-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EWF+I1gCskGLRbx9osUCGI1+/ruYQmJBK+JOKgYZzqerHawnjfljRJFw4l1ScR6L T+CHCqC5dQdyMs3/UArIdw== 0001104659-08-061302.txt : 20080930 0001104659-08-061302.hdr.sgml : 20080930 20080930172508 ACCESSION NUMBER: 0001104659-08-061302 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20080930 DATE AS OF CHANGE: 20080930 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MEYER ANTHONY E CENTRAL INDEX KEY: 0001117454 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: BUSINESS PHONE: 2128574700 MAIL ADDRESS: STREET 1: C/O MEYER VENTURES STREET 2: 544 BROADWAY #800 WEST CITY: NEW YORK STATE: NY ZIP: 10012 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: AVP INC CENTRAL INDEX KEY: 0000930817 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEMBERSHIP SPORTS & RECREATION CLUBS [7997] IRS NUMBER: 980142664 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-79737 FILM NUMBER: 081097985 BUSINESS ADDRESS: STREET 1: 6100 CENTER DRIVE STREET 2: SUITE 900 CITY: LOS ANGELES STATE: CA ZIP: 90045 BUSINESS PHONE: 310-426-8000 MAIL ADDRESS: STREET 1: 6100 CENTER DRIVE STREET 2: SUITE 900 CITY: LOS ANGELES STATE: CA ZIP: 90045 FORMER COMPANY: FORMER CONFORMED NAME: OTHNET INC DATE OF NAME CHANGE: 20010502 FORMER COMPANY: FORMER CONFORMED NAME: PL BRANDS INC DATE OF NAME CHANGE: 19941003 SC 13D 1 a08-24578_2sc13d.htm SC 13D

	UNITED STATES
	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549

	SCHEDULE 13D

Under the Securities Exchange Act of 1934
(Amendment No. )*

AVP, INC.

(Name of Issuer)

Common Stock, par value $0.001 per share

(Title of Class of Securities)

00241A205

(CUSIP Number)

Nicholas J. Lewin

RJSM Partners, LLC

660 Madison Avenue, 17th Floor

New York, New York 10065

(917) 388-3245

Anthony E. Meyer

Meyer Ventures LLC

767 Fifth Avenue, 18th Floor

New York, NY 10153

(212) 599-3500

With a copy to:

George Soterakis, Esq.

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166

(212) 294-6700

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

September 19, 2008

(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent.

^* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 00241A205

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). RJSM Partners, LLC (IRS ID No. 98-0142664)

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) PF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization Delaware

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 7,000,000 shares (1)

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 0 (2)

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 7,000,000 (1)

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 33.19%

	14.	Type of Reporting Person (See Instructions) OO

(1)		Includes 1,393,500 shares of Common Stock issuable upon the conversion of 50,000 shares of the Issuer’s Series B Convertible Preferred Stock held by the Reporting Person.
(2)		The Reporting Person will have shared dispositive power over 7,000,000 shares at such time that the Reporting Person forgives the Issuer’s obligations to the Reporting Person pursuant to the Loan Agreement dated September 8, 2008 and the related Note dated September 8, 2008, which will occur not later than September 1, 2013.

CUSIP No. 00241A205

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). Nicholas J. Lewin

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization United States of America

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 7,000,000 shares (1)

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 0 (2)

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 7,000,000 shares (1)

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 33.19%

	14.	Type of Reporting Person (See Instructions) IN

(1)		Includes 1,393,500 shares of Common Stock issuable upon the conversion of 50,000 shares of the Issuer’s Series B Convertible Preferred Stock held by RJSM Partners, LLC, of which the reporting person is a Managing Member.
(2)		The Reporting Person will have shared dispositive power over 7,000,000 shares at such time that RJSM Partners, LLC forgives the Issuer’s obligations to RJSM pursuant to the Loan Agreement dated September 8, 2008 and the related Note dated September 8, 2008, which will occur not later than September 1, 2013.

CUSIP No. 00241A205

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). Anthony E. Meyer

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization United States of America

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 7,000,000 shares (1)

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 0 (2)

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 7,000,000 shares (1)

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 33.19%

	14.	Type of Reporting Person (See Instructions) IN

(1)		Includes 1,393,500 shares of Common Stock issuable upon the conversion of 50,000 shares of the Issuer’s Series B Convertible Preferred Stock held by RJSM Partners, LLC, of which the Reporting Person is a Managing Member.
(2)		The Reporting Person will have shared dispositive power over 7,000,000 shares at such time that RJSM Partners, LLC forgives the Issuer’s obligations to RJSM pursuant to the Loan Agreement dated September 8, 2008 and the related Note dated September 8, 2008, which will occur not later than September 1, 2013.

CUSIP No. 00241A205

Item 1.	Security and Issuer
This Schedule 13D relates to the common stock, par value $0.001 per share (the “Common Stock”), of AVP, Inc., a Delaware corporation (the “Issuer”). The principal executive offices of the Issuer are located at 6100 Center Drive, Suite 900, Los Angeles, California 90045.

Item 2.	Identity and Background
(a) This statement is filed by: (i) RJSM Partners, LLC, a Delaware limited liability company (“RJSM”), with respect to shares of Common Stock directly owned by it; and (ii) Nicholas J. Lewin, a natural person and a Managing Member of RJSM, with respect to shares of Common Stock held of record by RJSM (“Nick Lewin”); and (iii) Anthony E. Meyer, a natural person and a Managing Member of RJSM, with respect to shares of Common Stock held of record by RJSM (“Anthony Meyer,” collectively with Nick Lewin and RJSM, the “Reporting Persons”). The Reporting Persons expressly disclaim beneficial ownership of securities beneficially owned by any person or entity other than, to the extent of any pecuniary interest therein, the various accounts under the Reporting Persons’ management and control. (b) The address of the principal office of each of RJSM and Nick Lewin is 660 Madison Avenue, 17th Floor, New York, New York 10065. The address of the principal office of Anthony Meyer is c/o Meyer Ventures LLC, 767 Fifth Avenue, 18th Floor, New York, New York 10153. (c) The principal business of RJSM is to invest in sports and entertainment with a focus in high-value content properties. The principal business of Nick Lewin is to serve as a Managing Member of RJSM. The principal business of Anthony Meyer is to serve as a Managing Member of RJSM. (d) During the last five years, none of the Reporting Persons have been convicted in any criminal proceedings. (e) During the last five years, none of the Reporting Persons have been a party to a civil proceeding of any judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding of any violation with respect to such laws.

CUSIP No. 00241A205

Item 3.	Source and Amount of Funds or Other Consideration
The 7,000,000 shares of Common Stock beneficially owned by the Reporting Persons were acquired by the Reporting Persons for an aggregate purchase price of approximately $3,500,000. The shares were acquired with funds raised through equity capital contributions from the members of RJSM.

Item 4.	Purpose of Transaction
The Reporting Persons have acquired the Common Stock for investment purposes. In connection with the investment and pursuant to the terms of a securities purchase agreement dated as of September 8, 2008 by and between the Issuer and RJSM (the “Securities Purchase Agreement”): (i) RJSM is entitled to reasonable observer rights at meetings of the Issuer’s Board of Directors (the “Board”) for so long as RJSM owns equal to or greater than 2,803,250 shares of the Issuer’s issued and outstanding shares of capital stock (the “Requisite Number of Equity Securities”); (ii) the Issuer has decreased the current nine-member Board of Directors to five members, resulting in the resignations of the following directors: Phil Guarascio, Jeffrey Wattenberg, Steve Lindecke, and Bret Yormark (as previously disclosed on Form 8-K filed by the Issuer on September 3, 2008, Mr. Jeffrey Jacobs also resigned as a director of the Issuer); (iii) the Issuer has appointed two nominees of RJSM (the “Board Representatives”) to the Board of Directors, subject to the appointees meeting reasonable qualifications to serve on the Board of Directors; (iv) the Issuer has appointed one nominee by RJSM to each of the compensation committee and audit committee of the Board of Directors; (v) for so long as RJSM owns the Requisite Number of Equity Securities, the Issuer will be required to recommend to its stockholders the election of the Board Representatives at the Issuer’s annual meeting of stockholders; and (vi) RJSM will be granted the right to purchase additional shares of the Issuer’s common stock if the warrants held by persons other than RJSM as specified in the Securities Purchase Agreement that represent the right to purchase an aggregate of 5,301,272 shares of Common Stock for $0.01 per share are exercised after September 8, 2008 at a price per share of $.01, the same price per share at which the shares of common stock issued upon exercise of any such specified warrants are issued and sold. RJSM also entered into a subscription agreement with the Issuer (the “Subscription Agreement”) pursuant to which RJSM acquired 50,000 shares of Series B Convertible Preferred Stock, par value $.001 per share (the “Series B Preferred Stock”), for a price per share of $0.50. The Series B Preferred Stock is convertible at RJSM’s option into an aggregate of 1,393,500 shares of the Company’s common stock (which conversion rate is subject to adjustment). The Issuer granted RJSM registration rights with respect to the Common Shares and the shares of Common Stock into which the shares of Series B Preferred Stock purchased by RJSM are convertible. RJSM has the right to require the Issuer to register such shares at any time after the Issuer fully delivers any of such shares to RJSM in accordance with the terms and conditions of a loan agreement between the Issuer and RJSM dated as of September 8, 2008. Such rights (i) require the Issuer to file a registration statement and to maintain its effectiveness, subject to customary blackout periods and other exceptions and (ii) grant RJSM the right to participate in the Issuer’s future registered offerings, subject to customary exceptions. See Item 6 and the attached exhibits for more information.

CUSIP No. 00241A205

Item 5.		Interest in Securities of the Issuer
(a)	As of the close of business on September 19, 2008, the Reporting Persons beneficially own an aggregate of 7,000,000 shares of Common Stock, representing approximately 33.19% of the shares of Common Stock outstanding. The percentages used herein are based upon the 21,089,626 shares of Common Stock reported to be outstanding as of August 14, 2008 by the Issuer in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2008 and the 1,393,500 shares of Common Stock issuable upon the conversion of 50,000 the Issuer’s Series B Convertible Preferred Stock held by RJSM.

(b)	Each of the Reporting Persons has shared power to vote the 7,000,000 shares of Common Stock, constituting 33.19% of such class of securities; and Pursuant to the Loan Agreement dated as of September 8, 2008 and the related Note dated as of September 8, 2008, each of the Reporting Persons will have shared power to direct the disposition of the 7,000,000 shares of Common Stock, constituting 33.19% of such class of securities, at such time that RJSM forgives the Issuer’s obligations to RJSM under the Loan Agreement and the Note, which will occur not later than September 1, 2013.

(c)	Not applicable.

(d)	Not applicable.

(e)	Not applicable.

CUSIP No. 00241A205

Item 6.	Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer
Securities Purchase Agreement The Issuer and RJSM entered into the Securities Purchase Agreement pursuant to which RJSM agreed to acquire the Common Shares, an aggregate of 5,606,500 shares of the Issuer’s common stock, for an aggregate purchase price of $2,803,250 (the “Common Share Purchase Price”). The Common Share Purchase Price is payable in accordance with the Securities Purchase Agreement, which required that a portion of such Common Share Purchase Price be paid to the Issuer upon closing and that the balance of the Common Share Purchase Price be paid by RJSM when RJSM forgives the Company’s obligations under a loan agreement (the “Loan Agreement”) and promissory note (the “Note”). RJSM will have full voting rights associated with the Common Shares once the shares are issued in the name of RJSM upon the closing, but RJSM may not transfer the Common Shares until the Common Shares are delivered to RJSM at the time that RJSM forgives the Issuer’s obligations to RJSM under the Loan Agreement and the Note, which will not occur later than September 1, 2013. In addition, pursuant to the Loan Agreement, so long as at least 50% of the aggregate principal amount of the loan is outstanding and RJSM holds at least a majority of the outstanding principal amount of the Loan, the Issuer is restricted from doing any of the following without RJSM’s prior written consent: · participating in a sale, transfer, lease, or merger involving any material portion of the Issuer’s assets or business; · effecting any acquisition with a valuation in excess of $500,000; · altering or changing the rights of RJSM; · creating any series or class of convertible securities that are exchangeable into equity securities having a preference senior to or pari passu with the Series B Preferred Stock; · incurring debt in an amount greater than $500,000 (other than debt permitted by the Loan Agreement); · redeeming or repurchasing any equity securities of the Issuer; · taking any action that could result in taxation of RJSM under Section 305 of the Internal Revenue Code; · amending, altering, or repealing the Certificate of Incorporation or Bylaws of the Issuer in a manner that would materially affect RJSM; · issuing any warrants not outstanding as of the closing of the transaction (although no consent will be required to issue warrants that represent the right to acquire not more than 2.5% of the then-outstanding shares of common stock on a fully diluted basis); or · creating or issuing any other Series B Preferred Stock. Subscription Agreement The Issuer and RJSM entered into the Subscription Agreement pursuant to which RJSM acquired 50,000 shares of Series B Preferred Stock for a price per share of $0.50. The Series B Preferred Stock is convertible at RJSM’s option into an aggregate of 1,393,500 shares of the Company’s common stock (which conversion rate is subject to adjustment). Registration Rights Agreement The Issuer and RJSM entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Issuer granted to RJSM registration rights with respect to the Common Shares and the shares of Common Stock into which the shares of Series B Preferred Stock purchased by RJSM are convertible. RJSM has the right to require the Issuer to register such shares at any time after the Issuer fully delivers any of such shares to RJSM in accordance with the terms and conditions of the Loan Agreement. Such rights (i) require the Issuer to file a registration statement and to maintain its effectiveness, subject to customary blackout periods and other exceptions and (ii) grant RJSM the right to participate in the Issuer’s future registered offerings, subject to customary exceptions.

CUSIP No. 00241A205

Item 7.		Material to be Filed as Exhibits
	10.1	Securities Purchase Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
	10.2	Subscription Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
	10.3	Registration Rights Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
	10.4	Side Letter Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
	10.5	Loan Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.

CUSIP No. 00241A205

Signature

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated this 30th day of September, 2008.

RJSM PARTNERS, LLC

By:	/s/ Nicholas J. Lewin
	Nicholas J. Lewin, Managing Member

By:	/s/ Anthony E. Meyer
	Anthony E. Meyer, Managing Member


NICHOLAS J. LEWIN

/s/ Nicholas J. Lewin


ANTHONY E. MEYER

/s/ Anthony E. Meyer

Exhibits

10.1		Securities Purchase Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
10.2		Subscription Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
10.3		Registration Rights Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
10.4		Side Letter Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.
10.5		Loan Agreement dated as of September 8, 2008, by and between AVP, Inc. and RJSM Partners, LLC.

EX-10.1 2 a08-24578_2ex10d1.htm EX-10.1

Exhibit 10.1

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT, dated as of September 8, 2008 (the “Agreement”), by and among AVP, INC., a Delaware corporation (the “Company”) and RJSM PARTNERS, LLC, a Delaware limited liability company (the “Purchaser”).

Whereas, at the Initial Closing and on the terms and conditions set forth in this Agreement, the Company wishes to issue and sell to the Purchaser, and the Purchaser wishes to purchase from the Company, an aggregate of 3,606,500 shares of the authorized but unissued Common Stock of the Company (the “Initial Restricted Shares”), at an aggregate purchase price of $1,803,250 and a per share purchase price of $0.50 that shall be payable in accordance with the terms and conditions of this Agreement.

Whereas, at the Second Closing and on the terms and conditions set forth in this Agreement, the Company wishes to issue and sell to the Purchaser, and the Purchaser wishes to purchase from the Company, an aggregate of 2,000,000 shares of the authorized but unissued Common Stock of the Company (the “Secondary Restricted Shares” and, together with the Initial Restricted Shares, the “Restricted Shares”), at an aggregate purchase price of $1,000,000 and a per share purchase price of $0.50 that shall be payable in accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following definitions shall apply:

“Additional Shares” shall have the meaning given to such term in Section 4.6 of this Agreement.

“Affiliate” of any Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Aggregate Number of Restricted Shares” means 5,606,500 Restricted Shares.

“Balance Sheet” means the unaudited consolidated balance sheet of the Company as of June 30, 2008.

“Balance Sheet Date” means June 30, 2008.

“Basic Documents” means this Agreement, the Subscription Agreement, the Registration Rights Agreement, the Loan Agreement and the Note.

“Benefit Plans” shall have the meaning given to such term in Section 3.17 of this Agreement.

“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close.

“Capital Stock” of any Person means any and all shares, interests, participations or other equivalents (however designated) of such Person’s capital stock (or equivalent ownership interests in a Person not a corporation) whether now outstanding or issued after the date of this Agreement, including, without limitation, all Common Stock and Preferred Stock and any rights, warrants or options to purchase such Person’s capital stock.

“Certificate of Incorporation” means the Company’s certificate of incorporation in effect as of the date hereof.

“Closing” means the consummation of the issuance and sale by the Company to the Purchaser of each of the Initial Restricted Shares and the Secondary Restricted Shares in accordance with the terms and conditions of this Agreement.

“Closing Date” means either the First Closing Date or the Second Closing Date.

“Code” means the Internal Revenue Code of 1986 and the U.S. Treasury Department regulations promulgated thereunder, all as amended from time to time.

“Common Stock” means the common stock of the Company, par value $.001 per share.

“Company” has the meaning set forth in the preamble.

“Contingent Obligation” as to any Person shall mean any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for, the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reason-ably anticipated liability in respect

thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

“Note” means that certain promissory note dated as of the date hereof issued by the Company to the Purchaser pursuant to the Loan Agreement.

“DGCL” means the Delaware General Corporation Law, as amended from time to time.

“Employment Agreement” means the employment agreement between Jason Hodell and the Company a substantially final copy of which is attached as Exhibit A.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Financials” shall have the meaning given to such term in Section 3.7 of this Agreement.

“GAAP” means generally accepted accounting principles in the United States in effect from time to time.

“Governmental Authority” means any nation or government, any state, local or other political subdivision thereof and any entity, department, authority, bureau, agency or commission exercising executive, legislative, judicial (including any court of competent jurisdiction), regulatory or administrative functions of or pertaining to government.

