UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date
of
Report (Date of earliest event reported): September 8, 2008
AVP,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or
other jurisdiction of
incorporation
or organization)
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005-79737
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98-0142664
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(Commission
file number)
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(I.R.S.
employer identification number)
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6100
Center Drive, Suite 900, Los Angeles, California
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90045
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(310)
426-8000
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (See General Instruction A.2.):
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17
CFR240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR240.13e-(c))
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Item
1.01 Entry into a Material Definitive Agreement.
On
September 9, 2008, AVP, Inc. (the “
Company
”)
announced that RJSM Partners, LLC (“
RJSM
”)
agreed
to make a $3.5 million investment (the “
Transaction
”)
in the
Company. RJSM funded $2.5 million of the investment as of September 9, 2008
and
has agreed to fund the additional $1.0 million by no later than September 15,
2008. Following receipt of the aggregate amount of $3.5 million, RJSM will
have
(i) received notes from the Company with an aggregate principal amount of
$2,803,250 that give RJSM the right to own approximately 5.6 million shares
of
the Company’s common stock (the “
Common
Shares
”)
in the
aggregate, and (ii) purchased 50,000 shares of the Company’s Series B
Convertible Preferred Stock for an aggregate purchase price of $696,750. The
$2.5 million that the Company received as of September 9, 2008 was consideration
for a note with an aggregate principal amount of $1,803, 250 and the 50,000
shares of Series B Preferred Stock, and the additional $1.0 million to be
received by the Company will be in return for an additional note. RJSM will
have
full voting rights associated with the approximately 5.6 million Common Shares
once the shares are issued in the name of RJSM upon the funding of the
additional $1.0 million on or before September 15, 2008. As of September 9,
2008, RJSM has full voting rights associated with approximately 3.6 million
of
the Common Shares. The terms of the Transaction are described in more detail
below.
As
part
of the Transaction, the Company and RJSM entered into a subscription agreement
(the “
Subscription
Agreement
”)
pursuant to which RJSM acquired 50,000 shares of authorized but unissued Series
B Convertible Preferred Stock, par value $.001 per share (the “
Series
B Preferred Stock
”)
for a
price per share of $0.50. The Series B Preferred Stock is convertible at RJSM’s
option into an aggregate of 1,393,500 shares of the Company’s common stock
(which conversion rate is subject to adjustment). As of September 9, 2008,
RJSM
owns a majority of the issued and outstanding shares of Series B Preferred
Stock.
In
connection with the sale and purchase of the Series B Preferred Stock, the
Company and RJSM entered into a letter agreement pursuant to which the Company
has agreed that, without the prior written consent of a majority of the holders
of the then outstanding shares of Series B Preferred Stock: (i) the Company
would not designate any additional authorized but unissued shares of preferred
stock as Series B Preferred Stock and (ii) no other shares of Series B Preferred
Stock would be issued.
Also
as
part of the Transaction, the Company and RJSM entered into a securities purchase
agreement (the “
Securities
Purchase Agreement
”)
pursuant to which RJSM has agreed to acquire the Common Shares, an aggregate
of
5,606,500 shares of the Company’s common stock, for an aggregate purchase price
of $2,803,250 (the “
Common
Share Purchase Price
”).
The
Common Share Purchase Price is payable in accordance with the Securities
Purchase Agreement, which requires that $5,606.50 of such Common Share Purchase
Price shall be paid to the Company upon the completion of the closing of the
Transaction on or before September 15, 2008. The balance of the Common Share
Purchase Price shall be paid by RJSM when RJSM forgives the Company’s
obligations under the Loan Agreement and the Note (each as defined below).
RJSM
will have full voting rights associated with the Common Shares once the shares
are issued in the name of RJSM upon the closing of the Transaction, but RJSM
may
not transfer the Common Shares until the Common Shares are delivered to RJSM
at
the time that RJSM forgives the Company’s obligations under the Loan Agreement
and the Note, which will not occur later than September 1, 2013.
