SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the
|_| Definitive Proxy Statement Commission Only (as Permitted by
|_| Definitive Additional Materials Rule 14a-6(e)(2))
|_| Soliciting Material Pursuant to
ss.240.14a-11(c) or ss.240.14a-12
AVP, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
AVP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
TO BE HELD ON JULY 14, 2005
To Stockholders of AVP, Inc.:
The 2005 Annual Meeting of AVP Stockholders will be held at AVP's offices,
6100 Center Drive, Suite 900, Los Angeles, CA 90045 on July 14, 2005 at 10:00
a.m., to act on the following matters:
(1) Election of six directors;
(2) Ratification of the appointment of Mayer Hoffman McCann, P.C., as
independent accountants for the year ending December 31, 2005;
(3) Amendment of the Certificate of Incorporation increasing the number of
shares of Common Stock from 40,000,000 shares to 300,000,000 shares;
(4) Amendment of the Certificate of Incorporation to effect a reverse stock
split of the outstanding Common Stock, changing each ten, 15, or 20
outstanding shares into one share, as the Board of Directors shall
determine;
(5) Amendment and restatement of the Certificate of Incorporation;
(6) Approval of the 2005 Stock Incentive Plan; and
(7) Such other matters as may properly come before the meeting or any
adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders who owned Common Stock, Series A Convertible Preferred Stock,
or Series B Convertible Preferred Stock at the close of business on June 28,
2005 are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to submit your proxy as promptly as possible according to the enclosed
instructions, whether or not you plan to attend the meeting. Submission of a
proxy does not disqualify a stock holder from attending the meeting and voting
in person.
By Order of the Board of Directors,
Andrew Reif,
Secretary
Dated: July 5, 2005
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
SIGN, AND DATE THE ENCLOSED PROXY CARD, AND RETURN IT IN THE ACCOMPANYING
ENVELOPE, WHICH REQUIRES NO POSTAGE, IF MAILED IN THE UNITED STATES.
TABLE OF CONTENTS
Page
----
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................3
CHANGE IN CONTROL..............................................................5
PROPOSAL 1 ELECTION OF DIRECTORS..............................................6
EXECUTIVE COMPENSATION.........................................................9
PROPOSAL 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS............14
PROPOSAL 3 APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION.............16
PROPOSAL 4 AMENDMENT TO AVP'S CERTIFICATE OF INCORPORATION TO EFFECT
A REVERSE STOCK SPLIT.............................................18
PROPOSAL 5 AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF
INCORPORATION.....................................................23
PROPOSAL 6 APPROVAL OF THE 2005 STOCK INCENTIVE PLAN.........................24
OTHER MATTERS.................................................................27
ANNEX A AUDIT COMMITTEE CHARTER AVP, INC...................................A-1
ANNEX B AMENDED AND RESTATED CERTIFICATE OF INCORPORATION...................B-1
ANNEX C 2005 STOCK INCENTIVE PLAN...........................................C-1
AVP, INC.
6100 CENTER DRIVE, SUITE 900
LOS ANGELES, CA 90045
(310) 426-8000
PROXY STATEMENT
FOR
2005 ANNUAL MEETING OF STOCKHOLDERS
General
The enclosed Proxy is solicited on behalf of the board of directors of
AVP, Inc. for use at the Annual Meeting of Stockholders to be held on July 22,
2005 at 10:00 a.m., local time, or at any adjournment thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at AVP's principal offices,
located at 6100 Center Drive, Suite 900, Los Angeles, CA 90045. The telephone
number at that address is (310) 426-8000.
July 5, 2005 is the approximate date that this proxy statement and form of
proxy were first sent to stockholders.
Record Date and Shares Outstanding
At the close of business on the record date, June 28, 2005, AVP had
outstanding, 30,035,615 shares of Common Stock, each entitling its holder to one
vote; 334,485 shares of Series A Convertible Preferred Stock, each entitling its
holder to 243 votes; and 116,412 shares of Series B Convertible Preferred Stock,
each entitling its holder to 2,340 votes.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to AVP a written notice of
revocation or a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. A stockholder's mere presence at the Annual
Meeting will not revoke any proxy previously given.
Voting Procedures
General. Your shares will be voted in accordance with your voting
instructions on your form of proxy. If you submit a signed proxy, but do not
mark your instructions, your shares will be voted as follows:
o FOR election of the director nominees listed in this proxy
statement;
o FOR ratification of the appointment of Mayer Hoffman McCann, P.C. as
independent accountants for the year ending December 31, 2005;
o FOR amendment of the Certificate of Incorporation increasing the
number of shares of Common Stock from 40,000,000 shares to
300,000,000 shares;
o FOR amendment of the Certificate of Incorporation effecting a
reverse stock split of the outstanding Common Stock, each ten, 15,
or 20 outstanding shares into one share, as the Board of Directors
shall determine;
o FOR amendment and restatement of the Certificate of Incorporation;
o FOR approval of the 2005 Stock Incentive Plan; and
1
o At the discretion of the proxy holders, upon such other business as
may properly come before the Annual Meeting or any adjournment or
postponement thereof.
Submission of Proxies. We encourage you to sign, date, and return the
proxy card, even if you plan to attend the Annual Meeting, so that your shares
will be voted if you are unable to attend the meeting. If you attend the Annual
Meeting and wish to vote in person, we will provide you with ballots at the
Annual Meeting. If your shares are registered directly in your name, you are
considered the stockholder of record, and you have the right to vote in person
at the Annual Meeting. If your shares are held in the name of your broker or
other nominee, you will need to bring with you to the Annual Meeting a legal
proxy from your broker or other nominee authorizing you to vote these shares.
Solicitation of Proxies
The cost of this solicitation will be borne by AVP. In addition to
solicitation by mail, proxies may also be solicited by AVP's directors,
officers, or regular employees, without additional compensation, personally, or
by telephone, telecopier or email. AVP may reimburse brokerage firms and other
custodians for their reasonable out-of-pocket costs in forwarding these proxy
materials to stockholders. AVP has retained _________ to assist in soliciting
proxies, for fees expected to total approximately $_____, plus reasonable
out-of-pocket expenses.
Quorum; Abstentions; Broker Non-votes
The presence in person or by proxy of holders of shares entitling them to
cast a majority of votes entitled to be cast at the meeting constitutes a quorum
for the transaction of business at the Annual Meeting. Shares that are voted
"FOR," "AGAINST," or "ABSTAIN" on any matter are treated as present at the
meeting for purposes of establishing a quorum with respect to each matter to be
considered.
An abstention will have the same effect as a vote against a proposal.
A broker non-vote will not affect the outcome of any vote on proposals
one, two, and six, but will have the same effect as a vote against proposals
three, four, or five.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 28, 2005, the beneficial
ownership, as defined in Securities and Exchange Commission Rule 13d-3, of AVP
voting securities, by each director and executive officer, all directors and
executive officers as a group, and each person known by management to be a
beneficial owner of more than 5% of any class of voting securities. Except as
otherwise indicated, the stockholders listed in the table below have sole voting
and investment powers with respect to the shares indicated.
- ----------------------------------------------------------------------------------------------------------------------
Series A Preferred Stock
(*) Series B Preferred Stock Common Stock (1)
- ---------------------------------- --------------------------- --------------------------- ---------------------------
Number Percent Number Percent Number Percent
of Shares of Class of Shares of Class of Shares of Class
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Leonard Armato (2)(3) 73,901 11.71 -0- -0- 82,626,378 73.34
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Bruce Binkow (2)(4) -0- -0- -0- -0- 18,951,776 38.69
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Philip Guarascio (2)(4) -0- -0- -0- -0- 1,603,009 3.87
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Scott Painter (2)(4) -0- -0- -0- -0- 7,749,448 3.87
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Andrew Reif (2)(4) -0- -0- -0- -0- 10,753,136 26.36
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Thomas Torii(2)(4) -0- -0- -0- -0- 375,000 1.23
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Jeffrey Wattenberg (2)(5) -0- -0- -0- -0- 6,170,570 17.04
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Roger L. Werner(6) -0- -0- -0- -0- 250,000 **
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
All directors and executive
officers as a group,
including those named
above (8 persons) 73,901 11.71 -0- -0- 125,360,951 80.67
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
AEG (7) -0- -0- -0- -0- 11,292,614 27.32
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
BBVA (8) -0- -0- -0- -0- 8,954,550 22.96
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Crestview Capital (9) -0- -0- 9,472 20.00 8,952,120 22.96
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Highbridge (10) -0- -0- 9,472 20.00 8,952,120 22.96
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
FOX (11) 69,078 20.65 -0- -0- 16,785,929 35.85
- ---------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
NBC (12) 26,280 7.86 -0- -0- 6,385,951 17.53
- ----------------------------------------------------------------------------------------------------------------------
* To be converted into common stock automatically upon authorization of
sufficient shares.
** Less than 1%.
(1) Includes shares issuable upon conversion of Series A Preferred Stock and
Series B Preferred Stock reflected in the table opposite the identified person
or group, as well as exercise of currently exercisable stock options or warrants
to acquire shares, as set forth in the succeeding notes. In accordance with SEC
rules, each owner's percentage is computed assuming conversion or exercise of
only that person's convertible securities, options, or warrants.
(2) Address is c/o AVP Pro Beach Volleyball Tour, Inc., 6100 Center Drive, Suite
900, Los Angeles, CA 90045.
(3) Common stock includes 64,668,401 shares issuable upon exercise of currently
exercisable stock options and a warrant.
(4) All shares of common stock are issuable upon exercise of currently
exercisable stock options and warrants.
(5) Common stock includes 5,345,570 shares issuable upon exercise of currently
exercisable stock options and a warrant.
(6) All shares of common stock are issuable upon exercise of a currently
exercisable warrant.
(7) The stockholder's address is 1100 South Flower Street, Suite 300, Los
Angeles, CA 90015. All shares of common stock are issuable upon conversion of a
convertible note.
3
(8) The stockholder's address is Castellana, 81, Planta 22, Madrid, Spain 28046.
Common stock includes 1,790,910 shares issuable upon exercise of currently
exercisable warrant.
(9) The stockholder's address is 95 Revere Drive, Suite A, Northbrook, IL 60062.
Common stock includes 1,790,424 shares issuable upon exercise of a currently
exercisable warrant.
(10) The stockholder's address is 9 West 57th Street, 27th Floor, New York, NY
10019. Common stock includes 1,790,424 shares issuable upon exercise of a
currently exercisable warrant.
(11) The stockholder's address is c/o Fox Sports Net, 10201 W. Pico Boulevard,
Building 101, Suite 5420, Los Angeles, CA 90035.
(12) The stockholder's address is National Broadcasting Company, Inc., 30
Rockefeller Plaza, New York, NY 10112.
4
CHANGE IN CONTROL
On February 28, 2005, a wholly owned subsidiary of AVP, formerly known as
Othnet, Inc. ("Othnet"), merged (the "Merger") into AVP Pro Beach Volleyball
Tour, Inc., a Delaware corporation formerly known as Association of Volleyball
Professionals, Inc. (the "Association"), pursuant to an Agreement and Plan of
Merger dated June 29, 2004, as amended (the "Merger Agreement"). Before the
Merger, the name of the wholly owned subsidiary that merged with the Association
was Othnet Merger Sub, Inc. As a result of the Merger, the Association became
AVP's wholly owned subsidiary, and, in exchange for their Association common
stock, the Association's former stockholders received AVP Series A Preferred
Stock.
Pursuant to the Merger Agreement, on February 28, 2005, Mr. Jeffrey
Wattenberg, sole director and officer of AVP, resigned his offices, except as a
director; elected as executive officers the individuals identified as executive
officers in this Proxy Statement (except for Mr. Torii, who subsequently was so
designated by AVP's board of directors); and elected as additional directors the
individuals identified as directors in this Proxy Statement, effective March 25,
2005 (except for Mr. Werner, who subsequently was so designated by AVP's board
of directors). As a result of his resignation and election of the identified new
executive officers, control of AVP changed from Mr. Wattenberg, alone, to him
and the executive officers he elected. Upon the election of additional
directors, control of AVP changed to Mr. Wattenberg, the other directors, and
the executive officers. The beneficial ownership of AVP voting securities of the
foregoing individuals is set forth in the immediately preceding table and notes.
These individuals, other than Mr. Wattenberg, received their securities in
exchange for their AVP stock, pursuant to the Merger. Mr. Wattenberg received
his securities from AVP, as compensation.
5
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees of the Board of Directors
A board of six directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the six
nominees named below, all of whom currently are directors. If any nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee whom the board of directors designates to
fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director. Directors are elected by plurality vote for
one-year terms and until their successors are elected and qualified.
The names of the nominees, and certain information about them as of the
record date, are set forth below.
Has served as
Name of Nominee Position and age director since
- --------------- ---------------- --------------
Leonard Armato (1) Chief Executive Officer and Chairman of the March 25, 2005
Board of Directors; 52
Bruce Binkow (1) Chief Marketing Officer and Director; 48 March 25, 2005
Philip Guarascio (2) Director; 63 March 25, 2005
Scott Painter (2) Director; 36 March 25, 2005
Jeffrey Wattenberg (2) Director; 49 2002
Roger Werner Director; 55 June ___, 2005
- --------------------------------------------------------------------------------
(1) Term as executive officer commenced February 28, 2005.
(2) Member of Audit Committee, Compensation Committee, and Nominating and
Corporate Governance Committee.
Leonard Armato, our Chief Executive Officer and Tour Commissioner, has
been Chairman, Chief Executive Officer, Tour Commissioner and a director of the
Association since 2001. Previously, Mr. Armato was Chief Executive of Management
Plus Enterprises, Inc. ("MPE"), a sports representation and marketing firm owned
by Mr. Armato. Mr. Armato founded MPE in 1988.
Bruce Binkow, our Chief Marketing Officer, has been Chief Marketing
Officer and a director of the Association since 2001. From 1996, Mr. Binkow
worked as executive vice president at MPE, a sports representation and marketing
firm owned by Mr. Armato. Mr. Binkow was Executive Vice President of Marketing
at Playboy Enterprises, Inc., a media company, from 1987 to 1991.
Philip Guarascio has been a member of the board of directors of the
Association since May 2002. Mr. Guarascio has been a consultant for the National
Football League since October 2000 and has been a consultant for the William
Morris Agency, a talent agency, since October 2001. In 2000, he retired as Vice
President of Marketing and Advertising for General Motors' North American
operations.