“Indebtedness” of a Person, at a particular date, means (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property, (b) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, and (c) all Indebtedness of the type described in paragraph (a) or (b) of this definition secured by any Lien on any property owned by such Person, to the extent attributable to such Person’s interest in such property, even though such Person has not assumed or become liable for the payment thereof; but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than 60 days or, if overdue for more than 60 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of such Person.

“Indemnified Person” shall have the meaning given to such term in Article 6 of this Agreement.

“Indemnifier” shall have the meaning given to such term in Article 6 of this Agreement.

“Initial Closing” means the consummation of the issuance and sale by the Company to the Purchaser of the Initial Restricted Shares in accordance with the terms and conditions of this Agreement.

“Initial Closing Date” means the date hereof, which shall be the date on which the Initial Closing occurs.

“Initial Restricted Shares” shall have the meaning given to such term in the Preamble of this Agreement.

“Lien” means any mortgage, pledge, hypothecation, assignment, security interest, lien, charge or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the UCC or comparable law of any jurisdiction).

“Loan Agreement” means that certain Loan Agreement, dated as of the date hereof, between the Company and the Purchaser pursuant to which the Purchaser will lend an aggregate amount of $2,803,250, of which $1,803,250 will be lent on the Initial Closing Date and the remaining $1,000,000 will be lent on the Second Closing Date, and the Company will issue the notes representing such loans to the Purchaser.

“Material Adverse Effect” means a material adverse change to the Company’s assets, business, liabilities, condition (financial or otherwise) or results of operations.

“Obligations” means all indebtedness, liabilities and obligations of the Company to the Purchaser, whether now existing or hereafter incurred, direct or indirect, absolute or contingent, secured or unsecured, matured or unmatured, whether for principal, interest, fees or otherwise, arising out of this Agreement.

“Offer Period” shall have the meaning given to such term in Section 4.6 of this Agreement.

“Person” means any individual, corporation, partnership, limited liability partnership, limited liability company, joint venture, association, joint stock company, sole proprietorship, business trust, unincorporated organization or government or other agency or political subdivision thereof.

“Purchase Price” shall mean the sum of (i) the product of $0.001 and the number of Restricted Shares, and (ii) the product of the Final Payment Per Restricted Share and the number of Restricted Shares.

“Preferred Stock” means any class or series of Preferred Stock of the Company, par value $.001 per share.

“Registration Rights Agreement” means the registration rights agreement to be entered into between the Purchaser and the Company on the Initial Closing Date, a substantially final copy of which is attached as Exhibit B hereto.

“Requirements of Law” means as to any Person, the Certificate of Incorporation and Bylaws or other organizational or governing documents of such Person, and any law, treaty, rule

or final regulation, or final determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its assets or to which such Person or any of its assets is subject.

“Requisite Number of Equity Securities” shall be equal to the product of (i) fifty percent (50%) and (ii) the Aggregate Number of Restricted Shares.

“Responsible Officer” means the chief financial officer or the treasurer of the Company.

“Restricted Shares” means the shares of Common Stock (i) issued to the Purchaser on the Initial Closing Date and the Second Closing Date and held by the Company on behalf of the Purchaser, and (ii) delivered to the Purchaser in accordance with the terms and conditions of the Loan Agreement.

“SEC Reports” shall have the meaning given to such term in Section 3.7 of this Agreement.

“Second Closing” means the consummation of the issuance and sale by the Company to the Purchaser of the Secondary Restricted Shares in accordance with the terms and conditions of this Agreement.

“Second Closing Date” means the date on which the Second Closing occurs; provided, however, that such date shall not be later than September 15, 2008.

“Secondary Restricted Shares” shall have the meaning given to such term in the Preamble of this Agreement.

“Securities” means the Restricted Shares.

“Securities Act” means the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder.

“Securities Laws” means the Securities Act, the Exchange Act, the Sarbanes-Oxley Act of 2002, and any applicable state securities or “blue sky” laws.

“Subscription Agreement” means that certain Subscription Agreement, dated as of September 8, 2008, between the Company and the Purchaser.

“Subsidiary” with respect to any Person, means (i) a corporation a majority of whose Capital Stock with voting power to elect directors is at the time, directly or indirectly, owned by such Person, by such Person and one or more subsidiaries of such Person or by one or more subsidiaries of such Person or (ii) any other Person (other than a corporation) in which such Person, one or more subsidiaries of such Person, or such Person and one or more subsidiaries of such Person, directly or indirectly, at the date of determination thereof has at least majority ownership interest.

“Warrants” shall have the meaning given to such term in Section 4.6 of this Agreement.

ARTICLE 2

PURCHASE AND SALE

Section 2.1 Authorization of the Restricted Shares.

The Company has authorized the sale and issuance to the Purchaser of an aggregate of 5,606,500 Restricted Shares, of which the Initial Restricted Shares will be sold and issued at the Initial Closing and of which the Secondary Restricted Shares will be sold and issued at the Second Closing.

Section 2.2 Agreement to Purchase and Sell at the Closing.

The Company hereby agrees to issue and sell to the Purchaser, and the Purchaser, in reliance upon the representations, warranties, covenants and agreements of the Company contained herein, and subject to the terms and conditions of this Agreement, hereby agrees to purchase from the Company on the Initial Closing Date the Initial Restricted Shares at a price per share of $0.50 (the “Restricted Share Price”). In addition, the Company hereby agrees to issue and sell to the Purchaser and the Purchaser hereby agrees to purchase from the Company at the Second Closing the Secondary Restricted Shares at a price per share equal to the Restricted Share Price.

On the Closing, the Purchaser shall pay a portion of the Restricted Share Price equal to $0.001 per Restricted Share. The Purchaser hereby agrees to pay the Company an amount per Restricted Share equal to the difference (the “Final Payment Per Restricted Share”) between the Restricted Share Price and $.001 on the earlier of (i) the Maturity Date (as defined in the Loan Agreement) by application of the principal of the Loan as provided in Section 3.1 of the Loan Agreement, (ii) the date on which the Purchaser receives the Change of Control Payment (as defined in the Loan Agreement), and (iii) upon any prepayment under Section 3.1 of the Loan Agreement. The aggregate amount of the Final Payment Per Restricted Share shall be equal to the product of (i) the number of Restricted Shares to be delivered to the Purchaser on such earlier date (or on any other applicable date on which the Restricted Shares are delivered t the Purchaser) pursuant to the terms and conditions of the Loan Agreement, and (ii) the Final Payment Per Restricted Share.

Section 2.3 Payment of Purchase Price.

The consummation of the sale and purchase of the Initial Restricted Shares shall take place at the Initial Closing at the offices of Winston & Strawn LLP in New York, at 10:00 a.m. (E.D.T) on September 8, 2008, or at such other place, date and time as may be mutually agreed upon by the Company and the Purchaser in writing. The consummation of the sale and purchase of the Secondary Restricted Shares shall take place at the Second Closing at the offices of Winston & Strawn LLP in New York, at 10:00 a.m. (E.D.T.) on or before September 15, 2008, or at such other place, date and time as may be mutually agreed upon by the Company and the Purchaser in writing.

Upon the Purchaser’s purchase of the Restricted Shares at a Closing and against delivery of the Purchase Price, the Company shall issue (but not deliver) to the Purchaser a stock

certificate or certificates in definitive form registered in the name of the Purchaser and representing ownership of the Restricted Shares purchased at such Closing. The Company shall hold the certificate or certificates representing the Restricted Shares for the benefit of the Purchaser and shall deliver such certificate or certificates to the Purchaser pursuant to the terms and conditions in the Loan Agreement. As partial payment for the Restricted Shares being purchased by it at such Closing, and against issuance in the name of the Purchaser of the certificate or certificates representing the Restricted Shares issued on such Closing Date, at such Closing the Purchaser shall deliver to the Company by wire transfer, in immediately available funds, an amount equal to the product of $0.001 and the number of Restricted Shares issued in the name of the Purchaser on such Closing Date to one or more accounts designated by the Company to the Purchaser. Except that the Company shall hold the certificate or certificates representing the Restricted Shares as herein provided the Purchaser shall have all rights of an owner of Common Stock of the Company purchased in the manner provided herein, including voting rights.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth within any SEC Reports as of the date hereof, the Company hereby makes the representations and warranties set forth below to the Purchaser:

Section 3.1 Organization; Good Standing, etc.

Each of the Company and its Subsidiaries is a duly organized and validly existing corporation under the jurisdiction of its incorporation, and their respective statuses are active under the laws of such jurisdictions. Each of the Company and its Subsidiaries has all requisite corporate power and corporate authority for the ownership and operations of its assets and for the conduct of its business as now conducted and as now proposed to be conducted. Each of the Company and its Subsidiaries is duly qualified and is in good standing as a foreign corporation and authorized to do business in all jurisdictions wherein the character of the property owned or leased by it, or the nature of the activities conducted by it, makes such qualification or authorization necessary, except where the failure to so qualify or be so authorized would not have a Material Adverse Effect.

Section 3.2 Authority to Execute and Perform Agreements.

The Company has all requisite corporate power and corporate authority to execute and deliver the Basic Documents and to perform all its obligations thereunder, and to issue and sell the Restricted Shares issuable under this Agreement. The Company has the full legal right and power and all authority and approval required to enter into, execute and deliver the Basic Documents and to perform fully the Company’s obligations thereunder. Each of the Basic Documents has been duly executed and delivered and constitutes the valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or the effect of general principles of equity. No approval or consent of any Governmental Authority, and (except as otherwise specified in this Agreement) no approval

or consent of any other Person, is required in connection with the execution and delivery by the Company of the Basic Documents and the consummation and performance by the Company of the transactions contemplated thereby. The execution and delivery of the Basic Documents, the consummation of the transactions contemplated under the Basic Documents, and the performance by the Company of the Basic Documents in accordance with their respective terms and conditions will not conflict with or result in the breach or violation of any of the terms and conditions of, or constitute (or with notice or lapse of time or both would constitute) a default under, (i) the Certificate of Incorporation or Bylaws of the Company; (ii) any instrument, contract or other agreement by or to which the Company is a party or by or to which it or its assets or properties are bound or subject; (iii) any statute or any regulation, order, judgment or decree of any Governmental Authority; or (iv) any Permit, except in the cases of clauses (ii) through (iv) above, for such conflicts, breaches or violations as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 3.3 Capitalization.

The authorized capital stock of the Company shall consist of: (i) 80,000,000 shares of Common Stock, and (ii) 2,000,000 shares of Preferred Stock. All issued and outstanding shares of Common Stock and all issued and outstanding shares of the capital stock of each of the Subsidiaries are duly authorized and validly issued, and are fully paid and non-assessable. Following receipt of payment pursuant to Section 2.3, all Securities issuable in connection with the transactions contemplated hereby will be duly authorized and validly issued, and will be fully paid and non-assessable. Except as set forth on Schedule 3.3, no subscription, warrant, option, convertible security or other right (contingent or other) to purchase or otherwise acquire from the Company (or, to the knowledge of the Company, from any other Person) any equity securities of the Company is authorized or outstanding, and (ii) there are no additional commitments by the Company to issue shares, subscriptions, warrants, options, convertible securities or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or assets. Except as set forth on Schedule 3.3, the Company has no obligation to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Except as set forth on Schedule 3.3, to the knowledge of the Company, there are no voting trusts or agreements, shareholders’ agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights (statutory or contractual) or proxies relating to any securities of the Company (where the Company is not a party thereto). There are no restrictions on the transfer of shares of capital stock of the Company, other than those imposed by relevant federal and state securities laws.

Section 3.4 Consents and Approvals.

Except as set forth on Schedule 3.4 and as otherwise expressly set forth in this Agreement, no authorization, consent, approval, license, filing or registration with any Governmental Authority or Person is or will be necessary for the valid execution, delivery and performance by the Company of the Basic Documents, the issuance, sale and delivery of the Securities, other than filings pursuant to the Securities Laws (all of which filings have been made or will be made by the Company) in connection with the sale of the Securities.

Section 3.5 Subsidiaries.

All of the subsidiaries of the Company are identified in the Company’s Annual Report on Form 10-KSB filed with the SEC for the period ended December 31, 2007 (the “Annual Report”). Other than as disclosed in the SEC Reports, the Company owns, directly or indirectly, all of the capital stock or other equity interests of each such subsidiary.

Section 3.6 Certificate of Incorporation and Bylaws.

The Certificate of Incorporation and Bylaws of the Company, and all amendments to each to date, copies of all of which have been delivered to the Purchaser, are true, correct and complete.

Section 3.7 SEC Reports; Financial Statements.

(a) The Company has delivered or made available to the Purchaser true and complete copies of all periodic and current reports, statements and other documents that the Company has filed under the Exchange Act since December 31, 2007 (collectively, the “SEC Reports”). As of their respective filing dates, each of the SEC Reports (i) complied in all material respects with all applicable requirements of the Securities Laws, (ii) were filed in a timely manner or received a valid extension of such time of filing and filed any such SEC Reports prior to the expiration of any such extension, and (iii) did not contain any false or untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the Subsidiaries is required to file any forms, reports or other documents with the SEC.

(b) The audited consolidated financial statements (including the notes thereto) of the Company and its Subsidiaries for the fiscal year ended December 31, 2007 contained in the Annual Report and the unaudited consolidated financial statements (including the notes thereto) of the Company and its Subsidiaries for the fiscal quarter ended June 30, 2008 contained in the Company’s Quarterly Report on 10-QSB (the “Quarterly Report”) for such fiscal quarter (collectively, the “Financials”) present fairly, in all material respects, the financial position of the Company and its Subsidiaries on a consolidated basis as of the dates thereof and its results of operations for the periods covered thereby (subject, in the case of unaudited financial statements, to normal year-end audit adjustments), and the Financials have been prepared in accordance with GAAP consistently applied and in accordance with Regulation S-X as in effect at the time of filing (except (i) as may be otherwise set forth in such Financials or (ii) in the case of unaudited financial statements, to the extent they may not include footnotes or may be consolidated or summary statements). Except as and to the extent set forth (or incorporated by reference) in Quarterly Report, (i) neither the Company nor any of its Subsidiaries has any material liabilities, contingent or otherwise, other than (a) liabilities incurred in the ordinary course of business since the Balance Sheet Date, and (b) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financials; and (ii) there has been no Material Adverse Effect.

Section 3.8 Tax Matters.

Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Company Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

Section 3.9 Compliance with Laws; Litigation.

(a) Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business except in each case as would not reasonably be expected to have a Company Material Adverse Effect.

(b) Except as disclosed in the SEC Reports and set forth on Schedule 3.9, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any Governmental Authority which (i) adversely affects or challenges the legality, validity or enforceability of any of the Basic Documents or (ii) would, if there were an unfavorable decision, have or would reasonably be expected to result in a Company Material Adverse Effect.

Section 3.10 Brokers’ Fees.

The Company has not, directly or indirectly, incurred any liability for brokerage or finders’ fees in connection with this Agreement.

Section 3.11 Proprietary Information of Third Parties.

Except as set forth on Schedule 3.11, no third party has claimed or, to the knowledge of the Company, has reason to claim that any Person employed by or affiliated with the Company or any Subsidiary has (a) violated or may be violating to any material extent any of the terms or conditions of his employment, non-competition or non-disclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party, or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees, or has requested information from the Company or any Subsidiary which suggests that such a claim might be contemplated. To the knowledge of the Company, no Person employed by or affiliated with the Company or any Subsidiary has utilized or proposes to utilize any trade secret or any information or documentation proprietary to any former employer, and to the knowledge of the Company, no Person employed by or affiliated with the Company or any

Subsidiary has violated any confidential relationship which such Person may have had with any third party, in connection with the development, manufacture or sale of any product or proposed product or the development or sale of any service or proposed service of the Company or any Subsidiary, and the Company has no reason to believe there will be any such utilization or violation, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. To the knowledge of the Company, none of the execution or delivery of this Agreement or the other Basic Documents, or the carrying on of the business of the Company as officers, employees or agents by any officer, director or key employee of the Company or any Subsidiary, or the conduct or proposed conduct of the business of the Company and each Subsidiary, will materially conflict with or result in a material breach of the terms, conditions or provisions of or constitute a material default under any contract, covenant or instrument under which any such Person is obligated.

Section 3.12 Agreements.

(a) Schedule 3.12 sets forth all of the following contracts and other agreements, whether written or oral, to which the Company or any Subsidiary is a party or by or to which it or its assets or properties are bound: (i) any contract or agreement which is a “material contract” within the meaning of Item 601(b)(10) of Regulation S-K to be performed in whole or in part after the date of this Agreement; (ii) any contract or agreement which limits the freedom of the Company or any of its Subsidiaries to compete in any line of business; (iii) any contract or agreement which grants any person a right of first refusal, right of first offer or similar right with respect to any material properties, assets or businesses of the Company or any of its Subsidiaries (iv) any contract relating to the acquisition or disposition of any material business or material assets (whether by merger, sale of stock or assets or otherwise), which acquisition or disposition is not yet complete or where such contract contains continuing material obligations, including continuing material indemnity obligations, of the Company or any of its Subsidiaries; (v) a contract or agreement relating to the change of control of more than 5% of the outstanding capital stock of the Company or any Subsidiary; and (vi) any contract pursuant to which any benefit thereunder would be accelerated or increased or any of the rights or obligations of the parties thereunder would be otherwise changed or affected, by the transactions contemplated hereby.

(b) All of the contracts and other agreements set forth on Schedule 3.12 are in full force and effect and, except as set forth on Schedule 3.12, the Company is not in default under any of them, nor to the knowledge of the Company, is any other party to any such contract or other agreement in default thereunder, nor, to the knowledge of the Company, does any condition exist which with notice or lapse of time or both would constitute a default thereunder. No approval or consent of any Person is needed in order that the contracts or other agreements set forth on Schedule 3.12 and other Schedules hereto continue in full force and effect in all material respects following the consummation of the transactions contemplated by the Basic Documents.

Section 3.13 Properties and Leases.

The Company and its Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and its Subsidiaries and

good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except as described in the SEC Reports and except for Liens that do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance.

Section 3.14 Intangible Property.