Pursuant
to the terms of the Securities Purchase Agreement: (i) RJSM is entitled to
reasonable observer rights at meetings of the Board of Directors (the
Board
”)
for so
long as RJSM owns equal to or greater than 2,803,250 shares of the Company’s
issued and outstanding shares of capital stock (the “
Requisite
Number of Equity Securities
”);
(ii)
the Company will decrease the current nine-member Board of Directors to five
members, resulting in the resignations of the following directors: Phil
Guarascio, Jeffrey Wattenberg, Steve Lindecke, and Bret Yormark (as previously
disclosed on Form 8-K filed by the Company on September 3, 2008, Mr. Jeffrey
Jacobs also resigned as a director of the Company); (iii) the Company will
appoint two nominees by RJSM (the “
Board
Representatives
”)
to the
Board of Directors, subject to the appointees meeting reasonable qualifications
to serve on the Board of Directors; (iv) the Company will appoint one nominee
by
RJSM to each of the compensation committee and audit committee of the Board
of
Directors; (v) for so long as RJSM owns the Requisite Number of Equity
Securities, the Company will be required to recommend to its stockholders the
election of the Board Representatives at the Company’s annual meeting of
stockholders; and (vi) RJSM will be granted the right to purchase additional
shares of the Company’s common stock in accordance with the Securities Purchase
Agreement if any of the warrants specified in the Securities Purchase Agreement
that represent the right to purchase an aggregate of 5,301,272 shares of Common
Stock for $0.01 per share are exercised after September 8, 2008 at a price
per
share of $.01, the same price per share at which the shares of common stock
issued upon exercise of any such specified warrants are issued and
sold.
The
Company has granted RJSM registration rights with respect to the Common Shares
and the shares of Common Stock into which the shares of Series B Preferred
Stock
purchased by RJSM will convert. RJSM has the right to require the Company to
register such shares at any time after the Company delivers any of the Common
Shares to RJSM in accordance with the terms and conditions of the Loan
Agreement. Such rights: (i) require the Company to file a registration
statement and to maintain its effectiveness, subject to customary blackout
periods and other exceptions and (ii) grant RJSM the right to participate in
the
Company’s future registered offerings, subject to customary
exceptions.
Further
as part of the Transaction, the Company entered into a loan agreement (the
“
Loan
Agreement
”)
with
RJSM pursuant to which RJSM has agreed to loan $2,803,250 to the Company (the
“
Loan
”)
and
the Company has agreed to issue to RJSM promissory notes (together, the
“
Note
”)
to
evidence the Loan. A Note with an aggregate principal amount of $1,803,250
was
issued on September 9, 2008 to RJSM, and an additional Note for $1.0 million
will be issued to RJSM upon the funding of such portion of the investment on
or
before September 15, 2008. Unless the Note is earlier repaid in accordance
with
the terms and conditions of the Loan Agreement, the outstanding principal
balance of the Note will be due and payable in kind on September 1, 2013.
Upon a change of control of the Company or an event of default, each as defined
in the Loan Agreement, the Company (i) shall pay RJSM an amount in cash equal
to
the outstanding principal amount of the Loan plus accrued and unpaid interest
at
a rate of 18% per annum from the date of the closing of the Transaction,
compounded annually, and (ii) shall deliver the Common Shares to RJSM. RJSM
has
the right to require the Company to prepay any portion of the outstanding
principal amount of the Loan at any time, and such prepayment will be made
by
the Company forgiving a corresponding amount of the Common Share Purchase Price
and delivering a corresponding number of Common Shares to RJSM.