Scott Painter has been a member of the board of directors of the
Association since May 2002. He was a founder and former Chief Executive Officer
of CarsDirect.com, an online car dealership, from October 1998 to May 2000. From
May 2000 until May 2001, Mr. Painter was Chairman and Chief Executive Officer of
Direct.com, an online retailer of high-end consumer goods. From May 2001 until
March 2003, Mr. Painter was Founder and Chairman of Build-To-Order, Inc., a
start up car company seeking to outsource the engineering and manufacture of
production vehicles. Mr. Painter is currently the Chairman and Chief Executive
Officer of Zag.com, an on-line automotive retailer and lead generation company
6
Jeffrey Wattenberg is a member of our board of directors. Mr. Wattenberg
was president, secretary, and director of AVP from May 2002 until February 28,
2005. For the last five years, he has been a private investor and has served as
an independent consultant to various entities seeking to raise venture capital.
Roger L. Warner founded both Speedvision (now Fox's Speed Channel) and
Outdoor Life Network and served as President and CEO of both cable networks from
1995-2001. Previously, Mr. Warner was a management consultant at McKinsey &
Company and served as Chief Operating Officer of ESPN from 1982-1990. Mr. Werner
has been Chairman of WATV, Inc., an event and television production company,
since 2003.
Leonard Armato, Bruce Binkow, Philip Guarascio, Scott Painter and Andy
Reif have agreed, for two years after the close of the Merger, to use their best
efforts to nominate Mr. Wattenberg as a director candidate. In addition, Mr.
Amato has agreed to vote his shares for Mr. Wattenberg's election as a director.
Pursuant to the terms of the Merger Agreement, AVP agreed to permit Corwin
Corpuz to be an observer at AVP's board of directors meetings for as long as Mr.
Wattenberg is elected a director.
No director or executive officer of AVP is related to any other director
or executive officer of AVP by blood or marriage.
Executive Officers
Information regarding Mr. Armato and Mr. Binkow is set forth above. In
addition, Andrew Reif and Thomas Torii are executive officers.
Andrew Reif, 40, our Chief Operating Officer, Chief Financial Officer, and
Secretary has been Chief Operating Officer and Chief Financial Officer since
2005 and Chief Operating Officer and Chief Financial Officer of the Association
since 2001. As Co-President of Baldwin/Cohen Productions, a motion picture and
television programming production company, Mr. Reif supervised the development
and production of motion pictures and television productions, from 1999 to 2000.
From 1995 to 1999, Mr. Reif was a Vice President at International Creative
Management, a talent agency.
Thomas Torii, 38, has been the Association's controller since 2002 and was
designated AVP's controller and principal accounting officer in 2005.
Previously, Mr. Torii was Director of Finance for The Jim Henson Company, a
motion picture and television production company, beginning in 2001 and Director
of Accounting at Twentieth Century Fox Corporation, a media company, from 1999
to 2001.
Executive officers are appointed for one-year terms and until their
successors have been elected and qualified.
Board Meetings and Committees
During 2004, AVP's board of directors, which consisted solely of Mr.
Wattenberg, did not meet.
The Audit Committee of the board of directors consists of Messrs.
Guarascio, Painter, and Wattenberg. The Audit Committee recommends engagement of
the independent auditors, approves services performed by the auditors, and
reviews and evaluates the quality of AVP's financial reporting. Mr. Guarascio is
"independent" as defined by the Nasdaq Stock Market. Currently, the Audit
Committee does not have an "audit committee financial expert" as defined in SEC
Regulation S-B, Item 401(e). Because the current board of directors has been
constituted for only a brief time, there has been insufficient time to identify
an audit committee financial expert willing to serve on our board of directors.
The board of directors has adopted an Audit Committee charter, attached to this
Proxy Statement as Annex A, also is available to AVP's website, www.avp.com.
The Compensation Committee of the board of directors consists of Messrs.
Guarascio, Painter, and Wattenberg. Mr. Guarascio is "independent" as defined by
the Nasdaq Stock Market. The Compensation Committee reviews and makes
recommendations to the full board of directors regarding the compensation of
AVP's executive officers and administers AVP's stock benefit plans.
7
The Nominating and Corporate Governance Committee ("Nominating Committee")
of the board of directors consists of Messrs. Guarascio, Painter, and
Wattenberg. Mr. Guarascio is "independent" as defined by the Nasdaq Stock
Market. The Nominating Committee assists the board of directors in its
responsibility for identifying qualified board of director candidates, assesses
the performance of the board of directors, and advises generally regarding
corporate governance matters.
The board of directors has adopted Compensation Committee and Nominating
and Corporate Governance Committee charters, which are available at AVP's
website, www.avp.com.
Nominations by Stockholders
Stockholders wishing to propose a director candidate must send the
recommendation to AVP by the month and day that is the same month and day that
was 120 days before the date of the annual meeting immediately preceding the
annual meeting at which the candidate is proposed to be elected, c/o Secretary,
AVP, Inc., 6100 Center Drive, Suite 900, Los Angeles, CA 90045, accompanied by:
o Evidence that the writer is a stockholder, sufficient for purposes
of SEC Rule 14a-8;
o The name and contact information of the candidate; and
o A statement signed by the candidate that the candidate is willing to
be considered for nomination by the committee and willing to serve
as a director, if nominated and elected.
AVP's Secretary will send its standard director questionnaire to the
candidate, and, if returned, fully and accurately completed, by the month and
day that is the same month and day that was 90 days before the date of the
annual meeting immediately preceding the annual meeting at which the candidate
is proposed to be elected, the Secretary will forward the recommendation,
accompanying documents, and the questionnaire to the Nominating Committee for
consideration.
AVP may also require any proposed nominee to furnish such other
information as AVP or the Nominating Committee may reasonably require to
determine the eligibility of the nominee to serve as a director. In performing
its evaluation and review, the Nominating Committee does not differentiate
between candidates proposed by stockholders and other proposed nominees, except
that the Nominating Committee may consider, as one of the factors in its
evaluation of stockholder recommended candidates, the amount and duration of the
stock holding of the recommending stockholder or stockholder group.
The committee applies the following criteria in considering director
candidates:
o Independence. Whether non-management candidates may be considered
"independent" under any applicable stock market rules; under
securities and tax laws; or for any other purpose. The Committee
also considers whether a candidate might be subject to any conflict
of interest.
o Corporate Governance. Whether the candidate recognizes the role of
directors in representing the interests of stockholders, generally,
and not of any particular stockholder or group of stockholders;
whether the director demonstrates familiarity and intention to
fulfill the fiduciary duties of directors and appears open and
candid; whether the director understands the differences in
functions of the board of directors and management.
o Judgment and Knowledge. Whether the candidate demonstrates sound
business judgment and ability to assess AVP's strategy and business
plans, evaluate management, and decide other board-level issues;
whether the candidate demonstrates expertise in one or more of the
following areas:
8
o televised entertainment, particularly sports;
o marketing, advertising, or promotion;
o accounting and finance;
o management;
o international business; and
o risk management.
o Communication Skills. The candidate's communications skills;
willingness to voice his own views; ability to listen to views of
others dispassionately; and ability to express and bring to bear his
expertise regarding AVP matters.
o Professional Status. The candidate's record as a business manager
and reputation for integrity; whether the candidate has the respect
of his business and community peers; whether the candidate's board
membership would enhance AVP's reputation.
In addition, the Nominating Committee considers any other factors it deems
appropriate.
To date, the Nominating Committee has not retained or paid any third party
to identify or evaluate, or assist in identifying or evaluating, potential
director nominees, although it may do so in the future. The Nominating Committee
did not receive any stockholder recommendations for nomination to the board of
directors in connection with this year's Annual Meeting, and this year's
nominees for director are all currently directors of the Company.
Audit Committee Report
The Audit Committee was appointed shortly before the due date for AVP's
Annual Report or Form 10-KSB for the year ended December 31, 2004 and did not
act separately from the entire board of directors in reviewing the audited
financial statements. The board of directors reviewed the financial statements
with management and has received from Mayer Hoffman McCann, P.C., AVP's
independent accountants, the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committee), but did not discuss with Mayer Hoffman the matters required to be
discussed by SAS 61 (Codification of Statements of Auditing Standards, AU ss.
380) or discuss Mayer Hoffman's independence. However, the board had no basis to
believe that Mayer Hoffman was not independent. Based on its review, the board
of directors determined that the financial statements should be included in the
Annual Report.
Stockholder Communications; Annual Meeting Attendance
Stockholders can send communications to the board of directors by mail,
telecopier, telephone, or email, including letters, addressed, c/o Secretary,
AVP, Inc., 6100 Center Drive, Suite 900, Los Angeles, CA 90045, who will forward
the correspondence to the addressee. It is the policy of the board of directors
that all directors should attend annual meetings. There was no annual meeting
last year.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation tables set forth information concerning
the annual and long-term compensation for services in all capacities for the
fiscal years ended December 31, 2004, December 31, 2003 and December 31, 2002,
of those persons who were, at December 31, 2004 (i) the chief executive officer
of AVP (AVP had no other officers as of that date) and (ii) the chief executive
officer of the Association and its other most highly compensated executive
officers, whose annual base salary and bonus compensation was in excess of
$100,000 (the "Named Executive Officers"):
9
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Name and Principal Position Fiscal Year Salary(1) Shares Underlying Options
- ---------------------------------------- ----------------- --------------- ----------------------------------
Leonard Armato, 2004 $385,000 -0-
Chief Executive Officer 2003 350,000 10,097,675
2002 -0- -0-
- ---------------------------------------- ----------------- --------------- ----------------------------------
Bruce Binkow, 2004 $220,000 -0-
Chief Marketing Officer 2003 200,000 2,019,535
2002 -0- -0-
- ---------------------------------------- ----------------- --------------- ----------------------------------
Andrew Reif, 2004 $220,200 0
Chief Operating Officer and Chief 2003 200,000 2,019,535
Financial Officer 2002 175,000 5,360,351
- ---------------------------------------- ----------------- --------------- ----------------------------------
Thomas Torii, 2004 $135,000 125,000
Chief Accounting Officer 2003 100,000 -0-
2002 -0- -0-
- ---------------------------------------- ----------------- --------------- ----------------------------------
Jeffrey Wattenberg, 2004 $40,000 2,000,000(2)
Chief Executive Officer 2003 -0- 825,000(3)
2002 -0- -0-
- ----------
(1) No bonuses were paid in any of the relevant years.
(2) On February 5, 2004, Mr. Wattenberg was granted an option to acquire up to
2,000,000 shares of Common Stock at an exercise price of $0.25 per share.
(3) On March 19, 2003, Mr. Wattenberg was granted 825,000 restricted shares of
Common Stock. The value of the shares as of the date of grant equaled $156,750,
and the value as of April 30, 2004, equaled $165,000, based on the stock prices
on such dates.
Stock Option Plan
AVP's 2005 Stock Incentive Plan, as proposed for adoption, is described
under Proposal 6.
Option Grants
The following table sets forth certain information with respect to stock
options granted to the person named in the Summary Compensation Table during the
fiscal year ended December 31, 2004.
Option Grants in Last Fiscal Year
Percent of Total
Options Granted to
Number of Securities Employees in Fiscal Exercise Price Per
Underlying Granted Year Share Expiration Date
------------------ ---- ----- ---------------
Jeffrey Wattenberg 2,000,000 94.1% $0.25 2/4/2009
Thomas Torii 125,000 5.9% $0.16 4/13/2009
10
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information as to each exercise of
stock options during the year ended December 31, 2004, by the persons named in
the Summary Compensation Table and the fiscal year-end value of unexercised
options:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Shares Number of Securities Value of Unexercisable
Acquired on Value Underlying Unexercised In-the-Money Options at Fiscal
Name Exercise Realized Options at FY-End Year-End (1)
- ---- -------- -------- ----------------- ------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Leonard Armato -0- $ 0 49,646,836 -0- $ 12,505,653 $ 0
Bruce Binkow -0- $ 0 15,483,096 -0- $ 3,845,832 $ 0
Andrew Reif -0- $ 0 8,818,892 -0- $ 1,770,695 $ 0
Thomas Torii -0- $ 0 125,000 -0- $ 12,500 $ 0
Jeffrey Wattenberg -0- $ 0 2,000,000 -0- $ -0- $ 0
(1) There was no public market for the Association's Common Stock as of December
31, 2004 with respect to which stock options held by the current CEO and other
executive officers was exercisable. Except with respect to Mr. Wattenberg,
amounts shown are provided on a pro forma basis, using the excess of AVP's
closing stock price on December 31, 2004 over the exercise prices of stock
options held at that date by AVP's CEO and other current executive officers,
after adjustment for the Merger.
Executive Officer Employment Agreements
Pursuant to the merger agreement, the Association entered into employment
agreements with Messrs. Leonard Armato, the Association's CEO and Chairman and a
director; Bruce Binkow, Chief Marketing Officer and a director; and Andrew Reif,
Chief Operating Officer, Chief Financial Officer, and Secretary. Mr. Armato's
at-will employment agreement provides for an annual salary of $350,000; an
annual bonus in the range of fifty percent (50%) of annual salary (based on
certain to-be-determined milestones); health and disability insurance; a
$1,000,000 term life insurance policy; and a monthly car allowance in the amount
of $1,000.00. In the event that Mr. Armato's employment is terminated other than
for good cause, he will receive a payment of one year's base salary. Messrs.
Binkow's and Reif's employment agreements are of substantially the same form as
Mr. Armato's, except that the salaries are $250,000 and $240,000, respectively.
Pursuant to a provision of the Merger Agreement authorizing allocation of
five-year common stock purchase warrants ("Management Warrants"), the executive
officers have been granted Management Warrants to purchase the indicated numbers
of shares, at an exercise price of $0.22 per share (equal to 110% of the market
price of a share on the date of grant): Mr. Armato, 15,021,565; Mr. Binkow,
3,468,680; Mr. Reif, 10,753,136; Mr. Torii, 250,000. The executive officers also
participate in a profit sharing pool equal to ten percent (10%) of our EBITDA.
Employee Pension Plan
AVP offers its full-time employees a 401k Plan administered by AVP's
payroll provider. AVP does not currently make any contributions on behalf of
employees.