Schedule 3.14 sets forth all patents, trademarks, service marks, trade names, copyrights, franchises and software and financial reporting systems, all applications for any of the foregoing, and all permits, grants and licenses or other rights running to or from the Company relating to any of the foregoing which are material to its business. The rights of the Company in the property set forth on Schedule 3.14 are free and clear of any Liens, except as described in the SEC Reports and except for Liens that do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. The Company has no notice of any adversely held patent, invention, copyright, trademark, service mark or trade name of any other Person or notice of any claim of any other Person relating to any of the property set forth on Schedule 3.14 or any process or confidential information of the Company, and the Company does not know of any basis for any such charge or claim.

Section 3.15 Other Offerings Subject to Integration.

Neither the Company nor any Person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company or any Subsidiary under circumstances which might require the integration of such security with the Restricted Shares under the Securities Act or the rules and regulations of the SEC thereunder), in either case so as to subject the offering, issuance or sale of the Securities to the registration requirements of the Securities Act; provided, however, that it shall be expressly agreed and understood that the Company’s representation and warranty in this Section 3.15 shall not relate to or otherwise include any action taken or to be taken by the Purchaser or any of its affiliates or representatives.

Section 3.16 Significant Sponsors or Suppliers.

Except as set forth on Schedule 3.16, no single sponsor or supplier is of material importance (for purposes of this Section 3.16, “material” or words to such effect means amounting to more than 5% of the value of the goods or services provided by or to the Company or any of its Subsidiaries). The relationships of the Company and the Subsidiaries with its customers and suppliers are good commercial working relationships and, except as set forth on Schedule 3.16, no customer or supplier of the Company has cancelled or otherwise terminated, or threatened in writing to the Company to cancel or otherwise terminate, its relationship with the Company or has during the last 12 months decreased materially, or threatened to decrease or limit materially, its services, supplies or materials to the Company or the Subsidiaries. Neither

the Company nor any Subsidiary has any notice that any such customer or supplier intends to cancel or otherwise modify its relationship with the Company or any Subsidiary or to decrease materially or limit its business with the Company or any Subsidiary.

Section 3.17 ERISA.

Schedule 3.17 sets forth all of the employee benefit plans of the Company (the “Benefit Plans”). Except as set forth on Schedule 3.17 or as set forth in the employment agreements between the Company and its executive officers, the Company and the Subsidiaries do not maintain or have any material obligation to contribute to or any other material liability with respect to or under (including but not limited to current or potential withdrawal liability), nor have they ever maintained or had any material obligation to contribute to or any other liability with respect to or under: (i) any plan or arrangement, whether or not terminated, which provides medical, health, life insurance or other welfare types benefits for current, retired or future retired or terminated employees (except for limited continued medical benefit coverage required to be provided under Section 4980B of the IRC or as required under applicable state law); (ii) any “multiemployer plan” (as defined in Section 3(37) of ERISA; (iii) any employee plan which is a tax-qualified “defined benefit plan” (as defined in Section 3(35) of ERISA), whether or not terminated; (iv) any employee plan which is tax-qualified “defined contribution plan” (as defined in Section 3(34) of ERISA), whether or not terminated; or (v) except as set forth on Schedule 3.17, any other plan or arrangement providing benefits to current or former employees, including any bonus plan, plan for deferred compensation, severance, employee health or other welfare benefit plan or other arrangement, whether or not terminated. For purposes of this Section 3.17, the term “Company” includes all organizations under common control with the Company pursuant to Section 414(b) or (c) of the IRC. Each Benefit Plan has been administered in accordance with its terms and all applicable laws, rules or regulations, as reasonably can be expected to avoid a Material Adverse Effect to the Company and or the plan participants. To the knowledge of the Company, no Benefit Plan established or maintained, or to which contributions have been made, by the Company or any Subsidiary, which is subject to Part 3 of Subtitle B of Title I of ERISA had an accumulated funding deficiency (as such term is defined in Section 302 of ERISA) as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, and no material liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any such plan by the Company or any Subsidiary.

Section 3.18 Insurance.

The Company and its Subsidiaries maintain insurance (including, without limitation and to the extent not currently in place, at reasonable commercial rates, directors and officers liability insurance covering each of the Company’s directors) of the type and in the amount described in Schedule 3.18 covering their respective properties and business are in compliance with all material requirements and provisions thereof. Such insurance coverage is customary and adequate in amount, type and scope for such properties and business. To the Company’s knowledge, neither the Company nor any Subsidiary has received a notice of cancellation or non-renewal of any such policy or binder and none of them has any knowledge of any inaccuracy in any application for such policies or binders, any failure to pay premiums when due or any similar state of facts which might form the basis for termination of any such insurance. The Company maintains, and has maintained during the past seven years, directors and officers

liability insurance in an amount and on terms reasonable under the circumstances in which it conducts its business and as a public company.

Section 3.19 Officers, Directors and Employees.

Schedule 3.19 sets forth the name and total compensation of each officer and director of the Company, and of each employee, consultant or agent of the Company, whose current annual rate of compensation (including bonuses and commissions) exceeds $100,000. No such officer or employee has advised the Company in writing that he intends to terminate employment with the Company. Except as set forth on Schedule 3.19, the Company and each Subsidiary has complied in all material respects with all applicable laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other taxes.

Section 3.20 Operations of the Company.

Except as set forth on Schedule 3.20 or as contemplated by this Agreement, from the Balance Sheet Date through the date hereof, neither the Company nor any Subsidiary has:

(i) amended its Certificate of Incorporation or Bylaws or merged with or into or consolidated with any other Person, or changed or agreed to change in any manner the character of its business;

(ii) entered into or amended any employment agreement, entered into any agreement with any labor union or association representing any employee or entered into or amended any Benefit Plan;

(iii) except for short-term non-material borrowings in the ordinary course of business, incurred any Indebtedness;

(iv) declared or paid any dividends or declared or made any distributions of any kind to its stockholders;

(v) reduced its cash or short-term investments or their equivalent, other than to meet cash needs arising in the ordinary course of business, consistent with past practices;

(vi) waived any right of material value to its business;

(vii) made any change in its accounting methods or practices or made any change in depreciation or amortization policies or rates adopted by it;

(viii) materially changed any of its business policies, including, without limitation, advertising, marketing, pricing, purchasing, personnel, sales, returns, budget or product acquisition policies;

(ix) made any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any officer, director or employee of the Company, or

any accrual for or commitment or agreement to make or pay the same, other than to Persons not officers, directors or stockholders of the Company made in the ordinary course of business;

(x) made any loan or advance to any of its officers, directors, employees, consultants, agents or stockholders, other than travel advances made in the ordinary course of business;

(xi) made any payment or commitment to pay any severance or termination pay to any of its officers, directors, employees, consultants or agents, other than to Persons not officers, directors or stockholders of the Company made in the ordinary course of business;

(xii) except in the ordinary course of business: entered into any lease (as lessor or lessee); sold, abandoned or made any other disposition of any of its assets or properties; granted or suffered any lien or other encumbrance on any of its assets or properties; entered into or amended any contract or other agreement to which it is a party or by or to which it or its assets or properties are bound or subject or pursuant to which it agrees to indemnify any party or refrain from competing with any party;

(xiii) except in the ordinary course of business, incurred or assumed any debt, obligation or liability (whether absolute or contingent and whether or not currently due and payable);

(xiv) except for inventory or equipment acquired in the ordinary course of business, made any acquisition of all or any part of the assets, properties, capital stock or business of any other Person;

(xv) except in the ordinary course of business, entered into any other material contract or other agreement or other material transaction; or

(xvi) incurred on its Balance Sheet any Indebtedness senior to the Loan.

Section 3.21 Potential Conflicts of Interest.

Except as set forth on Schedule 3.21, no officer or director of the Company (i) owns, directly or indirectly, any interest in (except not more than 5% stock holdings for investment purposes in securities of publicly-held and traded companies) or is an officer, director, employee or consultant of any Person which is a competitor, lessor, lessee, customer or supplier of the Company; (ii) owns, directly or indirectly, in whole or in part, any copyright, trademark, trade name, service mark, franchise, patent, invention, permit, license or secret or confidential information which the Company is using or the use of which is necessary for the business of the Company; or (iii) has any cause of action or other claim whatsoever against, or owes any amount to, the Company, except for (a) claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under Benefit Plans and similar matters and agreements existing on the date hereof and (b) as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

ARTICLE 3A

REPRESENTATIONS OF THE PURCHASER

The Purchaser hereby makes the representations and warranties set forth below to the Company:

Section 3A.1 Organization; Good Standing, Etc.

The Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would be reasonably expected to materially and adversely affect Purchaser’s ability to execute, deliver and perform its obligations under this Agreement or to consummate the transactions contemplated hereby on a timely basis, and Purchaser has the requisite power and authority and governmental authorizations to own its properties and assets and to carry on its business as it is now being conducted.

Section 3A.2 Authority; No Violation, Etc.

The execution, delivery and performance by the Purchaser of this Agreement has been duly authorized by all necessary limited liability company action. This Agreement and the other Basic Documents to which it is a party have been duly executed and delivered by the Purchaser, and the execution, delivery and performance by the Purchaser of this Agreement and the other Basic Documents to which it is a party does not and will not (i) conflict with or violate any provision of its certificate of formation or operating agreement; (ii) violate or result in a breach of any of the terms of, result in a modification of, or otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both would constitute) a default under, any contract or other agreement to which the Purchaser is a party or by or to which the Purchaser or any of its assets or properties may be bound or subject; (iii) violate any order, writ, judgment, injunction, award or decree of any Governmental Authority against, or binding upon, the Purchaser; (iv) violate any statute, law or regulation of any jurisdiction; or (v) require the consent of any Person under any agreement or instrument to which the Purchaser is a party.

Section 3A.3 Investment; Experience.

The Purchaser acknowledges that the Securities have not been registered under the Securities Act or under any state securities or “blue sky” laws on the grounds that the offering and sale of the Securities contemplated by this Agreement are exempt from registration pursuant to Section 4(2) of the Securities Act and the regulations thereunder and are exempt from qualification pursuant to comparable available exceptions in various states. The Purchaser acknowledges and understands that the Securities must be held indefinitely unless such securities are subsequently registered under the Securities Act and other applicable blue sky and state securities laws or an exemption from such registration is available. It is the intention of the Purchaser to acquire the Securities for investment for its own account, not as a nominee or agent,

and not with the view to, or for resale in connection with, any distribution thereof. The Purchaser will not sell or otherwise dispose of any of the Securities or any shares of Common Stock issuable to the Purchaser upon conversion of the Note (including but not limited to pursuant to or in connection with a Short-Sale (defined below) involving the Securities or any shares of Common Stock entered into on or before the date hereof), except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws. The Purchaser and its members have significant experience in evaluating and investing in private placement transactions so that they are capable of evaluating the merits and risks of their investment in the Company, have the capacity to protect their own interests, and are capable of making an informed investment decision. The Purchaser and its members have the ability to bear the economic risks of the Purchaser’s prospective investment, including a complete loss of the investment. The Purchaser represents that it and its members are “accredited investors” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

Section 3A.4 Rule 144, etc.

The Purchaser acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act and any applicable state securities laws or unless exemptions from such registration are available. The Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions.

Section 3A.5 Brokers or Finders.

The Company has not, and will not, incur, directly or indirectly, as a result of any action taken by the Purchaser, and liability for brokerage or finders’ fees in connection with this Agreement. The Purchaser represents that it has not paid or agreed to pay any brokerage or finders’ fees in connection with this Agreement.

Section 3A.6 Legends; Stop Transfer.

All certificates representing ownership of the Restricted Shares that may be purchased by the Purchaser pursuant to the provisions of this Agreement shall bear the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH IN THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 8, 2008, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE ISSUER.

In addition, the Company shall make a notation regarding the restrictions on transfer of the Restricted Shares in its books to the effect stated in this Section 3A.5.

Section 3A.7 Enforceability.

This Agreement is the legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or the effect of general principles of equity.

Section 3A.8 Governmental Approvals, etc.

Except as set forth herein, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption from any of the foregoing from, any Governmental Authority is or will be required to authorize or permit the execution, delivery and performance by the Purchaser of the Basic Documents, and the Purchaser does not know of any reason why any regulatory approvals and, to the extent necessary, any other approvals, authorizations, filings, registrations, and notices required or otherwise a condition to the consummation of the transactions contemplated by this Agreement will not be obtained.

Section 3A.9 Certain Trading Activities.

(a) During the longer of (i) the thirty (30) calendar day period prior to the date of this Agreement or (ii) the period between the date on which the Purchaser received confidential information regarding the Company and the date of this Agreement, neither the Purchaser nor any of its Affiliates has engaged in, and the Purchaser and none of its Affiliates has engaged, requested or directed any Person acting on its behalf to engage in, (A) any trading of the Common Stock, including Short Sales of the Common Stock, and no open position or Short Sale relating to the Common Stock exists on the date hereof in the name of or on behalf of or for the account of the Purchaser or any of its Affiliates, or (B) any manipulative or deceptive trading practices, devices or schemes with respect to the Common Stock. For purposes of this Section, “Short Sales” means all kinds of direct and indirect stock pledges reflecting short positions, forward sale contracts, options, puts, calls, short sales, swaps (including on a total return basis), and sales and any other transactions having the effect of hedging any position in the Common Stock.

(b) The Purchaser acknowledges that the Company and its Affiliates and representatives provided information to the Purchaser and its Affiliates and representatives in connection with the Purchaser’s evaluation and negotiation of the Basic Documents and the transactions contemplated. Unless such information was generally available to the public prior to such disclosure such information constitutes material non-public information, and the Purchaser agrees to treat confidentially such information. The Purchaser also acknowledges that it is aware, and that it will advise its Affiliates and representatives who are informed as to the matters which are the subject of this Agreement, that the United States securities laws, among other things, prohibit anyone who has received from the Company material, non-public information from purchasing or selling securities of the Company or from communicating such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities.

Section 3A.10 Reliance on Exemptions.

The Purchaser understands that the Securities are being offered and sold to the Purchaser in reliance upon specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, certain of the representations, warranties, agreements and acknowledgments of the Purchaser set forth herein to determine the availability of such exemptions and the eligibility of the Purchaser and its members to acquire the Securities.

Section 3A.11 Information.

The Purchaser has been furnished with certain materials (including the SEC Reports) relating to the business, finances and operations of the Company that have been made publicly available by the Company, as well as materials relating to the offer and sale of the Securities. Notwithstanding the foregoing, the Purchaser does not know, and has no basis for acknowledging, whether such materials are complete and accurate, or whether they comply with applicable Securities Laws in form and content, and is relying solely upon the representations and warranties of the Company set forth in this Agreement and the other Basic Documents with respect thereto. The Purchaser has been afforded the opportunity to ask questions of the Company and has received responses from the Company and its advisors. The Purchaser and its members acknowledge and understand that its investment in the Securities involves a significant degree of risk. Except for the representations and warranties set forth in this Article 3A or in the other Basic Documents, the Purchaser has not made any representation or warranty, express or implied. The Purchaser acknowledges and agrees that, except for the representations and warranties set forth in Article 3 or in the other Basic Documents, the Company, for itself or on behalf of any of its subsidiaries, has not made any representation or warranty, express or implied.

Section 3A.12 Taxes.

The Purchaser (a) understands that there may be tax consequences resulting from the purchase, ownership and/or sale of the Securities, and (b) represents and warrants that (i) the Purchaser has had a full opportunity to seek the advice of independent counsel respecting this investment and the tax risks and implications thereof, (ii) the Purchaser has relied only upon such independent tax advice and not upon any tax counsel from, or discussions with, the Company or the Company’s representatives, and (iii) has never been notified by the Internal Revenue Service that the Purchaser is subject to 20% backup withholding.

Section 3A.13 ERISA.

Purchaser will not acquire the Securities with the assets of any “employee benefit plan” as defined in ERISA and no “prohibited transactions” under ERISA and the Code will occur in connection with the Purchaser’s acquisition of the Securities.

Section 3A.14 Compliance with OFAC

None of the Purchaser nor any of its affiliates are currently subject to any U.S. sanctions administered by the Officer of Foreign Assets Control of the U.S. Department of the Treasury.

ARTICLE 4

COVENANTS OF THE COMPANY

Section 4.1 Use of Proceeds.

Use the proceeds from the sale of the Securities to provide general working capital for corporate purposes.

Section 4.2 Governance Matters.

(a) The Company will promptly after the Initial Closing cause two persons nominated by Purchaser (the “Board Representatives”) to be elected or appointed to the Board of Directors (which person shall be subject to satisfaction of all legal and governance requirements regarding service as a director of the Company and to the reasonable approval of the Company’s Nominating and Governance Committee (“Governance Committee”) (such approval not to be unreasonably withheld or delayed)). After such appointment and provided that the Second Closing occurs on or before September 15, 2008, as long as the Purchaser owns a number of shares of the Company’s issued and outstanding shares of capital stock equal to or greater than the Requisite Number of Equity Securities, the Company will be required to recommend to its stockholders the election of the Board Representatives at the Company’s annual meeting, subject to satisfaction of all legal and governance requirements regarding service as a director of the Company and to the reasonable approval of the Governance Committee (such approval not to be unreasonably withheld or delayed), to the Board of Directors. If Purchaser no longer owns the minimum number of Securities specified in the prior sentence, Purchaser will have no further rights under Sections 4.2(a) through 4.2(c) and, at the written request of the Board of Directors, shall use all reasonable best efforts to cause its Board Representatives to resign from the Board of Directors as promptly as possible thereafter. At the option of the Board Representatives, the Board of Directors shall appoint one Board Representative to each of the Audit Committee and the Compensation Committee of the Board of Directors (or any successor committee thereto), so long as the Board Representative qualifies to serve on such committees under applicable law and the Company’s corporate governance guidelines and the charter of such committees.

(b) The Board Representatives (including any successor nominees) duly selected in accordance with Section 4.2(a) shall, subject to applicable law, be the Company’s and the Governance Committee’s nominee to serve on the Board of Directors. The Company shall use its reasonable best efforts to have the Board Representatives elected as a director of the Company and the Company shall solicit proxies for each such person to the same extent as it does for any of its other nominees to the Board of Directors.