Pursuant
to the Loan Agreement, so long as at least 50% of the aggregate principal amount
of the Loan is outstanding and RJSM holds at least a majority of the outstanding
principal amount of the Loan, the Company is restricted from doing any of the
following without RJSM’s prior written consent:
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participating
in a sale, transfer, lease, merger involving any material portion
of the
Company’s assets or business;
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·
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effecting
any acquisition with a valuation in excess of
$500,000;
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altering
or changing the rights of RJSM;
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creating
any series or class of convertible securities that are exchangeable
into
equity securities having a preference senior to or
pari passu
with the Series B Preferred Stock;
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·
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incurring
debt in an amount greater than $500,000 (other than debt permitted
by the
Loan Agreement);
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redeeming
or repurchasing any equity securities of the
Company;
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taking
any action that could result in taxation of RJSM under Section 305
of the
Internal Revenue Code;
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amending,
altering, or repealing the Certificate of Incorporation or Bylaws
in a
manner that would materially affect
RJSM;
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·
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issuing
any warrants not outstanding as of the closing of the Transaction
(although no consent will be required to issue warrants that represent
the
right to acquire not more than 2.5% of the then outstanding shares
of
common stock on a fully diluted basis);
or
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·
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creating
or issuing any other Series B Preferred
Stock.
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Finally,
in connection with the closing of the Transaction, the Company will appoint
Jason Hodell as Chief Operating Officer and Chief Financial Officer of the
Company.
Item
3.02 Unregistered Sales of Equity Securities.
The
information set forth under Item 1.01 of this Form 8-K is hereby incorporated
by
reference into this Item 3.02.
The
Company announced on September 9, 2008 that RJSM: (i) received the right to
own
approximately 5.6 million shares of the Company’s common stock pursuant to
the terms of a loan by RJSM to the Company of an aggregate amount of $2,803,250
and (ii) purchased 50,000 shares of the Company’s Series B Convertible Preferred
Stock (together, the “
Securities
”)
for an
aggregate purchase price of $696,750, both in a private transaction exempt
from
registration under the Securities Act of 1933, as amended (the “
Act
”)
in
reliance on the exemptions provided by Section 4(2) and Rule 506 of Regulation
D
of the Act. The Company made this determination based on the non-public manner
in which the Securities were offered and on the representations of RJSM, the
purchaser of such Securities, which included, in pertinent part, that: (i)
RJSM
is an “accredited investor” within the meaning of Rule 501(a) of Regulation D
promulgated under the Act, (ii) RJSM was acquiring such Securities for
investment purposes for its own account and not as a nominee or agent, and
not
with a view to, or for resale in connection with, any distribution thereof,
and
(iii) RJSM understood that the Securities may not be sold or otherwise disposed
of without registration under the Act or an applicable exemption therefrom.
The
Company intends to use the gross proceeds of the sale towards working capital
and the continued expansion of the Company’s lifestyle sports entertainment
offerings in professional beach volleyball.
Item
5.02
Departure
of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
The
information set forth under Item 1.01 of this Form 8-K is hereby incorporated
by
reference into this Item 5.02.
In
May
2008, the Board of Directors elected Jason Hodell as one of its directors and
the Company recently appointed Mr. Hodell to
serve
as
Interim Chief Financial Officer. Upon the closing of the Transaction, the
Company will appoint
Mr.
Hodell as its COO and CFO, and Mr. Hodell will remain a director.
According
to the terms of the at-will employment agreement between the Company and Mr.
Hodell, Mr. Hodell will be paid a base salary of $260,000 with a one-time
signing bonus of $35,000 and reimbursement of certain moving expenses, and
will
be eligible each year for a target bonus of up to 50% of his annual base salary
for the applicable year, and will receive an Additional Cash Performance Bonus
of up to $100,000 if the Company meets specified financial targets for 2009.
In
addition, the Company will grant to Mr. Hodell an option to purchase the
following: (i) 400,000 shares of the Company’s common stock for a per share
exercise price equal to the closing price of the Common Stock on the date
immediately preceding the grant date, (ii) 200,000 shares of Common Stock for
a
per share exercise price equal to $.60 per share, and (iii) 200,000 shares
of
Common Stock for a per share exercise price equal to $1.00 per share, all of
which vests in 36 equal monthly installments with the first installment vesting
on October 1, 2008 so long as he continues his employment with the Company.
Mr.
Hodell is eligible to receive all employment benefits provided to the rest
of
the executive officers of the Company other than the CEO. In the event Mr.
Hodell’s employment is terminated by the Company other than for cause or Mr.