11
Compensation of Directors
Our directors currently do not receive regular compensation for service on
our Board of Directors or any committee thereof. In consideration of board
service, Management Warrants to purchase the indicated number of shares have
been allocated to non-management directors, as follows: Mr. Guarascio, 393,801;
Mr. Painter, 1,268,108; Mr. Wattenberg, 3,345,570; Mr. Werner, 250,000. The
board is considering plans for regular compensation of non-management directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Armato is the sole owner of MPE, which owned MPE LLC prior to its sale
to the Association. MPE entered into an agreement with the Association on August
15, 2001 pursuant to which MPE was engaged to secure sponsorship agreements in
return for a commission (the "Sales Agreement"). The Sales Agreement remained in
place through December 31, 2002, and MPE was projected to earn approximately
$1.6 million in commissions through 2005 based upon the sponsorship agreements
secured by MPE during the term of the Sales Agreement. MPE assigned the Sales
Agreement to MPE LLC in 2003. MPE LLC was subsequently acquired by the
Association in 2003 for a convertible promissory note with a principal amount of
approximately $1.4 million, of which $250,000 was paid from the proceeds of the
units private placement. The remaining balance will be paid one year from the
closing date of the offering.
Mr. Painter, a member of the Board of Directors, entered into a consulting
agreement with us, whereby he will be compensated as a financial advisor in
specified areas relating to our operations and fund-raising efforts. For his
services, Mr. Painter received compensation equal to $150,000 in cash and
received a Management Warrant to purchase a total of 5,272,132 shares of common
stock (in addition to a Management Warrant granted in respect of board service,
as stated above).
For one year following the close of the merger on February 28, 2005, we
have retained a firm controlled by Jeffrey Wattenberg, a member of our Board of
Directors, for a $20,000 monthly fee for consulting, advisory, and investor
relations services. Pursuant to the Merger Agreement, Mr. Wattenberg was granted
a Management Warrant to purchase 3,345,570 shares.
NBC distributes our programming on broadcast television, and Fox
distributes our programming on cable television. NBC and Fox own Series A
Preferred Stock convertible into 17.5% and 35.9%, respectively, of the common
stock that would be outstanding following such conversion (assuming conversion
of only their Series A Preferred Stock), which we have agreed to register for
resale at the same time we register the common stock underlying the Series B
Preferred Stock for resale.
We entered into a two-year agreement with AEG for AEG to provide all
merchandising services on our behalf at our tournaments, as well as to host our
online store and assume responsibility for fulfillment. AEG is the holder of a
note that is convertible into 27.3% of the common stock that would be
outstanding following such conversion (assuming conversion of only the note),
which we have agreed to register for resale at the same time we register the
common stock underlying the Series B Preferred Stock for resale.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires AVP's
officers and directors, and persons who own more than 10% of any class of equity
securities registered under the Exchange Act, to file reports of ownership and
changes in ownership with the SEC. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish AVP with all copies of
Section 16(a) forms they file. Based solely on its review of the copies of such
forms received by it, or written representations from certain reporting persons
required for those persons, AVP believes that all filing requirements have been
timely satisfied.
Recommendation of the Board of Directors
12
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION
OF THE BOARD OF DIRECTORS' NOMINEES.
13
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Selection of Mayer Hoffman McCann, P.C. as AVP's independent public
accountants, for the year ending December 31, 2005, is being submitted for
ratification by the stockholders at the Annual Meeting. A representative of
Mayer Hoffman, is expected to be present at the Annual Meeting via conference
telephone, may make a statement if wishing to do so, and will be available to
respond to appropriate questions.
If stockholders fail to ratify the selection of Mayer Hoffman, the Audit
Committee will reconsider whether to retain the firm.
The following table presents fees for professional audit services rendered
by Mayer Hoffman for the audit of the Association's annual financial statements
for the years ended December 31, 2004 and December 31, 2003 and fees billed for
other services rendered by Mayer Hoffman during those periods.
2004 2003
--------- ---------
Audit Fees $110,000 $100,000
Audit-Related Fees(1) -0- -0-
Tax Fees(2) -0- -0-
All Other Fees(3) -0- -0-
Total $110,000 $100,000
(1) Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of Association
consolidated financial statements and are not reported under "Audit Fees."
(2) Consists of fees billed for professional services rendered for tax
advice, planning, and compliance.
(3) Consists of fees for products and services other than the services
described above.
Change in Independent Auditors
On March 1, 2005, AVP replaced Malone & Bailey, PC as AVP's independent
accountants. The decision was approved by AVP's board of directors.
Malone & Bailey's reports on AVP's financial statements for the fiscal
years ended April 30, 2004 and 2003 did not contain an adverse opinion or
disclaimer of opinion, except that the reports stated that they were prepared
assuming that AVP will continue as a going concern, as to which AVP's recurring
operating losses raised substantial doubt. During AVP's fiscal years ended April
30, 2004 and 2003 and the subsequent interim period preceding the termination,
there were no disagreements with Malone & Bailey on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Malone &
Bailey, would have caused Malone & Bailey to make reference to the subject
matter of the disagreements in connection with its report on the financial
statements for such years or subsequent interim periods.
During the two fiscal years ended April 30, 2004, AVP did not consult
Mayer Hoffman regarding any matters or events set forth in Item 304 of
Regulation S-B.
14
The following table presents fees for professional audit services rendered
by Malone & Bailey for the audit of AVP's financial statements for the two
fiscal years ended April 30, 2004 and fees billed for other services rendered by
Malone & Bailey during those periods.
Fiscal 2004 Fiscal 2003
----------- -----------
Audit Fees $ 9,245 $ 7,150
Audit-Related Fees $ -0- $ -0-
Tax Fees $ -0- $ -0-
All Other Fees $ -0- $ -0-
Total $ 9,245 $ 9,245
Vote Required
A majority of the votes cast will be required to ratify the appointment of
Mayer Hoffman as AVP's independent auditors for the year ending December 31,
2005.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF MAYER HOFFMAN MCCANN, P.C. AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE YEAR ENDING DECEMBER 31, 2005.
15
PROPOSAL 3
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
The board of directors has adopted a resolution proposing to amend AVP's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock from 40,000,000 shares to 300,000,000 shares.
Capitalization
As a result of the proposed change, the authorized capital stock of the
Company would consist of 300,000,000 shares of Common Stock and 2,000,000 shares
of Preferred Stock, 1,000,000 of which are designated as Series A Preferred
Stock and 250,000 of which are designated as Series B Preferred Stock.
Reasons for Amending the Certificate of Incorporation
As of the closing of the Merger described on page 5 under the caption
"Change in Control," AVP lacked sufficient authorized shares to issue to former
Association stockholders all of the Common Stock intended to be issued to them,
so they were issued Series A Preferred Stock, instead. Each share of Series A
Preferred Stock is convertible into 243 common shares. Holders of convertible
debentures converted as of the closing of the Merger also were issued Series A
Preferred Stock shares, in lieu of Common Stock. The Series A Preferred Stock
converts automatically upon authorization of sufficient common shares.
Concurrently with the closing of the Merger, AVP closed a private offering
of 36,841 units consisting of four shares of the Series B Preferred Stock, each
share convertible into 243 shares of Common Stock, and a five-year Common Stock
purchase warrant to purchase up to 243 shares of Common Stock. Holders of the
Series B Preferred Stock are entitled to put their shares back to AVP, if, by
August 27, 2005, AVP's certificate of incorporation is not amended to increase
the authorized common stock as contemplated by the proposed amendment.
Upon giving effect to the amendment, assuming adoption of the 2005 Stock
Incentive Plan pursuant to Proposal 6, but before giving effect to any reverse
stock split pursuant to Proposal 4, the number of shares of Common Stock
authorized would exceed the number outstanding and reserved for issuance by
approximately 5,000,000 shares. The authorized shares of Common Stock in excess
of those issued and reserved will be available for issuance at such times and
for such corporate purposes as the board of directors may deem advisable without
further action by AVP's stockholders, except as may be required by applicable
laws or the rules of any trading system on which the Common Stock may be listed
or traded.
Amendment to Certificate of Incorporation
If the amendment is approved by stockholders, then the first sentence of
the Fourth Article of the Certificate of Incorporation would be amended to read
as provided below:
Fourth Article
"The total number of shares of all classes which the
Corporation is authorized to issue is Three Hundred Two Million
(302,000,000) shares, of which Three Hundred Million (300,000,000)
shares, par value $.001, shall be common stock, and Two Million
(2,000,000) shares, par value $.001, shall be preferred stock."
Vote Required
A majority of the votes entitled to be cast will be required to approve
this amendment to the Certificate of Incorporation. Each purchaser of Series B
Preferred Stock agreed and gave an irrevocable proxy to vote the purchaser's
shares in favor of the amendment. Therefore, adoption of the amendment is
assured.
16
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT
OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK WHICH THE COMPANY IS AUTHORIZED TO ISSUE, FROM 40,000,000 SHARES
TO 300,000,000 SHARES.
17
PROPOSAL 4
AMENDMENT TO AVP'S CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
The board of directors has adopted resolutions proposing to amend AVP's
Certificate of Incorporation to effect a reverse stock split of the Common
Stock, if stockholders approve Proposal 3, increasing the authorized Common
Stock to 300,000,000 shares. If the stockholders approve Proposal 3 and this
Proposal 4, AVP will file an amendment effecting a reverse stock split changing
each ten, 15, or 20 outstanding shares into one share, as the Board of Directors
shall determine.
Reasons for the Reverse Stock Split
The board of directors believes that, if the authorized Common Stock is
increased to 300,000,000 shares, it will be advisable and in AVP's best
interests to effectuate a reverse split of AVP's outstanding Common Stock. Also,
AVP agreed to effectuate a reverse split in connection with the private offering
described under Proposal 3. The board of directors believes that a reverse split
would increase the price of the Common Stock, which, the board of directors
believes, would improve its value as a currency for financings or acquisitions.
At this time, AVP has no specific plan to raise money or make an acquisition.
Risks Associated with the Reverse Stock Split
There can be no assurance that the total market capitalization of the Common
Stock (the aggregate value of all the Company's Common Stock at the then market
price) after the proposed reverse stock split will be equal to or greater than
the total market capitalization before the proposed reverse stock split or that
the per share market price of the Company's Common Stock following the reverse
stock split will either equal or exceed the current per share market price.
There can be no assurance that the reverse stock split will increase the
market price of our Common Stock or that any increase will be proportional to
the reverse-split ratio. For example, using the $0.21 per share closing price of
our Common Stock on June 22, 2005, and assuming a 1 for ten reverse-split there
can be no assurance that the post-split market price of our Common Stock would
be $2.10 or greater. Accordingly, the total market capitalization of our Common
Stock immediately after the reverse stock split or at any time thereafter could
be lower than the total market capitalization before the reverse stock split.
The percentage decline in the market price of our Common Stock after the reverse
stock split might be greater than it would have been in the absence of a reverse
stock split, and the liquidity of our Common Stock could be adversely affected
following such a reverse stock split.
If the reverse stock split is effected, and the market price of our Common
Stock declines, the percentage decline may be greater than would occur in the
absence of a reverse stock split. The market price of our Common Stock, however,
will reflect our performance, as well as other factors unrelated to the number
of shares outstanding. Furthermore, the liquidity of our Common Stock could be
adversely affected by the reduced number of shares that would be outstanding
after the reverse stock split. Reducing the amount of shares available for
trading can reduce the shares' liquidity, although the board of directors
expects that this effect would not occur in this particular case.
Any increased per-share stock price resulting from the reverse stock split might
not make our shares more attractive to investors, so the reverse stock split
might not improve the trading liquidity of our Common Stock.
Although the board of directors believes that a higher stock price might
help generate increased investor interest in our shares, there can be no
assurance of such an outcome, so greater trading in our stock, and the increased
liquidity in the market for our stock that we hope greater trading will
engender, might not materialize.
Effects of the Proposed Amendment
18
If implemented, the reverse stock split will be effected simultaneously
for all shares of Common Stock, at the same ratio. The reverse stock split will
affect all holders of our Common Stock uniformly and will not affect any
stockholder's percentage ownership interest or voting power, except insofar as
the reverse stock split would result in any holder's receiving cash in lieu of a
fractional share. As described below, holders of our Common Stock otherwise
entitled to fractional shares as a result of the reverse stock split will
receive cash, instead. In addition, the reverse stock split will not affect any
stockholder's proportionate voting power (subject to the treatment of fractional
shares). Because this amendment does not reduce the number of authorized shares
of Common Stock, the number of shares that the board of directors can authorize
to be issued without further stockholder action will increase substantially.
However, the Board of Directors proposes to reduce the Common Stock
authorization to 80,000,000 as part of the amendment and restatement of the
Certificate of Incorporation to be submitted to stockholders pursuant to
Proposal 5. AVP has no current plan, proposal, or arrangement (written or
otherwise) to issue any additional shares other than pursuant to outstanding
securities convertible into or exercisable for Common Stock and the 2005 Stock
Incentive Plan being submitted to stockholders for approval.
The principal effects of the reverse stock split will be that:
o the number of shares of Common Stock issued and reserved for
issuance will be reduced from approximately 295 million shares
to approximately 29.5 million shares, if a one-for-10 split is
effectuated, or to approximately 14,750,000 shares, if a
one-for-20 split is effecutated;
o proportionate adjustments will be made to the per-share
exercise price and the number of shares covered by outstanding
options and warrants to buy Common Stock, so that the total
prices required to be paid to fully exercise each option and
warrant before and after the reverse split will be
approximately equal; and
o proportionate adjustments will be made to the number of shares
of Common Stock into which each share of Series A Preferred
Stock and Series B Preferred Stock will be convertible.
Upon effectiveness of the reverse stock split, each certificate
representing pre-split shares will be deemed to represent only the number of
post-split shares and the right to receive the amount of cash for any fractional
shares as a result of the reverse stock split, as follows:
Fractional Shares
You will not receive fractional post-reverse stock split shares in
connection with the reverse stock split. Instead, the transfer agent will
aggregate all fractional shares and sell them as soon as practicable after the
effective date at the then prevailing prices on the open market, on behalf of
those holders who would otherwise be entitled to receive a fractional share. We
expect the transfer agent to conduct the sale in an orderly fashion and that it
may take several days to sell all of the aggregated fractional shares of Common
Stock. After completing such sale, you will receive a cash payment from the
transfer agent in amount equal to your pro rata share of the total net proceeds
of that sale. No transaction costs will be assessed on this sale; however, the
proceeds will be subject to federal income tax. In addition, you will not
receive interest for the period between the effective date of the reverse stock
split and the date you receive your payment for the cashed-out fractions. The
payment amount will be paid to the holder in the form of a check in accordance
with the procedures outlined below.