(c) Subject to Section 4.3, Purchaser shall have the power to designate the Board Representatives’ replacement upon the death, resignation, retirement, disqualification or removal from office of such directors, subject to satisfaction of all legal and governance requirements regarding service as a director of the Company and to the reasonable approval of the Governance Committee (such approval not to be unreasonably withheld or delayed). The Board of Directors will promptly take all action reasonably required to fill the vacancy resulting therefrom with such person (including such person, subject to applicable law, being the Company’s and the

Governance Committee’s nominee to serve on the Board of Directors, using all reasonable best efforts to have such person elected as director of the Company and the Company soliciting proxies for such person to the same extent as it does for any of its other nominees to the Board of Directors).

(d) Without limiting the right of Purchaser and its Affiliates to provide additional compensation to the Board Representatives, the Board Representatives shall be entitled to receive from the Company and the Company Subsidiaries, if applicable, the same compensation and same indemnification in connection with his or her role as a director as the other members of the Board of Directors, and each Board Representatives shall be entitled to reimbursement for documented, reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors or any committees thereof, to the same extent as the other members of the Board of Directors. The Company shall notify the Board Representatives of all regular and special meetings of the Board of Directors and shall notify the Board Representatives of all regular and special meetings of any committee of the Board of Directors of which the Board Representatives are members. The Company shall provide the Board Representatives with copies of all notices, minutes, consents and other materials provided to all other members of the Board of Directors concurrently as such materials are provided to the other members.

Section 4.3 Observer Rights

As long as the Purchaser owns a number of shares of the Company’s issued and outstanding shares of capital stock equal to or greater than the Requisite Number of Equity Securities, the Company shall invite a representative of the Purchaser to attend all meetings of its Board of Directors in an observer capacity. The board observer appointed by the Purchaser shall not be (i) considered in determining whether a quorum of the Board of Directors is present, and (ii) entitled to vote on any matter presented to the Board of Directors. The Company shall give such representative copies of all notices, minutes, consents, and other materials that it provides to the members of its Board of Directors; provided, however, that (i) the forgoing obligation of the Company to deliver such copies to such representative shall be satisfied by delivery of such copies to the Purchaser, and (ii) any such representative that attends a meeting of the Company’s Board of Directors shall, as a condition to being permitted to attend any such meeting, enter into a confidentiality agreement pursuant to which such representative shall agree to hold in confidence and trust, and to act in a fiduciary manner with respect to and not trade on, all information provided to or otherwise obtained prior to or at such meeting; and provided, further, that the Company reserves the right to withhold any information and documents and to exclude such representative from any meeting of its Board of Directors or from any portion of such meeting if (i) access to such information or documents or attendance at such meeting or any such portion could (A) adversely affect the attorney-client privilege between the Company and its counsel or between the Board of Directors (or any committee thereof) and its counsel, or (B) cause the Board of Directors to breach its fiduciary duties, or (C) result in disclosure of trade secrets, or confidential or proprietary information, or (D) result or a conflict of interest or potential conflict of interest, or (E) impair the Company’s ability to enforce its rights under the Basic Documents in any bona fide dispute with the Purchaser or any of its Affiliates or representatives, or (F) violate any statute, regulation, rule, or law, or (G) violate any existing

contract or agreement, or (ii) the Purchaser or any of its Affiliates is or becomes a competitor of the Company.

Section 4.4 Further Assurances.

The Company shall execute and deliver all further instruments and documents and take all further action that may be necessary, or that the Purchaser may reasonably request, in order to carry out the provisions of this Agreement or the other Basic Documents, including any assignments of the Purchaser’s interest in the Securities or its rights under or for the benefit of the Basic Documents.

Section 4.5 Employment Agreement with Jason Hodell.

On or before the Initial Closing, the Company and Jason Hodell (“Hodell”), an individual with an address located at 300 Gold Brush Way; Pasadena, Maryland 21122, shall enter into and duly execute an employment agreement for Hodell’s employment by the Company.

Section 4.6 Right to Purchase.

(a) If any of the warrants to purchase Common Stock listed on Exhibit 1 hereto (the “Warrants”) are exercised after the Closing Date, and the shares of Common Stock to be issued as a result of such exercise are paid for in accordance with the terms and conditions of such Warrants, the Purchaser shall have the right to purchase from the Company a number of shares of Common Stock that is not more than the “Additional Shares”. The Additional Shares shall be equal to the number of shares of Common Stock that when added to the number of Restricted Shares held by the Purchaser immediately prior to such exercise of the Warrants would cause the sum of (i) the Additional Shares and (ii) the Restricted Shares owned by the Purchaser immediately prior to such exercise to represent the same proportionate interest in the outstanding shares of Common Stock immediately following such exercise as the number of Restricted Shares held by the Purchaser immediately prior to such exercise represented in the number of outstanding shares of Common Stock immediately prior to such exercise of the Warrants. The Purchaser shall be entitled to purchase the foregoing maximum number of shares of Common Stock at a price per share equal to the same price per share at which the shares of Common Stock issued upon exercise of any such Warrant are issued and sold.

(b) The Company shall give the Purchaser written notice following the exercise of a Warrant in whole or in part, and such notice shall state the exercise price applicable to such Warrant and the general terms and conditions of such exercise. The Purchaser shall have 15 days (the “Offer Period”) from the giving of such notice to elect to purchase all or any part of the Additional Shares.

ARTICLE 5

COVENANTS OF THE PURCHASER

Section 5.1 Securities Laws.

For so long as the Purchaser holds any Securities, the Purchaser will comply in all respects with all applicable Securities Laws, and will use its reasonable best efforts to cause the Board Representative to do the same.

Section 5.2 Securities Laws Disclosure ; Publicity.

Following the Closing Date, the Company will issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby. The Purchaser shall not issue any such press release or otherwise make any such public statement without the prior consent of the Company, which consent shall not unreasonably be withheld, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.

Section 5.3 Transfer Restrictions.

(a) Except as otherwise permitted in this Agreement, the Purchaser will not transfer, sell, assign or otherwise dispose of (“Transfer”) any Restricted Shares with the prior written consent of the Company, until the date on which the certificate or certificates representing the Restricted Shares are delivered to the Purchaser by the Company.

ARTICLE 6

INDEMNIFICATION

Each of the Company and the Purchaser agree (each, in such case, an “Indemnifier”) to indemnify and hold harmless each other and their respective managers, members, directors, employees, representatives, agents and Affiliates (each, in such case, an “Indemnified Person”) from and against any and all claims, liabilities, judgments, actions, expenses, losses and damages (including any attorneys’ or accountants’ fees and expenses) (collectively, “Losses”) in any way related to, resulting from or arising out of any breach, violation or non-compliance of or with such Indemnifier’s representations, warranties, covenants and agreements set forth in this Agreement or any of the Basic Documents; provided, however, that any Indemnifier shall not be responsible for any Losses to the extent that it is finally judicially determined that they result primarily from actions taken or omitted to be taken by the Indemnified Person due to the Indemnified Person’s gross negligence or willful misconduct.

The Indemnifier shall assume the defense of any claim or proceeding in respect of which indemnification is required hereunder, including the employment of counsel reasonably satisfactory to the Indemnified Person and the payment of all expenses. The Indemnified Person shall have the right to employ separate counsel selected by it with the reasonable approval of the Indemnifier in any such action or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (a) the Indemnifier has agreed to pay such fees and expenses, (b) the Indemnifier shall have failed promptly to assume the defense of such action or proceeding and employ counsel reasonably satisfactory to the Indemnified Person in any such action or proceeding or (c) the named parties to any such action or proceeding (including any impleaded parties) include both an Indemnified Person and the Indemnifier, and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to such Indemnified Person that are

different from or additional to, and potentially in conflict with, those available to the Indemnifier (in which case, if such Indemnified Person notifies the Indemnifier in writing that it elects to employ separate counsel at the expense of the Indemnifier, the Indemnifier shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Person).

The Indemnifier shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at the time for the Indemnified Person and such other Indemnified Persons. The Indemnifier shall not be liable for any settlement of any such action or proceeding effected without its consent, which consent shall not be unreasonably withheld, but if settled with its written consent or if there is a final and non-appealable judgment in such action or proceeding, the Indemnifier, subject to the proviso in the first paragraph of this Article 6, agrees to indemnify and hold harmless the Indemnified Person from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment.

The indemnity and contribution agreements contained in this Article 6 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Indemnified Person.

The respective representations and warranties made by the Company or the Purchaser in this Agreement and the other Basic Documents shall survive the Closing until the later to occur of: (i) September 1, 2013, or (ii) with respect to the representations and warranties contained in Sections 3.18 of this Agreement, the date on which the applicable statute of limitations expires; provided, however, that Sections 3.2 and 3.3 shall survive indefinitely.

The Company (as Indemnifier) shall not be required to indemnify the Purchaser or any other Indemnified Person with respect to any claim for indemnification of Losses unless and until the aggregate amount of all claims for Losses against the Company exceeds $75,000 (excluding from such $75,000 aggregate, any claim for Losses under $10,000 per claim), in which case, the Company shall liable for the full amount of all such Losses (including the first $75,000 and not merely the excess over $75,000) without respect to either of such dollar limitations (for the purposes of determining whether the aggregate of such Losses exceeds $75,000 or if any individual Loss exceeds $10,000, any representation or warranty that is qualified by reference as to materiality shall be construed as not being so qualified); provided, however, that the foregoing indemnification limitation shall not be applicable in the event of a binding and non-appealable finding that the Company committed fraud, and further provided, however, that the foregoing indemnification limitation shall not be applicable to Losses resulting from breaches or violations of Sections 3.2, 3.3 or 3.7 of this Agreement.

Except for claims for fraud, the indemnification provided in this Article 6 will constitute the exclusive remedy of the Indemnified Persons and their respective assigns, from and against any and all Losses asserted against, resulting to, imposed upon or incurred or suffered by, any of them, directly or indirectly, as a result of, or based upon or arising from the transactions contemplated by this Agreement or any Basic Document, including without limitation, any breach of any representation or warranty herein or therein or the non-fulfillment of any agreement or covenant herein, therein or in any other agreement, document, or instrument

required hereunder or thereunder. Each party hereto hereby waives, to the fullest extent permitted under applicable law, any and all rights, claims, and causes of action it may have against any other party, or any of such other party’s Affiliates, to the contrary.

Notwithstanding any other provision of this Agreement, in no event shall any party hereto be liable under this Article 6 for (i) any punitive damages or any special, incidental, indirect or consequential damages of any kind or nature, or any diminution in value, regardless of the form of action through which such damages are sought, (ii) any lost profits of any Person, even if under applicable law such lost profits would not be considered consequential or special damages, or (iii) without limiting the generality of the foregoing, any Loss calculated by using or taking into account any multiple of earnings, book value, cash flow or other measure, unless, in each case, such Losses are recovered by a third party in a third party claim pursuant to an order entered against an indemnified party or in a settlement agreement to which an indemnified party is a party.

Notwithstanding the fact that any party may have the right to assert claims for indemnification under or in respect of more than one provision of this Agreement and/or any Basic Document in respect of any fact, event, condition or circumstance, no party shall be entitled to recover the amount of any Losses suffered by such party more than once, regardless of whether such Losses may be as a result of a breach of more than one representation or warranty or covenant.

ARTICLE 7

MISCELLANEOUS

Section 7.1 Fees and Expenses.

The Company (i) shall pay in connection with the preparation, execution and delivery of this Agreement and the other Basic Documents the reasonable expenses and legal fees incurred by the Purchaser not to exceed Sixty Thousand Dollars ($60,000), and (ii) agrees to pay or reimburse the Purchaser for any transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority on the Purchaser in respect of this Agreement or any of the other Basic Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing or registration contemplated by this Agreement or any other Basic Document or any document referred to herein or therein.

Section 7.2 Certain Terms.

As used herein, “Sections” refers to sections of this Agreement. As used herein, the expression “this Agreement” means the body of this Agreement; and the expressions “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement and not to any particular part or subdivision thereof. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate.

Section 7.3 Captions.

The captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions hereof.

Section 7.4 Notices.

Whenever this Agreement requires or permits any consent, approval, notice, request or demand from one party to another, such consent, approval, notice, request or demand must be in writing to be effective and shall be deemed to be delivered and received (i) if Personally delivered or if delivered by facsimile with telephonic confirmation, when actually received by the party to whom notice is sent, (ii) if delivered by mail within the United States (whether actually received or not), at the close of business on the third business day next following the day when placed in the federal mail, postage prepaid, certified or registered, addressed to the appropriate party or parties, at the address of such party set forth below (or at such other address as such party may designate by written notice to all other parties in accordance herewith) or (iii) if delivered by mail to any party located outside the United States, when received by the party to whom notice is sent:

If to the Purchaser, to:

RJSM Partners, LLC

660 Madison Avenue

17^th Floor

New York, New York 10065

Attention: Nicholas Lewin

Fax: 212-898-1161

and, with a copy to (which shall not constitute notice):

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166-4193

Attention: George Soterakis, Esq.

Fax: 212-294-4700

If to the Company, to:

AVP, Inc.

6100 Center Drive, 9th Floor

Los Angeles, CA 90045

Attention: General Counsel

Fax: 310-426-8010

with a copy to (which shall not constitute notice):

Manatt, Phelps & Phillips, LLP

11355 W. Olympic Boulevard

Los Angeles, CA 90064

Attention: Paul Irving, Esq.

David Grinberg, Esq.
James J. Vieceli, Esq.

Fax: (310) 312-4224

Section 7.5 Governing Law.

THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

Section 7.6 Successors and Assigns.

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, successors, and permitted assigns, and any receiver, trustee in bankruptcy, or representative of the creditors of each such Person; provided, that the Company may not assign any right granted in this Agreement without the prior written consent of the Purchaser, such consent not to be unreasonably withheld; provided further, that the Purchaser may not assign any right granted in this Agreement without the prior written consent of the Company, such consent not to be unreasonably withheld.

Section 7.7 Invalid Provisions.

If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.

Section 7.8 Amendments.

This Agreement may be amended, at any time and from time to time in whole or in part, or terminated, only by an instrument in writing, duly executed by all of the parties hereto.

Section 7.9 Counterparts.

This Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same agreement.

Section 7.10 Continuation of Rights.

The failure or refusal of a party hereto to exercise any right granted in this Agreement or the other Basic Documents shall not be deemed a waiver of the right to exercise future rights which may arise hereunder or thereunder.

Section 7.11 Entire Agreement.

This Agreement, together with the other Basic Documents, contains the entire understanding of the parties hereto respecting the subject matter hereof and supersedes all prior agreements, discussions and understandings.

Section 7.12 Consent to Jurisdiction and Service of Process.

Any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby may be instituted in any federal court in the State of Delaware, and each party waives any objection which such party may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given by registered or certified mail, return receipt requested, or by any other means of mail which requires a signed receipt, postage prepaid, mailed to such party as herein provided. Nothing contained herein shall be deemed to affect the right of any party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other party in any jurisdiction other than the federal courts in Delaware.

[rest of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written.

AVP, INC.

By:	/s/ Leonard Armato
	Name:	Leonard Armato
	Title:	CEO, Chairman, and Commissioner

RJSM PARTNERS, LLC


By:	/s/ Nicholas Lewin
	Name: Nicholas Lewin
	Title: Managing Member

Exhibit 1

Warrants

Warrantholder	Exercise Price		Date Issued	Date of Expiration	Total Warrants Held
Leonard Armato	$	.01	1/1/2000	1/1/2010	3,954,916
Bruce Binkow	$	.01	1/1/2000	1/1/2010	1,346,356

EX-10.2 3 a08-24578_2ex10d2.htm EX-10.2

Exhibit 10.2

EXECUTION COPY

AVP, INC.

SUBSCRIPTION AGREEMENT

The undersigned (hereinafter “Subscriber”) hereby confirms its subscription for the purchase of 50,000 shares of Series B Convertible Preferred Stock (“Preferred Stock”) of AVP, Inc. (“AVP” or “Company”), Inc., a Delaware corporation. The Preferred Stock is sometimes referred to herein as the “Securities”.

The Company and Subscriber are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D (“Regulation D”) as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Act”) and Section 4(2) of the Act.

In connection with this subscription, Subscriber and the Company agree as follows:

1. Definitions. Terms defined above or in the text of this Agreement shall have the meanings set forth herein. Other capitalized terms shall have the meaning set forth in that certain Securities Purchase Agreement entered into on September 8, 2008, by and between the Subscriber and the Company.

2. Purchase and Sale of the Securities.

(a) The Company hereby agrees to issue and to sell to Subscriber, and Subscriber hereby agrees to purchase from the Company, a number of shares of Preferred Stock for the aggregate subscription amount set forth on the signature page hereto. Upon acceptance of this Subscription Agreement by the Company, the Company shall issue and deliver to Subscriber Preferred Stock subscribed for against payment in U.S. Dollars of the Purchase Price (as defined below).

(b) Subscriber has hereby delivered and paid concurrently herewith the purchase price (the “Purchase Price”) set forth on the signature page hereof required to purchase the Preferred Stock subscribed for hereunder which amount has been paid in U.S. Dollars by wire transfer or check, subject to collection, to the order of “AVP Pro Beach Volleyball Tour.”

(c) At the closing of this transaction (the “Closing”), (1) the Company shall deliver to or as directed by Subscriber: (i) a Preferred Stock certificate evidencing the Preferred Stock to be issued to Subscriber, and (ii) all other instruments and writings required to have been delivered at or prior to the Closing by the Company pursuant to this Agreement; and (2) each Subscriber shall deliver or cause to be delivered to the Company: (i) by check or wire transfer of immediately available funds in accordance with the Company’s written wire instructions, its respective share of the aggregate of $696,750 for the purchase of the Preferred Stock, and (ii) all documents, instruments and writings required to have been delivered at or prior to the Closing by Subscriber pursuant to this Agreement.

3. Representations and Warranties of Subscriber. Subscriber represents and warrants to the Company as follows:

(a) Organization; Good Standing, Etc. The Subscriber is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would be reasonably expected to materially and adversely affect Subscriber’s ability to execute, deliver and perform its obligations under this Agreement or to consummate the transactions contemplated hereby on a timely basis, and Subscriber has the requisite power and authority and governmental authorizations to own its properties and assets and to carry on its business as it is now being conducted.