Hodell terminates employment for good reason, Mr. Hodell will continue to
receive his annual base salary and his target bonus for six months following
the
termination. The agreement is subject to the approval of the Board, which
approval took place on August 27, 2008 and is contingent upon the closing of
the
Transaction.
Mr.
Hodell was the Founder and Managing Partner of Plainview Capital located in
downtown Baltimore, Maryland. He served as the Portfolio Manager of the firm’s
investment funds from inception in 2003. Mr. Hodell was previously the Senior
Director of Business Operations at Digex, a publicly-traded managed IT services
and complex web-hosting firm that was acquired by MCI in 2003. Mr. Hodell also
served in the Technology Investment Banking group of JPMorgan, Inc. where he
focused primarily on technology mergers and acquisitions. Mr. Hodell received
his B.S. in Economics (Mathematical) from the United States Military Academy
at
West Point where he was awarded the Commandant’s wreath for academic and
military honors upon graduation. He served as an Infantry Officer in the U.S.
Army and is Airborne Ranger qualified. He received his MBA in Finance from
the
Wharton School, University of Pennsylvania. Mr. Hodell has served as a director
of the Company from May 5, 2008 and will continue as a director after the
closing. Mr. Hodell previously served as Chair of the company’s Audit
Committee.
Mr.
Hodell does not have any family relationships with any of the Company’s
directors or executive officers, or any person nominated or chosen by the
Company to become a director or executive officer.
Mr.
Hodell is not a party to any transaction listed in Item 404(a) of Regulation
S-B.
As
previously reported on the Company’s Form 8-K filed on September 4, 2008,
Jeffrey Jacobs resigned as a member of the Board of Directors of the Company,
effective on August 27, 2008. The Board was comprised of nine seats, and
following Mr. Jacobs’ resignation, there were eight directors remaining on the
Board. In connection with the Transaction, the Company reduced the number of
members of the Board of Directors from nine to five, and, in connection with
the
closing, four directors, Phil Guarascio, Jeffrey Wattenberg, Steve Lindecke,
and
Bret Yormark, resigned as members of the Board of Directors of the Company,
effective as of September 9, 2008.
Also
in
connection with the Transaction, RJSM has nominated two directors to be
appointed on the Board of Directors. Michael Pearce who already serves as a
member of the Board of Directors of the Company will continue to serve on the
Board as a nominee selected by RJSM. The second RJSM nominee, Justin Kamm,
was
appointed as a member of the Board of Directors of the Company, effective as
of
September 9, 2008. Mr. Kamm does not have any family relationships with any
of
AVP’s directors or executive officers, or any person nominated or chosen by the
Company to become a director or executive officer. Mr. Kamm is not a party
to
any transaction listed in Item 404(a) of Regulation S-B.
Therefore,
after this Transaction, the five members of the Board of Directors are as
follows: Leonard Armato (Chairman), Jason Hodell, Nick Toor, Michael Pearce
and
Justin Kamm.
Item
7.01
Regulation
FD Disclosure.
The
information in this Current Report on Form 8-K is furnished under Item
7.01—”Regulation FD Disclosure.” Such information, including the exhibits
attached hereto, shall not be deemed “filed” for any purpose, including for the
purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the
“
Exchange
Act
”),
or
otherwise subject to the liabilities of that Section. The information in this
Current Report on Form 8-K shall not be deemed incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Exchange Act
regardless of any general incorporation language in such filing.
On
September 9, 2008, the Company issued a press release announcing that it has
entered into a Subscription Agreement, letter agreement, Securities Purchase
Agreement and Loan Agreement with RJSM. The text of the press release is
attached hereto as Exhibit 99.1 and is incorporated by reference herein.
Item
9.01 Financial Statements and Exhibits.
(d)
Exhibits
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Exhibit
No.
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Description
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99.1
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Press
release, dated September 9,
2008.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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AVP,
INC.
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By:
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/s/
Jeffrey Benz
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Date:
September 11, 2008
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Jeffrey
Benz
Chief
Administrative Officer,
Secretary
and General Counsel
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Exhibit
Index
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99.1
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Press
Release, dated September 9, 2008.
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