Banks, brokers, or other nominees will be instructed to effect the reverse
stock split for their beneficial owners of our Common Stock held in "street
name." However, these banks, brokers, or other nominees may have different
procedures for processing the reverse stock split. If you hold your shares with
a bank, broker, or other nominee and if you have any questions in this regard,
we encourage you to contact your nominee.
If you do not hold sufficient shares to receive at least one share in the
reverse stock split and you want to continue to hold Common Stock after the
reverse stock split, you may do so by taking either of the following actions far
enough in advance, so that it is completed by the effective date:
19
o purchase a sufficient number of shares of Common Stock so that
you hold at least an amount of shares of the Company's Common
Stock in your account prior to the reverse stock split that
would entitle you to receive at least one share of the Common
Stock on a post-reverse stock split basis; or
o if applicable, consolidate your accounts so that you hold at
least an amount of shares of Common Stock in one account prior
to the reverse stock split that would entitle you to receive
at least one share of Common Stock on a post-reverse stock
split basis. Shares held in registered form (that is, shares
held by you in your own name in our stock records maintained
by our transfer agent) and shares held in "street name" (that
is, shares held by you through a bank, broker, or other
nominee), for the same investor will be considered held in
separate accounts and will not be aggregated when effecting
the reverse stock split.
Effect on Certificated Shares
If you hold any of your shares in certificate form, you will receive a
transmittal letter from our transfer agent as soon as practicable after the
effective date of the reverse stock split. The letter of transmittal will
contain instructions on how to surrender your certificate(s) representing your
pre-reverse stock split shares to the transfer agent.
If you are entitled to a payment in lieu of any fractional share interest,
payment will be made as described above under the caption Fractional Shares.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT
ANY STOCK CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Federal Income Tax Consequences
The following is a summary of certain material United States federal
income tax consequences of the reverse stock split and does not purport to be a
complete discussion of all of the possible federal income tax consequences of
the reverse stock split. This summary is included for general information only.
Further, it does not address any state, local or foreign income or other tax
consequences. Also, it does not address the tax consequences to holders that are
subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the United States federal income tax law as of the
date hereof, which is subject to change retroactively as well as prospectively.
This summary also assumes that the pre-reverse stock split shares were, and the
post-reverse stock split shares will be, held as a "capital asset," as defined
in the Internal Revenue Code of 1986, as amended (i.e., generally, property held
for investment). The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of such stockholder. Each stockholder is
urged to consult with such stockholder's own tax advisor with respect to the tax
consequences of the reverse stock split. As used herein, the term United States
holder means a stockholder that is, for federal income tax purposes: a citizen
or resident of the United States; a corporation or other entity taxed as a
corporation created or organized in or under the laws of the United States, any
state of the United States or the District of Columbia; an estate, the income of
which is subject to federal income tax regardless of its source; or a trust if a
U.S. court is able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust.
Other than the cash payments for fractional shares discussed below, no
gain or loss should be recognized by a stockholder upon such stockholder's
exchange of pre-reverse stock split shares for post-reverse stock split shares
pursuant to the reverse stock split.
The reverse stock split (including any fraction of a post-reverse stock
split share deemed to have been received) will be the same as the stockholder's
aggregate tax basis in the pre-reverse stock split shares exchanged therefor. In
general, stockholders who receive cash in exchange for their fractional share
interests in the post-reverse stock split shares as a result of the reverse
stock split will recognize gain or loss based on their adjusted basis in the
fractional share interests redeemed. The stockholder's holding period for the
20
post-reverse stock split shares will include the period during which the
stockholder held the pre-reverse stock split shares surrendered in the reverse
stock split. The receipt of cash instead of a fractional share of Common Stock
by a United States holder of Common Stock will result in a taxable gain or loss
to such holder for federal income tax purposes based upon the difference between
the amount of cash received by such holder and the adjusted tax basis in the
fractional shares as set forth above. The gain or loss will constitute a capital
gain or loss and will constitute long-term capital gain or loss if the holder's
holding period is greater than one year as of the effective date.
Our view regarding the tax consequences of the reverse stock split is not
binding on the Internal Revenue Service or the courts. Accordingly, each
stockholder should consult with his or her own tax advisor with respect to all
of the potential tax consequences to him or her of the reverse stock split.
Accounting Effects of the Reverse Stock Split
The reverse stock split will not affect the par value of our Common Stock.
As a result, as of the effective time of the reverse stock split, the stated
capital attributable to Common Stock on our balance sheet will be reduced
proportionately, and the additional paid-in capital account will be credited
with the amount by which the stated capital is reduced. The per-share net income
or loss will be restated because there will be fewer shares of Common Stock
outstanding.
Potential Anti-Takeover Effect
The increased amount of unissued authorized shares to issued shares could,
under certain circumstances, have an anti-takeover effect. For example, the
issuance of a large block of Common Stock could dilute the stock ownership of a
person seeking to effect a change in the composition of the board of directors
or contemplating a tender offer or other transaction for the combination of our
Company with another company. However, the reverse stock split proposal is not
being proposed in response to any effort of which we are aware to accumulate
shares of Common Stock or obtain control of AVP, nor is it part of a plan by
management to recommend to the board of directors and stockholders a series of
amendments to our Certificate of Incorporation, except for those proposed in
this proxy statement. The board of directors does not currently contemplate
recommending the adoption of any other amendments to our Certificate of
Incorporation that could be construed to reduce or interfere with the ability of
third parties to take over or change the control of AVP.
No Appraisal Rights
Under the Delaware General Corporation Law, our stockholders are not
entitled to appraisal rights with respect to the reverse stock split, and we
will not independently provide stockholders with any such right.
Text of Amendment
If the reverse stock-split is approved by the stockholders, the first
sentence of the Fourth Article of the Certificate of Incorporation would be
amended to read as follows:
Fourth Article
"The total number of shares of all classes which the
Corporation is authorized to issue is Three Hundred Two Million
(302,000,000) shares, of which Three Hundred Million (300,000,000)
shares, par value $.001, shall be common stock, and Two Million
(2,000,000) shares, par value $.001, shall be preferred stock. Each
[ten, 15, or 20] shares of common stock outstanding on the date that
this amendment is filed with the Secretary of State shall be combined
into one share of common stock. As of the close of business on the
effective date of the filing and effectiveness of this amendment, each
holder of record of the Corporation's common stock shall be entitled to
receive, upon surrender of a stock certificate, a certificate or
certificates representing one share of common stock, for every [ten,
15, or 20] shares of common stock, represented by the surrendered
certificate or certificates of such holder; provided, however, that no
fractional shares of common stock shall be issued, and in lieu of
issuing such fractional shares, the Corporation's transfer agent shall
pay the holder its proportional interest in the proceeds of sale of all
aggregated fractions."
21
Vote Required
A majority of votes entitled to be cast will be required to approve an
amendment to the Certificate of Incorporation effecting a reverse stock-split
changing each ten outstanding shares of Common Stock into one share.
Recommendation of our Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" AN AMENDMENT
TO THE CERTIFICATE OF INCORPORATION TO EFFECTUATE A REVERSE STOCK-SPLIT CHANGING
EACH TEN, 15, OR 20 OUTSTANDING SHARES OF COMMON STOCK INTO ONE SHARE, AS THE
BOARD OF DIRECTORS SHALL DETERMINE.
22
PROPOSAL 5
AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION
The board of directors has adopted a resolution proposing to amend AVP's
certificate of incorporation decreasing the number of authorized shares of
Common Stock from 300,000,000 to 80,000,000 shares, and amending and restating
the Certificate of Incorporation, if stockholders approve Proposal 3, increasing
the authorized Common Stock to 300,000,000 shares, and Proposal 4, effecting a
reverse stock-split.
After the reverse stock split, AVP's authorized Common Stock would exceed
the 29.5 million shares outstanding and reserved for issuance by 265.5 million,
if a one-for-ten split is effectuated, or 285 million, if a . This excess is far
greater than AVP will need for the foreseeable future, and AVP will reduce its
Delaware franchise tax by reducing the authorized Common Stock to 80,000,000.
In addition, AVP's board of directors proposes to restate the Certificate
of Incorporation to reduce the number of documents comprising it, after the
amendments submitted to stockholders in Proposals 3 and 4, from five to one.
Restating the entire certificate of incorporation into one document will make
the Certificate of Incorporation easier to use and reduce chances of error.
The proposed form of Amended and Restated Certificate of Incorporation is
set forth as Annex B.
Vote Required
A majority of votes entitled to be cast will be required to approve the
proposed amendment and restatement of the Certificate of Incorporation.
Recommendation of our Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT
TO THE COMPANY'S CERTIFICATE OF INCORPORATION DECREASING THE AUTHORIZED NUMBER
OF SHARES OF COMMON STOCK FROM 300,000,000 SHARES TO 80,000,000 AND AMENDING AND
RESTATING THE CERTIFICATE OF INCORPORATION.
23
PROPOSAL 6
APPROVAL OF THE 2005 STOCK INCENTIVE PLAN
The 2005 Stock Incentive Plan is being submitted for stockholder approval.
The board of directors believes that adoption of the 2005 Plan will be in the
best interests of AVP by strengthening the desire of employees to continue their
employment with AVP; by helping AVP attract and secure services of employees or
others eligible for awards under the plan, including players, by aligning their
interests with AVP's, and by securing other benefits for AVP through options and
restricted stock grants to be granted hereunder.
The essential features of the 2005 Plan are outlined below; the 2005 Plan,
in its entirety, is attached as Annex C.
Plan Summary
Types of Awards. Under the 2005 Plan, we may grant awards of stock options
(including stock purchase warrants) and restricted stock grants to our officers,
directors, employees, consultants, players, and independent contractors.
Administration. The 2005 Plan may be administered by the Compensation
Committee or, in absence of a Compensation Committee, the Board of Directors, or
the Compensation Committee may construe and interpret the 2005 Plan, to define
the terms used therein, to determine the time or times an option may be issued
or exercised and the number of shares that may be exercised at any one time; to
prescribe, amend, and rescind rules and regulations relating to the 2005 Plan;
to approve and determine the duration of leaves of absence which may be granted
to optionees or participants without constituting a termination of their
employment for purposes of the 2005 Plan; and to make all other determinations
necessary or advisable for the administration of the 2005 Plan.
Number of Shares. On a post reverse-split basis, we may issue an aggregate
of 30,000,000 shares of Common Stock under the 2005 Plan, including
approximately 14,000,000 shares subject to Management Warrants and options
converted from stock options to purchase shares of the Association, pursuant to
the Merger Agreement.
Stock Options. We may grant both incentive stock options ("incentive stock
options") intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and options, warrants, and other rights to buy
Common Stock that are not qualified as incentive stock options ("non-qualified
options"). No stock options may be granted at an exercise price less than the
fair market value of our Common Stock on the date of grant. The exercise price
of incentive stock options granted to holders of more than 10% of our Common
Stock must be at least 110% of the fair market value of the Common Stock on the
date of grant.
Options and restricted stock grants granted under the 2005 Plan are not
transferable, otherwise than by will or the laws of descent and distribution,
and, during the lifetime of the option holder, options are exercisable only by
an option holder. Options granted pursuant to the 2005 Plan terminate three
months after the date of termination of employment unless the Board of Directors
determines an alternative termination date, except that in the event of the
death or permanent disability of the option holder, the option may be exercised
by the holder (or his estate, as the case may be) until one year after the date
of death or permanent disability.
Restricted Stock. The Board of Directors or the Compensation Committee may
grant restricted stock grants to individuals under the 2005 Plan, in such
amounts, and subject to such terms and conditions as either the Board of
Directors or the Compensation Committee may determine. The holder of restricted
stock shall have the right to vote the restricted stock and to receive
dividends, until such shares are forfeited.
Duration of Options. Stock options granted under the 2005 Plan will expire
no more than ten (10) years from the date on which the option is granted, unless
the Board of Directors determines an alternative termination date. If incentive
stock options are granted to holders of more than 10% of our Common Stock, such
options will expire no more than five (5) years from the date the option is
granted.
24
Exercise of Options. Except as otherwise determined by the Board of
Directors or the Compensation Committee, stock options granted under the 2005
Plan will vest and become exercisable on the anniversary of the date of grant of
such option at a rate of twenty-five percent (25%) per year over four (4) years
from the date of grant.
Change in Control; Adjustment in Number of Option Shares. Within thirty
(30) days before the effective date of dissolution, liquidation, merger,
consolidation, or sale of stock in which we are not the surviving corporation,
all stock options and restricted stock grants granted under the 2005 Plan will
become exercisable in full. Also, in the event the number of outstanding shares
of Common Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities, whether as a
result of reorganization, merger, reverse merger, recapitalization,
reclassification, stock dividend, distribution, stock split, reverse split,
combination of shares or other similar transaction, each share subject to an
unexercised option or restricted stock grant will be substituted for the number
and kind of shares of stock into which each share of outstanding Common Stock is
to be changed or for which each such share is to be exchanged, and the price per
share will be increased or decreased proportionately.
Federal Income Tax Consequences. We will not, nor will the optionee,
recognize taxable income or deduction for federal income tax purposes from the
grant or exercise of an incentive stock option. When an optionee sells stock
acquired upon exercise of an incentive stock option, the optionee will be taxed
at long-term capital gain rates, if the stock has been held for at least one
year and the option was granted at least two years prior to the date of sale
("Holding Period Requirements"). If the optionee fails to meet the Holding
Period Requirements, the difference between the exercise price and the fair
market value of the stock at the time of exercise will be taxable to the
optionee as ordinary income and we will be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee if we comply with
applicable withholding requirements and if the amount qualifies as an ordinary
and necessary business expense. Although the optionee will not recognize taxable
income for federal income tax purposes upon the exercise of an incentive stock
option, the difference between the exercise price and fair market value of the
shares at the time of exercise gives rise to an adjustment in calculating
alternative minimum taxable income.
