remit any
such Inventory Sales Amounts to Pledgor, up to the amount of Obligations
actually paid by Pledgor.
11. MISCELLANEOUS.
(a) WAIVER. No right or obligation under this Agreement will
be deemed to have been waived unless evidenced by a writing signed by the party
against which the waiver is asserted or by its duly authorized representative.
Any waiver will be effective only with respect to the specific instance
involved, and will not impair or limit the right of the waiving party to insist
upon strict performance of the right or obligation in any other instance, in any
other respect, or at any other time.
(b) NOTICE. Any notice or other communication required or
permitted under this Agreement shall be delivered in accordance with the notice
provision set forth in the Merger Agreement.
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(c) MODIFICATIONS TO BE IN WRITING. To be effective, any
modification to this Agreement must be in writing signed by all parties to the
Agreement.
(d) AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS. This
Agreement shall bind Pledgor and its successors and assigns. All rights,
privileges and powers granted to Pledgee under this Agreement shall benefit
Pledgee and its successors and assigns.
(e) ASSIGNMENT OF AGREEMENT. At any time, Pledgee may assign
or transfer any of its rights or powers under this Agreement to any person or
entity. Pledgor may not transfer its rights, duties or obligations under this
Agreement without the prior written consent of Pledgee.
(f) FURTHER ASSURANCES. Both Pledgor and Pledgee agree to take
any further actions and to make, execute and deliver any further written
instruments which may be reasonably required to carry out the terms, provisions,
intentions and purposes of this Agreement.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed and interpreted in accordance with the law of the State of California,
without regard to that state's conflict of laws principles. All disputes between
the parties hereto, whether sounding in contract, tort, equity or otherwise,
shall be resolved only by state and federal courts located in Los Angeles,
California, and the courts to which an appeal therefrom may be taken. All
parties hereto waive any objections to the location of the above referenced
courts, including but not limited to any objection based on lack of
jurisdiction, improper venue or forum non-conveniens. Notwithstanding the
foregoing, any party obtaining any order or judgment in any of the above
referenced courts may bring an action in a court in another jurisdiction in
order to enforce such order or judgment.
(h) RECOVERY OF FEES BY PREVAILING PARTY. If any legal action,
including, without limitation, an action for arbitration or injunctive relief,
is brought relating to this Agreement or the breach hereof, the prevailing party
in any final judgment or arbitration award shall be entitled to the full amount
of all reasonable expenses, including all court costs, arbitration fees and
actual attorneys' fees paid or incurred in good faith.
(i) SEVERABILITY. If any provision of this Agreement or any
application of any provision is determined to be unenforceable, the remainder of
this Agreement shall be unaffected. If the provision is found to be
unenforceable when applied to particular persons or circumstances, the
application of the provision to other persons or circumstances shall be
unaffected.
(j) HEADINGS. Headings used in this Agreement have been
included for convenience and ease of reference only and will not in any manner
influence the construction or interpretation of any provision of this Agreement.
(k) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which will be deemed to be an original and all of which
together will constitute a single agreement.
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IN WITNESS WHEREOF, the parties have executed this Assumption of
Obligations and Pledge Agreement as of the date first above written.
PLEDGEE:
GENIUS PRODUCTS, INC.
By: /S/ XXXXXX XXXXXXXXXX
--------------------------
Name: XXXXXX XXXXXXXXXX
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Title: CHIEF EXECUTIVE OFFICER
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PLEDGOR:
AMERICAN VANTAGE COMPANIES
By: /S/ XXXXXX X. XXXXXXXXX
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Name: XXXXXX X. XXXXXXXXX
------------------------
Title: CHIEF EXECUTIVE OFFICER
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