(b) Authority; No Violation, Etc. The execution, delivery and performance by the Subscriber of this Agreement has been duly authorized by all necessary limited liability company action. This Agreement and the other Basic Documents to which it is a party have been duly executed and delivered by the Subscriber, and the execution, delivery and performance by the Subscriber of this Agreement and the other Basic Documents to which it is a party does not and will not (i) conflict with or violate any provision of its certificate of formation or operating agreement; (ii) violate or result in a breach of any of the terms of, result in a modification of, or otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both would constitute) a default under, any contract or other agreement to which the Subscriber is a party or by or to which the Subscriber or any of its assets or properties may be bound or subject; (iii) violate any order, writ, judgment, injunction, award or decree of any Governmental Authority against, or binding upon, the Subscriber; (iv) violate any statute, law or regulation of any jurisdiction; or (v) require the consent of any Person under any agreement or instrument to which the Subscriber is a party.

(c) Investment; Experience. The Subscriber acknowledges that the Securities have not been registered under the Securities Act or under any state securities or “blue sky” laws on the grounds that the offering and sale of the Preferred Stock contemplated by this Agreement are exempt from registration pursuant to Section 4(2) of the Securities Act and the regulations thereunder and are exempt from qualification pursuant to comparable available exceptions in various states. The Subscriber acknowledges and understands that the Preferred Stock must be held indefinitely unless such securities are subsequently registered under the Securities Act and other applicable blue sky and state securities laws or an exemption from such registration is available. It is the intention of the Subscriber to acquire the Preferred Stock for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. The Subscriber will not sell or otherwise dispose of any of the Preferred Stock or any of the Restricted Shares issuable to the Subscriber upon maturity of the Loan (including but not limited to pursuant to or in connection with a Short-Sale (defined below) involving the Preferred Stock or any shares of Common Stock entered into on or before the date hereof), except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws. The Subscriber and its members have significant experience in evaluating and investing in private placement transactions so that they are capable of evaluating the merits and risks of their investment in the Company, have the capacity to protect their own interests, and are capable of making an informed investment decision. The Subscriber and its members have the ability to bear the economic risks of the Subscriber’s prospective investment, including a complete loss of the investment. The Subscriber represents that it and its members are “accredited investors” as defined in Rule 501(a) of

Regulation D promulgated under the Securities Act. The Subscriber represents that the information on the Purchaser Questionnaire is true and correct in all material respects.

(d) Rule 144, Etc. The Subscriber acknowledges that the Preferred Stock must be held indefinitely unless subsequently registered under the Securities Act and any applicable state securities laws or unless exemptions from such registration are available. The Subscriber is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions.

(e) Brokers or Finders. The Company has not, and will not, incur, directly or indirectly, as a result of any action taken by the Subscriber, and liability for brokerage or finders’ fees in connection with this Agreement. The Subscriber represents that it has not paid or agreed to pay any brokerage or finders’ fees in connection with this Agreement.

(f) Legends; Stop Transfer. All certificates representing ownership of the Series B Convertible Preferred Stock that may be purchased by the Subscriber pursuant to the provisions of this Agreement shall bear the following legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH IN THE SUBSCRIPTION AGREEMENT, DATED AS OF SEPTEMBER 8, 2008, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE ISSUER.

In addition, the Company shall make a notation regarding the restrictions on transfer of the Series B Convertible Preferred Stock in its books.

(g) Enforceability. This Agreement is the legal, valid and binding obligation of the Subscriber, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or the effect of general principles of equity.

(h) Governmental Approvals, etc. Except as set forth herein, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption from any of the foregoing from, any Governmental Authority is or will be required to authorize or permit the execution, delivery and performance by the Subscriber of the Basic Documents, and the Subscriber does not know of any reason why any regulatory approvals and, to the extent necessary, any other approvals, authorizations, filings, registrations, and notices required or otherwise a condition to the consummation of the transactions contemplated by this Agreement will not be obtained.

(i) Certain Trading Activities.

(i) During the longer of (i) the thirty (30) calendar day period prior to the date of this Agreement or (ii) the period between the date on which the Subscriber received confidential information regarding the Company and the date of this Agreement, neither the Subscriber nor any of its Affiliates has engaged in, and the Subscriber and none of its Affiliates has engaged, requested or directed any Person acting on its behalf to engage in, (A) any trading of the Common Stock, including Short Sales of the Preferred Stock, and no open position or Short Sale relating to the Preferred Stock exists on the date hereof in the name of or on behalf of or for the account of the Subscriber or any of its Affiliates, or (B) any manipulative or deceptive trading practices, devices or schemes with respect to the Preferred Stock. For purposes of this Section, “Short Sales” means all kinds of direct and indirect stock pledges reflecting short positions, forward sale contracts, options, puts, calls, short sales, swaps (including on a total return basis), and sales and any other transactions having the effect of hedging any position in the Common Stock.

(ii) The Subscriber acknowledges that the Company and its Affiliates and representatives provided information to the Purchaser and its Affiliates and representatives in connection with the Subscriber’s evaluation and negotiation of the Basic Documents and the transactions contemplated. Unless such information was generally available to the public prior to such disclosure such information constitutes material non-public information, and the Subscriber agrees to treat confidentially such information. The Subscriber also acknowledges that it is aware, and that it will advise its Affiliates and representatives who are informed as to the matters which are the subject of this Agreement, that the United States securities laws, among other things, prohibit anyone who has received from the Company material, non-public information from purchasing or selling securities of the Company or from communicating such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities.

(j) Reliance on Exemptions. The Subscriber understands that the Preferred Stock is being offered and sold to the Subscriber in reliance upon specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Subscriber’s compliance with, certain of the representations, warranties, agreements and acknowledgments of the Subscriber set forth herein to determine the availability of such exemptions and the eligibility of the Subscriber and its members to acquire the Securities.

(k) Information. The Subscriber has been furnished with certain materials (including the SEC Reports) relating to the business, finances and operations of the Company that have been made publicly available by the Company, as well as materials relating to the offer and sale of the Securities. Notwithstanding the foregoing, the Subscriber does not know, and has no basis for acknowledging, whether such materials are complete and accurate, or whether they comply with applicable Securities Laws in form and content, and is relying solely upon the representations and warranties of the Company set forth in this Agreement and the other Basic Documents with respect thereto. The Subscriber has been afforded the opportunity to ask questions of the Company and has received responses from the Company and its advisors. The Subscriber and its members acknowledge and understand that its investment in the Preferred Stock involves a

significant degree of risk. Except for the representations and warranties set forth in this Section 3 or in the other Basic Documents, the Subscriber has not made any representation or warranty, express or implied. The Subscriber acknowledges and agrees that, except for the representations and warranties set forth in Section 3 or in the other Basic Documents, the Company, for itself or on behalf of any of its subsidiaries, has not made any representation or warranty, express or implied.

(l) Taxes. The Subscriber (a) understands that there may be tax consequences resulting from the purchase, ownership and/or sale of the Preferred Stock, and (b) represents and warrants that (i) the Subscriber has had a full opportunity to seek the advice of independent counsel respecting this investment and the tax risks and implications thereof, (ii) the Subscriber has relied only upon such independent tax advice and not upon any tax counsel from, or discussions with, the Company or the Company’s representatives, and (iii) has never been notified by the Internal Revenue Service that the Subscriber is subject to 20% backup withholding.

(m) ERISA. Subscriber will not acquire the Preferred Stock with the assets of any “employee benefit plan” as defined in ERISA and no “prohibited transactions” under ERISA and the Code will occur in connection with the Purchaser’s acquisition of the Securities.

4. Representations and Warranties of the Company. A breach of any of the Representations and Warranties made by the Company under the Securities Purchase Agreement and any of the other Basic Documents shall constitute a breach of this Agreement.

5. Covenants of the Company.

(a) Certain Securities Law Disclosures. The Company shall: (i) issue a press release accurately describing and disclosing the transactions contemplated hereby on the initial Closing Date, (ii) file with the SEC a report on Form 8-K or Form 10-QSB disclosing the transactions contemplated hereby within four (4) business days after the initial Closing Date, and (iii) timely file with the SEC a Form D promulgated under the Act as required under Regulation D and provide a copy thereof to Subscriber promptly after the filing thereof.

(b) Furnishing of Information. So long as Subscriber owns any of the Preferred Stock, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. If at any time while Subscriber owns any of the Preferred Stock, the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to Subscriber and make publicly available in accordance with Rule 144(c) promulgated under the Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any holder of the Preferred Stock may reasonably request, all to the extent required from time to time to enable such holder to sell the Common Shares without registration under the Exchange Act under Rule 144 promulgated under the Act. Upon the request of any such holder, the Company

shall deliver thereto a written certification of a duly authorized officer as to whether it has complied with such requirements.

Reservation of Common Shares. From and after the Closing, the Company shall at all times reserve for issuance the number of duly authorized Common Shares issuable upon conversion of the Series B Preferred Stock.

(c) Listing. The Company shall promptly seek the listing of all additional Registrable Securities not previously listed as such shares are issued on the securities exchange, market or other quotation system on which the common stock is then listed or traded and shall maintain, so long as any other shares of common stock shall be so listed, such listing of all such securities from time to time issuable under the terms of the Preferred Stock. Once listed, the Company shall maintain the common stock’s authorization for listing on a securities exchange, market or other quotation system on which the common stock is then listed or traded. The Company shall promptly provide to Subscriber copies of any notices it receives from the securities exchange, market or other quotation system on which the common stock is then listed or traded regarding the continued eligibility of the common stock for listing on such a securities exchange, market or other quotation system. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section.

(d) Notice of Breaches. Each of the Company and Subscriber shall give prompt written notice to the other of any breach by it of any representation, warranty or other agreement contained in this Subscription Agreement, or any of the other Basic Documents to which the Company and Subscriber have relied or are relying on in connection with the sale of Preferred Stock, as well as any events or occurrences arising after the date hereof, which would reasonably be likely to cause any representation or warranty or other agreement of such party, as the case may be, contained in the Transaction Documents to be incorrect or breached as of and after the Closing Date. However, no disclosure by any party pursuant to this Section shall be deemed to cure any breach of any representation, warranty or other agreement contained in any Transaction Documents.

(e) Integration. The Company shall not and shall use its best efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Act of the issue, offer or sale of the Securities to Subscriber.

(f) Acknowledgment of Dilution. The Company acknowledges that the issuance of common stock will result in dilution of the outstanding shares of common stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligation to issue shares of common stock in accordance with the terms of and with respect to the Preferred Stock is unconditional and absolute regardless of the effect of any such dilution.

6. Indemnification. Subscriber agrees to indemnify and hold harmless the Company, its respective officers, directors, employees, stockholders, agents, counsel and affiliates, and any person acting on behalf of the Company (“Indemnitees”), from and against any and all damage, loss, liability, cost and expense (including reasonable attorneys’ fees) (“Loss”) which any of

them may incur by reason of the failure by Subscriber to fulfill any of the terms and conditions of this Subscription Agreement, or by reason of any breach of the representations and warranties made by Subscriber herein, or in any other document provided by Subscriber to the Company. All representations, warranties and covenants of each of Subscriber and the Company contained herein shall survive the acceptance of this subscription.

7. Registration Rights. Subscriber shall have the registration rights set forth in the Registration Rights Agreement, dated the date hereof between the Subscriber and the Company.

8. Miscellaneous.

(a) Subscriber agrees not to transfer or assign this Subscription Agreement or any of Subscriber’s interest herein without the prior written consent of the Company, such consent not to be unreasonably withheld, and further agrees that the transfer or assignment of the Securities acquired pursuant hereto shall be made only in accordance with all applicable laws.

(b) This Subscription Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a written execution by all parties.

(c) Any notice or other document required or permitted to be given or delivered to the Subscriber shall be in writing and sent (i) by fax if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid) or (c) by a recognized overnight delivery service (with charges prepaid).

If to the Subscriber, at:

RJSM Partners, LLC

660 Madison Avenue

17^th Floor

New York, New York 10065

Attention: Nicholas Lewin

Fax: 212-898-1161

or such other address as it shall have specified to the Subscriber in writing, with a copy (which shall not constitute notice) to:

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166-4193

Attention: George Soterakis, Esq.

Fax: 212-294-4700

If to the Company, at:

AVP, Inc.

6100 Center Drive, 9th Floor
Los Angeles, CA 90045

Attention: General Counsel

Fax: 310-426-8010

or such other address as it shall have specified to the Subscriber in writing, with a copy (which shall not constitute notice) to:

Manatt, Phelps & Phillips, LLP

11355 W. Olympic Boulevard

Los Angeles, CA 90064

Attention: Paul Irving, Esq.

David Grinberg, Esq.

James J. Vieceli, Esq.

Fax: (310) 312-4224

(d) Failure of the Company to exercise any right or remedy under this Subscription Agreement or any other agreement between the Company and the Subscriber, or otherwise, or delay by the Company in exercising such right or remedy, will not operate as a waiver thereof. No waiver by the Company will be effective unless and until it is in writing and signed by the Company.

(e) This Subscription Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of Delaware, as such laws are applied by the Delaware courts to agreements entered into and to be performed in Delaware by and between residents of Delaware, and shall be binding and inure to the benefit of the parties and their respective heirs, estate, legal representatives, successors and assigns, provided that the Company may not assign this Subscription Agreement.

(f) Any legal action, suit or proceeding arising out of or relating to this Subscription Agreement or the transactions contemplated hereby may be instituted in any federal court in the State of Delaware, and each party waives any objection which such party may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given by registered or certified mail, return receipt requested, or by any other means of mail which requires a signed receipt, postage prepaid, mailed to such party as herein provided. Nothing contained herein shall be deemed to affect the right of any party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other party in any jurisdiction other than the federal courts in Delaware.

(g) If any provision of this Subscription Agreement is held to be invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed

modified to conform to such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provisions hereof.

(h) The parties understand and agree that money damages would not be a sufficient remedy for any breach of the Subscription Agreement by the Company or the Subscriber and that the party against which such breach is committed shall be entitled to equitable relief, including injunction and specific performance, as a remedy for any such breach. Such remedies shall not be deemed to be the exclusive remedies for a breach by either party of the Subscription Agreement but shall be in addition to all other remedies available at law or equity to the party against which such breach is committed.

(i) All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, singular or plural, as identity of the person or persons may require.

(j) This Subscription Agreement may be executed in counterparts and by facsimile, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, Subscriber has caused this Subscription Agreement to be executed as of the date indicated below.

Purchase Price: $696,750

RJSM Partners, LLC

Address:				660 Madison Avenue, 17th Floor, New York, New York 10065

Taxpayer ID Number (if applicable):

Date:	9/8/08

Signature:					/s/ Nicholas Lewin

Name:			Nicholas Lewin

Title:		Managing Member

IN WITNESS WHEREOF, the Company has caused this Subscription Agreement to be executed as of the date indicated below.

	AVP, INC.
	a Delaware corporation


	By:	/s/ Leonard Armato
	Name: Leonard Armato
	Title: CEO, Chairman, and Commissioner
Date:

PURCHASER QUESTIONNAIRE

AVP, INC.

THIS QUESTIONNAIRE MUST BE ANSWERED FULLY AND RETURNED ALONG WITH YOUR COMPLETED SUBSCRIPTION AGREEMENT IN CONNECTION WITH YOUR PROSPECTIVE PURCHASE OF SECURITIES FROM AVP, INC. (THE “COMPANY”).

THE INFORMATION SUPPLIED IN THIS QUESTIONNAIRE WILL BE HELD IN STRICT CONFIDENCE. NO INFORMATION WILL BE DISCLOSED EXCEPT TO THE EXTENT THAT SUCH DISCLOSURE IS REQUIRED BY LAW OR REGULATION, OTHERWISE DEMANDED BY PROPER LEGAL PROCESS OR IN LITIGATION INVOLVING THE COMPANY AND ITS CONTROLLING PERSONS.

(1) The undersigned represents and warrants that he, she or it comes within at least one category marked below, and that for any category marked, he, she or it has truthfully set forth, where applicable, the factual basis or reason the undersigned comes within that category. The undersigned agrees to furnish any additional information which the Company deems necessary in order to verify the answers set forth below.

Category A

The undersigned is an individual (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with his or her spouse, presently exceeds $1,000,000.

Explanation. In calculating net worth you may include equity in personal property and real estate, including your principal residence, cash, short-term investments, stock and securities. Equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property.

Category B	The undersigned is an individual (not a partnership, corporation, etc.) who had an income in excess of $200,000 in each of the two most recent years, or joint income with his or her spouse in excess of $300,000 in each of those years (in each case including foreign income, tax exempt income and full amount of capital gains and losses but excluding any income of other family members and any unrealized capital appreciation) and has a reasonable expectation of reaching the same income level in the current year.

Category C	The undersigned is a director or executive officer of the Company which is issuing and selling the Securities (as defined in the Company’s Subscription Agreement delivered along with this Purchaser Questionnaire (the “Subscription Agreement”)).

Category D	The undersigned is a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the “Act”); a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act, whether

	acting in its individual or fiduciary capacity; any insurance company as defined in Section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors (describe entity).



Category E	The undersigned is a private business development company as defined in section 202(a) (22) of the Investment Advisors Act of 1940. (describe entity)



Category F	The undersigned is either a corporation, partnership, Massachusetts business trust, or non-profit organization within the meaning of Section 501(c)(3) of the Internal Revenue Code, in each case not formed for the specific purpose of acquiring the Securities and with total assets in excess of $5,000,000. (describe entity)



Category G	The undersigned is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, where the purchase is directed by a “sophisticated investor” as defined in Regulation 506(b)(2)(ii) under the Act.

Category H	The undersigned is an entity (other than a trust) in which all of the equity owners are “accredited investors” within one or more of the above categories. If relying upon this Category alone, each equity owner must complete a separate copy of this Purchaser Questionnaire. (describe entity)

	The undersigned agrees that the undersigned will notify the Company at any time on or prior to the Closing (as defined in the Subscription Agreement) in the event that the representations and warranties in this Purchaser Questionnaire shall cease to be true, accurate and complete.