We will not, nor will the optionee, recognize taxable income or deduction
from the grant of a non-qualified stock option at fair market value. At the time
of exercise of a non-qualified stock option, the optionee will recognize
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of the Common Stock. We will be entitled to a
deduction for tax purposes in an amount equal to the ordinary income recognized
by the optionee, if we comply with applicable tax withholding requirements.
A participant will not have taxable income upon grant of restricted stock
unless he or she elects to be taxed at that time. Instead, he or she will
recognize ordinary income at the time of vesting equal to the fair market value
(on the vesting date) of the shares received minus any amount paid for the
shares.
Amendment of Plan. The Board of Directors may at any time and from any
time alter, amend, suspend or discontinue the 2005 Plan, except no such action
may be taken without stockholder approval that materially increases the benefits
to participants under the 2005 Plan, materially increases the number of shares
to be issued, or materially modifies the requirements as to eligibility. In
addition, no such action may be taken that adversely affects the rights of an
optionee or participant under the 2005 Plan without his or her consent.
Other Information
The grant of options and restricted stock under the 2005 Plan is subject
to the discretion of the Compensation Committee or, in absence of a Compensation
Committee, the Board of Directors. As of the date of this Proxy Statement, there
has been no determination by the Compensation Committee with respect to future
awards under the 2005 Plan. The table sets forth information with respect to the
grant of options and restricted stock received or to be received by the
indicated individuals and groups in respect of converted Association stock
options and Management Warrants:
25
2005 Stock Incentive Plan
Amount of Shares
Name of Individual and Position Underlying Options*
Leonard Armato 64,668,401
Bruce Binkow 18,951,776
Andrew Reif 10,753,136
Thomas Torii 375,000
All current executive officers as a group (4 94,748,313
persons)
All current directors who are not executive 11,075,491
officers as a group (4 persons)
All employees, including all current officers who 2,627,749
are not executive officers, as a group
The closing sale price of a share of AVP Common Stock on June 22, 2005 was
$0.21 per share.
Vote Required
A majority of the votes entitled to be cast will be required to adopt the
amended and restated 2005 Plan. If the Plan is not approved, it will
nevertheless continue to govern the converted Association Options and Management
Warrants.
Recommendation of the Board of Directors
STOCKHOLDERS SHOULD NOTE THAT BECAUSE DIRECTORS (SUBJECT TO RE-ELECTION AND
STOCKHOLDER APPROVAL) HAVE IN THE PAST AND MAY IN THE FUTURE RECEIVE STOCK
OPTIONS AND RESTRICTED STOCK GRANTS UNDER THE 2005 PLAN, OUR CURRENT DIRECTORS
HAVE A PERSONAL INTEREST IN THE PROPOSAL AND ITS APPROVAL BY STOCKHOLDERS.
HOWEVER, THE BOARD OF DIRECTORS BELIEVE THAT THE AMENDMENT IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS.
26
STOCKHOLDER PROPOSALS
Stockholder proposals intended for inclusion in the proxy statement for
the next annual meeting must be received at our principal executive offices no
later than March 7, 2006. Proposals should be addressed to our Secretary, AVP,
Inc., 6100 Center Drive, Suite 900, Los Angeles, CA 90045. The persons named on
the form of proxy to be sent in connection with the solicitation of proxies on
behalf of AVP's board of directors for the next annual meeting will vote in
their own discretion on any matter as to which AVP shall not have received
notice by May 21, 2005.
OTHER MATTERS
A copy of our Annual Report on Form 10-KSB, as filed with the SEC, is
available upon written or oral request and without charge to stockholders by
writing to c/o Secretary, AVP, Inc., 6100 Center Drive, Suite 900, Los Angeles,
CA 90045, telephone number (310) 426-8000.
The Company did not know on the date of this proxy statement of any
business to be presented at the Annual Meeting other than as set forth in this
Proxy Statement. If any other matter properly comes before the Annual Meeting,
the persons named on the accompanying of proxy will vote the proxy according to
their best judgment.
It is important that your stock be represented at the Annual Meeting,
regardless of the number of shares that you hold. You are, therefore, urged to
execute and return the accompanying proxy in the envelope that has been
enclosed, at your earliest convenience.
The Board of Directors of AVP, Inc.
By: Andrew Reif,
Secretary
Dated: July 5, 2005
27
ANNEX A
AUDIT COMMITTEE CHARTER
AVP, INC.
Preamble
The Company's independent registered public accounting firms (auditor)
ultimately is accountable to the Company's board of directors and Audit
Committee, as representatives of the stockholders, which, as such, have the
ultimate authority and responsibility to select, evaluate and, if appropriate,
replace the independent auditor, subject to ratification by the Company's
stockholders.
The Committee will assist the board of directors in fulfilling its
responsibilities to oversee the Company's financial and accounting operations.
In performing its duties, the Committee will maintain effective working
relationships with the board of directors, management, and the auditors and
shall report to the board of directors from time to time regarding its
activities and findings, including recommending whether the Company's audited
financial statements should be included in the Company's annual report to the
Securities and Exchange Commission. The Committee will confirm with the auditor
its understanding that it has access to the Committee at any time.
Organization and Meetings
Committee Composition
The Committee shall be composed entirely of three non-management
directors, or such other number as the board of directors shall from time to
time designate as members of the Committee. The Committee may designate a
chairman, if the members so choose.
Meetings
The Committee shall meet at such time and for such purposes within the
scope of its authority and responsibilities as the members shall determine from
time to time, but in all events shall hold regular meetings quarterly, to review
the Company's earnings announcements and reports to the SEC before they are
released to the public or filed with the SEC. The Committee shall meet with the
auditors at each regular meeting and at any other time as the auditors may
request.
Specific Responsibilities
The Audit Committee's specific responsibilities shall include the
following:
Charter
The Audit Committee shall review and reassess the adequacy of this charter
annually.
Audit Engagement
The Committee shall pre-approve all audit and non-audit services to be
provided by the auditors to the Company. The Committee may delegate to an
independent member the authority to grant pre-approvals respecting non-audit
services. For this purpose, a member is independent if the member does not
receive any advisory, consulting, or other fee or compensation, except in the
member's capacity as a board or committee member.
The Committee shall not approve any proposed non-audit service that an
auditor is prohibited from providing to an audit client pursuant to federal
securities law.
28
The Audit Committee shall require the independent auditor, at least
annually, to:
o disclose to the Audit Committee, in writing, all relationships
between the independent auditor and its related entities and
the Company and its related entities that in the independent
auditor's professional judgment may reasonably be thought to
bear on independence or is considered to impair or preclude
independence under SEC rules;
o confirm in the disclosure that, in its professional judgment,
it is independent of the Company within the meaning of the
federal securities laws; and
o discuss the auditor's independence with the Committee.
Before each annual engagement, the Committee shall meet with the auditor
to review the scope and fees of the audit and services regarding the Company's
reporting of its quarterly results, and the Committee shall report to the board
of director regarding the results of such review. The Committee shall seek to
define the scope of engagement to include all services that the Committee and
the auditor anticipate that the auditor will provide during the course of the
engagement.
Audit Oversight
During the course of the engagement the auditor must discuss with the
Committee:
o Quality, not just acceptability, of the Company's accounting
principles. Quality includes:
o Relevance--the usefulness of the information to predict future
results because of its capacity to explain past results.
Criteria for evaluating relevance include:
o current trends in the market place;
o transparency; and
o clarity.
o Reliability--whether the information is reasonably free from
error and bias and faithfully represents what it purports to
represent.
o Comparability--whether the information enables users to
identify similarities in and differences between two sets of
economic phenomena.
o Consistency--conformity of the information from period to
period with unchanging policies and procedures.
o Internal controls:
o Internal controls--auditor must report any changes in internal
controls during the reporting period.
o "Reportable condition"--auditor must report to the audit
committee any significant deficiency in design or operation of
internal controls that could adversely affect the company's
ability to initiate, record, summarize, and report financial
data.
o Significant accounting policies and practices:
o Initial selection and changes--with regard to initial
selection of and any change in an accounting policy or
practice, the auditor must:
o *identify selected policy and practice or change;
A-2
o *describe effect each alternative accounting principle
would have on clarity and usefulness of financial
information;
o *compare how financial statement amounts would be
affected by various alternative policies or procedures;
o discuss principles used by peer companies;
o *state auditor's preferred policy or practice.
o "Innovative" accounting--auditor must highlight use of
accounting structures and policies in areas for which
authoritative guidance or consensus is lacking, e.g., revenue
recognition, leased employees/outsourcing, off-balance-sheet
financing, lease vs. sale or purchase.
o Management judgments and accounting estimates. Auditors must
describe, present, or evaluate:
o processes used by management to make judgments, estimates;
o auditors' assessment of reasonableness of estimates;
o adequacy, reasonableness of reserves;
o business trends affecting such judgments and estimates, e.g.,
accounts receivable, inventory aging, warranty claims;
o factors affecting asset and liability carrying values, e.g.,
asset useful lives, discount rates for calculating pension
obligations;
o management's criteria for materiality and cost/benefit
analysis.
o Clarity and transparency of disclosure; related party and other
unusual transactions. Auditors must evaluate:
o disclosure of business, market, and other risks;
o quality of MD&A;
o appropriateness of segment disclosure;
o significant unusual transactions and structures, e.g., whether
timing of transaction, special purpose entities, shared
ownership of assets, is directed at achieving a particular
accounting result;
o whether terms of related party purchases/sales/leases, loans,
employment of members of management's family, etc. are at
arms' length;
o appropriateness of bill and hold, extended payment
terms/merchandise return arrangements; self insurance; asset
dispositions with retained interests.
o Audit adjustments; disagreements with management:
o Auditor must discuss any recommended adjustments, regardless
whether recorded by management.
o Even if recorded, matters underlying the adjustment might have
material impact on future financial statements, although not
currently material.
o Auditor must discuss every uncorrected misstatement determined
by management to be immaterial.
o *Auditor must timely disclose all material written
communications between auditor and management, e.g.,
management letter or schedule of unadjusted differences.
o Management issues--auditor must describe or present:
o cooperation of Company personnel or difficulties encountered
in connection with performing audit or review;
o management's consultation with other accountants about
auditing and accounting matters;
o major issues discussed with management prior to retention;
o assessment of Company financial, accounting personnel;
A-3
o recommendations the independent auditor may have to improve
the Company's internal financial controls, choice of
accounting principles, or management reporting systems.
(* Indicates a specific requirement under the Sarbanes-Oxley Act.)
Audit Committee Report
The Committee will report each year in the Company's proxy statement
whether:
o the Committee has reviewed and discussed the audited financial
statements with management;
o the Committee has discussed with the independent auditors the
matters required to be discussed by Statement of Accounting
Standards No. 61 (Codification of Statements on Auditing
Standards, AU ss. 380), as it may be modified or supplemented;
o the Committee has received the written disclosures and the
letter from the independent accountants required by
Independence Standards Board Standard No. 1 (Independence
Standards Board Standard No. 1, Independence Discussions with
Audit Committees), as it may be modified or supplemented, and
has discussed with the independent accountant the independent
accountant's independence; and
o based on the foregoing review and discussions, the Committee
recommended to the board of directors that the audited
financial statements be included in the company's Annual
Report on Form 10-KSB or Form 10-K. (The report shall not be
deemed to be "soliciting material," or to be "filed" with the
Securities and Exchange Commission or subject to SEC
Regulations 14A or 14C.)
A-4
ANNEX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AVP, INC.
(a Delaware corporation)
AVP, Inc., a Delaware corporation, hereby certifies as follows:
FIRST: The Corporation's name is AVP, Inc., and the Corporation was
originally incorporated on May 12, 1994 under the name Malone Road
Investments, Ltd.
SECOND: The Corporation's Certificate of Incorporation is hereby amended
and restated to read in its entirety as follows:
ARTICLE ONE: The name of the Corporation is AVP, Inc.
ARTICLE TWO: The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law.
ARTICLE FOUR: The total number of shares of all classes which the
Corporation is authorized to have outstanding is 82,000,000 shares of which
stock 80,000,000 shares, par value of $.001 each, shall be Common Stock and
2,000,000 shares, par value of $.001 each, shall be Preferred Stock, including
116,412 of Series B Convertible Preferred Stock ("Series B Stock"). The board of
directors is expressly vested with authority to provide for the issue of
Preferred Stock in series, having such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional, or other special rights, and qualifications, limitations, or
restrictions ("Designations") as shall be stated in the resolution or
resolutions providing for such issue.
The Designations of the Series B Stock are as follows:
1. Dividend Rights. Holders of Series B Stock shall be entitled to
receive, pari passu with holders of Common Stock, all cash or in-kind dividends
or distributions on an as converted basis from time to time at any time
declared, set aside, or paid by the Corporation, in an amount that would have
been received by the holders of Series B Stock (assuming, for purposes of the
calculation, that the holders of Series B Stock had lawfully converted such
Series B Stock into shares of Common Stock immediately prior to the record date
for determining the holders of Common Stock entitled to receive such
distribution at the then-applicable Series B Stock Conversion Rate), in each
case only when, as and if declared by the Board of Directors of the Corporation
(the "Board"), and, in the case of cash dividends, only out of funds that are
legally available therefor. Such dividends shall be non-cumulative.
2. Voting Rights. The Series B Stock shall vote with the shares of Common
Stock of the Corporation on an as converted basis from time to time, and not as
a separate class, at any annual or special meeting of stockholders of the
Corporation, and may act by written consent in the same manner as holders of
Common Stock, in either case upon the following basis: each holder of shares of
Series B Stock shall be entitled to such number of votes as shall be equal to
the whole number of shares of Common Stock into which such holder's aggregate
number of shares of Series B Stock are convertible (pursuant to Section 5
hereof) immediately after the close of business on the record date fixed for
such meeting or the effective date of such written consent.
B-1
In addition, the Corporation shall not, without the prior approval of the
holders of at least a majority of the then issued and outstanding shares of the
Series B Stock voting as a separate class:
(a) issue or create any series or class of equity securities with rights
in parity with or superior to such series or increase the rights or preferences
of any series or class of equity securities having rights or preferences that
are junior to such series so as to make the rights or preferences of such series
or class in parity with or senior to such; or
(b) amend, alter, or repeal the preferences, special rights, or other
powers of the such so as to adversely effect the holders of such series.
