Document:

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

17th 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

  	
   

  	
  1,346,356Exhibit 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.

 

1

 

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 

 

2

 

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.

 

3

 

(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 

 

4

 

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 

 

5

 

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 

 

6

 

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 

  17th
  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

 

7

 

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 

 

8

 

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]

 

9

 

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

  	
   

  
									

 

1

 

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: 

  	
   

  	
   

  	
   

  
					

 

2

 

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

  

 

3

 

	
   

  	
  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)

  

 

4

 

 

 

	
   

  	
  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

  

 

5

 

	
   

  	
  (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:

  

 

6

 

	
  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]

 

7

 

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

  

 

1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00147-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00147-of-00352.parquet"}]]