(2)	Suitability (please answer each question)

	(a)	For an individual, please describe your current employment, including the company by which you are employed and its principal business:



	(b)	For an individual, please describe any college or graduate degrees held by you:



	(c)	For all subscribers, please list types of prior investments:



	(d)	For all subscribers, please state whether you have you participated in other private placements before:

		YES o NO o

	(e)	If your answer to question (d) above was “YES”, please indicate frequency of such prior participation in private placements of:

	Public Companies	Private Companies
Frequently
Occasionally
Never

	(f)	For individuals, do you expect your current level of income to significantly decrease in the foreseeable future?

		YES o NO o

	(g)	For trust, corporate, partnership and other institutional subscribers, do you expect your total assets to significantly decrease in the foreseeable future?

		YES o NO o

	(h)	For all subscribers, do you have any other investments or contingent liabilities which you reasonably anticipate could cause you to need sudden cash requirements in excess of cash readily available to you?

		YES o NO o

	(i)	For all subscribers, are you familiar with the risk aspects and the non-liquidity of investments such as the Securities for which you seek to purchase?

		YES o NO o

	(j)	For all subscribers, do you understand that there is no guarantee of financial return on this investment and that you run the risk of losing your entire investment?

		YES o NO o

(3)	Manner in which title is to be held: (circle one)

	(a)	Individual Ownership
	(b)	Community Property
	(c)	Joint Tenant with Right of Survivorship (both parties must sign)
	(d)	Partnership
	(e)	Tenants in Common
	(f)	Company
	(g)	Trust
	(h)	Other

(4)	NASD Affiliation.

	Are you affiliated or associated with an NASD member firm (please check one):

	YES o NO o

	If Yes, please describe:



	*If subscriber is a Registered Representative with an NASD member firm, have the following acknowledgment signed by the appropriate party:

The undersigned NASD member firm acknowledges receipt of the notice required by Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.


Name of NASD Member Firm


By:
Authorized Officer

Date:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

The undersigned is informed of the significance to the Company of the foregoing representations and answers contained in this Purchaser Questionnaire and such answers have been provided under the assumption that the Company will rely on them.

Date:

	RJSM Partners, LLC


	By:
		Name: Nick Lewin
		Title: Managing Member

EX-10.3 4 a08-24578_2ex10d3.htm EX-10.3

Exhibit 10.3

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of September 8, 2008, is made by and between AVP, Inc., a Delaware corporation (the “Company”), and RJSM Partners, LLC, a Delaware limited liability company (the “Investor”).

WHEREAS, the Company and the Investor have entered into that certain Subscription Agreement, dated as of the date hereof (the “Subscription Agreement”), pursuant to which the Investor has acquired 50,000 shares of Series B Convertible Preferred Stock (the “Preferred Stock”), convertible into shares of Common Stock (as defined therein) of the Company;

WHEREAS, the Company and the Investor have entered into that certain Securities Purchase Agreement, dated as of September 8, 2008 (the “Purchase Agreement”), pursuant to which the Investor: (i) as of the date hereof, has acquired an aggregate of 3,606,500 shares of the authorized but unissued Common Stock of the Company (the “Initial Restricted Shares”) and (ii) on or before September 15, 2008, will acquire an additional 2,000,000 shares of the authorized but unissued Common Stock of the Company (the “Secondary Restricted Shares” and, together with the Initial Restricted Shares, the “Restricted Shares”);

WHEREAS, the Company and the Investor have also entered into a Loan Agreement dated as of the date hereof (the “Loan Agreement”) pursuant to which the Investor has agreed to loan: (i) on the date hereof, $1,803,250 and (ii) on or before September 15, 2008, an additional $1,000,000 to the Company, and the Company has agreed to issue to the Investor Promissory Notes (the “Notes”) dated as of their respective dates to evidence the loans;

WHEREAS, the Restricted Shares will be delivered to the Investor pursuant to the terms and conditions of the Purchase Agreement, the Loan Agreement and the Notes and such delivery may occur on the Maturity Date (as defined in the Loan Agreement) or following a Change of Control (as defined in the Loan Agreement) or an election by the Investor to cause the Company to prepay any of the Loans;

WHEREAS, the Company and the Investor are entering into this Agreement as a condition to and in connection with the Investor’s entering into the Purchase Agreement and the Loan Agreement; and

WHEREAS, the Company and the Investor deem it to be in their respective best interests to set forth their rights in connection with public offerings and sales of the Preferred Stock and Common Stock.

NOW THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Definitions.

All capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. For the purposes of this Agreement, the following terms shall

have the respective meanings set forth below or elsewhere in this Agreement as referred to below:

“Commission” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended and in effect from time to time.

“Preferred Stock” shall mean those shares of Series B Convertible Preferred Stock issued to the Investor pursuant to the Subscription Agreement.

“Prospectus” means the prospectus (including any preliminary prospectus and/or any final prospectus filed pursuant to Rule 424(b) under the Securities Act and any prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance on Rule 430A, Rule 430B or Rule 430C under the Securities Act) included in a Registration Statement, as amended or supplemented by any prospectus supplement or any Issuer Free Writing Prospectus (as defined in Rule 433(h) under the Securities Act) with respect to the terms of the offering or any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to such prospectus, including all documents and other information incorporated by reference in such prospectus.

“Registrable Securities” shall mean, collectively, (a) the Common Stock issuable upon conversion of the Preferred Stock, (b) any Restricted Shares delivered to the Investor upon the occurrence of a Change of Control, following a request by the Investor for prepayment of the Loans or on the Maturity Date of the Loans, and (c) any other securities issued or issuable with respect to the Preferred Stock and Common Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, arrangement, merger, consolidation or other reorganization or otherwise; provided, however, that as to any particular securities constituting Registrable Securities, such securities will cease to be Registrable Securities (v) if the Company’s shares of Common Stock are no longer registered under Section 12 of the Exchange Act or the Company is no longer required to file periodic reports with the Commission pursuant to Sections 13(a) or 15(d) of the Exchange Act, (w) when a registration statement with respect to the sale by the holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (x) when they have been sold to the public pursuant to Rule 144 or Rule 145 or other exemption from registration under the Securities Act, (y) when they have been acquired by the Company or (z) when they are able to be sold by the Investor without restriction as to volume or manner of sale pursuant to Rule 144 under the Securities Act as specified in a legal opinion to such effect rendered by counsel to the Company at its sole expense and reasonably acceptable to the Company’s Common Stock transfer agent.

“Registration Statement” means the Prospectus and other documents filed with the Commission to effect a registration under the Securities Act.

“Restricted Security” or “Restricted Securities” means any share of Preferred Stock or Common Stock except any that (i) has been registered pursuant to an effective registration statement under the Securities Act and sold in a manner contemplated by the prospectus included in such registration statement; (ii) has been transferred by the holder in compliance with the resale provisions of Rule 144 under the Securities Act (or any successor provision thereto); or (iii) otherwise has been transferred by the holder and a new certificate representing a share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company.

2. Registration and Sale.

(a) Demand Registrations.

(1) Requests for Registration. At any time after the Company delivers to the Investor shares of Restricted Shares in accordance with the terms and conditions of the Loan Agreement, the Investor may request in writing that the Company effect the registration of any number of Registrable Securities held by the Investor (a “Registration Request”). Promptly after its receipt of any Registration Request but no later than ten (10) days after receipt of such Registration Request, the Company will give written notice of such request to the Investor, and will use its reasonable best efforts to register, in accordance with the provisions of this Agreement, all Registrable Securities that have been requested to be registered in the Registration Request or by the Investor by written notice to the Company given within 15 business days after the date the Company has given such notice of the Registration Request. The Company will pay all Registration Expenses (as defined below) incurred in connection with any registration pursuant to this Section 2(a). Any registration requested by the Investor pursuant to this Section 2(a)(1) is referred to in this Agreement as a “Demand Registration.”

(2) Limitation on Demand Registrations. The Investor will be entitled to initiate no more than three (3) Demand Registrations, and the Company will not be obligated to effect more than one Demand Registration in any six-month period. Upon filing a Registration Statement, the Company will use its reasonable best efforts to keep such Registration Statement effective with the Commission at all times until the Registrable Securities have been sold in accordance with such Registration Statement. No request for registration will count for the purposes of the limitations in this Section 2(a)(2) if (i) the Investor determines in good faith to withdraw the proposed registration prior to the effectiveness of the Registration Statement relating to such request due to marketing conditions or regulatory reasons relating to the Company (provided that this clause (i) shall cease to apply if the Investor has previously withdrawn a proposed registration), (ii) the Registration Statement relating to such request is not declared effective within 180 days of the date such Registration Statement is first filed with the Commission (other than by reason of the Investor having refused to proceed or provide any required information for inclusion therein) and the Investor withdraws the Registration Request prior to such Registration Statement being declared effective, provided that this clause (ii) shall not apply to a shelf Registration Statement on a Form S-3, and (iii) prior to the sale of at least 85% of the Registrable Securities included in the applicable registration relating to such request, such registration is adversely affected by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason and the Company fails

to have such stop order, injunction or other order or requirement removed, withdrawn or resolved to the Investor’s reasonable satisfaction within thirty days of the date of such order.

(3) Short-Form Registrations. In no event shall the Company be obligated to effect any registration other than pursuant to Form S-3 or any comparable or successor form or forms or any similar short-form registration (“Short-Form Registration”) unless it is not then eligible to utilize such form.

(4) Restrictions on Demand Registrations. If the filing or initial effectiveness of a registration statement with respect to a Demand Registration would require the Company to make a public disclosure of material non-public information, which disclosure in the good faith judgment of the Board of Directors (i) would be required to be made in any Registration Statement so that such Registration Statement would not be materially misleading, (ii) would not be required to be made at such time but for the filing, effectiveness or continued use of such Registration Statement, (iii) would reasonably be expected to materially adversely affect the Company or its business if made at such time or (iv) would reasonably be excepted to interfere with the Company’s ability to effect a planned or proposed acquisition, disposition, financing, reorganization, recapitalization or similar transaction, then the Company may upon giving prompt written notice of such action to the participants in such registration (each of whom hereby agrees to maintain the confidentiality of all information disclosed to such participants) delay the filing or initial effectiveness of, or suspend use of, such Registration Statement; provided, that the Company shall not be permitted to do so (x) for more than one-hundred twenty (120) days for a given occurrence of such a circumstance or (y) more than three times during any 12-month period. In the event the Company exercises its rights under the preceding sentence, the Investor agrees to suspend, promptly upon its receipt of the notice referred to above, its use of any prospectus relating to such registration in connection with any sale or offer to sell Registrable Securities. If the Company so postpones the filing of a prospectus or the effectiveness of a Registration Statement, the Investor will be entitled to withdraw such request and, if such request is withdrawn, such registration request will not count for the purposes of the limitation set forth in Section 2(a)(2). The Company will pay all Registration Expenses incurred in connection with any such aborted registration or prospectus.

(5) Selection of Underwriters. If the Investor intends that the Registrable Securities covered by the Registration Request shall be distributed by means of an underwritten offering, the Investor will so advise the Company as a part of the Registration Request, and the Company will include such information in the notice sent by the Company to any known permitted transferees with respect to such Registration Request. In such event, the lead underwriter to administer the offering will be chosen by the Company, subject to the prior written consent of the Investor, not to be unreasonably withheld or delayed. If the offering is underwritten, the right of the Investor to registration pursuant to this Section 2(a) will be conditioned upon the Investor’s participation in such underwriting and the inclusion of the Investor’s Registrable Securities in the underwriting, and the Investor will (together with the Company) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. If the Investor disapproves of the terms of the underwriting, the Investor may elect to withdraw therefrom by written notice to the Company and the managing underwriter.

4 (6) Priority on Demand Registrations. The Company will not include in any underwritten registration pursuant to this Section 2(a) any securities that are not Registrable Securities, without the prior written consent of the Investor. If the managing underwriters advise the Company that in their reasonable opinion the number of Registrable Securities (and, if permitted hereunder, other securities requested to be included in such offering) exceeds the number of securities that can be sold in such offering without adversely affecting the marketability of the offering (including an adverse effect on the per share offering price), the Company will include in such offering only such number of securities that in the reasonable opinion of such managing underwriters can be sold without adversely affecting the marketability of the offering (including an adverse effect on the per share offering price), which securities will be so included in the following order of priority: (i) first, Registrable Securities of the Investor, (ii) second, Registrable Securities of any permitted transferee who has delivered written requests for registration pursuant to Section 2(a)(1), pro rata on the basis of the aggregate number of Registrable Securities owned by each such person, and (iii) third, any other securities of the Company that have been requested to be so included, subject to the terms of this Agreement.

(7) Effective Registration Statement. A registration requested pursuant to Section 2(a)(1) shall not be deemed to have been effected unless it is declared effective by the Commission or is automatically effective upon filing pursuant to Rule 462 of the Securities Act and remains effective for the period specified in Section 2(a)(2).

(b) Black-Out Periods.

(1) Notwithstanding anything to the contrary in this Agreement, at any time after the filing of the Registration Statement, the Company, by written notice to the Investor (a “Suspension Notice”), may suspend sales of the Registrable Securities pursuant to a Registration Statement for such times as the Company reasonably may determine is necessary and advisable (but in no event for more than (x) an aggregate of 90 days in any rolling 12-month period commencing on the date of this Agreement or (y) more than 60 days in any rolling 90-day period), if any of the following events shall occur: (1) a majority of the Board of Directors of the Company shall have determined in good faith that (A) the offer or sale of any Registrable Securities would materially impede, delay or interfere with any proposed financing, offer or sale of securities, acquisition, merger, tender offer, business combination, corporate reorganization or other significant transaction involving the Company or (B) after the advice of counsel, the sale of Registrable Securities pursuant to the Registration Statement would require disclosure of non-public material information not otherwise required to be disclosed under applicable law, and (C) (x) the Company has a bona fide business purpose for preserving the confidentiality of the proposed transaction, (y) disclosure would have a material adverse effect on the Company or the Company’s ability to consummate the proposed transaction, or (z) the proposed transaction renders the Company unable to comply with Commission requirements, in each case under circumstances that would make it impractical or inadvisable to cause the Registration Statement (or such filings) to become effective or to promptly amend or supplement the Registration Statement on a post-effective basis, as applicable; or (2) a majority of the Board of Directors of the Company shall have determined in good faith, after the advice of counsel, that the Company is required by law, rule or regulation or that it is in the best interests of the Company to supplement the Registration Statement or file a post-effective amendment to the Registration Statement in order to incorporate information into the Registration Statement for the purpose of

(A) including in the Registration Statement any prospectus required under Section 10(a)(3) of the Securities Act; (B) reflecting in the prospectus included in the Registration Statement any facts or events arising after the effective date of the Registration Statement (or of the most recent post-effective amendment) that, individually or in the aggregate, represents a fundamental change in the information set forth therein; or (C) including in the prospectus included in the Registration Statement any material information with respect to the plan of distribution not disclosed in the Registration Statement or any material change to such information. Any period in which the use of the Registration Statement has been suspended in accordance with this Section 2(b) is sometimes referred to herein as a “Blackout Period.” Upon the occurrence of any such suspension, the Company shall use its commercially reasonable efforts to cause the Registration Statement to become effective or to promptly amend or supplement the Registration Statement on a post-effective basis or to take such action as is necessary to make resumed use of the Registration Statement compatible with the Investor’s best interests, as applicable, so as to permit the Company to resume sales of the Registrable Securities as soon as possible.

(2) The Investor shall not effect any sales of the Registrable Securities pursuant to such Registration Statement (or such filings) at any time after they have received a Suspension Notice from the Company and prior to receipt of an End of Suspension Notice (as defined below). If so directed by the Company, the Investor will deliver to the Company all copies (other than permanent file copies) then in the Investor’s possession of the prospectus covering the Registrable Securities at the time of receipt of the Suspension Notice. The Company may recommence effecting sales of the Registrable Securities pursuant to the Registration Statement (or such filings) following further notice to such effect (an “End of Suspension Notice”) from the Company, which End of Suspension Notice shall be given by the Company to the Investor in the manner described above promptly following the conclusion of any Suspension Event and its effect. Until the End of Suspension Notice is so given to the Investor, the Company’s obligations under Section 3 to update or keep current the Registration Statement and the Company’s right to sell Registrable Securities pursuant to the Registration Statement shall be suspended, provided that such suspension shall not exceed the periods specified in Section 2(b)(1) above.