3. Liquidation Rights.
(a) Upon any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of any other stock of the Corporation, the holders of Series
B Stock shall be entitled to be paid out of the assets of the Corporation, pari
passu with any other series of preferred stock equal to the Series B Stock, an
amount per share ("Issue Price") of Series B Stock equal to $33.93(as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares), plus all declared and unpaid dividends on such
shares of Series B Stock for each share of Series B Stock held by them.
(b) After the payment of the full liquidation preference of the Series B
Stock as set forth in Section 3(a) above, the remaining assets of the
Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of any preferred stock junior to the Series B Stock, if
any, and to the holders of the Common Stock, and the holders of Series B Stock
shall not participate in any such distribution.
(c) The following events shall be considered a "liquidation" for purposes
of this Section 3:
(i) any consolidation, merger, reorganization, recapitalization or
sale in one or more related transactions of the Corporation with or into any
other corporation or other entity or person, or any other corporate
reorganization or sale of securities of the Corporation, in which the
stockholders of the Corporation immediately prior to such consolidation, merger,
reorganization or sale, own less than fifty percent (50%) of the Corporation's
voting power immediately after such consolidation, merger, reorganization or
sale, or any transaction or series of related transactions in which in excess of
fifty percent (50%) of the Corporation's voting power is transferred (an
"Acquisition"); or
(ii) a sale, lease or other disposition of all or substantially all
of the assets of the Corporation (an "Asset Transfer").
(d) If, upon any liquidation, distribution, or winding up, the assets of
the Corporation shall be insufficient to make payment in full to all holders of
Series B Stock of the liquidation preferences set forth in Section 3(a), then
such assets shall be distributed among the holders of Series B Stock and any
holders of any other preferred stock equal to the Series B Stock at the time
outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
4. Redemption. There shall be no obligation on the part of the Corporation
to redeem any shares of Series B Stock; however, the Corporation may redeem the
Series B Stock after the fifth anniversary of issuance on thirty (30) days
written notice to the holders of the Series B Stock at a price per share of
Series B Stock equal to the Issue Price (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), plus all declared and unpaid dividends on such shares of Series B Stock
for each share of Series B Stock held by them.
B-2
5. Conversion Rights. The holders of Series B Stock shall have the
following rights with respect to the conversion of Series B Stock into shares of
Common Stock (the "Conversion Rights"):
(a) Optional Conversion. Subject to and in compliance with the provisions
of this Section 5, any shares of Series B Stock may, at the option of the
holder, be converted at any time into fully-paid and non-assessable shares of
Common Stock. The number of shares of Common Stock to which a holder of Series B
Stock initially shall be entitled upon conversion shall be 24.3 (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) (the "Series B Stock Conversion Rate").
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series B Stock. All shares of Common Stock (including
fractions thereof) issuable upon conversion of more than one share of Series B
Stock by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in the
issuance of any fractional share, the Corporation shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction multiplied by
the Common Stock's fair market value (as determined by the Board) on the date of
conversion.
(c) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series B Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series B Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series B Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(d) Notices. Any notice required by the provisions of this Section 5 shall
be in writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All notices shall be addressed to each
holder of record at the address of such holder appearing on the books of the
Corporation.
(e) Mechanics of Conversion. Each holder of Series B Stock who converts
the same into shares of Common Stock pursuant to this Section 5 shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or any transfer agent for Series B Stock, and shall give written
notice to the Corporation at such office that such holder elects to convert the
same. Such notice shall state the number of shares of Series B Stock being
converted. Thereupon, the Corporation shall promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and shall promptly pay in cash or,
to the extent sufficient funds are not then legally available therefor, in
Common Stock (at the Common Stock's fair market value determined by the Board as
of the date of such conversion), any declared and unpaid dividends on the shares
of Series B Stock being converted. Such conversion shall be deemed to have been
made at the close of business on the date of such surrender of the certificates
representing the shares of Series B Stock to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date.
(f) Adjustment for Stock Splits and Combinations. If the Corporation shall
at any time or from time to time after the date that the first share of Series B
Stock is issued (the "Series B Stock Original Issue Date") effect a subdivision
of the outstanding Common Stock without a corresponding subdivision of Series B
Stock, the Series B Stock Conversion Rate in effect immediately before that
subdivision shall be proportionately increased. Conversely, if the Corporation
shall at any time or from time to time after the Series B Stock Original Issue
Date combine the outstanding shares of Common Stock into a smaller number of
shares without a corresponding combination of Series B Stock, the Series B Stock
Conversion Rate in effect immediately before the combination shall be
proportionately decreased. Any adjustment under this Section 5(f) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
B-3
(g) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Series B Stock Original
Issue Date makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Series B Stock
Conversion Rate that is then in effect shall be increased as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, by multiplying the Series B Stock Conversion Rate then in
effect by a fraction (1) the numerator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (2) the denominator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Series B Stock Conversion Rate shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series B Stock Conversion Rate shall be adjusted pursuant to this
Section 5(g) to reflect the actual payment of such dividend or distribution.
(h) Adjustments for Other Dividends and Distributions. If the Corporation
at any time or from time to time after the Series B Stock Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of Series B Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of other securities of the Corporation which
they would have received had their Series B Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 5 with
respect to the rights of the holders of Series B Stock or with respect to such
other securities by their terms.
(i) Adjustment for Reclassification, Exchange and Substitution. If at any
time or from time to time after the Series B Stock Original Issue Date, Common
Stock issuable upon the conversion of Series B Stock is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5), in any such event each holder
of Series B Stock shall have the right thereafter to convert such stock into the
kind and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series B Stock could
have been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with respect
to such other securities or property by the terms thereof.
(j) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any
time or from time to time after the Series B Stock Original Issue Date, there is
a capital reorganization of Common Stock (other than an Acquisition or Asset
Transfer as defined in Section 3(c) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 5), as a part of such capital reorganization,
provision shall be made so that the holders of Series B Stock shall thereafter
be entitled to receive upon conversion of Series B Stock the number of shares of
stock or other securities or property of the Corporation to which a holder of
the number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of Series B Stock after the capital
reorganization to the end that the provisions of this Section 5 (including
adjustment of the Series B Stock Conversion Price then in effect and the number
of shares issuable upon conversion of the Series B Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(k) Sale of Shares Below the Series B Stock Conversion Price.
(i) If at any time or from time to time after the Series B Stock
Original Issue Date, the Corporation issues or sells, or is deemed by the
express provisions of this subsection (k) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a dividend or
other distribution on any class of stock as provided in Section 5(h) above, and
other than a subdivision or combination of shares of Common Stock as provided in
Section 5(f) above, for an Effective Price (as hereinafter defined) per share
less than the quotient obtained by dividing the Issue Price by the Series B
Stock Conversion Rate ("Series B Stock Conversion Price"), then and in each such
case the then existing Series B Stock Conversion Rate shall be increased, as of
the opening of business on the date of such issue or sale, to a price determined
B-4
by dividing the Series B Stock Conversion Rate by a fraction (i) the numerator
of which shall be (A) the number of shares of Common Stock deemed outstanding
(as defined below) immediately prior to such issue or sale, plus (B) the number
of shares of Common Stock which the aggregate consideration received (as defined
in subsection (k)(ii)) by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Stock
Conversion Price, and (ii) the denominator of which shall be the number of
shares of Common Stock deemed outstanding (as defined below) immediately prior
to such issue or sale plus the total number of Additional Shares of Common Stock
so issued. For the purposes of the preceding sentence, the number of shares of
Common Stock deemed to be outstanding as of a given date shall be the sum of (A)
the number of shares of Common Stock actually outstanding, and (B) the number of
shares of Common Stock into which the then outstanding shares of Series B Stock
could be converted if fully converted on the day immediately preceding the given
date.
(ii) For the purpose of making any adjustment required under this
Section 5(k), the consideration received by the Corporation for any issue or
sale of securities shall (A) to the extent it consists of cash, be computed at
the gross amount of cash received by the Corporation before deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Corporation in connection with such issue or sale and before deduction of
any expenses payable by the Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property as
determined in good faith by the Board, and (C) if Additional Shares of Common
Stock, Convertible Securities (as hereinafter defined) or rights or options to
purchase either Additional Shares of Common Stock or Convertible Securities are
issued or sold together with other stock or securities or other assets of the
Corporation for a consideration which covers both, be computed as the portion of
the consideration so received that may be reasonably determined in good faith by
the Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(iii) For the purpose of the adjustment required under this Section
5(k), if the Corporation issues or sells any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Series B Stock Conversion Price, in each case
the Corporation shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the
Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such rights or options, the maximum amounts of
consideration, if any, payable to the Corporation upon the exercise of such
rights or options, plus, in the case of Convertible Securities, the maximum
amounts of consideration, if any, payable to the Corporation upon the conversion
thereof; provided that if in the case of Convertible Securities the maximum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Corporation shall be deemed to
have received the maximum amounts of consideration without reference to such
clauses; provided further that if the maximum amount of consideration payable to
the Corporation upon the exercise or conversion of rights, options or
Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the figure to which
such amount of consideration is reduced; and provided further that if the
maximum amount of consideration payable to the Corporation upon the exercise or
conversion of such rights, options or Convertible Securities is subsequently
increased, the Effective Price shall be again recalculated using the increased
maximum amount of consideration payable to the Corporation upon the exercise or
conversion of such rights, options or Convertible Securities. No further
adjustment of the Series B Stock Conversion Rate, as adjusted upon the issuance
of such rights, options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Shares of Common Stock on the exercise of any
such rights or options or the conversion of any such Convertible Securities. If
any such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the Series B
Stock Conversion Rate as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Series B Stock Conversion Rate
which would have been in effect had an adjustment been made on the basis that
the only Additional Shares of Common Stock so issued were the Additional Shares
of Common Stock, if any, actually issued or sold on the exercise of such rights
or options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Corporation on the
conversion of such Convertible Securities, provided that such readjustment shall
not apply to prior conversions of Series B Stock.
B-5
(iv) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation or deemed to be issued pursuant to this
Section 5(k), whether or not subsequently reacquired or retired by the
Corporation other than (1) shares of Common Stock issued upon conversion of the
Series B Stock; (2) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights thereafter (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) issued to employees,
officers or directors of, or consultants, advisors, advisory board members or
committee members to, the Corporation pursuant to stock purchase or stock option
plans or other arrangements that are approved by the Board; (3) shares of Common
Stock issued pursuant to mergers, acquisitions or other similar transactions
approved by the Board; and (4) all issuances in connection with strategic
partnerships, strategic alliances, joint ventures, or any other similar
transaction approved by the Board. The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Corporation under this Section 5(k), into the aggregate
consideration received, or deemed to have been received by the Corporation for
such issue under this Section 5(k), for such Additional Shares of Common Stock.
(l) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Series B Stock Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of Series B Stock, if
Series B Stock is then convertible pursuant to this Section 5, the Corporation,
at its expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Series B Stock at the holder's address as
shown in the Corporation's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Corporation for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Series B Stock Conversion Price at the time in effect, (3) the
number of Additional Shares of Common Stock and (4) the type and amount, if any,
of other property which at the time would be received upon conversion of the
Series B Stock.
(m) Notices of Record Date. Upon (i) any taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Acquisition (as defined in Section 3(c)) or other
capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, or any
Asset Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Series B Stock at least ten (10) days prior to the record
date specified therein a notice specifying (1) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
6. Mandatory Conversion. At any time commencing one year after the
issuance of shares of Series B Stock the Corporation may send a notice of
conversion to the holders of the Series B Stock, provided: (i) all shares of
Common Stock underlying the Series B Stock have been registered for resale with
the Securities and Exchange Commission, and such registration statement is
effective at the time such notice of conversion is sent to the holders of the
Series B Stock, (ii) the Common Stock is quoted on the Over-The-Counter Bulletin
Board ("OTCBB") or a similar electronic quotation system or stock exchange,
(iii) the closing price per share, or the average of the closing bid and ask
B-6
price per share of Common Stock, if applicable, has been at least twice the
quotient obtained by dividing the redemption price of the Series B Stock by 100
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares) for thirty (30) consecutive trading
days prior to a notice of conversion, and (iv) the average daily trading volume
of the Common Stock as reported on the OTCBB, or other electronic quotation
system or stock exchange as then listed, averages at least 2,000,000 shares of
Common Stock for each of the thirty (30) consecutive trading days prior to a
notice of conversion, the Corporation may send the holders a notice of
conversion.
Upon the sending of such notice, all shares of Series B Stock shall be
converted into Common Stock at the Series B Stock Conversion Rate then in effect
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares). Upon such automatic conversion, any
declared and unpaid dividends shall be paid in accordance with the provisions of
Section 5(g) above. Upon such automatic conversion, the outstanding shares of
Series B Stock shall be converted automatically without any further action by
the holders of such shares whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent.
7. No Reissuance of Series B Stock. No share or shares of Series B Stock
acquired by the Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued; but shall resume the status of authorized but
unissued Preferred Stock.
8. No Preemptive Rights. No stockholders of the Corporation, including,
without limitation, the holders of Series B Stock, shall have preemptive rights.
ARTICLE FIVE: Election of directors at an annual or special meeting of
stockholders need not be by written ballot unless the bylaws of the Corporation
shall otherwise provide. The number of directors of the Corporation which shall
constitute the whole board of directors shall be such as from time to time shall
be fixed by or in the manner provided in the bylaws.
ARTICLE SIX: In furtherance and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to make, repeal,
alter, amend and rescind the bylaws of the Corporation.
ARTICLE SEVEN: A director of the Corporation shall not be personally
liable for monetary damages to the Corporation or its stockholders for breach of
any fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the director derives an
improper personal benefit.
FOURTH: The foregoing amendment and restatement of the Certificate of
Incorporation has been duly adopted in accordance with Section 245 of the
General Corporation Law of Delaware.
IN WITNESS WHEREOF, AVP, Inc. has caused this Certificate of Incorporation
to be executed by Leonard Armato its Chief Executive Officer, this _____ day of
_________, ______.
AVP INC.,
a Delaware corporation
By: /s/ Leonard Armato
-------------------------------------
Leonard Armato, CEO
B-7
ANNEX C
2005 STOCK INCENTIVE PLAN
2. PURPOSE
AVP, Inc., a Delaware corporation (the "Company"), Stock Incentive Plan
(the "Plan"), to further the interests of the Company by strengthening the
desire of Employees to continue their employment with the Company, by helping
the Company to attract and secure the services of Employees or others eligible
for awards under the plan, including players, by aligning the interests of such
Employees with the Company, and by securing other benefits for the Company
through Options and Restricted Stock Grants to be granted hereunder. Options
granted under the Plan are either options intending to qualify as "incentive
stock options" within the meaning of Section 422 of the Code or non-qualified
stock options.
3. DEFINITIONS
Whenever used herein the following terms shall have the following
meanings, respectively:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee which shall be selected and
designated by the Board as the "Compensation Committee," or if no committee has
been appointed, reference to "Committee" shall be deemed to refer to the Board;
provided, however, that the Committee shall be comprised of two or more
individuals who are all "non-employee directors," within the meaning of Rule
16b-3(b)(3) of the Securities Exchange Act of 1934, as amended, and "outside
directors," within the meaning of Section 1.62-27(e)(3) of the United States
Treasury Regulations promulgated under Section 162(m) of the Code.
(e) "Common Stock" shall mean the Company's Common Stock.
(f) "Company" shall mean AVP, Inc., a Delaware corporation.
(g) "Employee" shall mean in connection with Non-Qualified Options,
Non-Qualified Stock Option Agreements, Restricted Stock Grants, and Restricted
Stock Grant Agreements (i) any director, officer, common law employee,
consultant, player or independent contractor of the Company or any Subsidiary or
Parent of the Company, (ii) any individual in an effort to induce said
individual to become and remain an employee or independent contractor of the
Company, or (iii) any other individual or entity the Committee may deem
appropriate to receive a Non-Qualified Option or Restricted Stock Grant (so long
as the grant of the Non-Qualified Option or Restricted Stock Grant furthers a
specific Company purpose and the Committee deems it in the best interests of the
Company to grant the Non-Qualified Option or Restricted Stock Grant to said
individual or entity). In connection with Incentive Options and the Company's
Incentive Stock Option Agreements, the term "Employee" shall include only common
law employees of the Company or of any Subsidiary or Parent of the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(i) "Fair Market Value" shall mean, as of any date, if the Common
Stock is publicly traded, the mean between the highest and lowest quoted selling
prices of the Common Stock on the date of determination or, if not available,
the mean between the bona fide bid and ask prices of the Common Stock on the
date of determination. In any situation not covered above, or if there were no
sales on the date of determination, the Fair Market Value shall be determined by
the Committee by considering the Company's net worth, prospective earning power
and dividend-paying capacity, among other factors, in accordance with Section
20.2031-2 of the Federal Estate Tax Regulations. Notwithstanding the foregoing,
if the Option or Restricted Stock Grant is granted contemporaneously with an
Initial Public Offering of the Company's Common Stock, the Fair Market Value
shall be at the price at which the Common Stock is sold in such Initial Public
Offering.
C-1
(j) "Incentive Option" shall mean an Option granted under the Plan
which is designated as, and qualifies as, an incentive stock option within the
meaning of Section 422 of the Code.
(k) "Incentive Option Agreement" shall mean a written agreement
setting forth the terms of an Incentive Option.
(l) "Non-Qualified Option" shall mean an Option, warrant, or other
right to acquire Common Stock granted under the Plan which is designated as a
non-qualified stock option or which does not qualify as an incentive stock
option within the meaning of Section 422 of the Code.
(m) "Non-Qualified Option Agreement" shall mean a written agreement
setting forth the terms of a Non-Qualified Option.
(n) "Option" shall mean an Incentive Option, as defined in Section
2(i) hereof, or a Non-Qualified Option, as defined in Section 2(l) hereof, or
(o) "Optionee" shall mean any Employee who has been granted an
Option to purchase shares of Common Stock under the Plan.
(p) "Parent" shall have the meaning set forth in Section 424(e) of
the Code for a "parent corporation."
(q) "Participant" shall mean any Employee to whom a Restricted Stock
Grant has been granted by the Committee under this Plan.
(r) "Permanent Disability" shall mean termination of employment with
the Company, with the consent of the Company, by reason of permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(s) "Plan" shall mean this 2005 Stock Incentive Plan.
(t) "Restricted Stock" shall mean shares of Common Stock issued
pursuant to a Restricted Stock Grant that are subject to forfeiture provisions
or such other conditions as may be determined by the Committee and specified in
a Restricted Stock Grant Agreement.
(u) "Restricted Stock Grant" shall mean any form of grant of
Restricted Stock under this Plan.
(v) "Restricted Stock Grant Agreement" shall mean a written
agreement setting forth the terms of a Restricted Stock Grant. (w) "Subsidiary"
shall have the meaning set forth in Section 424(f) of the Code.
4. ADMINISTRATION
(a) The Plan shall be administered either (i) by the Board, or (ii)
in the discretion of the Board, by the Committee appointed by the Board. The
Board may from time to time appoint members of the Committee in substitution for
or in addition to members previously appointed and may fill vacancies.
(b) Any action of the Committee with respect to the administration
of the Plan shall be taken by majority vote or by written consent of a majority
of its members.
C-2
(c) Subject to the provisions of the Plan, the Committee shall have
the authority to construe and interpret the Plan, to define the terms used
therein, to determine the time or times an Option or Restricted Stock Grant may
be issued or exercised and the number of shares which may be exercised at any
one time, to prescribe, amend and rescind rules and regulations relating to the
Plan, to approve and determine the duration of leaves of absence which may be
granted to Optionees and Participants without constituting a termination of
their employment or other relationship with the Company for purposes of the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan. All determinations and interpretations made by the
Committee shall be conclusive and binding on all Employees and on their
guardians, legal representatives and beneficiaries.
(d) The Company will indemnify and hold harmless, to the fullest
extent of the law, the members of the Board and the Committee from and against
any and all liabilities, costs and expenses incurred by such persons as a result
of any act, or omission to act, in connection with the performance of such
persons' duties, responsibilities and obligations under the Plan, other than
such liabilities, costs and expenses as may result from the gross negligence,
bad faith, willful misconduct and/or criminal acts of such persons.
(e) The Company will provide financial information to the Optionees
and Participants on the same basis as the Company provides such information to
holders of Common Stock, which in any event shall include dissemination of the
Company's financial statements at least annually.
5. NUMBER OF SHARES SUBJECT TO PLAN
The maximum number of shares to be offered under the Plan shall initially
consist of an aggregate of up to 30,000,000 shares of Common Stock, including
shares subject to Options converted from stock options to purchase shares of AVP
Professional Beach Volleyball Tour, Inc., f/k/a Association of Volleyball
Professionals, Inc. pursuant to the Agreement and Plan of Merger, dated June 29,
2004, between such corporation, the Company, and Othnet Sub, Inc. If any Option
granted hereunder shall expire or terminate for any reason without having been
exercised in full, the shares subject thereto not purchased shall again be
available for purposes of this Plan. If any shares attributable to Restricted
Stock Grants expire or are otherwise terminated, canceled, surrendered or
forfeited, during a calendar year, such shares shall again be available for
purposes of this Plan.
6. ELIGIBILITY AND PARTICIPATION
(a) The Committee may grant Options or Restricted Stock to such
Employees, in such amounts, and subject to such terms and conditions, as the
Committee may determine in its sole discretion. The Committee shall determine
the Employees to whom Options or Restricted Stock Grants shall be granted, the
time or times at which such Options or Restricted Stock Grants shall be granted,
and the number of shares to be subject to each Option or Restricted Stock Grant.
An Employee who has been granted an Option or Restricted Stock Grant may, if he
is otherwise eligible, be granted an additional Option or Options, or Restricted
Stock Grant or Restricted Stock Grants, if the Committee shall so determine.
Employees may be granted Incentive Options or Non-Qualified Options or both
under the Plan; provided, however, that the grant of Incentive Options and
Non-Qualified Options to an Employee shall be the grant of separate Options and
each Incentive Option and each Non-Qualified Option shall be specifically
designated as such.
(b) In no event shall an Employee be granted in any calendar year,
under the Plan and all other plans of the Company or any Subsidiary or Parent,
Incentive Options that are first exercisable during any one calendar year for
stock with an aggregate Fair Market Value (determined as of the time the option
was granted) in excess of One Hundred Thousand Dollars ($100,000).
7. RESTRICTED STOCK
The Committee may grant Restricted Stock Grants to such Employees, in such
amounts, and subject to such terms and conditions as the Committee may determine
in its sole discretion, including such restrictions on transferability and other
restrictions as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee shall determine. In setting any
restrictions on transferability with respect to a Restricted Stock Grant to an
Employee who is not an officer or director or a consultant, in no event shall
the Committee provide that the restrictions shall lapse over a period of more
than five (5) years or at a rate that is less rapid than twenty percent (20%)
per year.
C-3
Restricted Stock granted under a Restricted Stock Grant Agreement shall be
evidenced by certificates registered in the name of the Participant and bearing
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock. The Company may retain physical possession
of any such certificates, and the Company may require a Participant awarded
Restricted Stock to deliver a stock power to the Company, endorsed in blank,
relating to the Restricted Stock for so long as the Restricted Stock is subject
to a risk of forfeiture.
Unless otherwise determined by the Committee at the time of a grant, the
holder of Restricted Stock shall have the right to vote the Restricted Stock and
to receive dividends thereon, unless and until such shares are forfeited.
8. EXERCISE PRICE OR PURCHASE PRICE
The exercise price of each optioned share, and the purchase price, if any,
of each share of Restricted Stock, covered by this Plan shall be determined by
the Committee subject to the following:
(a) The exercise price of each share covered by each Incentive
Option shall not be less than one hundred percent (100%) of the Fair Market
Value of the Common Stock of the Company on the date the Incentive Option is
granted; provided, however, that if at the time an Incentive Option is granted
the Optionee owns or would be considered to own by reason of Section 424(d) of
the Code more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent, the exercise price
of the shares covered by such Incentive Option shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the Common Stock on the
date the Incentive Option is granted.
(b) The exercise price of each share covered by each Non-Qualified
Option shall not be less than one hundred percent (100%) of the Fair Market
Value of the Common Stock on the date the Non-Qualified Stock Option is granted.
(c) DURATION OF OPTIONS
Each Option and all rights thereunder shall expire ten years from date of
grant, unless the the Committee or the Board of Directors otherwise determines
at the time of the grant of the Option; provided, however, in no event shall an
Option be exercisable after the expiration of ten (10) years from the date on
which the Option is granted, and the Option shall be subject to earlier
termination as provided herein; provided, however, that if at the time an
Incentive Option is granted the Optionee owns or would be considered to own by
reason of Section 424(d) of the Code more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Subsidiary
or Parent of the Company, in no event shall such Incentive Option be exercisable
after the expiration of five (5) years from the date the Incentive Option is
granted. In the event the Committee does not specify the expiration date of an
Option, such Option shall expire on the latest date permitted under this Section
8.
9. EXERCISE OF OPTIONS
Except as otherwise determined by the Committee, an Option shall vest and
become exercisable on the anniversary of the date of grant of such Option at a
rate of twenty-five percent (25%) per year over four (4) years from the date of
grant of such Options. In no event shall an Option granted to an Employee who is
not an officer or director or consultant, vest and become exercisable over a
period of more than five (5) years or at a rate that is less rapid than twenty
percent (20%) per year.
An Optionee may purchase less than the total number of shares for which
the Option is exercisable, provided that a partial exercise of an Option may not
be for less than one hundred (100) shares, unless the exercise is during the
final year of the Option, and shall not include any fractional shares. As a
condition to the exercise, in whole or in part, of any Option, the Committee may
in its sole discretion require the Optionee to pay, in addition to the purchase
price of the shares covered by the Option, an amount equal to any federal, state
and local taxes that the Committee has determined are required to be paid in
connection with the exercise of such Option in order to enable the Company to
C-4
claim a deduction or otherwise. Furthermore, if any Optionee disposes of any
shares of stock acquired by exercise of an Incentive Option prior to the
expiration of either of the holding periods specified in Section 422(a)(1) of
the Code, the Optionee shall pay to the Company, or, in the Company's
discretion, the Company shall have the right to withhold from any payments to be
made to the Optionee, an amount equal to any federal, state and local taxes the
Committee has determined are required to be paid in connection with the exercise
of such Option, in order to enable the Company to claim a deduction or
otherwise.
Notwithstanding the provisions of Section 10, below, at the discretion of
the Committee, an Optionee may exercise any Options granted to such Optionee
prior to the time at which such Options vest; provided, however, that in
connection with such exercise, the Optionee shall receive Restricted Stock with
terms, restrictions, forfeiture provisions, and vesting provisions substantially
similar to the terms, restrictions, forfeiture provisions, and vesting
provisions of the exercised Options.
10. METHOD OF EXERCISE OF OPTIONS
(a) To the extent that the right to purchase shares has vested,
Options may be exercised from time to time by giving written notice to the
Company stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full of the purchase price for the number
of shares being purchased and, if applicable, any federal, state or local taxes
required to be paid in accordance with the provisions of this Section 10 hereof.
(b) In the Committee's discretion, payment of the purchase price for
the shares with respect to which the Option is being exercised may be made (i)
in cash, (ii) by delivering shares of Company Stock owned by the Optionee and
having a Fair Market Value on the date of exercise equal to the exercise price
of the Options being exercised, (iii) or by any other method of payment that the
Company may approve in compliance with applicable laws (and with respect to
Incentive Options, in compliance with Code Section 422), including, but not
limited to, the delivery by Optionee of an irrevocable direction to a securities
broker approved by the Company to sell the Company Stock and to deliver all or
part of the sales proceeds to the Company in payment of all or part of the
exercise price and any withholding taxes. If requested by the Committee, prior
to the acceptance of share certificates in payment for optioned shares, the
Optionee, or any other person entitled to exercise the Option, shall supply the
Committee with a representation and warranty in writing that he has good and
marketable title to the shares represented by the certificates, free and clear
of all liens and encumbrances.
(c) Subject to the approval of the Committee, an Optionee may be
permitted to exercise an Option, in whole or in part, with respect to those
number of shares determined by dividing (a) the aggregate Fair Market Value of
the shares issuable upon exercise of the Option minus the aggregate exercise
price of such shares by (b) the Fair Market Value of one share.
(d) Notwithstanding the foregoing, the Company shall have the right
to postpone the time of delivery of the shares for such period as may be
required for it to comply, with reasonable diligence, with any applicable
listing requirements of any national securities exchange, nationally recognized
quotation system, or any federal, state or local law. If an Optionee, or other
person entitled to exercise an Option, fails to accept delivery of or fails to
pay for all or any portion of the shares requested in the notice of exercise,
upon tender of delivery thereof, the Committee shall have the right to terminate
his Option with respect to such shares.