(c) Registration Procedures. Subject to Section 2(a)(4), whenever the Investor of Registrable Securities have requested that any Registrable Securities be registered pursuant to Section 2(a) or 2(c) of this Agreement, the Company will use its reasonable best efforts to effect the registration and sale of such Registrable Securities as soon as reasonably practicable in accordance with the intended method of disposition thereof and pursuant thereto. The Company shall use its reasonable efforts to as promptly as reasonably possible:

(1) prepare and file with the Commission a Registration Statement with respect to such Registrable Securities, make all required filings with the Financial Industry Regulatory Authority and thereafter use its reasonable best efforts to cause such Registration Statement to become effective as soon as reasonably practicable and to remain effective as provided herein, provided that before filing a Registration Statement or any amendments or supplements thereto, the Company will, at the Company’s expense, furnish or otherwise make available to the Holders’ Counsel (as defined below) copies of all such documents proposed to be filed and such other documents reasonably requested by such counsel, which documents will

be subject to review and comment of such counsel, including any comment letter from the Commission with respect to such filing or the documents incorporated by reference therein,;

(2) prepare and file with the Commission such amendments and supplements to such Registration Statement as may be necessary to keep such Registration Statement effective for a period of either (A) not less than (i) six months, (ii) if such Registration Statement relates to an underwritten offering, such longer period as, based upon the opinion of counsel for the underwriters, a prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer or (iii) continuously in the case of shelf registration statements and any shelf registration statement shall be filed upon its expiration (or in each case such shorter period ending on the date that the securities covered by such shelf registration statement cease to constitute Registrable Securities) or (B) such shorter period as will terminate when all of the securities covered by such Registration Statement have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such Registration Statement (but in any event not before the expiration of any longer period required under the Securities Act), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such Registration Statement, and cause the related prospectus to be supplemented by any prospectus supplement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such Registration Statement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act;

(3) furnish to each seller of Registrable Securities, and each managing underwriter, if any, such number of copies, without charge, of such Registration Statement, each amendment and supplement thereto, including each preliminary prospectus, final prospectus, any other prospectus (including any prospectus filed under Rule 424, Rule 430A or Rule 430B under the Securities Act and any “issuer free writing prospectus” as such term is defined under Rule 433 promulgated under the Securities Act), all exhibits and other documents filed therewith and such other documents as such seller or such managing underwriter may reasonably request including in order to facilitate the disposition of the Registrable Securities owned by such seller, and upon request a copy of any and all transmittal letters or other correspondence to or received from, the Commission or any other Governmental Entity relating to such offer;

(4) register or qualify (or exempt from registration or qualification) such Registrable Securities, and keep such registration or qualification (or exemption therefrom) effective, under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things that may be reasonably necessary or reasonably advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction);

(5) notify each seller of such Registrable Securities, the holders’ counsel and the managing underwriter(s), if any, at any time when a prospectus relating thereto is

required to be delivered under the Securities Act, upon discovery that, or upon the discovery of the happening of any event that makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, prospectus or documents and, as soon as reasonably practicable (but subject to the delay provisions of Section 2(a)(4)), prepare and furnish to such seller a reasonable number of copies of a supplement or amendment to such prospectus so that, in the case of the Registration Statement, it will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of any prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statement therein, in light of the circumstances in which they were made, not misleading;

(6) notify each seller of any Registrable Securities covered by such Registration Statement, the Holders’ Counsel and the managing underwriter(s), if any, (i) when such Registration Statement or the prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to such Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission for amendments or supplements to such Registration Statement or to amend or to supplement such prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for any of such purposes, (iv) if at any time the representations and warranties of the Company contained in any underwriting agreement contemplated by Section 2(d)(11) below cease to be true and correct, and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose;

(7) upon the occurrence of an event contemplated in Section 2(d)(5) or in Section 2(d)(6)(ii), (d)(6)(iii), (d)(6)(iv) or (d)(6)(v) (but subject to the delay provisions of Section 2(a)(4)), prepare a supplement or amendment to the Registration Statement or supplement to the related prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that such prospectus as thereafter delivered to the sellers of such Registrable Securities will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made;

(8) cause all such Registrable Securities to be listed on each securities exchange, if any, on which similar securities issued by the Company are then listed;

(9) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such Registration Statement;

(10) enter into such customary agreements (including underwriting agreements and lock-up agreements in customary form, and including provisions with respect to indemnification and contribution in customary form) and take all such other customary actions as the Investor or the underwriters, if any, reasonably request in order to expedite or facilitate the

disposition of such Registrable Securities (including, making members of management and executives of the Company available to participate in “road show,” similar sales events and other marketing activities; provided that the Company shall not be required to make members of management and executives of the Company so available for more than five consecutive days or more than 10 days in any 365-day period);

(11) in connection with any underwritten offering, make such representations and warranties to the sellers and the managing underwriter(s), if any, with respect to the business of the Company and the Company Subsidiaries, and the Registration Statement, prospectus, and documents incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by the issuer in underwritten offerings, and, if true, make customary confirmations of the same if and when requested;

(12) if requested by any seller of Registrable Securities, or the managing underwriter(s), if any, promptly include in a prospectus supplement or amendment such information as the seller or managing underwriter(s), if any, may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or such amendment as soon as practicable after the Company has received such request;

(13) in the case of certificated Registrable Securities, cooperate with the sellers of such Registrable Securities and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates (not bearing any legends) representing Registrable Securities to be sold after receiving written representations from each seller that that the Registrable Securities represented by the certificates so delivered by such seller will be transferred in accordance with the Registration Statement, and enable such Registrable Securities to be in such denominations and registered in such names as the sellers or managing underwriters, if any, may request prior to any sale of Registrable Securities;

(14) make available for inspection by any seller of Registrable Securities and the holders’ counsel, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and documents relating to the business of the Company, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement, provided that it shall be a condition to such inspection and receipt of such information that the inspecting person (i) enter into a confidentiality agreement in form and substance reasonably satisfactory to the Company and (ii) agree to minimize the disruption to the Company’s business in connection with the foregoing;

(15) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission and any applicable national securities exchange;

(16) timely provide to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

9 (17) in the event of the issuance of any stop order suspending the effectiveness of a Registration Statement, or of any order suspending or preventing the use of any related prospectus or ceasing trading of any securities included in such Registration Statement for sale in any jurisdiction, use every reasonable effort to promptly obtain the withdrawal of such order;

(18) obtain one or more comfort letters, addressed to the underwriters, if any, dated the effective date of such Registration Statement and the date of the closing under the underwriting agreement for such offering, signed by the Company’s independent public accountants (and if necessary, any other independent certified public accountants of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement) in customary form and covering such matters of the type customarily covered by comfort letters as such underwriters shall reasonably request;

(19) provide legal opinions of the Company’s counsel, addressed to the underwriters, if any, dated the date of the closing under the underwriting agreement, with respect to the Registration Statement, each amendment and supplement thereto (including the preliminary prospectus) and such other documents relating thereto as the underwriter shall reasonably request in customary form and covering such matters of the type customarily covered by legal opinions of such nature; and

(20) obtain any required regulatory approval necessary for the Investor to sell its Registrable Securities in an offering.

(d) Registration Expenses.

(1) Except as otherwise provided in this Agreement, all expenses incidental to the Company’s performance of or compliance with this Section 2, including all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, word processing, duplicating and printing expenses, messenger, telephone and delivery expenses, expenses incurred in connection with any road show, and fees and disbursements of counsel for the Company and all independent certified public accountants and other persons retained by the Company (all such expenses, “Registration Expenses”), will be borne by the Company. The holders of the securities so registered shall pay all underwriting discounts, selling commissions and transfer taxes applicable to the sale of Registrable Securities hereunder and any other Registration Expenses required by law to be paid by a selling holder pro rata on the basis of the amount of proceeds from the sale of their shares so registered.

(2) In connection with each Demand Registration, the Company will reimburse holder’s counsel for their reasonable fees and disbursements.

(e) Participation in Underwritten Registrations.

(1) The Investor may not participate in any registration hereunder that is underwritten unless the Investor (i) agrees to sell its Registrable Securities on the basis provided in the underwriting arrangements in customary form entered into pursuant to this Agreement (including pursuant to the terms of any over-allotment or “green shoe” option requested by the managing underwriter(s), provided that no such person will be required to sell more than the

number of Registrable Securities that such person has requested the Company to include in any registration), (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, provided that such person shall not be required to make any representations or warranties other than those related to title and ownership of shares and as to the accuracy and completeness of statements made in a Registration Statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company or the managing underwriter(s) by such person, and (iii) cooperates with the Company’s reasonable requests in connection with such registration or qualification (it being understood that the Company’s failure to perform its obligations hereunder, which failure is caused by such person’s failure to cooperate with such reasonable requests, will not constitute a breach by the Company of this Agreement). Notwithstanding any other provision of this Section 2(e)(1), if the managing underwriter(s) advise the Company that marketing factors require a limitation on the number of securities to be underwritten (including Registrable Securities), then the Company shall so advise the Investor, and the number of shares that may be included in the underwritten registration shall be reduced accordingly. Any Registrable Securities excluded or withdrawn from such underwritten registration shall be withdrawn from the registration. Notwithstanding the foregoing, the liability of the Investor participating in such an underwritten registration shall be limited to an amount equal to the amount of gross proceeds attributable to the sale of the Investor’s Registrable Securities.

(2) Each person that is participating in any registration hereunder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2 (d)(5) and (d)(6), such person will forthwith discontinue the disposition of its Registrable Securities pursuant to the Registration Statement until such person receives copies of a supplemented or amended prospectus as contemplated by such Section 2(d)(5), (d)(6) and (d)(7). In the event the Company gives any such notice, the applicable time period mentioned in Section 2(d)(2) during which a Registration Statement is to remain effective will be extended by the number of days during the period from and including the date of the giving of such notice pursuant to this Section 2(f)(2) to and including the date when each seller of a Registrable Security covered by such Registration Statement will have received the copies of the supplemented or amended prospectus contemplated by Section 2(d)(5), (d)(6) and (d)(7).

(f) Termination of Registration Rights. The Investor’s registration rights as to any securities held by such Holder (and its Affiliates, partners, members and former members) shall not be available unless such securities are Registrable Securities.

(g) Furnishing Information.

(1) The Investor shall not use any free writing prospectus (as defined in Rule 405) in connection with the sale of Registrable Securities without the prior written consent of the Company.

(2) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2(a), (c) and (d) that the Investor and the underwriters, if any, shall furnish to the Company such information regarding themselves, the Registrable Securities

held by them and the intended method of disposition of such securities as shall be required to effect the registered offering of their Registrable Securities.

(h) Indemnification.

(1) The Company agrees to indemnify the Investor, and its respective officers, directors, employees, agents, representatives and Affiliates, and each Person, if any, that controls it within the meaning of the Securities Act and the rules and regulations promulgated thereunder (each, an “Indemnitee”), against any and all losses, claims, damages, actions, liabilities, costs and expenses (including without limitation reasonable fees, expenses and disbursements of attorneys and other professionals incurred in connection with investigating, defending, settling, compromising or paying any such losses, claims, damages, actions, liabilities, costs and expenses), joint or several, arising out of or based upon any untrue statement or alleged untrue statement of material fact contained in any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or any documents incorporated therein by reference or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in writing for use by such Investor (or any amendment or supplement thereto); or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, that the Company shall not be liable to such Indemnitee in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (i) an untrue statement or omission made in such registration statement, including any such preliminary prospectus or final prospectus contained therein or any such amendments or supplements thereto or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in writing for use by the Investor (or any amendment or supplement thereto), in reliance upon and in conformity with information furnished expressly for use in connection with such registration by any Indemnitee and provided further, that the foregoing indemnification agreement with respect to any preliminary prospectus shall not inure to the benefit of any Indemnitee, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if sufficient copies of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) were provided to the Investor by the Company but were not sent or given by or on behalf of the Investor or underwriter or other aforementioned person to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability, or (ii) offers or sales effected by or on behalf such Indemnitee “by means of” (as defined in Rule 159A) a “free writing prospectus” (as defined in Rule 405) that was not authorized in writing by the Company.

(2) If the indemnification provided for in Section 2(i)(1) is unavailable to an Indemnitee with respect to any losses, claims, damages, actions, liabilities, costs or expenses referred to therein or is insufficient to hold the Indemnitee harmless as contemplated therein, then the Company, in lieu of indemnifying such Indemnitee, shall contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages, actions, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault of the

Indemnitee, on the one hand, and the Company, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, actions, liabilities, costs or expenses as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Indemnitee, on the other hand, shall be determined by reference to, among other factors, whether the untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company or by the Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; the Company and each holder agree that it would not be just and equitable if contribution pursuant to this Section 2(i)(2) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 2(i)(1). No Indemnitee guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Company if the Company was not guilty of such fraudulent misrepresentation.

(i) Rule 144 Reporting. With a view to making available to the Investor the benefits of certain rules and regulations of the Commission which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its reasonable best efforts to:

(1) make and keep public information available, as those terms are understood and defined in Rule 144(c)(1) or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of this Agreement;

(2) file with the Commission, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and

(3) so long as the Investor owns any Registrable Securities, furnish to the Investor forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act, and of the Exchange Act; a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as such the Investor may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any such securities without registration.

(j) As used in this Section 2, the following terms shall have the following respective meanings:

(1) “holders’ counsel” means one counsel for the selling Investor chosen by the Investor holding a majority interest in the Registrable Securities being registered.

(2) “Rule 144”, “Rule 159A”, “Rule 405” and “Rule 415” mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time.

3. Miscellaneous.

(a) Notices. All notices and other communications pursuant to this Agreement shall be delivered or sent in accordance with Section 7.4 of the Purchase Agreement.

(b) Assignment. The right to have the Company register Registrable Securities pursuant to this Agreement may be assigned or transferred only with the prior written consent of the Company (such consent not to be unreasonably withheld, conditioned or delayed), and any such assignment or transfer without such consent shall be void and of no effect. In the event of any such permitted assignment or transfer by the Investor to any permitted transferee of all or any portion of such Registrable Securities, such transfer will be allowed only if: (a) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the Registrable Securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment, the Registrable Securities so transferred or assigned to the transferee or assignee constitute Restricted Securities, (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, and (e) the Company is furnished with an opinion of counsel, which counsel and opinion shall be satisfactory to the Company, to the effect that the permitted assignment would be in compliance with the Securities Act and any applicable state or other securities laws. For the purposes of this Agreement, (i) any reference to Investor herein shall include a permitted transferee or a permitted assignee of the registration rights hereunder and (ii) any Registrable Securities held by the Investor and a permitted transferee or a permitted assignee shall be aggregated for the purposes of any calculation under this Agreement.

(c) Amendment and Waiver. This Agreement may not be amended except by an instrument in writing signed by the Company and by the Investor. Any waiver, pursuant to this Subsection 3(c), of a breach of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

(d) Governing Law; Headings. This agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to conflict of law provisions of such state. The headings in this Agreement are for convenience only and shall not affect the construction hereof.

(e) Severability. In the event that any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

(f) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings between the parties with respect to the subject matter contained herein and therein.

(g) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the Company and the Investor have executed this Agreement as of the date first above written.

AVP, INC.

By:	/s/ Leonard Armato
	Name:	Leonard Armato
	Title:	CEO, Chairman, and Commissioner


RJSM PARTNERS, LLC

By:	/s/ Nicholas Lewin
	Name:
	Title:

EX-10.4 5 a08-24578_2ex10d4.htm EX-10.4

Exhibit 10.4

AVP, Inc.

6100 Center Drive, 9th Floor

Los Angeles, California 90045

September 8, 2008

RJSM Partners, LLC

660 Madison Avenue

17th Floor

New York, New York 10065

Re: Side Letter

To RJSM Partners, LLC:

In reference to your purchase of 50,000 shares of Series B Convertible Preferred Stock pursuant to the Subscription Agreement between you and AVP, Inc. (the “Company”) on the date hereof, the Company hereby agrees that, after the date hereof but prior to the conversion of the Series B Convertible Preferred Stock into shares of common stock of the Company, the Company will not designate any additional authorized but unissued preferred stock as Series B Preferred Stock without the prior written consent of a majority of the holders of the then outstanding shares of Series B Preferred Stock.

As of the date hereof, the Company represents and warrants that there are 94,944 shares of Series B Convertible Preferred Stock currently authorized. Immediately following the closing of the sale and your purchase of the Series B Convertible Preferred Stock (the “Initial Closing”), there will be 44,944 shares of Series B Convertible Preferred Stock issued to third parties and 50,000 shares of Series B Convertible Preferred Stock issued to RJSM Partners, LLC. Effective upon the Initial Closing, no other shares of Series B Convertible Preferred Stock shall be issued without the prior written consent of the majority of the Series B Convertible Preferred Stock holders.

This letter agreement should be governed by and construed in accordance with the laws of the State of Delaware without regard to conflict of law provisions of such state.

[SIGNATURE PAGE FOLLOWS]

		Sincerely,
		AVP, Inc.


		By:	/s/ Leonard Armato
			Name: Leonard Armato
			Title: CEO, Chairman, and Commissioner


ACKNOWLEDGED:


RJSM Partners, LLC


By:	/s/ Nicholas Lewin
	Name: Nicholas Lewin
	Title: Managing Member

Side Letter Signature Page

EX-10.5 6 a08-24578_2ex10d5.htm EX-10.5

Exhibit 10.5

LOAN AGREEMENT

This LOAN AGREEMENT (“Loan Agreement”) is entered into as of the 8th day of September, 2008 by AVP, Inc., a Delaware corporation (the “Borrower”), and RJSM Partners, LLC, a Delaware limited liability company (the “Lender”).

INTRODUCTION

WHEREAS, the Borrower has requested that the Lender extend the Borrower credit and whereas the Lender is willing to extend such credit on the terms and conditions contained in this Loan Agreement;

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, receipt of which is hereby acknowledged, and in order to induce the Lender to extend such credit, the Borrower and the Lender hereby agree as follows:

ARTICLE 1
DEFINITIONS

Section 1.1 Definitions and Exhibits. Terms defined above or in the text of this Loan Agreement shall have the meanings there set forth herein. Other capitalized terms shall have the meaning set forth in the Definitions Addendum, which is attached and incorporated herein. All exhibits to this Loan Agreement are also incorporated herein.

ARTICLE 2
THE COMMITMENT

Section 2.1 Term Commitment. Subject to the terms and conditions of this Loan Agreement, the Lender agrees to make a loan on September 8, 2008 (the “Initial Effective Date”) to the Borrower in the principal amount of $1,803,250 (the “Initial Loan”) and to make another loan on or before September 15, 2008 (the “Second Effective Date”) to the Borrower in the principal amount of $1,000,000 (the “Second Loan” and, together with the Initial Loan, the “Loans”). An additional principal amount of up to $1.5 million (the “Additional Loan”) may be loaned in accordance with Section 5.1 hereof within sixty (60) days after the Initial Effective Date. The Loans shall bear interest as provided in this Loan Agreement. The Initial Loan shall be evidenced by this Loan Agreement and the Note. The Second Loan shall be evidenced by this Loan Agreement and a note (the “Second Note” and, together with the Note, the “Notes”) that will contain substantially similar terms and conditions as the Note, except for the following terms: (i) the principal amount of the Second Note, (ii) the issue date of the Second Note, and (iii) the initial date on which interest will begin accruing on the Second Note.

Subject to the conditions set forth in this Loan Agreement, the Lender shall disburse by wire transfer of immediately available funds to the account of the Borrower listed on Exhibit B (i) the Initial Loan amount on the Initial Effective Date and (ii) the Second Loan amount on the Second Effective Date.

Section 2.2 Evidence of Indebtedness. The Borrower shall maintain records evidencing amounts of principal and interest paid by or on behalf of the Borrower to the Lender hereunder. The books and records of the Borrower shall be prima facie evidence, absent manifest error, of all amounts of principal, interest, outstanding or repaid pursuant to this Loan Agreement or any other Related Document.