(e) Except where prohibited by law, the Company may make loans to
Optionees as the Committee, in its discretion, may determine in connection with
the exercise of outstanding Options granted under the Plan. Such loans shall (i)
be evidenced by promissory notes entered into by the holders in favor of the
Company; (ii) be subject to the terms and conditions set forth in this
subsection (d) and such other terms and conditions, not inconsistent with the
Plan, as the Committee shall determine; and (iii) bear interest at such rate as
the Committee shall determine. In no event may the principal amount of any such
loan exceed the purchase price of the shares covered by the Option, or portion
thereof, purchased by the Optionee. The initial term of the loan, the schedule
of payments of principal and interest under the loan, and the conditions upon
which the loan will become payable in the event of the holder's termination of
employment, or service relationship, shall be determined by the Committee;
C-5
provided, however, that the term of the loan, including extensions, shall not
exceed ten (10) years. Unless the Committee determines otherwise, when a loan
shall have been made, shares having a Fair Market Value at least equal to the
principal amount of the loan shall be pledged by the holder to the Company as
security for payment of the unpaid balance of the loan, and such pledge shall be
evidenced by a security agreement, the terms of which shall be determined by the
Committee, in its discretion; provided, however, that each loan shall comply
with all applicable laws, regulations and rules of the Board of Governors of the
Federal Reserve System and any other governmental agency having jurisdiction.
11. NON-TRANSFERABILITY
No Option or Restricted Stock Grant granted under this Plan shall be
assignable or transferable by the Optionee or Participant, either voluntarily or
by operation of law, otherwise than by will or the laws of descent and
distribution, and shall be exercisable during his lifetime only by the Optionee
or Participant, except that Non-Qualified Options may also be assigned or
transferred by the Optionee by instrument to an inter vivos or testamentary
trust in which the Non-Qualified Options are to be passed to beneficiaries upon
the death of the trustor (settlor), and by gift to "immediate family" as that
term is defined in C.F.R. 240.16a-1(e).
12. CONTINUANCE OF EMPLOYMENT
Nothing contained in this Plan or in any Option or Restricted Stock Grant
granted under this Plan shall confer upon any Optionee or Participant any rights
with respect to the continuation of his employment, or service relationship, by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
Optionee or Participant from the rate in existence at the time of the grant or
authorization of an Option or Restricted Stock Grant.
13. TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR PERMANENT DISABILITY
Except as the Committee may determine otherwise with respect to any
Non-Qualified Options granted hereunder: If an Optionee ceases to be an Employee
for any reason other than his death or Permanent Disability, any Options granted
to him under the Plan shall terminate three (3) months from the date on which
such Optionee terminates his employment (whether voluntarily or involuntarily)
unless, unless the Board of Directors or the Committee shall otherwise
determine, or such Optionee has been rehired by the Company and is an Employee
on such date. During such three (3) month period, an Optionee may exercise any
Option granted to him but only to the extent such Option was exercisable on the
date of termination of his employment and provided that such Option has not
expired or otherwise terminated as provided herein. The decision as to whether a
termination for a reason other than death or Permanent Disability has occurred
shall be made by the Committee, whose decision shall be final and conclusive. A
leave of absence approved in writing by the Committee shall not be deemed a
termination of employment for purposes of this Section, but no Option may be
exercised during any such leave of absence, except during the first three (3)
months thereof. In no event shall the Committee establish a required period in
which to exercise an Option following termination of employment, other than by
death or Permanent Disability, which is less than thirty (30) days following any
such termination of employment.
14. DEATH OR PERMANENT DISABILITY OF OPTIONEE OR PARTICIPANT
Except as the Committee may determine otherwise with respect to any
Non-Qualified Options granted hereunder: If an Optionee shall die at a time when
he is employed by the Company or if the Optionee shall cease to be an Employee
by reason of Permanent Disability, any Option granted to him under this Plan
shall terminate one year after the date of his death or termination of
employment due to Permanent Disability unless by its terms it shall expire
before such date or otherwise terminate as provided herein, and shall only be
exercisable to the extent that it would have been exercisable on the date of his
death or his retirement due to Permanent Disability. In the case of death, the
Option may be exercised by the person or persons to whom the Optionee's rights
under the Option shall pass by will or by the laws of descent and distribution.
The decision as to whether a termination by reason of Permanent Disability has
occurred shall be made by the Committee, whose decision shall be final and
conclusive.
C-6
15. STOCK NOT FOR DISTRIBUTION
Each Optionee or Participant shall, by accepting the grant of an Option or
Restricted Stock Grant under this Plan, represent and agree, for himself and his
transferees by will or the laws of descent and distribution, that all shares of
stock purchased upon exercise of the Option or grant of the Restricted Stock
Grant will be received and held without a view to distribution except as may be
permitted by the Act, and the rules and regulations promulgated thereunder.
After each notice of exercise of any portion of an Option or grant of a
Restricted Stock Grant, if requested by the Committee, the person entitled to
exercise the Option or granted the Restricted Stock Grant must agree in writing
that the shares of stock are being acquired in good faith without a view to
distribution except as may be permitted by the Act and the rules and regulations
promulgated thereunder.
16. PRIVILEGES OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall
have any of the rights or privileges of a shareholder of the Company with
respect to any shares of Common Stock issuable upon exercise of such Option
until such person has become the holder of record of such shares. No adjustment
shall be made for dividends or distributions of rights in respect of such shares
if the record date is prior to the date on which such person becomes the holder
of record, except as provided in Section 17 hereof.
17. ADJUSTMENTS
(a) If the number of outstanding shares of Common Stock of the
Company are increased or decreased through reorganization, merger, reverse
merger, recapitalization, reclassification, stock dividend, distribution, stock
split, reverse split, combination of shares or other similar transaction, the
aggregate number of shares of Common Stock subject to the Plan as provided in
Section 4 hereof and the shares of Common Stock subject to issued and
outstanding Options, and Restricted Stock Grants under the Plan, as well as the
price per share of Common Stock covered by each such outstanding Option or
Restricted Stock Grant, shall be appropriately and proportionately adjusted by
the Committee.
(b) Notwithstanding the provisions of subsection (a) of this
section, and subject to any agreement to the contrary, upon the dissolution or
liquidation of the Company or upon any reorganization, merger or consolidation
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale of substantially all the assets of the
Company or of more than 50% of the then outstanding stock of the Company to
another corporation or entity, the Plan and each outstanding Option and
Restricted Stock Grant shall terminate; provided, however, that: (i) each Option
and Restricted Stock Grant for which no equivalent option or restricted stock
grant has been tendered or permitted by the surviving corporation in accordance
with all of the terms of provision (ii) immediately below shall become fully
exercisable subject to the provisions of Sections 9(b) and (c) hereof within 30
days before the effective date of such dissolution, liquidation, merger,
consolidation or sale of stock or assets in which the Company is not the
surviving corporation; or (ii) in its sole and absolute discretion, the
surviving corporation may, but shall not be obligated to, tender to any Optionee
or Participant an equivalent option or restricted stock grant to acquire shares
of the surviving corporation or acquiring corporation, and such new option or
restricted stock grant shall contain such terms and provisions as shall be
required substantially to preserve the rights and benefits of any Option or
Restricted Stock Grant then outstanding under this Plan.
(c) Adjustments under this section shall be made by the Committee as
required by applicable law and the Committee's determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive. No fractional shares of stock shall be issued under the Plan or in
connection with any such adjustment.
18. AMENDMENT AND TERMINATION OF PLAN
(a) The Board may from time to time, with respect to any shares at
the time not subject to Options or Restricted Stock Grants suspend or terminate
the Plan or amend or revise the terms of the Plan; provided that any amendment
to the Plan shall be approved by a majority of the shareholders of the Company
if the amendment would (i) materially increase the benefits accruing to
Optionees or Participants under the Plan; (ii) increase the number of shares of
Common Stock which may be issued under the Plan, except as permitted under the
provisions of Section 17 hereof; or (iii) materially modify the requirements as
to eligibility for participation in the Plan.
C-7
(b) No amendment, suspension or termination of the Plan shall,
without the consent of the Optionee or Participant, alter or impair any rights
or obligations under any Option or Restricted Stock Grant theretofore granted to
such Optionee or Participant under the Plan.
(c) The terms and conditions of any Option granted to an Optionee,
or Restricted Stock Grant granted to a Participant, under the Plan may be
modified or amended only by a written agreement executed by the Optionee or
Participant and the Company; provided, however, that if any amendment or
modification of an Incentive Option would constitute a "modification, extension
or renewal" within the meaning of Section 424(h) of the Code, such amendment
shall be null and void unless the amendment contains an acknowledgment by the
parties substantially in the following form: "The parties hereto recognize and
agree that this amendment constitutes a modification, renewal or extension,
within the meaning of Section 424(h) of the Code, of the option originally
granted ________."
19. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board and approval
by the Company's shareholders; provided, however, that prior to approval of the
Plan by the Company's shareholders, but after adoption by the Board, Restricted
Stock Grants and Options may be granted under the Plan subject to obtaining such
shareholders' approval. Notwithstanding the foregoing, such shareholders'
approval must occur no later than twelve (12) months after the date of adoption
of the Plan by the Board.
20. TERM OF PLAN
No Option or Restricted Stock Grant shall be granted pursuant to the Plan
after ten (10) years from the earlier of the date of adoption of the Plan by the
Board or the date of approval of the Plan by the Company's shareholders.
21. MARKET STAND-OFF
In connection with any initial public offering or PIPE before the Common
Stock shall be listed for quotation on the Nasdaq Stock Market or a stock
exchange or the public offering of Common Stock in connection with which the
Common Stock shall first be listed for such quotation, an Optionee or
Participant shall agree not to sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the repurchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to any shares under the Plan without the prior written consent of the
Company or its underwriters, for such period of time from and after the
effective date of such registration statement as may be requested by the Company
or such underwriters, provided, however, that in no event shall such period
exceed one hundred eighty (180) days.
22. OPTION OR RESTRICTED STOCK GRANT AGREEMENTS
Options and Restricted Stock Grants under this Plan shall be evidenced by
an agreement as shall be approved by the Committee that sets forth the terms,
conditions and limitations of the Option or Restricted Stock Grant. The
Committee may amend agreements theretofore entered into, either prospectively or
retroactively, including, but not limited to, the acceleration of vesting of an
Option or Restricted Stock Grant and the extension of time to exercise an
Option, except that no such amendment shall affect the Option or Restricted
Stock Grant in a materially adverse manner without the consent of the Optionee
or Participant.
23. LEGENDS
All certificates for shares delivered under the Plan shall be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Common Stock is then
C-8
listed, nationally recognized quotation system upon which the Common Stock is
then quoted, and any applicable federal or state securities laws, or as may
otherwise be appropriate to administer the Plan, and the Committee may cause a
legend or legends to be placed on such certificates to evidence such
restrictions and the restrictions set forth in this Plan.
24. COMPLIANCE WITH LAW
The Plan, the exercise of Options and the obligations of the Company to
issue or transfer shares of Common Stock under Restricted Stock Grants shall be
subject to all applicable laws and to approvals by any governmental or
regulatory agency as may be required.
25. GOVERNING LAW
The Plan shall be governed and construed in accordance with the laws of
the State of Delaware and the Code.
Following up on yesterday's press release (see our Bulletin No. 05-50),
the Senate Finance Committee has released legislative language that would impose
a 100 percent excise tax on the acquisition cost of what is generally known in
the life insurance world as investor-owned life insurance ("IOLI"). The proposed
legislation would be effective for contracts issued after May 3, 2005. However,
contracts in existence on that date, if described in the legislation, would have
to report to the Secretary of the Treasury such information as the Secretary
shall prescribe in regulations.
C-9
PROXY PROXY
AVP, INC.
6100 Center Drive, Suite 900, Los Angeles, CA 90045
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders and the Proxy Statement and
appoints Leonard Armato, the Proxy of the undersigned, with full power of
substitution, to vote all shares of AVP, Inc. (the "Company") held of record by
the undersigned as of the close of business on May 31, 2005, either on his or
her own behalf or on behalf of any entity or entities, at the Annual Meeting of
Stockholders of the Company to be held on July 14, 2005, and at any adjournment
or postponement thereof, with the same force and effect as the undersigned might
or could do if personally present thereat. The shares represented by this Proxy
shall be voted in the manner set forth below.
1. To elect the following directors to serve until the 2006 Annual Meeting of
Stockholders or until their respective successors are elected and
qualified:
|_| FOR ALL |_| WITHHOLD AUTHORITY FOR ALL
Leonard Armato, Bruce Binkow, Philip Guarascio, Scott Painter, Jeffrey
Wattenberg, and Roger L. Werner
To withhold authority to vote for any individual nominee, check the box
marked "For All" above and write the nominee's name in the space provided
here:
2. To ratify the board of director's selection of Mayer Hoffman McCann, P.C.
to serve as the Company's independent accountants for the fiscal year
ending December 31, 2005.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To amend the Certificate of Incorporation of the Company to increase the
authorized number of shares of Common Stock from 40,000,000 shares to
300,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To amend the Company's Certificate of Incorporation effecting a reverse
stock split of the outstanding Common Stock, changing ten, 15, or 20
outstanding shares into one share, as the Board of Directors shall
determine.
|_| FOR |_| AGAINST |_| ABSTAIN
5. To amend the Company's Certificate of Incorporation decreasing the
authorized number of shares of Common Stock from 300,000,000 shares to
80,000,000 shares and restate the Certificate of Incorporation.
|_| FOR |_| AGAINST |_| ABSTAIN
6. To approve the Company's 2005 Stock Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
7. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
(PLEASE DATE AND SIGN ON REVERSE SIDE)
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT FOR THE 2005 ANNUAL MEETING.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
MARK HERE FOR ADDRESS CHANGE AND INDICATE NEW ADDRESS IN SPACE PROVIDED.
|_| NEW ADDRESS:
NOTE: Please sign exactly as name(s) appear(s). When signing as executor,
administrator, attorney, trustee or guardian, please give your full title as
such. If a corporation, please sign in full corporation name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person. If a joint tenancy, please have both tenants sign.
Signature: Dated:
---------------------------------
Signature: Dated:
---------------------------------