ARTICLE 3
REPAYMENT AND INTEREST

Section 3.1 Payment Of Principal and Interest. The outstanding principal balance of the Notes (the “Maturity Date Payment”) shall be due and payable in kind on September 1, 2013 (the “Maturity Date”), as set forth below. On the Maturity Date, the Maturity Date Payment shall be paid by delivery by the Borrower to the Lender of the Aggregate Number of Restricted Shares (as defined in the Securities Purchase Agreement); provided, that, the foregoing obligation shall not be applicable if a Change of Control occurs before the Maturity Date and the Borrower has performed its obligations under Section 5.3; and provided further, that prior to the Maturity Date, the Lender may cause the Borrower to prepay any portion of the outstanding principal amount of the Loans (such amount of principal being the “Prepayment Amount”) whereupon (i) the Borrower shall release an amount of Restricted Shares equal to the quotient of the Prepayment Amount and the Restricted Share Price, and (ii) all interest accrued under this Loan Agreement on the Prepayment Amount prior to such payment of the Prepayment Amount shall be deemed to be forgiven by the Lender. The outstanding principal balance due on the Loans shall be determined as specified in Section 3.2.

Section 3.2 Interest Rate, Interest Compounding, Outstanding Principal Balance. For the purpose of calculating the payment to be made in Section 5.3(a) or Section 6.2(a) only, interest on the outstanding principal balance of the Loans: (a) shall accrue at eighteen percent (18%) per annum, based on a year of 360 days and actual days elapsed, (b) shall be compounded annually and shall accrue from the Effective Date until the Loans are paid in cash, if such cash payment is elected by the Lender pursuant to Section 5.3(a) or Section 6.2(a), and (c) if applicable, will be paid by the Borrower on the entire outstanding principal amount of the Loans in cash by adding such interest to such outstanding principal amount on the applicable payment date. If it is ever determined that the rate of interest was in excess of any maximum rate (if any) prescribed by law, then that portion of interest payments in cash or in Restricted Shares representing any amounts in excess of said maximum shall be deemed a payment of principal and applied by the Lender at any time against principal.

Section 3.3 Manner, Method, Place, Time and Application of Payment, Reinstatement, Waivers. If a payment is to be made in cash, Obligations shall be paid in lawful currency of the United States to the Lender by wire transfer in immediately available funds to such bank account as the Lender may designate in writing. The liability of the Borrower hereunder and under any other Related Document shall be reinstated and revived and the rights of the Lender shall continue to the extent of any amount at any time paid by or on behalf of the Borrower if such amount shall thereafter be required to be restored, returned or forfeited by the Lender pursuant to any

Requirement of Law, and the Borrower’s liability therefor shall continue as if such amount had not been paid.

If the Borrower makes any payments under this Loan Agreement or the Notes, the Borrower shall be permitted to make any such payment after applying counterclaim, set-off, and after deduction for any Taxes.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

Section 4.1 Validity of the Notes. The Borrower represents and warrants to the Lender that it has all requisite corporate power and corporate authority to issue, execute and deliver the Notes. All action required to be taken for the due and proper authorization, execution, and delivery of the Notes has been duly and validly taken, and, when paid for as provided in this Loan Agreement, the Notes will be duly and validly issued and outstanding and will constitute a valid and legally binding obligation of the Borrower.

ARTICLE 5
COVENANTS

Until principal and interest on the loan is paid in full in the manner described herein, the Borrower hereby covenants and agrees that unless the Lender otherwise consents in writing, the Borrower shall:

Section 5.1 Additional Loans. The Borrower agrees that the Lender may designate other investors reasonably acceptable to the Borrower (each, an “Additional Lender” and, collectively, the “Additional Lenders”), to lend the Borrower the Additional Loan at any time or times on or before the sixtieth (60th) day following the Initial Effective Date or such later date as shall be mutually agreed to by the Borrower and the Additional Lenders. With respect to any Additional Loan, such loan shall be made on the same terms and conditions set forth in this Loan Agreement.

Section 5.2 Incurrence of Indebtedness. The Borrower shall not create, incur, assume or suffer to exist any Indebtedness that either (a) ranks senior in right of payment to the Loans or (b) is secured.

Section 5.3 Change of Control. Within sixty (60) days upon the occurrence of a Change of Control, the Borrower shall be required to make an offer to repurchase the Notes, at which time the Lender shall provide written notice to the Borrower within five (5) days upon receiving the offer by the Borrower that such Lender, or Additional Lenders, as the case may be, at a price equal to (a) a cash payment 100% of the outstanding principal amount of the Notes, plus all accrued and unpaid interest on such outstanding principal amount to the date of payment and (b) an in kind payment of a number of Restricted Shares equal to the Aggregate Number of Restricted Shares less the aggregate number of any Restricted Shares delivered to the Lender as payment of a Prepayment Amount pursuant to Section 3.1 hereof, if any.

Section 5.4 Matters Requiring Vote. So long as at least 50% of the aggregate principal amount of the Loans are outstanding and after the Second Note is issued after the Second Loan is made, the Borrower shall not, without first obtaining the approval of the Lender, if the Lender holds Notes that represents at least a majority of the aggregate outstanding principal amount of the Loans, given in writing:

(i) whether in a single or in a series of related transactions, effect any sale, transfer, lease, merger or reorganization involving all or any material portion of the Borrower’s assets or business ;

(ii) effect any single or a series of related acquisitions with a valuation in excess of $500,000;

(iii) alter or change the rights or preferences of the Lender;

(iv) create any series or class or any other security convertible or exchangeable into or for equity securities having a preference senior to or pari passu with the Series B Preferred Stock as defined in the Securities Purchase Agreement;

(v) incur or suffer to exist any Indebtedness in excess of $500,000 other than such Indebtedness existing on the Initial Effective Date and except for any Indebtedness otherwise permitted by the terms of this Loan Agreement, including the Second Loan and any Additional Loans, and determined in accordance with GAAP;

(vi) redeem or repurchase any equity securities of the Borrower;

(vii) take any action, or fail to take any action, that could result in taxation of the Lender under Section 305 of the Internal Revenue Code;

(viii) amend, alter or repeal the Certificate of Incorporation or Bylaws of the Corporation in a manner that materially affects the Lender;

(ix) issue any warrants not outstanding as of the date hereof; provided, that the Lender’s consent shall not be required in connection with the issuance of warrants or other convertible securities that represent the right to acquire not more than 2.5% of the then outstanding shares of common stock on a fully diluted basis; or

(x) create or issue any other Series B Preferred Stock.

ARTICLE 6

EVENTS OF DEFAULT

Section 6.1 Events of Default. Without regard to previous knowledge or any forbearance by the Lender, the following shall be defaults under this Loan Agreement and the terms “Event of Default”, “default” or “Default” shall mean anyone or more of the following events:

(a) Payment Default. The Borrower shall fail to pay or cause to be paid when due any portion of any Obligation; or

(b) Breach of Covenants of Failure of any Condition. The Borrower shall fail to perform, keep or observe any material provision not involving a payment obligation in this Loan Agreement or any other Basic Documents, and any such failure shall remain unremedied for thirty (30) days after written notification thereof shall have been given to the Borrower by the Lender; or

(c) Breach of Representation or Warranty. Any representation or warranty made by the Borrower in this Loan Agreement or any other Basic Documents shall prove to have been untrue or misleading when made or becomes untrue in any material respect; or

(d) Bankruptcy etc. The Borrower or any of its subsidiaries shall dissolve or liquidate or take an equivalent action or an involuntary petition shall have been filed under any federal or state bankruptcy, reorganization, insolvency, moratorium or similar statute against the Borrower or any of its subsidiaries, or a custodian, receiver, trustee, assignee for the benefit of creditors or other similar official shall be appointed to take possession, custody, or control of the property of the Borrower or any of its subsidiaries, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of said filing or appointment; or the Borrower or its subsidiaries shall admit in writing its inability to pay any of its debts as they mature, or shall file any petition or action for relief relating to any bankruptcy, reorganization, insolvency or moratorium law, or any other similar law or laws for the relief of, or relating to, debtors; or the Borrower or any of its subsidiaries shall make a general assignment for the benefit of creditors or enter into an agreement of composition with its creditors.

Section 6.2 Acceleration and Remedies Following Event of Default. With respect to any Event of Default, the Lender, or Additional Lenders, as the case may be, may, upon notice (of any nature allowed by law) to the Borrower, declare all Obligations (or any part thereof), to be forthwith due and payable and shall have the right to elect that payment be made without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, in an amount equal to (a) a cash payment equal to 100% of the outstanding principal amount of the Notes, plus all accrued and unpaid interest on such outstanding principal amount to the date of payment and (b) an in kind payment equal to a number of Restricted Shares equal to the quotient of (1) the outstanding principal amount of the Notes, plus all accrued and unpaid interest on such outstanding principal amount to the date of payment, and (2) the Restricted Share Price; provided, however, that in no event shall the number of Restricted Shares delivered to the Lender pursuant to this paragraph exceed the Aggregate Number of Restricted Shares less the aggregate number of any Restricted Shares delivered to the Lender as payment of a Prepayment Amount pursuant to Section 3.1 hereof, if any.

In addition, upon any Event of Default, the Lender may without prior notice or demand, exercise any and all rights available to it under this Loan Agreement or any other Basic

Documents in equity or by applicable law. No action taken by the Lender shall be deemed to be an election of remedies by the Lender, it being the intent of the parties that the Lender shall be entitled repeatedly to exercise all remedies separately or concurrently and in any manner allowed by law.

Failure of the Lender or any Additional Lender to elect to make the Additional Loan shall not constitute a breach of this Loan Agreement.

ARTICLE 7
MISCELLANEOUS

Section 7.1 Certain Terms. As used herein, “Sections” refers to sections of this Loan Agreement. As used herein, the expression “this Agreement” means the body of this Loan Agreement; and the expressions “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Loan Agreement and not to any particular part or subdivision thereof. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate.

Section 7.2 Captions. The captions, headings and arrangements used in this Loan Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions hereof.

Section 7.3 Notices. Whenever this Loan Agreement requires or permits any consent, approval, notice, request or demand from one party to another, such consent, approval, notice, request or demand must be in writing to be effective and shall be deemed to be delivered and received (i) if personally delivered or if delivered by facsimile with telephonic confirmation, when actually received by the party to whom notice is sent, (ii) if delivered by mail within the United States (whether actually received or not), at the close of business on the third business day next following the day when placed in the federal mail, postage prepaid, certified or registered, addressed to the appropriate party or parties, at the address of such party set forth below (or at such other address as such party may designate by written notice to all other parties in accordance herewith) or (iii) if delivered by mail to any party located outside the United States, when received by the party to whom notice is sent:

If to the Lender, to:

RJSM Partners, LLC

660 Madison Avenue

17^th Floor

New York, New York 10065

Attention: Nicholas Lewin

Fax: 212-898-1161

and, with a copy to (which shall not constitute notice):

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166-4193

Attention: George Soterakis, Esq.

Fax: 212-294-4700

If to the Borrower, to:

AVP, Inc.

6100 Center Drive, 9th Floor
Los Angeles, CA 90045

Attention: General Counsel

Fax: 310-426-8010

with a copy to (which shall not constitute notice):

Manatt, Phelps & Phillips, LLP

11355 W. Olympic Boulevard

Los Angeles, CA 90064

Attention: Paul Irving, Esq.

David Grinberg, Esq.

James J. Vieceli, Esq.

Fax: (310) 312-4224

Section 7.4 Governing Law. THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS LOAN AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.

Section 7.5 Successors and Assigns. This Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, successors, and permitted assigns, and any receiver, trustee in bankruptcy, or representative of the creditors of each such Person; provided, that the Borrower may not assign this Loan Agreement without the prior written consent of the Lender, such consent not to be unreasonably withheld; provided, further that the Lender may not assign this Loan Agreement without the prior written consent of the Lender, such consent not to be unreasonably withheld.

Section 7.6 Invalid Provisions. If any provision of this Loan Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Loan Agreement, such provision shall be fully severable; this Loan Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Loan Agreement; and the remaining provisions of this Loan Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this

Loan Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Loan Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.

Section 7.7 Amendments. This Loan Agreement may be amended, at any time and from time to time in whole or in part, or terminated, only by an instrument in writing, duly executed by all of the parties hereto.

Section 7.8 Counterparts. This Loan Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same agreement.

Section 7.9 Continuation of Rights. The failure or refusal of a party hereto to exercise any right granted in this Loan Agreement shall not be deemed a waiver of the right to exercise future rights which may arise hereunder.

Section 7.10 Entire Agreement. This Loan Agreement contains the entire understanding of the parties hereto respecting the subject matter hereof and supersedes all prior agreements, discussions and understandings.

Section 7.11 Consent to Jurisdiction and Service of Process. Any legal action, suit or proceeding arising out of or relating to this Loan Agreement or the transactions contemplated hereby may be instituted in any federal court in the State of Delaware, and each party waives any objection which such party may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given by registered or certified mail, return receipt requested, or by any other means of mail which requires a signed receipt, postage prepaid, mailed to such party as herein provided. Nothing contained herein shall be deemed to affect the right of any party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other party in any jurisdiction other than the federal courts in Delaware.

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AVP, INC.		RJSM PARTNERS, LLC,
a Delaware corporation		a Delaware limited liability company


By	/s/ Leonard Armato	By	/s/ Nicholas Lewin
Name: Leonard Armato		Name:
Title: CEO, Chairman, and Commissioner		Title:

Signature Page to Loan Agreement

DEFINITIONS ADDENDUM

This Definitions Addendum is an attachment to and part of that certain LOAN AGREEMENT (“Loan Agreement”) dated as of September 8, 2008 between AVP, Inc. and RJSM Partners, LLC Except as otherwise stated in the Loan Agreement, the following terms shall have the following meanings:

“Arising Out Of” means directly or indirectly arising out of, relating in any manner to, arising in connection with, growing out of or stemming from, or in any manner caused by or resulting from, whether by action or inaction and whether such action or inaction be culpable and whether such action be in contract, tort or otherwise.

“Basic Documents” means this Loan Agreement, the Securities Purchase Agreement, the Subscription Agreement, the Notes, and the Registration Rights Agreement.

“Borrower” means AVP, Inc., a Delaware corporation.

“Business Day” means any day other than (i) a Saturday, Sunday or legal holiday, or (ii) a day on which commercial banks in New York City are authorized or required by law or executive order to close.

“Change of Control” means (a) any consolidation, merger, reorganization, recapitalization or sale in one or more related transactions of the Borrower with or into any other corporation or other entity or person, or any other corporate reorganization or sale of securities of the Borrower, in which the stockholders of the Borrower immediately prior to such consolidation, merger, reorganization or sale, own less than fifty percent (50%) of the Borrower’s voting power immediately after such consolidation, merger, reorganization or sale, or any transaction or series of related transactions in which in excess of fifty percent (50%) of the Borrower’s voting power is transferred; or (b) a sale, lease or other disposition of all or substantially all of the assets of the Borrower.

“Default” or “Event of Default” has the meaning given the term in Section 6.1 of the Loan Agreement.

“Effective Date” means the Initial Effective Date or the Second Effective Date, as applicable.

“Governmental Body” means any foreign or domestic government; court; federal, state, county, municipal or other department, commission, board, bureau, agency, administrator, public authority or instrumentality; arbitrator; mediator; or other governmental regulator or authority.

“Indebtedness” means, with respect to any Person, at a particular date, means all indebtedness of such Person for borrowed money; provided, that, in no event shall Indebtedness include any trade and other accounts payable which are not overdue for a period of more than 60 days or, if overdue for more than 60 days, as to which a dispute exists and adequate reserves in conformity with generally accepted accounting principles in the United States in effect from time to time have been established on the books of such Person.

“Initial Effective Date” has the meaning given that term in Section 2.1 of the Loan Agreement.

“Initial Loan” has the meaning given that term in Section 2.1 of the Loan Agreement.

“Loan Agreement” means this Loan Agreement, as the same may be amended, extended or renewed from time to time.

“Maturity Date” has the meaning given that term in Section 3.1 of the Loan Agreement.

“Maturity Date Payment” has the meaning given that term in Section 3.1 of the Loan Agreement.

“Note” means the promissory note in substantially the form attached as Exhibit A, as extended, renewed or amended from time to time.

“Notes” has the meaning given that term in Section 2.1 of the Loan Agreement.

“Obligations” means all obligations for principal or interest on the Note and all other amounts of every nature whatsoever due or to become due the Lender under this Loan Agreement.

“Person” means any individual, corporation, partnership, limited liability partnership, limited liability company, joint venture, association, joint stock company, sole proprietorship, business trust, unincorporated organization or government or other agency or political subdivision thereof.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of September 8, 2008, between the Borrower and the Lender.

“Requirement of Law” means, with respect to any Person, the now or hereafter existing articles or certificate of incorporation and bylaws, the partnership or limited liability company agreement or other organizational or governing documents of such Person, and any law, treaty, rule, order, judgment, decree, injunction, writ, or regulation, or a final and binding determination of an arbitrator, mediator, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Restricted Shares” has the meaning given that term in the Securities Purchase Agreement.

“Restricted Share Price” means $0.50 per share.

“Second Effective Date” has the meaning given that term in Section 2.1 of the Loan Agreement.

“Second Loan” has the meaning given that term in Section 2.1 of the Loan Agreement.

“Second Note” has the meaning given that term in Section 2.1 of the Loan Agreement.

“Securities Purchase Agreement” means that certain Securities Purchase Agreement, dated as of September 8, 2008, between the Borrower and the Lender.

“Subscription Agreement” means that certain Subscription Agreement, dated as of September 8, 2008, between the Borrower and the Lender.

“Taxes” means for any Person any federal or state tax, assessment, duty, levy, withholding liability, impost and other charges of every nature whatsoever imposed by any Governmental Body on such Person or on any of its property or because of any, revenue, income, sales, use, product, employee or franchise, and any interest or penalty with respect to any of the foregoing.

Exhibit A

[Form of Promissory Note]

Exhibit B

Wire Transfer Instructions

Bank Name		City National Bank
Bank Address		400 N. Roxbury Dr., Beverly Hills, CA 90210
Telephone		(213) 427-5050

Account Name		AVP Pro Beach Volleyball Tour
Account Number		101817423
ABA #		122016066

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